7/29/2019 Fitch DTA Banca Espaola
1/2
Fitch: Spanish Banks' Deferred Tax Move Largely Cosmetic 01 Aug
2013 8:07 AM (EDT)
Fitch Ratings-Barcelona/London-01 August 2013: A potential
change in Spain's tax regime to
allow banks to convert part of their deferred tax assets (DTA)
into a transferable tax credit to
boost Basel III capital ratios is largely cosmetic and likely to
be ratings neutral for Spanish
banks and the sovereign, Fitch Ratings says. The DTAs were
already included in our capitalshortfall stress estimate for the
banking sector, and so are already factored into our bank and
sovereign ratings.
The Spanish banks are looking to convert up to EUR30bn of their
EUR50bn DTAs into tax
credits, according to media reports. This move would boost their
Basel III capital ratios as the
tax credits would no longer have to be deducted from common
equity Tier 1. This would be
particularly helpful because capital and profitability remain
under pressure from the
challenging operating environment.
The impact of the potential change varies across banks and may
be very pronounced, for
example, for Banco de Sabadell, which estimated a fully loaded
Basel III core capital ratio of
4.9% for end-2013 compared with an end-Q113 Tier 1 capital ratio
of 10.6%. A substantial part
of the difference is attributable to DTAs.
We would view this boost to regulatory capital as largely
cosmetic and broadly neutral to the
solvency of Spanish banks because the potential change would not
benefit our primary
measure of bank capitalisation - Fitch core capital (FCC). We
already incorporate DTAs arisingfrom temporary differences in
provisions into FCC because they would bring a real tax benefit
if the loan impairment they stem from crystallises into genuine
loan losses. When the available
capital amount is being reduced by anticipated loan losses, we
consider it appropriate to
recognise the connected anticipated tax credit as well. To the
extent disclosure allows, we only
deduct DTAs relating to losses carried forward from reported
equity as they would have no
tangible value if a bank continues to makes losses or undergoes
resolution.
Nevertheless, Fitch's ratings take into account the benefit
derived from higher regulatorycapital ratios in boosting investor
confidence in banks' solvency, which can ultimately improve
banks' access to funding and their liquidity profiles.
Our EUR50bn-60bn capital shortfall stress estimate in June 2012
was based on banks' post-tax
earnings and would be unaffected if the DTAs were converted. The
existing DTAs already
represented an effective narrowing of the sovereign's future
corporate tax base. Were these
to be turned into more fungible tax credits the long-term fiscal
picture would not materially
alter. This would probably not lead to an upfront increase in
public debt, as the tax credits are
likely to be treated as a contingent liability. We project a
peak debt/GDP ratio of 99%.
http://loquemepasaporlaabezagag.blogspot.com/
http://loquemepasaporlaabezagag.blogspot.com/http://loquemepasaporlaabezagag.blogspot.com/http://loquemepasaporlaabezagag.blogspot.com/
7/29/2019 Fitch DTA Banca Espaola
2/2
The Spanish banks' DTAs mainly arose from losses and loan
impairment charges, which were
particularly pronounced in 2012. The tax credit would be
recognised by allocating collective
impairment to specific loans. Under Basel III's stricter common
equity definitions being phased
in from 2014, deductions are required for all DTAs that rely on
future profitability to berealised. We therefore expect the
potential changes to target DTAs arising from loan
impairment charges, similar to the reform Italy made in
2011.
This would allow the banks to avoid partial DTA deductions
arising from timing differences
between collective impairment charges in financial reporting and
tax recognition of the
provision required under Basel's limited recognition approach.
In regimes where such DTAs are
transformed automatically into a claim on the government when an
institution makes a loss, is
liquidated or placed under insolvency proceedings, banks will
not need to deduct these DTAs.
http://loquemepasaporlaabezagag.blogspot.com/
http://loquemepasaporlaabezagag.blogspot.com/http://loquemepasaporlaabezagag.blogspot.com/http://loquemepasaporlaabezagag.blogspot.com/
