SST 2.0 to be neutral for banks

KOTA KINABALU: Analysts believe the second Sales and Services Tax (SST 2.0) will be neutral on residential property, auto and credit card financing, but positive in the mediumterm on personal financing, as consumer sentiment holds up amid lower inflationary pressures and from the expected minimum wage hike over the next five years.

In the near term, Maybank Investment Bank Bhd (Maybank IB Research) said the expected uplift in consumer lending -- particularly auto financing -during the zero-rated GST period from June to August 2018, is likely to wear-off thereafter.

“Consumer sentiment surprised positively in June 2018, with MIER’s Consumer Sentiment Index (MIERCSI) surging back above 100 to 133 in June 2018 from 91 in March 2018.

This is the first time that the MIERCSI has breached the 100 level since June 2014.

“Meanwhile, the zero-rating of GST from June 1 has had a significant impact on auto demand, as June’s total industry volume (TIV) jumped 50 per cent month on month, bringing 1H18 TIV to 290,000 units,” it said.

“Generally, improved consumer sentiment should filter through to increased spending and higher personal financing. Personal lending has been expanding and rose 6.1 per cent year on year in May 2018.

“While this uptrend is likely to hold up amid positive consumer sentiment, the impact to banks, however, is negligible given that personal financing accounts for just

about four per cent of total banking system loans,” it said.

Among the domestic banks, Maybank IB Research said Alliance Bank and RHB Bank have the highest exposure to personal loans at 7.8 per cent and 5.6 per cent of total loans, respectively as at end-December 2017.

Barring the initial positive impact from the prevailing zerorated GST period, we expect the re-introduction of the SST 2.0 to be neutral on overall loan demand, except for a likely uplift in personal financing.

The SST 2.0 will be reintroduced on September 1, 2018 to replace the current zero-rated Goods and Services Tax.

Maybank IB Research said consumption demand is likely to be supported over the longer term by the federal government’s pledge to raise the minimum wage level to RM1,500 per month for Peninsular and East Malaysia over the next five years.

Meanwhile, the service tax on credit or charge cards, which was scrapped back in 2015 with the introduction of the GST, has been reintroduced, but at a reduced rate.

Previously, a service tax of RM50 per year was imposed on each principal credit and charge card and RM25 per year on supplementary cards.

Under SST 2.0, a flat RM25 service tax will be imposed on both principal and supplementary credit and charge cards, upon the next annual renewal of such cards.

Neutral on credit card circulation and spending. We are of the view that this service tax is unlikely to dampen credit card circulation, and that there is a high likelihood that banks may just absorb this service tax.

The number of credit cards in circulation has been expanding and rose eight per cent year on year in May 2018 to 10.2 million cards, comprising 9.1 million principal cards and 1.1 million supplementary cards.