Public Bank Berhad is expected to remain resilient in a high-inflation environment, supported by strong asset quality metrics and prudent growth strategies, according to a research note by Kenanga Investment Bank.
The research house said Public Bank’s gross impaired loan (GIL) ratio of 0.51% as at December 2025 — significantly lower than the industry average of 1.37% — alongside a leading loan loss coverage (LLC) ratio of 150%, positions the group to weather inflationary pressures without a material deterioration in asset quality.
Kenanga noted that the bank’s RM800 million management overlay remains sufficient, with no immediate need for additional provisioning.
Despite a challenging macroeconomic backdrop, Public Bank is maintaining a conservative loan growth target of between 4% and 5% for financial year 2026, focusing on higher-income and higher-value segments that are less sensitive to inflation. The bank is also expected to adopt a more cautious stance when expanding into the small and medium enterprise (SME) segment, placing greater emphasis on forward-looking credit assessments and cash flow strength.
On liquidity, Kenanga said the bank’s loan-to-deposit ratio of about 100% is not a concern, with stable net interest margins (NIM) of around 2.15% expected. The group is also exploring alternative funding strategies, including commercial paper issuances, to optimise its funding mix.
Non-interest income (NOII) is projected to provide additional support, with expected double-digit growth helping to offset potential pressure on net interest income. The bank’s unit trust arm, Public Mutual, which contributes about 40% of total NOII, is likely to benefit from improving market conditions. Meanwhile, synergies with LPI Capital Berhad are beginning to emerge, particularly through cross-selling initiatives such as motor insurance.
Looking ahead, the implementation of Basel III reforms from July 1, 2026 is expected to strengthen Public Bank’s capital position, potentially lifting its Common Equity Tier 1 (CET-1) ratio by about 100 basis points from 13.9%. This could translate into a risk-weighted asset (RWA) release of approximately RM24 billion.
Kenanga highlighted that the excess capital may pave the way for higher dividend payouts. While the bank has yet to formalise its plans, a full distribution could imply a dividend of up to 17.7 sen per share, equivalent to a yield of about 3.8%. Over the longer term, dividend yields could rise to between 5.5% and 7% if payout ratios are increased.
The research house maintained its “Outperform” call on Public Bank with a target price of RM5.75, based on a price-to-book value (PBV) of 1.54 times.
However, it cautioned that risks remain, including potential margin compression, weaker-than-expected loan growth, asset quality deterioration, slower capital market activity, currency volatility and changes to the overnight policy rate (OPR).
Overall, Kenanga views Public Bank as one of its top picks for the second quarter of 2026, citing its strong fundamentals, disciplined management and growing synergies within its financial ecosystem.
