Foreign funds dump Public Bank shares

By MARK RAO / Pic By TMR

Public Bank Bhd’s shares came under heavy selling pressure from foreign funds who pared down their stakes in the bank over fears that the central bank will cut interest rate next month.

The banking group has lost 10.6% or RM9.31 billion in market value since March 1 this year to close at RM22.62 yesterday.

This is the largest decline in terms of market capitalisation when compared to peers like Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd who have lost RM2.98 billion and RM5.92 billion respectively over the same period.

Hong Leong Investment Bank Bhd senior analyst Chan Jit Hoong said Public Bank’s share price declined on a variety of reasons including fears over a lower Overnight Policy Rate (OPR), dim earnings outlook and rich valuation.

He said the bank’s high foreign shareholding from institutional investors meant it bore the brunt of the heavy sell-off noted in March.

“The bulk of the sell-off of Malaysian banking stocks was triggered by the Federal Open Market Committee (FOMC) meeting earlier this year which saw the US Federal Reserve (Fed) turn dovish,” he told The Malaysian Reserve.

“Public Bank’s high foreign shareholding meant it was among the most vulnerable [in this scenario].”

US funds, which make up of its largest foreign representation, began selling their shares in Public Bank in the middle of last month, collectively paring down their interests from 19.86% to 16.55%, according to Bloomberg data.

As of yesterday, foreign funds held a combined 38.2% stake in Malaysia’s second-largest bank by market capitalisation. This is significantly higher than Maybank’s and CIMB’s foreign shareholdings of 22% and 24.7% respectively.

While the Fed indicated as early as January this year, the end of the US Fed rate hike cycle, the FOMC meeting in March confirmed the dovish action to be implemented by the US central bank.

This lead to global growth concerns which have largely been supported by ongoing trade uncertainties, tepid economic data worldwide and prolonged weakness in commodity-related sectors.

Malaysia is no exemption and economists expect Bank Negara Malaysia to revise its OPR rate downwards when the Monetary Policy Committee meets on May 7 this year.

The central bank raised interest rates by 25 basis points to 3.25% in January 2018, and have maintained the rate since, but could revise its position to accommodate for slowing economic conditions.

A lower OPR means that Malaysian banks will have to adjust their base lending rates and subsequently shaving their interest income.

The domestic banking sector is already bracing for a slower loan growth of between 4% and 5% this year, while local banks are anticipating net interest margin (NIM) pressure from higher deposit competition.

Public Bank’s net profit grew by 2.2% year-on-year to RM5.59 billion for the fiscal year ended Dec 31 last year (FY18), largely owing to a higher net interest income and lower allowances for loan impairments recognised.

In spite of revenue for the year rising 5.7% to RM22.04 billion, the bank saw its NIM slip to 2.22% compared to the 2.28% managed
in FY17.

Chan said the overall picture for Public Bank remains intact but short-term concerns have weighed on the company’s shares.

“Its shares are oversold from a technical standpoint but fundamentally do not warrant a buy as it is difficult to foresee a share price recovery on these short-term concerns,” he said.

The banking group maintained healthy capital positions with its common equity Tier 1 and overall capital ratios at 13.1%, 13.7% and 16.3% respectively in FY18. Gross loans to fund and equity ratio also improved to 79% against the 80.7% registered in FY17.