Public Bank financial analysis

1. A brief history of Public Bank Berhad

Established in 1966 by its Founder and Chairman, Tan Sri Dato’ Sri Dr. Teh Hong Piow, Public Bank is a leading provider of financial services in Malaysia with banking operations in Hong Kong and China, Cambodia, Vietnam, Laos and Sri Lanka. In Malaysia, Public Bank is one of the most efficient banks as reflected by its low cost to income ratio.

Over the years, the Public Bank Group has been part of the strong catalysts to support Malaysia’s economic development. Since its early days, Public Bank has transformed into a strong and successful financial institution, offering a wide range of competitive and innovative products and solutions to meet its customers’ needs.

Public Bank is the most recognised brand in the Malaysian financial services industry for its strong brand promise. In terms of size, it is the third largest domestic bank in Malaysia by market capitalisation and balance sheet.

2. Public Bank product and services

Public Bank provide a wide range of banking and financial services including retail commercial banking, corporate banking, investment banking, stock broking, funds management, wealth management services , Islamic banking, home mortgage financing, vehicle hire purchase financing and commercial lending to small- and medium-sized enterprises.

3. List of strengths and weaknesses of Public Bank

To determine the actual performance of the company more precisely, a comparison among the factors discussed below need to be made ( Zainal Abidin, 20097). The factors measured can be a benchmark for comparison and are as follows:

3.1 Management

The factors that are been taken into consideration are:

a. Recruitment and selection of a workforce that are suitable and of high quality

b. Retention of capable workers

c. Highly skilled middle and top managers as a result of development programs organised

3.2 Marketing

The factors that are been taken into consideration are:

a. Identification of the customer needs and satisfying those needsb. Marketing and segmentation of the market that are suitable and strategic

c. Ability to choose and manage distribution channelsd. Effective use of promotional techniques and market targetinge. Ability to recognise relevant consumer behaviour and produce products that attract their

interests. (Core customer deposits comprising fixed deposit (savings deposit and current account grew by 20.2%, 12.4 % and 12.5% respectively).

f. Productive and motivated in salesg. Expertise in forecasting current needs and identifying new market segments. (Public Bank

Islamic on mid-market commercial enterprising).

3.3 Financiala. Financial performance of the company

b. Relationship with shareholders

c. Financial performance compared to the other competitors

3.4 Operation/productiona. Consistent product quality that meets user needs/ preferencesb. The efficiency in terms of Public Bank’s cost to income ratio.c. Strong corporate governance.

4. Methods in identifying company’s strengths and weaknesses

Identifying Public Bank’ strengths and weaknesses

Table 1

(Determining strengths)

Table 2

(Determining weaknesses)

Table 3

(Strengths and weaknesses combined)

4.1 Strengths

1) Low cost to income ratio

a. Public Bank successfully reach 34.4% which is the most efficient among Malaysian banks such Maybank and CIMB.

2) Healthy profit trend

a. Public Bank’s healthy profit trend shows the firm’s strengths and continues growth. Whilst shows how the firm hold their strong position in the industry.

3) Strong corporate governance

a. Public Bank’s pursuit of excellence in corporate governance has enhance the shareholder value. It promotes a high premium of transparency and accountability to the shareholder.

4) Strong company image

a. Public Bank are not only recognised through their financial performance but also for their achievements as a successful financial institution by winning a range of awards throughout the years. This shows that Public Bank itself is a well known brand.

5) Great staffing and perks

a. Public Bank encourage skill acquired and knowledge development (mandatory training for all level and staff). They encourage performance based reward (bonuses up to 23 month of salary). They also offer 0% interest on staff home loan, maximum of RM250k.

4.2 Weaknesses

1) Poor customer service

a. There was actually a complaint about Public Bank’s poor service. One particular customer who is a credit card user of Public Bank wishes to update his contact details via fax but was rejected. The process was slow that the customer files a complaint against the bank. The firm is stationing service ambassador approximately 500 customer service representative. Public Bank is also upgrading its service by promising to resolve any complaints by maximum of 10 days.

2) Slow online service provider

a. Another known weakness in Public Bank is the online service provider, which a lot customer complaint to be slow and this is causing dissatisfaction among the customers.

3) Product competitiveness

a. The other competitors have copycatting their core product such as unit trust and

insurance (Bancassurance).

4) Online security

a. Public Bank is having problem with their online security as phishing cases are on the rise and not to mention targeting Public Bank’s customers as well. However it is under control as MyCert is trying to avoid any ‘phishers’ send to Public Bank’s customers.

5) Limited self-service technology

a. Cash deposits and cheque deposits are only allocated at the branch. Selected locations for ATMs other than branches. Public Bank is allocating its budget to increase booth services.

5. Financial ratios and performance Indicator

Financial ratios are useful indicators of a firm's performance and financial situation. Financial ratios can be used to analyse trends and to compare the firm's financials to those of other firms or Industry. In some cases, ratio analysis can predict future bankruptcy. The components for ratios are liquidity ratio, leverage ratios, activity ratios, profitability ratios and growth ratios. However, it is important for an industry or a company to find its own specific ratio which is relevant and applicable.

Listed below is the list of important ratios to interpret Public Bank performance.

5.1 Cost to Income Ratio (to measure efficiency)

Public Bank Maybank CIMB Industry0.00

20.00

40.00

60.00

80.00

100.00

120.00

34.40

52.80 49.00 48.40

31.20

44.40

58.50

46.40

20082009

Figure: Public Bank Cost to Income for 5 years ( Average of Industry= > 40%)

Public Bank is the most efficient Malaysian bank in Malaysia. The lowest cost to income ratio (34.4%: 2009 31.2%: 2008) as compared to Industry and its closest competitors ( Maybank and CIMB)

2009 2008 2007 2006 200529.00

30.00

31.00

32.00

33.00

34.00

35.0034.40

31.20

33.1032.70

33.80

Public Bank

Public Bank

If we compare the results of Cost to Income for 5 years ( 2005-2009), Public Bank still maintain the percentage below 40% (Industry estimating) From here we can conclude, Public Bank is the most efficient Bank in utilising it resources comparing to all its competitor and Industry average.

5.2 Leverage Ratio

a. Times Interest Earned RatioPB 2005 2006 2007 2008 2009 2010

(till Q3)Return on Assets % 2.0x 1.7x 1.7x 1.7x 2.0x 2.0x

MaybankReturn on Assets % 1.9x 1.8x 1.8x 1.3x 2.3x 2.3x

CIMBReturn on Assets % 1.4x 1.5x 1.8x 1.6x 1.9x 2.1x

It means that PB is comparably average and equally the same on the ability to meet its annual interest cost as in comparison with competitors listed. From the table Public Bank and its competitors have almost similar capability to meet its interest payment obligation and the financial risk related in which shows lower risk of default. The higher ratio is important for Public Bank to extend the earning to be decline without resulting in financial embarrassment due to default.

5.3 Activity Ratio

a. Total Asset Turnover.

PB 2005 2006 2007 2008 2009 2010 (till Q3)

% 3.02 2.57 2.69 2.54 2.50 2.78Maybank

% 3.21 3.16 3.28 2.66 3.46 3.45CIMB

% 3.18 3.43 4.35 3.37 3.99 4.16

Total Assets Turnover also known as Total Assets Utilization. It measures the firm’s effectiveness in using all of its assets. The higher ratios is the better. Comparing to others competitors, Public Bank have the lease advantage on utilising the asset it have. Improvement is needed as both competitors able to meet more than 3% as compared to Public Bank which only maintain an average of 2%++. Public Bank should find a way to challenge CIMB strategy since it achieves 4.16% in the recent Q3 of 2010.

5.4 Profitability Ratios

a. Return on Asset

PB 2005 2006 2007 2008 2009 2010 (till Q3)

Return on Assets %

1.4% 1.3% 1.3% 1.4% 1.2% 1.3%

MaybankReturn on Assets %

1.3% 1.3% 1.1% 0.2% 1.2% 1.2%

CIMBReturn on Assets %

0.7% 1.1% 1.6% 1.0% 1.3% 1.4%

It measures a firm overall return on all of its assets investment. Results show the productivity of assets in producing revenues and the firm ability to control costs in its operation (ranging 1.2%-1.4%). Here we can summarize that Public Bank is consistently ensure return on its investment compared to its competitors since both competitors have ups and down in maintaining the return for an asset hold (Maybank as low as 0.2%: 2009, CIMB as low as 0.7%: 2005)

b. Return on Equity

PB 2005 2006 2007 2008 2009 2010 (till Q3)

Return on Equity %

17.0% 19.6% 23.1% 27.3% 24.5% 25.6%

MaybankReturn on Equity %

16.7% 17.6% 15.2% 3.1% 14.5% 14.6%

CIMBReturn on Equity %

8.8% 14.0% 20.3% 11.9% 15.0% 16.3%

These ratios measure of the rate of return on the investment of the common stockholder or net worth. The higher ratios the better return to the owner of the firm. From 2005 – 2010, Public Bank maintain the highest percentage of return to its shareholder. When all its competitors below 20% ROE, it keep maintaining the return to shareholder. High ratios will be favourable to owner/shareholder and will attract more investor on Public Bank shares.

5.5 Growth Ratio (Growth over Prior Year)

a. Earnings per Share (Annual Percentage Growth in EPS)

PB 2005 2006 2007 2008 2009 2010 (till Q3)

EPS 13.5% 17.1% 21.9% 22.3% (4.7%) 13.1%

Maybank

EPS 7.9% 12.4% (19.1%) (77.5%) 349.4% 252.7%

CIMB

EPS 14.0% 60.0% 74.1% (31.1%) 37.7% 46.4%

Earnings per share are important since it indicate earnings available to the owner of share. The Growth is important for us to determine the earning increment and available for shareholder. A stable Earning per share or small changes might reflect the percentage yearly. What we can see, growth of EPS by Public Bank is not much different except for year 2009 but in small figure compared to competitors, it means that it a stable EPS as compared to its competitors. As an example, Maybank offer a decline in Growth as high as 77.5% in year 2008 and CIMB also facing a decline of 31.1% in year 2008. If an investor required a stable EPS, Public Bank will be the Company of choice.

As above results on financial, we can conclude that Public Bank have it strength of healthy profit trend and Good Company image financially

6. Performance indicator

(Source: www.malaysiaco.com/business/listed-company/finance/)

Stock market can also be seen as a performance indicator for Public Bank as it also represents the strength and development of the firm, and the latest stock market for Public Bank shows a stable growth up to November 2010.

6.2 Awards and recognition 2009 and 2010

No. Picture AWARDS, RECOGNITION & RANKINGS RECEIVED IN 2010

AWARDED BY

1

Automotive Finance Company of the Year 2010

Frost and Sullivan

2

Best Foreign Exchange Provider 2011 in Malaysia in the Global Finance World's Best Foreign Exchange Providers 2011.

Global Finance

3

Best Brands in Financial Services - Banking in the BrandLaureate Awards 2009 – 2010

Asia Pacific Brands Foundation

4

Best SME Bank in Malaysia 2010

Alpha Southeast Asia

5

Best Retail Bank in Malaysia 2009

The Asian Banker

6 Best Domestic Bank in Malaysia 2010

The Asset

7

Corporate Governance Asia Recognition Award 2009

Corporate Governance Asia

8

Platinum Award for All-Round Excellence in Financial Performance, Management, Corporate Governance, Social Responsibility, Environmental Responsibility and Investor Relations

The Asset

7. Conclusion

Internal analysis is important as it help the firm to see its position in the industry. The firm’s strengths and weaknesses can also be identified. This information can also be used to determine their current competitive advantages, discover their potential advantages and possibly see what is preventing competitive advantages from being developed in the firm. The most important part is to help to firm to develop strategic planning to gain competitive advantage compared to the other competitors.

References

www.capitaliq.com

www.thestaronline.com

www.publicbank.com

www.maybank.com

www.cimb.com

Zainal, and Wong. (2010). Strategic Management: Internal environmental analysis. Selangor Darul Ehsan. Oxford Fajar.