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From conservative to fastest growing bank


THEIR story is one that is long and rich in history. Chinese entrepreneurs have been instrumental in setting up the foundation of the banking industry in Malaysia, which has blossomed during the boom times and withstood many recessions.

With a steady pace of growth and a unique style of doing business, which is said to lean on conservatism, Chinese banks grew at a steady pace that saw them snare a chunk of the Malaysian financial market. The going was good until the Asian Financial Crisis.

Steeped in lending to small and medium enterprises, the number of Chinese-owned banks shrank after the crisis during the consolidation of the banking system by the government.

There was an unwritten policy that there should be two Chinese-owned banks in Malaysia, and the structure of the consolidation kept to that thinking. Public Bank Bhd and Hong Leong Bank Bhd (HLB), which is the metamorphosis of the oldest bank in Malaysia, are the two that have survived till today. Helmed by Tan Sri Teh Hong Piow and Tan Sri Quek Leng Chan, respectively, Public Bank and HLB were consolidated with other Chinese-owned banks. Public Bank was paired with Hock Hua Bank Bhd, while HLB merged with Wah Tat Bank Bhd. Malayan Banking Bhd (Maybank), meanwhile, swallowed Pacific Bank Bhd and PhileoAllied Bank (M) Bhd.

While not all Chinese banks were run at the same level of efficiency prior and during the Asian Financial Crisis, those that did exemplify a level of prudence stood the best chance of gaining market share during such a tumultuous time.

And that bank was Public Bank. Prior to the Asian Financial Crisis, Public Bank was a conservative bank. While others fed the appetite for credit by stretching their balance sheets in search of profit, Public Bank took a very conservative stance.

“Its loan-to-deposit ratio before 1998 was at around 60%, which was very low at that time,” recalls a banking analyst. That unadventurous approach saw the bank’s shares almost plateau at a low, which long-time market watchers say hovered between RM2 and RM3 a share when others were soaring.

But when the crisis struck, Public Bank was the one bank that had the ability and means to lend when everyone was clamping up while trying to stave off a flood of bad loans that were threatening the survival of a number of banks.

It was during that time, and some might say after a tongue-lashing by the Prime Minister back then, that Public Bank laid the foundations for the bank it is today.

It started to lend aggressively and saw huge growth in loans in the ensuing years after the Asian Financial Crisis. From a conservative bank, Public Bank became the country’s fast-growing bank for years after the crisis.

From a loan base of RM19.7bil in 1998, it grew to RM66.8bil by 2005. Its return on equity in that year too crossed 20% after being in the mid-teen levels before. By last year, its gross loans had hit RM294bil.

A huge loan growth kept non-performing loans in check and profits soaring. Public Bank’s big advantage in cheap saving and current account deposits offered it the ability to price its loans competitively.

Furthermore, it was its link to local industries and businesses that helped it to not only snare new customers, but also reap the rewards of an organisational structure that no other bank has managed to replicate.

While most of the modern institutionalised banks today have centralised back-room operations, Public Bank’s method of relying on branch managers to drive its business is unique.

“It has a simplified and clearly defined goals and reward system,” says an analyst on how Public Bank manages to run its business through its branch network.

While some might say that has been the way of Public Bank, others might point to the fact that Public Bank is not just a Chinese-run bank but an owner-run bank.

“In some ways, the business has been institutionalised, but he (Teh) has been instrumental in setting the tone,” he says.

But some of the risks associated with Public Bank are that its exco board is old, with an average age of more than 70, and its IT infrastructure could do with an expensive upgrade.

The allure of Chinese-owned banks for banking groups in Malaysia is the valuable franchise that they have. Should Public Bank or even HLB end up for sale or a merger, the chance is that many would look at them seriously. The one problem is that it will be expensive, as Public Bank’s price-to-book ratio is 2.3 times, while Maybank, the country’s largest bank, is trading at 1.4 times.

CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak did say that one of the reasons the group wanted to acquire Southern Bank Bhd, another of the Chinese-run banks that survived the consolidation phase, was for its Chinese customers.

He praises the way Public Bank is managed.

“Public Bank has had a fantastic track record through all sorts of operating conditions built on its organisation culture, which enabled a high degree of quick and decentralised decision-making for small businesses that most institutionalised banks found hard to challenge,” he says.

“It is amazing that it could do it at its scale, but I am not sure how much more scalable it can be.”

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Public Bank game changer

Chinese bank , Malaysia , issues , history

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