The banking sector's ongoing struggle with deferred tax credit (DTC) is a fascinating yet often overlooked aspect of the post-crisis landscape. This issue, amounting to a staggering €11.5 billion, represents a significant portion of the regulatory capital for systemic groups, highlighting the lingering impact of the financial crisis. What makes this particularly intriguing is the nature of DTC itself. It's not that the credit isn't recognized by regulators; rather, it's the source of the capital that's questionable. DTC arises from the state's allowance of losses during the 10-year crisis to be converted into future tax claims, a unique feature of the Greek banking system.
The DTC percentage was a major concern for the market and supervisory authorities for years, reaching nearly 40% of the regulatory capital of Greek banks while the rest of Europe maintained single-digit rates. This disparity led to a rapid reduction plan, with Greek banks committing to allocate 29% of their dividends towards DTC amortization. The higher the dividends, the more funds are directed towards this reduction, resulting in an accelerated timeline for full amortization, estimated to be eight to ten years ahead of schedule.
This situation raises a deeper question about the quality of capital and the unique circumstances that shaped the Greek banking sector. It also underscores the ongoing challenges faced by banks in the post-crisis era, where the normalization facade may conceal lingering vulnerabilities. As the sector continues to navigate these complexities, the resolution of DTC issues will play a pivotal role in shaping the future of Greek banking and potentially influencing broader European banking practices.
