Public Bank Berhad is the second-largest bank in Malaysia. Its market capitalisation stood at about RM91.4 billion at end-August 2022, making it the second largest public-listed company on Bursa Malaysia.
Its founder Tan Sri Dato’ Sri Dr. Teh Hong Piow is well-liked by shareholders as he has helped grow the bank by leaps and bounds. If a shareholder bought 1,000 shares of Public Bank since its listing in 1967, and subscribed to all rights issues, their compounded annual rate of return would be 18.5% till 2021, which is a remarkable performance.
Here are 10 things I learned from the 2022 Public Bank AGM.
1. Net profit increased 16.1% year-on-year to RM5.7 billion in 2021 despite the 3.4% year-on-year drop in its revenue. The higher net profit in 2021 was due to the low base in 2020 as well as positive loans and deposits growth in 2021. Low-cost current and savings accounts (CASA) grew 11.7% in 2021.
2. Dividend per share improved from 13.0 sen in 2020 to 15.2 sen in 2021 while dividend payout ratio stood at 52.2% in 2021. In fact, its dividend payout has been hovering around 50% in the past five years despite the challenges posed by the pandemic. The management strives to maintain its dividend payout around a healthy 50% level. They will take into account various factors such as the company’s profitability, sufficient capital buffer, future business growth, and capital conservation.
3. Public Bank continues to outperform its banking peers and cement its position as the most cost-efficient bank in Malaysia. Its cost-to-income ratio was one of the lowest in the industry in 2021 and is expected to range between 34% and 35% in 2022.
It will strive to maintain its gross impaired loan ratio below 1% in 2022 as it helps its customers tide through the crisis through its targeted repayment assistance programme until the end of 2022. About RM24.0 billion or 7% of the bank’s total domestic loan portfolio was still under active repayment assistance in March 2022. About 90% of the customers have resumed payments, while about 5% applied for further repayment assistance. The situation is alleviated by the ongoing improvement in the economy. The bank does not foresee significant pressure on its asset quality.
Further, the one-off prosperity tax in 2022 will be manageable for the bank. Its credit cost is expected to remain below 20 basis points compared to 34 basis points in 2021.
| 2021 | Public Bank | Industry average in Malaysia |
| Cost-to-income ratio | 31.6% | 48.1% |
| Asset quality gross impaired loan ratio | 0.3% | 1.4% |
| Net return on equity | 12.4% | 8.9% |
4. Loan loss coverage ratio increased from 325.1% in 2020 to 383.2% in 2021 compared to the industrial loan loss coverage ratio at 129% in 2021. The management is rather prudent and proactive, and will continue being so in 2022. The management does not expect to write back a large portion of its provision in 2022.
5. CEO Tan Sri Dato’ Sri Dr. Tay Ah Lek explained to a shareholder that the lower income from the company’s overseas operations was due to a 5.4% contraction in profit before tax from its Cambodian operations. The management will continue to focus on existing retail commercial and consumer banking operations, particularly in Vietnam to expand its branch network to reach a wider customer base. Its overseas operations are expected to contribute to between 8% and 10% to the company’s profit in the medium term.
Public Mutual Berhad is a wholly-owned subsidiary of the bank and contributes to a significant portion of the latter’s non-interest income. It manages about 180 private unit trusts in Malaysia while its total assets under management were worth RM104.6 billion in 2021. It owns 34.6% market share and is well-known in the country.
6. The current rising interest rate environment bodes well for Public Bank as its net interest margin expands. In 2021, loans with variable rate made up of about 77.7% of the bank’s gross financing and advances. Every 25-basis-point hike in Bank Negara Malaysia’s overnight policy rate is expected to expand the bank’s net interest margin by 4 basis points. As it leads the domestic retail financing market share in terms of residential property and hire purchase financing, thebetter economic prospects coupled with rising interest rates will support its earnings growth.
| Sector | Public Bank’s retail financing market share in Malaysia |
| Residential property financing | 20% |
| Commercial property financing | 34% |
| Hire purchase financing | 30% |
| SME financing | 22% |
7. As Sri Lanka recently defaulted on its foreign debt, the CEO reassured shareholders the bank did not lend to the Sri Lankan government and has minimal operational exposure there. The three branches will remain open for business and the business will selectively and prudently lend money to new borrowers. He added that the bank has very limited exposure to large, troubled corporations in Malaysia.
8. The founder’s RM22.6 million total remuneration in 2021 drew one shareholder’s attention. The CEO justified the remuneration based on the founder’s lifelong commitment, guidance, and insight to the group, including the past two years of the pandemic.
9. Like most of its peers, Public Bank takes a cautious view on cryptocurrency and monitors its impact closely on the financial market. Cryptocurrency is deemed highly volatile and is not recognised as legal tender in Malaysia. On the other hand, the bank is confident that its existing banking licence allows it to undertake a spectrum of digital banking activities and compete with the winners of digital banking licences in the nation. It will soon launch an eKYC (electronic know-your-customer) solution to allow customers to open bank accounts online.
10. The CEO responded to a shareholder that e-wallet players in the market did not erode the bank’s credit card business. In fact, its credit card business achieved stronger growth compared to other banks as its customers transacted online more frequently in the past two years during the pandemic. Also, he believes that the bank does not need an e-wallet as its QR payment already functions as one. The bank also collaborates with payment partners such Samsung Pay, Alipay, WeChat Pay. It will continue to explore new viable payment partners including Apple Pay (asked by a shareholder).
The fifth perspective
Public Bank has a proven track record over the past 50 years. As the regional economy continues to pick up and the recent OPR hikes reflects Malaysia’s firmer economy footing, Public Bank, together with the entire banking sector, will grow alongside recovering key economic activities.
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