PETALING JAYA: Public Bank Bhd, the country’s second largest bank by market capitalisation, began the financial year of 2020 (FY20) with a 5.7% year-on-year (y-o-y) fall in net profit for the first quarter.
While its loans and deposits continued to expand in the January-March 2020 period, the pace of growth was slower due to the market slowdown and the Covid-19 pandemic.
In a stock exchange filing yesterday, Public Bank said its net profit fell to RM1.33bil in the first quarter of FY20 (Q1), down from RM1.41bil a year earlier.
As a result, the group posted a lower net return-on-equity of 12.5%. Earnings per share fell to 34.24 sen in Q1 from 36.32 sen in Q1 of FY19. Revenue dipped 0.95% y-o-y to RM5.52bil compared to RM5.57bil in Q1 of FY19.
According to Public Bank, its net interest income fell by RM9.9mil or 0.5% in the first quarter as a result of the cuts in the overnight policy rate (OPR) by Bank Negara, despite its positive loan growth.
“Loan impairment allowance during the period was higher by RM64.6mil as compared to the previous year’s corresponding quarter, partly due to the allowance made in anticipation of the effect of the Covid-19 pandemic.
“Other operating expenses increased by RM74.7mil (-8.1%), partially offset by higher investment income of RM46.3mil (79.9%), higher income from Islamic banking business of RM33.7mil (10.9%) and higher fee and commission income of RM17.1mil (4.1%) from higher unit trust-related fee income and higher stock-broking income, ” it said.
Public Bank also pointed out that it posted other comprehensive net loss of RM41.2mil in Q1 as compared to other comprehensive net income of RM55.2mil a year earlier.
This was mainly due to a loss on the re-measurement of defined benefit plans, loss on revaluation of financial investments as compared to a gain in Q1 of FY19 and a higher loss on cash-flow hedges.
These were partially offset by a gain on foreign currency translation in respect of foreign operations in Q1. No dividend was announced for the first quarter.
Public Bank’s total loans grew at an annualised rate of 2.9% in Q1, supported by residential property financing, commercial property financing and passenger vehicle financing.
Meanwhile, on deposit-taking, the banking group’s total customer deposits posted an annualised growth rate of 2%.
Despite that, the net interest margin was under pressure, due to the OPR cuts this year. Public Bank said its cost-to-income ratio in Q1 stood at 35.7%, which was better than the domestic banking industry’s cost-to-income ratio of 44.7%.
Founder and chairman emeritus Tan Sri Teh Hong Piow said in a statement yesterday that rising costs were increasingly putting pressure on profitability.
“However, the Public Bank group continues to stand out among its peers in cost efficiency. With the current economic challenges and the moderating revenue growth, the group has placed greater focus on broad-based cost efficiency to protect its profitability.
“The Public Bank group’s stable asset quality was underpinned by its prudent risk management, as well as lending policies and practices, along with its proactive efforts to engage with borrowers on loan recoveries, ” he said.
As at end-March 2020, Public Bank’s gross impaired loan ratio stood at 0.5%.
In addition, its loan loss coverage ratio continued to be high at 131.9% as at the end of March 2020.
Including the RM2bil regulatory reserves that the group had set aside, its loan loss coverage was higher at 261.7%.
Meanwhile, in terms of capital buffers, Public Bank’s common equity Tier 1 capital ratio stood at 13.3%, Tier 1 capital ratio at 13.3% and total capital ratio at 16.5%.
Commenting on the outlook, Teh said that the banking industry’s operating environment is poised to be more challenging this year, with higher earnings pressure.
“Under the prevailing weaknesses of the current economy and the uncertainties arising from the still evolving economic landscape, the Public Bank group will focus on enhancing its core strengths in terms of risk management and productivity, ” he said.
“The group’s strong fundamentals and resilience will position the group in good stead to overcome any challenges, and to pursue further business growth when the economy recovers from the outbreak, ” he said.
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