In conjunction with Public Bank's 44th Annual General Meeting held on 2 March 2010, I am pleased to present a review of the Public Bank Group's performance in 2009.

Financial performance
2009 began with an unprecedented crisis in the global financial services sector and threats of a global depression. Despite such challenging conditions and economic uncertainties, the Public Bank Group again recorded another year of solid performance.

In 2009, the Public Bank Group achieved pre-tax profit of RM3.32 billion and net profit of RM2.52 billion. Excluding the effects of the RM200 million one-off goodwill income from the ING bancassurance alliance in 2008, the Group's underlying pre-tax profit grew by 4.5% in 2009.

The strong profit performance was driven by steady net interest income growth, above industry rate of loan growth, sustained strong asset quality and high staff productivity.

The improved underlying profit performance in 2009 translated into a net return on equity of 26.1% and earnings per share of 73.3 sen.

Continued strong loan growth
In 2009, the Public Bank Group achieved strong loan growth of 14.4% for the year, significantly higher than the banking system's loan growth rate of 7.8%. As a result of the consistent strong loan growth rates over the years, the Group's domestic market share of loans increased from 11.1% in 2004 to 15.9% in 2009.

The Group's lending activities remained focused on the financing of residential properties and passenger vehicles, as well as loans to mid-market commercial enterprises. These three sectors accounted for 78% of the Group's total loan portfolio. The Group's financing of residential properties grew by 18% to RM38 billion as at the end of 2009. Passenger vehicle hire purchase financing grew by 8% to RM31.6 billion. Public Bank is the No.1 financier for residential mortgage and passenger vehicles in the domestic market, with market shares of 16.6% and 24.6% respectively.

Total domestic loan approvals in 2009 grew strongly by 22% with housing loan approvals growing particularly strongly by 39% as compared to 2008. Public Bank continued to strongly support the government's efforts in promoting the financing of SMEs. Of the total domestic loans approved of RM47.5 billion in 2009, RM10.3 billion was for commercial loans to SMEs. This benefited about 44,000 SMEs in the country.

Sustained strong asset quality
Defying conventional wisdom which predicted deteriorating asset quality in the recessionary environment at the start of 2009, the Public Bank Group continues to outshine the rest with the best asset quality in the banking industry. The Group's NPL ratios continued to improve in 2009 with its gross NPL ratio reducing from 1.00% to 0.96% whereas its net NPL ratio improved from 0.9% in 2008 to 0.8% in 2009. This is less than half of the Malaysian banking industry's net NPL ratio of 1.8%.

The Group's credit charge-off rate remained low at 0.31% in 2009. The domestic credit charge-off rate was particularly low at 0.11% in 2009, a marked improvement from 0.17% in 2008.

The Group's loan loss coverage ratio increased from 160% in 2008 to 172% in 2009. This was significantly above the 94% coverage for the banking system, despite that more than 90% of the Group's NPLs are secured. The increase in the Group's loan loss coverage was due to additional general allowance set aside for the strong loan growth in 2009 whilst the amount of non performing loans remained stable.

Moving forward, with the Group's prudent lending policies, healthy customer base and the pre-emptive measures taken to assist borrowers to meet their repayment obligations, the Group targets to maintain its low NPL ratios at below 1%.

Healthy expansion in core customer deposits
The Public Bank Group's total customer deposits grew by 13% to stand at RM170.9 billion as at the end of 2009, higher than the industry growth rate of 9.3%. The core customer deposits of the Group grew strongly by 14.8% in 2009, far outpacing the 7.3% growth registered by the banking system. As a result, the Group's market share of core deposits improved from 14.7% in 2008 to 15.4% in 2009. Deposits from individuals, which accounted for 61% of the Group's core customer deposits, represents a 17.4% market share of deposits by individuals as at the end of 2009.

The strong core deposit growth is supported by the Group's extensive network of 248 domestic branches and 1,308 Self-Service Terminals, as well as the superior ISO certified customer service delivery at the branches of the Group.

With the strong deposit growth keeping pace with the growth in loans, the Group continued to maintain its strong liquidity position with the net loan to deposit ratio standing at 79%.

International operations
Against the backdrop of an economic slowdown in the region, the contribution of the international operations of the Group to the Group's pre-tax profit in 2009 fell to 7% with 85% of the Group's profit from overseas operations coming from Hong Kong and Cambodia.

The Public Bank Group's overseas subsidiaries, in particular Public Financial Holdings Group in Hong Kong and CAMPU Bank in Cambodia recorded strong deposits growth of 17.2% and 64.3% respectively in 2009, significantly strengthened their liquidity positions. The growth was backed by the active expansion of their branch networks and sales and marketing resources, on top of the active promotion of the "PUBLIC BANK" brand name in these countries.

The Group's operations in Hong Kong and China has expanded to 80 branches in Hong Kong and 3 branches in Shenzhen in the People's Republic of China presently, with a further 2 branches in Hong Kong and 1 more branch in Shenzhen to be opened in 2010.

CAMPU Bank, the largest bank in Cambodia by balance sheet size, presently has 15 branches, with another 11 branches targeted to be opened in 2010.

In addition, the Group currently has 7 branches in Vietnam, 3 in Laos and 1 in Sri Lanka. There are plans to open another 2 new branches in Vietnam and 1 new branch in Laos this year.

Developing fee-based income
The Public Bank Group continued to develop its fee-based income from unit trusts, bancassurance and wealth management products, in order to further enhance 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. Five new unit trust funds were launched in 2009, bringing the total number of funds managed to 72. Total net asset value of funds under management recorded an impressive growth of 53% from RM23.3 billion as at the end of 2008 to RM35.6 billion as at the end of 2009. This has resulted in an increase in market share from 39% to 43% over the same period, whilst equity funds and Islamic funds market shares stood at 57% and 56% respectively. At the end of 2009, the total number of fund-accounts in Public Mutual increased to 2.3 million with a unit trust consultants force of above 40,000. With the strong support and confidence of unitholders, coupled with the significant expansion of its force of unit trust consultants, Public Mutual is well positioned to continue its market share gains and profitability growth when the market improves further.

In 2009, the Public Bank-ING Bancassurance partnership was considered the fastest growing bancassurance provider in the industry, moving up to 2nd position from 7th place in 2008, based on the volume of new business generated. The Public Bank Group continued to develop its bancassurance business through significant investment in the bancassurance business infrastructure and continued offerings of new products. The Group have also recruited 265 bancassurance sales executives as at the end of 2009 with plans to increase the bancassurance sales force to 600 over the medium-term.

Declaration of a 2nd interim dividend
In view of Public Bank's strong profit performance in 2009, a second interim cash dividend of 25 sen was paid and a share dividend of 1 Public Bank treasury share for every 68 shares held was distributed on 13 February 2010. Together with the first interim dividend of 30 sen paid in August 2009, the total gross dividend for 2009 would comprise 55 sen gross cash dividend and a share dividend which is equivalent in value to a gross cash dividend of 22.2 sen based on Public Bank's share price of RM11.30 as at 31 December 2009. Therefore, the equivalent value of the total gross cash dividend for 2009 is 77.2 sen. This translates to a total dividend payout of 79.3% for 2009, and a healthy gross dividend yield of 6.8%.

Capital management
The Public Bank Group has always sought to maintain a healthy level of capital to support the growth of the Group's business, whilst continuing to maintain strong returns to its shareholders.

The distribution of the share dividend from the Bank's treasury shares is one of the capital management strategies adopted by the Group to maintain a higher level of equity capital whilst still providing a high return to shareholders. The 146 million treasury shares distributed in 2008 and 2009 as share dividends had enabled the Group to preserve a total equity capital of RM1.4 billion, enhancing the capital ratios of the Group by 1.1%. Subsequent to the share dividend distribution, the Bank will continue to hold 29.7 million treasury shares with a total value of RM328 million which are available to further enhance the Group's core equity capital.

In 2009, Public Bank undertook various capital initiatives to further strengthen the Group's capital structure to support its business expansion. This includes the issuance of RM2.1 billion Non-Innovative Tier-1 Stapled Securities and RM473 million Subordinated Notes, which were partly used to refinance the early redemption of its USD350 million Subordinated Notes issued in 2004.

With the various capital initiatives undertaken during the year, coupled with its strong profitability, the Public Bank Group's risk-weighted capital ratio improved from 13.1% in 2008 to 14.2% in 2009 whereas its core capital ratio improved from 7.7% to 9.9% over the same period.

In light with the recent proposed changes to the Basel II capital accord which sets out broadly more stringent capital requirements, particularly in respect of core equity capital, the Group will ensure continued proactive capital management in order to maintain a healthy level of capital at all times to support business growth whilst maximising shareholders' returns.

Second largest non government-linked listed company by market capitalisation
Since the end of 2002, Public Bank's share price had risen by 203% from RM3.64 per share to RM11.04 per share as at 1 March 2010. Public Bank's market capitalisation has increased by 3.5 times from RM10.97 billion as at the end of 2002 to RM38.97 billion. In 2002, Public Bank's market capitalisation was only 42% that of Maybank, being the largest in the banking sector by market capitalisation. Today, the Bank's market capitalisation amounts to 78% of Maybank's market capitalisation.

Recently, on 20 January 2010, Public Bank's market capitalisation of RM42.67 billion stood at its historical high since its listing in 1967. Today, Public Bank is the second largest non government-linked company listed on Bursa Securities 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 135,400 Public Bank shares worth RM1.49 million based on the Public Bank share price of RM11.04 as at 1 March 2010. In addition, the shareholder would have received a total gross dividend of RM633,000 in this period. This translates into a total value of RM2.13 million, representing a remarkable compounded rate of return of 20% annually for each of the 42 years since its listing in 1967.

Over the last 14 months since the beginning of 2009, the Public Bank shares have provided a total return of 40%, inclusive of the cash and share dividends during the period. Over the medium-term of 5 years since the beginning of 2005, an investor would have enjoyed a superior total return of 116%, or compounded 19% annually, over the 5-year period.

Outstanding KPIs
Over the past 5 years, the Public Bank Group has shown sterling business growth and outstanding financial performance. As at the end of 2009, total assets of the Group stood at RM217.1 billion, which has more than doubled when compared to RM92.4 billion five years ago. Over the past 5 years, the Group recorded a compounded average loan growth rate of 19.3% per year which was doubled that of the industry average of 9.1%. Deposits also grew strongly at a compounded average growth rate of 20.9% which outpaced the industry average of 11.2% over the past 5 years.

Over this same period of 5 years, the Group's net return on equity improved significantly from 19.1% in 2005 to 26.1% in 2009, with a surge in the Group's net profit by 73% in this 5 years. Net NPL ratio improved to 0.8% in 2009, less than half as compared to 1.7% in 2005.

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 Group's net return on equity of 26.1% is the highest in the Malaysian banking industry and is well above the average of 14.3% achieved by the other 5 banking groups. The Group's cost to income ratio of 34.4% is the lowest in the industry, significantly lower than the latest available industry average of 46.4%. The Group's asset quality remained the best in the industry with the lowest net NPL ratio of 0.8%.

When benchmarked against leading regional banks, Public Bank Group's net return on equity of 26.1% is the highest in the region. The Group is also amongst the top three best performing banks in terms of cost efficiency and dividend payout. Over the medium term, the Group aims to achieve a higher net return on equity of 30%.

Corporate responsibility
Public Bank remains committed to bring sustainable benefits to the community and the environment it operates in. These include contributions through education, healthcare, youth and community activities and support of the underprivileged.

Public Bank continues to support the on-going Public Bank Tree Planting- Climate Change Programme in collaboration with the Malaysian Nature Society, with the planting of up to 20,000 trees.

Public Bank has also been actively channeling 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 RM3.6 billion since 2004.

An award winning bank
A total of 54 awards and recognition of excellence were conferred on Public Bank in 2009, including 10 Best Bank or 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 (10th time)
• Best Managed Company by FinanceAsia (3rd time)
• Best Domestic Bank by The Asset (7th time)
• Best Retail Bank in Asia Pacific by The Asian Banker (1st time)
• Best Retail Bank in Malaysia by The Asian Banker (5th time)
• Best Bank in Malaysia by Alpha Southeast Asia (2nd time)
• Malaysia's Best Managed Company by Asiamoney (2nd time)
• Best Bank in Malaysia by Euromoney (10th time)
• Best Banking Group in Malaysia by World Finance (1st time)
• Best Emerging Market Bank in Malaysia by Global Finance (4th time)

For the seventh consecutive year, Public Mutual is again the biggest recipient of The Edge-Lipper Malaysia Fund Awards with a total of 10 awards won in 2010, including the Best Overall Group Award. Some of the other awards which Public Mutual received in 2009 are:

• Morningstar 2008 Fund Awards (Malaysia) (2nd time)
• AsianInvestor 2009 Investment Performance Award for Best Malaysia Onshore Fund House (2nd time)
• 2008 Asia Asset Management (AAM) 2008 Best of the Best Country Awards for Best Fund House - Malaysia and Best House for Offshore Funds - Malaysia (2nd time)
• Best Malaysian Islamic Bond Fund Manager for 5-year category by Failaka Advisors, Dubai (1st time)
• The Most Outstanding Islamic Fund Manager at the KLIFF (Kuala Lumpur Islamic Finance Forum) Islamic Finance Awards 2009 (3rd time)

Corporate governance
Public Bank's record of excellence in corporate governance continued to be validated by various top corporate governance rankings and awards.

In recognition of Public Bank's top performance on the Malaysian Corporate Governance Index 2009, the Bank was awarded the Overall Excellence Award and the Best AGM Conducted in 2009 Award by the Minority Shareholder Watchdog Group.

Amongst various corporate governance awards received in 2009, Public Bank was awarded the Malaysian Business- CIMA Enterprise Governance Awards 2009 for being the overall winner for the second consecutive year and for Best Returns to Shareholders and Best Corporate Social Responsibility by the Malaysian Business publication.

The Public Bank's 2008 Annual Report won 3 top NACRA awards, including the Overall Excellence Award for the 9th time.

Outlook
For 2010, the global economic outlook remains cautious albeit with emerging signs of gradual global economic recovery. The operating environment for banks in Malaysia is expected to improve in 2010, on the back of the economic growth momentum built up since the second half of 2009.

The Public Bank Group's solid performance in 2009 reaffirms the continued soundness of its proven business strategies and the Group is confident that it is well placed to deliver another strong profit performance in the current financial year.

To achieve this, the Group will continue to expand its lending and deposit-taking businesses at rates higher than the industry's growth rates, accelerate its growth in fee-based revenue, maintain its strong asset quality and further improve its cost efficiency, leveraging on its wide branch network, superior PB Brand and service excellence.

The Group will continue to carry out a balanced strategy to cater for the potential need of higher equity capital for business growth and most importantly, maximising its shareholders' returns.

Barring unforeseen circumstances, shareholders can expect the healthy dividend payout to continue.

Tan Sri Dato’ Sri Dr. Teh Hong Piow
Chairman
 

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Y.Bhg. Tan Sri Dato' Sri Dr. Teh Hong Piow
Chairman of Public Bank

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In conjunction with the Golden Tiger Year, Public Bank is pleased to announce the launch of the "PB Gold Rush" Campaign which offers more than RM800,000 worth of gold to reward customers for banking with Public Bank. This campaign will run until 31 July 2010.

The "PB Gold Rush" Campaign offers more than 6 kilograms of gold at 99.9% fineness in the Bank's Gold Investment Account. A total of 118 prizes is up for grabs comprising 18 monthly prizes of 18 grams of gold per customer each month and 10 main prizes that offers the Grand Prize at 1kg worth of gold, 1st prize at 1/2kg of gold, 2nd prize at 1/3kg of gold and 3rd prize at 1/4kg of gold. The Gold Investment Account is an account which allows individual customers to invest in the purest available gold commodity in 99.9% fineness at daily prices for 1 gram in Ringgit Malaysia (RM) and the trading is carried out through a passbook.

The "PB Gold Rush" Campaign is open to all new and existing Public Bank and Public Islamic Bank customers who are individuals aged 18 years old and above.

Each new account / investment signed up for selected deposits, loans, investment, hire purchase and bancassurance products will put customers in the running to win. The chances of winning the gold prizes increase when customers sign up more products with the Bank.

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I am pleased to announce that the Public Bank Group achieved another year of strong performance with a pre-tax profit of RM3.32 billion and net profit of RM2.52 billion for 2009, on the back of a strong 10.2% growth in net interest and financing income. In the previous year, the Group's pre-tax profit of RM3.38 billion included a significant one-off goodwill income of RM200 million in respect of the bancassurance distribution alliance with ING Asia/Pacific Limited ("ING"). Excluding this one-off income, the Group's underlying operating pre-tax profit improved by 4.5%. We are pleased to have delivered a strong set of results for the year, driven by steady revenue growth, above industry rate of loan growth, strong asset quality, cost efficiency and uncompromising prudent risk management. The Group's 2009 results are again a testament to the strength of the PB Brand and the resilience of the Group's core businesses in times of economic uncertainty.

The Public Bank Group's improved profit was mainly due to continued strong growth in net interest and financing income by RM435 million or 10.2% to stand at RM4.71 billion in 2009, despite the negative impact on net interest margins arising from the reduction in the Overnight Policy Rate on three occasions between November 2008 and February 2009. This was mainly driven by loan growth and core customer deposits growth which remained strong at 14.4% and 14.8% respectively, whilst the Group's net non-performing loans ("NPL") ratio continued to be capped at below 1%.

Other operating income amounted to RM1.40 billion in 2009, an increase of 11.4%, excluding the RM200 million one-off goodwill income from ING recorded in the previous year's other operating income. The growth was mainly due to higher income from the unit trust management business and investment income from securities held.

The improved profit performance translated into a net return on equity of 26.1% and earnings per share of 73.3 sen for 2009.

In view of the Public Bank Group's sustained strong performance, the Board of Directors has declared a second interim cash dividend of 25 sen less 25% tax and a share dividend to be distributed from the treasury shares of Public Bank, on the basis of 1 Public Bank share for every 68 existing shares held. Based on the share price of Public Bank (Local) shares of RM11.30 each as at 31 December 2009, the value of the share dividend per Public Bank share is equivalent to a gross cash dividend of 22.2 sen. Together with the first interim dividend of 30 sen less 25% taxation, which was paid in August 2009, the total dividend for 2009, inclusive of the share dividend, is equivalent to a gross cash dividend per share of 77.2 sen. The total net dividend for 2009, including the share dividend, amounts to RM1,997 million and represents a total payout of 79.3% of the Group's net profit for the year. The Board of Directors does not propose any final dividend for 2009.

Highlights of the Public Bank Group's Performance

• Net profit attributable to shareholders was RM2.52 billion as compared to RM2.58 billion in 2008. Excluding the one-off goodwill income from ING in 2008, the Group's underlying operating net profit increased by 3.3%.
• Net return on equity remained strong at 26.1%.
• Earnings per share was 73.3 sen, showing an uptrend on a quarter-to-quarter basis, with 17.4 sen in the first quarter, 17.7 sen in the second quarter, 18.5 sen in the third quarter and 19.7 sen in the fourth quarter of 2009.
• Cost to income ratio remains efficient at 34.4%, and was significantly lower than the industry average of 46.4%.
• Total assets expanded by RM20.9 billion or 10.7% to stand at RM217.1 billion as at the end of 2009.
• Total loans and advances expanded by 14.4% or RM17.3 billion in 2009 to stand at RM137.6 billion as at the end of 2009, significantly above the banking industry's annualised loan growth of 7.4% for the first eleven months of 2009.
• Total customer deposits increased by 13.0% or RM19.7 billion to stand at RM170.9 billion as at the end of 2009.
• Core customer deposits grew strongly by 14.8% or RM16.4 billion to stand at RM127.6 billion as at the end of 2009 as compared to the banking industry's annualised growth rate of core customer deposits of 6.9% for the first eleven months of 2009.
• As at the end of November 2009, the Group's domestic market share of loans and advances and core customer deposits rose to 15.9% and 15.1% respectively from 14.8% and 14.7% respectively as at 31 December 2008.
• Gross NPL ratio remained below 1%, which was significantly lower as compared to the banking industry's gross NPL ratio of 3.4% as at November 2009. Loan loss coverage stood at 172% which is almost two times of the banking industry loan loss coverage ratio of 92%.
• With the improved results in 2009, the Group's and the Bank's risk-weighted capital ratio rose to 14.2% and 13.6% respectively, from 13.1% and 12.8% respectively as at 31 December 2008, after the payment of the second interim dividend.

Highlights of the Public Bank Group's Performance for the Fourth Quarter as compared to the Third Quarter of 2009

• Profit before taxation grew by 5.1% or RM44 million to RM900 million from RM856 million for the third quarter of 2009.
• Net profit grew by 6.1% to RM678 million.
• Net interest and financing income achieved a strong growth of 7.3% in the fourth quarter of 2009, due to continued healthy loans and deposits growth.

Continued Strong Organic Loan Growth and Increasing Market Share

The Public Bank Group achieved a strong loan growth of 14.4% or RM17.3 billion to reach RM137.6 billion as at the end of 2009. This growth rate significantly exceeded the banking industry's annualised loan growth rate of 7.4% as at November 2009. The Group achieved its targeted loan growth for 2009 and this has translated into a stronger position in the market place.

In 2009, the Public Bank Group's domestic loans and advances expanded strongly by 16.8%, driven mainly by financing of residential properties and passenger vehicles, as well as commercial lending to small- and medium-sized enterprises ("SMEs"), which collectively accounted for 78% of the Group's loan portfolio as at the end of 2009. This has led to the Group's market share of domestic loans and advances rising to 15.9% as at the end of November 2009, from 14.8% as at the end of 2008.

Public Bank Group's domestic loan approvals and loan applications rose by 21.9 % and 26.3% respectively in 2009 as compared to the previous year. Housing loan approvals were particularly strong, recording an increase of 39.3% in 2009.

In support of the Government's fiscal stimulus efforts and the banking industry's commitment in meeting the needs of SMEs in the more challenging economic environment, particularly in respect of working capital financing, the Public Bank Group actively promoted the Government's Working Capital Guarantee Scheme for its SMEs customers. In 2009, a total of RM10.3 billion of new domestic SMEs loans was approved, which accounted for 21.7% of the Group's total domestic loans approved of RM47.5 billion for the year.

Sustained Strong Asset Quality

The strong financial performance of the Public Bank Group has consistently been underpinned by its strong asset quality, with the Group's NPL ratios remaining the lowest in the Malaysian banking industry. Despite achieving significantly higher rates of loan growth as compared to that of the banking industry, the Group's gross and net NPL ratios continue to stand at below 1% as at the end of 2009, as compared to the banking industry's gross and net NPL ratios of 3.4% and 1.9% respectively as at the end of November 2009.

As at the end of 2009, the Public Bank Group's loan loss coverage ratio further increased to 172% as compared to 160% as at the end of 2008, which was almost twice the average coverage ratio of 92% for the banking industry. The growth in the Group's loan loss coverage was primarily due to additional general allowance set aside for the strong loan growth. The Group's general allowance of RM2.05 billion as at the end of 2009 was about 2 times of the entire net NPL amount of RM1.10 billion, despite that more than 90% of the NPLs outstanding are secured.

Strong Growth in Core Customer Deposits

The Public Bank Group's customer deposits grew by RM19.7 billion to RM170.9 billion, representing a healthy growth rate of 13.0%, which was mainly supported by growth in its core customer deposits funding base. Core customer deposits of the Group grew by RM16.4 billion or 14.8% to RM127.6 billion which was double that of the pace of growth of the banking industry's core customer deposits of 6.9%. For the year, core customer deposits which comprise fixed deposits, savings accounts and current accounts grew by 12.3%, 20.1% and 20.5% respectively. The overall strong deposit growth boosted the Group's market share of domestic core customer deposits to 15.1% as at the end of November 2009.

The Public Bank Group continues to experience strong core customer deposits growth which reflects on the Group's strong domestic franchise and a stable funding base to support the Group's continued strong loan growth.

The Public Bank Group's overseas subsidiaries, in particular Public Financial Holdings Group ("PFHG") in Hong Kong and Cambodian Public Bank Plc ("CAMPU Bank") also delivered strong deposits growth of 17.2% and 64.3% respectively in 2009. The growth was backed by the active expansion of branch network and sales and marketing resources, on top of the active promotion of the "PUBLIC BANK" brand name in these countries. Presently, PFHG has 72 branches in Hong Kong and 3 branches in Shenzhen in the People's Republic of China. CAMPU Bank, the largest bank in Cambodia by balance sheet size, has 15 branches as at the end of 2009.

With the strong customer deposits growth matching the high loan growth rate, the Public Bank Group's liquidity position remained strong with net loans to deposits ratio standing at 79.2% as at the end of 2009.

Expansion of Wealth Management Products and Services

With the continued strong support and confidence of unit holders, coupled with its large and growing force of over 40,000 unit trust consultants, Public Mutual, Public Bank's wholly-owned unit trust and fund management subsidiary delivered strong performance in 2009, with its overall market share of the private sector unit trust management business rising to 43% as at the end of 2009 from 39% as at the end of 2008. Public Mutual's market share of equity funds and Islamic funds grew to 57% and 56% respectively, from 54% and 52% respectively a year ago. For 2009, the profit contribution of the Group's fund management segment grew by 16.1% to RM212.8 million.

Public Mutual's net asset value of funds under management stood at RM35.6 billion as at 31 December 2009, representing a 53% growth from RM23.3 billion as at the end of 2008. Public Mutual's total unit trust sales for the year stood at RM7.6 billion of which RM4.9 billion was achieved during the second half of 2009. Five new unit trust funds were launched during the year and the number of account holders in Public Mutual has grown to 2.3 million. Public Mutual's large agency force of over 40,000 unit trust consultants represents a highly potent distribution channel to drive the business of Public Mutual when the market for unit trusts improves further.

In 2009, the Public Bank-ING Bancassurance partnership was considered the fastest growing bancassurance provider in the industry, moving up to 2nd position from 7th place in 2008, based on the volume of new business. The Public Bank Group continued to develop its bancassurance business through significant investment in the bancassurance business infrastructure and continued offerings of new products. The bancassurance business is supported by a dedicated sales force of 265 Bancassurance Sales Executive as at 31 December 2009, and this number is set to grow to 600 by 2014. A total of 20 products have been launched since the inception of the bancassurance partnership at the start of 2008. The core bancassurance offering known as the One Solution Plan is a whole-life regular premium unit-linked product offering a series of 7 packages to suit a wide range of insurance needs of customers of the Group. The sales of overall bancassurance products in terms of annualised premium equivalent increased by 31% in 2009 as compared to the previous year and the trend is set to continue with more bancassurance product offerings in the pipeline.

In order to provide more investment options to its customers, Public Bank launched 3 principal protected structured investment products, namely the "PB USA Recovery", the "PB Templeton Global Asian Focus" and the "PB Templeton BRIC" funds. Despite the difficult market condition, all these new products generated good customer response with total investments of RM219 million.

Capital Position Remains Strong

The Public Bank Group proactively manages its capital position to ensure a healthy level of capital with sustainable and strong returns to shareholders. The capital position of the Group was further enhanced with the issuance of capital securities, particularly non-innovative Tier-1 stapled securities and subordinated debt securities.

During the year, Public Bank has taken various capital initiatives which included the issuance of RM2.09 billion of Non-Innovative Tier 1 Stapled Securities and RM473 million of Subordinated Notes. These were partly to refinance the early redemption of its USD350 million (RM1.2 billion equivalent) Subordinated Notes issued in 2004 on the optional redemption date of these Subordinated Notes. These initiatives were taken to further enhance both the Public Bank Group's and the Bank's capital structure to support business expansion plans of the Group and the Bank.

As at the end of 2009, the Public Bank Group's risk-weighted capital ratio ("RWCR") and core capital ratio ("CCR") rose to 14.2% and 9.9% respectively, after deducting the second interim dividends for 2009, as compared to 13.1% and 7.7% respectively as at the beginning of the year. Public Bank's RWCR improved to 13.6% from 12.8% as at the end of 2008 and was significantly above the minimum statutory requirement of 8%.

Group Prospects

As the Malaysian economy gradually builds its growth momentum on the back of improved economic conditions in the second half of 2009, the operating environment for banks in Malaysia is expected to improve in 2010.

Going forward, the Public Bank Group will continue to pursue its strategy of strong organic business growth, maintaining its superior quality loan portfolio and improving its productivity. At the same time, the Group will continue with its efforts to further reinforce the strong PB Brand, enhance its risk management capabilities and uphold its strong corporate governance culture and practices. The Group, having overcome the many challenges faced thus far, will be stronger and more resilient as a leading financial services provider and is well set to sustain its growth trajectory as the economic recovery becomes more entrenched.

Barring unforeseen circumstances, the Public Bank Group is expected to maintain its earnings momentum and continue to record satisfactory performance in 2010.

Tan Sri Dato’ Sri Dr. Teh Hong Piow
Chairman

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Y.Bhg. Tan Sri Dato' Sri Dr. Teh Hong Piow
Chairman of Public Bank
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Public Bank's annual Sales Convention, held on 18 January 2010, was attended by 1,500 Senior Management and sales-related staff from both its domestic and overseas operations.

The Founder and Chairman of Public Bank, Tan Sri Dato' Sri Dr. Teh Hong Piow, said that the Sales Convention, which is held annually in January, is aimed at setting key business directions as well as aligning strategies and action plans of sales teams in the Public Bank Group to the Group's 2010 sales and business targets.

Tan Sri Teh said that the Public Bank Group will, in 2010, continue to build on its healthy loans and deposits growth, whilst maintaining strong asset quality. The Public Bank Group will also drive its Islamic operations and its fee-based portfolio, which include bancassurance and financial planning products and services.

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Tan Sri Teh with the Top 5 Sales Achievers
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Good things come in pairs. Public Bank Berhad proved so with the recent launch of the brand new Manchester United Visa Debit Card and the new card design for Manchester United Visa Credit Card. As the tag line aptly describes "One Glorious Team, Two Distinct Cards", the new Manchester United Visa Debit Card and Visa Credit Card will definitely appeal to all Manchester United supporters in Malaysia.

Public Bank understands that Manchester United supporters' passion for their favourite team knows no boundaries, and therefore endeavours to provide greater rewards and privileges to all passionate Manchester United fans. While the Manchester United Visa Credit Card caters to adults age 21 years old and above with a minimum annual income of RM18,000, the Manchester United Visa Debit Card opens the door to younger fans age 12 years old and above with no income requirement.

It is ideal for Manchester United fans who seek further affiliations with the prestigious club, while they enjoy unique privileges which other cards cannot provide. Manchester United supporters who subscribe to the Manchester United Visa Credit Card and/or Manchester United Visa Debit Card will get to enjoy a host of exclusive, money-can't buy Manchester United memorabilias and experiences.

In line with the new card launch, a limited edition Manchester United water bottle awaits new Manchester United Visa Credit Cardholders with minimum RM200 retail purchase within the first month of cardmembership, while Manchester United Visa Debit Cardholders can expect a limited edition Manchester United mouse pad with minimum RM100 retail purchase within the first month of cardmembership. Both offers are on first come first served basis.

During the promotional period from 1 January to 30 June 2010, Manchester United Cardholders stand a chance to own an exclusive piece of Manchester United player signed memorabilia. Public Bank is giving away 10 Manchester United Individual Player Signed Home Jerseys, 20 Player Signed Pennants and 10 action prints every month under its Monthly RedRewards Contest and 10 Manchester United Team Signed Jerseys and Manchester United Individual Player Signed Home Jerseys respectively under its Ultimate RedRewards Contest to Cardmembers with the highest numbers of transactions using the Manchester United Cards.

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The Public Bank is pleased to announce that Public Bank has entered into a business arrangement with Bank of China (Malaysia) Berhad to offer Chinese Yuan Fixed Deposits ("CNY FD") and Chinese Yuan Current Accounts ("CNY CA") to the public so as to provide more currency options for customers of Public Bank's foreign currency deposit accounts services.

The CNY FD and CNY CA are offered to individuals aged 18 years and over. All eligible Malaysian and non-resident individuals are allowed to open a CNY FD and/or CNY CA at any of Public Bank's branches nationwide. Interest on the CNY FD currently ranges from 0.70% p.a. to 0.80% p.a. depending on the tenure and 0.40% p.a. on the CNY CA. For the placement of CNY FD, the initial minimum deposit amount is RM10,000 equivalent in CNY for tenures of 1, 3, 6 and 12 months, whilst for the CNY CA, the initial minimum deposit amount is USD1,000 equivalent in CNY.

In conjunction with the launch of the CNY FD and CNY CA, Public Bank will run a promotional campaign until 31 March 2010 to create awareness and publicity for the new CNY FD and CNY CA. During this promotional campaign period, customers are offered additional interest rates of up to 2% p.a. and preferential foreign exchange rates for eligible customers. In addition, a free limited-edition mug will be given to early bird customers.

With the People Republic of China's move to liberalise the use of the Chinese Yuan in the international market, Public Bank anticipates good response from the public for these new products.

For more information on this two new products, customers may visit their nearest Public Bank branch, call free-phone at 1-800-22-9999 during office hours, or visit Public Bank's website at www.pbebank.com.

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The Public Bank Group today announced a net profit attributable to shareholders of RM1.84 billion for the first nine months of 2009, on the back of a strong 9% growth in net interest and financing income. For the corresponding period in 2008, the Group's net profit of RM1.93 billion included a significant one-off goodwill income in respect of the bancassurance distribution alliance with ING Asia/Pacific Limited ("ING"). Excluding this one-off income, the Group's underlying operating net profit improved by 3% over the same period in 2008.

The higher net interest and financing income, despite the negative impact arising from the reduction in Overnight Policy Rate ("OPR") on three occasions since November 2008, was attributable to the sustained high rate of growth in both quality loans as well as customer deposits whilst asset quality remained stable. Other operating income increased by 10% to stand at RM1.03 billion in the first nine months of 2009 after excluding the RM200 million one-off goodwill income from ING in 2008. The growth was mainly due to higher investment income from securities held, as well as higher foreign exchange profit during the nine months ended 30 September 2009.

The Public Bank Group's quarterly net profit in the first nine months of 2009 has shown a consistently upward trend with net profit of RM589 million in the first quarter, growing by 3.6% to RM611 million in the second quarter, and increasing further by 4.6% to RM639 million in the third quarter.

The Public Bank Group achieved a strong annualized loans growth and core deposit growth of 14.3% and 19.5% respectively, significantly exceeding the banking system's annualized growth of 6.8% for loans and 6.3% for core customer deposits. The Group's non-performing loans ("NPL") ratio remained stable at below 1.0%.

Highlights of the Public Bank Group's Performance

• Net profit attributable to shareholders was RM1.84 billion for the nine months ended 30 September 2009 as compared to RM1.93 billion in the previous corresponding period. Excluding the one-off goodwill income from ING in 2008, the Group's underlying operating net profit increased by 3% as compared to the corresponding period last year.
• Annualised net return on equity ("ROE") stood at 25.5%.
• Cost to income ratio remains efficient at 34.6%.
• Earnings per share ("EPS") was 53.7 sen, showing an uptrend on a quarter-to-quarter comparison of 17.5 sen in the first quarter, 17.7 sen in the second quarter, and 18.5 sen in the third quarter of 2009.
• Net profit of RM639 million for the third quarter of 2009 represents a strong growth of 4.6% as compared to RM611 million achieved in the second quarter of 2009.
• Total assets expanded by RM12.9 billion or 6.6% during the current period to stand at RM209 billion as at the end of September 2009.
• Total loans and advances increased to RM133.6 billion as at the end of September 2009, representing a growth of 10.7% for the nine-month period to 30 September 2009, with the Group's domestic market share for loans and advances rising to 15.8% as at August 2009, from 14.8% as at the end of 2008.
• Total customer deposits grew by 12.6% during the first nine months of 2009 to stand at RM182.7 billion as at the end of September 2009.
• Core customer deposits achieved a strong growth of 14.6% for the first nine months of 2009 to stand at RM128.8 billion as at the end of September 2009, leading to an increase in the Group's market share of core deposits to 15.6% as at August 2009 from 14.7% eight months earlier.
• Net NPL ratio of the Group remains below 1.0% as at the end of September 2009, significantly lower than the banking industry's net NPL ratio of 2.1% as at August 2009. Loan loss coverage stood at 171% which is almost two times of the banking industry loan loss coverage ratio of 90%.
• Risk-weighted capital ratio ("RWCR") of the Group remains healthy at 12.7% as at the end of September 2009, despite the early redemption of USD350 million Subordinated Notes in September 2009.

Continued Strong Organic Loan Growth and Increasing Market Share

The Public Bank Group's total loans, advances and financing increased by RM12.9 billion or 10.7% in the nine-month period to RM133.6 billion as at the end of September 2009. This translates to an annualized loan growth rate of 14.3%, which was well above the banking industry's annualized loan growth rate of 6.8%. Consequently, the Group's market share of loans and advances increased further to 15.8% as at the end of August 2009, from 14.8% as at the end of 2008.

"We are on track to achieve the targeted 14% to 15% loan growth for 2009, supported by demand from small- and medium-sized business enterprises and increases in housing loans and motor vehicle hire purchase financing", said Tan Sri Dato' Sri Tay Ah Lek, Managing Director / Chief Executive Officer.

The growth in loans and advances was well distributed, with strong growth in the retail consumer banking sectors for the financing of residential properties and passenger vehicles and commercial lending to small- and medium-sized enterprises ("SMEs"), which collectively accounted for 78% of the Group's loan portfolio as at the end of September 2009. Public Bank's domestic loan approvals and loan applications rose by 17% and 20% respectively in the first nine months of 2009 as compared to the previous corresponding period. Housing loan approvals was particularly strong, recording an increase of 28% during the same period.

In support of the Government's fiscal stimulus efforts and the banking industry's commitment in meeting the needs of SMEs in the more challenging economic environment, particularly in respect of working capital financing, the Public Bank Group actively promoted the Government's Working Capital Guarantee Scheme for its SMEs customers. As a result of these initiatives, a total of RM7.7 billion of new domestic SMEs loans were approved, which accounted for 21% of the Group's total new domestic loans approved of RM36.1 billion for the first nine months of 2009.

Sustained Strong Asset Quality

Public Bank Group's asset quality continued to remain strong. The Group's gross and net NPL ratios stood at below 1% as at the end of September 2009, as compared to the banking industry's gross and net NPL ratio of 3.8% and 2.1% respectively as at August 2009. The Group's annualized credit charge-off rate remained low and stable at 0.29% for the first nine months of 2009.

Public Bank Group's strong asset quality was further complemented by its healthy loan loss coverage ratio of 171% as at the end of September 2009, which was almost twice the coverage ratio of 90% for the banking industry as at the end of August 2009. The increase in the Group's loan loss coverage from 160% as at the end of 2008 was primarily due to additional general allowance set aside for the strong loan growth. The Group's general allowance of RM1.99 billion as at the end of September 2009 was about 2 times of the entire net NPL amount of RM1.09 billion, despite that more than 90% of the NPLs outstanding are secured.

Strong Growth in Customer Deposits

Total customer deposits of Public Bank Group rose by RM20.4 billion or 12.6% to stand at RM182.7 billion as at the end of September 2009, which was mainly supported by growth in its core customer deposits funding base.

Total core customer deposits of the Public Bank Group increased by RM16.4 billion or 14.6% to RM128.8 billion in the nine-month period to 30 September 2009, which was more than 3 times that of the pace of growth of the banking industry's core customer deposits of 4.2% for the first eight months of 2009. Fixed deposits, savings deposits and demand deposits grew by 14.7%, 14.5% and 14.4% respectively in the first nine months of 2009, which boosted the Group's market share of core customer deposits to 15.6% as at the end of August 2009 as compared to 14.7% as at the end of December 2008.

Tan Sri Dato' Sri Tay Ah Lek said that, "the strong core deposits growth reflects the strength of the Public Bank Group's domestic franchise and underscores a stable base for funding the Group's strong loan growth. The stability of our core deposit base is being sustained even in times of economic and financial distress."

The Public Bank Group's overseas operations also contributed to the deposits growth, in particular Public Financial Holdings Group ("PFHG") in Hong Kong and Cambodian Public Bank Plc ("CAMPU Bank"). PFHG and CAMPU Bank registered deposits growth of 15.6% and 53.6% respectively in the first nine months of 2009 as a result of their extensive efforts in growing their respective deposit bases.

Expansion of Wealth Management Products and Services

Public Mutual, Public Bank Berhad's wholly-owned unit trust and fund management subsidiary, delivered strong performance in the first nine months of 2009. Public Mutual's net asset value ("NAV") of funds under management stood at RM33.8 billion as at the end of September 2009, 45% higher than the NAV of RM23.3 billion as at the end of 2008. Consequently, Public Mutual's overall market share of the private sector unit trust management business rose to 44% as at the end of September 2009 from 39% as at the end of 2008. Public Mutual's total unit trust sales of RM6.1 billion during the period showed a rising trend, with sales achievement of RM3.7 billion in the third quarter of 2009, as compared to RM0.7 billion and RM1.7 billion in the first and second quarters of 2009 respectively. The number of account holders in Public Mutual has grown to 2.2 million. Public Mutual's large agency force of over 40,000 unit trust consultants represents a highly potent distribution channel to drive the business of Public Mutual when the market for unit trusts improves further.

The Public Bank Group continued to develop its bancassurance business through significant investment in the infrastructure and continued offerings of new products. The sales of bancassurance products increased by 64% in the nine months to 30 September 2009 as compared to the previous corresponding period. In particular, the sales of the Group's flagship regular premium product, namely the "One Solution Plan", grew by 12 folds during the period. The bancassurance and wealth management sales force currently number 589. In order to provide wider investment options to its customers, Public Bank launched 3 principal protected structured investment products, namely the "PB USA Recovery", the "PB Templeton Global Asian Focus" and the "PB Templeton BRIC" funds in the first nine months of 2009. Despite the difficult market condition, all these new products generated good customer response.

Capital Position Remains Strong

On 22 September 2009, Public Bank fully redeemed its issue of USD350 million 5.625% Subordinated Notes. After the redemption, the Public Bank Group's risk-weighted capital ratio continued to remain strong at 12.7% as at the end of September 2009. At the parent Bank level, the risk-weighted capital ratio and core capital ratio stood at 11.0% and 12.1% respectively.

The adoption of FRS 139 with effect from 1 January 2010 and the adoption of the Basel II Internal Rating Based approach will further strengthen the parent Bank's and the Group's capital ratios going forward.

Group Prospects

Tan Sri Dato' Sri Tay Ah Lek also said that, "as the global recession begins to recede and with recovery on the horizon, the outlook for the banking industry is expected to improve. However, margins continue to be under pressure due to continued intense competition."

The Public Bank Group will continue to pursue its strategy of strong organic business growth, as well as maintain its superior quality loan portfolio and improved productivity. At the same time, the Group will enhance its risk management capabilities and continue to uphold its strong corporate governance culture and practices.

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In the spirit of sharing and caring, Public Bank as a socially responsible corporate citizen donated RM30,000 to the Institut Jantung Negara (IJN) Foundation in support of the Foundation's new children's wear line called "Heartthrob Biri", the proceeds from the sales of which would go towards helping poor and needy children undergoing treatment at the Institute.

The cheque amount, being part of the sales proceeds of Public Bank Founder and Chairman Tan Sri Dato' Sri Dr. Teh Hong Piow's biography entitled Teh Hong Piow - A Banking Thoroughbred, was presented by Public Bank's General Manager of Public Affairs Division, En. Razak Dali, to Datin Julini Mohd Ali, Chairman of IJN Foundation's Fundraising and member of the Board of Trustees of IJN Foundation, yesterday at the IJN Hospital.

Public Bank also gave 60 child heart patients a reason to smile in this festive season by sponsoring a hamper and RM50 duit raya for each of these children who are presently undergoing surgical procedures or are recuperating in the intensive care units. Staff from the Bank were on hand to present these goodies to the children at the IJN Paediatric Ward.

The IJN has been a CSR partner of the Bank since 2007, with the Bank donating RM100,000 each year to the IJN Foundation in the past two years to assist financially needy heart patients requiring treatment at the Institute.

The "Heartthrob Biri" children's wear line consists of more than 20 designs of clothes and hand-painted shoes for children ranging from two to 12 years old. The clothes and shoes are sold at an outlet in the IJN Hospital, with prices ranging from RM16-90 to RM50-90.

Public Bank had also hosted a two-day sale from 14 to 15 September 2009 at Menara Public Bank, Jalan Ampang, to promote this line of children's wear to its 2,000-strong staff based at the Bank's headquarters.

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Bringing cheer to the children: Datin Julini and En. Razak presenting a goody bag and duit raya to one of the children at IJN's paediatric ward


En. Razak presenting the cheque to Datin Julini, accompanied by staff of Public Bank and IJN Foundation

I am pleased to announce that the Public Bank Group achieved a net profit of RM1.2 billion in the first half of 2009 as compared to RM1.3 billion in the corresponding period of 2008 which included a one-off goodwill payment of RM200 million from ING Asia/Pacific Limited ("ING") in January 2008 in respect of the Group's regional bancassurance distribution alliance with ING. Excluding the non-recurring one-off goodwill payment, the Group's underlying operating net profit improved by 3% over the same period in 2008 despite the more challenging operating environment and the negative impact on net interest margin arising from the Overnight Policy Rate ("OPR") reductions between November 2008 and February 2009 totalling 1.50%.

On a quarter-to-quarter comparison, the Group turned in a profit before taxation of RM820 million in the second quarter of 2009, a healthy 10% growth from RM745 million in the first quarter of 2009.

The growth in the Group's half-year profit was mainly due to continued healthy growth in net interest and financing income by RM180 million or 9%, driven by the Group's expanding loan and deposits businesses and sustained strong asset quality, despite the negative impact of the OPR reductions on net interest margin and the lagging effect of deposits re-pricing. The improved net profit performance translates into an annualized net return on equity of 26.0% and earnings per share of 35.1 sen for the first half of 2009.

The Public Bank Group's total gross loans increased by a healthy 7.2% in the first half of 2009, whilst asset quality remained strong with the Group's net NPL ratio capped at below 1%.

In view of the sustained strong performance of the Public Bank Group, the Board of Directors is pleased to declare an interim dividend of 30% less 25% taxation, which will result in a total payout of RM777 million.

Highlights of the Public Bank Group's Performance in the First Half of 2009

• Net profit attributable to shareholders was RM1.2 billion as compared to RM1.3 billion in the previous corresponding period. Excluding the one-off RM200 million goodwill payment received in January 2008, the Group's underlying operating net profit increased by RM34 million or 3% as compared to the corresponding period last year.

• Annualised net return on equity ("ROE") stood at 26.0%.

• Earnings per share ("EPS") was 35.1 sen, with EPS showing an uptrend on a quarter-to-quarter comparison of 17.4 sen in the first quarter of 2009 and 17.7 sen in the second quarter of 2009.

• Total assets crossed the RM200 billion mark for the first time, standing at RM204.0 billion as at the end of June 2009.

• Total loans and advances grew by RM8.7 billion or 7.2% in the first six months of 2009, to reach RM129.4 billion as at the end of June 2009, significantly above the banking industry's loan growth of 1.2% for the first five months of 2009.

• Core customer deposits grew strongly by 11.5% in the first six months of 2009 to stand at RM125.3 billion as at the end of June 2009 as compared to the banking industry's growth rate of 2.9% during the first five months of 2009.

• As at the end of May 2009, Public Bank's domestic market share of total loans and core customer deposits rose to 15.5% and 15.2% respectively as compared to 14.8% and 14.7% respectively as at 31 December 2008.

• Net non-performing loans ("NPL") ratio of the Group remained below 1% as at the end of June 2009, significantly lower than the banking industry's net NPL ratio of 2.2% in May 2009. The Group's loan loss coverage of 173% is about twice the banking industry's ratio of 87%, and continues to be the highest and most prudent in the Malaysian banking industry.

• The Group's risk-weighted capital ratio ("RWCR") rose to 13.9% as at the end of June 2009 from 13.1% as at the end of 2008, after deducting the interim dividend for 2009.

• Profit before taxation grew by 10% or RM75 million to RM820 million from RM745 million in the first quarter of 2009.

• Other operating income grew by 25% or RM73 million, mainly attributed to the increase in unit trust management fees as well as net brokerage and commission from stockbroking activities.

• Net interest and financing income expanded by 4% or RM44 million to RM1.1 billion due to continued healthy loan and deposits growth.

• Cost to income ratio improved to 34.1% as compared to 35.6% in the first quarter of 2009, reflecting continued improvement in productivity and efficiency.

• Credit charge-off ratio remains low and stable at 0.29%.

• The quantum of NPLs decreased by RM24 million from the end of previous quarter to stand at RM1.2 billion as at the end of June 2009, despite a RM3.7 billion loan growth in the second quarter of 2009.

Continued Strong Growth in Quality Loans

Over the six-month period, the Public Bank Group's loans and advances to customers grew by RM8.7 billion or 7.2% to reach RM129.4 billion as at the end of June 2009. This rate of growth significantly exceeded the 1.2% loan growth rate recorded by the banking industry for the first five months of 2009. As a result, the Group's domestic market share of loans and advances rose to 15.5% as at the end of May 2009 from 14.8% as at the end of 2008.

The Public Bank Group's retail banking franchise remained strong, with loans for the financing of residential properties and passenger vehicles and lending to mid-market commercial enterprises accounting for 77% of the Group's total loan portfolio as at the end of June 2009. The Group continued to record strong loan approvals during the period. Total loans approved and loan applications for the first half of 2009 increased by 17% and 18% respectively as compared to the corresponding period in 2008. Comparing the second quarter of 2009 against the first quarter of 2009, loan approvals and loan applications recorded a much higher growth of 25% and 21% respectively.

In support of the Government's efforts to ensure accessibility to bank credit by small- and medium-sized enterprises ("SMEs") as these SMEs meet the challenges of the slowing economy, Public Bank and Public Islamic Bank have been actively promoting the Government's Working Capital Guarantee Scheme for their SME customers to finance their working capital needs. In the first six months of 2009, the Group approved a total of RM5.0 billion of domestic SMEs loans, which accounted for 21% of the Group's total new domestic loans approved of RM24.4 billion for the same period.

Sustained Strong Asset Quality

Amidst the more challenging operating environment, the Public Bank Group's asset quality had remained strong. Over the six-month period, the amount of NPLs decreased by RM2 million to stand at RM1.2 billion as at the end of June 2009, despite a RM8.7 billion growth in the total loan base. The Group's gross and net NPL ratios stood at below 1% as at the end of June 2009, as compared to the banking industry's gross and net NPL ratios of 4.0% and 2.2% respectively as at the end of May 2009.

The sustained low NPL position of the Public Bank Group is due to its prudent lending policies and quality customer base as well as various proactive initiatives taken to assist borrowers to meet their repayment obligations.

On a quarter-to-quarter comparison, the Public Bank Group's stable level of new net NPL formation was reflected by the ratio of net new NPL to gross loans of 0.13% in the second quarter of 2009 as compared to 0.14% in the preceding quarter. Over the three-month period, the quantum of NPLs has decreased by RM24 million despite a RM3.7 billion growth in the total loan base in the second quarter of 2009. The Public Bank Group's credit charge-off rate remained low at 0.29% in the first half of 2009.

The NPLs of the Public Bank Group is well-covered, with loan loss coverage ratio further increasing to 173% as at the end of June 2009, as compared to the banking industry's coverage ratio of 87% as at the end of May 2009. The increase in the Group's loan loss coverage from 160% as at the end of 2008 was mainly contributed by additional general allowance set aside for the strong loan growth rate during the period. The Group's general allowance of RM1.9 billion as at the end of June 2009 was almost two times that of the entire net NPL amount of RM1 billion, despite that more than 90% of the NPLs outstanding are secured.

Strong Expansion in Core Customer Deposits

The Public Bank Group also achieved a healthy growth of 7% in its total customer deposits during the first half of 2009 to RM173.8 billion, mainly attributed to the strong growth in core customer deposits.

The Public Bank Group's core customer deposits increased by RM12.9 billion or 11.5%, which was more than three times the pace of the banking industry's core deposit growth of 2.9% for the first five months of 2009. Fixed deposits, savings deposits and demand deposits of the Group registered strong growth of 12%, 10% and 9% respectively which resulted in the Group's domestic market share of core customer deposits increasing to 15.2 % as at the end of May 2009 as compared to 14.7% as at the end of 2008.

The Public Bank Group's overseas operations also contributed to the deposits growth, in particular Public Financial Holdings Group ("PFHG") in Hong Kong and Cambodian Public Bank Plc ("Campu Bank"). PFHG and CAMPU Bank registered deposits growth of 9% and 20% respectively during the first half of 2009 as a result of their extensive efforts in growing their respective deposit bases. Presently, PFHG has 72 branches in Hong Kong and 3 branches in Shenzhen in the People's Republic of China with another 2 branches scheduled to be opened before the end of 2009. CAMPU Bank is currently the largest bank in Cambodia by balance sheet size, operating with 13 branches as at the end of June 2009 and with a further 5 branches scheduled to be opened in the second half of 2009.

As a result of the healthy customer deposits growth, the Public Bank Group's liquidity position remained strong with net loans to deposits ratio standing at 73.2% as at the end of June 2009.

Wealth Management Products and Services

The Public Bank Group's unit trust and fund management business, carried on by its wholly-owned subsidiary, Public Mutual Berhad, continued to maintain its market leadership in the private unit trust industry despite the weaker market conditions which prevailed in the first quarter of 2009. Public Mutual's market share of the Malaysian private sector unit trust management industry increased from 39% at the end of 2008 to 44% as at the end of June 2009. The number of Public Mutual unit trust consultants currently stands at over 40,000 while the number of investors in Public Mutual unit trusts has grown to 2.15 million. In the second quarter of 2009, Public Mutual achieved an improved unit trusts sales of RM1.7 billion as compared to RM727 million in the first quarter of 2009. Public Mutual's net assets under management stood at a record RM30.6 billion as at the end of June 2009, an increase of RM7.3 billion or 31% over the six-month period to June 2009.

The Public Bank Group is quickly building its bancassurance and wealth management businesses and continues to expand its sales force which currently number 529. In the second quarter of 2009, Public Bank launched a new principal protected structured investment product called the PB USA Recovery, which generated good response from customers.

Capital Position Remains Strong

On 5 June 2009, Public Bank issued RM1.2 billion of Stapled Securities to enhance its capital adequacy ratios. The Stapled Securities comprised Non-Cumulative Perpetual Capital Securities ("NCPCS") of RM1.2 billion issued by Public Bank, and an equivalent nominal value of Subordinated Notes issued by a wholly-owned subsidiary, PBFIN Berhad. The tenor of the NCPCS is perpetual whilst the Subordinated Notes have a maturity of fifty years due on 5 June 2059, with the first optional redemption date of the NCPCS of 5 June 2019. The issuance of the Stapled Securities had strengthened Public Bank's RWCR and core capital ratio ("CCR") by 1.2% and 1.4% respectively.

The Public Bank Group's RWCR improved to 13.9% as at the end of June 2009 from 13.1% at the beginning of the year, after accounting for the interim dividend for 2009 and was well above the statutory minimum requirement of 8%. As at the end of June 2009, Public Bank's RWCR and CCR rose to 13.6% and 11.2% respectively from 12.8% and 10.1% as at the end of 2008.

The forthcoming adoption of FRS 139 with effect from 1 January 2010 and the adoption of the Basel II Internal Rating Based approach will result in further enhancement of Public Bank's and the Public Bank Group's core capital ratios and risk-weighted capital ratios.

Group Prospects

Despite the slowing economy, the banking industry in Malaysia remained resilient, supported by its strong capitalization, stable asset quality and improved risk management practices.

The Public Bank Group will continue to pursue its strategy of strong organic business growth, as well as maintain a high quality loan portfolio and improved productivity. Barring unforeseen circumstances, the Group is expected to continue to record satisfactory performance for the rest of 2009.

Tan Sri Dato' Sri Dr. Teh Hong Piow
Chairman
 

  

Tan Sri Dato' Sri Dr. Teh Hong Piow
Chairman of Public Bank

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