Public Bank Q2 earnings impacted by modification loss related to Covid-19 relief measures

PETALING JAYA: Public Bank Bhd net profit in the second quarter ended June 30, 2020 fell 24.8% to RM1.00 billion from RM1.33 billion a year ago mainly due to the one-off net modification loss related to Covid-19 relief measures amounting to RM498.4 million, coupled with the negative effect of Overnight Policy rate (OPR) reductions during the period.

Its revenue dropped 15.3% to RM4.74 billion versus RM5.60 billion in the same quarter last year.

For the first half year ended June 30, 2020, its net profit decreased 15.0% to RM2.33 billion from RM2.74 billion mainly attributed to a one-off net modification loss amounting to RM498 million in the second quarter of 2020, arising from the Covid-19 relief measures offered to individuals and businesses.

Excluding the modification loss, the group’s net profit declined by 1.2% in the first half of 2020, as

compared to the previous corresponding period in 2019.

Its revenue was 8.2% lower at RM10.25 million against RM11.17 million in the previous year’s corresponding period.

Public Bank founder and chairman emeritus Tan Sri Dr Teh Hong Piow (pix) said the group recorded a net return on equity of 10.7% in the first half of 2020. Excluding the one-off modification loss effect, the group’s net return on equity would have been 12.4%.

In addition to the modification loss incurred in respect of the Covid-19 related relief measures, the group’s profitability was also affected by the compression in net interest margin due to the reductions in OPR, and higher provisions set aside for the expected increase in impaired loans due to the pandemic. However, the adverse impact on profitability was mitigated by the continued expansion of the group’s loan and deposit portfolio, and higher non-interest income.

“In the first half of 2020, the group registered continued expansion in loans, albeit at a more moderate pace. The group’s total domestic loans grew at an annualised rate of 2.6%. On deposit-taking, the group’s total domestic customer deposits posted an annualised growth rate of 3.3%. The group’s funding position remained stable with a healthy liquidity coverage ratio of 145.7% as at the end of June 2020.”

Non-interest income continued to complement the group’s profitability. In the first half of 2020, the group’s non-interest income increased by 8.2%, mainly arising from unit trust business, as well as higher investment and brokerage income.

Despite the effect of the modification loss and reductions in OPR, the group’s cost-to-income ratio of 37.9% in the first half of 2020 remained significantly better than the domestic banking industry’s cost-to-income ratio of 44.7%.

“On asset quality, the group’s gross impaired loan ratio stood at 0.4% as at end-June 2020, which remained well below the banking industry’s gross impaired loan ratio of 1.5%. The group’s loan loss coverage ratio remained high at 158.7%. Including the RM1.9 billion regulatory reserves that the group had set aside, its total reserves for loan losses would be higher at 301.7%.”

As at the end of June 2020, the Public Bank’s common equity tier 1 capital ratio, tier 1 capital ratio and total capital ratio further strengthened to 14.0%, 14.0% and 17.2% respectively. The group’s liquidity coverage ratio also stood at a healthy level of 145.7%.

Teh said as part of its prudent capital management to conserve capital and further strengthen its capital position, the board of directors has decided to reassess its dividend plans at year end upon finalisation of the group’s full year results.

On the group’s strategy going forward, Teh said the group will continue to focus on its organic growth strategy in retail and commercial banking. With the various measures taken to provide financial assistance to SMEs and support home ownership, the group is of the view that there is still demand for financing.

“However, as the outlook remains uncertain, the group will remain cautious and place greater focus on risk management in its pursuit of business growth. In addition, prudent cost management will remain important and the group will continue to explore ways to further enhance its operational efficiency and productivity.”

source https://www.thesundaily.my/business/public-bank-q2-earnings-impacted-by-modification-loss-related-to-covid-19-relief-measures-XY3717990