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 needs

b. Marketing and segmentation of the market that are suitable and strategic
c. Ability to choose and manage distribution channels
 d. Effective use of promotional techniques and market targeting
e. 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 sales
g. Expertise in forecasting current needs and identifying new market segments. (Public Bank
Islamic on mid-market commercial enterprising).

3.3 Financial
a. Financial performance of the company

b. Relationship with shareholders

c. Financial performance compared to the other competitors

3.4 Operation/production
a. Consistent product quality that meets user needs/ preferences
b. 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)

Ta
ble 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)

120.00
58.50
100.00 44.40 46.40

80.00

31.20
60.00 2008
52.80 2009
49.00 48.40
40.00
34.40

20.00

0.00
Public Bank Maybank CIMB Industry

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)
 Public Bank
35.00
34.40
34.00 33.80
33.00 33.10
32.70
Public Bank
32.00

31.00 31.20

30.00

29.00
2009 2008 2007 2006 2005

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 Ratio
PB 2005 2006 2007 2008 2009 2010
(till Q3)
Return on Assets % 2.0x 1.7x 1.7x 1.7x 2.0x 2.0x
Maybank
Return on Assets % 1.9x 1.8x 1.8x 1.3x 2.3x 2.3x
CIMB
Return 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 2.78
Maybank            
% 3.21 3.16 3.28 2.66 3.46 3.45
CIMB            
% 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 1.4% 1.3% 1.3% 1.4% 1.2% 1.3%

Assets %
Maybank
Return on
1.3% 1.3% 1.1% 0.2% 1.2% 1.2%
Assets %
CIMB
Return on
0.7% 1.1% 1.6% 1.0% 1.3% 1.4%
Assets %

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
17.0% 19.6% 23.1% 27.3% 24.5% 25.6%
Equity %
Maybank
Return on
16.7% 17.6% 15.2% 3.1% 14.5% 14.6%
Equity %
CIMB
Return on
8.8% 14.0% 20.3% 11.9% 15.0% 16.3%
Equity %

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 & AWARDED

RANKINGS RECEIVED IN BY
2010

Automotive Finance Frost and Sullivan

Company of the Year 2010

1
 Best Foreign Exchange Global Finance
Provider 2011 in Malaysia in
the Global Finance World's
Best Foreign Exchange
Providers 2011.

Best Brands in Financial Asia Pacific Brands

Services - Banking in the Foundation
BrandLaureate Awards 2009
– 2010

Best SME Bank in Malaysia Alpha Southeast Asia

2010

The Asian Banker

Best Retail Bank in Malaysia

2009
5

6 Best Domestic Bank in The Asset

Malaysia 2010
 Corporate Governance Asia Corporate Governance Asia
Recognition Award 2009
7

Platinum Award for All- The Asset

Round Excellence in
Financial Performance,
Management, Corporate
8 Governance, Social
Responsibility,
Environmental
Responsibility and Investor
Relations

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.