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KUALA LUMPUR: Facing a challenging business environment and intense competition, Public Bank Bhd expects to maintain its earnings momentum for its financial year ending Dec 31, 2015 (FY15), said founder and chairman Tan Sri Teh Hong Piow following the group’s annual general meeting (AGM) yesterday. 

“The challenging and increasingly regulated business environment as well as intense competition for loans and deposits will continue to impact margins. 

“Facing the challenges ahead, the Public Bank group will accelerate business innovation and pursue operational efficiency whilst maintaining prudent risk and cost management,” he said in a statement, adding that the banking group is expected to record satisfactory performance in FY15.  

In FY14, Public Bank’s (fundamental: 2.8 ; valuation: 1.2) net profit rose 11.2% to RM4.52 billion from a year ago.

At the AGM, group chief operating officer Chang Siew Yeng explained that the decline in the net return on equity (ROE) from 27.1% in 2010 to 19.9% in FY14 was due to a larger capital base and continuous interest margin compression in the banking sector. 

However, she said the ROE of 19.9% achieved was higher than the target set earlier, at 18%. It was also higher than the industry average of 12%. “The group will intensify its business volume and increase its fee-based businesses to sustain higher-than-industry ROE,” Chang said, in response to a question raised by the Minority Shareholders Watchdog Group.

Commenting on the compression in net interest margin (NIM), Public Bank managing director and chief executive officer Tan Sri Tay Ah Lek said all banks faced the same issue, due to more stringent banking requirements.

According to its annual report 2014, Public Bank’s NIM has been on a downtrend since 2011. It stood at 2.7% for FY10 and FY11, but slipped to 2.5% in FY12. It then fell to 2.4% in FY13. In FY14, NIM was 2.2%.

“We will try to increase productivity and improve cost efficiency and asset quality to address this,” Tay said. 

He said the bank will aim to keep its gross impaired loans ratio low. Public Bank recorded a gross impaired loans ratio of 0.6% in FY14 compared with the industry’s average of 1.7%.

Chang said the banking group has no immediate plan to expand into new markets overseas and will focus on organic growth in existing countries and areas it is currently operating in.

Public Bank has a regional footprint through its 83 branches in Hong Kong, three in China, 27 in Cambodia, seven in Vietnam, four in Laos and three in Sri Lanka, according to its annual report.

When asked on the board’s succession planning, Tay said it is always on the agenda. 

“The board continues to identify, not only in terms of gender diversity, but also skill diversity, on suitable candidates for the appointment to the board. But of course [it is still] subject to Bank Negara’s [Malaysia] approval. This is all ongoing process,” he added.

 

This article first appeared in The Edge Financial Daily, on March 31, 2015.

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