Public Bank faces RM1.1bil goodwill hit by HK unit

Public Bank, the Malaysian bank, faces a significant financial hit of RM1.1 billion due to a goodwill impairment at its Hong Kong subsidiary, Public Financial Holdings Ltd (PFHL). The impairment is anticipated to cause a decline in the bank's consolidated net assets and earnings per share by four sen. This financial blow is primarily driven by a surge in long-term interest rates, which heightens the discount rate applied to value goodwill, and weaker cash flow projections in the medium term.

Additionally, the rise in funding costs has squeezed the bank's net interest margins, as a significant portion of its lending portfolio carries fixed interest rates or is tied to Hong Kong's Prime Rate, which typically remains steady throughout interest-rate cycles.

The impairment is a non-cash accounting adjustment and will not impact operating cash flow, leaving Public Bank's operational activities unaltered. However, the development could lead to a reduction in consolidated net assets and earnings per share, affecting the bank's financial standings. The impairment will be recorded at group level, and its effect will not alter the financial positions or regulatory capital ratios of Public Bank's key Hong Kong operating subsidiaries, Public Bank (Hong Kong) Ltd and Public Finance Ltd. These subsidiaries maintain liquidity maintenance ratios and core funding ratios above 60 per cent and 150 per cent, respectively, ensuring their financial stability.

Moreover, Public Bank is actively pursuing the privatization of PFHL, which it currently holds a 73.23 per cent stake in. The acquisition of the remaining 26.77 per cent is planned at HK$2.50 per share, amounting to HK$734.75 million. The offer, announced in September, will be executed through a court-approved scheme of arrangement without any increase in the offer price.

This profit warning is based on unaudited management accounts for the nine months ending September 30, 2026, along with projected fourth-quarter performance and other available data. However, these figures are subject to change. Public Bank's most recent financial report for the six months ending June 30, 2026, revealed a net profit of RM3.58 billion on revenue of RM14.9 billion, resulting in earnings of 18.5 sen per share.