Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: KENANGA



Public Bank Bhd (PBB) needs to conserve capital not just to comply with the potential new cyclical buffer but also to support its business growth, according to Kenanga Research.

"If not, both credit growth and dividend payout could be restricted by capital capacity," it said in a research note today.

Kenanga Research has downgraded Public Bank to "hold" from "buy" but the target price was maintained at RM13.

The bank management has not ruled out the possibility of raising core capital if Bank Negara Malaysia imposes more stringent capital requirements, such as a zero to 2.5 per cent cyclical buffer, the research house said.

Public Bank has one of the lowest core capital ratios among local banks with only 7.3 per cent at group level and six per cent at the bank level, it said.

Kenanga Research said hire purchase's growth is encouraging and should continue to see strong demand for non-national car sales as more new models are launched.

Public Bank's hire purchase loan approval rate of 22 per cent year-on-year is sustainable, it said.

In a preliminary guidance for financial yeas 2011, Public Bank is targeting a loan growth of 15 per cent versus industry outlook of 12 per cent, Kenanga Research said.

"With these, we estimate Public Bank''s earning growth will be moderating going forward and has passed its peak," it said. -- Bernama