Although SAR Chief Executive Tung Chee-hwa confirmed last week that the government will not be considering the introduction of a sales tax to tackle the jurisdiction's budget deficit, he hinted that other new taxes may be necessary, a viewpoint also expressed by Financial Secretary, Antony Leung Kam-chung.

However, HSBC Securities announced on Monday that: 'A higher tax burden would hurt the banks as it would cause a structural change in taxpayer consumption,' which would lead to a reduction in the borrowing capacity of the average taxpayer in Hong Kong.

Reporting on HSBC Securities' analysis of the situation yesterday, the Hong Kong Standard explained that: 'although demand for personal loans to meet tax payments could rise, higher taxes could shrink overall domestic demand, and declining consumer expenditure would lead to a fall in overall credit demand.'

'As such, a tax hike would have 'negative implications' for local banks, such as the International Bank of Asia and Dah Sing Financial which derive a 'disproportionate amount of profits from consumption credit such as credit cards'.'

However, the newspaper added that conversely, tax increases could benefit other local lenders, such as the Wing Hang Bank and Citic Ka Wah, both of which run large personal loan portfolios.