Public Bank’s 3Q earnings feel impact of OPR reduction

by FARA AISYAH/ pic by BLOOMBERG

PUBLIC Bank Bhd’s net profit for the third quarter ended Sept 30, 2019 (3Q19), fell marginally to RM1.36 billion from RM1.38 billion a year ago on negative impact of the cut in the Overnight Policy Rate (OPR) by Bank Negara Malaysia in May.

Earnings per share for the period was 35.1 sen versus 35.64 sen in 3Q18. The bank’s quarterly revenue decreased slightly to RM5.61 million from RM5.62 million in the same period last year.

For the cumulative nine months (9M19), Public Bank’s net profit dropped marginally to RM4.11 billion, while revenue increased 2.25% year-on-year (YoY) to RM16.8 billion.

“Recent developments in the operating environment posed further challenges to the banking industry,” Public Bank founder, chairman emeritus, director and advisor Tan Sri Dr Teh Hong Piow said in a statement yesterday.

He added that while macro headwinds remain, the reduction in OPR in May resulted in the decline in net interest margins for the banking sector, which affected the profit for the first nine months.

Despite these concerns, Teh said the Public Bank group was able to sustain stable profit performance, mainly on account of the fixedinterest income from its growing financing and deposit business.

The group’s profitability was also complemented by its non-interest income which grew by 5.8% in 9M19.

Its competitive strength remains with its efficient cost-to-income ratio at 34.3% and low gross impaired loans ratio of 0.5%. As a result, it sustained a resilient net return on equity of 13.3%.

During the nine months period, Public Bank’s total loans rose annually by 4.2% to RM327.2 billion.

On the domestic front, total loans grew by an annualised rate of 4.4%, higher than the banking system’s annualised loan growth of 3.3%.

Deposits grew at an annualised rate of 3.2% to RM347.2 billion in total.

Domestic deposits rose by an annualised rate of 3.4%, which was higher compared to the domestic banking system’s annualised deposit growth of 2%.

Non-interest income grew by 5.8% in 9M19 led by higher investment income and banking fee income.

The group also maintained a high impairment provision, as reflected in its loan loss coverage of 117.6%, which was well above the banking industry’s loan loss coverage of 88.8%.

Including additional regulatory reserves set aside of RM1.9 billion, the group’s loan loss coverage would be higher at 230.5%.

Despite the persistence of adverse developments in the macro environment largely stemming from the external front, the domestic banking sector is likely to continue facing headwinds weighing on revenue growth.

Teh said Public Bank will maintain a cautious stance and will pursue business expansion.

“Pockets of opportunities remain for banks to explore in the growing Malaysian and regional economies. These include sustained demand for affordable housing and new growth opportunities arising from the advancement of digital banking,” he said.