WOOD Flash – Czech banks: consultation document on the windfall tax

The Czech government has published a consultation document (link) on potential sector windfall taxes in the Czech Republic, from which we have learnt the basic assumptions upon which the Czech banks may be taxed. We have learnt that the government may be considering 40-60% tax rate charges on “extra” profit before tax. Assuming that we have interpreted the key metrics from the windfall tax calculation correctly, we see our 2022E at moderate downside risk and our 20223E forecasts as largely in line. A small difference arrives due to the slightly different methodology that we have applied, from considering the gross vs. the net windfall tax level. In any case, leaving aside small differences in methodology, we finally understand why the press headlines of past weeks have been suggesting much higher revenues from the windfall tax than those we forecast. We have seen very bullish forecasts for the profit before tax in the Czech banking sector in 2022-24E in the draft document. It estimates the gross profit of the Czech banking sector to more than double in 2022E vs. 2021 and remain at such an elevated level in 2023E, before descending to previous years’ averages. We have far more timid profit growth expectations for Komercni Banka (BUY, price target (PT) CZK 913) and MONETA Money Bank (HOLD, PT CZK 87.2). We forecast Komercni Banka’s 2022E gross profit to grow 39% yoy and MONETA’s by 20%. Our forecasts are largely in line with both managements’ 2022E guidance. We expect smaller proceeds from the windfall tax than those suggested in the draft documents that have been published on the government’s website. We still see the windfall tax, in such a scale, as damaging, as it may have a negative impact on international investors’ sentiment, and it is designed to flatten the future potential growth of profits and ROE deliveries.