Seimas approved the introduction of a temporary solidarity contribution for banks

Press release, 9 May 2023 

The Seimas passed the Law on Temporary Solidarity Contribution, which stipulates an agreement to channel part of the banks’ windfall net interest income to finance projects of military mobility and military transport infrastructure.

The passed Law sets the temporary solidarity contribution rate at 60% for a limited period of time only for the part of the net interest income which exceeds the four-year average by more than 50%. The temporary solidarity contribution will be paid for the years 2023 and 2024, separating windfall income from ordinary income.

As stated by Minister of Finance Gintarė Skaistė at a sitting of the Seimas, decisions on the growing profits of banks are taken not only by Lithuania but also by other states. ‘Lithuania is the fourth country of the European Union to take decisions on the growing profits of banks and on the exceptional circumstances that have arisen,’ said the Minister of Finance.

In the opinion of Mindaugas Lingė, Chair of the Seimas Committee on Budget and Finance, this aid would strengthen what is currently most important to us, namely national security. ‘It would contribute most to making the country more attractive for the investment environment. In the face of the threat of war, it is probably not unlikely that investors will be wary of our region precisely because of the security and geopolitical situation,’ the head of the Seimas Committee pointed out earlier. According to Mr Lingė, this law should not have a negative impact on the stability of the financial system and should not have negative consequences for the country’s competitiveness.

The temporary solidarity contribution is expected to generate around EUR 410 million over the period of validity of the Law. The war in Ukraine, launched by Russia, has further highlighted military mobility needs in Lithuania, which amount to approximately EUR 963 million. The temporary solidarity contribution is intended to finance the construction of a bypass road required for military transport, the expansion and renovation of airports and the seaport, the construction of logistics and loading sites, the development of national roads near the Rūdninkai military training ground, the reconstruction of the highway on the Polish border, the renovation of bridges and viaducts, the construction of ramps, and the implementation of other essential projects. The difference between the needs and the temporary solidarity contributions is to be financed by the EU.

As noted by the Ministry of Finance, the need for the temporary solidarity contribution emerged as a result of a potentially significant temporary increase in bank profits, accumulated mainly due to economic and geopolitical factors of the last two years and the response to them. During the coronavirus pandemic, the State provided unprecedented support to businesses and individuals. This not only reduced the credit risk for businesses and households and hence the potential for losses for banks, but also increased the level of liquidity in the financial system. This led in Lithuania to the fastest deposit growth in the euro area (by 52%) and EUR 11 billion more in resident deposits than in loans. Following the launching of the war in Ukraine by Russia and the intensification of inflationary processes, the European Central Bank (ECB) significantly increased the key interest rates. The existing excess liquidity limits banks’ incentives to raise deposit interest rates, and historically the banks tend to hold the largest excess liquidity in a central bank account. The ECB pays interest to commercial banks on these funds. Due to the large and unusual excess liquidity in such a situation, this income is independent of the business decisions taken by the banks and is therefore considered to be unplanned.

This Law was approved by 103 votes in favour, with 12 against and 13 abstentions.

Prepared by

Rimas Rudaitis

Adviser, Press Office

Information and Communication Department

Tel. +370 5 239 6132, e-mail: [email protected]