The Malaysian stock market index has been volatile during the recent General Election (GE14). Many stocks were either skyrocketed or even limit down few days in a row. The volatility was seen throughout various sectors including the usually stable financial banking sector. The largest market capitalization bank in Malaysia - Maybank rallied to a high of RM11.08 then hitting to a low of RM9.87 in just a week time. Public Bank instead rallied to all time high of RM25.78 immediately after GE14.
Let's look at each one of these in a bit more detail.
Maybank is the largest bank in term of market capitalization on Bursa of RM117 billion where as Public Bank has a market capitalization of RM92 billion at the time of writing. Maybank was listed on the stock exchange on 17 February 1962 and Public Bank Bhd on 6th April 1967. Both Maybank and Public Bank operates in the ASEAN region both banks revenue and profit contribution mainly from Malaysia. Public Bank is one of the 3 banks in Malaysia which is still managed by its founder - Tan Sri Teh Hong Piow who is also one of the last 3 person in Malaysia allowed to own a substantial stake in a bank.
Geographical Locations & Business Unit
Public Bank’s profit is mainly generated in Malaysia (90.3%) whereas its overseas operations contributes the remaining (9.7%) being Hong Kong (4.8%) and Cambodia (3.6%) as both highest overseas profit contributors to the group.
Public Bank’s domestic loans growth which consistently exceeded industry growth rates have led to increasing market share over the years, from 16.9% as at the end of 2013 to 17.8% as at end of 2017.
Its key retail banking segments which comprised of financing of residential properties and passenger vehicles as well as commercial lending to SMEs, represented 76.7% of the Group’s total gross loans, advances and financing as at the end of 2017. Loans growth in 2017 continued to be driven by growth in the Group’s financing of residential properties and lending to SMEs of 8.6% and 6.1% respectively, whilst financing of passenger vehicles decreased by 3.0% amidst moderated industry car sales.
Geographically Maybank generates its income and profit mainly from its Malaysian banking operation. Its Malaysian profit before tax grew 9.5% from FY16 to FY17. Maybank’s overseas operation in Singapore is its largest overseas income (RM4.3bil) and profit (RM954 mil) contributor.
In terms of business segment breakdown, The Group Community Financial Services (GCFS) is the main income and profit generator for Maybank. Group Community Financial Services (GCFS) is Maybank Group’s retail franchise providing financial solutions to retail, small and medium enterprises (SME) and business banking customers. Services provided are wealth management, mortgage, automobile financing and credit card to retail customers; short-term credit such as overdrafts and trade financing, cash management and long-term business loans to SME and Business Banking customers.
The second major contributor to Maybank’s income and profit is Maybank’s Group Corporate Banking and Global Market/ Group Global Banking (GGB) which is one of ASEAN’s leading wholesale and investment banking franchise providing a wide range of financial services to corporations, governments, financial institutions and individuals. Maybank’s Global Banking provide a full spectrum of capital market products, debt arrangement and advisory services. The capital market products include Initial Public Offerings (IPOs), Rights Offerings, Placements and Convertible Securities. Debt arrangement services are Project Financing, Leverage Financing and Loan Syndication, while advisory services encompass Debt Advisory, Corporate Finance Advisory, Merger and Acquisition (M&A), Sector Advisory and Strategic Advisory.
Banks Going Digital
As we move towards digital economy, most of us will be doing online banking transactions through our mobile phones hence Maybank has created Maybank2u app which includes improved user friendliness and enhanced security features such as Secure2u and 3 biometric login options (face ID, Voice ID and fingerprint) first of its kind in Malaysia. Maybank was awarded Best Digital Bank and Best Mobile app in Malaysia by World Finance Digital Banking Awards 2017. Maybank is also the first bank in Malaysia to roll out Alipay enabled terminals at over 2,000 merchant locations within the country for the convenience of Chinese tourists visiting Malaysia. Being first in the country to launch cashless mobile payment option using QR code called Maybank QRPay.
Legendary Track Records
Today, the Public Bank Group is one of the largest premier banking groups in Malaysia with solid banking fundamentals and a track record of unbroken profitability since 1966. It held best records amongst its Malaysian banking peers in terms of highest ROE of 15.8%, most efficient cost to income ratio of 31.9% and the lowest gross impaired loans ratio of 0.5%. Public Bank has the most established retail market share in the Malaysian market, surpassing that of peer Maybank (largest total asset in Malaysia). Public Bank’s market share in residential and commercial properties have been steadily rising over the past seven years.
Size vs Quality
Despite Maybank being the biggest bank (no. of branches, employees, asset under management) in Malaysia compared to Public Bank, Maybank’s Price to Book valuation of 1.5 times is a far cry compared to Public Bank’s 2.3 times. Public Bank is currently known as one of the world most expensive bank. Perhaps this is the result of strict control on loan quality and prudent management of Public Bank all these years.
The worst scenario a bank could face is a bank run during financial crisis. A bank run occurs when a large number of customers of a bank or another financial institution withdraw their deposits simultaneously due to concerns about the bank’s solvency. The bank’s reserves may not be sufficient to cover withdrawals in extreme cases. During the Asian Financial Crisis in 1997/98 and subprime crisis in 2008/09, Public Bank surprisingly was able to grow its customer deposits even during these crises. Since its founding in 1966, Public Bank has grown its customer deposits to RM320 billion.
The worst scenario a bank could face is a bank run during financial crisis. A bank run occurs when large number of customers of a bank or another financial institution withdraw their deposits simultaneously due to concerns about the bank’s solvency. The bank’s reserves may not be sufficient to cover withdrawals in extreme cases. During the Asian Financial Crisis in 1997/98 and subprime crisis in 2008/09, Public Bank surprisingly was able to grow its customer deposits even during these crises. Since its founding in 1966, Public Bank has grown its customer deposits to RM320 billion.
Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author involved in the writing of this message has no vested interest in the companies. Please consult a professional for expert financial or other assistance or legal advice.