Published on 19 Jun 2024.
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 (Table 1).
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.
Analytical contacts
Jeremy Noel Paul
(603) 3385 2556
jeremynp@ram.com.my
Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2024 by RAM Rating Services Berhad
Rating Rationale: Public Bank Berhad