Public Bank’s loan growth to moderate in 3Q19

The bank has invested about RM400m in the past 3 years on IT-related expenditure


PUBLIC Bank Bhd’s loan growth is expected to moderate further for the third-quarter ended Sept 30, 2019 (3Q19) as sector-wide household lending continued to slow to 4.6% in August this year.

The country’s second-largest lender by market capitalisation may see some pressure on its net interest margin (NIM) and some decrease in interest expense due to deposit repricing, MIDF Amanah Investment Bank Bhd Research (MIDF Research) analyst Imran Yassin Mohd Yusof said.

“Loans growth could be decent but we don’t expect any significant acceleration. However, we expect asset quality to continue to be sound and this will be reflected in low credit cost, supporting earnings in 3Q19,” he told The Malaysian Reserve.

MIDF Research has an unchanged target price of RM24 on the bank, based on expectations for Malaysia’s domestic demand, particularly on private consumption, to remain robust and subsequently support loan growth, Imran Yassin added.

The banking group’s non-performing loan ratio is likely to remain under 1%, keeping the financial institution in the lead on this metric among South-East Asian peers, according to a Bloomberg Intelligence report.

“Management’s prudence and track record in managing expenses should see its cost-to-income ratio staying low, around 34% to 35% in 2019, yet slightly higher than last year’s 33%, as management steps up this year’s technology spend,” it said.

The bank has invested about RM400 million in the past three years on information technology (IT)-related expenditure, including improving its digital infrastructure.

Of the total, approximately RM90 million was spent specifically on financial technology-related initiatives.

The bank’s NIM is likely to have stabilised during the 3Q19, following a seven basis point (bps)sequential decline to 2.12% in 2Q19.

“Public Bank’s gross impaired loans remain very low, at 0.53% of total lending as of June.

“Credit costs for 2018 were a mere 5.3bps, which is a reflection of the lender’s strong credit quality,” the report said.

The bank’s net profit for the 2Q19 fell almost 5% as net interest income narrowed following the Overnight Policy Rate of 25bps cut in May.

Its share price fell to a 52-week low of RM19.28 earlier this month, due to sustained selling pressure on concerns about slower earnings growth.

Public Bank closed 0.21% higher at RM19.26 last Friday, with a market capitalisation of RM74.77 billion.