RAM Ratings has affirmed the AAA/Stable/P1 financial institution ratings of Public Bank Berhad (the Group) and its core subsidiary, Public Islamic Bank Berhad. The issue ratings of the entities have concurrently been affirmed.
The Ratings agency said the affirmation is premised on the Group’s consistently pristine asset quality, solid balance sheet and resilient earnings, even through economic cycles. Public Bank is the third-largest banking group in Malaysia by asset size and a market leader in residential mortgages, commercial property financing, automobile financing and retail unit trusts. Commanding a respective 17.5% and 16.3% of the domestic banking system’s loans and deposits as at end-March 2024, the Group is designated as one of three domestic systemically important banks.
Public Bank’s gross impaired loan (GIL) ratio crept up to 0.62% as at end-March 2024 (as at end-December 2022: 0.42%) but remained among the lowest in the industry. The deterioration largely stemmed from a fully secured syndicated property-related corporate loan in Hong Kong and loan impairments arising from the expiry of forbearance measures. Owing to the larger GIL base, the Group’s loan loss coverage decreased to 169% (end-December 2022: 272%), although the metric was still considerably higher than the industry average of 92%. The strong coverage, coupled with the Group’s healthy pre-provision profit and capitalisation (common equity tier-1 capital ratio: 14.5%), provides an ample buffer against asset quality slippages.
Since its inception, Public Bank has boasted an unblemished track record of profitability. Higher funding costs from the upward repricing of deposits and stiff deposit competition, along with the expiry of forbearance allowing the use of government securities for statutory reserve requirement compliance, narrowed the Group’s net interest margin (NIM) to 2.18% (-18 bps) in FY Dec 2023. These factors led to a lower but still healthy pre-tax profit of RM8.5 bil (FY Dec 2022: RM8.8 bil) and pre-tax return on risk weighted assets (RoRWA) of 2.64% (FY Dec 2022: 2.88%). Net profit, meanwhile, climbed to RM6.7 bil (FY Dec 2022: RM6.2 bil) in the absence of the one-off prosperity tax.
In 1Q FY Dec 2024, RoRWA decreased again to an annualised 2.53% on the back of higher personnel expenses and impairment charges. Holding steady at an annualised 2.18%, the Group’s NIM is expected to stay largely stable at current levels. Public Bank’s cost to income ratio (1Q 2024: 35.4%) could rise moderately as the Group scales up its digitalisation efforts.
With a strong retail deposit heritage and an extensive branch network, Public Bank has one of the largest proportions of retail deposits in the banking system. Individual depositors made up a commendable 53% of customer deposits, providing diversity and stability to the Group’s funding.
