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Public Bank aims to grow non-interest income as loan growth pace slows

KUALA LUMPUR (NewsRise) - Public Bank, Malaysia's third-largest bank by assets, aims to raise non-interest income this year as loan growth decelerates amid intense competition.

The bank is targeting a loan expansion between 6% and 7% this year compared to 7.5% growth in 2016, Chief Executive Tey Ah Lek told reporters after the bank's annual shareholders' meeting. Deposits could grow between 5% and 6% this year, rising from 2.9% in 2016, he said.

"This can be done with our strategy to penetrate into new markets and continue growth organically in the domestic and overseas business," Tey said. "We will work hard to maintain our ROE (return on equity) by strengthening fee-based income as well as increase our productivity."

Return-on-equity of lenders have been under pressure in Malaysia where more than two dozen local and foreign banks compete for business in a market of about 30 million people. Malaysia's economic growth has decelerated, while higher cost of living have squeezed consumer and business spending. That has pressured the banking industry's lending margins. Net interest margin-a measure of profitability from interest charged on loans after deducting returns paid on deposits-fell four basis points last year at top rival Malayan Banking and was down three basis points at CIMB Group Holdings.

This year, Public Bank is targeting a lower return-on-equity of between 14% and 15% compared to 2016's 16.5% as the bank gradually raises its capital level to comply with industry regulations.

"The industry outlook is expected to be challenging moving forward," Tey said. "The decline in ROE was attributable to the gradual capital commitment build up."

Public Bank's net profit grew 3.0% last year to 5.21 billion ringgit ($1.18 billion) on the back of an 8.5% increase in net interest income and 0.8% rise in net fee and commission income. Net interest margin, however, rose four basis points to 2.20% last year.

Public Bank also plans to open six new branches in Vietnam this year and launch more products there, Tey said. "We expect Vietnam to generate satisfactory return over the medium-to-longer term," he added.

Shares of Public Bank fell 0.2% to 19.92 ringgit apiece, while the benchmark FTSE Bursa Malaysia KLCI ended 0.1% lower.

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