By Margit Feher

BUDAPEST--Hungary plans to cut its widely criticized bank-sector levy even more than originally planned next year, a bill submitted to parliament shows.

According to the draft legislation submitted to lawmakers late Tuesday, in 2016 the special levy may not exceed 45% of the amount paid by a lender this year. In 2017 and 2018, the tax may not exceed the amount paid in 2016. Banks to boost their lending to businesses and/or households next year will only be required to pay 30% of their 2015 tax payment in 2017 and 2018, the bill says.

Prime Minister Viktor Orban's government launched the special bank levy soon after his Fidesz party won general elections in 2010. The tax, which is the highest bank levy in Europe according to the EBRD, is one of the various sector-specific taxes the government installed to boost budget revenues instead of introducing cost-cutting austerity measures amid the global financial crisis.

In Hungary, both corporate and household lending has been in the doldrums since the crisis, apart from lending to small firms, which has been boosted by a lending program subsidized by the central bank. The bank tax, which significantly lowered the profitability of the banking sector--which, until recently, was mostly foreign-owned--has been criticized by several international organizations and investors.

The latest measures reflect the government's commitment to restore its stormy relationship with banks and prompt them to step up lending. It is also a major step on Hungary's path to reclaim an investment-grade credit rating.

Lowering the bank levy "would support a strengthening in the banking sector and a recovery in bank lending. It would also be consistent with the government's shift in favor of greater policy predictability towards the private sector," credit rating firm Fitch said last week, when it left its positive outlook for Hungary's non-investment grade sovereign debt in place.

The latest tax plans will also replace earlier government bills the European Union had competition concerns about.

Introducing a cap on the bank levy will lower the anticipated payment obligation of OTP [OTP.BU], Hungary's biggest lender, to 13 billion forints ($44.3 million) next year from HUF18 billion, the bank said. Analysts at Erste Bank said in a research note that this would be a pleasant surprise to OTP, and rated the lender's shares at hold, with a HUF6,000 target price.

At around 1200 GMT, OTP shares were trading down 0.3% at HUF6,011.

Write to Margit Feher at margit.feher@wsj.com; Twitter: @margitfeher

(END) Dow Jones Newswires

November 25, 2015 10:08 ET (15:08 GMT)