Banks - GST: More taxing than the small direct impact
Recommendation: Under Weight
The Association of Bank in Malaysia revealed the details for the treatment of GST for banking charges, which are mostly “pass-through” in nature. The implementation of GST should have minimal direct negative impact arising from the additional RM10-20m costs per annum for banks to manage this. But the indirect negative impact is expected to be greater as it is likely to dampen consumer/business sentiment in 2015, leading to slower loan and fee income growth. This, coupled with an expected upturn in credit costs, leads us to maintain our Underweight call on the sector. RHB Capital remains our top pick.
What Happened
The Association of Banks in Malaysia (ABM) has come out with the details for the treatment of Goods and Services Tax (GST) for banks’ various products and services (see following pages). From our channel checks, we gather that these are mostly “pass-through” and hence, have minimal impact on banks’ earnings.
What We Think
The direct negative impact of the implementation of GST is the RM10m-20m additional cost of managing it. We also gathered that the banks are working with the regulators on the arrangements to claim from the government the additional 6% GST they paid to their vendors.
We expect the imposition of GST to dent consumer/business sentiment in 2015, at least within six months after the implementation, i.e. in 2Q-3Q15. This does not bode well for banks’ loan and fee income growth. There have already been signs of weakening loan growth, which eased from 9.3% yoy in Dec 14 to 8.6% in Jan 15.
What You Should Do
We advise investors to continue trimming their holdings in the banking sector given the concerns of (1) weaker loan growth, (2) margin contraction, and (3) higher credit costs.
Source: CIMB Daybreak - 31 March 2015
Recommendation: Under Weight
The Association of Bank in Malaysia revealed the details for the treatment of GST for banking charges, which are mostly “pass-through” in nature. The implementation of GST should have minimal direct negative impact arising from the additional RM10-20m costs per annum for banks to manage this. But the indirect negative impact is expected to be greater as it is likely to dampen consumer/business sentiment in 2015, leading to slower loan and fee income growth. This, coupled with an expected upturn in credit costs, leads us to maintain our Underweight call on the sector. RHB Capital remains our top pick.
What Happened
The Association of Banks in Malaysia (ABM) has come out with the details for the treatment of Goods and Services Tax (GST) for banks’ various products and services (see following pages). From our channel checks, we gather that these are mostly “pass-through” and hence, have minimal impact on banks’ earnings.
What We Think
The direct negative impact of the implementation of GST is the RM10m-20m additional cost of managing it. We also gathered that the banks are working with the regulators on the arrangements to claim from the government the additional 6% GST they paid to their vendors.
We expect the imposition of GST to dent consumer/business sentiment in 2015, at least within six months after the implementation, i.e. in 2Q-3Q15. This does not bode well for banks’ loan and fee income growth. There have already been signs of weakening loan growth, which eased from 9.3% yoy in Dec 14 to 8.6% in Jan 15.
What You Should Do
We advise investors to continue trimming their holdings in the banking sector given the concerns of (1) weaker loan growth, (2) margin contraction, and (3) higher credit costs.
Source: CIMB Daybreak - 31 March 2015
