Second Finance Bill continues to distress banking sector

March 8, 2019 (MLN): The Finance Minister, Asad Umar unveiled the Second Finance Supplementary Bill of 2019 on Wednesday, which brought in various measures to boost productivity, with major incentives directed towards the automobile sector.

The investors within this sector were clearly on cloud nine, which was evident from the automobile sector’s performance in the stock market yesterday. However, one should not overlook the impact of the ‘productivity boosting’ mini budget on the remaining sectors.

The altered finance bill remained unmoved with regards to proposals it had for the banking sector earlier, i.e. imposing super tax on the sector on FY18 income at 4% while also extending it for period post 2020.

Imposition of super tax on FY18 income, (CY17 profits of the sector) and extension of super tax post 2020 is likely to reduce 1QCY19 earnings of the sector significantly as suggested by some analysts.

The budget also continued to stick with the proposals that encourage banks to lend to SME, Agriculture and low-income housing, by allowing them to earn 20% tax rate on income earned from these segments.

However, this policy is applicable on incremental lending only, which considerably negates any positive impacts as banks are unlikely to be very aggressive on these fronts given the challenging macroeconomic environment of the country.

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