By Ian Tai on August 14, 2017
In this article, I’ll bring a detailed account of Public Bank’s tremendous success and achievements thus far and its outlook towards the near future. Therefore, here are 16 things you need to know about Public Bank before you invest.
Track record
1. Public Bank has achieved a CAGR of 13.45% in loans, advances and financing assets over the last 10 years. It increased from RM82.79 billion in 2006 to RM292.43 billion in 2016. This is due to growth in lending in major segments such as purchase of residential and non-residential properties, purchase of vehicles, and working capital during the 10-year period.
Source: Public Bank annual reports
2. Public Bank has achieved a CAGR of 9.20% in net interest income over the last 10 years.
It has increased from RM2.87 billion in 2006 to RM6.92 billion in 2016.
This is because the continuous growth in Public Bank’s loans, advances
and financing assets has exceeded its marginal decline in net interest
margins during the period.
Source: Public Bank annual reports
3. Public Mutual, a wholly-owned subsidiary of Public Bank, is
the market leader in the unit trust industry in Malaysia with retail
market share of 45.8% in February 2017. Over the last 10 years,
Public Mutual has expanded its number of funds and enlarged its total
assets under management (AUM) from RM16.19 billion in 2006 to RM70.29
billion in 2016. Consequently, Public Mutual has achieved consistent
growth in both operating revenues and profits before taxation (PBT).
From 2006 to 2016, operating revenues have grown from RM244.5 million in
2006 to RM967.5 million in 2016. Meanwhile, PBT increased from RM97.3
million in 2006 to RM572.9 million in 2016.
Source: Public Bank annual reports
4. Public Islamic Bank, another wholly-owned subsidiary of
Public Bank, has achieved a CAGR of 5.82% in profits before taxation
(PBT) over the last 10 years. Overall, it increased from
RM300.3 million in 2006 to RM528.7 million. In contrary to most segments
which recorded consistent growth in profits, Public Islamic Bank has
recorded lower PBT from RM581.0 million in 2011 to RM450.1 million in
2015 after a period of growth. This is because the increase in funding
costs has exceeded Public Islamic Bank’s growth in gross financing
assets during the period.
Source: Public Bank annual reports
5. On 7 November 2007, Public Bank entered a 10-year exclusive
distribution agreement with ING Insurance to provide life, health and
investment-linked insurance products in Malaysia and Hong Kong. The
bancassurance distribution agreement came into effect on 1 January
2008. Since then, Public Bank has achieved a CAGR of 19.56% in domestic
annualized new premiums over the last eight years. It increased from
RM53.8 million in 2008 to RM224.6 million in 2016.
Source: Public Bank annual reports
6. Public Bank has a regional presence in five countries including Hong Kong, Cambodia, Vietnam, Laos, and Sri Lanka.
At present, Hong Kong and Cambodia remain the two largest profit
contributors to Public Bank’s international operations division. From
2007 to 2009, this division reported a decline in PBT due to the global
financial crisis. Since then, this division has achieved a CAGR of
14.55% in PBT from RM239.9 million in 2009 to RM620.7 million in 2016.
Source: Public Bank annual reports
7. As a result, Public Bank has achieved a CAGR of 10.06% in operating revenues over the last 10 years. It
increased from RM7.71 billion in 2006 to RM20.10 billion in 2016. This
is directly contributed by continuous growth in net interest income and
operating revenues of Public Mutual, Public Islamic Bank, bancassurance
and its international operations as explained in Points 1-6.
Source: Public Bank annual reports
8. Public Bank has improved the quality of its loans, advances and financing assets over the last 10 years.
This is evident as Public Bank has reduced its gross impaired loan
ratio from 1.87% in 2006 to 0.50% in 2016. It is the lowest in the local
banking industry.
Source: Public Bank annual reports
9. Public Bank has kept its cost-to-income ratio between 30% to 35% over the last 10 years.
In 2016, Public Bank recorded 32.3% in cost-to-income ratio. Evidently,
it is below the industry average of 45.8% and the lowest among its
peers. This is due to adopting disciplined cost management across all
its business operations.10. As a result, Public Bank has achieved a CAGR of 11.67% in shareholders’ earnings over the last 10 years. Earnings increased from RM1.73 billion in 2006 to RM5.21 billion in 2016. This is contributed by continuous growth in group operating revenues and a stable cost-to-income ratio during the period.
Source: Public Bank annual reports
11. Over the last three years, Public Bank has recorded an ROE of 15% to 16% a year.
This means, Public Bank has made, on average, RM15-16 in annual
earnings from every RM100 in shareholders’ equity from 2014 to 2016. The
level of ROE recorded from 2014 to 2016 is lower than the ROE recorded
from 2007 to 2013 which was above 20% a year. This is despite a
continuous growth in shareholders’ earnings over the last three years.
It is because Public Bank has substantially increased its shareholders’
equity when it undertook a rights issue exercise in 2014. It is an
effort of Public Bank to be well-capitalized to meet the requirements of
the implementation of Basel Ⅲ in advance.
Source: Public Bank annual reports
12. Public Bank has achieved a CAGR of 4.37% in dividend payments over the last 10 years. Dividends
increased from RM1.46 billion in 2006 to RM2.24 billion in 2016.
Evidently, the growth in dividend payments did not keep pace with its
growth in shareholders’ earnings. Thus, Public Bank recorded lower
dividend payout ratios for the latest five-year period (2012-2016)
compared to the five-year period (2007-2011). From 2012 to 2016, Public
Bank maintained a dividend payout ratio at 40% to 50% a year. This
means, it has paid out, on average, RM40-50 in dividends from every
RM100 in shareholders’ earnings during the period.
Source: Public Bank annual reports
13. Public Bank reported a total capital ratio of 15.2% in Q1 2017.
It is above the total regulatory requirement of 9.25% set by Bank
Negara Malaysia for 2017. The total regulatory requirement is the
addition of 8.0% in minimum total capital and 1.25% in phase-in capital
conservation buffer for 2017.14. Public Bank reported a loan loss coverage of 104.0% in Q1 2017. It is currently above the industry average of 96.3% set by Bank Negara Malaysia in 2016. This means, Public Bank has set aside sufficient provisions to cover non-performing loans.
Source: Public Bank annual reports
Moving forward…
15. Public Bank has revealed six key performance targets for 2017. This include:| 2016 Target | 2016 Actual | 2017 Target | |
|---|---|---|---|
| Net Return on Equity | >15% | 16.5% | 14-15% |
| Total Capital Ratio | >13% | 15.5% | >13% |
| Gross Impaired Loan Ratio | <1 td=""> | 0.5% | <1 td=""> |
| Cost-to-Income Ratio | <33 td=""> | 32.3% | 33-34% |
| Group Loan Growth | 8-9% | 7.5% | 6-7% |
| Group Deposit Growth | 7-8% | 2.9% | 5-6% |
Source: Public Bank annual reports
16. To achieve its targets for 2017, Public Bank has revealed areas of strategic focus. This include:- Lending business. Public Bank’s consumer lending will focus on purchases of residential and non-residential properties and passenger vehicles. It will also continue to penetrate mid-market SME financing.
- Deposit-taking business. Public Bank will attempt to strike a balance between deposit growth and cost of funding by securing higher retail and lower cost deposits.
- Non-interest income. Public Bank will expand its fee-based income such as unit trust funds, bancassurance, card business, cash management services, remittance services and trade finance.
- International operations. Public Bank acquired the remaining 50% shareholding of Public Bank Vietnam Limited and as of 1 April 2016 is fully owned by Public Bank Berhad. In 2017, Public Bank Vietnam will expand as it targets to open six new branches in Vietnam.
The fifth perspective
In summary, Public Bank has built a track record of maintaining asset quality and delivering growth in operating revenues and shareholders’ earnings over the last 10 years.In Q1 2017, Public Bank reported RM1.25 billion in shareholders’ earnings and placed itself for a positive start for 2017. Looking ahead, Public Bank is committed to take proactive efforts to sustain growth and quality in loans, advances and financing assets, maintain a healthy funding structure, drive non-interest revenues, promote high productivity and cost efficiency to ensure it remains on trajectory towards meeting its growth targets for 2017.
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