PETALING JAYA: Public Bank Bhd
is well-positioned to remain resilient against inflationary pressures, given its long-standing focus on high-quality assets, supported by its industry-leading loan loss coverage (LLC) of 150%, says Kenanga Research.
Even if the broader economy softens, the banking group still expects to achieve its 12% to 13% return on equity target, albeit toward the lower-end of the range without the benefit of capital optimisation and the 100 basis points (bps) Common Equity Tier 1 (CET-1) uplift from Basel III reforms.
Following a recent meeting with Public Bank, Kenanga Research said in a report: “With a sector low gross impact loan of 0.51% and a leading LLC of 150% as at December 2025, the banking group remains confident if it has to navigate a high-inflation environment without a material deterioration in asset quality.”
Moreover, Public Bank’s RM800mil management overlays are deemed sufficient, with no immediate need for additional provisioning.
The group also maintains its financial year 2026 loan growth target of 4% to 5%, reflecting its focus on higher-income, higher-value segments that are less sensitive to inflationary pressures.
On its intention to target small and medium enterprises, the research house said the group looks to increase precautions and will be more mindful of its forward-looking credit assessment, in addition to cashflow strength, to ensure minimal deterioration going forward.
Despite a loan-to-deposit ratio of about 100%, liquidity is not viewed as a constraint, the research house added.
With net interest margins expected to remain stable at around 2.15% or experience a mid-single-digit compression, the group is focusing on funding mix optimisation, including exploring commercial paper issuances as a relatively cheaper alternative to deposits.
On capital optimisation, Kenanga Research noted that the upcoming Basel III reforms effective July 1 – that are expected to lift CET-1 by about 100 bps – will translate to about RM24bil risk-weighted asset release, well above the group’s comfortable range of 13% to 13.5%.
While the group has yet to formally declare its plans for the excess capital, the research house said it gathered that a full distribution could imply a potential dividend of up to 17.7 sen per share (about a 3.8% yield).
Given strong potential capital availability, Kenanga Research also does not discount the possibility of special dividends in the coming years.
