KUALA LUMPUR: Public Bank Bhd, the country’s third-largest banking group, expects the net interest margin (NIM) compression in the local banking industry to persist as competition for market share for both loans and deposits remains intense.
Public Bank founder and chairman Tan Sri Dr Teh Hong Piow said despite facing these challenges, the group is expected to maintain its earnings momentum for the rest of the year.
“Our strategies [will] remain unchanged. The group will continue to focus on its core retail banking and financing business, while maintaining its prudent credit policies, as well as uphold strong corporate governance,” he said in a statement yesterday.
The group saw its net profit grow 13% to RM1.19 billion for the third quarter ended September of financial year 2014 (3QFY14) from RM1.05 billion a year ago, on higher net interest income and net fee and commission income, as well as lower loan impairment allowances. This was partially offset by other higher operating expenses.
Revenue also grew 11.6% to RM4.32 billion from RM3.87 billion in 3QFY13.
In a statement yesterday, Public Bank attributed the favourable achievement in 3Q to higher operating revenue as a result of net interest income growth and steady non-interest income growth, coupled with stable credit costs.
“The increase in net interest income in 3QFY14 was attributable to the commendable loan and deposit growth, as well as the positive impact arising from the hike in the overnight policy rate and the recently completed rights issue,” it said.
For the nine months period (9MFY14), Public Bank’s net profit rose 7.2% to RM3.26 billion from RM3.04 billion, thanks to a 5.3% rise in net interest income, a 9% increase in net fee and commission income, a 24.8% drop in impairment allowances, as well as a 12.6% rise in investment income.
This was also partially offset by a 5.2% rise in other operating expenses, due mainly to the increase in personnel costs in tandem with the increased headcount to support business expansion.
Revenue for 9MFY14 rose 8.6% from RM11.35 billion to RM12.33 billion a year ago.
In the statement, Teh said while the local economy was relatively stable and resilient for the first nine months of 2014, growth sentiment has been moderating, especially towards the third quarter of this year.
“Public Bank maintained commendable loan growth with an annualised growth rate of 9.8% in the first nine months of 2014 despite a subdued operating environment, supported by its commendable annualised domestic commercial banking loan growth of 10.2%,” he said.
The bank’s loan growth was mainly attributed to the lending growth in its retail banking segment, comprising extension of financing for the purchase of residential properties, commercial properties and passenger vehicles.
As at Sept 30 this year, the group’s retail loan portfolio collectively accounted for 87% of its total loans.
“Lending to small and medium enterprises had [also] been particularly strong, recording an annualised growth of 21% in the first nine months of 2014,” said Teh.
In a separate filing with Bursa Malaysia yesterday, Public Bank said it will make a full early redemption on the RM200 million subordinated notes together with accrued interest on Nov 6 this year.
On Nov 6, 2009, it issued the subordinated notes due in 2019, callable with step-up on Nov 6, 2014 at coupon rate of 4.6% per year.
This article first appeared in The Edge Financial Daily, on October 24, 2014.