Time for a ‘Robin Hood tax’ as banks roll in record profits?

While Malaysians are groaning as a result of high household indebtedness, not everyone is suffering. Some are laughing all the way to the bank – and some may be laughing inside the banks. Could it be time for a ‘Robin Hood tax’ on financial transactions (instead of the regressive GST)?

What exactly is a ‘Robin Hood tax’? For one thing, it is broader in scope than the Tobin tax.

Wikipedia explains:

The Robin Hood tax commonly refers to a package of financial transaction taxes (FTT), proposed by a campaigning group of civil society NGOs. Campaigners have suggested the tax could be implemented globally, regionally or unilaterally by individual nations. Conceptually similar to the Tobin tax, it would affect a wider range of asset classes including the purchase and sale of stocks, bonds, commodities, unit trusts, mutual funds, and derivatives such as futures and options. The Tobin tax was proposed for foreign currency exchange only.

A UK-based global campaign for the Robin Hood tax was launched on 10 February 2010[1] and is being run by a coalition of over 50 charities and organisations, including Christian Aid, Comic Relief and UNICEF.[2] The UK government published a response[3] favouring instead bank levies and a financial activities tax, citing the International Monetary Fund’s report to the June 2010 G20 meeting, “A Fair and Substantial Contribution by the Financial Sector”.[4] The Robin Hood tax campaign also supports both a Bank levy and a Financial Activity Tax, saying they are agnostic about the chosen mechanism providing it involves a sizeable transfer of wealth from the financial sector to the needy. However most of their campaigning efforts have focussed on the FTT variant.

By autumn 2011 the Robin Hood campaign had gained considerable extra momentum and support from prominent opinion formers, with a proposal from the European Commission to implement an FTT tax at EU level set to enter the legislative pipeline. The proposal, supported by eleven EU member states, was approved in the European Parliament in December 2012,[5] and by the Council of the European Union in January 2013.[6][7][8][9] The formal agreement on the details of the EU FTT still need to be decided upon and approved by the European Parliament, but it is expected to go into effect by the beginning of 2014.[10][11]

Meanwhile, Malaysians are grappling with rising household indebtedness and burdened by credit card debt, ‘ah long’ debt, car loans, housing loans (some due to speculation in property), personal cash loans, student loans, medical insurance premiums (payable to financial institutions), etc

Take for instance, quick cash personal loans. Over the last few weeks, I have been receiving calls from staff purportedly from a major local bank pestering me to take a personal cash loan apparently at a very low interest rate. I didn’t answer their calls after the first time, but that did not stop them trying to reach me on half a dozen subsequent occasions. I lodged a complaint with the bank, and after a couple of weeks, the calls gradually stopped. Incidentally, read this article: ‘Banks should not charge Ah, Long rates’ by S M Idris.)

In supermarkets, it is common to find oneself accosted by bank staff trying to push credit cards on you. On top of that, there are a widening array of bank charges for all sorts of things.

Meanwhile banks have benefited from the surge in housing loans, a lot of it due to speculation, relatively low interest rates, and driven by fear of inflation:

Speaking of our major local banks, how are they doing? These are some recent headlines:

CIMB post record profits

CIMB Group Holdings Bhd reported a record net profit of RM3.5bil for its nine months ended Sept 30, representing a 7.3% year-on-year (y-o-y) growth from a year earlier. The rise was in tandem with y-o-y revenue increase to RM10.87bil for the period under review from RM10.13bil previously (The Star, 19 November 2013).

Maybank’s 3Q profit rises 17% to RM1.8b

Meanwhile, Maybank’s cumulative nine-month (9MFY2013) cumulative net profit increased to RM4.82b from RM4.29b year earlier (The Edge, 21 November 2013).

Business Times (21 November 2013) reports: “Maybank posts record profits”

Public Bank net profit rises 6.8% to RM3b

KUALA LUMPUR: Public Bank Bhd posted a favourable set of results in the first nine months ended Sept 30, 2013, with net profit rising by 6.8% to RM3.04 billion.

The growth was derived from the group’s net interest income and finance income, which was driven by continued healthy loans and customer deposits, coupled with sustained strong asset quality, the bank’s founder and chairman Dr Teh Hong Piow said in an exchange filing.

“The Public Bank group delivered a favourable set of results in the first nine months of 2013 with pretax profit of RM3.97 billion…. This represent a growth of 5.7% compared with the corresponding period in 2012. Net profit attributable to shareholders grew by 6.8% over the same period to RM3.04 billion,” said Teh.

Gross loans had grown at an annual rate of 12% to RM215.6 billion as at Sept 30, 2013, compared with RM197.8 billion as at Dec 31, 2012, mainly arising from property financing, financing of vehicles and lending to small and medium enterprises. (Free Malaysia Today, 23 October 2013).

Against this, it has to be noted that Standard & Poor’s has cut its credit outlook for four Malaysian lenders “on concern that rising home prices and household debt are contributing to economic imbalances in the country. The credit ratings company revised its outlook to negative from stable for CIMB Group Holdings Bhd. (CIMB), AmBank (M) Bhd., RHB Bank Bhd. and sister company RHB Investment Bank Bhd” (Bloomberg Finance, 23 November 2013).

So what do you think? Is the ‘Robin Hood tax’ appropriate for Malaysia and the rest of the region?

Thanks to blog visitor looes74 for the heads-up about the Robin Hood tax and the video link.