Public Bank (RM 3.97 per share on 18/5/2023)

Income Statement

Public Bank Bhd
Dec 2022

 Interest Income 16.79 B

 Interest Expense 5.76 B

 Loan Loss Provision 365.56 M

 Non-Interest Income 3.33 B

Balance Sheet

Public Bank Bhd

Dec 2022

 Investments 81.84 B

 Net Loans 387.86 B

 Total Deposits 394.72 B

 Tier 1 Capital 46.78 B

 Book Value Per Share 2.59 

Comments:  

Net Loans:  Commercial & Industrial Loans 98.4B; Consumer & Installment Loans 258.1B; Broker & Financial Institution Loans 15.6B, and others.

Total Deposits:  Demand Deposits 68.7B; Savings/Time Deposits  326B.

Loans are well diversified to various borrowers.  The majority of deposits are in Saving/Time Deposits.

Cash Flow 

Public Bank Bhd

Dec 2022

 Net Financing Cash Flow +25.93 B

 Free Cash Flow +2.00 B

 Cash Flow Per Share +0.18  

 Free Cash Flow Per Share +0.14 

Free Cash Flow Yield 4.39%

Comments:  

Its net interest income = 10.66 B.  

Its non-interest income or fee income is about 31% of its net interest income.

It loans out 4.73x more than the amount it invested.

Its total deposits are more than its net loans.  

Given its Tier 1 Capital, it only has to borrow a small amount.

Earnings & Estimates 

Public Bank Bhd 

Qtr. EPS Est. +0.10  Q1 2023

Qtr. Year Ago +0.07 Q1 2022 

Ann. EPS Est. +0.35 FY 2023

Ann. Year Ago +0.32 FY 2022 

Comments:  

At RM 3.97 per share, it is trading at a future 2023 P/E of 11.3x.

Per Share Data 

Public Bank Bhd 

All values updated annually at fiscal year end 

Earnings Per Share +0.32

Sales 1.04 

Tangible Book Value 2.45

Operating Profit - 

Working Capital -8.45

Long Term Liabilities - 

Capital Expenditure 0.01

Capital Expenditure TTM 0.01 

Ratios & Margins 

Public Bank Bhd 

All values updated annually at fiscal year end 

Valuation 

P/E Ratio (TTM) 12.59 

P/E Ratio (including extraordinary items) 12.53 

Price to Sales Ratio 4.17 

Price to Book Ratio 1.67 

Price to Cash Flow Ratio 10.96 

Enterprise Value to EBITDA 11.08 

Enterprise Value to Sales 5.06 

Total Debt to Enterprise Value 0.41 

Total Debt to EBITDA - 

EPS (recurring) 0.32 

EPS (basic) 0.32 

EPS (diluted) 0.32 

Comments:  

At Price to Book Ratio of 1.67, and taking into consideration its efficiency, ROE and ROA, it is trading at a fair price.

Efficiency 

Revenue/Employee - 

Income Per Employee - 

Receivables Turnover - 

Total Asset Turnover 0.04 

Liquidity 

Current Ratio 0.14 

Quick Ratio - 

Cash Ratio - 

Profitability 

Gross Margin - 

Operating Margin +43.82 

Pretax Margin +43.88 

Net Margin +30.41 

Return on Assets 1.28 

Return on Equity 12.45 

Return on Total Capital 10.62 

Return on Invested Capital 8.88 

Comments:  

The high operating margin and the high pretax margin show that this bank is run efficiently.

The ROA and ROE are indicative of a well run and profitably run bank.

Capital Structure 

Total Debt to Total Equity 76.90 

Total Debt to Total Capital 43.47 

Total Debt to Total Assets 7.82 

Interest Coverage - 

Long-Term Debt to Equity 59.39 

Long-Term Debt to Total Capital 33.57 

Long-Term Debt to Assets 0.03

Comments:  

Its total asset/total equity is about 9.0 x.  It is not over-leveraged.  

Malaysian banks rating intact despite US bank failures - RAM Ratings

 

Malaysian banks rating intact despite US bank failures - RAM Ratings

Publish date: Sat, 18 Mar 2023, 08:06 AM

KUALA LUMPUR - RAM Rating Services Bhd (RAM Ratings) sees no rating impact on Malaysian banks from the failure of the United States Silicon Valley Bank (SVB) and two other smaller banks last week.

The rating agency said that in Malaysia, banks' credit fundamentals remained robust and resilient supported by strong regulatory supervision to weather heightened volatility in global financial markets.

"Compared to SVB, we see fundamental differences in the business and balance sheet profiles of commercial banks in Malaysia.

"Domestic commercial banks typically engage in more lending activities as opposed to relying on bond investments which are exposed to market volatility. The proportion of domestic banking system assets invested in bond securities is less than 25 per cent," it said in a statement today.

SVB, on the other hand, had more than 50 per cent of its asset base in such securities, which led to huge unrealised losses amid rapid and steep interest rate hikes in the US.

Moreover, less than 40 per cent (on average) of bond holdings in Malaysia's eight major banks are classified as held to maturity (HTM), while the rest are marked to market.

"This means that fair value losses on bond securities are already largely reflected in the banks' capital position. In contrast, SVB classified almost 80 per cent of bond securities as HTM (only a little over 20 per cent were marked to market), indicating that unrealised losses had not yet been reflected in its equity.

"HTM bonds are carried at amortised cost in the balance sheet given the intention to hold these securities to maturity, so fair valuation losses are not captured in the capital," it said.

RAM Ratings said fair value losses in Malaysian banks were also significantly smaller, thanks to Bank Negara Malaysia's (BNM) milder pace of rate hikes and banks' prudent strategy of holding shorter-tenure bonds in recent times.

The domestic banking industry's common equity tier-1 capital ratio stayed at a robust 14.9 per cent at end-2022 from 2021's 15.5 per cent.

"Further valuation losses, if any, should be less severe given the central bank's cautious stance on further rate hikes," said the rating agency, adding that banks in Malaysia are predominantly funded by customer deposits, with high granularity.

Their liquidity profiles are also sound with liquid assets to deposits ratio of around 20 per cent and a net loans to deposits ratio of 88 per cent, it added.

According to BNM, domestic banks have no direct exposure to the three failed US banks.

"The central bank's robust prudential oversight and good track record - which have been evident in previous financial crises - should ensure the continued financial stability of the Malaysian banking system," it noted.

- BERNAMA

 

https://www.nst.com.my/business/2023/03/890196/malaysian-banks-rating-intact-despite-us-bank-failures-ram-ratings

Basel III to spur secondary loan activity

Thursday October 18, 2012

KUALA LUMPUR: The implementation of Basel III next year will encourage secondary loan market activity, said CIMB Group deputy executive officer of corporate banking Datuk Lee Kok Kwan at the Asia Pacific Loan Market Association’s Malaysia conference.

Basel III, a global regulatory standard imposed by the Basel Committee on Banking Supervision, which includes representatives from 20 major world economies, requires banks to hold an increased 4.5% of common equity and 6% of Tier-1 capital of risk-weighted assets, according to the Bank for International Settlements.

Lee explained that under the proposed guidelines on Single Counterparty Exposure Limit in the region, banks will be required to observe prudential limits including a maximum 25% exposure to a single counterpart from a bank’s capital base, and a total exposure (set at 10% of a bank’s capital base) not exceeding six times the capital base.

Also, credit concentration risk will be re-examined by national regulators.

Basel III would result in higher capital requirements for longer tenor loan and bonds, in addition to more punitive liquidity requirements, he said.

“Under Basel III, banks will need to distribute and sell down loans in order to free up capital and liquidity to pursue new lending opportunities, thus leading to increased secondary loan market activity,” Lee said. — Reuters

Spain's banks hold billions of euros in properties that will be tough to sell

The Real Threat Facing Spanish Lenders

Spain's banks hold billions of euros in properties that will be tough to sell

One analyst estimates it could take 40 years for banks to unload their holdings Denis Doyle/Bloomberg

While Europe’s sovereign debt crisis grabs all the headlines, distressed real estate may pose a bigger threat to the Spanish banking system. The country’s lenders hold about £30 billion ($41 billion) of unfinished homes and land that’s “unsellable,” according to Pablo Cantos, managing partner of MaC Group in Madrid. MaC Group is a risk adviser to several leading Spanish banks. “I’m really worried about the small and medium-size banks whose business is 100 percent in Spain and based on real estate growth,” says Cantos. He adds that only bigger, more diversified lenders such asBanco Santander (STD), Banco Bilbao Vizcaya Argentaria (BBVA), La Caixa, and Bankia are strong enough to survive their real estate losses: “I foresee Spain will be left with just four large banks.”

Spain’s central bank tightened rules last year to force lenders to set aside more reserves against property seized in exchange for unpaid debts and is pressing them to sell assets rather than wait for the market to recover from its four-year decline. Yet unloading the real estate may be difficult or impossible. Bank-owned land “in the middle of nowhere” and unfinished residential units will take as long as 40 years to sell, Cantos predicts. Fernando Rodríguez de Acuña Martínez, a consultant at Madrid-based adviser RR de Acuña & Asociados, has a more dire view. About 43 percent of unsold new homes are in exurbs far from city centers, he says, and “if you take into account population growth for these areas, there’s no demand for them. Not now or in 10 years.”

Dozens of Spanish banks have failed or been absorbed since the economic crisis ended a debt-fueled property boom in 2008. The cost to taxpayers of cleaning up the industry’s books has come to £17.7 billion so far. Banks may face increased pressure following Nov. 20 national elections that propelled the conservative People’s Party to power. Its leader, Mariano Rajoy, has said the “cleanup and restructuring” of the banking system is his top priority.

“Stricter provisioning rules for land need to be implemented,” says Luis de Guindos, director of PricewaterhouseCoopers and IE Business School Center for Finance. De Guindos has been named by newspapers as a contender for finance minister in a Rajoy government. “Many banks will be able to deal with it, but others won’t.”

Idealista, Spain’s largest real estate website, currently advertises 45,912 bank-owned homes there, up from 29,334 in November 2010. In 2008 it didn’t list any.

Spanish home prices have fallen 28 percent, on average, from their peak in April 2007, according to a Nov. 2 joint report by Fotocasa.es, a real estate website, and the IESE Business School. Land values fell 33 percent nationwide. Fernando Acuña Ruiz, managing partner of Taurus Iberica Asset Management, a Spanish mortgage servicer, expects the slide in home prices to continue. “Spain has 1 million new homes that won’t be completely absorbed by the market until the middle of 2017,” he says. “Prices will fall a further 15 percent to 20 percent in the next two to three years.”

Banks are reluctant to acknowledge the size of the declines. There is an “enormous” gap between prices offered by lenders and what investors are willing to pay, preventing sales of large property portfolios, MaC Group’s Cantos says. He estimates that prime assets can be sold at a 30 percent discount, while portfolios comprising land, residential, and commercial real estate may sell only after 70 percent discounts. “Therein lies the problem,” he says. “Banks have already provisioned for a 30 percent loss, but if you are selling at 70 percent discount, you have to take another 40 percent loss. Which small and medium-size banks can take such a hit?”

The bottom line: With home prices down 28 percent from the peak, real estate losses may swamp smaller lenders, leaving Spain with four big banks.

Smyth is a reporter for Bloomberg News.

What should investors look for when investing in banks and other financiers?

What should investors look for when investing in banks and other financiers?

Because their entire business - their strengths and their opportunities - is built on risk, it's a good idea to focus on conservatively managed institutions that consistently deliver solid - but not knockout - profits.  Here's a list of some major metrics to consider.

Strong Capital Base

A strong capital base is the number one issue to consider before investing in a lender.  Investors can look at several metrics.

• The simplest is the equity to assets ratio; the higher, the better.  The level of capital should vary with each institution based on a number of factors including the riskiness of its loans.  Most of the bigger banks have capital ratios in the 8% to 9% range.  
• Also look for a high level of loan loss reserve relative to nonperforming assets.

These ratios vary depending on the type of lending an institution does, as well as the point of the business cycle in which they are taken.

Return on Equity and Return on Assets

These metrics are the de facto standards for gauging bank profitability.  

Investors should look for banks that can consistently generate mid- to high- teen returns on equity.  

Ironically, investors should be concerned if a bank earns a level not only too far below this industry benchmark, but also too far above it.  After all, many fast-growing lenders have thrown off 30% or more ROEs, just by provisioning too little for loan losses.  Remember, it can be very easy to boost bank's earnings in the short term by under-provisioning or leveraging up the balance sheet, but this can be unduly risky over the long term.  For this reason, it's good to see a high level of return on assets, as well.

For banks, a top ROA would be in the 1.2 % to 1.4% range.

Efficiency Ratios

The efficiency ratio measures non-interest expense, or operating costs, as a percentage of net revenues.  

Basically, it tells you how efficiently the bank is managed.  Many good banks have efficiency ratios under 55% (lower is better).

Look for banks with strong efficiency ratios as evidence that costs are being kept in check.

Net Interest Margins

Net interest margin looks at net interest income as a percentage of average earning assets.

Virtually all banks report net interest margins because it measures lending profitability.  

You'll see a wide variety of net interest margins depending on the type of lending a bank engages in, but most banks' margins fall into the 3% to 4% range.  

Track margins over time to get a feel for the trend - if margins are rising, check to see what's been happening with interest rates.  (Falling rates generally push up net interest margins.)

In addition, examine the bank's loan categories to see whether the bank has been moving into different lending areas. For example, credit card loans typically carry much higher interest rates than residential mortgages, but credit card lending is also riskier than lending money secured by a house.

Strong Revenues

Historically, many of the best-performing bank investments have been those that have proven capable of above-average revenue growth.  Wide margins have generally been elusive in a commodity industry that competes on service quality.  But, some of the most successful banks have been able to cross-sell new services, which adds to fee income, or pay a slightly lower rate on deposits and charge a slightly higher rate on loans.

Keep an eye on three major metrics:
(1) net interest margin,
(2) fee income as a percent of total revenues, and
(3) fee income growth.

The net interest margin can vary widely depending on economic factors, the interest rate environment, and the type of business the lender focuses on, so it's best to compare the bank you're interested in to other similar institutions.  Fee income made up 42% of bank industry revenue in 2001 and has grown at an 11.6% compound annual rate over the past two decades.  As always, examine the number over a  period of time to get a sense of the trend.

Price to Book 

Because banks' balance sheets consist mostly of financial assets with varying degrees of liquidity, book value is a good proxy for the value of a banking stock.

Typically, big banks have traded in the two or three times book range over the past decade; regionals have often traded for less than that.

A solid bank trading at less than two times book value is often worth a closer look.  Remember, there is almost always a reason the bank is selling at a discount, so be sure you understand the risks.  On the other hand, some banks are worth three times book value or more, but we would exercise caution before paying that much.


The Five Rules for Successful Stock Investing
by Pat Dorsey


Summary:

Equity to assets ratio (capital ratio):  8% to 9% or greater
Loan loss reserve:  High level of loan loss reserve relative to nonperforming assets.
ROE: mid- to high- teen ROE
ROA:  1.2% to 1.4% or higher
Efficiency ratios = (noninterest expense or operating costs)/(net revenues):  < 55% (lower is better)
Net Interest Margins = net interest income / average earning assets:  3% to 4% range
Strong above-average Revenue growth: Look at net interest margin + fee income as percentage of total revenue + fee income growth
Price-to-Book:   Big banks often trade at P/B 2 x  to 3 x range.

Hallmarks of Success for Banks: Strong Capital Base

A strong capital base is the number one issue to consider before investing in a lender.

The investors can look at several metrics. The simplest is the equity-to-assets ratio; the higher, the better.

The level of capital should vary with each institution based on a number of factors including the riskiness of its loans, but most of the bigger banks have capital ratios in the 8% to 9% range.

Also look for a high level of loan loss reserves relative to non-performing assets.

These equity-to-assets ratio vary depending on

• the type of lending an institution does, as well as,
• the point of the business cycle in which they are taken.

All of these metrics are found in banks' financial reports, and they can be compared to the industry average.

In the US you can get these figures by logging on to the FDIC Web site, http://www.fdic.gov/.


Related posts:
Hallmarks of Success for Banks
Hallmarks of Success for Banks: Strong Capital Base
Hallmarks of Success for Banks: ROE and ROA
Hallmarks of Success for Banks: Efficiency Ratios
Hallmarks of Success for Banks: Net Interest Margins
Hallmarks of Success for Banks: Strong Revenues
Hallmarks of Success for Banks: Price-to-Book