10 things I learned from the 2023 Public Bank AGM

Listed in 1967, Public Bank is the second largest company on Bursa Malaysia by market capitalisation. We often hear many compliments about how well the bank is run. In fact, the bank has been profitable every single year since its listing. Its recent full-year financial performance has even surpassed its pre-pandemic level in terms of operating and net profits as well as dividend per share.

Here are 10 things I learned from the 2023 Public Bank AGM.

1. Pre-tax profit improved 19.9% year-on-year to RM8.8 billion in 2022 as the Malaysian economy continued to recover from COVID-19. Net profit grew 8.2% year-on-year to RM6.1 billion in 2022 and was affected by the one-off prosperity tax. The one-off tax cost the bank an additional RM650 million in tax. Likewise, dividend per share increased from 15.2 sen in 2021 to 17.0 sen in 2022. Dividend payout ratio remained healthy at 53.9% in 2022 and averages at about 51.4% between 2018 and 2022 despite not having a formal dividend policy.

2. Public Bank boasts itself as the most cost-efficient bank in Malaysia as evident by its lowest cost-to-income ratio in the industry. It has good quality assets based on its much lower gross impaired loans ratio when compared its peers. It has also set aside adequate provisions in advance to mitigate potential asset deterioration. Its loan loss coverage ratio is also much lower than its competitors. A shareholder pointed out that the bank’s ROE had fallen from 14.8% in 2018 to 12.8% in 2022. In response, CEO Tan Sri Dato’ Sri Dr. Tay Ah Lek said that the bank’s ROE is expected to range between 12% and 13% in 2o23.

3. Gross loans and financing increased 5.3% year-on-year to RM377 billion. About 93.4% of its loans were derived from Malaysia as the bank operates predominantly there. The bank was the leader in residential and commercial property financing. A shareholder commented that the bank’s loans and deposits growth was slower than the industrial average over the past few years. The bank is prudent when it comes to lending out money. It is also widely believed among many Malaysians that it is harder to secure a loan from Public Bank compared to the rest.

4. The CEO reassured shareholders that Public Bank is not affected by the recent U.S. bank collapses. Public Bank meets the minimum regulatory requirements as set forth by Bank Negara Malaysia and is in a strong capital and liquidity position to withstand future macroeconomic or financial crisis.

5. Public Bank expects its net interest margin to compress by double-digit basis points (bps) amid competition for deposits. The proportion of current account and savings account (CASA) deposits will also reduce from its all-time high during the pandemic as the economy reopens and consumer spending increases. The cost of funding is expected to increase due to potential rate hikes to pre-pandemic levels. In May 2023, Malaysia’s central bank raised the overnight policy rate by 25 bps to 3.00% which was slightly lower than the 3.25% recorded in 2019.

6. In 2022, Public Mutual Berhad contributed 8.8% to the group’s pre-tax profit and is the major contributor to the group’s non-interest income. The unit trust manager owns 35.4% retail market share in Malaysia. The CEO does not expect the business of Public Mutual to be significantly impacted by fintechs like robo-advisors as actively managed funds are still valued by retail investors who look for investment advice.

7. Public Bank continues to expand its regional business in Vietnam and Cambodia by focusing on retail consumers, SMEs, and commercial banking. Currently, the bank has more than 30 branches in both Vietnam and Cambodia. The bank plans to open another eight branches in Vietnam by 2H2024 to capture the growth opportunities there.

Minority Shareholder Watch Group (MSWG) added that Public Bank Vietnam Limited’s gross impaired loans ratio has been increasing since 2019 compared with the overall industry decline. The CEO explained that its Vietnamese operations was impacted by the pandemic. Loans were impaired after the moratorium ended in June 2022. The industry performed better as the State Bank of Vietnam set up a special-purpose vehicle, Vietnam Asset Management Company, to buy impaired loans from local banks there.

8. The impact of the proposed change to the Hire Purchase Act from fixed to reducing interest rates is expected to be minimal. The CEO explained that the proposed change is only applicable to new hire purchase loans and early settlement cases. Further, the bank is exposed to only minimal foreign exchange risk. Most foreign transactions are conducted in the currencies where the operations are, which acts as a natural hedge.

9. The banking industry including Public Bank work with different authorities and private companies to jointly set up the National Scam Response Centre, and a dedicated hotline to respond to customers’ queries regarding any suspicious bank transactions. In 2022, Public Bank protected 300,000 customers from being scammed. It launched a kill-switch function that allows customers to immediately deactivate access to their accounts via PBe internet banking. Since April, Public Bank has replaced one-time password SMS with a more secured PB SecureSign token that is bound to only one registered device to approve transactions. The bank halted about one million transactions and prevented customer losses totalling approximately RM500 million during the year.

10. Founder Tan Sri Dato’ Sri Dr. Teh Hong Piow passed away in December 2022. The bank’s business fundamentals remain sound and will operate business-as-usual. Remuneration totalling RM20 million in 2022 will be paid to the estate of the late Tan Sri Teh for his contributions to the bank.

The fifth perspective

2023 will mark the first year of Public Bank without its founder at its helm. The bank will continue to operate as usual given its sound asset quality and prudent credit risk management. The bank continues to be profitable and outperforms its peers and remains a local dividend investor favourite.

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