Public Bank has strong fundamentals and above-industry loan growth but pricey.
KUALA LUMPUR: Public Bank Bhd
’s net profit rose 3.1% to RM1.24bil in the third quarter ended Sept 30 from RM1.2bil in the same period a year ago driven mainly by higher net interest income and income from Islamic banking business.
Its revenue for the quarter rose to RM5.03bil from RM4.91bil previously. Its basic earnings per share rose to 32.06 sen compared with 31.11 sen a year ago.
The banking group’s net profit attributable to shareholders increased by 4.3% to RM3.72bil for the first nine months of 2016, leading to a net return on equity of 15.8% for the period. Its pre-tax profit grew by 2.8% to RM4.76bil over the same period.
Revenue for the first nine months rose to RM15.01bil against RM14.25bil in the same period last year.
“The group has demonstrated the ability to generate stable profitability when the operating environment continued to present challenges to the business. This was attributed to the Group’s solid strategy in strengthening its niches in the retail banking business,” founder and chairman Tan Sri Teh Hong Piow said in a statement.
During the first nine months of 2016, the Public Bank group’s total operating revenue grew by 5.4%, mainly attributed to the group’s continued healthy loan and deposit growth at annualised rates of 7.2% and 7.4% respectively. Against the challenging operating environment, the group also showed resilience through its efficient cost-to-income ratio of 32.5%, and low gross impaired loan ratio of 0.5%.
In the first nine months of 2016, the Public Bank’s total loans grew at an annualised rate of 7.2% to RM288bil. Its domestic loan growth stood at an annualised rate of 7.8% compared to the domestic banking industry’s growth of 2.8%.
On deposit-taking, the Public Bank achieved an annualised 7.4% growth in total deposits for the first nine months of 2016. Having established a vast network in Malaysia, the group competed well in growing its deposit business. This is reflected in its steady growth in domestic deposits of 7.5% despite a marginal contraction observed in the overall banking sector deposits during the period.
“Against the backdrop of weak consumer and business sentiment, the group’s loans and deposits business has fared well. As a result, the group continued to maintain a healthy loan-to-deposit ratio of 90.2% as at end-September 2016,” Teh said.
“Growing fee-based revenue has remained the Public Bank group’s key strategic focus. Our network advantage has put the group in a favourable position to grow fee-based revenue. For the first nine months of 2016, the group’s transactional banking and unit trust management business remained positive, contributing two-thirds of the group’s total non-interest income,” he added.
Public Mutual Bhd, the Public Bank group’s wholly-owned unit trust fund management subsidiary, remains a major contributor to the group’s fee-based revenue.
It remained as the market leader in the private unit trust business with a strong domestic market share of 49.5% of the retail unit trust industry. As at the end of September 2016, Public Mutual has 133 funds and a total net asset value of RM70.1bil under its management.
Public Bank continued to maintain a low cost-to-income ratio of 32.5% during the period, significantly better than the industry’s cost-to-income ratio of 48.8%.
The group continued to uphold its strong asset quality record, with the lowest gross impaired loan ratio of 0.5% as at the end of September 2016, when compared to the banking industry’s gross impaired loan ratio of 1.7%.
“Asset quality nonetheless is a concern to banks in times of challenges and uncertainties. However, Public Bank is able to preserve its strong asset quality through its prudent lending policies, strong risk management practices and extensive recovery efforts,” Teh said.
For the first nine months of 2016, the Public Bank group’s overseas operations contributed 9.4% to the group’s overall pre-tax profit.
Meanwhile, its capital position remained stable, with its common equity Tier 1 capital ratio, Tier 1 capital ratio and total capital ratio standing at 11.0%, 11.9% and 15.2% respectively as at end-September 2016.
“The Public Bank group’s stable performance for the first nine months of 2016 has reaffirmed the proven business strategies of the group in withstanding challenges in the operating environment,” Teh said.
“The group sees prudent risk management, sound corporate governance and sustaining superior asset quality continue to be the keys to maintaining trust and confidence among stakeholders and in ensuring long term sustainability of the group’s profitability,” he added.
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