MIDF views a potentially lacklustre loan growth in subsequent quarters for Public Bank after it announced a solid performacen for Q3, the bank is retaining its FY23 guidance of 5%yoy – when its YTD growth has already reached 4.5%.
Residential mortgages, one of its core drivers, have been reporting thin margins. Management prioritises ROE, asset quality and low provisioning, and is thus willing to give up market share do preserve them. We may see an uptick in SME growth, but we doubt it will be able to offset the decline in mortgage volumes. Corporate lending is expected to remain prudent. Funding doesn’t seem too severe an issue for now, given its extensive deposit franchise and still healthy LCR.
NOII uplift likely unsustainable. Public Bank managed to retain an impressive quarterly NOII figure, largely due to nonoperational forex income – which is non-recurring. Bucking the trend by posting a qoq decline in CASA balances. The banking group reported a CASA decline of -1.3%%qoq – possibly the first bank (so far) to report a sequential-quarter drop. Do note it still retains CASA a lot better than its peers – as evidenced by its current CASA ratio compared to pre-pandemic times.
Management has pointed out that a notable increase in residential mortgage GILs in the quarter (in comparison to peers, who have seen stability) was likely due to RA programme structure, leading to the recognition of impairments being more delayed than its peers. Management has also highlighted further Hong Kong and Vietnam-related impairments are expected.
Public Bank has been gradually increasing its payout from 50% to ~52% as of late. Management has confirmed that such increases are sustainable, and the Group will continue increasing the payout gradually.
MIDF revised its FY23F/24F/25F forecasts for Public Bank downward to -3%/-1%/-1%. To reflect lower fee income growth.
Key downside risks being Lower-than-expected loan growth, Steep NIM decline, Elevated OPEX figures.
