The Three Numbers That Strengthen Public Bank Berhad

In terms of size, Public Bank Berhad (KLSE: PBBANK; 1295.KL) is the second largest bank in Malaysia by market value. But in South East Asia, it is dwarfed by the likes of DBS Group (SGX: D05), United Overseas Bank (SGX: U11) and Oversea-Chinese Banking Corporation (SGX: O39).

In spite of its size – or, perhaps, it is because of its size – Public Bank is very efficient. Its Return on Equity of 15.7% is higher than its Malaysian peer Malayan Banking Berhad (KLSE: MAYBANK; 1155.KL). It also knocks the spots off the three Singapore banks, in terms of efficiency.

At a RoE of 15.8%, it implies that Public Bank generates around MYR15.80 on every MYR100 of shareholder capital invested in the bank. By comparison, Maybank’s RoE is a more pedestrian 10.8%.

Public Bank’s high RoE can be traced back to its consistently high Net Income Margin of 54.5%. It means Public Bank makes MYR54.50 of profit on every MYR100 of revenue. Revenue in this case comprises of the interest it charges on loans less the interest it pays on deposits, plus the gains it makes on trading activities.

Public Bank’s Asset Turnover is roughly in line with other banks. It generates MYR2.60 of revenue on every MYR100 of asset employed. Singapore’s banks reported an Asset Turnover of between 0.021 and 0.023 last year.

Public Bank’s low Asset Turnover when compared to the market average of 0.18 is not unusual. Banks hold a lot of assets – most of which is made up of loans.

Public Bank makes use of leverage – a lot of leverage. That should not come as a huge surprise. It is, after all a bank. So every ringgit deposited at Public Bank is effectively a ringgit of liability. Public Bank’s Leverage Ratio of 11.2 is comparable with its Malaysian and Singapore peers.

By pulling apart Public Bank’s Return on Equity, it is easy to see where it gets its strength. Its RoE of 15.8% is the product of an extraordinary Net Income Marin of 54.5%, an Asset Turnover of 0.026 and a Leverage Ratio of 11.2.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.