FHBM1114 Management

Marking Scheme for Group Report Assignment (October 2015 Trimester)

COMPONENTS Marks Allocation DeservedMarks

1. Introduction Company background 5 Competitive advantages 5

2. Planning and Strategic Management

SWOT Analysis 20 Types of uncertainties faced 15 Methods used to respond to uncertainties 10 Competitive strategies used 20

3. ConclusionOverall achievement of the company 10

References and Appendices 5

Grammar/ Presentation/ Language 5

Peer Evaluation (Contribution up to 5 points) * 5

TOTAL 100

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Introduction

1.1 Company background

Public Bank Berhad is a bank based in Kuala Lumpur, Malaysia offering financial services in

Malaysia as well as the Asia-Pacific region. The Public Bank group , established by its

Founder and Chairman , Tan Sri Dato’ Sri Dr. Teh Hong Piow in 1966. It is the third largest

banking group in Malaysia with an asset size of RM 345.72 billion as at the end of 2014.

Public Bank is the third largest company listed on the main market of Bursa Malaysia

Securities with a market capitalization of RM 71.04 billion as at the end of 2014.

Public Bank currently offers a comprehensive range of financial products and services which

include personal banking, commercial banking , Islamic banking , investment banking , share

broking , trustee services , nominee services , sale and management of unit trust funds,

bancassurance and banking business particularly on the retail consumers and small and

medium enterprises

1.2 Competitive Advantages

Public Bank Group has a competitive advantage on strong assets quality. The Public Bank

Group’s total assets stood at RM 345.72 billion as at the end of 2014 , which was an increase

of RM 40 billion or 13.1% over the previous financial year. The strong growth in the assets

was mainly contributed by growth in loans and financial investments of 10.8% and 55.8%

respectively.

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Public Bank Group also has a competitive advantage on market capitalization. The Public

Bank Group is a well-known bank with the reputation “the largest non government-linked

listed company by market capitalization” With the market capitalization of RM 71.04 billion

as at the end of 2014. Public bank completed a rights issue exercise in August 2014 which

raised a total of RM4.8 billion in equity capital. The Group is now the second highest

capitalized banking group in Malaysia in terms of Tier 1 capital ratio.

Thus , Public Bank Group has a competitive advantage on customer experience management.

Customer experience one of the most important factors in determining the choice of the

primary bank for customers in Malaysia. Public Bank received the Malaysia Best Customer

Experience in Banking Award in 2014 by Frost and Sullivan.

In addition, Public Bank Group has a competitive advantage on Recognition of Banking

Excellence. In the past few years, Public Bank Berhad had received lots of awards or

excellence banking. In 2014, Public Bank Berhad had received a total of 26 awards including

3 Best Bank in Malaysia which were awarded by Global Finance, Finance Asia and Alpha

Southeast Asia

Furthermore , Public Bank Group continues to stand out among the Malaysian banking peers

in terms of profitability, cost efficiency and asset quality, with the highest net return on equity

of 19.9% and lowest cost to income ratio and gross impaired loans ratio of 30.0% and 0.6%

respectively.

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PLANNING AND STRATEGIC MANAGEMENT

2.1 SWOT Analysis

2.1.1 Strength

The strength of Public Bank Berhad is the largest bank in Malaysia by shareholders'

funds, second largest by market capitalization, and third largest by total assets which is

RM345, 722 billion. Next, the Public Bank have achieved impressive financial performances

in 2014. Net profit grew by 11% which is RM 41 Billion in 2013 to RM 45 Billion in 2014.

Market Capitalization has increased from RM 68.67 Billion to RM 71.04 Billion in 2014.

Furthermore, prudence in management is the third strength we have found in Public Bank

Berhad. Public Bank currently has a network of 259 branches and 1,801 self-service

terminals and support more than 18,000 employees in Malaysia. The Groups continued to

improve on assets quality with NPL ratio at 0.6%. Moreover, credit rating by local agency.

The purpose is to increase the confidence of investor and customers towards Public Bank. For

example, Standard & Poor's reaffirmed Public Bank's A- long-term rating and A-2 short-term

counterparty credit rating with stable outlook. Moody's Investors Service also reaffirmed

Public Bank's foreign currency long-term deposit rating of A3 and short-term deposit rating

of P-2 with a positive outlook. Rating Agency Malaysia reaffirmed the Bank's long-term

rating of AAA, the highest rating accorded by Rating Agency Malaysia, and its short-term

rating of P1. On the other hand, The Group of Public Bank have recorded unbroken profit

track.

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2.1.2 Weaknesses

The weakness of Public Bank is the expenses incurred in 2014 are higher than expenses

in 2013. The personnel costs increase from RM 1.88 billion in 2014 from 1.74 billion in 2013

due to increase 11% in salaries, allowances and bonuses. Establishment costs have increased

by 1.3% or RM6.2 million in 2014 as a result of higher expenses incurred for utility and

rental. Moreover, Public Bank only a regional player and limited in global presence because

the essential to compete with other commerce banks such as Maybank, CIMB and HSBC.

2.1.3 Opportunities

The opportunities of Public Bank are growth in wealth management products and

services, to mitigate pressures on net interest margins. The increasing number of affluent

customers in Malaysia with high savings and deposits which is RM25.67 billion in the

banking system should continue in order to provide opportunities for growth, particularly to

innovate financial services. Next, the Group of Public Bank can further expand their retail

and add more Automated Teller Machine (ATM) in shopping mall. Furthermore, improve in

internet banking and mobile banking service capabilities for greater convenience.

2.1.4 Threats

The threats facing by Public Bank are increasing competition in home mortgages will

inevitably result in some compression of the net interest margin. There are many commerce

banks such as Maybank, CIMB, HSCB, etc that provide financial services for home

mortgages. Next, Public Bank faces more stringent rules to lending introduced by Bank

Negara Malaysia (BNM). For example, customer can lend the loan that is rescheduled or

restructured by Agensi Kaunseling dan Pengurusan Kredit (AKPK) and lastly for retail loans,

where a banking institution elects not to increase the installment amount following an

increase in the base rate/base lending rate in cases where the increase is less than RM50 per

month.

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2.2 Types of uncertainties faced

During the 1997-1998, Malaysia struggle economic Asian financial crisis and applied

several valuable lessons to its economic management strategies that contributed to the

economic resilience to 20008-2009 global financial crisis. This financial crisis started due to

the weakness of USA financial industry. Beside, the export and industrial output worsened

and investment declined. The GDP growth in 4th quarter of 2008 lower at 0.1% compare with

an average of5.9% in the first month of the year. During 1997-1998, stock market and

currency market nearly collapsed and occur capital low. Relatively modest as domestic bank

has negligible exposure to US subprime loan products, plus the weak business environment

and expected rise in unemployment, the banking system non-performing loan expected to

rise. Furthermore, the percentage of export drop particularly in manufactured exports and

electronic and electrical appliances. The employment rates relatively stable and low during

the crisis, but many foreign labours were sent back.

Commercial bank branches in Segamat and Labis, Johor had to close today as a result

of the flood situation. For and on behalf of its 10 member banks concerned, The Association

of Banks in Malaysia (ABM) says that the situation is being monitored closely and the banks

are hoping to reopen soonest for business.

Members of the banking public may obtain updates at ABM’s toll free number,

ABMConnect 1-300-88-9980 which is opened from Mondays to Fridays (save and except for

public holidays), 9:00 am to 5:30 pm or at the telephone numbers listed below. Tuesday, 1

February 2011 is a public holiday for Wilayah Persekutuan. Hence the public is advised to try

to contact the numbers listed on Wednesday, 2 February 2011 in the event they are unable to

reach anyone at the numbers listed.

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2.3 Response to uncertainties

Through the study of management, we can know that there are 4 ways that how those

companies can response to those uncertainties that they faced. The 4 response to uncertainties

are defenders, prospectors, analyzers and reactor.

The company that we study, Public Bank use prospectors and reactor to response to

their uncertainty. As we know that during year 1997 to 1998, Malaysia struggled

economically from the Asian financial crisis. The GDP growth in 4th quarter of 2008 lower at

0.1 % compare with an average of 5.9 % in the first month of the year. Besides that, stock

market and currency market nearly collapsed.

When facing this worst situation, Public bank act as a prospectors to seek out solution

by introduced knowledge-based economy master plan in year 2002. This solution was taken

to transform the economy into an innovation-based economy with improved efficiency and

productivity to enable Malaysia achieved high income country by year 2020. This also show

that Public bank act as a reactors when faced this uncertainty because they make adjustments

when finally forced to by environmental pressures. After Public bank took that solution,

Malaysia GDP grew 7.2% in 2010. It also helps the central bank maintains a conservative

regulatory environment, having prohibited some of the riskier assets in vogue elsewhere.

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2.4 Competitive strategies

2.4.1 Introduction

The model of the Five Competitive Forces was developed by Michael E. Porter that becomes

an important tool for analysing an organizations industry structure in strategic processes. This

model is applicable to the banking industry. Public Bank do compete with the other financial

institution in Malaysia, however they also must cooperate with one another in many

respects. There is an underlying problem which is the banks in Malaysia are so similar that

there is essentially nothing one of them can do that the others cannot easily duplicate.

2.4.2 Five Forces Analysis

a. Threat of New Entrants

Malaysia has not put a ‘barrier to entry’ for any financial institution mainly banks in

Malaysia, thus making it easy for any financial institution to penetrate into the industry.

b. Bargaining power of suppliers

A bank has three suppliers of its product, money:

i). Its depositors

Depositors, has no bargaining power whatever in reality. If they make time deposits the bank

will set the price or interest rate it will pay.

ii). The credit market

The credit market as a source of supply of the raw material, money, is open to all

at all time if they are qualified participants. The source of supply can be argued to be infinite.

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iii). The central bank

The Central bank is effectively the resource of last resort. Apparently, at least for the

moment, it will continue to supply liquidity to the banking system in virtually unlimited

quantities at very reasonable cost.

c. Bargaining power of buyers

In the banking industry, customer have has very limited bargaining power. However the

customers may option in changing to other banks that they think is offering a better offer than

Public Bank.

d. Threat of substitute products

For the most part there is no real threat of substitute products in the banking

industry. However there probably will be continues evolution of products from paper to

electronic in coming years. This is an area of potential competition for whomever banks

that choose to use it in their services.

e. Rivalry among competitors

Generally all banks offer somewhat the same products and services to their customers, thus

there is not much differentiation between Public Banks and the other competitors. This

is making the competition much higher. Public Bank is actually ranked as the top banks

earners in Malaysia in 2014 alongside with Maybank, Bumiputra Commerce, RHB Capital

and Hong Leong Bank.

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Conclusion

As informed by TAN SRI DATO’ SRI TAY AH LEK, MANAGING

DIRECTOR/CHIEF EXECUTIVE OFFICER, AT PUBLIC BANK’S 49th ANNUAL

GENERAL MEETING ON 30 MARCH 2015, Public Bank Group registered another set of

commendable results in 2014 with a record net profit attributable to shareholders of RM4.52

billion. This represents 11.2% growth as compared to 2013. Pre-tax profit increased by 9.5%

to RM5.81 billion in 2014. As a result, earnings per share rose from 116.1 sen in 2013 to

123.7 sen in 2014. Besides, Public Bank Group’s customer deposit increased by 10.2% in

2014 to RM277 billion, outpacing the domestic banking industry’s deposit growth of 7.6%.

This has resulted in market share of customer deposits further improving from 15.7% as at

the end of 2013 to 15.9% as at the end of 2014. In 2014, the Public Bank Group’s non-

interest income increased steadily by 9.2% as compared to 2013. This was mainly contributed

by higher income from unit trust business, investment income and fee income from banking

operations. In view of the Public Bank Group’s commendable performance in 2014, a second

interim dividend of 31 sen was paid on 5th March 2015. Together with the first interim

dividend of 23 sen paid in August 2014, total dividend for 2014 amounted to 54 sen. This

resulted in a total dividend payout of RM2.08 billion for 2014, an increase of 14% as

compared to RM1.82 billion paid for 2013, and represents 46.1% of the Group’s net profit for

2014. 3 With a market capitalization of RM71 billion as at the end of 2014, Public Bank is

the largest non-government linked company in Malaysia by market capitalization. With the

completion of the rights issue, the Group is currently the second highest capitalized banking

group in Malaysia in terms of Tier I capital ratio. Furthermore, Public Bank Group Achieved

15.2% Growth In Net Profit Attributable To Shareholders To RM1.17 Billion For The First

Quarter Of 2015.

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Strong Growth in Loans and Deposits help Public Bank to achieve this goal. The

Public Bank Group maintained a strong loan growth momentum at an annualized rate of

13.1% in the first quarter of 2015, largely supported by the domestic loans which grew by an

annualized rate of 12.1% over the period. Moreover, commendable growth in non-interest

income, sustainable and efficient cost structure, superior asset quality, overseas operations,

healthy capital position and group’s prospect also help Public Bank to achieve this goal.

Public Bank’s shared goals are to realize its Corporate Vision ‘To Be Ranked among The

Top 100 Banks in The World’ and to maintain its Corporate Mission ‘To Sustain The

Position of Being The Most Efficient, Profitable and Respected Financial Institution In

Malaysia’. To achieve these shared goals, the Public Bank Group continues to uphold its

corporate philosophy in caring for its customers, employees, the community it serves, and

shareholders through relentless team spirit and loyalty in line with the Public Bank Group’s

motto ‘Excellence is Our Commitment’. These shared corporate goals are continually

reinforced upon the Group’s 12,537 employees through induction programmes, training

courses, consistent management practices, Chairman’s speeches and messages, incentives,

and the implementation of caring human resource management policies that provide

opportunities for career advancement and promote staff productivity, well-being and high

morale. Together with strong support from all stakeholders, including our 86,624

shareholders, the Public Bank Group’s proactive mindsets of ‘we can’ and ‘we will’ will

continue to prevail.

Public Bank have made a strategy planning, and decided the ways to achieve it, so

they are able to have the great achievement like this.

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REFERENCES

1. The Star: New Bank Negara guidelines seen weighing on earnings.

http://www.thestar.com.my/business/business-news/2015/05/04/rr-impact-on-

banks/?style=biz

2. Wikipedia : Public Bank Berhad

https://en.wikipedia.org/wiki/Public_Bank_Berhad

3. Moody’s Investors Service about Public Bank Berhad

https://www.moodys.com/credit-ratings/Public-Bank-Berhad-credit-rating-

600019815

4. Rating Agency Malaysia about Public Bank Berhad

http://www.ram.com.my/pressReleaseView.aspx?ID=81862d24-25cb-4d45-

b367-b08cc3e42693

5. Annual Report 2014 for Public Bank Berhad

https://www.pbebank.com/corporate/PBB2014_Corporate%20Book.pdf

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