Public Bank may face credit cost upside amid softer outlook: CIMB
CIMB Securities said it expects adjustments in PBB's general provisioning for Stage 1 and Stage 2 loans in response to changes in macroeconomic variables, particularly lower gross domestic product (GDP) forecasts.
These revisions could be reflected in PBB's upcoming first quarter of financial year 2025 (1QFY25) results briefing scheduled for May 21, 21,2025.
"Therefore, we believe there may be some upward revision to PBB's credit cost target," CIMB Securities stated, noting that PBB had previously guided for credit costs to remain at the low single-digit level for FY25, with a gradual write-back of overlay provisions.
CIMB Securities has already revised its credit cost forecast for PBB to 22 basis points, up from 15 basis points, following the Liberation Day tariff announcement, which heightened concerns around global trade disruptions.
Despite this, PBB's direct exposure to potentially vulnerable trade sectors remains limited.
Based on CIMB Securities' checks, the bank's exposure to domestic trade-related loans, including both exports and imports, stands at RM5 billion — just 1.2 per cent of its total loan portfolio of RM424 billion.
In the electrical and electronics sector, PBB's loan exposure is even smaller, amounting to RM0.5 billion, or 0.1 per cent of total loans.
Within this, loans specifically tied to the semiconductor segment represent just RM36 million, or 0.01 per cent of total loans.
PBB had indicated that potential second-order ripple effects from the tariffs are difficult to gauge at this juncture.
As for its Indochina operations, PBB hinted that it is watchful of exposures in Cambodia and Vietnam, which may hit a soft patch if the US proceeds with the 49 per cent and 46 per cent reciprocal tariffs on Cambodia and Vietnam, respectively, after the 90-day pause.
Given that pre-tax contributions from the Cambodia and Vietnam operations are not large, CIMB Securities do not expect a significant change to its credit cost assumption of 22 basis points in FY25.
Overall, CIMB Securities has maintained a "Buy" call on PBB with an unchanged target price of RM5.10.
The firm said key catalysts for PBB include resilient asset quality, decent dividend yield, and release of capital from Basel III changes next year, while downside risks include higher-than-expected credit costs, lower-than-expected loan growth, and elevated cost of funds.
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