Public Bank to stay resilient despite NIM squeeze: Analysts

Analysts express confidence in Public Bank Bhd's earnings outlook despite anticipated net interest margin (NIM) challenges, citing strong non-interest income (NOII), steady loan growth, and robust asset quality as key factors. Affin Hwang Investment Bank Bhd states that the bank's first-half FY26 earnings met expectations, with core net profit increasing 2% year-on-year (YoY) to RM3.5 billion.

The surge in NOII, up 18.4% YoY, primarily due to a 52.6% jump in unit trust income, played a significant role in this growth. CIMB Securities views the results as resilient, highlighting Public Bank's strong franchise, healthy loan growth, and solid fee income. The bank's loans rose 5.5% YoY, driven by commercial property, residential property, and auto financing.

However, NIM fell about 10 basis points YoY to 2.08% in the first half, with analysts predicting further pressure due to intense competition for wholesale deposits. Public Bank is addressing this through funding optimization, including reducing dependence on wholesale deposits and expanding alternative funding sources like commercial papers and repurchase agreements.

Asset quality remained healthy, with the gross impaired loan ratio stable at 0.54%, though credit costs rose as provision overlay writebacks were absent. Both research firms anticipate manageable credit costs, backed by Public Bank's conservative risk management. The banks have retained their FY26 targets, including return on equity of 12-13%, loan growth of 4-5%, double-digit NOII growth, and net credit costs under 10 basis points.

CIMB Securities expects a RM3.5 billion capital return plan to bolster shareholder returns, with payout ratios likely exceeding 60%. Affin Hwang maintains a 'Buy' call on Public Bank and lifts its target price to RM5.50, while CIMB Securities reaffirms its 'Buy' rating and maintains the same target price.