For Immediate Release
14 March 2011
Public Bank's 45th Annual General Meeting Held on 14 March 2011
In conjunction with Public Bank’s 45th Annual General Meeting held on 14 March 2011, I am pleased to present a review of the Public Bank Group’s performance in 2010.
Global economic condition was mixed in 2010, with continuing uncertainty in the US and European economies, while Asian economies rebounded. With the commendable recovery of the Malaysian economy, the Public Bank Group performed well, delivering another year of solid profit growth.
The Public Bank Group achieved a new milestone in 2010 with a record pre-tax profit of RM4.09 billion. This was a 23% increase from RM3.32 billion in 2009. The Group’s net profit grew by 21% to RM3.05 billion from RM2.52 billion achieved in 2009, surpassing the RM3 billion mark for the first time.
The strong profit performance was a result of healthy growth in net interest income, strong growth in loans and core customer deposits, as well as sustained strong asset quality.
The Public Bank Group’s net return on equity increased from 26.1% in 2009 to 27.1% in 2010. Earnings per share also grew from 73.3 sen in 2009 to 87.2 sen in 2010.
Strong momentum in domestic lending business
In 2010, the Public Bank Group achieved healthy loan growth of 13.8% with total loans standing at RM156.5 billion. In particular, domestic loans grew at a stronger rate of 15.6%. This has led to a higher market share of the domestic lending business of 16.3%, as compared to 15.9% a year ago.
The Public Bank Group’s lending activities remained focused on the financing of residential properties and passenger vehicles, and loans to mid-market commercial enterprises. These three sectors accounted for 85% of the Group’s total loan portfolio. The Group’s residential properties and passenger vehicles financing grew at impressive rates of 17.1% and 12.4% respectively in 2010. Public Bank is the country’s No.1 passenger vehicle and residential mortgage financier with market shares of 25.5% and 17.4% respectively.
The Public Bank Group’s loan growth indicators remain robust with domestic retail loan approvals increasing by 8% in 2010. In particular, domestic loan approvals for hire purchase grew at an impressive rate of 18%. Public Bank continued to strongly support the Government’s efforts in promoting the financing of small- and medium-sized enterprises (“SMEs”). Of the total domestic loans approved of RM51.0 billion in 2010, RM10.8 billion or a sizeable 21% was for commercial loans to SMEs.
Strong asset quality
The Public Bank Group’s asset quality remains the best in the banking industry, reflecting the Group’s prudent credit culture and stringent lending policies. The Group’s impaired loans ratio remained low at 1.1% in 2010 despite the more stringent criteria on the classification of impaired loans under FRS139 which was adopted during the year. The Group’s impaired loans ratio of 1.1% is significantly lower than the Malaysian banking industry’s gross impaired loans ratio of 3.0%. The Group’s impaired loans ratio has also improved from 1.4% as at the beginning of 2010.
The Public Bank Group’s loan loss coverage ratio increased further from 120% in 2009 to 144% in 2010, despite that more than 90% of the Group’s impaired loans are secured. This was also significantly above the 99% coverage for the banking system. The increase in the Group’s loan loss coverage was due to additional collective allowance set aside for strong loan growth, and is in line with Bank Negara Malaysia’s guidelines which require a minimum of 1.5% collective allowance.
Moving forward, with the Public Bank Group’s prudent lending policies, healthy customer base and pre-emptive measures taken to assist borrowers to meet their repayment obligations, the Group targets to maintain its low impaired loans ratio at below 1%.
Healthy expansion in domestic core customer deposits
In line with the Public Bank Group’s strategy to build a long-term core customer deposit base, the Group’s core customer deposits grew by 12.5% in 2010. In particular, domestic core customer deposits grew by 15.0% in 2010 as compared to the industry growth rate of 6.7%. Domestic fixed deposits, savings deposits and demand deposits of the Group grew by 16.6%, 8.7% and 14.1% respectively, far outpacing the industry growth rates of 5.9%, 2.6% and 11.3% respectively. As a result, the Group’s market share of core customer deposits improved from 15.4% in 2009 to 16.3% in 2010.
The strong core deposit growth is supported by the Public Bank Group’s extensive domestic network of 250 branches and 1,362 Self-Service Terminals, as well as the superior ISO certified customer service delivery at the branches of the Group.
With the strong core customer deposit growth keeping pace with the growth in loans, the Public Bank Group continued to maintain its healthy liquidity position with the net loan to deposit ratio standing at 87%.
In 2010, the Public Bank Group’s overseas operations recorded a 30% improvement in pre-tax profit to reach RM311 million, accounting for 8% of the Group’s pre-tax profits. The improved performance was mainly due to a decline in loan impairment allowances and improved business sentiment in the region. In particular, the Hong Kong operations of the Group achieved a marked improvement, with a 75% growth in pre-tax profit for the year, and contributed to over 5% of the Group’s pre-tax profit. Cambodian Public Bank Plc, a wholly-owned subsidiary of Public Bank, recorded a marginal pre-tax profit improvement and a strong customer deposit growth rate of over 29% for the year.
The Public Bank Group's expansion plan in its overseas operations remains focused on its Hong Kong and Cambodian operations. The Group currently has a network of 81 branches in Hong Kong and 3 branches in Shenzhen in the People’s Republic of China. Cambodian Public Bank Plc is one of the largest banks in Cambodia by balance sheet size and presently has a total of 21 branches, with another 6 branches targeted to be opened in 2011.
In addition, the Group currently has 7 branches in Vietnam, 3 in Laos and 1 in Sri Lanka. There are plans to open another 4 new branches in Vietnam and 1 new branch in Laos this year.
Developing fee-based income
In 2010, the Public Bank Group built on its strategic initiatives to grow fee-based income from unit trusts, bancassurance and wealth management products, to enhance further the Group’s profitability and return on equity.
Public Mutual, the Group’s wholly-owned unit trust fund management subsidiary, continued to maintain its market leadership position in the private unit trust industry with an overall market share of 43%. Public Mutual’s market share in equity funds and Islamic funds grew to 59% and 60% respectively in 2010, from 57% and 56% in 2009. Total assets under management rose to RM40.6 billion as at the end of 2010, 14% higher as compared to RM35.6 billion a year ago. With 12 new unit trust funds launched during the year, Public Mutual currently manages a total of 84 funds, with nearly 100 billion units in circulation. On the strength of these strong fundamentals, Public Mutual is well-positioned to continue its market share gains and profitability growth.
The PB-ING bancassurance business alliance is into its third year in 2010 and was ranked 2nd in the country based on volume of new business. The Public Bank Group will continue its efforts to further build its bancassurance sales force and infrastructure to drive the expansion of the Group's bancassurance business in the long-term. In 2010, the Group achieved a significant 72% increase in the sales of bancassurance products as compared to 2009, as measured by annualised premium equivalent achieved.
On 1 September 2010, Bank Negara Malaysia approved a family takaful licence to a joint venture company in which ING and the Public Bank Group holds 60% and 40% equity interest respectively. The joint venture for the family takaful business will provide the Group with a further avenue to grow its fee-based income when the operations of the joint venture commence by the first half of 2011.
Payment of a 2nd interim dividend
In view of Public Bank’s strong profit performance in 2010, a second interim dividend of 33 sen was paid, comprising a 25 sen franked dividend and a 8 sen single-tier dividend. Together with the first interim dividend of 25 sen paid in August 2010, the total gross dividend for 2010 was 58 sen gross cash dividend. This represents a total dividend payout ratio of 52% for 2010 and a healthy gross dividend yield of 4.5%.
The Public Bank Group has always sought to maintain a healthy level of capital to support the growth of the Group’s business, whilst delivering healthy and sustainable returns to its shareholders, by maintaining a disciplined capital and balance sheet management process. As at 31 December 2010, the Group’s capital position remains healthy, with its Tier 1 capital ratio and risk-weighted capital ratio standing at 10.0% and 13.7% respectively, after deducting the second interim dividend for 2010.
The Public Bank Group’s capital position under the new global capital and prudential standards, commonly referred to as the Basel III standards, is expected to remain supportive of the Group’s business growth strategies whilst maximising shareholders’ returns. The implementation of the Basel III standards, which are subject to adaptation by national banking regulators, will be phased-in gradually, commencing 1 January 2013, with final implementation in 2019. The Group is confident that it is well-positioned to meet the revised minimum capital requirements. The Group will closely monitor future developments pertaining to these regulatory capital reforms. The Group will also continue to effectively manage its capital structure as well as maintain maximum financial flexibility to pursue strategic objectives whilst maximising shareholder value.
Largest non government-linked listed company by market capitalisation
Since the end of 2005, Public Bank’s share price had doubled from RM6.55 per share to RM13.02 per share as at 31 December 2010. Public Bank’s market capitalisation has increased by 107% from RM22.23 billion as at the end of 2005 to RM45.96 billion as at the end of 2010, and remained the largest non-government-linked company listed on Bursa Malaysia by market capitalisation.
Superior returns to shareholders
The efficient capital structure and high return on equity of the Public Bank Group had led to sustained delivery of superior shareholder value over the years.
An investor who had bought 1,000 shares in Public Bank when it was listed in 1967 would now have 135,398 Public Bank shares worth RM1.76 million based on the Public Bank share price of RM13.00 as at 11 March 2011. In addition, the shareholder would have received a total gross dividend of RM711,000 in this period. This translates into a total value of RM2.47 million, representing a remarkable compounded rate of return of 20% annually for each of the 43 years since its listing in 1967.
Over the last 14 months since the beginning of 2010, the Public Bank shares have provided a total return of 25%, inclusive of the cash and treasury share dividends paid during the period. Over the medium-term of 5 years since the beginning of 2006, an investor would have enjoyed a superior total return of 160%, or a compounded 24% annual return over the 5-year period.
Over the past 5 years, the Public Bank Group has demonstrated an outstanding and resilient track record of performance. As at the end of 2010, total assets of the Group stood at RM226.3 billion, which has doubled when compared to RM111.69 billion five years ago. Over the past 5 years, the Group recorded a compounded loan growth rate of 18.1% which was significantly higher than that of the industry average of 9.9%. Core customer deposits also grew strongly at a compounded growth rate of 17.1%, which is more than double the industry average growth rate of 7.7% over the past 5 years.
The Public Bank Group’s net return on equity improved significantly from 19.1% in 2005 to 27.1% in 2010, whilst the Group’s net profit grew by 109% over the same 5-year period. Gross impaired loans ratio improved to 0.9% in 2010 as compared to 2.1% in 2005, based on the old Bank Negara Malaysia GP3 classification of impaired loans. Under the more stringent FRS 139 impaired loans classification, gross impaired loans ratio also improved to 1.1% as at the end of 2010 as compared to 1.4% as at the beginning of 2010.
Public Bank remained the clear leader in terms of profitability, cost efficiency and asset quality as compared to the 5 largest banking groups in Malaysia. In terms of profitability, the Public Bank Group’s net return on equity of 27.1% is the highest in the Malaysian banking industry and is well above the average of 15.4% achieved by the other 5 banking groups. The Group’s cost to income ratio of 30.7% is the lowest in the industry, significantly lower than the latest available industry average of 48.4%. The Group’s asset quality remained the best in the industry with the lowest gross impaired loans ratio of 1.1%.
When benchmarked against leading banks in the Asia Pacific region, Public Bank was the top performing bank in terms of cost efficiency and return on equity. Over the medium term, the Group aims to continue to achieve a net return on equity of above 26% and a low impaired loan ratio of below 1%.
Public Bank remains committed to build sustainable practices in every aspect of the Public Bank Group’s banking business and the environment it operates in. These include creating long-term value for the Group’s customers, employees, shareholders and the community it serves.
Public Bank provided financial assistance for the setup of a “Halfway House” initiated by Institute Jantung Negara Foundation and continued to pledge to Universiti Tunku Abdul Rahman for research studies in the field of banking and finance.
Public Bank has also been actively channelling low cost funds under various funds launched by Bank Negara Malaysia to assist SMEs and micro enterprises.
With its strong and rising profitability, the Public Bank Group is a major contributor to the fiscal revenue of the country with total tax payments of RM3.45 billion since the end of 2005.
An award winning bank
A total of 52 awards and recognition of excellence were conferred on Public Bank in 2010, including 8 Best Bank or Best Company in Malaysia awards. The best bank and best company awards, some of which were for a number of consecutive years, are as follows:
- Best Bank in Malaysia by FinanceAsia (11th time)
- Best Managed Company by FinanceAsia (4th time)
- Best Asian Bank by FinanceAsia (1st time)
- Best Domestic Bank in Malaysia by The Asset (9th time)
- Best Bank in Malaysia by Alpha Southeast Asia (3rd time)
- Best SME Bank in Malaysia by Alpha Southeast Asia (1st time)
- Best Banking Group in Malaysia by World Finance (2nd time)
- Best Emerging Market Bank in Malaysia by Global Finance (5th time)
For the eighth consecutive year, Public Mutual is again the biggest recipient of The Edge-Lipper Malaysia Fund Awards with a total of 9 awards won in 2011, including the esteemed Best Overall Fund Group Award.
Some of the other awards, which Public Mutual received in 2010, are:
- 2 Awards at the 2009 Asia Asset Management Awards
- 2 Awards at the Morningstar 2009 Fund Awards (Malaysia)
- 4 Awards at the Failaka Islamic Fund Awards 2009
- AsianInvestor 2010 Investment Performance Award for Best Malaysia Onshore Fund House (3rd time)
- Reader’s Digest Trusted Brands Platinum Award for Investment Fund Company category in Malaysia 2010 (1st time)
- The BrandLaureate Awards 2009-2010 for the Best Brand in the Financial Services - Unit Trust Category (4th time)
Public Bank’s record of excellence in corporate governance continued to be validated by several corporate governance awards and recognition by international publications and surveys.
In recognition of Public Bank’s top performance on the Malaysian Corporate Governance Index 2010, the Bank was awarded the Corporate Governance Hall of Fame Award, Best Conduct of AGM Award and three other awards by the Minority Shareholder Watchdog Group.
Public Bank was also awarded the Malaysian Business-CIMA Enterprise Governance Awards 2010 by Malaysian Business as the Overall Winner for the third consecutive year, as well as the awards for Best Return to Shareholders and Corporate Social Responsibility, and the Corporate Governance Asia Recognition Award 2010 by Corporate Governance Asia.
Public Bank also ranked top in corporate governance in Euromoney’s Best Managed and Governed Companies - Asia Poll 2010 and in FinanceAsia’s Asia’s Best Managed Companies 2010 Poll.
The Public Bank’s 2009 Annual Report won 3 top NACRA awards, including the Overall Excellence Award for the 10th time.
Looking ahead, there remains a degree of uncertainty in the global markets. However, the banking industry in Malaysia is expected to sustain its profitability with healthy capital and strong asset quality amidst a more competitive landscape.
The Public Bank Group’s record financial results in 2010 reaffirms the Group’s proven business strategies. The Group is confident that it is well placed to meet any challenges ahead and will continue to strive to maintain its solid profit performance in 2011.
The Public Bank Group will continue to pursue strong growth in its lending and deposit-taking businesses, expedite and diversify its growth in fee-based revenue, and further enhance its cost efficiency and return on equity. The Group will continue to maintain its strong asset quality and leverage on its wide branch network, superior PB Brand and service excellence. The Group also remains committed to its tradition of prudence and practice of strong corporate governance.
The imminent changes to the regulatory capital framework under the Basel III standards mean that banks generally will have to maintain a higher level of shareholders’ capital to support their businesses. The Group is confident of meeting these challenges based on the Group’s strong earning generation capacity, healthy balance sheet profile and strong asset quality. The Group will continue to balance the potential need for higher equity capital for business growth, and maximizing shareholders’ returns.
Barring unforeseen circumstances, the Public Bank Group is expected to maintain its earnings momentum and continue to record satisfactory performance in 2011.
Tan Sri Dato’ Sri Dr. Teh Hong Piow
* * * * * * * *
Y.Bhg. Tan Sri Dato' Sri Dr. Teh Hong Piow
Chairman of Public Bank
* * * * * * * *