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Public Bank's 44th Annual General Meeting Held On 2 March 2010 |
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| In conjunction with Public Bank's 44th Annual General Meeting held on 2 March 2010, I am pleased to present a review of the Public Bank Group's performance in 2009. Financial
performance In 2009, the Public Bank Group achieved pre-tax profit of RM3.32 billion and net profit of RM2.52 billion. Excluding the effects of the RM200 million one-off goodwill income from the ING bancassurance alliance in 2008, the Group's underlying pre-tax profit grew by 4.5% in 2009. The strong profit performance was driven by steady net interest income growth, above industry rate of loan growth, sustained strong asset quality and high staff productivity. The improved underlying profit performance in 2009 translated into a net return on equity of 26.1% and earnings per share of 73.3 sen. Continued
strong loan growth The Group's lending activities remained focused on the financing of residential properties and passenger vehicles, as well as loans to mid-market commercial enterprises. These three sectors accounted for 78% of the Group's total loan portfolio. The Group's financing of residential properties grew by 18% to RM38 billion as at the end of 2009. Passenger vehicle hire purchase financing grew by 8% to RM31.6 billion. Public Bank is the No.1 financier for residential mortgage and passenger vehicles in the domestic market, with market shares of 16.6% and 24.6% respectively. Total domestic loan approvals in 2009 grew strongly by 22% with housing loan approvals growing particularly strongly by 39% as compared to 2008. Public Bank continued to strongly support the government's efforts in promoting the financing of SMEs. Of the total domestic loans approved of RM47.5 billion in 2009, RM10.3 billion was for commercial loans to SMEs. This benefited about 44,000 SMEs in the country.
Sustained strong asset quality The Group's credit charge-off rate remained low at 0.31% in 2009. The domestic credit charge-off rate was particularly low at 0.11% in 2009, a marked improvement from 0.17% in 2008. The Group's loan loss coverage ratio increased from 160% in 2008 to 172% in 2009. This was significantly above the 94% coverage for the banking system, despite that more than 90% of the Group's NPLs are secured. The increase in the Group's loan loss coverage was due to additional general allowance set aside for the strong loan growth in 2009 whilst the amount of non performing loans remained stable. Moving forward, with the Group's prudent lending policies, healthy customer base and the pre-emptive measures taken to assist borrowers to meet their repayment obligations, the Group targets to maintain its low NPL ratios at below 1%. Healthy
expansion in core customer deposits The strong core deposit growth is supported by the Group's extensive network of 248 domestic branches and 1,308 Self-Service Terminals, as well as the superior ISO certified customer service delivery at the branches of the Group. With the strong deposit growth keeping pace with the growth in loans, the Group continued to maintain its strong liquidity position with the net loan to deposit ratio standing at 79%. International
operations The Public Bank Group's overseas subsidiaries, in particular Public Financial Holdings Group in Hong Kong and CAMPU Bank in Cambodia recorded strong deposits growth of 17.2% and 64.3% respectively in 2009, significantly strengthened their liquidity positions. The growth was backed by the active expansion of their branch networks and sales and marketing resources, on top of the active promotion of the "PUBLIC BANK" brand name in these countries. The Group's operations in Hong Kong and China has expanded to 80 branches in Hong Kong and 3 branches in Shenzhen in the People's Republic of China presently, with a further 2 branches in Hong Kong and 1 more branch in Shenzhen to be opened in 2010. CAMPU Bank, the largest bank in Cambodia by balance sheet size, presently has 15 branches, with another 11 branches targeted to be opened in 2010. In addition, the Group currently has 7 branches in Vietnam, 3 in Laos and 1 in Sri Lanka. There are plans to open another 2 new branches in Vietnam and 1 new branch in Laos this year. Developing
fee-based income Public Mutual, the Group's wholly-owned unit trust fund management subsidiary, continued to maintain its market leadership position. Five new unit trust funds were launched in 2009, bringing the total number of funds managed to 72. Total net asset value of funds under management recorded an impressive growth of 53% from RM23.3 billion as at the end of 2008 to RM35.6 billion as at the end of 2009. This has resulted in an increase in market share from 39% to 43% over the same period, whilst equity funds and Islamic funds market shares stood at 57% and 56% respectively. At the end of 2009, the total number of fund-accounts in Public Mutual increased to 2.3 million with a unit trust consultants force of above 40,000. With the strong support and confidence of unitholders, coupled with the significant expansion of its force of unit trust consultants, Public Mutual is well positioned to continue its market share gains and profitability growth when the market improves further. In 2009, the Public Bank-ING Bancassurance partnership was considered the fastest growing bancassurance provider in the industry, moving up to 2nd position from 7th place in 2008, based on the volume of new business generated. The Public Bank Group continued to develop its bancassurance business through significant investment in the bancassurance business infrastructure and continued offerings of new products. The Group have also recruited 265 bancassurance sales executives as at the end of 2009 with plans to increase the bancassurance sales force to 600 over the medium-term. Declaration
of a 2nd interim dividend The distribution of the share dividend from the Bank's treasury shares is one of the capital management strategies adopted by the Group to maintain a higher level of equity capital whilst still providing a high return to shareholders. The 146 million treasury shares distributed in 2008 and 2009 as share dividends had enabled the Group to preserve a total equity capital of RM1.4 billion, enhancing the capital ratios of the Group by 1.1%. Subsequent to the share dividend distribution, the Bank will continue to hold 29.7 million treasury shares with a total value of RM328 million which are available to further enhance the Group's core equity capital. In 2009, Public Bank undertook various capital initiatives to further strengthen the Group's capital structure to support its business expansion. This includes the issuance of RM2.1 billion Non-Innovative Tier-1 Stapled Securities and RM473 million Subordinated Notes, which were partly used to refinance the early redemption of its USD350 million Subordinated Notes issued in 2004. With the various capital initiatives undertaken during the year, coupled with its strong profitability, the Public Bank Group's risk-weighted capital ratio improved from 13.1% in 2008 to 14.2% in 2009 whereas its core capital ratio improved from 7.7% to 9.9% over the same period. In light with the recent proposed changes to the Basel II capital accord which sets out broadly more stringent capital requirements, particularly in respect of core equity capital, the Group will ensure continued proactive capital management in order to maintain a healthy level of capital at all times to support business growth whilst maximising shareholders' returns. Second
largest non government-linked listed company by market capitalisation Recently, on 20 January 2010, Public Bank's market capitalisation of RM42.67 billion stood at its historical high since its listing in 1967. Today, Public Bank is the second largest non government-linked company listed on Bursa Securities by market capitalisation.
Superior returns to shareholders An investor who had bought 1,000 shares in Public Bank when it was listed in 1967 would now have 135,400 Public Bank shares worth RM1.49 million based on the Public Bank share price of RM11.04 as at 1 March 2010. In addition, the shareholder would have received a total gross dividend of RM633,000 in this period. This translates into a total value of RM2.13 million, representing a remarkable compounded rate of return of 20% annually for each of the 42 years since its listing in 1967. Over the last 14 months since the beginning of 2009, the Public Bank shares have provided a total return of 40%, inclusive of the cash and share dividends during the period. Over the medium-term of 5 years since the beginning of 2005, an investor would have enjoyed a superior total return of 116%, or compounded 19% annually, over the 5-year period. Outstanding
KPIs Over this same period of 5 years, the Group's net return on equity improved significantly from 19.1% in 2005 to 26.1% in 2009, with a surge in the Group's net profit by 73% in this 5 years. Net NPL ratio improved to 0.8% in 2009, less than half as compared to 1.7% in 2005. Public Bank remained the clear leader in terms of profitability, cost efficiency and asset quality as compared to the 5 largest banking groups in Malaysia. In terms of profitability, the Group's net return on equity of 26.1% is the highest in the Malaysian banking industry and is well above the average of 14.3% achieved by the other 5 banking groups. The Group's cost to income ratio of 34.4% is the lowest in the industry, significantly lower than the latest available industry average of 46.4%. The Group's asset quality remained the best in the industry with the lowest net NPL ratio of 0.8%. When benchmarked against leading regional banks, Public Bank Group's net return on equity of 26.1% is the highest in the region. The Group is also amongst the top three best performing banks in terms of cost efficiency and dividend payout. Over the medium term, the Group aims to achieve a higher net return on equity of 30%. Corporate
responsibility Public Bank continues to support the on-going Public Bank Tree Planting- Climate Change Programme in collaboration with the Malaysian Nature Society, with the planting of up to 20,000 trees. Public Bank has also been actively channeling low cost funds under various funds launched by Bank Negara Malaysia to assist SMEs and micro enterprises. With its strong and rising profitability, the Public Bank Group is a major contributor to the fiscal revenue of the country with total tax payments of RM3.6 billion since 2004. An
award winning bank
For the seventh consecutive year, Public Mutual is again the biggest recipient of The Edge-Lipper Malaysia Fund Awards with a total of 10 awards won in 2010, including the Best Overall Group Award. Some of the other awards which Public Mutual received in 2009 are:
Corporate
governance In recognition of Public Bank's top performance on the Malaysian Corporate Governance Index 2009, the Bank was awarded the Overall Excellence Award and the Best AGM Conducted in 2009 Award by the Minority Shareholder Watchdog Group. Amongst various corporate governance awards received in 2009, Public Bank was awarded the Malaysian Business- CIMA Enterprise Governance Awards 2009 for being the overall winner for the second consecutive year and for Best Returns to Shareholders and Best Corporate Social Responsibility by the Malaysian Business publication. The Public Bank's 2008 Annual Report won 3 top NACRA awards, including the Overall Excellence Award for the 9th time. Outlook The Public Bank Group's solid performance in 2009 reaffirms the continued soundness of its proven business strategies and the Group is confident that it is well placed to deliver another strong profit performance in the current financial year. To achieve this, the Group will continue to expand its lending and deposit-taking businesses at rates higher than the industry's growth rates, accelerate its growth in fee-based revenue, maintain its strong asset quality and further improve its cost efficiency, leveraging on its wide branch network, superior PB Brand and service excellence. The Group will continue to carry out a balanced strategy to cater for the potential need of higher equity capital for business growth and most importantly, maximising its shareholders' returns. Barring
unforeseen circumstances, shareholders can expect the healthy dividend
payout to continue.
Tan Sri Dato’ Sri Dr. Teh Hong Piow * * * * * * * * 
Y.Bhg.
Tan Sri Dato' Sri Dr. Teh Hong Piow * * * * * * * *
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