RAM Ratings reaffirms Public Bank’s AAA/Stable/P1 ratings

Published on 23 April 2014

RAM Ratings has reaffirmed Public Bank Berhad’s (the Group) AAA/Stable/P1 financial institution ratings as well as the respective ratings of Public Bank’s and PBFIN Berhad’s outstanding debt instruments.

The financial institution ratings are anchored by Public Bank’s entrenched franchise in the consumer and SME segments, along with its superior asset quality. The Group remains the market leader in the domestic residential property mortgages, automobile financing and commercial property loans. It is also systemically important as one of the top three largest banking groups in Malaysia by asset size. Public Bank’s comfortable funding and liquidity positions as well as sound capitalisation continue to support its loan expansion. That said, compared to other AAA-rated Malaysian banking groups, Public Bank has a relatively small regional presence.

Public Bank’s superior asset quality is unrivalled in the industry, underscored by its prudent credit-risk management. The Group’s gross impaired-loan ratio of 0.7% is low juxtaposed against the industry average of 1.8%. Although some asset-quality slippage in its hire-purchase (HP) segment was observed, Public Bank’s overall asset quality is expected to stay resilient. We note that the Group has tightened its credit-underwriting standards and approval processes in early 2011; vintage analysis shows that HP loans originated after 2011 have lower delinquency rates.

The Group’s above-industry loan growth, firm grip on cost-efficiency and low credit costs have been anchoring its solid profit track record. Although profitability indicators have been trending downwards of late amid industry-wide margin compression, they are still healthy. Meanwhile, Public Bank’s pro forma common-equity tier-1 capital ratio as at end-December 2013 will decline to 8.2% if we were to factor in new regulations that require a minimum collective assessment plus regulatory reserve ratio of 1.2%. This ratio is lower than its peers’, albeit still sound relative to its commendable risk profile and robust loan-loss buffers.