This article first appeared in The Edge Financial Daily, on April 21, 2016.

KUALA LUMPUR: Higher net interest income, non-interest income and Islamic banking income led to a 5% growth in Public Bank Bhd’s net profit to RM1.23 billion in its first quarter ended March 31, 2016 (1QFY16) compared with RM1.17 billion a year ago.

Net interest income was up at RM150.5 million or 9.8%, while income from Islamic banking business rose RM23.1 million and non-interest income increased RM65.4 million (12.4%), the group said in a bourse filing yesterday.

“The growth in the group’s profit was driven by continued healthy loans and customer deposit growth coupled with sustained strong asset quality,” it said.

Gross loans grew 9.5% to RM277.2 billion as at March 31, 2016 from RM253.1 billion a year ago, driven by growth in property financing, financing of passenger vehicles and lending to small and medium enterprises.

Total deposits from customers, meanwhile, rose 7.4% to RM306.6 billion as at March 31 this year compared with RM306.6 billion as at March 31, 2015, which partly contributed to the higher net interest income for the current period.

The group’s revenue for 1QFY16 was up 9.5% to RM5.04 billion in 1QFY16 from RM4.6 billion in 1QFY15.

In a separate statement, its founder and chairman Tan Sri Dr Teh Hong Piow said the results reflected the group’s continued growth in retail earnings against a backdrop of economic headwinds, with domestic loans and domestic deposits recording healthy annualised growth of 9% and 10.9% respectively.

“With the resilient deposits growth, the group continued to sustain a healthy net loan-to-deposit ratio of 89.9% as at the end of March 2016,” he said.

The group also achieved a net return on equity of 16.1% while maintaining its low gross impaired loan ratio of 0.5%, and an efficient cost-to-income ratio of 31.5% in 1QFY16.

“The results are testament to the strength of our business model and reflect the group’s continued focus on executing our organic growth strategy,” he said.

Teh said the group’s total customer deposits grew at an annualised rate of 7.3%, or 10.1% if excluding foreign exchange fluctuations on its overseas operations. Further, domestic customer deposits recorded a stable annualised growth of 10.9% compared to a 0.04% contraction in the segment in the first two months of 2016.

Teh said Public Bank would continue growing its non-interest income by leveraging on its strong retail franchise, customer service and cross-selling initiatives.

“Non-interest income of the group continued to be driven by its unit trust management business, foreign exchange business and fee income from its banking operations,” he said.

Unit trust income constituted one-third of the banking group’s total non-interest income, with Public Mutual Bhd, a wholly-owned subsidiary, capturing the retail market share of 49.6% or a total net asset value of RM67.2 billion.

Meanwhile, its cost-to-income ratio stood at 31.5% in 1QFY16, below the banking industry’s average of 48.8%. In addition, the group’s gross impaired loans ratio was 0.5%, lower than the industry’s 1.6%.

The group also maintained a prudent loan loss coverage ratio of 120.1% as at end-March 2016, higher than the local banking industry’s ratio of 92.8%.

Teh said overseas operations contributed 9.5% of the group’s overall pre-tax profit with Cambodian Public Bank Plc, a wholly-owned unit, reporting a pre-tax growth of 18.8% to US$16.5 million (RM64.02 million).

The bank’s capital position remained stable, with common equity Tier 1 capital ratio, Tier 1 capital ratio and total capital ratio at 10.8%, 11.8% and 15.2% respectively as at end-March 2016.

Going forward, the group will remain focused on driving organic growth in its core retail banking and financing businesses by leveraging on its brand, branch network and customer service.

Though Teh noted that economic headwinds, intense competition and compression in net interest margins will remain challenging for the banking sector this year, he believes Public Bank’s experience, solid business model and strong industry footing will continue to help it navigate the challenges ahead.