Page 61 - Ekonomija i Biznis_oktomvri 2016.indd

BANKING

the world economic crisis and its consequences were
a sufficient motive to increase the capital require-

ments of the Basel Committee on Banking Supervision,
which leaves space only for gradual transition and
adjustment of the banking systems of specific econo-
mies to the changes of the regulation. What is left
to the banks however is to determine an optimal
level of capital which on one hand, will provide ad-

herence to the regulations, and on the other hand it
will provide profitable operations

as well as the remaining events of finance their operations with bor-
economic and non-economic char- rowing. Unlike the debt, dividends as
acter, including the recent shocks in a price of capital are subject to taxa-
the national political scene. This is tion which makes the capital more ex-
largely due to the high rates of capi- pensive source of financing compared
tal adequacy in banks in the Republic to the debt. However, with further
of Macedonia, the interventions of growth of indebtedness, the risk of in-
the National Bank of the Republic of solvency increases, which acts in the
Macedonia, as well as the domination direction of neutralization of savings
of the traditional banking activities which arise from the tax shield. One
against financial innovations. of the ways to reduce the tax shield
effect and the increased participation
In addition to the advantages of the of capital in the structure of financ-
increased capital, certainly there are ing of banks would be to equalize the
specific negative microeconomic ef- tax treatment of the cost of debt and
fects. When one speaks of the struc- the cost of capital.
ture of financing, dominant attitude
of most banks is that capital is ex- Let us sum up. There are numerous
pensive. Here a question imposes why advantages and disadvantages which
financing of banking activities with arise from the increased bank capital
capital is considered a more expen- both in terms of the economy, as well
sive alternative compared to borrow- as in terms of the banks themselves.
ing. Namely, capital is expensive be- However, the world economic crisis
cause it does not provide profits from and its consequences were a suffi-
the tax shield. In many countries, in- cient motive to increase the capital
terests, as a price of the debt, are a requirements of the Basel Committee
deductible item from the realized fi- on Banking Supervision, which leaves
nancial results as a basis of taxation, space only for gradual transition and
which creates an effect of a tax shield. adjustment of the banking systems
In this regard, the higher the debt, the of specific economies to the changes
lower the amount of tax that the bank of the regulation. What is left to the
should pay. Furthermore, the effect of banks however is to determine an op-
a tax shield depends on the amount timal level of capital which on one
of the tax rate. If the capital gain tax hand, will provide adherence to the
rate is higher, the tax shield would regulations, and on the other hand it
enable more savings to banks if they will provide profitable operations.

October 2016 61