皇冠体育api:Public Bank in strong position to weather downturn

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PETALING JAYA: Public Bank Bhd has the strongest headroom for potential provision writebacks, and stands to benefit when macroeconomic conditions improve, according to UOB Kay Hian (UOBKH) Research.

The research unit noted the banking group has significant provision buffers built in, as it has set aside RM1.7bil in pre-emptive provisions, which it has yet to consume (versus RM500mil to RM700mil in what UOBKH Research has assessed to be vulnerable loans).

UOBKH Research said Public Bank’s provision buffers are capable of weathering extreme stress conditions.

“This places the group in an excellent position to weather the current economic downturn while benefitting from the recovery given ample scope for writebacks,” said the research house.

Assuming a worst-case scenario of 5% of its domestic loans under repayment assistance (RA) loans are impaired (versus the current 0.6%) while assigning a 22% loss given default (LGD) as the loans are largely collateralised against properties, UOBKH Research derived a potential excess provision of RM1.49bil to RM1.55bil.

“This implies a potential 22% accretion to our 2023 earnings forecast assuming a writeback of these assessed excess provisions. However, management remains conservative on its guidance of any potential writebacks for now,” the research house stated in a report on the bank.

UOBKH Research maintained its “buy” call on Public Bank with a higher target price of RM5.10.

Regarding its 2022 outlook, Public Bank management’s key guidance has remained largely intact with loans growth at 4% to 5%, net interest margin (NIM) of five basis points, and net credit cost of 10 to 15 basis points, and return on equity (ROE) at 11% to 12%.

UOBKH Research expects Public Bank’s domestic loans under RA to decline further to an estimated 3% to 4% of its domestic loans base (RM11bil to RM17bil) by the fourth quarter of 2022 versus 6% (RM20.8bil) as at end-July 2022.

“This is close to the group’s pre Covid-19 average restructuring and rescheduling loan level of 1% to 2% (sector average: 2%),” said the research unit.

A healthy loan approval pipeline is expected to sustain current loan growth.Public Bank registered a commendable first half 2022 loan growth of 5.6%, above UOBKH Research’s full-year assumption of 4.5% and management’s guidance of 4% to 5%.“Management alluded that loan application and approval pipeline remains healthy, and are sufficient to sustain current above-estimate loan growth momentum for the rest of 2022,” said the research unit.

Loan growth was supported largely by mortgages (7.3% higher) and auto loans (10.2% higher), while loan growth for non-residential property remains sluggish at 1.2%.