Romania’s Government has decided to cap deductions from non-performing loan sales to 30% of their value, after amending a provision in the Fiscal Code, reports local Profit.ro.

This means that banks will have to pay the 16% income tax for 70% of the bad loans’ value, no matter how much they recover from selling them.

Until now, banks were able to fully deduct their losses from the sale of bad loans and did not pay profit tax for these operations. Introducing a cap will limit the market.

Banks would pay more taxes than they would actually earn from the sale of bad loans if the price is less than 11.2% of their nominal value, according to Profit.ro estimates. For unsecured credit sales, with prices below 10%, the market is closing, sources said.

Banks are discouraged by the state to sell receivables and are encouraged to directly execute debtors.

editor@romania-insider.com