Published on 08 Sep 2023.
RAM Ratings has assigned an AA1/Stable rating to Public Bank Berhad’s (Public Bank or the Group) proposed RM20 bil Subordinated Medium-Term Notes Programme. The issue is rated one notch below the Group’s long-term financial institution rating to reflect its lower ranking in the priority of claims in the event of bankruptcy or liquidation, relative to senior unsecured creditors. Concurrently, the ratings of the Group’s existing sukuk/debt facilities have been affirmed (listed in Table 1).
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 17.5% of the industry’s loans and 16.5% of deposits as at end-June 2023, the Group is designated as one of the three domestic systemically important banks. The rating affirmation is premised on the Group’s consistently superior asset quality, solid balance sheet and resilient earnings throughout economic cycles.
Public Bank’s gross impaired loan (GIL) ratio saw a marginal increase as at end-June 2023 but remained commendably low at 0.55% (end-December 2022: 0.42%; industry: 1.76%). The mild deterioration largely stemmed from a fully secured property-related corporate loan originating from the Group’s operations in Hong Kong. On the domestic front, Public Bank’s asset quality has held up well after the expiry of relief measures, its GIL ratio ticking up slightly to 0.37% (end-December 2022: 0.34%) due to delinquencies in the residential mortgage portfolio.
Solid GIL coverage (including regulatory reserve) of 226%, coupled with healthy pre-provision profit and capitalisation afford the Group a strong buffer against any asset quality weakening, especially amid current heightened inflationary pressures. We also draw comfort from the Group’s prudent underwriting standards, provisioning policies and strong collection procedures. Management expects to write back some overlays this year but will carefully assess the quantum of reversals, given prevailing uncertainties in the operating landscape.
Public Bank boasts an unblemished long track record of profitability. Thanks to significantly lighter credit costs, healthy loan expansion (+5.4% y-o-y) and higher foreign exchange income, the Group’s pre-tax profit was up 7.0% y-o-y at RM4.3 bil in 1H FY Dec 2023. Its net interest margin (NIM) narrowed in 1H fiscal 2023 to 2.18% (1H fiscal 2022: 2.22%). The decline is in line with the industry trend, driven by ongoing upward deposit repricing and heightened deposit competition, although alleviated somewhat.
Table 1: Public Bank’s issue ratings
Ho Chian Leng, CFA
(603) 3385 2527
Wong Yin Ching, CFA
(603) 3385 2555
(603) 3385 2500
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Ratings on Public Bank Berhad