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167Chairman’s Review – OverviewCapital ManagementCapital InitiativesIn recent years, the Public Bank Group’s 3-year capital planhas been constantly realigned, initially to incorporate the BaselIII capital requirements first proposed by the Basel Committeefor Banking Supervision in 2010, and then later, BNM’s BaselIII capital requirements issued in 2012. Within this period, theGroup has diligently monitored all ongoing developmentsaffecting regulatory capital requirements, as well as relatedcapital market developments, with a view to building the mostoptimum capital structure possible to enable it to sustain itssuperior return on equity for shareholders.Equity CapitalSince the Basel Committee for Banking Supervisionannounced the finalised rules for the impending introductionof the Basel III regulatory capital requirements in December2010, the Public Bank Group has built up its equity capitalfrom 7.2% as at the end of 2010 to 8.5% currently. Thisachievement was accomplished wholly via organic growthstrategies such as profit retention and disciplinedmanagement of credit and investment portfolios. The Groupwill closely monitor the capital buffer requirement to beintroduced by BNM and will continue to assess the need forfurther enhancement of equity capital in line with regulatoryrequirements and its risk appetite as well as business needs.As at the end of 2012, the Public Bank Group has29.8 million treasury shares which had been previouslypurchased under its share buy-back programme. Theseshares are available for sale, the proceeds of which willfurther enhance the Group’s equity capital.Additional Tier 1 and Tier 2 Capital InstrumentsOn 20 June 2012, the Public Bank Group redeemed itsUSD400 million Subordinated Debt. There were no issuancesof replacement Tier 2 capital instruments as the Group alreadyhad sufficient Tier 2 capital to sustain its immediate capitalrequirements. On a forward-looking basis, the Group hasdeveloped plans to address the gradual maturity of its existingTier 1 and Tier 2 capital instruments, and to a lesser extent,their gradual phase-out from inclusion in regulatory capitalunder the Basel III requirements, and is actively assessing themarket conditions on the issuance of replacement capitalinstruments containing Basel III-compliant features, in order toensure the cost-efficiency of such issuances.DividendsDespite the more stringent capital requirements under BaselIII and the implementation of the Public Bank Group’sICAAP, the Group has continued to maintain a healthydividend payout of 45.3% in 2012. Moving forward, theGroup will continue to maintain a healthy level of dividendpayout due to its strong profit generation capacity, superiorasset quality and continuous pursuit of capital efficiency.Commitment to Efficient Capital ManagementThe Public Bank Group remains committed to maintaining ahealthy level of capital which is sufficient to support itsbusiness growth strategies and to absorb losses undereconomic stress, whilst maximising returns to shareholders.The Group will continue to monitor further developments oncapital requirements by regulators and will continuouslyrealign its capital plan and capital management strategies toaccommodate these developments.
168PUBLIC BANK BERHAD Annual Report 2012Resilient AlwaysChairman’s Review – OverviewCredit RatingsPublic Bank Berhad Long-Term Short-TermRAM AAA P1Standard & Poor’s A- A-2Standard & Poor’s ASEAN Regional Scale Rating axAA axA-1Moody’s A3 P-2In June 2012, Public Bank’s long-term and short-term financial institution ratings of AAA and P1 respectively were reaffirmedby Rating Agency Malaysia (“RAM”). The AAA rating is the highest rating assigned by RAM and reflects the ability to offerthe highest level of safety for timely payment of its financial obligations. The reaffirmation of the highest level ratings accordedto the Bank was based on its robust financial profile and reputable franchise in the consumer segment as well as amongsmall- and medium-sized enterprises, underscored by its excellent asset quality and commendable profit track record.Concurrently, RAM also reaffirmed the long-term ratings of the Bank’s Subordinated Medium Term Notes Programme of upto RM5.0 billion, RM1.2 billion Innovative Tier 1 Capital Securities and the Non-Cumulative Perpetual Capital SecuritiesProgramme of up to RM5.0 billion at AA1, AA2 and AA2 respectively.In November 2012, Standard & Poor’s (“S&P”) reaffirmed Public Bank’s long-term credit rating of A- and short-term creditrating of A-2 with a stable outlook. The reaffirmation of the ratings were based on Public Bank’s strong business position,strong liquidity, above average funding position as well as adequate earnings, capital and risk position. S&P also reaffirmedPublic Bank’s long term credit rating of axAA and short-term credit rating of axA-1 under the Asean Regional Scale Rating.In January 2013, Moody’s Investors Service reaffirmed Public Bank’s long-term deposit rating of A3 and revised itsshort-term deposit rating to P-2 based on Moody’s new Consolidated Global Bank Rating Methodology.
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