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Public Bank Group Posted Pre-Tax Profit Of RM3.01 Billion For The First Half Of 2020

For Immediate Release

28 August 2020

Public Bank Group Posted Pre-Tax Profit Of RM3.01 Billion For The First Half Of 2020
Highlights on Financial Performance
Tan Sri Dato’ Sri Dr. Teh Hong Piow, the Founder, Chairman Emeritus, Director and Adviser of Public Bank, announced today, “For the first half year ended 30 June 2020, the Public Bank Group recorded pre-tax profit of RM3.01 billion, 15.3% lower as compared to the corresponding period in 2019. Net profit attributable to shareholders decreased by 15.0% to RM2.33 billion.”
The decline in profit was mainly attributed to a one-off net modification loss amounting to RM498 million in the second quarter of 2020, arising from the COVID-19 relief measures offered to individuals and businesses. This reflects the Group’s commitment and contribution in supporting and helping its customers to overcome financial difficulties during this challenging time.
Excluding the modification loss, the Group’s pre-tax profit and net profit attributable to shareholders declined by 1.2% in the first half of 2020, as compared to the previous corresponding period in 2019.
The Group recorded a net return on equity of 10.7% in the first half of 2020. Excluding the one-off modification loss effect, the Group’s net return on equity would have been 12.4%.
In addition to the modification loss incurred in respect of the COVID-19 related relief measures, the Group’s profitability was also affected by the compression in net interest margin due to the reductions in Overnight Policy Rate, and higher provisions set aside for the expected increase in impaired loans due to the COVID-19 pandemic. However, the adverse impact on profitability was mitigated by the continued expansion of the Group’s loan and deposit portfolio, and higher non-interest income.
Tan Sri Teh added, “In the first half of 2020, the Group registered continued expansion in loans, albeit at a more moderate pace. The Group’s total domestic loans grew at an annualised rate of 2.6%. On deposit-taking, the Group’s total domestic customer deposits posted an annualised growth rate of 3.3%. The Group’s funding position remained stable with a healthy liquidity coverage ratio of 145.7% as at the end of June 2020.”
Non-interest income continued to complement the Group’s profitability. In the first half of 2020, the Group’s non-interest income increased by 8.2%, mainly arising from unit trust business, as well as higher investment and brokerage income.
In terms of cost efficiency, the Group continued to take the lead in the banking industry. Despite the effect of the modification loss and reductions in Overnight Policy Rate, the Group’s cost-to-income ratio of 37.9% in the first half of 2020 remained significantly better than the domestic banking industry’s cost-to-income ratio of 44.7%.
Tan Sri Teh commented, “On asset quality, the Group’s gross impaired loan ratio stood at 0.4% as at end-June 2020, which remained well below the banking industry’s gross impaired loan ratio of 1.5%. The Group’s loan loss coverage ratio remained high at 158.7%. Including the RM1.9 billion regulatory reserves that the Group had set aside, its total reserves for loan losses would be higher at 301.7%.”
The unprecedented COVID-19 pandemic will pose a risk to the asset quality of the banking sector. However, the Government’s stimulus packages and Bank Negara Malaysia’s financial and monetary relief measures, including the loan moratorium, will help to mitigate the downside risks. In addition, the Group is proactively engaging its customers to provide further assistance required through restructuring and rescheduling of loans. With all these measures in place, coupled with the Group’s resilient credit profile and prudent lending practices, the potential pressure on the Group’s asset quality is expected to be manageable. 
Managing the Impact of the Unprecedented Pandemic Crisis
During this current time of challenges, the Public Bank Group continued to play a positive role in the economy and the community.
Tan Sri Teh said, “This is an unprecedented crisis. During this challenging period, the Group has been taking various measures aimed at providing support to customers, while continuing to preserve the Group’s bottom line.”
In the first half of 2020, the Group’s lending activities continued to focus on providing financing for the purchase of residential properties focusing on owner occupied properties, and lending to the small and medium enterprises (“SMEs”). In particular, the Group had been playing a very proactive role in promoting SME funds initiated by the Government and Bank Negara Malaysia.
Tan Sri Teh added, “To alleviate cash flow constraint faced by the SMEs, Bank Negara Malaysia had initiated the Special Relief Facility at a low 3.5% per annum financing rate. As at end-June 2020, the Group had approved more than RM1.7 billion financing to about 8,000 SME customers under the facility. Further, the Group is also a participating financing institution of the PENJANA SME Financing Scheme which is offered at a low financing rate of 3.5% per annum.”
In line with the reductions in Overnight Policy Rate, the Group had cut its loan and financing interest rates to pass on the benefits of lower rates to the customers. The Group also tapped on the Government’s initiatives in promoting home ownership such as the Home Ownership Campaign to further spur its house financing business.
Since the onset of the crisis, concerns about the banking industry’s asset quality have been on the rise due to customers’ cash flow constraint. Tan Sri Teh highlighted, “While the 6-month loan moratorium has helped to mitigate the impact, higher pressure on asset quality is expected after the loan moratorium ends. The Group is committed to continue providing support to assist customers to weather through the challenging period. The Group will continue to undertake proactive engagement with its customers on financial assistance. For customers who face continued financial stress, the Group has offered loan repayment plans and packages that suit the customers’ financial needs.”
On deposits, the Group recognises that the low interest rate regime would have affected the elderly customers’ income. In view of this, the Group has on 1 July 2020 rolled out the PB Journey Golden Savers campaign, offering competitive fixed deposit rates to customers aged 50 years and above. 
In addition, preserving sound balance sheet remains a key focus area of the Group. Tan Sri Teh commented, “Amid the significant economic disruption and increasing earnings pressure, the Group has placed greater emphasis on prudent cost management to preserve profitability.” 
Healthy Capital and Liquidity Position
As at the end of June 2020, the Public Bank Group’s capital position was standing strong, with its Common Equity Tier 1 Capital Ratio, Tier 1 Capital Ratio and Total Capital Ratio further strengthened to 14.0%, 14.0% and 17.2% respectively. The Group’s liquidity coverage ratio also stood at a healthy level of 145.7%.
Under the current unprecedented and exceptionally challenging environment with high level of uncertainties and significant downside risks weighing on the global economic outlook, the Group regards that careful assessment of dividend plans is crucial. As part of its prudent capital management to conserve capital and further strengthen its capital position, the Board of Directors has decided to reassess its dividend plans at year end upon finalisation of the Group’s full year results. This will ensure the Group to sustain resilient capacity to continue support its stakeholders and the wider economy on future growth path.
Tan Sri Teh reiterated, “Its strong capital and liquidity buffer will continue to enable the Group to withstand challenges ahead. The Group will always ensure it remains well-capitalised and well-funded to support its business growth and safeguard the interests of its stakeholders.” 
Group’s Prospect
The global economy has been severely impacted by the COVID-19 pandemic, with the world GDP expected to slump into negative growth this year. Amid this significant economic disruptions, governments across countries have rolled out various relief measures with the aim to mitigate the adverse impact on the economy. The pace of post pandemic recovery remains uncertain with high level of caution remaining in the economy. 
Tan Sri Teh commented, “The current condition poses an exceptional challenge. The Group views positively the significant relief measures implemented by the Government and Bank Negara Malaysia to help the nation to navigate this challenging period. Public Bank is also actively extending its assistance through monetary contribution, loan moratorium, as well as restructuring and rescheduling of loan repayment to lessen the hardship and financial burden of the people affected.”
On the Group’s strategy going forward, Tan Sri Teh concluded, “The Group will continue to focus on its organic growth strategy in retail and commercial banking. With the various measures taken to provide financial assistance to SMEs and support home ownership, the Group is of the view that there is still demand for financing. However, as the outlook remains uncertain, the Group will remain cautious and place greater focus on risk management in its pursuit of business growth. In addition, prudent cost management will remain important and the Group will continue to explore ways to further enhance its operational efficiency and productivity.”

Y.Bhg. Tan Sri Dato' Sri Dr. Teh Hong Piow
Founder, Chairman Emeritus, Director and Adviser of Public Bank

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