RAM Ratings assigns AAA rating to Public Bank’s proposed debt facility

Published on 09 April 2013

RAM Ratings has assigned an AAA long-term rating to Public Bank Berhad’s (“Public Bank” or “the Group”) proposed up to RM5 billion Senior Medium-Term Notes Programme (“Proposed Senior MTN Programme”). At the same time, we have reaffirmed Public Bank’s respective long- and short-term financial institution ratings at AAA and P1, along with the respective ratings of Public Bank’s and PBFIN Berhad’s (“PBFIN”) outstanding debt instruments. All the long-term ratings have a stable outlook. 

Instrument	Long-term rating	Rating outlook
Public Bank Berhad
RM1.2 billion Innovative Tier-1 Capital Securities (2006/2036)	AA2	Stable
Up to RM5 billion Subordinated Medium-Term Notes Programme (2008/2023)	AA1	Stable
Up to RM5 billion Non-Cumulative Perpetual Capital Securities (“NCPCS”) under the Non-Innovative Tier-1 Stapled Securities Programme (2009/2066)	AA2	Stable
Proposed up to RM5 billion Senior Medium-Term Notes Programme	AAA	Stable
PBFIN Berhad
Up to RM5 billion Subordinated Notes (“Sub Notes”) under the Non-Innovative Tier-1 Stapled Securities Programme (2009/2066)	AA2	Stable

Note:
Each issue of NCPCS by Public Bank will be stapled to the Sub Notes issued by PBFIN. The proceeds from the Sub Notes will be lent to Public Bank as an inter-company loan, based on terms and conditions similar to those of the Sub Notes. The Sub Notes carry the same rating as the NCPCS given that Public Bank’s payment obligations to PBFIN under the inter-company loan - which will be used to cover principal and interest payments on the Sub Notes - rank pari passu with the NCPCS.

The financial institution ratings are anchored by Public Bank’s systemic importance as Malaysia’s third-largest banking group, bolstered by its reputable franchise in the consumer segment and among small- and medium-sized enterprises. The Group has leading market shares in residential mortgages, automobile financing and commercial property loans. Public Bank’s asset quality has remained the best in the industry, bearing testimony to the Group’s prudent credit culture and stringent underwriting standards. As at end-December 2012, the Group’s gross impaired-loan ratio stood at a robust 0.7%. Additionally, Public Bank has a solid profit track record given its healthy loan growth, superior asset quality and lean cost structure. The Group’s pre-tax profit of RM5.1 billion for FY Dec 2012 translates into a return on assets of 1.9% and a return on equity of 29.1% (FY Dec 2011: 2.0% and 32.4%).

Public Bank’s funding and liquidity positions remained fairly stable as at end-December 2012. Notably, the Group’s funding profile is underpinned by its extensive retail network, which provides a stable base of core deposits. The Group’s loans-to-deposits ratio has been hovering at about 87% over the past 3 years; it is expected to remain comfortable at below 90%.

The Group has benefited from a lower collective assessment rate of 0.8% (against 1.5% previously) following the full adoption of Malaysian Financial Reporting Standards 139 with effect from 1 January 2012. This has resulted in an RM859 million write-back on excess collective assessments to retained earnings. The write-back, coupled with the accretion of profit during the year, had boosted the Group’s common-equity tier-1 (“CET1”) ratio to 8.5%. Going forward, we expect the Group’s CET1 ratio to remain sound given its healthy ability to generate internal capital. As at end-December 2012, the Group’s tier-1 and overall risk-weighted capital-adequacy ratios stood at a respective 10.8% and 14.1%.

The Senior MTNs to be issued under the Proposed Senior MTN Programmme constitutes a direct unsecured obligation of Public Bank and ranks at least pari passu with all of its other present and future unsecured obligations. Proceeds from the issuance of the debt under the Proposed Senior MTN Programme will be used to fund Public Bank’s working capital as well as for general banking and other corporate purposes. Coupons under the debt facility will be paid semi-annually, in arrears.

Media contact
Gladys Chua
(603) 7628 1049
gladys@ram.com.my