Public Bank Berhad was established by Tan Sri Dato Sri Dr. Teh Hong Piow in Kuala Lumpur on 1966. After 45 years, Public Bank has developed from a single branch to a premier-banking group in Malaysia. Public Bank Berhad has managed to penetrate other markets in Southeast Asia including Cambodia, Vietnam, Laos, Hong Kong, China and Sri Lanka. Meanwhile, the limited financial services offered by the bank also has expanded into full range of services such as personal banking, commercial banking, Islamic banking, investment banking, stockbroking, sales and management of various mutual funds, and general insurance products.
In 2011, Public Bank Group reached 401 branches and employed more than 17,500 employees. The Public Bank Group is ranked the third largest banking group in Malaysia with a total assets of RM249 billion, making them sixth largest among Southeast Asia banking groups, and the largest non-government linked corporation with market capitalization of RM47 billion at the end of 2011 (Public Bank Berhad, 2011).
Corporate Milestones
The journey of Public Bank Group began with its first branch, opened in 1966 in Kuala Lumpur. Public Bank started to expand its network by opening branches in Malacca and Ipoh. The company gained a profit of RM71, 562 in the first five months of operations. The profile of Public Bank became well known with the official opening of the bank by Malaysia's first Prime Minister, Y.T.M. Tunku Abdul Rahman and listed on Bursa Malaysia Securities Berhad in 1967. After three years of hard work, the bank paid its first dividend of 3.5% for every RM1.00 share and moved their operations to Bangunan Public Bank, the first Head Office building owned by the bank, in 1978. In 1987, the bank entered into the stockbroking field by acquisition of PB Securities Sdn Bhd.
The period of early 1990s was a remarkable period for Public Bank Group as they began to penetrate overseas market like acquisition of Public Finance Limited and listed on The Stock Exchange of Hong Kong Limited in 1991, joint- venture with Bank of Investment and Development of Vietnam and formed VID Public Bank, establishment of Cambodian Public Bank Plc, and other branches in Laos and Sri Lanka. In 1993, the bank started to provide Islamic Banking service and acquired 55% of interest in Public Mutual Berhad. In 1996, the bank moved its Head Office to Menara Public Bank.
In 2007, Public Bank entered into alliance agreement with ING Asia Pacific Limited to develop bank assurance business, Takaful business and more for next 10 years, and formed Campu Lonpac Insurance in which 55% of it is subsidized by Public Bank Group. In 2008, the Public Bank Group was ranked the largest banking group in Malaysia and second largest listed company on Bursa Malaysia Securities Berhad with market capitalization of RM36.03 billion. And the future of the bank is even brighter with establishment of ING PUBLIC Takaful Ehsan Bhd last year, a joint venture between Public Bank, Public Islamic Bank Berhad, and ING Management Holdings Sdn Bhd (Public Bank Berhad, 2011).
Corporate Strategy and Performance
To become a leader in retail banking market, Public Bank Group applies a focused and growth strategy. The strategy sets the broad- based retail consumers and small- and medium- sized enterprises ("SMEs") as the main target markets and pursues growth in the retail banking business through focusing on retail lending, deposit- taking, and fee- based businesses. At the end of 2011, the Public Bank Group reached the market shares of 18.1%, 25.8%, and 33.0% for residential mortgages, passenger vehicle financing, and commercial property financing in Malaysia, respectively. In deposit- taking business, the bank recorded a growth rate of 14.7% for total deposits from customers in Malaysia, compared to domestic banking industry's annualized growth rate of 11.8%. And the bank also reached the market share of 44.3% for fee- based businesses through Public Mutual.
To provide better services to domestic customers, Public Bank Group expanded its multiple delivery channels. At the end of 2011, the Public Bank Group has 252 branches throughout Malaysia, with 529 Automated Teller Machines, 506 Check Deposit Machines, and 496 Cash Deposit Terminals. The bank also strengthens its internet banking and mobile banking services to deliver excellent services for easy banking. The bank expanded its overseas network with 83 branches in Hong Kong, 3 branches in China, 23 branches in Cambodia, 7 branches in Vietnam, 3 branches in Laos, 1 branch in Sri Lanka, as well as 3 representative offices located in Shanghai, Shenyang, and Taipei (Public Bank Berhad, 2011).
Public Bank Services
Public Bank Berhad provides a variety of services other than the standard savings and loan services. One of the most popular services introduced by Public Bank Berhad is the PB Cards. Public Bank is also committed to giving out support for the SMEs by offering different products or services based on the SMEs' needs. Apart from that, Public bank is also involved in investments such as mutual funds and gold investment.
Public Bank Berhad basically offers Visa Cards and MasterCards. There are twelve types of cards under Visa Cards and the other eight under MasterCards. There are PB Visa Classic, Gold, Platinum, Electron, Infinite, Credit Card, Commercial Card, PB Day2Day Card, PB-Esso Mobil Visa Gold Credit card, PB-Esson Mobil Visa Debit Card, Manchester United Credit, Debit Card, and Mutual Gold-PB Visa Platinum Credit Card under Visa Cards' products.
MasterCards' products include PB MasterCard Standard, PB Executive, Gold, Platinum MasterCard, BING Credit or Debit MasterCard Paypass Card, and PB UTAR or TARC Debit MasterCard.
PB Visa Classic or PB MasterCard Standard Card members can enjoy a number of benefits including cash rebates. Besides that, Public Bank Berhad offers card members free automatic travel insurance of RM350, 000 which provides them with security and ease of mind around the world. Card members can claim for any inconvenience such as flight delay, luggage delay or loss, trip cancellation and so on.
Public Bank Berhad declared themselves as a strong partner to provide support for the SMEs. Public Bank Berhad provides services or products such as loans for working capital, project financing, and Credit Guarantee Corporation (CGC) Guarantee Schemes.
Public Bank Berhad loans working capital to SMEs by allowing SMEs the convenience of overdraft whenever the SMEs would require the funds. The interest will be charged only if the funds are used and if the overdraft amount is below RM250, 000, SMEs do not need to pay for the commitment fee for applying the overdraft amount.
Public Bank Berhad also offer SMEs for revolving credit in order to address SMEs' financing needs in a short to medium periods. With revolving credit, SMEs will have the flexibility on drawing funds when necessary and it is repayable in a month to six months term. SMEs can choose to repay in full or just the interest.
Trade financing is another service provided under working capital loans. Public Bank Berhad will handle SMEs' trade transactions efficiently through a wide range of ways such as letter of credit, trust receipt, banker's acceptance, and banker's guarantee. This will ensure that the international business community accepts SMEs.
Besides providing loans for working capital, Public Bank Berhad provides project financing as well in which the bank might choose to undertake and supply all the funds or provide the fund jointly with the other financial institutions for those viable projects. There are bridging loan, end financing, syndicated loan and banker's guarantee under project financing.
CGC Guarantee Schemes is a selection of loan schemes in order to promote the development of SMEs. Among the loan schemes selection, there are New Principal Guarantee Scheme (NPGS), Small Entrepreneur Guarantee Scheme (SEGS), Flexi Guarantee Scheme (FGS), and Rehabilitation Fund for Small Businesses (RFSB), and Special Relief Guarantee Facility (SRGF). These schemes help SMEs to receive the financing the need when they have no necessary collateral.
The third type of service provided by Public Bank Berhad will be the investments, PB series unit trust funds managed by Public Mutual Berhad. Currently, Public Mutual is promoting five categories of funds, which are equity fund, balance fund, bond fund, fixed income fund, and money market fund.
Public Bank Berhad is also introducing for Gold Investment Account, which allows customers to buy the purest gold (99.99% fineness), based on daily prices per gram in Ringgit Malaysia. This investment allows customers to get higher return from the gold price and it is better to invest in Gold rather than keep the gold physically. Furthermore, the investment in gold is convenient as the trading will be carried out online, which is through a passbook.
There are many more services that are provided by Public Bank Berhad, yet the most popular services other saving and loan will be the PB cards, services provided for SMEs, and investment. Other services such as PB mobile banking, insurance and bill payment makes customers' life much easier and convenient.
Factors & Policies Affecting Public Bank
Statutory Reserve Requirement (SRR)
It is an instrument in monetary policy for Bank Negara Malaysia (BNM) liquidity management (Finance Malaysia, 2011). Higher SRR set by the central bank will lead to lower loan growth, as there will be lesser funds to lend out and are subject to strict approval.
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Table 1.1
Source: OSK Research
Table 1.1 shows the sensitivity of different bank's statutory deposits as a percentage of total cash and interbank assets at different SRR levels. We could notice that when the SRR increase, the percentage of the total cash and interbank assets increases. Public Bank has an 8.1% of total cash and interbank assets when SRR is at 2% whereas a 24.4% of total cash and interbank assets when SRR is at 6%.
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Table 1.2
Source: OSK Research
Table 1.2 shows the bank earnings downside sensitivity to when SRR increase. Public Bank faces a -0.9% of downside when SRR is at 2% and it goes up to -3.6% when SRR is at 5%. However, their earnings downside is consider average compare to other banks as Ambank has the lowest of -1.3% and Maybank has the highest which is -5.6%. Therefore, increase in SRR could cause Bank to have a higher percentage of earnings downside.
Overnight Policy Rate
It is the interest rate at which a depository institution lends immediately available funds to another depository institution overnight (BLR.MY, 2011). Changes in the OPR could affect the base lending rate, short-term interest rates, fixed deposit rate, foreign exchange rates, long-term interest rates, the amount of money and credit, and ultimately, a range of economic variables, including employment, output, and prices of goods and services which is the micro and macro factors on the economic (BLR.MY, 2011). Banks will be facing lower net interest margins with the increasing of OPR in the statutory reserve requirements together with extreme competition, said RAM Ratings head of financial institution ratings Promod Dass (Lam, J., 2011). Malaysia's policy rate has remained unchanged since mid-2001. The overnight policy rate was adopted as a policy rate only in April 2004, with the introduction of New Interest Rate Framework (Singh, S., 2006).
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Graph 1.1
Source: www.jefferylam.com
From the graph 1.1 above, we could see that increase in OPR would cause the BLR to increase. At May 2011, when Bank Negara Malaysia announced that OPR increased to 3%, the BLR is actually standing at 6.27%. According to RHB Bank principal officer Renzo Viegas, each and every bank could set their own BLR based on their own cost and strategies (Lam, J., 2011). "If the cost structure and business strategies remain intact, when BLR adjust in tandem with every OPR increase or decrease, said Renzo (Lam, J., 2011).
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Table 1.3:
Source: www.jefferylam.com
"Banks are raising their lending rates by 30 basis points (bps) when BNM raise the OPR by 25bps to 3%" (Yong, Y. N., 2011). According to Yong (2011), the OPR only raised by 25 bps, however banks are raising their lending rates by 30bps. This is also due to the rise in the SRR from 1% to 3%. According to Table 1.3, it indicates the percentage changes of the average lending yield and the net interest margin, and it shows that public bank is at 0.17%. However, the average lending yield is still low compared to the others.
Credit Risk
Public Bank is also subjected to credit risk. Credit risk refers to the risk that a borrower may default on his or her loan. As Public Bank functions in the commercial banking industry, the bank has provided loan services for its customers.
For a bank to be successful and profitable, it needs to have proper credit risk management. Public Bank Group implements a credit risk management process to calculate observe and manage credit risk of the firm.
Public Bank has a manual called the Credit Policy Manual in which the criteria for credit measurement and extension are outlined. The manual also provides a detailed framework of the credit review, approval and monitoring processes. Furthermore, this manual classifies different types of loans and the provision systems.
According to Public Bank, "credit risk exposures are measured and monitored against credit limits and other control limits (such as connected exposures, large exposures and risk concentration limits set by the Credit Risk Management Committee and approved by the Board of Directors)" (Public Bank Group Hong Kong, 2012). Public Bank assures their credit risk by having a hierarchy of credit authority where each person on each level has to approve the credit and make sure that it is compliant to the bank's credit policy. Additionally, the bank delegates the duties of important credit function area to maintain an objective and controlled credit approval process.
Should there be any credit defaults; the recovery process is managed by an independent work-out team (Public Bank Group Hong Kong, 2012). Public Bank's credit management is conservative and controlled as the company stringently monitors every aspect of its credit policy and process. Furthermore, the company is also able to meet its obligations to its own creditors, earning it excellent credit ratings. Rating Agency Malaysia (RAM) gives Public Bank Berhad a rating of AAA for its long-term obligations and P1 for its short-term obligations (Rating Agency Malaysia, 2012).
According to RAM (2012), Public Bank has achieved 0.8% gross impaired-loan ratio in March 2012. Gross impaired-loan ratio refers to the ratio of gross non-performing loans to the total gross loans. Public Bank is also rated highly in Moody's with a rating of A3/P-1 and Standard and Poor's with a rating of A-/A-2.
Operational Risk
Like any other firm, Public Bank is also subjected to internal risks within the company. Operational risk causes losses from inefficient internal processes, system and human errors, and poor management decisions.
In order to reduce operational risk, Public Bank employs careful identification, measurement, monitoring, controlling administrative, and system factors that may affect its performance and profitability. The bank created an Operational Risk Management Committee that has specific outlined tasks including a) overseeing formal development of operational risk management policies that is comprehensive of all business activities and ensures the development of policy manuals, processes, procedures and practices and b) evaluating and assessing the adequacy of controls to manage the overall operational risks associated with business activities including physical or premise security (Public Bank Berhad, 2011).
Political Risk
Public Bank is also subjected to political risk. Political risk is considered an external factor that cannot be controlled by the firm. Because political risk cannot be controlled by the bank, Public Bank may try to reduce the impact that political risk might have on their business. One of the ways to reduce political risk is to diversify their businesses to other countries. Public Bank opened a branch in Hong Kong not only for economic reasons but also because the country is politically stable. Political risk also refers to the fiscal policies and other policies implemented by the government. Public Bank.
Other factors
During year 2003, Public Bank Group faced a very challenging situations where Malaysia and Hong Kong both affected by the Severe Acute Respiratory Syndrome (SARS). Hong Kong is where the major businesses of Public Bank Group located and Public Bank Group were affected by the poor economic conditions. Another factor that affects Public Bank's growth is war in Iraq in the beginning of 2003. However, there was a strong recovery in Malaysia in the second half year due to the disciplined fiscal policies and accommodative monetary policies of the Government. It therefore led to a rebound in the Malaysian economy and sustained the growth (Public Bank Berhad, 2003).
