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 Malaysias 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. 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 corporat e banking, investment banking, banki ng, stock broking, funds managemen mana gement, 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 ( ZainalAbidin, 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. Eff ec ve use of promotional tec niques and market targeting
e. Ability to recognise relevant consum er be a viour and produce products that attract their inter ests. (Core customer deposits comprising fixed deposit (savings deposit and current account gre
by 20.2% 12.4 % and 12.5% respectively .
f.
Productive and motivated in sales
g.
Expertise in forecasting current needs and identif ying ne
mark et segm ents. (Public Bank
Islamic on mid-market commercial enterprising). 3.3 Fin
a.
n i l Financial performance of the company
b. Relationship with shareholders
c. 3.4 Op
a.
Financial performance compar ed to the other competitors tion/p odu tion Consistent product quality that meets user needs/ pref erences
b. The efficiency in terms of Public Banks cost to income ratio.
c.
4.
ethods
Strong corporate governance.
in identif in co p n s st e n ths and weaknesse s
Identif ying Public Bank strengths and weaknesses Table 1 (Determining strengths)
Table 2 (Determining weaknesses)
Table 3 (Strengths and weaknesses combined)
4.1
St en ths
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 Banks healthy profit trend shows the firms strengths and continues growth. Whilst shows how the firm hold their strong position in the industry. 3) Strong corporate governance
a. Public Banks 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 2 3 month of salary). They also offer 0% interest on staff home loan, maximum of RM2 50k.
4.2
Weaknesses 1) Poor customer service a. There was actually a complaint about Public Banks 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 Banks customers as well. However it is under control as MyCert is trying to avoid any phishers send to Public Banks 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 5.1
below is the list of important ratios to interpret Public Bank performance.
Cost to Income Ratio (to measure efficiency) 120.00 58.50
100.00
44.40
46.40
80.00 60.00
31.20
2008 52.80
40.00
49.00
48.40
2009
34.40
20.00 0.00 Public Bank
Maybank
Figure: Public Bank Cost to Income for
CIMB 5
Industry
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 .10
33 .00
3 2.70
32.00
Public Bank
31.20
31.00 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 Return on Assets %
2005
2006
2007
2008
2009
2010
2.0x
1.7x
1.7x
1.7x
2.0x
(till Q 3) 2.0x
1.9x
1.8x
1.8x
1.3x
2.3x
2.3x
1.4x
1.5x
1.8x
1.6x
1.9x
2.1x
Maybank
Return on Assets %
CIMB Return on Assets %
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 resultin g in financial embarrassment due to default.
5.3 Activity
Ratio
a. Total Asset Turnover. PB
2005
2006
2007
2008
2009
2010
%
3.02
2.57
2.69
2. 54
2.50
(till Q 3) 2.78
%
3.21
3.16
3.28
2.66
3.46
3.45
%
3.18
3.43
4.35
3.37
3.99
4.16
Maybank
CIMB
Total Assets Turnover also known as Total Assets Utilization. It measures the firms 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 Q 3 of 2010.
5.4
Profitability Ratios
a. Return on Asset PB
2005
2006
2007
2008
2009
2010
(till
Q 3) Return on Assets % Maybank Return on Assets % CIMB Return on Assets %
1.4%
1.3%
1.3%
1.4%
1.2%
1.3%
1.3%
1.3%
1.1%
0.2%
1.2%
1.2%
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 Return on Equity % Maybank Return on Equity % CIMB Return on Equity %
2010
(till Q 3)
2005
2006
2007
2008
2009
17.0%
19.6%
23.1%
27.3%
24.5%
25.6%
16.7%
17.6%
15.2%
3.1%
14.5%
14.6%
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 200 5 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 EPS
2010
(till Q 3)
2005
2006
2007
2008
2009
13.5%
17.1%
21.9%
22.3%
(4.7%)
13.1%
7.9%
12.4%
(19.1%)
(77.5%)
349.4%
252.7%
14.0%
60.0%
74.1%
(31.1%)
37.7%
46.4%
Maybank
EPS
CIMB EPS
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
No.
and reco nition 2009 and 2010
Picture
AWARDS, RECOGNITION RANKINGS RECEIVED
&
IN
AWARDED
B
2010 Autom oti e Finance
Compan of the Year 2010
1
Frost
and Sulli an
Best Foreign Exchange Provider 2011 in Malaysia in
Global Finance
the Global Finance World's Best Foreign Exchange Providers 2011.
2
Best Brands in Financial Services - Banking in the
Asia
Pacific Brands Foundation
BrandLaureate Awards 2009 2010
3
Best SME Bank in Malaysia
Alpha
Southeast Asia
2010
4
The Asian Banker Best Retail Bank in Malaysia 2009
5
6
Best Domestic Bank in Malaysia 2010
The Asset
Corporate Governance Asia
Corporate Governance Asia
Recognition Award 2009
7
Platinum Award for AllRound Excellence in Financial Performance, Management, Corporate Governance, Social Responsibility, Environmental Responsibility and Investor Relations
8
7.
The Asset
Conclusion
Internal analysis is important as it help the firm to see its position in the industry. The firms 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). Str ategic Management: Inter nal envi ronment al analysis . Selangor
DarulEhsan. Oxfor d F ajar.
