Banks Under Threat: Why Increasing Profit Tax Could Harm the Economy

The President of the National Association of Banks of Ukraine has voiced serious concerns regarding the possible extension of the increased profit tax for banks, set to take effect in 2027. He emphasized that amid budgetary difficulties caused by political battles, banks are becoming targets for the authorities, which he described as a troubling habit. Instead of seeking systemic solutions, there is a renewed temptation to raise taxes on a sector that operates transparently and does not hide in the shadows.

The National Association of Banks of Ukraine, representing the voice of the banking community, firmly opposes such a discriminatory approach. It is crucial to understand that banks are one of the key elements of the country's economic resilience. They finance small and medium-sized businesses, support critical infrastructure, the energy sector, agriculture, and the fuel and energy complex. Banks also launch special programs for veterans, provide preferential conditions for military personnel and their families, and actively assist the army amidst ongoing wartime risks.

Moreover, the banking system has already suffered significant losses due to the war, including written-off assets and loans in uncontrolled territories, as well as numerous expenses related to the conflict. It bears a tremendous burden and has become part of the state's defense. This situation necessitates daily efforts from the entire banking sector, which, although less visible than the energy sector or rescuers, ensures the stability of financial operations even in the absence of electricity.

Throughout the duration of the large-scale war, the banking system has operated uninterruptedly. However, should problems arise, banks must have sufficient capital and liquidity to address such challenges. For instance, one state bank incurred losses exceeding 4 billion hryvnias due to the unlawful actions of another state, which immediately reduced their capital and, consequently, their ability to lend to critical sectors.

Thus, the issues of fairness and the banks' capacity to cover potential losses while continuing to finance the economy become particularly pressing. According to the National Bank of Ukraine, by the end of 2025, net hryvnia loans to businesses had increased by 35.6% year-on-year, with a profit tax rate of 25%. Meanwhile, dividends from banks, excluding state-owned ones, are once again directed towards financing rather than being distributed to shareholders, as is the case in other highly profitable sectors.

Funding the budget through the purchase of government bonds is also a crucial aspect. In 2025, banks continued to increase their portfolios of domestic government bonds (OVDP), investing in securities issued by the government. By the end of 2025, OVDP accounted for 19% of the sector's net assets, amounting to approximately 760 billion hryvnias.

However, a question arises: why the renewed focus on banks? Why has it been impossible for years to recover what is lost through shadow schemes, smuggling, corruption, and other highly profitable sectors that continue to operate in gray schemes? Where is the determination of lawmakers and officials in combating these issues? There lie the resources that could significantly replenish the budget and mitigate risks to national security.

Banks cannot endlessly serve as a universal source for patching budget holes. The constant increase of the profit tax to 50% — for the third time in recent years — undermines predictability, complicates capital formation, restricts lending opportunities for the economy, and weakens the financial system, which is critically needed by the country during these challenging times.

There is an old but accurate analogy: if you keep milking a cow without feeding it, the outcome will be evident. The banking system must remain strong, capitalized, and capable of financing the country's recovery. Otherwise, we are undermining the very foundation for future restoration and growth.

Another strategic aspect is that Ukraine is moving towards European standards, particularly in implementing capital buffers according to EU standards. For this, banks need resources after taxation. Excessive tax pressure directly impacts this capability and could slow down the euro-integration movement of the financial sector.

Furthermore, under the IMF program, Ukraine declares a reduction of the state's share in the banking market. But what investor would want to invest in a sector where discriminatory tax conditions prevail? Which strategic or financial buyer would invest their funds in an area where the rules can change whenever someone lacks the strength and will for genuine reforms?

Therefore, the position of the banking community is clear: the country needs balanced solutions. Reforms, de-shadowing, a strong customs service, and fair tax rules for all are necessary. There must be respect for the industry that supports the payment system, finances the economy, and helps the state endure during difficult times.

We urge that our voice be heard — both in Ukraine and among our international partners. I specifically appeal to lawmakers: analyze before pressing the button for such laws. Do not shoot at one of the fundamental pillars of our economic resilience.