PETALING JAYA: Analysts generally expect Public Bank Bhd to sustain its loan growth momentum, supported by resilient domestic demand and continued expansion in the small and medium entreprise (SME) segment.
The banking group’s management also projects the financial year 2026 (FY26) loan growth to exceed its initial 4% to 5% target, underpinned by stronger commercial lending activities.
Notably, the banking group is increasingly prioritising returns over volume, shifting its focus towards higher-yielding SME and commercial financing while adopting a more selective approach to lower-margin mortgages.
For the third quarter (3Q26), Public Bank registered core earnings of RM1.7bil, down 2.8% quarter-on-quarter and eased 3.8% year-on-year, bringing nine-month 2026 cumulative earnings to RM5.3bil.
In a recent report, Hong Leong Investment Bank (HLIB) Research stated the competitive lending landscape could continue to constrain asset yields, partially offsetting the benefits of a more favourable loan mix.
The near-term net interest margin (NIM) outlook remains challenging, with the bank’s management widening its FY26 compression guidance to nine to 10 basis points (bps), reflecting intensifying deposit competition and continued loan yield erosion.
While upward mortgage repricing and funding diversification could provide some relief, HLIB Research expects margin recovery to remain subdued, particularly if system loan growth continues to outpace deposit expansion.
That said, Public Bank’s management sees the possibility of a 25 bps overnight policy rate hike in 1Q27, which could likely provide a four bps NIM uplift on a full-year basis, broadly consistent with the brokerage’s sensitivity check in its recent Nov 4 report.
Meanwhile, the bank’s asset quality remains manageable, with FY26 credit cost guidance maintained at around 10 bps, although emerging stress in overseas operations warrants monitoring.
Sequentially, HLIB Research sees improving capital return visibility following the Basel III reforms, which lifted the group’s Common Equity Tier 1 ratio to 14.5%.
For context, Public Bank is poised to distribute RM3.5bil in special dividends over three years, with the first tranche expected alongside the upcoming year-end dividend.
Meanwhile, its targeted 60% ordinary dividend payout rate remains intact, based on operating earnings excluding the anticipated one-off Hong Kong goodwill impairment.
Underlying return on equity (ROE) is expected to remain at about 12% in FY26.
Beyond capital returns, HLIB Research noted continued growth in wealth management and bancassurance should support Public Bank’s fee income diversification, although near-term earnings growth could remain modest amid persistent margin pressure.
HLIB Research maintained a “buy” call on the stock with an unchanged target price (TP) of RM5.10 a share.
Meanwhile, CGS International (CGSI) Research retained an “add” call on Public Bank, premised on its push for fee income growth.
Moreover, the research house noted potential re-rating catalysts include capital management initiatives that should raise its dividend payout ratio to above 70% in FY26 to FY28 forecasts and projected ROE expansion from 12.3% in FY25 to 12.8% in FY28.
Downside risks to CGSI Research’s call include any material deterioration in its loan growth and asset quality.
Hence, CSGI Research retained its FY26 to FY28 earnings per share forecasts and TP of RM6.55 per share.
An analyst with a bank-backed brokerage said he is justified by Public Bank’s defensive earnings trajectory amid emerging sector headwinds.
Moreover, its RM3.5bil capital return programme could lift prospective dividend yield to about 6%, providing an additional buffer to total returns and reinforcing its appeal to yield-seeking investors.
With earnings defensiveness and enhanced capital returns underpinning the investment case, the analyst believes the risk-reward remains positively skewed and retained Public Bank as his 4Q26 top pick.