Banks not worried about impact of GST on sentiment

PETALING JAYA: Banks are unfazed by the goods and services tax (GST) dampening consumer and business sentiment, as the situation is temporary.

However, some analysts feel the GST would impact loan and fee income growth. This would put a strain on existing challenges faced by the banking sector like margin contraction and higher credit costs.

RHB banking group deputy group managing director and RHB Bank managing director Datuk Khairussaleh Ramli told StarBiz the bank was maintaining its loan and fee income growth target this year despite the GST.

“While we anticipate an adjustment period in the beginning, particularly in consumer spending due to implementation of this tax, we should see improvement in the second half of this year. We envisage consumers to gradually adjust to the new tax environment and will come back with their usual spending habits.

“Year-on-year (y-o-y), we expect loans growth and fee income to slow down due to the overall global macro-economic environment, not GST per se,” he added.

Khairussaleh, however, said the bank anticipated an increase in cost as it would only be able to claim a portion of the input tax incurred on its purchases and expenses, adding that it would manage this cost as part of its business.

He does not expect the GST to have an impact on loans growth since interest expense is zero rated, noting that the impact on fee income is expected to be neutral for business-to-business on the basis that the tax incurred on business expenses or purchases is recoverable.

Meanwhile, CIMB Investment Bank Bhd analyst Winson Ng, who is maintaining an “underweight” call on the banking sector, said he expected the imposition of GST to dent consumer and business sentiment within the first six months of its April 1 implementation.

This did not bode well for banks’ loan and fee income growth, he said, adding that there had already been signs of weakening loan growth, which eased from 9.3% y-o-y in Dec 2014, to 8.6% in Jan. It continued to be soft at 8.8% y-o-y in Feb.

Ng has advised investors to continue trimming their holdings in the sector, given the concerns of weaker loan growth, margin contraction, and higher credit costs. The direct negative impact of the GST is the RM10mil-RM20mil additional cost of managing it, he said.

He also noted that banks were working with regulators on claiming the 6% GST they paid to their vendors.

OCBC Bank (M) Bhd country chief risk officer Jeroen Thijs said while the additional costs from the GST was expected, it was unlikely to have significant impact on loans and fee income growth.

There were several other considerations that were also important such as oil and crude palm oil prices, volatility of other commodity prices, the external environment and so forth, he said.

Thijs added that some banks might choose to provide financing to bridge their clients’ GST cashflow requirements as a strategy.

Khairussaleh said since banks could only claim a portion of the input tax incurred on purchases and expenses, RHB would endeavour to manage its cost of doing business through cost efficiency and effectiveness initiatives. Key to this was to improve its products and services, he said.

Khairussaleh said it would be another challenging year for the sector in view of the softer macro environment.