Hongkong and Shanghai Banking Corp. (HSBC) said its performance during the first quarter was on track with its target and the prospects still look good in the second quarter but the VAT issue is a concern especially for its consumer banking business.
The Department of Finance (DOF) has repeatedly said it will implement the VAT as specified under the expanded VAT law but it also agreed with the Bankers Association of the Philippines (BAP) to allow banks to pay a staggered amount pending the court decision on the petition for a restraining order against VAT implementation.
According to Peter Yeates, HSBC senior vice president for personal financial services, consumers would have to absorb this additional cost, unlike corporations which could pass it on as input VAT.
"We’re looking for clarity on the VAT issue," Yeates said. "The agreement with the BAP has delayed it a little bit but we are hoping there would be a clear long-term policy on how it would be imposed on consumers," he added.
Banks have long known that they would have to absorb the 10-percent tax on financial transactions for the whole first quarter but they were also waiting for the outcome of the petition filed by thrift banks that cater primarily to individual borrowers.
Yeates said the outcome of the court case would be significant to HSBC since its growing focus has been on consumer banking where it has been making significant inroads in market share and expansion.
Yeates said HSBC has been "doing good" in both increasing its market share as well as expanding the market base itself. "I can’t give numbers but I can say that we are on track and our target for this year is an ambitious one."
According to Yeates, HSBC’s credit card business is particularly strong, with its credit card base now at over 235,000 subscribers. In the first quarter, he said the growth was charted at 10 percent.
"The challenge really is to remain conservative and yet innovative," he said.
BAP president Cesar Virata said banks have been able to pass on the VAT only sporadically and then only to VAT-registered corporate clients that were already paying the VAT in the course of their business.
According to Virata, the hardest hit by the VAT application are thrift banks and rural banks that cater mainly to retail clients who are not VAT-registered.
"These banks have to collect the VAT from home loans, car loans and other retail services to individuals who are not traditionally VAT registered," Virata said. "If they can not charge the VAT on these clients, they are going to have to absorb that."
According to Virata, initial estimates indicated that on the average, such clients would be required to pay an additional of P800 a month on their home loans or auto loans.
If the borrower is an individual who is not engaged in any business, he would not be able to claim the VAT as an input VAT because he might not be paying an output VAT for anything since he is not in business.
Land Bank of the Philippines president Margarito Teves said the LandBank itself has decided to absorb the VAT payments of some of their clients at least for the first quarter.
"It is difficult to convince clients to pay for it and we are somewhat expected to give them a little leeway also," Teves said. "So for the last quarter, our collection of the VAT is really on a best-effort basis."