Monday, Dec 27, 1999
MARC has affirmed its financial institution rating of AA- (Double A Minus) and short-term rating of MARC-1 for Public Finance Berhad. The ratings take into account the company’s favourable competitive position, better than peer group loan loss experience, satisfactory reserve coverage, good capitalization, improved profitability and its 56.76% ownership by Public Bank Berhad.
Since commencing operations in 1966, Public Finance’s activities continue to be largely centered on retail deposit taking as well as consumer lending. The finance company’s branch network, which is the largest among the finance companies, enables the company to maintain a strong presence nationwide. The lending activities of Public Finance are focused on the financing of new and used motor vehicles as well as housing loans. At 51.1% of gross loans as at end-June 1999, hire purchase of transport vehicles remained the largest component of the company’s loans portfolio.
Public Finance’s loans portfolio was not spared the effects of the 1997/98 economic recession. Until recently, the finance company had experienced a rising level of delinquencies and higher chargeoffs in its loans portfolio. However, its level of net non-performing loans (NPLs) of 4.0% as at end-June 1999 (based on a six-month classification) remains markedly lower than the aggregate industry average of 11.8%. Measures taken by the company to restore asset quality include strengthening collection efforts; tightening credit standards and revising targeted customers. Recent lower delinquencies are a positive sign that these measures are becoming effective. Loan loss coverage of NPLs was 69.6% as at 30 June, 1999. MARC believes that the finance company’s reserve position is adequate to cover any further deterioration in existing problem assets.
Public Finance’s capital adequacy measures remain strong. Its risk-weighted capital ratio as at end-June 1999 stood at 12.5% while its core capital ratio of 11.0% was well above the industry average of 8.4%. The company’s shareholders’ funds strengthened further to RM846.9 million as at end-June 1999, comfortably exceeding the Central Bank’s capital funds requirement of RM600 million by end-2000.
The finance company’s solid funding and liquidity base is supported by its substantial retail deposit base, good access to the interbank market and ability as a Tier-1 company to issue larger amounts of negotiable instruments of deposits as compared to other finance companies. Both its liquid assets ratio and loans to deposits ratio are more conservative as compared to the market averages.
The finance company recorded a five fold increase in its pre-tax profit to RM60.3 million for the first half of 1999, compared with the corresponding period last year. The improvement in earnings was driven by the restoration of net interest margins and strong loans growth. The finance company’s spread and earnings continue to benefit from the prevailing low interest rate environment, and positive asset quality trends. With asset quality problems subsiding, loan loss provisioning should remain under control. Key sensitivities, going forward, would be interest rate levels and the strength of the economic recovery.
Public Finance’s highly experienced management team continues to be a positive rating factor, as is its ownership by Public Bank. The latter is expected to emerge as one of the anchor banks under the present consolidation of the banking system. MARC believes Public Finance would continue to be a strategically important member of the Public Bank Group. The parent bank continues to possess a favourable asset quality, is well-capitalized, highly liquid and profitable.
Since commencing operations in 1966, Public Finance’s activities continue to be largely centered on retail deposit taking as well as consumer lending. The finance company’s branch network, which is the largest among the finance companies, enables the company to maintain a strong presence nationwide. The lending activities of Public Finance are focused on the financing of new and used motor vehicles as well as housing loans. At 51.1% of gross loans as at end-June 1999, hire purchase of transport vehicles remained the largest component of the company’s loans portfolio.
Public Finance’s loans portfolio was not spared the effects of the 1997/98 economic recession. Until recently, the finance company had experienced a rising level of delinquencies and higher chargeoffs in its loans portfolio. However, its level of net non-performing loans (NPLs) of 4.0% as at end-June 1999 (based on a six-month classification) remains markedly lower than the aggregate industry average of 11.8%. Measures taken by the company to restore asset quality include strengthening collection efforts; tightening credit standards and revising targeted customers. Recent lower delinquencies are a positive sign that these measures are becoming effective. Loan loss coverage of NPLs was 69.6% as at 30 June, 1999. MARC believes that the finance company’s reserve position is adequate to cover any further deterioration in existing problem assets.
Public Finance’s capital adequacy measures remain strong. Its risk-weighted capital ratio as at end-June 1999 stood at 12.5% while its core capital ratio of 11.0% was well above the industry average of 8.4%. The company’s shareholders’ funds strengthened further to RM846.9 million as at end-June 1999, comfortably exceeding the Central Bank’s capital funds requirement of RM600 million by end-2000.
The finance company’s solid funding and liquidity base is supported by its substantial retail deposit base, good access to the interbank market and ability as a Tier-1 company to issue larger amounts of negotiable instruments of deposits as compared to other finance companies. Both its liquid assets ratio and loans to deposits ratio are more conservative as compared to the market averages.
The finance company recorded a five fold increase in its pre-tax profit to RM60.3 million for the first half of 1999, compared with the corresponding period last year. The improvement in earnings was driven by the restoration of net interest margins and strong loans growth. The finance company’s spread and earnings continue to benefit from the prevailing low interest rate environment, and positive asset quality trends. With asset quality problems subsiding, loan loss provisioning should remain under control. Key sensitivities, going forward, would be interest rate levels and the strength of the economic recovery.
Public Finance’s highly experienced management team continues to be a positive rating factor, as is its ownership by Public Bank. The latter is expected to emerge as one of the anchor banks under the present consolidation of the banking system. MARC believes Public Finance would continue to be a strategically important member of the Public Bank Group. The parent bank continues to possess a favourable asset quality, is well-capitalized, highly liquid and profitable.