Public Bank expects margin squeeze to continue

KUALA LUMPUR: Public Bank Bhd expects margins to tighten further ahead of intensifying competition in the financial sector, affecting its return on equity (ROE) moving forward.

However, managing director Tan Sri Tay Ah Lek said the bank would continue to build on its business by looking at new revenue streams in the future, with its ROE still leading the industry at 16.5 per cent.

He said this in response to a shareholder’s question at Public Bank’s annual general meeting, here, yesterday, over concerns that the bank’s ROE was on a declining trend.

“We expect the margin squeeze will continue due to tremendous and intense competition, which is going to affect ROE going forward.

“Nevertheless, our present ROE of 16.5 per cent is the highest among our peers, which is only 10 per cent on average.

“Having said that, the team will have to work very hard to increase on the revenue stream as much as possible,” he said.

On year-on-year basis, Public Bank’s ROE declined 7.8 per cent to 16.5 per cent last year, from 17.8 per cent in 2015.

In 2014, Public Bank’s ROE was at 19.9 per cent, 22.4 per cent in 2013 and 24.1 per cent in 2012.

On its lower projection in key performance indicators this year, Tay said the lower loan and deposit growth targets were set after taking into consideration the current challenging economic environment, market outlook and the moderating growth trend in the banking industry.

Public Bank expects a loan growth of six to seven per cent and targeted deposit growth of five to six per cent in line or better than industry growth.

“Public Bank will continue to grow its business organically in both domestic and overseas operations, focusing on retail consumer, commercial lending and deposit segments, as well as growing corporate loan portfolio.

“The bank will further penetrate new market segments to enhance its revenue stream, with improved cross selling and focus on growing its fee based income.

“We will also continue to drive productivity to improve its cost efficiency,” said Tay. Farah Adilla