Public Bank (PBBank) reached its highest point in 2018, with a P/E Ratio exceeding 17. Now that ratio has reduced to 11.8. The question is why?

Between 2018 and 2023, the bank's assets grew from RM420 billion to RM511 billion (CAGR: 4.0%). During the same period, revenue grew from RM22.0 billion to RM25.4 billion (CAGR: 2.9%), and profits, from RM5.6 billion to RM6.7 billion (CAGR: 3.5%). It is apparent from the above that the assets at the bank grew faster than the profits generated from those assets in the last five years, indicating maturity and a slowdown.

Comparing the above figures with those from five years prior — between 2013 and 2018 — we get a CAGR of 4.0% for asset growth, and 5.5% and 4.4% for revenue and profit growth, respectively. From this, we can clearly see that revenue and profits were growing faster than assets in the five years leading up to the bank's peak in 2018.

The bank prides itself on having the highest Return on Equity (ROE) of 13.0%. Although this number has slipped from 14.8% in 2018, it remains respectable. The thing about ROE is that it can be improved either by increasing profits (the numerator) or reducing equity (the denominator). Sadly for PBBank, it is doing the latter. Between 2016 and 2023, the bank has consistently increased its dividend payout ratio. As a result, the payout percentage grew from 43.0% to 55.5% during these years. This is yet another sign of maturity and slowdown.

In short, Public Bank needs to get aggressive about increasing its topline and bottom-line. It isn't sufficient to say the bank holds the leading position in the Malaysian market for residential and commercial property financing, passenger vehicle financing, and the private retail unit trust business (which, thankfully, has started growing again after hitting a low point in 2020).

Maybe the bank is already addressing this, as the gross impaired loan ratio (GIR) increased a few basis points in 2023, and the bank has publicly revealed its target for GIR to be less than 1.0. (Between 2015 and 2022, the bank's GIR averaged below 0.5. Higher values were seen in 2014 and 2013, when the numbers were 0.6 and 0.7, respectively.)

Besides the above, I'd also like to see the bank get aggressive about incorporating digital technology within its operations and reducing manpower. At present, the bank has over 19,000 employees. The financial sector is one of the biggest beneficiaries of new technology. When PBBank gets serious about this, it will likely result in job cuts. However, I suspect the bank is reluctant to take this step.