ahead www.publicbank.com.my staying report annual 2008 public public

PUBLIC BANK BERHAD (6463-H) www.publicbank.com.my 2008 ANNUAL REPORT PUBLIC BANK BERHAD Tel: Tel: 603 2163 8888 / 2163 8899 Fax: 603 2163 9917 Menara Public Bank, 146 Jalan Ampang, 50450 CORPORATE MISSION

“To sustain the position of being the most efficient, profitable and respected premier financial institution in .”

CORPORATE PHILOSOPHY

Public Bank Cares... For its customers For its shareholders g By providing the most courteous and efficient service in g By forging ahead and consolidating its position as a stable every aspect of its business and progressive financial institution g By being innovative in the development of new banking g By generating profits and a fair return on their investment products and services For the community it serves For its employees g By assuming its role as a socially responsible corporate g By promoting the well-being of its staff through attractive citizen in a tangible manner remuneration and fringe benefits g By adhering closely to national policies and objectives g By promoting good staff morale through proper staff thereby contributing towards the progress of the nation training and development, and provision of opportunities for career advancement ...With Integrity Percentage Percentage 140 160 100 120 0.5 1.0 1.5 2.0 2.5 3.0 40 60 80 20 Contents 0 0 9 8 7 4 1 1 12 11 10 Improving AssetQuality Consistently Strongand Strong ReservesvsLowNPL 79.0 ‘04 ‘04 2.1 2.7 HIGHLIGHTS LossCoverage Net NPLratio Gross NPLratio 91.7 ‘05 1.7 2.1 ‘05 Balance Group Simplified Highlights Financial Calendar Financial General Annual Of Notice Philosophy Corporate Mission Corporate roae Profile Corporate Structure Corporate Group Information Corporate 99.9 Year Year ‘06 ‘06 1.6 1.9 119.5 1.2 1.4 ‘07 ‘07 Meeting Sheet 159.7 ‘08 ‘08 0.9 1.0

RM million RM million 100,000 120,000 140,000 160,000 180,000 100,000 120,000 140,000 160,000 180,000 200,000 20,000 40,000 60,000 80,000 31 30 29 28 28 26 24 20 18 14 20,000 40,000 60,000 80,000 0 0 OVERVIEW Strong AssetsGrowth Customer DepositsGrowth Robust & ‘04 au Added Value Of Statement Performance Group Analysis Segmental Liabilities & Assets Bearing Key Ranking & Capitalisation Market Performance Strong Delivering Growth Group Five-Year Of Summary Summary Financial Group Five-Year Highlights Media Care Customer 2008 To 1966 Milestones Corporate ‘04 55,719 Total Assets 92,403 Deposits fromcustomers Loans, advancesandfinancing 72,246 ‘05 ‘05 66,813 111,689 84,130 Quarterly Year Year ‘06 ‘06 82,788 147,790 111,793 ‘07 ‘07 99,328 174,155 138,765 ‘08 ‘08 118,386 196,163 162,280 ac 36 34 40 hi 2008 Accolades & Awards at Awards Past Eveme Awards Percentage RM million 1000 1500 2000 2500 3000 500 10 15 20 25 30 35 0 5 Shareholder Return Delivering Attractive Performance Consistently StrongFinancial nts 16.5 ‘04 ‘04

Equity Holders Net ProfitAttributableto 1,294 Net ReturnonEquity 19.1 ‘05 ‘05 1,459 21.9 Year ‘06 Year ‘06 1,727 52 46 44 26.3 lead ‘07 ‘07 2,124 30.4 Stakeholders To Letter Profile Directors’ Directors Board ‘08 ‘08 2,581 ershi Of

Sen 100 40 60 80 20 0 RM Strong DividendPerformance 10 12 0 2 4 6 8 Per Share-Sen Share Dividend Dividend PayoutRatio Per Share-Sen Ordinary Dividend 163.6 p ‘04 Reflected byResilientSharePrice 35.0 55.0 0 6 . 7 7.10 ‘04 89.6 Share Price–PublicBank(Local) Share Price–PublicBank(Foreign) ‘05 40.0 15.0 6.40 6.55 ‘05 acc 84.5 Year ‘06

100 98 96 88 68 50.0 10.0 7.75 7.85 Year ‘06 4 . 7 8 ‘07 65.0 10.0 11.00 11.00 Share Dividend) Ratio (Including Dividend Payout Per Share-Sen Special Dividend ‘07 o Report Audit Control Internal On Statement Trust And Integrity Ethics, Management Risk Governance Corporate On Statement 86.1 53.2 ‘08 55.0 33.7 t un 8.75 8.85 ‘08 0 20 40 60 80 100 120 140 160 180 Committee Percentage y abilit MANAGEMENT CORPORATE Financials perspective RESPONSIBILITY

108 Board Executive 178 Corporate 205 Analysis Of The Financial Statements Committee Responsibility 209 Statement Of Responsibility By Directors 109 Group 190 Human Capital Financial Statements 2008 Management Development Profile 210 Directors’ Report 192 Calendar Of 219 Statement by Directors 112 Heads Of Significant 219 Statutory Declaration Division Events 2008 220 Independent Auditors’ Report to the Members of 118 Chairman’s Public Bank Berhad Review 222 Balance Sheets 120 Overview 224 Income Statements 142 Business 226 Consolidated Statement of Changes in Equity Operations 228 Statement of Changes in Equity Review 229 Cash Flow Statements 174 Outlook for 2009 232 Notes to the Financial Statements 392 Bursa Securities Listing Requirements Compliance Information 394 Malaysian Economy: Weathering External Challenges 398 Investor Information 401 Analysis Of Shareholdings 404 Authorised And Issued Share Capital 418 Summary Of Properties Owned By Public Bank Group 419 List of Top 10 Properties Owned By Public Bank Group 421 International Network 422 Group Corporate Directory • Form Of Proxy 2008 NOTICE OF

P ORT ANNUAL GENERAL MEETING ANNUA L RE PUBLIC BANK BERHAD NOTICE IS HEREBY GIVEN THAT the Forty-Third Annual General Meeting of Public Bank Berhad (“PBB” or “Company”) (6463-H) will be held at the Grand Ballroom, Shangri-La Hotel, Jalan Sultan Ismail, 50250 Kuala Lumpur on Wednesday, 25 February 2009 at 11.00 a.m. for the following purposes:

As Ordinary Business 1. To receive the Audited Financial Statements for the financial year ended 31 December 2008 and the Reports of the Directors and Auditors thereon. Ordinary Resolution 1

2. To approve the payment of a final cash dividend of 25% less 25% income tax (“Final Cash Dividend”) and the distribution of a share dividend on the basis of 1 PBB treasury share listed and quoted as “Local” on the Main Board of Bursa Malaysia Securities Berhad for every 35 ordinary shares of RM1.00 each held in PBB, fractions of treasury shares to be disregarded (“Share Dividend”), in respect of the financial year ended 31 December 2008 as recommended by the Directors. Ordinary Resolution 2

3. To re-elect the following Directors who retire by rotation pursuant to Article 111 of the Company’s Articles of Association:

i. Tan Sri Dato’ Sri Tay Ah Lek Ordinary Resolution 3 ii. Dato’ Haji Abdul Aziz bin Omar Ordinary Resolution 4

4. To re-elect Quah Poh Keat who retires pursuant to Article 109 of the Company’s Articles of Association. Ordinary Resolution 5

5. To consider and if thought fit, to pass the following Ordinary Resolutions in accordance with Section 129 of the Companies Act, 1965: i. “THAT Tan Sri Dato’ Sri Dr. Teh Hong Piow, retiring pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.” Ordinary Resolution 6 ii. “THAT Tan Sri Dato’ Thong Yaw Hong, retiring pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.” Ordinary Resolution 7 iii. “THAT Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff, retiring pursuant to Section 129 of the Companies Act, 1965, be and is hereby re-appointed a Director of the Company to hold office until the next Annual General Meeting.” Ordinary Resolution 8

6. To approve the payment of Directors’ fees of RM1,142,083.00 for the financial year ended 31 December 2008. Ordinary Resolution 9

7. To re-appoint Messrs KPMG as Auditors of the Company for the financial year ending 31 December 2009 and to authorise the Directors to fix the Auditors’ remuneration. Ordinary Resolution 10

4 Notice Of Annual General Meeting 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD As Special Business To consider and if thought fit, to pass the following resolutions: 8. Authority under Section 132D of the Companies Act, 1965, for the Directors to Issue Shares “THAT pursuant to Section 132D of the Companies Act, 1965, the Directors be and are hereby authorised to issue shares in the Company at any time until the conclusion of the next Annual General Meeting and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares to be issued does not exceed ten per centum of the issued and paid-up share capital of the Company for the time being, subject always to the approvals of the relevant regulatory authorities.” Ordinary Resolution 11

9. Proposed Renewal of Authority for the Purchase by PBB of its Own Shares (“Proposed Share Buy-Back”) “THAT, subject to the Companies Act, 1965, the Memorandum and Articles of Association of the Company and the requirements of Bank Negara Malaysia, Bursa Malaysia Securities Berhad (“Bursa Securities”) and any other relevant authorities, the Company be and is hereby authorised to purchase such number of ordinary shares of RM1.00 each in PBB as may be determined by the Directors from time to time through Bursa Securities upon such terms and conditions as the Directors may deem fit in the interest of the Company provided that the aggregate number of shares purchased pursuant to this resolution does not exceed ten per centum of the total issued and paid-up share capital of the Company; AND THAT an amount not exceeding PBB’s total audited retained profits and share premium account at the time of purchase be allocated by PBB for the Proposed Share Buy-Back. Based on the latest audited financial statements of PBB as at 31 December 2008, the retained profits of PBB amounted to approximately RM1,133,277,000 (after deducting the Final Cash Dividend of RM629,180,000) and the share premium account amounted to approximately RM1,439,601,000 (after deducting the Share Dividend); AND THAT the authority conferred by this resolution shall commence immediately upon the passing of this resolution and shall continue to be in force until: i. the conclusion of the next Annual General Meeting of the Company, at which time it will lapse, unless renewed by an ordinary resolution passed by the shareholders of the Company in a general meeting; or ii. revoked or varied by an ordinary resolution passed by the shareholders of the Company in a general meeting; whichever is the earlier; AND THAT the Directors be and are hereby authorised to act and to take all steps and do all things as they may deem necessary or expedient in order to implement, finalise and give full effect to the Proposed Share Buy-Back AND FURTHER THAT authority be and is hereby given to the Directors to decide in their absolute discretion to either retain the ordinary shares of RM1.00 each in PBB purchased by PBB pursuant to the Proposed Share Buy-Back as treasury shares to be either distributed as share dividends or resold on Bursa Securities or subsequently cancelled, or to cancel the shares so purchased, or a combination of both.” Ordinary Resolution 12

Notice Of Annual General Meeting 5 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD DATE OF ENTITLEMENT AND PAYMENT OF FINAL cash DIVIDEND AND distribution of share DIVIDEND NOTICE HAS BEEN GIVEN ON 21 january 2009 THAT subject to the approval of Members at the Annual General Meeting to be held on 25 February 2009, the Final Cash Dividend will be paid and the Share Dividend will be distributed in respect of the financial year ended 31 December 2008.

The Final Cash Dividend will be paid on 11 March 2009, and the Share Dividend will be credited into the Depositor’s Securities Account on 11 March 2009, to Depositors whose names appear in the Record of Depositors on 2 March 2009.

A Depositor shall qualify for entitlement to the Final Cash Dividend and Share Dividend only in respect of: a. Securities transferred into the Depositor’s Securities Account before 4.00 p.m. on 2 March 2009 in respect of transfers; b. Securities deposited into the Depositor’s Securities Account before 12.30 p.m. on 26 February 2009 in respect of securities exempted from mandatory deposit; and c. Securities bought on Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of Bursa Malaysia Securities Berhad.

By Order of the Board

Chia Lee Kee (MS) MAICSA 7008270 Company Secretary

Kuala Lumpur 3 February 2009

Notes: EXPLANATORY NoteS on Special Business: 1. In respect of deposited securities, only 3. A Member entitled to attend and vote at the 1. The proposed Ordinary Resolution 11, if Members whose names appear in the Record Meeting may appoint a proxy to attend and passed, will give the Directors of the Company of Depositors on 18 February 2009 (General vote on his behalf. A proxy need not be a authority to issue and allot shares for such Meeting Record of Depositors) shall be eligible Member of the Company. purposes as the Directors in their absolute to attend the Meeting. discretion consider to be in the interest of the 4. A Member shall not be entitled to appoint more Company without having to convene a general 2. The right of Foreigners to vote in respect than two (2) proxies to attend and vote at the meeting. This authority, unless revoked or of deposited securities is subject to Meeting provided that where a Member is an varied by the Company in general meeting, will Section 41(1)(e) and Section 41(2) of the authorised nominee as defined in accordance expire at the next Annual General Meeting of Securities Industry (Central Depositories) Act, with the provisions of the Securities Industry the Company. 1991; the Securities Industry (Central (Central Depositories) Act, 1991, it may appoint Depositories) (Foreign Ownership) Regulations, up to two (2) proxies in respect of each 2. The proposed Ordinary Resolution 12, if 1996 and the Articles of Association of the Securities Account it holds with ordinary shares passed, will empower the Directors to purchase Company. Where a Foreigner, based on the in the Company standing to the credit of the PBB shares through Bursa Malaysia Securities General Meeting Record of Depositors, holds said Securities Account. Berhad up to ten per centum of the issued and deposited securities in a Securities Account paid-up share capital of the Company. and such securities raise the ownership of 5. The instrument appointing a proxy shall be in shares in the Company by Foreigners beyond writing under the hand of the appointor or his Detailed information on the Proposed Share the Company’s foreign shareholding limit of attorney duly authorised in writing or if such Buy-Back is set out in the Statement to 30%, such Foreigner or the proxy appointed by appointor is a corporation, under its common Shareholders in relation to the proposed him, in respect of such securities, shall not be seal or the hand of its attorney. renewal of authority for the purchase by PBB entitled to exercise in any manner whatsoever of its own shares dated 3 February 2009 6. The instrument appointing a proxy must be any voting rights in respect of the aforesaid despatched together with the PBB 2008 deposited at the office of the Share Registrar, securities at the Meeting. Annual Report. Epsilon Registration Services Sdn Bhd at Level 17, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia not less than 48 hours before the Meeting. 6 Notice Of Annual General Meeting financial 2008

calendar P ORT FINANCIAL YEAR 2008 ANNUA L RE PUBLIC BANK BERHAD QUARTERLY RESULTS Unaudited consolidated results for the 1st quarter ended Announced on 14 April 2008 31 March 2008 (Monday)

Unaudited consolidated results for the 2nd quarter and half-year Announced on 17 July 2008 ended 30 June 2008 (Thursday)

Unaudited consolidated results for the 3rd quarter ended Announced on 14 October 2008 30 September 2008 (Tuesday)

Audited consolidated results for the 4th quarter and year ended Announced on 20 January 2009 31 December 2008 (Tuesday)

DIVIDENDS Interim dividend of 30% less 26% income tax for the Notice date 18 July 2008 financial year ended 31 December 2008 (Friday)

Entitlement date 5 August 2008 (Tuesday)

Payment date 13 August 2008 (Wednesday)

Final cash dividend of 25% less 25% income tax (“Final Cash Dividend”) Notice date 21 January 2009 and the distribution of a share dividend on the basis of 1 PBB treasury (Wednesday) share listed and quoted as “Local” on the Main Board of Bursa Malaysia Securities Berhad for every 35 ordinary shares of RM1.00 each held Entitlement date 2 March 2009 in PBB, fractions of treasury shares to be disregarded (“Share Dividend”), (Monday) in respect of the financial year ended 31 December 2008 Final Cash Dividend 11 March 2009 payment date/Share (Wednesday) Dividend crediting date

NOTICE OF ANNUAL GENERAL MEETING 3 February 2009 (Tuesday)

43rd Annual General Meeting 25 February 2009 (Wednesday)

Financial Calendar 7 2008 FINANCIAL

P ORT HIGHLIGHTS ANNUA L RE PUBLIC BANK BERHAD

GROUP BANK 2008 2007 2008 2007 PROFITABILITY (RM’Million) Operating revenue 10,500 9,558 8,557 7,833 Operating profit 3,948 3,418 3,293 3,213 Profit before tax expense and zakat 3,379 3,004 2,898 2,851 Net profit attributable to equity holders of the Bank 2,581 2,124 2,273 2,106

KEY BALANCE SHEET DATA (RM’Million) Total assets 196,163 174,155 166,699 158,471 Loans, advances and financing 118,386 99,328 93,174 89,806 Deposits from customers 162,280 138,765 134,062 126,425 Shareholders’ equity 9,537 9,342 9,392 9,351

FINANCIAL RATIOS (%) Profitability Ratios Net interest margin on average interest bearing assets1 3.2 3.2 3.1 3.1 Net return on equity2 30.4 26.3 26.9 26.2 Return on average assets 1.8 1.9 1.8 1.9 Return on average risk-weighted assets 3.2 3.3 3.2 3.5

Capital Adequacy Ratios Core capital ratio 8.3 9.1 10.9 11.1 Risk-weighted capital ratio 13.7 13.6 13.4 13.3

Asset Quality Ratio Net non-performing loans ratio3 0.9 1.2 0.9 1.3

1 Excluding negotiable instruments of deposit and money market deposits which are on-lent to interbank. 2 Based on equity attributable to equity holders of the Bank, adjusted for proposed dividend. 3 Based on 3 months classification.

8 Financial Highlights SIMPLIFIED 2008

GROUP BALANCE SHEET P ORT ANNUA L RE PUBLIC BANK BERHAD

Assets 2008 18.7% Cash and short-term funds 2.6% Securities purchased under resale agreements 1.0% Deposits and placements with and other financial institutions 12.9% Portfolio of securities 60.3% Loans, advances and financing 1.3% Statutory deposits with Central Banks 3.2% Others assets (including intangible assets)

Liabilities & Equity 2008

82.7% Deposits from customers 2.8% Deposits and placements of banks and other financial institutions 6.0% Bills and acceptances payable and other liabilities 3.2% Subordinated notes and hybrid capital securities 1.8% Share capital 3.1% Reserves 0.4% Minority

Simplified Group Balance Sheet 9 2008 CORPORATE

P ORT INFORMATION ANNUA L RE PUBLIC BANK BERHAD BOARD OF DIRECTORS

Non-Executive Chairman Executive Director Independent Non-Executive Director Tan Sri Dato’ Sri Dr. Teh Dato’ Lee Kong Lam DATO’ Haji Abdul Aziz bin Omar Hong Piow DIMP DIMP PSM, SSAP, SPMJ, SIMP, SSIJ, DSAP, DPMJ, FCPA (Aust), CA (M’sia), FCIB (UK) ACA (England & Wales), CA (M’sia), FIBM (M’sia) Datuk Kurnia Sentosa Pahang, JP Hon LLD (M’sia), FIBM (M’sia), FCIB (UK) Independent Non-Executive Director Independent Non-Executive Director FCIS (Aust), FCMI (UK), FICM (UK), FInstAM (UK) Dato’ Yeoh Chin Kee Dato’ Dr. Haji Mohamed Ishak DIMP bin Haji Mohamed Ariff Independent Non-Executive Co-Chairman FCPA (Aust), F Fin (Aust) DSPN, JSM, DJN, SMS, KMN, PPT, PJK Tan Sri Dato’ Thong Yaw Hong FRTPI (London), FMIP (M’sia), FILA (M’sia), PSM, SIMP, DSAP, DIMP, JMN, SMP, JBS, AMN Independent Non-Executive Director D.C.L. (Hon) Newcastle-upon-Tyne BA (Econs Hons), MPA (Harvard), Y.A.M. Tengku Abdul Rahman AMP (Harvard), D.Econ (Hon) Ibni Sultan Haji Ahmad Shah Independent Non-Executive Director Al-Mustain Billah QUAH POH KEAT Managing Director/Chief Executive Officer DK II, SSAP FCCA (UK), CA (M’sia), CPA (M’sia) TAN SRI DatO’ SRI Tay Ah Lek ACMA (UK), Fellow MIT (M’sia) PSM, SSAP, PJN, DIMP, KMN MBA (Henley), FIBM (M’sia), F Fin (Aust)

COMPANY SECRETARY AUDITORS INVESTOR RELATIONS CHIA LEE KEE (MS) MESSRS KPMG Tel : 603-21766293 MAICSA 7008270 Chartered Accountants E- : [email protected] Tel : 603-21766341 Level 10, KPMG Tower E-mail : [email protected] 8, First Avenue Bandar Utama AGM HELPDESK 47800 Petaling Jaya Tel : 603-21766454, 21766455 Selangor Darul Ehsan REGISTERED OFFICE Fax : 603-21639917 Malaysia 27th Floor, Menara Public Bank E-mail : [email protected] Tel : 603-77213388 146 Jalan Ampang Fax : 603-77213399 50450 Kuala Lumpur Malaysia STOCK EXCHANGE LISTING Tel : 603-21766341, 21638888 Main Board of Bursa Malaysia Securities Fax : 603-21639917 HEAD OFFICE Berhad Menara Public Bank (Listed since 6 April 1967) 146 Jalan Ampang SHARE REGISTRAR 50450 Kuala Lumpur Malaysia EPSILON REGISTRATION SERVICES Tel : 603-21766000, 21766666, SDN BHD 21638888, 21638899 Level 17, The Gardens North Tower Fax : 603-21639917 Mid Valley City Lingkaran Syed Putra 59200 Kuala Lumpur Malaysia Website Tel : 603-22643883 www.publicbank.com.my Fax : 603-22821886 E-mail : [email protected]

10 Corporate Information GROUP 2008

CORPORATE STRUCTURE P ORT As at 3 February 2009 ANNUA L RE PUBLIC BANK BERHAD

Malaysian Companies Overseas and Offshore Companies ng 100% Public Islamic Bank Bhd ng 73.2% Public Financial Holdings Ltd (Islamic Banking) (Investment & Property Holding) ng 20% PB Trustee Services Bhd sn 20% ng 100% Public Bank () Ltd (Trustee Services) (Banking) ng 100% Public Investment Bank Bhd   ng 100% Public Financial Securities Ltd () (Stock & Share Broking) ng 100% Public Invest Nominees   ng 100% Public Bank (Nominees) Ltd (Tempatan) Sdn Bhd (Nominee Services) (Nominee Services)   ng 100% Ltd ng 100% Public Invest Nominees (Deposit Taking & Finance) (Asing) Sdn Bhd g 100% Public Securities (Nominee Services)    n (Nominees) Ltd ng 100% Public Consolidated Holdings (Nominee Services) Sdn Bhd g 100% Public Financial Ltd (Investment Holding)    n (Investment Holding) ng 100% Public Mutual Bhd g 100% Public (Sale & Management of Unit Trusts)     n Securities Ltd ng 100% Public Leasing & Factoring (Stock & Share Sdn Bhd Broking) (Leasing & Factoring) ng 100% Winton (B.V.I.) Ltd ng 100% Public Nominees (Tempatan) (Investment Holding) Sdn Bhd g 100% Cambodian Public Bank Plc (Nominee Services) n (Banking) ng 100% Public Nominees (Asing) Sdn Bhd g 49% CPB Properties Company Ltd (Nominee Services) n (Property Holding) ng 100% Public Holdings Sdn Bhd g 51% CampuBank Lonpac Insurance Plc (Property Holding) n ng 4% (General Insurance) ng 100% PB Venture Capital Sdn Bhd g 50% VID Public Bank (Investment Holding) n (Banking) ng 100% Public Bank (L) Ltd (Offshore Banking) ng 100% PB Trust (L) Ltd (Offshore Trust Company)

The full list of companies under the Public Bank Group is set out in Notes 14 and 15 to the Financial Statements on pages 271 to 273 of this Annual Report.

Group Corporate Structure 11 2008 CORPORATE

P ORT PROFILE ANNUA L RE PUBLIC BANK BERHAD WHO WE ARE STRONG FINANCIAL OUR CORE BUSINESSES Founded in 1966 by Tan Sri Dato’ Sri Dr. RATINGS A leading provider of integrated financial Teh Hong Piow, Public Bank is known for For its consistently strong , the Public Bank Group offers a its prudent management, strong performance, superior asset quality, wide range of financial products and profitability, stable leadership, strong asset healthy capitalisation and prudent services such as commercial banking, quality, healthy capitalisation and service management, the Public Bank Group investment banking, excellence. A top-tier bank in Malaysia, continues to be accorded strong financial products and Islamic banking services. Public Bank has the best overall financials ratings. In November 2008, Moody’s The Public Bank Group is an industry among local banks. The fact that Public Investor Service reaffirmed Public Bank’s leader in home mortgage financing, hire Bank is untouched by the US subprime long-term deposit rating of A3, and short- purchase financing and commercial crisis demonstrates its adherence to its term deposit rating of P-1. Standard & lending to SMEs in Malaysia. prudent management and strong risk Poor’s Rating Agency reaffirmed Public management. Bank A- long-term rating and A-2 short- The Public Bank Group also offers a term counterparty credit rating with stable wider range of wealth management With a healthy balance sheet, Public Bank outlook in May 2008. Also in September products through Public Mutual – a is the largest domestic bank in Malaysia 2008, Rating Agency Malaysia reaffirmed wholly-owned subsidiary of Public Bank by market capitalisation and the third Public Bank’s long-term rating of AAA, – and through the long-term strategic largest by balance sheet. The Public Bank the highest accorded by Rating Agency alliance with the ING Group to distribute Group employs close to 16,000 people Malaysia, and its short-term rating of P1. bancassurance products. Public Mutual is – up from 14,000 in 2007 – with about a dominant player in the fund management 90% of the staff in Malaysia and the industry in Malaysia with a leading market remaining spread across Hong Kong and share due to its superior funds the People’s Republic of , , performance, strong distribution capabilities , and . In Cambodia, and a strong brand. Cambodian Public Bank Plc is the largest in the country both in terms of balance sheet size and in its lending business.

12 Corporate Profile 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD FOCUSED BUSINESS governance, prudent management, strong Group is also enhancing its reputation, STRATEGY corporate image and competitive products goodwill and brand. Through the Group’s and services. efforts and initiatives in nation building The Public Bank Group is very focused and the enhancement of the market place on growing its market share in its retail To continue to reinforce the PB Brand, through the promotion of the work place, lending and deposit-taking businesses in Public Bank has taken further initiatives to the Group continues to discharge its the domestic and overseas markets, while train its staff to be Public Bank’s Service corporate responsibilities. maintaining its prudent risk management Ambassadors. The staff force have been and strong asset quality. The effectiveness trained to be more than courteous, As a socially responsible corporate, the of the Group’s business strategy rests knowledgeable and innovative but also Public Bank Group also continues to with its proven ability to effectively execute caring in order to ensure delightful implement its CSR programmes to its core business strategies and build a customer experience at Public Bank. The enhance quality of life and a sustainable strong capability and capacity to innovate Public Bank Group has also taken major environment by supporting education, and offer a wide range of competitive initiatives to further build and create disaster relief, health care, culture and the financial packages to its increasingly greater awareness of the PB Brand in arts and caring for the needy in addition demanding customers. Hong Kong and in Indochina. to taking care of the environment.

Backed by its effective delivery channels and competitive product packages, the DELIVERY CHANNELS AWARDS AND ACCOLADES Public Bank Group has able to sustain accelerated business growth at a To expand its business and provide Public Bank continues to be accorded significantly faster pace than the industry’s greater customer convenience, the Public awards of excellence in banking and growth without compromising on its asset Bank Group continues to expand and corporate governance. In 2008, Public quality. In the last seven years, the enhance the efficiency of its delivery Bank was honoured with 39 awards and Group’s total loans and advances and channels. Coupled with 242 Public Bank accolades, many of which were repeat core customer deposits had been growing branches in Malaysia, the Group has best bank awards by national and at a compounded annual rate of 21% and expanded its overseas branches to 97 in international publications. Public Bank 16%, respectively. Hong Kong and the People’s Republic of continues to be ranked right at the top for China, Cambodia, Vietnam, Laos and Sri excellence in corporate governance. Lanka. The Public Bank Group continues CORPORATE REPUTATION to enhance convenient access to banking Tan Sri Dato’ Sri Dr. Teh Hong Piow, services by expanding its network of Founder and Chairman of Public Bank, Public Bank has been repeatedly voted Automated Teller Machines, continues to be honoured with awards of the best managed company in Malaysia Deposit Machines, Cash Deposit excellence for his sterling leadership and by investors and analysts across the Asian Terminals, as well as its Internet banking immense contributions to the banking and region. In particular, Public Bank is often and services. The Group financial industry in Malaysia and abroad. rated highly in categories such as strong will continue to tap on its sales force and corporate governance, best investor strategic alliance with key partners to relations and most committed company to deliver high value products and services OUR COMMITMENT strong dividend policy. In a survey of 200 to its customers. most admired companies in Malaysia in The Public Bank Group is committed to 2008, Public Bank was ranked highly for deliver value to its stakeholders. To its customers, the Group will continue to its long-term vision, financial soundness CORPORATE and corporate reputation. provide competitive financial products and RESPONSIBILITY services in line with increasingly The Public Bank Group continues to sophisticated customer demand. To its THE PB BRAND believe that a company’s performance shareholders and investors, the Group will should be measured not only by the continue to enhance shareholder value The Public Bank Group continues to economic value it creates but also by its through strong financial performance. To reinforce its strong PB Brand based on impact on all its stakeholders, including its staff, the Group will continue to invest the key attributes of integrity, reliability society and the environment. It fully in human capital development initiatives and service excellence. Also, underpinning subscribes to the philosophy that in to enhance core competencies and the PB Brand is excellence in corporate fulfilling its corporate responsibilities, the productivity.

Corporate Profile 13 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD

Milestones

CORPORATE Milestones 1966 to 2008

g Establishment of Public Bank’s Hong 1966 1970 Kong branch as a restricted licensed g On 6 August 1966, Public Bank first g Public Bank paid its 1st dividend of bank in Hong Kong opened its doors for business at No. 4 3.5% per ordinary share of RM1.00 g Establishment of a wholly-owned Jalan Gereja, Kuala Lumpur with 62 each, the start of an unbroken stream off-shore banking subsidiary, Public pioneer staff of dividends paid by Public Bank to Bank (L) Ltd, in the Federal Territory of 2008 g Public Finance Berhad, then Public Labuan Bank’s wholly-owned finance company g 1st RM100 million annual pre-tax profit subsidiary, commenced business on 1978 with RM128 million pre-tax profit in the 24 September 1966 g Public Bank moved to Bangunan Public year g The start of an expanding network of Bank, the first Head Office owned by Public Bank with the opening of Public the Bank Bank’s Malacca Branch on 1991 15 September 1966 and Ipoh Branch g Listing of Public Financial Holdings on 7 January 1967, a domestic network 1980 Limited (then known as JCG Holdings that stands at 242 branches today g 1st RM10 million annual pre-tax profit Limited) on The Stock Exchange of with RM21 million pre-tax profit achieved g 1st five months of business yielded a Hong Kong Limited for the year profit of RM71,562, the start of an g Total assets surpassed RM10 billion for unbroken profitability track record of 42 g Total assets surpassed RM1 billion for the 1st time years the 1st time 1992 1967 1985 g Listing of Public Finance Berhad (the g Official opening of Public Bank on g Public Bank’s first venture overseas former finance company subsidiary of 4 April 1967 by Malaysia’s first Prime with the setting up of its Hong Kong Public Bank) on Bursa Malaysia Minister, the late Y.T.M. Tunku Abdul representative office Securities Berhad (then known as the Rahman Kuala Lumpur Stock Exchange) on g On 6 April 1967, Public Bank was 1987 15 July 1992 listed on Bursa Malaysia Securities g Completed the acquisition of PB g VID Public Bank, Public Bank’s 50:50 Berhad (then known as the Kuala Securities Sdn Bhd (then known as GP joint venture bank with Bank for Lumpur Stock Exchange) Securities Sdn Bhd) on 1 October Investment and Development of Vietnam 1987, marking the Public Bank Group’s commenced business in Hanoi, Vietnam 1969 entry into stockbroking business on 18 May 1992 g Establishment of Cambodian Public g 1st RM1 million annual pre-tax profit 1990 Bank Plc, presently a wholly-owned subsidiary, in Cambodia on 25 May g Acquisition of Public Finance Limited 1992 and branches in Vientiane, Laos (then known as JCG Finance Company, and Colombo, Sri Lanka Limited) in Hong Kong

14 Corporate Milestones 1966 To 2008 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD staying ahead

g Public Investment Bank Berhad, a 1993 2003 wholly-owned subsidiary, was g Commencement of Islamic Banking g Public Bank started buying back its established on 18 December 2006 service with the launch of “Skim own shares, the first bank in Malaysia upon completion of the merger of the Perbankan Tanpa Faedah” and the to do so merchant banking business of Public setting up of Public Bank’s Islamic g Completed the privatisation of Public Berhad with the Banking Unit Finance Berhad on 13 June 2003 stockbroking business of PB Securities Sdn Bhd g Acquisition of 55% interest in Public g Paid-up capital of Public Bank reached Mutual Berhad (then known as Kuala RM3 billion Lumpur Mutual Fund Berhad) on 2007 26 May 1993 2004 g Pre-tax profit surpassed RM3 billion for the 1st time 1996 g 1st issue of subordinated debt of USD350 million g Total loans, advances and financing g Public Bank moved to Menara Public exceeded RM100 billion for the 1st g Completed the merger of the finance Bank, its present landmark Head Office time building in the heart of Kuala Lumpur’s company business of Public Finance g Public Bank entered into an exclusive central business district Berhad with the commercial banking business of Public Bank on 4 September regional strategic alliance agreement 2004 with ING Asia/Pacific Limited for the 1998 joint development of bancassurance g Paid-up capital of Public Bank reached 2005 business, Takaful business and various RM1 billion other services between Public Bank g Pre-tax profit surpassed RM2 billion for and ING in the Asia Pacific region for 2000 the 1st time 10 years g Total assets surpassed RM100 billion g Establishment of CampuBank Lonpac g Acquisition of Public Merchant Bank for the 1st time Insurance Plc, a 55% subsidiary of Berhad (then known as Sime Merchant Public Bank Group, to provide general Bank Berhad) on 25 October 2000 insurance business in Cambodia expanded the Group’s business into 2006 merchant banking g 1st Malaysian bank to issue innovative 2008 g 1st RM1 billion annual pre-tax profit hybrid Tier-1 capital securities in both with RM1.25 billion pre-tax profit in the the international market in US Dollars of g Public Islamic Bank Berhad, a wholly- year USD200 million and in the domestic owned subsidiary, commenced business market in Ringgit of RM1.2 billion on 1 November 2008 upon the 2001 g Acquisition of Public Bank (Hong Kong) completion of the transfer of the Islamic Limited (formerly known as Asia banking business of Public Bank to g Completed the acquisition of Hock Hua Commercial Bank Limited) in Hong Public Islamic Bank Berhad Bank Berhad on 31 March 2001 Kong for HKD4.5 billion g Public Bank became the largest banking g Public Mutual Berhad, the largest group in Malaysia by market capitalisation 2002 private sector unit trust management and the 2nd largest listed company on g Paid-up capital of Public Bank reached company in Malaysia, became a wholly- Bursa Malaysia Securities Berhad on RM2 billion owned subsidiary on 12 July 2006 18 July 2008 with a market capitalisation of RM36.03 billion

Corporate Milestones 1966 To 2008 15

CUSTOMER Centric

Always striving to satisfy our customers’ needs and go beyond their expectations, we make each customer our top priority. Because we understand the most vital characteristic for staying ahead is being customer-centric. 2008 CUSTOMER

P ORT CARE ANNUA L RE PUBLIC BANK BERHAD EXCELLENCE IS OUR name, make Eye contact, Smile and say customer issues. These CSRs have been COMMITMENT Thank you – by staff when they interact trained to be “Service Ambassadors” to with customers. Public Bank’s electronic guide and advise customers. The Group To the Public Bank Group, the customer Loan Delivery System (“eLDS”) has been has expanded its marketing force to 1,100 is always king. Therefore, the Public Bank enhanced further to ensure a faster staff which includes specialised Sales Group continues to uphold its customer response time to customers. The eLDS and Marketing Executives, Personal service commitments by investing in its has also been extended to the Bank’s Financial Executives and Bancassurance already superior delivery standards. The branches in Hong Kong, Sri Lanka and Sales Executives to provide a wide range Group believes that by committing Laos and will be extended to Public Bank of financial services to customers. resources to sustain its exceptionally (Hong Kong) Limited in 2009. superior delivery standards, it continues to delight its customers whenever they do EFFICIENT COMPLAINT their banking business with the Group. MULTIPLE DELIVERY Excellent customer service also promotes RESOLUTION selling. The Group’s corporate tag line CHANNELS As part of its customer care initiatives, the “Excellence Is Our Commitment” is a The Public Bank Group has 242 full- Public Bank Group has established an commitment to enhance greater customer service branches in Malaysia and expanded efficient complaint resolution system. satisfaction whilst driving staff to deliver its network of branches overseas to 97 in Public Bank has set a maximum number excellent customer service. 2008. The Group provides other delivery of days for all customer complaints - channels such as Internet banking, phone whether they are related to customer banking and self-service delivery channels service, product or fraud - to be WORLD CLASS DELIVERY in the form of ATMs, cheque deposit acknowledged, resolved and notified to STANDARDS machines and cash deposit terminals for the customer promptly. The Group treats greater customer accesibility and all customer complaints as an opportunity Public Bank remains the first bank in convenience. In Malaysia, the Public Bank for customer service improvement to Malaysia to have all its domestic branches Group has more than 1,200 self-service further enhance its commitment to serve certified for customer service and loan terminals which will be expanded further the customer. delivery under the internationally in 2009. recognised ISO 9001:2000 certification. The ISO 9001:2000 certification – which To provide greater customer convenience, TApping on technology continued to be renewed every three Public Bank launched its mobile banking To further improve its customer service, years – provides the Bank with a coherent services for its Internet banking customers the Public Bank Group is tapping its Quality Management System to based on 3G technology in April 2008. information communication technology continuously improve its service delivery The services provided under the mobile to improve the Group’s to customers. banking channel include account enquiry, capacity to deliver new products and fund transfer, payments, investments and services, improve innovation capabilities cheque management. INSTITUTIONALISED and enhance customer relationship management. The focus of customer DELIVERY STANDARDS relationship management is not only to The Public Bank Group has not only Public Bank Service retain customers but also to ensure institutionalised its 2-minute Standard Ambassadors effective marketing strategies through Waiting Time for customers, but has For customers who prefer face-to-face better customer segmentation to increase continued to enforce high standards of interaction, the Public Bank Group has product holding and improve referral compliance with the Standard Waiting appointed 480 Customer Service activities. Time. The Group continues to emphasise Representatives (“CSRs”) to assist the practice of G.U.E.S.T. – which stands customers on all banking matters and for Greet the customer, Use the customer’s also to provide prompt resolutions to

18 Customer Care 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD

special care counters As a caring and socially responsible institution, the Public Bank Group continues to provide Special Care Counters at all branches for senior citizens, expectant mothers and the physically disadvantaged. These Special Care Counters are popular amongst these customers as they allow them to conduct their banking transactions at their convenience. customer feedback The Public Bank Group has taken steps to ensure that it can sustain its superior delivery standards by enhancing its customer feedback system. Through the Group’s enhanced Customer Education Programme, all feedback which are collected by the Service Ambassadors are processed and used to drive customer service improvement initiatives.

Customer Care 19 2008 MEDIA

P ORT HIGHLIGHTS ANNUA L RE PUBLIC BANK BERHAD

20 Media Highlights ei Highlights Media 21

PUBLIC BANK BERHAD ANNUAL REPORT 2008 SUSTAINED STRONG ASSET QUALITY Realising the potential of assets in the future requires one to possess a unique view. We staunchly uphold the principle that any growth must be sustainable and of sound quality. So, whilst chasing loans are an integral part of our daily activities, we also strive to ensure we stay ahead of other financiers and overcome challenges and uncertainties with our impeccable asset quality. SUSTAINED STRONG ASSET QUALITY Realising the potential of assets in the future requires one to possess a unique view. We staunchly uphold the principle that any growth must be sustainable and of sound quality. So, whilst chasing loans are an integral part of our daily activities, we also strive to ensure we stay ahead of other financiers and overcome challenges and uncertainties with our impeccable asset quality. 2008 FIVE-YEAR GROUP

P ORT FINANCIAL SUMMARY ANNUA L RE PUBLIC BANK BERHAD

YEAR ENDED 31 DECEMBER 2008 2007 2006 2005 2004 OPERATING RESULTS (RM’Million) Profit before tax expense and zakat 3,379 3,004 2,416 2,059 1,884 Net profit attributable to equity holders of the Bank 2,581 2,124 1,727 1,459 1,294

KEY BALANCE SHEET DATA (RM’Million) Total assets 196,163 174,155 147,790 111,689 92,403 Loans, advances and financing 118,386 99,328 82,788 66,813 55,719 Total liabilities 185,934 164,177 138,127 102,689 83,327 Deposits from customers 162,280 138,765 111,793 84,130 72,246 Paid-up capital 3,532 3,528 3,463 3,417 3,356 Shareholders’ equity 9,537 9,342 9,034 8,564 8,708 Off-balance sheet exposures 52,867 40,807 33,359 28,952 19,781

SHARE INFORMATION AND VALUATION Share Information Per share (sen) – Basic earnings 76.9 63.3 52.1 44.5 40.2 – Diluted earnings 76.9 62.9 51.6 44.1 39.5 – Gross dividend • Cash dividend 55.0 75.0 60.0 55.0 90.0 • Share dividend 1 for 35 — — — — – Net assets 284.2 278.7 270.6 260.0 267.5

Share price as at 31 December (RM) – Local 8.85 11.00 7.75 6.55 7.10 – Foreign 8.75 11.00 7.85 6.40 7.60 Market capitalisation (RM’Million) 31,152 38,807 26,941 22,230 24,329

Valuations (Local Share) Gross dividend yield (%) 6.2 6.8 7.7 8.4 12.7 Gross dividend yield (including share dividend) (%)* 10.0 6.8 7.7 8.4 12.7 Dividend payout ratio (%) 53.2 87.4 84.5 89.6 163.6 Dividend payout ratio (including share dividend) (%)* 86.1 87.4 84.5 89.6 163.6 Price to earnings multiple (times) 11.5 17.4 14.9 14.7 17.7 Price to book multiple (times) 3.1 3.9 2.9 2.5 2.7

FINANCIAL RATIOS (%) Profitability Ratios Net interest margin on average interest bearing assets1 3.2 3.2 3.4 3.6 4.1 Net return on equity2 30.4 26.3 21.9 19.1 16.5 Return on average assets 1.8 1.9 1.9 2.0 2.4 Return on average risk-weighted assets 3.2 3.3 3.2 3.3 3.6 Cost / income ratio 31.2 33.1 32.7 33.8 35.3

* Computed based on PBB Local share price of RM8.85 per share on 31 December 2008.

24 Five-year Group Financial Summary 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD

YEAR ENDED 31 DECEMBER 2008 2007 2006 2005 2004 Asset Quality Ratios Net loan to deposit ratio 73.0 71.6 74.1 79.4 77.1 Net non-performing loans ratio3 0.9 1.2 1.6 1.7 2.1 Loan loss coverage 159.7 119.5 99.9 91.7 79.0

Capital Adequacy Ratios Core capital ratio 8.3 9.1 10.2 11.6 14.0 Risk-weighted capital ratio 13.7 13.6 15.8 17.3 18.0 Capital base (RM’Million) 15,775 13,478 13,000 11,758 10,101 Tier 1 – equity capital 8,157 7,627 7,151 7,885 7,847 – debt capital 1,440 1,346 1,262 — — Tier 2 – loan loss reserves 1,759 1,523 1,318 1,056 931 – debt capital 4,419 2,982 3,269 2,817 1,323

PRODUCTIVITY RATIOS No. of employees 16,160 14,287 13,396 12,800 12,659 Gross loans per employee (RM’000) 7,467 7,098 6,298 5,320 4,496 Deposits per employee (RM’000) 10,042 9,713 8,345 6,573 5,707 Profit before tax per employee (RM’000) 209 210 180 161 149

MARKET SHARE (%) Domestic market share Loans, advances & financing 14.9 14.4 13.2 12.0 11.1 Deposits from customers 14.8 14.8 14.2 13.2 12.4

1 Excluding negotiable instruments of deposit and money market deposits which are on-lent to interbank. 2 Based on equity attributable to equity holders of the Bank, adjusted for proposed dividend. 3 Based on 3 months classification.

Five-year Group Financial Summary 25 ANNUAL REPORT 2008

26 PUBLIC BANK BERHAD LVRN SRN PERFORMANCE STRONG DELIVERING GROWTH GROUP FIVE-YEAR OF SUMMARY Superior umr O Fv-er ru Got – eieig tog Performance Strong Delivering – Growth Five-Year Group Of Summary Percentage Percentage 140 160 100 120 0.5 1.0 1.5 2.0 2.5 3.0 40 60 80 20 0 0 Improving AssetQuality Consistently Strongand Strong ReservesvsLowNPL 79.0 ‘04 ‘04 2.1 2.7 t Quality Asset Loan LossCoverage Net NPLratio Gross NPLratio 91.7 ‘05 1.7 2.1 ‘05 99.9 Year Year ‘06 ‘06 1.6 1.9 119.5 1.2 1.4 ‘07 ‘07 159.7 ‘08 ‘08 0.9 1.0 Sheet Balance Strong RM million RM million 100,000 120,000 140,000 160,000 180,000 100,000 120,000 140,000 160,000 180,000 200,000 20,000 40,000 60,000 80,000 20,000 40,000 60,000 80,000 0 0 Strong AssetsGrowth Customer DepositsGrowth Robust Loans& ‘04

‘04 55,719 Total Assets 92,403 Deposits fromcustomers Loans, advancesandfinancing 72,246 ‘05 ‘05 66,813 111,689 84,130 Year Year ‘06 ‘06 82,788 147,790 111,793 Growth ‘07 ‘07 99,328 174,155 138,765 ‘08 ‘08 118,386 196,163 162,280

Percentage RM million 1000 1500 2000 2500 3000 500 10 15 20 25 30 35 0 5 Shareholder Return Delivering Attractive Performance Consistently StrongFinancial 16.5 ‘04 ‘04

Equity Holders Net ProfitAttributableto 1,294 Net ReturnonEquity 19.1 ‘05 ‘05 1,459 21.9 Year ‘06 Year ‘06 1,727 26.3 ‘07 ‘07 2,124 30.4 ‘08 ‘08 2,581

Sen 100 40 60 80 20 0 RM Strong DividendPerformance 10 12 0 2 4 6 8 Per Share-Sen Share Dividend Dividend PayoutRatio Per Share-Sen Ordinary Dividend 163.6 ‘04 Reflected byResilientShare Price 35.0 55.0 .60 6 7. 7.10 ‘04 89.6 Share Price–PublicBank(Local) Share Price–PublicBank(Foreign) ‘05 40.0 15.0 6.40 6.55 ‘05 84.5 Year ‘06 50.0 10.0 7.75 7.85 Year ‘06 7 4 87. ‘07 65.0 10.0 11.00 11.00 Share Dividend) Ratio (Including Dividend Payout Per Share-Sen Special Dividend ‘07 86.1 53.2 ‘08 55.0 33.7 8.75 8.85 ‘08 0 20 40 60 80 100 120 140 160 180

Percentage Percentage Percentage 140 160 100 120 0.5 1.0 1.5 2.0 2.5 3.0 40 60 80 20 0 0 Improving AssetQuality Consistently Strongand Strong ReservesvsLowNPL 79.0 ‘04 ‘04 2.1 2.7 Loan LossCoverage Net NPLratio Gross NPLratio 91.7 ‘05 1.7 2.1 ‘05 99.9 Year Year ‘06 ‘06 1.6 1.9 119.5 1.4 1.2 ‘07 ‘07 159.7 ‘08 ‘08 0.9 1.0

RM million RM million 100,000 120,000 140,000 160,000 180,000 100,000 120,000 140,000 160,000 180,000 200,000 20,000 40,000 60,000 80,000 20,000 40,000 60,000 80,000 0 0 Strong AssetsGrowth Customer DepositsGrowth Robust Loans& ‘04

‘04 55,719 Total Assets 92,403 Deposits fromcustomers Loans, advancesandfinancing 72,246 ‘05 ‘05 66,813 111,689 84,130 Year Year ‘06 ‘06 82,788 147,790 111,793 ‘07 ‘07 99,328 174,155 138,765 ‘08 ‘08 118,386 196,163 162,280 g hrhle Value Shareholder Enhancing

Percentage RM million 1000 1500 2000 2500 3000 500 10 15 20 25 30 35 0 5 Shareholder Return Delivering Attractive Performance Consistently StrongFinancial 16.5 ‘04 ‘04

Equity Holders Net ProfitAttributableto 1,294 Net ReturnonEquity 19.1 ‘05 ‘05 1,459 21.9 Year ‘06 Year ‘06 1,727 26.3 ‘07 ‘07 2,124 30.4 ‘08 ‘08 2,581 umr O Fv-er ru Got – eieig tog Performance Strong Delivering – Growth Five-Year Group Of Summary

Sen 100 40 60 80 20 0 RM Strong DividendPerformance 10 12 0 2 4 6 8 Per Share-Sen Share Dividend Dividend PayoutRatio Per Share-Sen Ordinary Dividend 163.6 ‘04 Reflected byResilientShare Price 35.0 55.0 .60 6 7. 7.10 ‘04 89.6 Share Price–PublicBank(Local) Share Price–PublicBank(Foreign) ‘05 40.0 15.0 6.40 6.55 ‘05 84.5 Year ‘06 50.0 10.0 7.75 7.85 Year ‘06 7 4 87. ‘07 65.0 10.0 11.00 11.00 Share Dividend) Ratio (Including Dividend Payout Per Share-Sen Special Dividend ‘07 86.1 53.2 ‘08 55.0 33.7 8.75 8.85 ‘08 0 20 40 60 80 100 120 140 160 180

Percentage 27

PUBLIC BANK BERHAD ANNUAL REPORT 2008 2008 MARKET CAPITALISATION

P ORT & RANKING ANNUA L RE PUBLIC BANK BERHAD Public Bank’s Ranking by Market Capitalisation on Bursa Malaysia 45 12 11.00 Securities Berhad 40 10 Year Ranking 35 8.85

30 7.75 8 7.10

2004 5th 6.55 25

6 RM 20

2005 5th RM’ billion 15 4 2006 5th 10 2 2007 5th 5

0 24.33 22.23 26.94 38.81 31.15 0 2008 3rd ‘04 ‘05 ‘06 ‘07 ‘08 Year Market capitalisation Share price – Public Bank (Local)

Key Interest Bearing ASSETS & LIABILITIES

2008 2007 Average Average Average Average Balance rate Interest Balance rate Interest (RM’Million) (%) (RM’Million) (RM’Million) (%) (RM’Million) Interest earning assets Loans, advances and financing 108,039 6.25 6,755 88,954 6.62 5,892 Deposits and placements with banks and other financial institutions 45,582 3.62 1,650 43,559 3.72 1,620 Securities 18,403 3.86 710 16,409 4.04 662 Total 172,024 5.30 9,115 148,922 5.49 8,174

Interest bearing liabilities Deposits from customers 131,029 3.16 4,146 111,592 3.23 3,609 Deposits and placements of banks and other financial institutions 6,055 3.84 232 9,728 3.98 387 Recourse obligations on loans sold to Cagamas 3,878 3.73 145 2,751 3.73 103 Borrowings 411 2.76 11 476 4.98 24 Subordinated notes 3,469 4.39 152 2,636 6.18 163 Hybrid capital securities 1,856 4.64 86 1,894 5.31 100 Total 146,698 3.25 4,772 129,077 3.40 4,386

28 Market Capitalisation & Ranking and Key Interest Bearing Assets & Liabilities SEGMENTAL 2008

ANALYSIS P ORT for the year ended 31 December 2008 ANNUA L RE PUBLIC BANK BERHAD

Operating Revenue Operating Revenue 2008 2008 By Business Segments By Geographical Location 15.0% Hire purchase 89.9% Malaysia 49.7% Retail operations 8.0% Hong Kong and the 6.9% Corporate lending People’s 22.2% Treasury and capital Republic market operations of China 2.2% Investment banking 1.8% Cambodia 3.9% Fund management 0.3% Others 0.1% Others

Profit Before Tax Profit Before Tax Expense 2008 Expense 2008 By Business Segments By Geographical Location

6.2% Hire purchase 90.5% Malaysia 75.5% Retail operations 5.0% Hong Kong and the 2.7% Corporate lending People’s 8.0% Treasury and capital Republic market operations of China 2.1% Investment banking 3.8% Cambodia 5.1% Fund management 0.7% Others 0.4% Others

Assets Employed Assets Employed 2008 2008 By Business Segments By Geographical Location

12.8% Hire purchase 89.8% Malaysia 48.8% Retail operations 8.3% Hong Kong and the 7.3% Corporate lending People’s 28.7% Treasury and capital Republic market operations of China 2.2% Investment banking 1.7% Cambodia 0.1% Fund management 0.2% Others 0.1% Others

Segmental Analysis 29 2008 GROUP QUARTERLY

P ORT PERFORMANCE ANNUA L RE PUBLIC BANK BERHAD

2008 First Second third Fourth year Quarter Quarter Quarter Quarter 2008 FINANCIAL PERFORMANCE (RM’Million) Operating revenue 2,636.0 2,515.6 2,791.2 2,557.5 10,500.3 Net interest income (incl income from Islamic banking business) 1,018.3 1,049.3 1,100.9 1,117.2 4,285.7 Operating profit 1,125.2 951.1 909.5 962.3 3,948.1 Profit before tax expense and zakat 970.6 791.6 804.0 813.0 3,379.2 Profit attributable to equity holders of the Bank 717.4 593.5 616.3 654.0 2,581.2 Earnings per share (sen) 21.4 17.7 18.4 19.5 76.9 Dividend per share – Cash dividend (sen) — 30.0 — 25.0 55.0 – Share dividend — — — 1 for 35 1 for 35

2007 First Second third Fourth year Quarter Quarter Quarter Quarter 2007 FINANCIAL PERFORMANCE (RM’Million) Operating revenue 2,146.2 2,423.8 2,414.5 2,573.1 9,557.6 Net interest income (incl income from Islamic banking business) 868.1 903.2 952.0 998.5 3,721.8 Operating profit 769.7 827.0 890.7 930.2 3,417.6 Profit before tax expense and zakat 675.3 732.7 774.4 821.2 3,003.6 Profit attributable to equity holders of the Bank 476.2 524.1 543.6 580.0 2,123.9 Earnings per share (sen) 14.2 15.6 16.2 17.3 63.3 Dividend per share – Cash dividend (sen) — 25.0 — 50.0 75.0

30 Group Quarterly Performance STATEMENT OF 2008

VALUE ADDED P ORT ANNUA L RE PUBLIC BANK BERHAD

2008 2007

23.3% Employees 23.6%

16.6% Government 19.7%

31.0% Providers 47.5% of capital

29.1% Reinvestment 9.2% in the Group

Value added is a measure of wealth created by the Public Bank Group through various business activities. The statement of value added shows the total wealth created and how it was distributed to stakeholders, including the Government, as well as reinvestment for the replacement of assets and further expansion of the business of the Group.

Value Added 2008 2007 RM’000 rM’000 Net interest income 3,727,312 3,243,597 Net income from Islamic banking business 558,417 478,224 Other operating income 1,453,527 1,389,466 Operating expenses excluding staff costs, depreciation and amortisation (610,571) (629,998) Allowance for losses on loans, advances and financing (548,562) (407,162) Impairment loss (32,862) (12,159) Share of results of associated companies 12,457 5,380 Value added available for distribution 4,559,718 4,067,348

Distribution of Value Added 2008 2007 RM’000 rM’000 To employees: Personnel costs 1,061,671 960,589 To the Government: Taxation 756,528 801,852 To providers of capital: Dividends paid to shareholders 1,374,132 1,855,304 Minority interests 41,423 77,871 To reinvest in the Group: Depreciation and amortisation 118,859 103,121 Retained profit 1,207,105 268,611 Total distributed 4,559,718 4,067,348

Distribution of Internally-Generated Value 2008 2007 RM’000 rM’000 To providers of capital: Distribution of share dividend to shareholders 848,495 —

Statement Of Value Added 31

award- wiNning bank Winning awards are certainly gratifying. But what’s even more satisfying is that being accorded reputable international and domestic accolades is proof of our ability to win stakeholder support and confidence. These awards spur the Bank to further enhance its culture of excellence and enrich the lives of those who choose to stay ahead with us as we chart new territory in this era of change. 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD

Achievements

Awards & Accolades

The Public Bank Group’s single-minded pursuit of its corporate mission – “To sustain the position of being the most efficient, profitable and respected premier financial institution in Malaysia” – made the Group the “most awarded” financial institution in Malaysia for a number of years.

2008 was no different with the Public Bank Group and its Founder and Chairman, Tan Sri Dato’ Sri Dr. Teh Hong Piow being accorded a total of 39 awards and recognition of 1 excellence.

The recognition of the Public Bank Group’s 2 exemplary performance and impeccable corporate governance, many of which were for consecutive or multiple years, will further enhance the PB Brand and boost customer confidence in the Group – crucial ingredients to sustain profitability in the more turbulent economy ahead.

These awards and recognition of excellence are a source of pride to the staff of the Public Bank Group in its pursuit of excellence to keep the Group ahead of its competitors.

Today, the Public Bank Group has attained the distinction of being the biggest non-government corporation and the biggest financial institution in 1. Best Asian Bank 2008 presented by Mr. Jonathan Hirst, Publisher of FinanceAsia the country by market capitalisation. Indeed, Excellence is Our Commitment. 2. Overall Excellence Award for Most Outstanding Annual Report – Platinum Award 2008 presented by Y.B. Tuan Jelaing Anak Mersat, Deputy Minister of Domestic Trade & Consumer Affairs

34 Awards & Accolades 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD staying ahead

3 4

5 6 7

3. Best Retail Bank in Malaysia presented by Mr. Emmannuel Daniel, 6. Overall Winner of Malaysian Business CSR Awards 2007 presented by President and Editor-In-Chief of The Asian Banker Datuk Dr. Mohd Taib Hashim, Deputy Secretary General of the Ministry of Higher Education 4. Asian Banker Par Excellence Award presented by Mr. Jonathan Hirst, Publisher of FinanceAsia 7. Ranked No. 2 in Malaysia’s 30 Most Valuable Brands 2007 presented by Tan Sri Amirsham A. Aziz, Minister in the Prime Minister’s 5. Corporate Governance Survey Award for Industry Excellence Finance Department Sector 2008 presented by Tan Sri Abdul Halim Ali, Chairman of MSWG

Awards & Accolades 35 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD 2 1

2008 Awards

Best Domestic Bank in Malaysia Malaysian Business CSR Awards 2007 1 2007: 2008, 2006, 2005, 2004, 2003, 2002 – Overall Winner 3 Awarded by: The Asset – Best Innovation in CSR Awarded by: Malaysian Business Euromoney Asia’s Best Managed 3 and Governed Companies Poll Reader’s Digest Trusted Brand Gold 2007 Award 2008 for the Bank Category 4 – Ranked 1st in Most Convincing and in Malaysia 4 Coherent Strategy (for Malaysia) 2008, 2007, 2006, 2005, 2004 – Ranked 2nd in Best Corporate Awarded by: Reader’s Digest Governance (for Malaysia) Awarded by: Euromoney Best Retail Bank in Malaysia for 2007 5 Malaysia’s Best Managed Company 2005, 2004, 2003, 2001 Large-Cap Corporate of the Year Awarded by: The Asian Banker 2007 2 in Asiamoney’s 2007 Best Managed Pekaka Membelah Samudera Award Companies Awards by Countries 6 Awarded by: Asiamoney in the Credit Guarantee Corporation Top SMI Supporter Award 2007 Awarded by: Credit Guarantee Corporation Malaysia Bhd

5 6

36 2008 Awards 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD 12 11

F i n a n c e A s i a ’ s “ A s i a ’ s B e s t Best Bank in Malaysia for 2008 8 Companies 2008” poll. Ranked No. 2008, 2007, 2005, 2004, 2003, 2002, 1 in the following categories: 7 2001, 2000, 1999 – Best Managed Company Awarded by: FinanceAsia

– Best Corporate Governance Corporate Governance Asia – Best Investor Relations Recognition Award 2008 9 – Most Committed to a Strong Dividend 2008, 2006, 2005 Policy Awarded by: Awarded by: FinanceAsia Corporate Governance Asia

Ranked as the No. 3 Most Admired The BrandLaureate 2007-2008 Company in Malaysia Award for Corporate Branding – 10 in The Wall Street Journal Asia’s “Asia Best Brands in Financial Services 200 Most-Admired Companies Survey” (Banking) 10 9 also ranked as follows in the 2008, 2007 following attributes: Awarded by: Asia Pacific Brands Foundation – 2nd in “Corporate Reputation” – 3rd in “Long-Term Vision” Best Domestic Bank in Malaysia for – 3rd in “Financial Reputation” 2008 11 Awarded by: 2008, 2007, 2004, 2003, 2002, 2001, The Wall Street Journal Asia 1999 Awarded by: Asiamoney

Best Bank in Malaysia for 2008 12 2008, 2007 Awarded by: Alpha Southeast Asia

7 8

2008 Awards 37 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD 14 & 15 13

Best Bank in Malaysia for 2008 The Banker Awards For Bank Of 13 The Year In Malaysia 2008, 2007, 2006, 2005, 2004, 2003, 2008, 2005, 2001 2002, 1999, 1998, 1993 Awarded by: The Banker Magazine Awarded by: Euromoney JPMorgan Chase Quality Recognition Malaysian Business – CIMA A ward 2007 for the High Enterprise Governance Awards Performance of the Bank’s Fund 2008: Transfer Operations – Overall Winner 14 – Elite Quality Recognition Award for 16 – Best Return to Shareholders 15 MT202 category 18 17 Awarded by: Malaysian Business – Elite Quality Recognition Award for MT103 category 19 Best Bank in Asia 2008 16 2007, 2006, 2005 Awarded by: FinanceAsia Awarded by: JPMorgan Chase

Anugerah Citra Wangsa Malaysia National Annual Corporate Report 2007 17 Awards 2008 – Citra Award For The Private Sector Annual Report – Overall Excellence Award for Most 2007, 2006, 2000 Outstanding Annual Report – Platinum Award Awarded by: 2008, 2007 20 Dewan Bahasa & Pustaka – Industry Excellence Award for Main Board Companies in the Finance Sector 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999, 1998, 1997 21

18 & 19 20

38 2008 Awards 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD 26 25

– Best Annual Report in Bahasa Malaysia Euromoney Asia’s Best Managed – Platinum Award and Governed Companies Poll 2008, 2007, 2006, 2005, 2004, 1998, 2008 1996 22 Ranked No. 1 in Best Corporate Ranked No. 2 in Malaysia’s 30 Most Governance for Malaysia Valuable Brands 2007 23 Awarded by: Euromoney 2008, 2007 Awarded by: Association of Accredited Advertising Agents Malaysia 24

Corporate Governance Survey 23 Awards 2008 24 Chairman’s AwardS – Overall Excellence Award 2008 – Industry Excellence Award for Finance Honourable Medal for National Sector 2008 Contribution to Education in 25 – Corporate Governance Challenge Cambodia Trophy 2008 Government of Cambodia Awarded by: Minority Shareholder Watchdog Group Asian Banker Par Excellence 26 and Nottingham University Business FinanceAsia School, Malaysia Campus 2008, 2007, 2006, 2005

21 22

2008 Awards 39 2008 past

P ORT awards ANNUA L RE PUBLIC BANK BERHAD Public Bank’s Past Awards Asiamoney Award For Overall Best- Voted And Ranked As No. 2 In The Federal Territory Kuala Lumpur 2007 Managed Company In Malaysia 2004 Review 200: Asia’s Leading Companies Building Beautification & Illumination Award by Far Eastern Economic Review Competition by Kuala Lumpur City Asiamoney Award For The Best Magazine 2003, 2002, 2001, 2000 Hall Company Overall For Investor – Champion, Bank Category Relations In Malaysia 2001 FinanceAsia Deal Of The Month – – datuk Bandar Trophy, Bank Public Bank’s USD200 Million Hybrid Category 2007 The Strongest Bank In Malaysia And Tier-1 Offering 2006 Fourth Strongest Bank In Asia 2001 Winner Of The ‘Beautiful Compound by Asiamoney FinanceAsia Best Bank Capital Deal Competition’ For Private Sector Of The Year – Public Bank’s USD200 Complex/Building Category 1994 by The Best Bank In Malaysia And The Million Hybrid Tier-1 Offering 2006 Kuala Lumpur City Hall 5th Malaysia Best Managed Companies Awards 1999 by Asiamoney FinanceAsia’s 6th Annual Asia’s Best KLSE Corporate Excellence Awards Companies 2006 Poll: by Kuala Lumpur Stock Exchange Asiamoney Award For Being Voted – 3rd In ‘Best Managed Company’ Berhad 2003, 2002, 2001, 2000 One Of The Top 10 Best Managed 2006 Companies 1996 In Malaysia In A – 3rd In ‘Best Corporate Governance’ KLSE Corporate Award For Best Regional Poll By Institutional 2006 Corporate Disclosure In Annual Investors – 2nd In ‘Best Commitment To Report 2003 by Kuala Lumpur Stock Strong Dividends’ 2006 Exchange Berhad Management Awards Of Asia 1996 by Asian Institute of Management FinanceAsia Asia’s Best Managed KLSE Corporate Sectoral Award For Companies 2005, 2004 The Finance And Closed-End Fund Malaysia Retail Bank Of The Year Sector by Kuala Lumpur Stock 2007 by Asian Banking & Finance Financial Insights Innovation Awards Exchange Berhad 2001, 2000 2007 for Operational Processes CGC Top SMI Supporter Award 2005 2007 Malaysian Corporate Report Award by Credit Guarantee Corporation by MACPA and MIM Malaysia Berhad Automotive Finance Company Of The Year (Malaysia) Award 2007 by Frost Gold Award For The Most Outstanding FIABCI’S Award Of Distinction For & Sullivan Annual Report 1989 by MACPA and The Best Commercial Development MIM Building 1999 Global Finance Best Bank Award For The Best Bank In Malaysia 2004, National Mergers And Acquisitions Anugerah Citra Wangsa Malaysia 2003, 2002, 2000 Award 2007 For The Category Of Award 2006 Incentive Award for Cross Border Deal Of The Year For Financial Institution by Dewan Bahasa Best Investor Relations 2004 by the Acquisition of Asia Commercial dan Pustaka Institutional Investor Research Group Bank Limited 2007 by Malaysian Mergers and Acquisitions Association Anugerah Citra Wangsa Malaysia Anugerah Kristal 2004 (Special Merit Award For Bahasa Malaysia Mention) Consumer Public Relations MIM Valued Partner Award 2006 by Annual Report by Dewan Bahasa dan Category: PB Manchester United Malaysian Institute of Management Pustaka 2005, 2003 Mastercard 2004 by Institute of Public Relations Malaysia Malaysian Business Corporate Anugerah Citra Wangsa Malaysia Governance Award 2006, 2005, 2004, Special Jury’s Award For Bahasa Best Investor Relations In The 2003, 2002 by Malaysian Business Malaysia Annual Report by Dewan Singapore Market By A Malaysian Bahasa dan Pustaka 2002, 2001 Company 2007, 2006 by Investor Malaysian Business Corporate Relations Governance Merit Award 2006, 2005, Best Bank In Malaysia 2001 by 2004, 2003, 2002 by Malaysian Emerging Markets Investor Magazine Business

40 Past Awards 2008 P ORT ANNUA L RE PUBLIC BANK BERHAD

Malaysian Business Corporate Social Commendation Awards For: The Asset Award For Best Company Responsibility Category Award 2005 – Corporate Information 1994, 1989 In Malaysia For Corporate Governance by Malaysian Business – Accounting Information 1995, 1994, 2007 by The Asset 1989 National Creative & Innovation Award – Bahasa Malaysia Annual Report asia’s Best Bank Capital Issue For 2004 by Malaysia Design Technology 1995, 1994, 1989 2006 – Public Bank’s USD200 million Centre Hybrid Tier-1 Offering 2007 Bank-wide ISO 9001:2000 Quality Industry Excellence Award Under The Management Systems Certification the Asset Triple A Regional Awards Service Export Excellence For The by SIRIM Berhad for For Best Bank Bond 2005 Financial Category 1994 by Ministry – Provision Of Customer Service In Of International Trade & Industry Loan Delivery 2003 the Asset Award For A Leader In – Provision Of Customer Service At Corporate Governance In Malaysia National Annual Corporate Report The Front-office 2001 2003 Awards Overall Excellence Award For Most Sahabat SMI Award 2005 by SMI The Asian Banking Awards For The Outstanding Annual Report – Gold Association Of Malaysia Most Outstanding Customer Service Award 2006 Programme Category 2000 Medal “For The Course Of Vietnamese Overall Excellence Award For Most Banking” 2002 by State Bank Of the Wall Street Journal Asia’s 200 Outstanding Annual Report 2005, Vietnam Most Admired Companies Survey: 2004, 2003, 2002, 1997, 1990 – 2nd Of Top 10 Malaysian Technology Business Review Industry Companies 2006 Best Designed Annual Report – Award For Excellence In Banking & – 1st In ‘Financial Soundness’ 2006 Platinum Award 2007 Finance For Local Bank 2006 – 1st In ‘Reputation’ 2006

Chairman’s Past Awards

The BrandLaureate Brand Personality FinanceAsia Asia’s 50 Most Influential Malaysia’s CEO Of The Year Award Award 2007 by Asia Pacific Brands 1996-2006 2006 1999 by Business Times and American Foundation Express MIM Gold Medal Award Of The ASEAN Most Astute Banker Award ‘Confrere D’Honneur’ (Honoured ASEAN Businessman Of The Year 2007 by The Asset Companion) 2006 by Malaysian Award 1994 by ASEAN Business Institute Of Management Forum The Asia Pacific Lifetime Entrepreneurship Achievement Award Technology Business Review Award Asia’s Commercial Banker Of The 2007 by Enterprise Asia For Lifetime Achievement In Corporate Year 1991 by The Asia Money & Excellence, Dedication & Industry Finance The PILA Recognition Award 2007 by 2006 Institute of Public Relations Malaysia Yazhou Zhoukan Top 500 International The Asset Asia’s Banker Of High Chinese Entrepreneurs: Recognition Award 2007 by National Distinction Award 2006 – 33rd Amongst Top 500 International Bank Of Cambodia Chinese Entrepreneurs 2006 The Most PR Savvy CEO 2004 by – 1st Amongst Top 10 Malaysian Euromoney Award For Outstanding Institute of Public Relations Malaysia Chinese Entrepreneurs 2006 Contribution To The Development Of – 6th Amongst Top 10 Banking & Financial Services In Asia 2006 The Asian Banker Leadership Finance Entrepreneurs 2006 Achievement Award For Malaysia FinanceAsia Lifetime Achievement 2005 The Business Achiever Of The Year Award 2006 1997 by Yazhou Zhoukan Best CEO In Malaysia 2004 by Asiamoney

Past Awards 41 exemplary leAdership

Our success is attributed to our leadership that is propelled by the three thrusts of integrity, transparency and an unstinting commitment to increasing shareholder value. This transformational leadership that is ever prepared to surmount any challenges helps us stay ahead of the rest.

2008 ANNUAL REPORT PUBLIC BANK BERHAD

LEADERSHIP

from left BOARD OF Tan Sri Dato’ Sri Dr. Teh Hong Piow Non-Executive Chairman DIRECTORS Tan Sri Dato’ Thong Yaw Hong Independent Non-Executive Co-Chairman Tan Sri Dato’ Sri Tay Ah Lek Managing Director/Chief Executive Officer Dato’ Lee Kong Lam Executive Director

44 Board Of Directors 2008 ANNUAL REPORT PUBLIC BANK BERHAD staying ahead

from left Dato’ Yeoh Chin Kee Independent Non-Executive Director Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Al-Mustain Billah Independent Non-Executive Director Dato’ Haji Abdul Aziz bin Omar Independent Non-Executive Director Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff Independent Non-Executive Director Quah Poh Keat Independent Non-Executive Director Chia Lee Kee Company Secretary

Board Of Directors 45 2008 ANNUAL REPORT PUBLIC BANK BERHAD

directors’ profile Tan Sri Dato’ Sri Dr. Teh Hong Piow Non-Executive Chairman

Tan Sri Dato’ Sri Dr. Teh Hong Piow, aged 78, began his banking Tan Sri Dato’ Sri Dr. Teh Hong Piow was awarded the Medal ‘For the career in 1950 and has 59 years experience in the banking and finance Course of Vietnamese Banking’ by the State Bank of Vietnam in 2002 industry. He founded Public Bank in 1965 at the age of 35. He was for his contributions to the Vietnamese banking industry over the past appointed as a Director of Public Bank on 30 December 1965 and had years. Tan Sri Dato’ Sri Dr. Teh Hong Piow was conferred the been the Chief Executive Officer of the Public Bank Group since its Recognition Award 2007 by the of Cambodia in inception in December 1965. He was re-designated as Chairman of appreciation of his excellent achievement and significant contribution to Public Bank and Chairman of Public Bank Group with effect from 1 July the banking industry in Cambodia. 2002. He serves as Chairman of the Board Executive Committee. He is the Chairman of the Assets & Liabilities Management Committee, the In recognition of his contributions to society and the economy, he was Share Investment Committee and the Group Human Resource conferred the Doctor of Laws (Honorary) from University of Malaya in Committee. 1989.

Tan Sri Dato’ Sri Dr. Teh Hong Piow had won both domestic and He had served in various capacities in bodies in Malaysia; international acclaim for his outstanding achievements as a banker and he was a member of the Malaysian Business Council from 1991 to the Chief Executive Officer of a leading financial services group. Awards 1993; a member of the National Trust Fund from 1988 to 2001; a and accolades that he had received include: founder member of the Advisory Business Council since 2003; and is g Asia’s Commercial Banker of the Year 1991 a member of the IPRM Accreditation Privy Council. He is a Fellow of g The ASEAN Businessman of the Year 1994 several institutes which include the Institute of Bankers Malaysia; the g Malaysia’s Business Achiever of the Year 1997 Chartered Institute of Bankers, United Kingdom; the Institute of g Malaysia’s CEO of the Year 1998 Administrative Management, United Kingdom; the Institute of Chartered g Best CEO in Malaysia 2004 Secretaries and Administrators, Australia and the Malaysian Institute of g The Most PR Savvy CEO 2004 Management. g The Asian Banker Leadership Achievement Award 2005 for Malaysia His directorships in other public companies in the Public Bank g Award for Outstanding Contribution to the Development of Financial Group are in Public Investment Bank Bhd (Chairman), Public Mutual Services in Asia 2006 Bhd (Chairman), Public Islamic Bank Bhd (Chairman), Public Financial g Lifetime Achievement Award 2006 Holdings Ltd (Chairman), Public Bank (Hong Kong) Ltd (Chairman), g Award for Lifetime Achievement in Corporate Excellence, Dedication Cambodian Public Bank Plc and CampuBank Lonpac Insurance Plc and Industry 2006 (Chairman); he is the Chairman of several other subsidiaries of the g Asia’s Banker of High Distinction Award 2006 Public Bank Group. His directorships in other public companies are in g The BrandLaureate Brand Personality Award 2007 LPI Capital Bhd (Chairman), Lonpac Insurance Bhd (Chairman) and g ASEAN Most Astute Banker Award 2007 Tong Meng Industries Ltd (Chairman). g Lifetime Entrepreneurship Achievement Award 2007 g The Pila Recognition Award 2007 Tan Sri Dato’ Sri Dr. Teh Hong Piow attended all the 16 Board g Asian Banker Par Excellence 2008 Award meetings which were held in the financial year ended 31 December 2008.

46 Directors’ Profile 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Tan Sri Dato’ Thong Yaw Hong, aged 78, was appointed as a Director of Public Bank on 23 June 1986 and was made its Chairman in October 1986. He was re-designated as Co-Chairman of Public Bank with effect from 1 July 2002. He serves as Chairman of the Audit Committee, the Nomination Committee, the Remuneration Committee and the Risk Management Committee.

He graduated with a Bachelor of Arts (Hons) degree in Economics from University of Malaya and a Master’s degree in from Harvard University. He attended the Advanced Management Program at Harvard Business School. In June 1998, he was appointed a Pro-Chancellor of University Putra Tan Sri Dato’ Thong Yaw Hong Malaysia from which he had retired in end June 2006. In Independent Non-Executive Co-Chairman September 2006, he was conferred the Doctor of Economics (Honorary) from University Putra Malaysia.

He has had a distinguished career with the Government of Malaysia, primarily in the fields of socio-economic development planning and finance. He had served in the Economic Planning Unit in the Prime Minister’s Department since 1957 and became its Director-General from 1971 to 1978 and served as Secretary- General, Ministry of Finance from 1979 until his retirement in 1986.

Tan Sri Dato’ Thong Yaw Hong also serves as member on the Boards of Trustees of Program Pertukaran Fellowship Perdana Menteri Malaysia, Tun Razak Foundation and the Malaysian Institute of Economic Research, among others. He is a member of the Economic Council and is also a Senior Member of the Working Group of the Executive Committee for the Economic Council and National Implementation Task Force (NITF). Tan Sri Dato’ Thong Yaw Hong is a Distinguished Fellow of the Institute of Strategic and International Studies (ISIS) Malaysia and is also a Fellow of the Institute of Bankers Malaysia.

His directorships in other public companies in the Public Bank Group are in Public Investment Bank Bhd (Co-Chairman), Public Mutual Bhd (Co-Chairman), Public Islamic Bank Bhd (Co-Chairman), Public Financial Holdings Ltd (Co-Chairman), Public Bank (Hong Kong) Ltd (Co-Chairman), Cambodian Public Bank Plc (Chairman) and CampuBank Lonpac Insurance Plc (Co-Chairman); he is also a Director of several other subsidiaries of the Public Bank Group. His directorships in other public companies are in Berjaya Sports Toto Bhd (Chairman), LPI Capital Bhd (Co-Chairman), Lonpac Insurance Bhd (Co-Chairman), Batu Kawan Bhd, Kuala Lumpur Kepong Bhd, Glenealy Plantations (Malaya) Bhd and Malaysian South-South Corporation Bhd.

Tan Sri Dato’ Thong Yaw Hong attended all the 16 Board meetings which were held in the financial year ended 31 December 2008.

Directors’ Profile 47 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Tan Sri Dato’ Sri Tay Ah Lek Dato’ Lee Kong Lam Managing Director/Chief Executive Officer Executive Director

Tan Sri Dato’ Sri Tay Ah Lek, aged 66, has 48 years Dato’ Lee Kong Lam, aged 67, has 41 years experience in experience in the banking and finance industry. He was the banking and finance industry. He was appointed as an appointed as an Executive Director of Public Bank on Executive Director of Public Bank on 28 November 2001. He 18 June 1997 and was re-designated as Managing Director/ joined Public Bank in November 1996 as General Manager Chief Executive Officer with effect from 1 July 2002. and was subsequently appointed Senior General Manager in He joined the Public Bank Group as a pioneer staff in 1966. 1997 and Executive Vice President in 1998. He is a member He was the Executive Vice President of Public Bank from of the Board Executive Committee. He is the Chairman of 1995 to 1997 and prior to this appointment, he was the the Operational Risk Management Committee and the Executive Vice President of the former Public Finance Berhad. Business Continuity Management Committee; and is a He is a member of the Board Executive Committee. He is member of the Credit Committee, the IT Steering Committee, the Chairman of the Credit Committee and the IT Steering the Assets & Liabilities Management Committee, the Share Committee, and is a member of the Assets & Liabilities Investment Committee and the Group Human Resource Management Committee, the Share Investment Committee Committee. and the Group Human Resource Committee.

Tan Sri Dato’ Sri Tay Ah Lek holds a Master’s degree in Prior to joining Public Bank, he was with Bank Negara Business Administration from Henley, United Kingdom and Malaysia (“BNM”) and was involved primarily in the supervision attended the Advanced Management Program at Harvard and examination of banking institutions. He retired in August Business School. He is a Fellow of the Financial Services 1996 as the Head of BNM’s Examination Department and as Institute of Australasia, the Institute of Bankers Malaysia and a member of BNM’s Management Committee. the Malaysian Institute of Management. He is a Fellow of the Certified Practising Accountants of He is presently the Chairman of the Association of Finance Australia; a Fellow of the Chartered Institute of Bankers, Companies of Malaysia and the Association of Hire Purchase United Kingdom; and a Chartered Accountant of the Malaysian Companies Malaysia. He is a Member of the National Institute of Accountants. Payments Advisory Board. His directorships in other public companies in the Public His directorships in other public companies in the Public Bank Group are in Public Investment Bank Bhd, Public Bank Group are in Public Investment Bank Bhd, Public Mutual Bhd, Public Islamic Bank Bhd, Cambodian Public Mutual Bhd, Public Islamic Bank Bhd, Public Financial Bank Plc and CampuBank Lonpac Insurance Plc; he is also Holdings Ltd, Public Bank (Hong Kong) Ltd and Cambodian a Director of several other subsidiaries of the Public Bank Public Bank Plc; he is also a Director of several other Group. subsidiaries of the Public Bank Group. His directorships in other public companies are in Cagamas Bhd, ASEAN Finance Dato’ Lee Kong Lam attended all the 16 Board meetings Corporation Ltd and Financial Mediation Bureau. which were held in the financial year ended 31 December Tan Sri Dato’ Sri Tay Ah Lek attended all the 16 Board 2008. meetings which were held in the financial year ended 31 December 2008.

48 Directors’ Profile 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Dato’ Yeoh Chin Kee Ahmad Shah Al-Mustain Billah Independent Non-Executive Director Independent Non-Executive Director

Dato’ Yeoh Chin Kee, aged 66, began his banking career in Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah 1961 and has 48 years experience in the banking and Al-Mustain Billah, aged 48, was appointed as a Director of finance industry. He was appointed as a Director of Public Public Bank on 16 July 1984. He is a member of the Audit Bank on 9 May 1978. He was the Executive Director of Committee, the Nomination Committee, the Remuneration Public Bank from May 1978 to May 1997. He is a member Committee and the Risk Management Committee. of the Audit Committee, the Nomination Committee, the Remuneration Committee and the Risk Management He was educated at Harrow College, United Kingdom in Committee. He is the Chairman of the Credit Risk Business Administration. Management Committee. His directorships in other public companies in the Public He is a Fellow of the Certified Practising Accountants of Bank Group are in Public Investment Bank Bhd and Public Australia and the Financial Services Institute of Australasia. Islamic Bank Bhd. His directorship in other is in Atlan Holdings Bhd. His directorships in other public companies in the Public Bank Group are in PB Trustee Services Bhd (Chairman), Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Public Investment Bank Bhd and Public Islamic Bank Bhd; Al-Mustain Billah attended all the 16 Board meetings which he is also a Director of Public Bank (L) Ltd, the offshore were held in the financial year ended 31 December 2008. bank subsidiary of Public Bank. His directorships in other public companies are in LPI Capital Bhd and Lonpac Insurance Bhd.

Dato’ Yeoh Chin Kee attended all the 16 Board meetings which were held in the financial year ended 31 December 2008.

Directors’ Profile 49 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Dato’ Dr. Haji Mohamed Ishak bin Dato’ Haji Abdul Aziz bin Omar Haji Mohamed Ariff Independent Non-Executive Director Independent Non-Executive Director

Dato’ Haji Abdul Aziz bin Omar, aged 61, was appointed as Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff, aged a Director of Public Bank on 5 January 2000. He is the 73, was appointed as a Director of Public Bank on Co-Chairman of the Audit Committee and Risk Management 28 November 2001. He is a member of the Audit Committee, Committee, and is a member of the Nomination Committee the Nomination Committee, the Remuneration Committee and and the Remuneration Committee. He is the Co-Chairman of the Risk Management Committee. the Credit Risk Management Committee. He is a qualified Professional Chartered Town Planner and a He qualified as a Chartered Accountant from the Institute of Professional Landscape Architect from the University of Chartered Accountants in England & Wales, and is also a Newcastle-upon-Tyne, England. He was honoured by the Chartered Accountant of the Malaysian Institute of University of Newcastle-upon-Tyne, England with the Honorary Accountants. Degree of Doctor in Civil Law in May 1993. He is a Fellow of the Royal Town Planning Institute London; Fellow of During his previous banking experiences, he became a Malaysian Institute of Planners; and Fellow of Institute of Fellow of the Institute of Bankers Malaysia. His other past Landscape Architects Malaysia. experiences had been in the areas of audit and accounting, taxation, property, plantation, hotelling, trading and He had served in various State and Federal Governments manufacturing. before retiring in 1993. He was a member of the Advisory Board of the City of Kuala Lumpur (Dewan Bandaraya Kuala His directorships in other public companies in the Public Lumpur) until December 2004. Over the years and through Bank Group are in Public Investment Bank Bhd, Public his involvement as a Director of several public listed Mutual Bhd, Public Islamic Bank Bhd and PB Trustee companies, he has accumulated vast experiences in various Services Bhd. His directorships in other public companies sectors namely, property and housing development, hotel are in LPI Capital Bhd and Lonpac Insurance Bhd. management, food manufacturing and expressway management. Dato’ Haji Abdul Aziz bin Omar attended all the 16 Board meetings which were held in the financial year ended His directorships in other public companies in the Public 31 December 2008. Bank Group are in Public Investment Bank Bhd, Public Mutual Bhd and Public Islamic Bank Bhd. His directorship in other public company is in Yee Lee Corporation Bhd (Chairman).

Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff attended all the 16 Board meetings which were held in the financial year ended 31 December 2008.

50 Directors’ Profile 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Quah Poh Keat Chia Lee Kee Independent Non-Executive Director Company Secretary

Quah Poh Keat, aged 56, was appointed as a Director of Chia Lee Kee was appointed as Public Bank’s Company Public Bank on 30 July 2008. He is a member of the Audit Secretary on 2 September 1996. She is also the Company Committee, the Nomination Committee, the Remuneration Secretary of several domestic and overseas subsidiaries, and Committee and the Risk Management Committee. she oversees the Public Bank Group’s company secretarial matters. She is the Secretary of various Board Committees. He is a Fellow of the Malaysian Institute of Taxation and the Association of Chartered Certified Accountants; and a Member of the Malaysian Institute of Accountants, the She heads the Bank’s Secretariat Division. Malaysian Institute of Certified Public Accountants and the Chartered Institute of Management Accountants. She is a Chartered Secretary (ICSA) and is a Fellow of The Malaysian Institute of Chartered Secretaries and He was a partner of KPMG since October 1982 and Administrators. appointed Senior Partner (also known as Managing Partner in other practices) in October 2000 until 30 September 2007. He retired from the firm on 31 December 2007.

He is experienced in auditing, tax and insolvency practices and had worked in Malaysia and United Kingdom; his experiences include restructuring, demergers and privatisation.

He is active in the banking and service sectors and was one of the tax advisers to the Association of Banks in Malaysia on taxation of interest-in-suspense. He was involved in providing tax and audit services to various domestic and foreign banks in Malaysia. None of the Directors has: His directorships in other public companies in the Public g Any family relationship with any Director and/or major Bank Group are in Public Investment Bank Bhd, Public Financial Holdings Ltd and Public Bank (Hong Kong) Ltd. shareholder of Public Bank. His directorships in other public companies are in LPI g Any conflict of interest with Public Bank. Capital Bhd, Lonpac Insurance Bhd, IOI Corporation Bhd, g Any conviction for offences within the past 10 years IOI Properties Bhd, PLUS Expressways Bhd and Telekom other than traffic offences. Malaysia Bhd.

Quah Poh Keat attended all the 7 Board meetings held from All of the Directors are Malaysians. July 2008 to December 2008, following his appointment as a Director on 30 July 2008.

Directors’ Profile 51 2008 letter to stakeholders ANNUAL REPORT PUBLIC BANK BERHAD Introduction In a year of unprecedented turmoil and upheavals in global financial markets, which saw significant bank failures and government recapitalisation of banks and financial institutions in major financial centres globally running into hundreds of billions of US dollars, the Public Bank Group remains robust and strong with its capital intact whilst delivering another set of stellar record profits in 2008.

The Public Bank Group, together with The Public Bank Group’s steadfast focus Pre-tax profit of the Public Bank Group other Malaysian financial institutions, on its retail commercial banking and expanded by 12.5% to RM3.38 billion remain insulated from the sub-prime financing business and its continued from RM3.00 billion in 2007. Net profit related losses and its consequent delivery of excellent financial performance attributable to shareholders grew by meltdown, including the failure of stands as a paragon of stability and safety 21.5% from RM2.12 billion in 2007 to renowned institutions with decades of in times of turmoil and volatility in financial RM2.58 billion in 2008. As a consequence, history. Undoubtedly the Group’s markets, and provides a source of earnings per share improved from remarkable performance is due, in no confidence to stakeholders, be they 63.3 sen in 2007 to 76.9 sen in 2008 small measure, to the strong regulatory customers, employees, shareholders or with net return on equity reaching 30.4% oversight of Malaysian financial institutions the public at large. In addition, the Group’s as compared to 26.3% in 2007. by Bank Negara Malaysia and the continued reinforcement of its commitment development of robust and capable to excellence will stand stakeholders in The balance sheet of the Public Bank financial institutions with strong risk good stead in the significantly more Group continued to expand at a strong management capabilities. This is also a challenging economic environment going pace, with total assets expanding testimony to the effectiveness of the forward into 2009. RM22.01 billion or 12.6% in 2008 to implementation of the Financial Sector stand at RM196.16 billion as at the end Masterplan by the financial services of 2008 as compared to RM174.16 billion industry. To Our Shareholders a year ago. Strong Financial Performance In the midst of extreme volatility of interest In its pursuit of profitability and balance rates and seizing up of liquidity and credit The Public Bank Group’s continued strong sheet growth to sustain its delivery of markets in major financial centres globally, financial performance underscores the long-term value to shareholders, the Public healthy liquidity conditions and stable core measure of the success of a Bank Group continued to pursue strong interest rates prevailed throughout 2008 commercial enterprise in the delivery of organic business growth strategies both in the Malaysian financial services sector. profits to its owners, these being the domestically and in its regional operations As a result, the competition amongst shareholders of Public Bank. The in Hong Kong and Cambodia whilst Malaysian financial institutions remained corner-stone of the Group’s record maintaining the Group’s culture of intense. The Public Bank Group has been profitability, in an environment of global prudence in having the strongest asset able to remain ahead of its competitors financial and economic turmoil and intense quality measures in the Malaysian banking with its relentless pursuit of excellence in competition domestically and in Hong industry. all aspects of its business and its Kong, remains unchanged, being that of continued delivery of distinctive value robust organic growth of its retail propositions to customers, resulting in consumer and mid-market commercial continued domestic market share gains in lending and core deposit-taking businesses 2008 in the Group’s core lending and and continued improvement in asset deposit-taking businesses. quality.

52 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Strong Organic Business Growth the front office of branches have led to a flexibility accorded to Islamic banks, Public strong 16.8% growth in deposits from Islamic has the opportunity to expand Lending business retail individual customers in 2008. from its present focus on serving retail Total gross loans of the Public Bank consumer and mid-market commercial Group expanded by 19.0% or Strong Asset Quality enterprises customers to the Islamic RM19.25 billion in 2008 to stand at The strong financial performance of the capital market as well as the international RM120.67 billion as at the end of 2008. Public Bank Group has consistently been Islamic banking markets over the longer This growth rate is well above the underpinned by the strong asset quality of term, thereby further promoting the Malaysian banking industry’s year-on-year its balance sheet, with the Group’s development and expansion of the Group’s growth rate of 11.0% as at the end of non-performing loans (“NPL”) measures Islamic banking business. November 2008. still being the lowest in the Malaysian banking industry. Despite achieving Medium-Term Performance The Group’s domestic loans expanded by significantly higher rates of lending growth The consistent strong financial and 16.8% in 2008, driven mainly by residential than that of the banking industry over the business performance of the Public Bank mortgages and loans to small- and past eight years, the Group’s gross and Group is clearly demonstrated by the medium-sized enterprises (“SMEs”) which net NPL ratios continue to fall from 1.4% Group’s remarkable track record over the expanded by 18.4% and 7.2% respectively. and 1.2% respectively as at the end of past 5 years. Since the beginning of This has led to the Group’s market share 2007 to 1.0% and 0.9% respectively as 2004, the Public Bank Group has: of the domestic lending business of at the end of 2008. What is more 14.9%. • Almost tripled its total gross significant is the continued decline in the loans from RM46.74 billion to amount of gross NPLs from In Hong Kong, Public Bank (Hong Kong) RM120.67 billion, with the Group’s RM1.58 billion as at the end of 2006 Ltd expanded its loan portfolio by 30.1% market share of the domestic banking and RM1.40 billion a year ago to whilst Cambodian Public Bank Plc industry’s loans rising to 14.9% as at RM1.21 billion as at the end of 2008. continued its impressive rate of growth of the end of November 2008 from The Group’s net NPL ratio of 0.9% stands its lending business by another 77.4% in 9.6% at only about one third that of the 2008, after having grown its loans by Malaysian banking industry’s net NPL ratio 129.7% in 2007. • Tripled its customer deposits from of 2.4% as at the end of November RM50.22 billion to RM162.28 billion 2008. Deposit-taking business and an increased market share of domestic customer deposits of 14.8% The global re-awakening of the virtues of Islamic Banking as at the end of November 2008 from a long-term and stable customer deposit From 1 November 2008, the Islamic 9.5% base as the core source of funding of a banking business of the Public Bank banking business reaffirms the Public • Tripled the size of its balance sheet Group, which had been carried on as an Bank Group’s strategy of the continued with total assets of RM196.16 billion Islamic banking window, was assumed by pursuit of the growth of its core customer from RM64.63 billion Public Islamic Bank Berhad (“Public deposits. In 2008, the Group’s customer Islamic”), a wholly-owned subsidiary of • Almost doubled its profit before tax deposits expanded by RM23.51 billion to Public Bank. Public Islamic commenced from RM1.88 billion to RM3.38 billion RM162.28 billion, a growth rate of 16.9% business with total Islamic assets of for the year. Core customer deposits, • Doubled its net profit attributable to RM16.45 billion, Islamic financing of comprising fixed deposits, savings shareholders from RM1.29 billion to RM12.44 billion and Islamic deposits of deposits and current accounts grew by RM2.58 billion RM13.79 billion, making it one of the 20.2%, 12.4% and 12.5% respectively. In largest Islamic banks in Malaysia. In • Nearly doubled its net return on equity particular, the strong PB Brand and the conducting its Islamic banking business from 16.5% to 30.4% strong financial standing of the Group in as an Islamic banking subsidiary, the times of financial turmoil and the Group’s • Reduced its net NPL ratio by more Group has enhanced the visibility of its maintenance of a high ISO-certified than two-fold from 2.1% to 0.9% Islamic banking business. Given the standard of customer service delivery at

Letter To Stakeholders 53 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Using the key performance indicators to Strong Volume Growth in Loans 2008. The virtues of a liquid balance gauge financial and business performance sheet for a financial institution stands out The Public Bank Group continued to of financial institutions, the Public Bank again in a period of financial turmoil and pursue strong organic growth in its core Group has clearly charted exceptional a crisis of confidence in financial lending business with focus on loans to progress in the medium-term. institutions as experienced in 2008. retail consumers and SME customers. These segments have for many years Customer deposits of the Public Bank been the targeted lending business Group have expanded at a similar pace Strategic Business Direction segment of the Group. Proactive product as the Group’s lending business, thereby The Public Bank Group’s focus on its innovation, packaging and pricing and adequately funding the lending business core organic growth strategies and its focused marketing and branding strategies, expansion with a stable source of funds traditional prudence in managing the asset together with a well designed incentive and without requiring the Group to seek quality of its balance sheet is particularly system for employees linked to delivery of funding from much more volatile interbank relevant in 2008, a year which saw turmoil superior performance have led to the sources of funding. In particular, the core and upheaval in financial markets and the Group turning in another year of strong customer deposits of the Group, failure of global financial institutions from growth in its lending business at well comprising fixed deposits, savings the effects and adverse consequences of above the industry’s rate of growth of deposits and current accounts expanded over-leveraging and the pursuit of high loans. risk financial and business activities. The at about four times the pace of the domestic banking industry’s growth rate renewed recognition of the fundamental The same strong organic growth strategies of core deposits. This clearly reflects the virtues of commercial banking reaffirms have also been successfully transplanted trust and confidence in the Group. The the long-term validity of the Group’s core to the Public Bank Group’s overseas Group is also adopting strategies in its strategy, that of an unwavering focus on business operations, particularly in Hong overseas operations with the objective of retail consumer and mid-market commercial Kong and in Cambodia which achieved each overseas unit achieving self- banking. lending growth rates of 30.1% and 77.4% sufficiency in the funding of their lending respectively. In Hong Kong and in business through the development of a Together with a still intensely competitive Cambodia, the growth in the lending stable customer deposit base. marketplace, particularly in the domestic business is also supported by a market, which continues to exert pressure progressively expanding branch network on net interest margins, the pursuit of which saw Public Bank (Hong Kong) Maintaining Asset Quality strong volume growth, maintenance of a Limited, and Cambodian Public Bank Plc The Public Bank Group maintained its liquid balance sheet and strong asset expanding their branch networks to 31 prudent appetite for credit risk whilst quality, combined with increased and 12 branches respectively in 2008. pursuing strong lending growth in 2008. productivity and improving operational This, together with its prudent credit cost efficiency, remain critical in sustaining Maintaining a Liquid Balance Sheet origination, processing and approval bottom line growth and long-term return processes in the past years, has seen the Whilst the growth of the lending business to shareholders. Group’s asset quality measures continue of the Public Bank Group has outpaced to improve, both in terms of gross and the banking industry’s growth rate, the net NPL ratios, as well as in the reduction Group had maintained a liquid balance in the amount of gross NPLs in 2008. sheet with the Group’s net loan to deposit ratio standing at 73.0% as at the end of

54 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Despite the improvement in asset quality of the unit trust business of Public Mutual regular premium unit-linked insurance measures, the Public Bank Group Berhad, a wholly-owned subsidiary of products and the active promotion of continues to maintain a high level of Public Bank, and the proactive consumer and commercial mortgage vigilance on the asset quality of its loan infrastructure building strategies and reducing term assurance plans, as well as portfolio with significant resources activities of Public Mutual Berhad has the setting up of the telemarketing dedicated to identifying potentially higher allowed it to maintain its market share and channel, the Group achieved its plans for risk customers and taking proactive position it to expand further when market the first year of the 10-year agreement measures, working together with such conditions improve. with ING Asia/Pacific. customers, to avoid such customers becoming non-performing. When such Public Mutual Berhad launched 12 new As part of the infrastructure to support customers do lapse into non-performing unit trust funds in 2008. Despite weak the bancassurance business of the Public status, the Group will actively work with market conditions, Public Mutual Berhad Bank Group, a force of dedicated them to restructure their loans and seek achieved total new sales of RM7.64 billion bancassurance sales executives (“BSE”) to regularise such non-performing loans. in 2008 and maintained its 39% market will be developed. In 2008, the Group The prudent origination of loans and the share of net asset value (“NAV”) of funds recruited a total of 229 BSEs, with the high level of vigilance of its loan portfolio under management which stood at target to build this force of BSEs to about have contributed to the Group consistently RM23.32 billion as at the end of 2008. 600 over the medium-term. having the lowest NPL ratios in the More importantly, Public Mutual Berhad Malaysian banking industry. has continued investing in building its Wealth Management core channel of unit trust distribution, the In widening the scope of savings and Developing Fee-Based Income unit trust consultants of Public Mutual. investment products beyond core Infrastructure Through an active recruitment programme customer deposits for customers, the A key strategic response to sustaining and proactive management strategies, Public Bank Group has actively promoted profitability growth in the financial services Public Mutual Berhad expanded its unit alternative savings products such as industry when net interest margins are trust consultants force from 29,947 unit foreign currency deposit accounts, gold compressed by competition is to expand trust consultants as at the end of 2007 to investment accounts and principal the scope and scale of fee- or 42,003 unit trust consultants as at the protected structured investment products transactional-based revenue. The Public end of 2008, a very potent distribution to customers who seek a wider range of Bank Group continued to develop the key channel to drive the business of Public savings alternatives. Despite market sources of fee-based income from unit Mutual Berhad when the market for unit volatility, Public Bank’s foreign currency trusts, bancassurance and wealth trust improves. deposits expanded 116.7% in 2008 to management products through significant stand at RM2.60 billion whilst gold investment in the respective business Bancassurance investment accounts totaled 1.1 tonnes of infrastructure and continued offerings of In 2008, the Public Bank Group set about gold valued at RM104.9 million. The products. implementing the 10-year exclusive Group launched 3 principal protected distribution agreement entered into with structured investment products in 2008, Public Mutual Unit Trust ING Asia/Pacific to provide life, health attracting total longer term savings of Despite the retreat of global and regional and investment-linked insurance products RM488 million. equity and other asset markets in 2008, in Malaysia and Hong Kong to customers and the sharp decline in the Malaysian of the Group and the public. Through the equity market, the market leading position launch of a number of single premium and

Letter To Stakeholders 55 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Maintaining Cost Efficiency In periods of financial turmoil and falling compares favourably with lead regional and volatile stock markets, what Public banks, such as Hang Seng Bank in Hong The Public Bank Group remained Bank offers to shareholders and investors Kong which is reputed for its efficient committed to improving its operational is solid business fundamentals, including capital ratios and high return on equity. efficiency through increasing productivity consistent strong business growth, a tried of its employees and maintaining cost and tested business model and the best efficiency in the running of the Group’s asset quality in the industry. Shareholders business. The pursuit of strategies which High Dividend Payout also benefit from consistently above- include judicious human resource The Board of Directors has proposed a market dividend yields as well as strong recruitment focused on revenue generating final cash dividend of 25 sen less 25% capital adequacy ratios and improving employees and effective training and skills tax and a share dividend to be distributed return on equity. The Group also maintains building, together with seeking continued from the treasury shares held by Public a high level of transparency and an improvement in operational efficiency Bank arising from share buy-backs by the excellent corporate governance culture. through improved work processes and the Bank, on the basis of 1 Public Bank share These classic defensive qualities of Public effective deployment of relevant dividend for every 35 existing Public Bank Bank provide considerable comfort and technology, the Group has further shares held by shareholders. confidence for shareholders in periods of improved its cost to income ratio from market volatility. 33.1% in 2007 to 31.2% in 2008, still The proposed final cash dividend of 25 the lowest cost income ratio amongst sen less 25% tax together with the interim Malaysian banking groups. dividend of 30 sen less 26% tax paid in Enhancing Capital Efficiency August 2008 would mean a total net The strategic business direction of the Public Bank enhanced the efficiency of its cash dividend of 41.0 sen per share or a Public Bank Group in enhancing long- capital structure by the issuance of total of RM1.37 billion paid or to be paid term profitability and earnings generation RM1.40 billion of Tier 2 subordinated for 2008. In addition, the proposed share capability by building size whilst remaining notes in 2008. This resulted in the dividend for 2008 would lead to a prudent in maintaining strong asset quality, strengthening of the Bank’s and the Public distribution of a total of 95.9 million Public and building resilient long-term recurring Bank Group’s risk weighted capital ratios. Bank (Local) shares to shareholders with income streams from fee-based activities This will also allow the Group to continue a total value of RM0.85 billion based on will continue to drive the Group’s business to expand its business and pursue strong the price of Public Bank (Local) shares of and financial performance well beyond organic growth strategies without seeking RM8.85 per Public Bank (Local) share as 2008. additional equity capital from shareholders. at the end of 2008. Public Bank The share buy-backs in 2007 and earlier shareholders would receive net cash years of 176,296,800 ordinary shares in dividends and Public Bank (Local) shares Shareholder Value Public Bank, which represents 5% of the with a total value of RM2.22 billion or issued and paid-up capital of Public Bank 66.3 sen net per Public Bank share. The Public Bank Group is fully committed at a total cost of RM1.27 billion, together to the delivery of superior shareholder with the issuance of innovative Tier-1 The 66.3 sen net dividend per share value. The consistent strong financial capital securities in 2006, as well as the which is equivalent to a gross cash performance of the Group and its strong profitability growth of the Group dividend per share of 88.7 sen for 2008 42 years of unbroken profitability track have led to rising net return on equity represents an increase of 18.3% over record underpins the value of the from 16.5% five years ago to 30.4% in that of 2007, and gives a very attractive investment of shareholders in Public 2008. This ranks Public Bank the highest gross dividend yield of 10.0% based on Bank. amongst domestic banking groups in the share price of RM8.85 per Public Bank terms of return on equity and also (Local) share as at the end of 2008.

56 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The Public Bank Group intends to maintain Bursa Securities and Public Bank has clearly superior returns to shareholders its high dividend payout policy subject to retained this top ranking for 4 consecutive delivered by Public Bank. not compromising the Group’s ability to years ever since the first Corporate support its continued desire to pursue its Governance Survey Report 2005. Over the medium-term of 5 years, a high organic business growth strategies shareholder of Public Bank who purchased and subject to the approval of Bank Public Bank’s corporate governance 1,000 Public Bank (Local) shares at a Negara Malaysia as required by the policies and practices also exceed the price of RM5.66 per share at the Banking and Financial Institutions Act, requirements of the updated revised beginning of 2004 with an investment 1989. Malaysian Code on Corporate Governance outlay of RM5,660 and have held the issued by the Securities Commission in shares since for 5 years to the end of October 2007, again reflecting the very 2008 would have received gross dividends Strong Corporate Governance high standards of corporate governance totalling RM3,570 and have 1,028 Public The Public Bank Group’s pursuit of pursued by the Public Bank Group. Bank (Local) shares worth RM8.85 per excellence in corporate governance has share or a total value of RM9,098 based definitely enhanced shareholder value. on the closing share price as at the end Investors, particularly institutional investors, Superior Returns to Shareholders of 2008. Together with the dividends continue to raise their expectations of The efficient capital structure and high received, this investment would give the how corporates conduct their business return on equity of the Public Bank Group, shareholder an annual rate of return on and the level of transparency of the its high dividend payout policy and strong investment of 21.2% or a total return of corporates and their accountability to corporate governance culture, together 123.8% for the 5-year period. stakeholders. It is also particularly relevant with the continued strong financial in the current climate of uncertainty performance of the Group have benefited If a shareholder of Public Bank had generated by the financial turmoil shareholders of Public Bank directly. In a bought 1,000 shares in Public Bank when sweeping the global financial markets and year which saw falling equity markets it was listed in 1967, and assuming the the high premium that is attached to the globally and across the region and where shareholder had subscribed for all the transparency and level of governance in the Malaysian stock market had fallen rights issues to date and had not sold the way the business of a financial 39.3% in the year and 42.2% from its any of the Public Bank shares, he would institution is conducted. 2008 peak, as measured by the levels of have 133,436 Public Bank shares worth the Kuala Lumpur Composite Index, both RM1,180,909, based on the share price Public Bank’s publicly recognised record Public Bank (Local) share and Public of Public Bank (Local) shares of RM8.85 of excellence in corporate governance Bank (Foreign) share have outperformed per share as at the end of 2008. Together and corporate conduct continued to be the Malaysian equity market with a share with receiving total gross dividends of validated in 2008 by several corporate price decline of only 19.6% and 20.5% RM559,253, which Public Bank has governance awards and recognition by respectively from the beginning of 2008 unfailingly paid every year since 1970, the international publications and surveys, and by 26.3% and 27.7% respectively total net worth of investment to this including the top ranking in the Corporate from their peaks in 2008. This shareholder would be RM1,740,162. For Governance Survey Report 2008, issued outperformance can be attributed to the a capital outlay of RM48,760 over this jointly by the Minority Shareholder aforesaid defensive qualities of the 41-year period, this shareholder would Watchdog Group and Nottingham Group. have achieved a remarkable average rate University Business School. This survey of return of 19.4% annually for each of report is based on an assessment of the Shareholders still enjoy superior medium- the 41 years that this shareholder had corporate governance principles and best and long-term returns, despite the lower invested in the shares of Public Bank. practices of all 960 companies listed on share prices in 2008, as illustrated by the

Letter To Stakeholders 57 2008 ANNUAL REPORT PUBLIC BANK BERHAD

To Our Customers growing market share and excellent asset time for customers at branch counters, quality standing out in times of financial and the Group’s “Provision of Customer Customers in the financial services turmoil, the Group provides depositors Service in Loan Delivery” continued to be industry, be they consumers or businesses, with the comfort and peace of mind as a certified under the ISO9001:2000 are aggressively being sought after and repository for their hard earned savings. standards. The Group monitors closely offered a wide spectrum of products and the compliance levels of these quantitative service options by both domestic and The Public Bank Group continued to customer service delivery standards at foreign-controlled domestic banking provide businesses experiencing tighter each branch and each customer contact groups. This aggressive marketing, cashflows in an environment of heightened point and takes steps to achieve together with Bank Negara Malaysia’s inflationary pressures and potentially consistently high levels of compliance. continued efforts to promote greater slower economic growth with access to products and services transparency, as credit at competitive terms. For SMEs, The ISO9001:2000 certification of well as rising consumer protectionism, are Public Bank has been actively channeling customer service delivery standards also creating more knowledgeable and more low cost funds under Bank Negara provides the Public Bank Group with the demanding customers. The increasingly Malaysia’s SME Assistance Facility and capability to ensure the consistency of well-informed customers, together with SME Modernisation Facility to SMEs, with delivery of its high level of quantitative increasing commoditisation of products Public Bank’s applications for such funds customer service delivery standards and services, create a greater need for to the Credit Guarantee Corporation across its entire branch network, thereby differentiating the Public Bank Group from accounting for 42% of total applications providing customers with the assurance other financial services providers. A key made by all banks for these funds. The that wherever they go and whichever difference in trying to capture the customer strong above industry rate of growth of Public Bank branch that they bank with, is the manner in which a product or the Group’s lending business of 19.0% in the customers can expect the same service is delivered and how best the 2008, which is focused on consumers consistent high level of customer service. customer is served. and SMEs is clear evidence of this support of the needs of its loan The Public Bank Group’s resolute customers. Enhancing Customer Service commitment to excellence in delivering Infrastructure distinctive service to each and every The Public Bank Group continued to customer is evident in the Group’s ISO Standards continued investment in meeting invest significant resources in enhancing customers’ needs through its already The Public Bank Group continued to the physical infrastructure for the delivery extensive multi-channel customer service focus on improving its high ISO9001:2000 of a high level of customer service. In delivery infrastructure which meets customer service standards by taking 2008, the Group expanded its network of international ISO standards. steps to increase the compliance levels of self-services machines by adding quantitative customer service delivery 29 ATMs, 120 cheque deposit machines standards for the key customer contact (“CDM”) and 128 cash deposit terminals Meeting Customers Needs points at customer counters of branches (“CDT”) with a total capital outlay of and in loan service delivery. The RM20 million, bringing the Public Bank The Public Bank Group seeks to meet quantitative customer service delivery Group’s total domestic network of customers’ expectations by proactively standards for the Group’s “Provision of self-service machines to 1,238 ATMs, identifying and fulfilling their needs. Given Customer Service at the Front Office”, CDMs and CDTs. the Group’s strong financial performance, which include a 2-minute standard waiting

58 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The Public Bank Group proactively To Our Staff training expenditure increasing to assesses the location, size and layout of RM27.4 million in 2008. This represents The remarkable success of the Public its branches with a view to enhancing 3.7% of total human resources related Bank Group in delivering the rising customer accessibility, comfort and costs, a ratio that is above the 2.5% expectations of its stakeholders over the convenience. In 2008, Public Bank minimum requirement of Bank Negara 42 years history of the Group and its opened 1 new branch, relocated 9 Malaysia in respect of staff training consistent award-winning performance branches and expanded the size of a allocation. owes, in no small measure, to the further 8 branches. contribution of a united team of committed, Besides equipping the staff with the skills knowledgeable and dedicated employees In enhancing its customer service and capability needed to deliver the who are focused on a common goal and infrastructure, the Public Bank Group highest possible standards of performance, share a common mission in constantly continued to invest in information and the investment of the Public Bank Group striving for excellence. The human capital communication technology and in the skill and knowledge development of of the Group has continuously been technological innovation applicable to the all levels of staff also prepares the staff nurtured, trained and proactively managed systems and processes that are used by, for career progression within the Group to bring out the best in each and every and of assistance to, all levels of service and fulfills the structured management staff, and as a fully integrated team, providers in the Group in delivering the succession planning objectives of the deliver more than the sum of the individual highest standards of customer service Group. A well-trained and skilled workforce team members’ contribution. Collectively, and sustain the Group’s competitive edge also has a greater capacity and flexibility the staff force represents the most in the globalised financial services to adapt to the changing needs of the valuable asset of the Group. industry. Group as well as enhancing the ability of the Group to redeploy staff without The Public Bank Group’s relentless pursuit compromising on service delivery Skill and Knowledge Development of the delivery of distinctive customer standards and in the Group’s quest for service and its commitment of a high level The Public Bank Group allocates excellence. of resources to this crucial facet of the significant management and financial Group’s business has generated a level resources to enhance the long-term value of customer loyalty and branding that is of its human capital. The Group has long Structured Management Succession had a policy of mandatory training for all reflected in the Group’s higher market The Public Bank Group has established a levels of staff, which together with the share of individual customers. The Group structured succession planning process building of special skills and expertise, has the largest market share in the for senior management staff as part of its has seen a total of over 50,000 man-days domestic passenger vehicle hire purchase human capital development investment. of classroom courses being conducted in financing market. In respect of individual Instituted for many years, there are at 2008, and a healthy utilisation rate of an customer deposits, the Group has least two candidates identified and expanding e-learning platform, which has captured a 18.0% domestic market share earmarked for the succession of every made available a total of 54 internal of deposits by individuals as compared to senior managerial position. Whilst the training courses on the internet, with more an overall domestic market share of total identification or earmarking for the senior than 23,800 participants completing core customers deposits of 15.2%, with management succession process is not e-learning courses. The Group increased deposits from individuals accounting for expressly made known to such candidates, the level of financial resources for the over 69% of core customer deposits. such earmarked candidates are nurtured development of its human capital with with the relevant training and skills

Letter To Stakeholders 59 2008 ANNUAL REPORT PUBLIC BANK BERHAD

development programmes and job-related Rising Productivity absolutely necessary to engender and exposures to the relevant areas of the sustain the trust of the public implicit in In the intensely competitive environment in positions and responsibilities being the role of the Group as a custodian of which the Public Bank Group operates planned for and in preparation of such public funds and a trusted and respected and faced with continued compression of candidates to assume the higher levels of leading financial institution in Malaysia and margins, a key strategy for the Group to responsibilities as set out in the structured in the Asia-Pacific region. continue to deliver profitability growth is management succession plan. to improve operational efficiency by enhancing the productivity of the Group’s most valuable asset, its staff. With the Caring for the Staff Performance-based Rewards significant investment in the level of The Public Bank Group also shows that it The fair and transparent performance- training and the appropriate types of cares for the of its staff and their based remuneration system and training, as well as the transparent and family. Besides a fair and competitive meritocracy-based career progression fair performance-based remuneration salary structure and a host of staff path of the Public Bank Group underpins structure, the productivity of the Group’s benefits, the Group had in 2008 gone the human capital development investment staff force has continued to rise. beyond its boundaries in the face of of the Group. The performance-based exceptionally challenging circumstances remuneration system, where rewards are As measured by standard industry encountered by its staff force. With closely and transparently correlated to the indicators, the productivity of the Group’s sharply rising inflation and cost of living, delivery of superior performance, staff have risen consistently over the our staff, particularly lower level employees particularly as measured by the staff’s years. The loans per staff, deposits per are challenged in providing adequately for contribution to the core business staff and profits per staff have risen from themselves and their families. expansion that is in line with the Group’s RM4,496,000 per staff, RM5,707,000 per prudent risk profile, has clearly incentivised staff and RM149,000 per staff respectively The Public Bank Group took steps to staff to perform to the peak of their in 2004 to RM7,467,000 per staff, ease the burden of rising cost of living on capability. In 2008, a total of RM10,042,000 per staff and RM209,000 the staff with a number of initiatives. The RM119 million was paid in performance per staff respectively in 2008. Group paid a special ex-gratia of up to bonuses to all levels of staff, with top RM2,000 to each and every staff in the performers being paid bonuses of up to Group, with the total amounting to 27 months of salary. Such high Staff Conduct RM14 million. This is particularly beneficial performance driven rewards also promotes The Public Bank Group continues to to more junior level staff, the ones most future stellar performance when staff push uphold, and to inculcate in all its staff, a affected by rising cost of living. This the boundaries striving for such high culture of commitment, trust, honesty and gesture is deeply appreciated by all staff. rewards and the satisfaction of personal integrity as well as promote an environment achievement. of exemplary corporate conduct and The Public Bank Group also reduced the meticulous regulatory compliance. The interest rates of its staff housing, car and stringent and uncompromising adherence motorcycle loans, as well as extending the to the Group’s policy of zero tolerance of repayment periods of these staff loans. dishonesty and the lack of integrity is Again, the emphasis was on loans for more junior level of staff. Staff housing

60 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

loan interest rates was reduced for all The staff of the Public Bank Group do Bank Group is therefore playing its role in staff but the reductions were progressively proudly and professionally have a sense promoting a robust and resilient Malaysian larger for smaller staff housing loans, with of dedication and commitment to serve economy, in addition to being a key the of staff housing loans of and serve with a spirit of camaraderie, component of the financial services sector, RM100,000 and below being reduced mutual trust, respect and sociability. a sector which the Government accords from 3% to 0%. Interest rates for staff priority in driving socio-economic motorcycle loans were reduced for all development. This will ultimately benefit staff, with loans of RM5,000 and below To The Community the broader economy and everyone in the being reduced from 4% to 0%. For some The commitment to excellence of the community. staff, with the rate reduction and extension Public Bank Group to its stakeholders of repayment periods, their monthly clearly extends to encompass the broader The core of Public Bank Group’s business instalments would reduce by up to 40%. community that the Group serves and strategies on serving the consumers and The cost of the interest rate reduction for where it conducts its business activities. SMEs continues to benefit the wider staff loans to the Group is over The Group, in fulfiling its corporate community. The financial strength of the RM15 million per year but would responsibility, seeks to conduct its Group and its strong corporate governance significantly benefit the staff, particularly business activities prudently, ethically and culture continues to promote a high level more junior levels of staff and their families responsibly, whilst engaging the society of savings in the country’s domestic by significantly easing their monthly outlays and environment in which it operates. financial system, thereby providing the to own the roof over their heads and Government with greater flexibility in the easing the staff’s burden in providing for implementation of fiscal stimuli policies to their families in times of significantly rising Contribution to the Country’s sustain reasonable growth in a slowing cost of living. These benefits were also Economy global economy. With one of the largest extended to staff of the Group in its market share of the residential mortgage overseas branches and subsidiaries. The Public Bank Group, a major anchor business, the Group is helping to promote financial services provider, with its 42 a higher level of home ownership by The Public Bank Group’s commitment to years of unbroken profitability track record, Malaysians. its staff force, its transparent performance- has played a significant role in contributing based remuneration system, a meritocracy to the development and maturity of The Public Bank Group’s focus on serving driven career progression path and priority Malaysia’s financial system. A strong and the SMEs to promote the expansion of accorded to internal filling of vacancies by stable financial system forms a corner- their business will directly benefit the existing well trained, qualified and stone of an economy, as is glaringly community by, inter alia, generating experienced staff have created a workforce apparent in the recent financial turmoil growing employment opportunities as well that is passionately performance driven that hit the financial systems of the United as promoting a growing economy, and one that seeks career advancement States of America and Europe, and the albeit at a slower pace. The Group’s within the Group. It is no wonder that the consequential contractionary effects on microcredit product, PB Microfinance, desire of the staff force seeking career the economy of these countries and the and the promotion of Bank Negara’s progression with the Group remains widening fallout affecting the rest of the RM200 million Micro Enterprise Fund will strong with over 90% of current managerial world. help the development and growth of appointments being filled from within the another segment of the business Group, whilst staff turnover rate of Public By contributing to the strong and stable community, that of the very small Bank remained a low 3.8% in 2008 for financial system with its consistently businesses and micro enterprises. both supervisory and non-supervisory level strong financial performance, the Public staff.

Letter To Stakeholders 61 2008 ANNUAL REPORT PUBLIC BANK BERHAD

With consistently rising profitability, the site of a flood retention pond which forms In 2008, the Group remains the most Public Bank Group is a major contributor part of the Kuala Lumpur city flood awarded financial institution by being to the fiscal revenue of the country with management system. The Public Bank recognised with a total of 39 awards and tax payments totalling RM3.26 billion Group raised gross proceeds of close to recognition of excellence conferred on the since 2003, with the Group paying RM1 million from the sale of the book, Group and its management. RM0.75 billion of taxes in 2008. Given “Teh Hong Piow – A Banking the continued healthy profitability Thoroughbred” which was donated to performance expected in the next few various organisations promoting healthcare, Excellent Corporate Governance years as envisaged in the Group’s the physically disadvantaged, education, Public Bank’s pursuit of excellence in medium-term scenario planning, the Group youth activities and charitable bodies. corporate governance and its long will, to be sure, contribute significantly to Further proceeds from the sale of the entrenched culture of transparency and the finances of the country as Malaysia Chinese language edition of the said book integrity continued to be recognised with continues with domestic fiscal stimuli would also be donated to worthy and the following in 2008: focused on the Economic Stabilisation charitable causes in the coming year. Plan with structural changes and economic In 2008, Public Bank also contributed • No. 1 ranking in corporate governance reforms in the face of the slowing global significantly, to the tune of RM1.2 million in the Corporate Governance Survey economy and over the longer-term, to the to Malaysian performing arts activities Report 2008. The Corporate financing of the development efforts of with the sponsorship of a third season of Governance Survey Report 2008 is the nation. the critically acclaimed production “Puteri the result of a study conducted jointly Gunung Ledang” and support of the by the Minority Shareholder Watchdog Persatuan Karyawan Malaysia and the Group and the Nottingham University Community Activities Kuala Lumpur Performing Arts Centre. Business School on the level of corporate governance compliance and The corporate responsibility of the Public Other CSR activities of the Group in practices of all the 960 companies Bank Group extends into a wide range of 2008 included support of projects and listed on Bursa Securities. Public corporate social responsibility (“CSR”) events promoting healthcare, education, Bank has maintained this top ranking initiatives in the Group’s commitment to professional development, disaster relief, for the 4th consecutive year since the give back meaningfully to the community preservation of the environment and inauguration of the Corporate that supports its business and corporate national pride, besides direct charitable Governance Survey Report in 2005. activities. The Group’s contribution to and contributions to the welfare of the needy and the less fortunate. participation in, both financial or otherwise, • The inaugural Malaysian Business – activities for the benefit and betterment of CIMA Enterprise Governance Awards the welfare of the community have been 2008 for being the overall winner and geared towards benefiting as many in the Awards And Recognition for the best returns to shareholders community as possible. A tangible validation of the high level of by the Malaysian Business. success of the Public Bank Group in • The Malaysian Business CSR Awards Some of the key CSR initiatives undertaken delivering on its commitment of excellence 2007 for being the overall winner and in 2008 included the planting of 5,000 to all its stakeholders is the awards and for the best innovation in CSR by the trees under the Public Bank Tree Planting- recognition accorded by reputable Malaysian Business. Climate Change Programme where Public domestic and international publications Bank is working with the Malaysian Nature and other third party organisations to the Society to plant up to 20,000 trees at the Group, Public Bank and its management.

62 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

• No.1 ranking in FinanceAsia “Asia’s Contribution to Banking in Asia Best Managed Companies 2008” poll The Public Bank Group is also delighted and honoured that Tan Sri Dato’ Sri Dr. Teh for Best Managed Company, Best Hong Piow, the Founder and Chairman of Public Bank, was again recognised for his Corporate Governance, Best Investor sterling achievements and contributions to the banking industry in Asia with the Asian Relations and Most Committed to a Banker Par Excellence 2008 Award by FinanceAsia. Strong Dividend Policy for Malaysia. • Corporate Governance Asia Recognition Apart from acknowledging the outstanding achievements of the Public Bank Group and Award 2008 by Corporate Governance its Founder and Chairman, these awards and accolades will, to be sure, further motivate Asia. and reaffirm the commitment of the Group and all its staff to continue its relentless pursuit of the delivery of excellence to all its stakeholders.

Banking Excellence Public Bank’s leading position in Malaysia, Medium-Term Scenario Planning its strong financial performance, strong As part of the process to manage the strategic positioning of the Public Bank Group profitability ratios, excellent asset quality and the maintenance of its market leadership position, the Group has put in place and its delivery of excellence in customer medium-term plans for the next 3 years to deliver continued growth and profitability in service, together with its stellar record of the much more challenging environment today. 42 years of unbroken profitability continued to garner best bank or best managed The medium-term scenario planning process has been in place for a number of years. company awards in 2008 with the award It is therefore appropriate to assess the actual delivery of the key performance indicators of The Best Asian Bank by FinanceAsia of earlier plans as a prelude to the current medium-term plans. and 10 Best Bank or Company in Malaysia awards by various international organisations and publications. Key Performance Indicators Annual Report 2005 Actual in 2008 3-Year Plan At the National Annual Corporate Report Return on Average Equity Ratio 28.0% 30.4% Awards (“NACRA”) 2008, the Annual Core Capital Ratio 8.0% 8.3% Report 2007 of Public Bank won the Risk Weighted Capital Ratio 12.5% 13.7% Platinum Award of the NACRA Overall Excellence Award, the Industry Excellence Net Non-Performing Loan Ratio 1.7% 0.9% Award for the Main Board Companies in Total Loans and Advances RM98 billion RM118.39 billion the Finance Sector and the Platinum Total Assets RM150 billion RM196.16 billion Award for the Best Annual Report in Bahasa Malaysia. The Public Bank Group has delivered on its past medium-term plans, with some key performance indicators running well ahead of these original medium-term plans.

Letter To Stakeholders 63 2008 ANNUAL REPORT PUBLIC BANK BERHAD

For the 2008 medium-term plans, the The past several years of building size impact economic sectors benefiting the macro key performance indicators include and market share by the Public Bank rakyat such as low- and medium-cost a medium-term return on average equity Group with continued strengthening of housing, increased houses under the ratio of 30%, core capital and risk the asset quality of its balance sheet has Hardcore Poor Housing Programme, weighted capital ratios of 8.0% and provided the Group with the resilience to upgrading of roads, schools and hospitals 12.0% respectively for the Public Bank face up to challenges in 2009 from a and the upgrading of the urban public Group and 10.0% and 12.0% respectively position of strength. transport system and steps taken to for Public Bank, a stable net NPL ratio of promote SMEs and micro enterprises will below 1.0% and a cost to income ratio of The strong deposit franchise of the Group support the domestic driven economy. 30%. The Public Bank Group also plans and the confidence and trust of customers These fiscal stimuli initiatives, together to expand its loan portfolio and balance in entrusting their hard-earned savings with the reduction in the benchmark sheet to RM160 billion and RM270 billion with the Group in the current climate of interest rate, the Overnight Policy Rate, respectively in 3 years’ time. The Group is financial turbulence and heightened by Bank Negara Malaysia from 3.50% to confident that barring unforeseen uncertainty has been built on the 3.25% in late November 2008 is aimed at circumstances and realisation of the key consistent and strong financial performance preventing Malaysia from falling into a assumptions underlying these medium- of the Group over its 42 years of serving recession. With steps taken to improve term plans, the envisaged growth and the Malaysian public and on the PB Brand household disposable income and profitability targets would be achieveable. promise of delivery of excellence. With expectations of significant moderation of the renewed recognition that a stable the country’s inflation rate to between 4% long-term source of deposit funding and 5%, consumers are also better Prospects underpins the long-term success of a positioned to weather the effects of a As the clouds of global recession gather banking institution, the strength of the slower economy. and move to the Asian economies and Group’s deposit franchise will also provide cast their shadows over the Malaysian the Group with the capability to meet the With the Government’s fiscal stimuli economy, the Public Bank Group expects challenges in 2009. activities being geared to the consumers 2009 to pose greater challenges than and SMEs and the domestic economy in what the Group has had to face in the As the risk of global recession threatens general, the Public Bank Group, with its past few years. The twin challenges of an the pace of economic growth in Malaysia, core business strategies focused on economy that is expected to slow and a the Government has recognised that serving these consumers and SMEs, is still intensely competitive marketplace for whilst economic growth will slow, with the well positioned to meet the challenges of the financial services sector will require Government’s revision of the GDP growth 2009. At the same time, the promotion of the Group to be more innovative, nimble forecast of Malaysia for 2009 from 5% to more resilient SMEs and assistance for and efficient whilst being more vigilant in 3.5%, the Government has taken proactive consumers in the slowing economy, the pursuit of the Group’s desire to steps in reprioritising its fiscal stimuli together with lower cost of borrowing, will continue to deliver on its commitment of activities whilst Bank Negara Malaysia has also help sustain the traditionally strong excellence to all stakeholders and maintain eased monetary conditions. The asset quality of the Group. a rate of business expansion and Government has put in place an Economic profitability growth to fulfil this Stabilisation Plan with focus on economic commitment. growth and structural changes and reforms. Increased fiscal spending in high

64 Letter To Stakeholders 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Whilst 2009 will be much more challenging and most importantly, the unwavering Once again, the Board and Management as compared to the past few years, with commitment to excellence of all levels of would also like to thank Bank Negara the risk of a slowing economy compounding staff, the Group has the capacity to Malaysia and all other relevant authorities the effects of a still intensely competitive flexibly implement its key strategies to ride for their invaluable advice, guidance and marketplace, the Public Bank Group will out the current turbulence in the financial support. continue allocating significant resources markets and the more challenging macro to continue building its broad retail-based economic conditions and emerge even fee-income infrastructure. Since 2007, stronger and more profitable, thereby the Group had focused on building its continuing to contribute to the stability fee-income stream from unit trusts, and integrity of the financial system and bancassurance and mass affluent wealth play its proper role in the long-term Tan Sri Dato’ Sri Dr. management products and services. The development and well being of the Teh Hong Piow building of the fee-income infrastructure in Malaysian economy. Chairman these key business areas will continue apace in 2009, notwithstanding a more To be sure, the Public Bank Group, Tan Sri Dato’ Thong Yaw Hong challenging economic and competitive having overcome all the challenges faced Co-Chairman environment and highly volatile markets as in its 42-year journey thus far, will be ever the Group continues to invest in strategic much stronger and resilient as a leading Tan Sri Dato’ Sri Tay Ah Lek long-term sources of revenue. financial services provider and is well set Managing Director to stay ahead of the present financial The Public Bank Group is confident of turmoil and economically challenged times, Dato’ Lee Kong Lam meeting the challenges it will face in and continue to deliver excellence to its Executive Director 2009 and continue staying ahead of the stakeholders in the next several decades competition. With the Group’s extensive and beyond. Dato’ Yeoh Chin Kee network of branches and expanding Director electronic delivery channels, a comprehensive and competitively priced Acknowledgement Tengku Abdul Rahman Ibni Sultan and innovatively packaged range of We wish to express our deep appreciation Haji Ahmad Shah Al-Mustain Billah Director products and services that is still to the management and all staff of the expanding, customer service delivery that Public Bank Group for their untiring is benchmarked to international standards, commitment, dedication and loyalty in Dato’ Haji Abdul Aziz Bin Omar Director the strong deposit franchise and the PB contributing to the continuing success of Brand promise of delivering excellence, the Group. the Group will definitely sustain its Dato’ Dr. Haji Mohamed Ishak Bin competitive edge. We also wish to express our sincere Haji Mohamed Ariff Director appreciation and gratitude to all our With the Public Bank Group’s resilient customers and our shareholders, as well Mr Quah Poh Keat financial performance track record of as the Minority Shareholder Watchdog Director rising profitability, excellent asset quality Group for their continued support of and arising from the Group’s stringently confidence in the Public Bank Group. uncompromising prudent credit culture 19 January 2009

Letter To Stakeholders 65

Best practices

As a custodian of public funds, we take the trust proffered to the Public Bank Group very seriously. Our practice of good corporate governance is our distinctive quality, as we believe that only through safeguarding and enhancing our stakeholders’ interests can we stay ahead of the stiffening competition. 2008 ANNUAL REPORT PUBLIC BANK BERHAD

accountability

statement on corporate governance

68 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD staying ahead

The global financial meltdown which was standards set by BNM in their Guidelines Code on Corporate Governance precipitated by the sub-prime mortgage on Corporate Governance for Licensed (Revised 2007) and international best crisis in the US in 2007 underscores the Institutions (Revised BNM/GP1), as well practices. Public Bank received a requirement for sound corporate as in line with international best weighted average corporate governance in order that the interests of practices. governance score of 93%, having stakeholders are not undermined, or even scored highest in both the Basic worse, eroded. While it is fortunate that Public Bank, driven by good corporate Compliance Score and International Bank Negara Malaysia (“BNM”), Securities governance and a deeply entrenched Best Practices Score. Commission and various other regulators culture of commitment to excellence, This was the fourth consecutive year in Malaysia have established standards holds an unbroken record in all its 42 that Public Bank had emerged as the and guidelines on corporate governance, years of operations in creating and leading company in the MSWG/NUBS what is of critical importance is that these consistently enhancing value for all its survey, having been also ranked No. 1 standards and guidelines are fully complied stakeholders. This is affirmed by the in the inaugural survey carried out in with. numerous accolades and awards that 2004, and the other two surveys done Public Bank continues to receive every in 2006 and 2007. The Members of the Board of Directors year, of which those received in 2008 are delighted to state that Public Bank, include the following: Public Bank had also received the since its inception by the Founder and Industry Excellence Award for the Chairman, Tan Sri Dato’ Sri Dr. Teh Hong Finance Sector in the Corporate Piow in 1965, has been steadfast in its No. 1 in Corporate Governance Governance Survey Report 2008. adherence to the tenets of good corporate g Public Bank was ranked No. 1 in the governance, which are accountability, Corporate Governance Survey Report g Public Bank was ranked No. 1 for integrity, transparency and responsible 2008, a joint study by the Minority Best Corporate Governance in the corporate conduct. Shareholder Watchdog Group Asia’s Best Companies 2008 Poll by (“MSWG”) and the Nottingham FinanceAsia. Public Bank’s robust corporate governance University Business School, Malaysia structure has been built based on the Campus (“NUBS”) on the level of g Public Bank received the Corporate principles and best practices prescribed compliance of all companies listed on Governance Asia Recognition Award in the Malaysian Code on Corporate Bursa Malaysia Securities Berhad 2008 from Corporate Governance Governance (Revised 2007) and in (“Bursa Securities”) with the Malaysian Asia, this being the fourth consecutive accordance with the principles and year since 2004 that it was conferred this Award.

Statement On Corporate Governance 69 2008 ANNUAL REPORT PUBLIC BANK BERHAD

g Public Bank was ranked No. 1 in Best Best Bank in Malaysia Best Managed Company Corporate Governance (for Malaysia) g Public Bank was voted the Best Bank g Public Bank was ranked the Best in the Euromoney’s Best Managed in Malaysia 2008 by Euromoney. Managed Company in the Asia’s Best and Governed Companies – Asia Poll Companies 2008 Poll by FinanceAsia. 2009. This marks the tenth time that Public Bank had won this Award, having g Public Bank was named Malaysia’s Most Outstanding Annual Reporting received the Award in 1993, 1998, Best Managed Company Large-Cap 1999, and for 6 consecutive years g Public Bank received the Platinum Corporate of the Year 2007 in from 2002 to 2007. Award in the Overall Excellence Award Asiamoney’s 2007 Best Managed (for the most outstanding annual Companies Awards by countries. g Public Bank was named the Best reporting of the year) in the National Domestic Bank in Malaysia 2008 by Annual Corporate Report Awards Most Convincing and Coherent Asiamoney, this being the seventh (“NACRA”) 2008. Strategy time that it was conferred this Award, This was the ninth time that Public having received the Award in 1999, g Public Bank was ranked 1st for Most Bank had received the Overall and for 4 consecutive years from Convincing and Coherent Strategy Excellence Award, having won the 2001 to 2004, and in 2007. (for Malaysia) in Euromoney’s Best Award in 1990, 1997 and for 6 Managed and Governed Companies consecutive years from 2002 to g Public Bank was named the Best – Asia Poll 2007. 2007. Bank in Malaysia 2008 by FinanceAsia, making this the tenth consecutive year g Public Bank received the NACRA since 1999 that it had won the BOARD OF DIRECTORS 2008 Industry Excellence Award for Award. Optimum Board Composition the Finance Sector (for the most outstanding annual reporting in the g Public Bank was named the Best The Board of Directors consists of nine finance industry). Domestic Bank in Malaysia for 2008 (9) Members. Two (2) of the Board by The Asset, this being the seventh Members are Executive Directors while This was the thirteenth time that consecutive year since 2002 that it seven (7) are Non-Executive Directors. Six Public Bank had received the Industry had received the Award. (6) of the Non-Executive Directors fulfill Excellence Award for the Finance the criteria of independence as defined in Sector, having won the Award in g Public Bank was named Bank of the the Bursa Securities Listing Requirements 1990, and for 11 consecutive years Year for Malaysia 2008 by The and the BNM Guidelines on Corporate from 1997 to 2007. Banker; this marks the third time that Governance for Licensed Institutions Public Bank was conferred this Award (Revised BNM/GP1). The size of the Best Returns to Shareholders after having received the Award in Board is appropriate for the complexity g Public Bank was adjudged the Overall 2001 and 2005. and scale of operations of the Bank. The Winner and received the Award for high proportion of Independent Non- Best Returns to Shareholders in the g Public Bank was named the Best Executive Directors (two-thirds) provides inaugural Malaysian Business – Retail Bank in Malaysia for 2007 by for effective check and balance in the Chartered Institute of Management The Asian Banker, this being the fifth functioning of the Board. Accountants (CIMA) Enterprise time for Public Bank, having received Governance Awards 2008. the Award in 2001, 2003, 2004 and The Independent Non-Executive Directors 2005. do not engage in the day-to-day Best Asian Bank management of the Company and do not participate in any business dealings and g Public Bank was named the Best g Public Bank was named the Best are not involved in any other relationship Asian Bank in 2008 by FinanceAsia. Bank in Malaysia for 2008 by Alpha South East Asia for the second with the Company. This is to facilitate the consecutive year. Independent Non-Executive Directors to

70 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD discharge their duties and responsibilities private sector and was appointed as and the Company Directors’ Code of effectively, void of conflict of interest Chairman/Director of several large public Ethics established by the Companies situations. listed corporations. He is a Member of Commission of Malaysia. the Economic Council, recently formed by Tan Sri Dato’ Sri Dr. Teh Hong Piow, the the Government to address the adverse Founder and Chairman of Public Bank, effects of the global financial slowdown Duties and Responsibilities of the has been acclaimed as a Banking on the economy. He is also a Senior Board Grandmaster. He is also an exceptionally Member of the Working Group of the The Board’s core responsibilities include outstanding and accomplished leader and Executive Committee for the Economic the review and approval of the Bank’s businessman. Since embarking on his Council engaged in the formulation and strategies, business plans, significant financial odyssey 59 years ago, he has implementation as well as monitoring of policies, and the monitoring of the carved out an eminent career in banking, the Economic Stabilisation Plan (ESP) of Management’s performance in and has successfully led Public Bank to the Government. implementing them. become a formidable banking group not only in Malaysia but also within the Asia The Board of Directors had on 30 July The Board Members in carrying out their Pacific region. Tan Sri Dato’ Sri Dr. Teh 2008, pursuant to approval obtained from duties and responsibilities, exercise great Hong Piow has been accorded many BNM, appointed Quah Poh Keat as a care to ensure that high ethical standards prestigious awards in recognition of his new Member of the Board. The are upheld, and that the interests of significant contributions to the banking appointment of Quah Poh Keat as an stakeholders are always taken into and finance industries, and for his socio- Independent Non-Executive Director would consideration. The Directors are constantly economic development initiatives. contribute positively to the Board as he is mindful that the interests of the Bank’s a chartered accountant with experience in customers, the business community, Tan Sri Dato’ Sri Tay Ah Lek, the the areas of accounting, tax and various investors and all other stakeholders are Managing Director/Chief Executive Officer, business industries. always well protected. being a pioneer staff of Public Bank, has thorough expertise and extensive The other four (4) Independent Non- The six (6) Independent Directors, by knowledge of the Bank’s business and Executive Directors are professionals in virtue of their roles and responsibilities, in operations. He is the Chairman of the their own right with wide-ranging effect represent minority shareholders’ Association of Finance Companies of experiences, skills and expertise in interests in Public Bank. The Independent Malaysia and the Association of Hire banking, accounting, economics and Directors engage proactively with the Purchase Companies Malaysia. Dato’ Lee business management. Management and with both the external Kong Lam, the Executive Director, had as well as the internal auditors. This is served BNM for 29 years during which The Members of the Board are persons particularly so in the case of Tan Sri Dato’ time he had assumed several senior of high calibre and integrity, and they Thong Yaw Hong who is the Chairman of management positions. His extensive possess the necessary qualifications, the Audit Committee and Risk Management experience and depth of knowledge experience and qualities that enable them Committee; Dato’ Haji Abdul Aziz who is working in the have to perform their duties effectively. the Co-Chairman of the Audit Committee enhanced his role as the Executive and Risk Management Committee; and Director of Public Bank. Dato’ Yeoh Chin Kee who is the Chairman Directors’ Code of Ethics of the Credit Risk Management The Independent Non-Executive The Directors continue to adhere to a Committee. Co-Chairman, Tan Sri Dato’ Thong Yaw code of ethics based on the code of Hong, is well regarded and highly conduct expected of Directors of financial The Independent Non-Executive prominent in both the public and private institutions as set out in the BNM/GP7- Co-Chairman, Tan Sri Dato’ Thong Yaw sectors. He had, while serving the Part 1 Code of Ethics: Guidelines on the Hong, is the designated Senior Government for 30 years, held various Code of Conduct for Directors, Officers Independent Non-Executive Director to distinguished and senior positions. Upon and Employees in the Banking Industry, whom concerns relating to the Bank may retiring from public service, he joined the be conveyed by shareholders and other stakeholders.

Statement On Corporate Governance 71 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The principal responsibilities of the Board Board Meetings and Supply of The Board meetings are chaired by the include the following: Information Independent Non-Executive Co-Chairman, Tan Sri Dato’ Thong Yaw Hong. g Formulates the Bank’s annual business Board meetings are conducted very plans, and the medium-term and long- regularly, at least 16 times a year. In Board meetings are conducted in term strategic plans addition to monthly Board meetings, the accordance to a structured agenda. The Board also convenes immediately upon g Approves the Bank’s annual budget agenda for each Board meeting and the finalisation of the Bank’s quarterly and and carries out periodic review of the papers relating to the agenda items are annual results to review and approve the progress made by the various disseminated to all Directors at least 5 results for submission to BNM. Board operating divisions against their days before the Board meeting. This is to meetings are also held when warranted respective business targets accord sufficient time for the Directors to by situations such as to deliberate urgent review the Board papers and seek proposals or matters that require the g Prescribes the minimum standards clarifications that they may require from expeditious direction of the Board. and establishes policies on the the Management or the Company management of credit risks and other Secretary. Urgent papers may be At the monthly Board meetings, the Board key areas of the Bank’s operations presented and tabled at the Board reviews management reports on the g meetings under supplemental agenda. Oversight of the Bank’s business business performance of the Bank and operations and financial performance major subsidiaries, and reviews, inter-alia, The Board meeting papers are presented the results compared to the preceding g Ensures that the operating in a concise and comprehensive format. month and year-to-date, and also the infrastructure, systems of control, Board meeting papers tabled to Directors comparison against pro-rated business systems for risk management, financial include progress reports on business targets and against the industry. As part and operational controls, are in place operations; detailed information on of the integrated risk management and properly implemented business propositions and corporate initiatives, the Board also peruse the proposals including where relevant, g Undertakes various functions and decisions and salient issues deliberated supporting documents such as risk responsibilities as specified in by Board Committees and several main evaluations and professional advice from guidelines and directives issued by Management Committees through minutes solicitors or advisers. In order to maintain BNM from time to time of these committees. Members of the confidentiality, meeting papers on issues Board deliberate, and in the process, or corporate proposals which are deemed The Directors are at liberty to obtain evaluate the viability of business material and price-sensitive, would be independent professional advice when propositions and corporate proposals and handed out to Directors at the Board deemed necessary for the proper the principal risks that have significant meeting itself. discharge of their duties; such professional impact on the Bank’s business or on its fees incurred will be borne by the Bank. financial position, and the measures to Board meetings for each financial year mitigate such risks. The Board also are scheduled well ahead before the end The terms of reference of the assesses various types of credit of the preceding financial year so that the Non-Executive Chairman and the propositions and matters that are required Directors can plan accordingly and fit the Independent Non-Executive Co-Chairman to be submitted to the Board for year’s Board meetings into their respective are distinct and separate from the duties concurrence or approval, in accordance schedules. and responsibilities of the Managing with the guidelines issued by BNM. Director/Chief Executive Officer. This The Directors have a duty to declare ensures a balance of power and authority The Chairman of the Audit Committee immediately to the Board should they in an effective Board which, in the case would inform the Directors at Board have any interest in transactions to be of Public Bank, is both supportive of and meetings, of any salient matters noted by entered into directly or indirectly with the challenging for the Management. the Audit Committee and which require Bank. The interested Director would serve the Board’s notice or direction. notice to the Board and thereupon abstain from deliberations and decisions of the

72 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Board on the transaction. In the event a directives issued by regulatory authorities, and the resultant implications to the Company corporate proposal is required to be and the Directors in relation to their duties and responsibilities. The Company Secretary approved by shareholders, the interested briefs the Board on the proposed contents and timing of material announcements to be Directors will abstain from voting in made to Bursa Securities. The Company Secretary also serves notice to Directors on respect of their shareholdings in Public the closed period for trading in Public Bank shares, in accordance with the black-out Bank on the resolutions relating to the periods stated in Chapter 14 on Dealings in Securities of the Bursa Securities Listing corporate proposal, and will further Requirements. The Company Secretary ensures that all Board meetings are properly undertake to ensure that persons convened, and that accurate and proper records of the proceedings and resolutions connected to them similarly abstain from passed are recorded and maintained in the statutory register at the registered office of voting on the resolutions. the Bank.

Minutes of each Board meeting are The Directors are fully committed and dedicated as well as motivated in their roles as circulated to all Directors for their perusal Directors of the Bank as reflected by their full attendance at Board meetings held prior to confirmation of the minutes to be during the financial year ended 31 December 2008. done at the commencement of the following Board meeting. The Directors A total of 16 Board meetings were held during the financial year ended 31 December may request for clarification or raise 2008 on dates as stated below: comments before the minutes are tabled for confirmation as a correct record of proceedings of the Board. Percentage of Attendance

The Board has direct access to the Senior Independent Non-Independent Management and has full and immediate Date of Board Meeting Directors Directors access to information relating to the 9 January 2008 100% 100% Bank’s business and affairs in the discharge of their duties. The Directors 30 January 2008 100% 100% may require to be furnished with additional 27 February 2008 100% 100% information or clarification on matters 27 March 2008 100% 100% tabled at Board meetings. The Chief 7 April 2008 100% 100% Operating Officers and Senior Management Officers are invited to attend the Board 30 April 2008 100% 100% meetings to report to the Board on 28 May 2008 100% 100% matters relating to their areas of 25 June 2008 100% 100% responsibility, and also to brief and provide 8 July 2008 100% 100% details to the Directors on recommendations submitted for the Board’s consideration. 30 July 2008 100% 100% The Chief Financial Officer is also invited 27 August 2008 100% 100% to attend Board meetings to brief the 25 September 2008 100% 100% Board on financial guidelines issued by BNM, new accounting standards and 9 October 2008 100% 100% matters relating to the finance portfolio. 29 October 2008 100% 100% 26 November 2008 100% 100% The Directors have ready and unrestricted 31 December 2008 100% 100% access to the advice and services of the Company Secretary. The Board is regularly updated and advised by the Company Secretary who is very experienced, skillful and knowledgeable, on new statutes and

Statement On Corporate Governance 73 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Training and Development of Directors Appointment of Board Members The Directors have participated in conferences, seminars and training programmes to and Terms of Reference of keep abreast with inter-alia financial sector issues and challenges, and the current and Nomination Committee future developments in the global . Pursuant to provisions of the Banking and Financial Institutions Act, 1989 (“BAFIA”) Several Members of the Public Bank Board are participating in the Financial Institutions and guidelines issued by BNM, the Directors Education programme developed by BNM in collaboration with Perbadanan appointment of a new Director and the Insurans Deposit Malaysia and the International Centre for Leadership in Finance; the re-appointment of Directors upon the programme is aimed at promoting high impact boards in financial institutions. expiry of their respective tenures of office as approved by BNM, are subject to the The Directors also keep up-to-date with market developments and related issues prior approval of BNM. through monthly Board luncheon discussion meetings with the Chief Operating Officers and other Senior Management Officers, and through the Bank’s bi-annual management The Nomination Committee will review seminars. These provide the platforms to disseminate emergent strategic directions and and assess the proposed re-appointment ideas as well as intellectual interactions which enhance the knowledge and relevance of Directors, and thereupon recommend of the Directors. to the Board for approval that an application be submitted to BNM. Conferences, seminars and training programmes attended by Directors in 2008 and early 2009 are as follows: Public Bank’s Nomination Committee comprises entirely of Independent Non- Executive Directors; all the six (6) Independent Non-Executive Directors are Corporate g Directors’ Duties & Liabilities – Beyond Compliance Members of the Nomination Committee. Governance g Directors’ Performance Evaluation – Building a High Performance Board The terms of reference of the Nomination g Leading from the Board – Directors to Take Long Term Committee are as follows: View g To establish the minimum requirements g Oversight of Risk Management – Considering the Audit on the skills, knowledge, expertise, Committee’s Role and Responsibilities experience, qualifications and other g Effective Corporate Social Responsibility core competencies of a Director and of the Chief Executive Officer (“CEO”) Role of an g Role of Board in Changing Financial, Legal, Regulatory Effective and Business Environment g To assess and recommend to the Board technically competent persons Board g Practices and Processes that Promote/Impede Effective of integrity with strong sense of Boardroom Deliberations professionalism and who foster and g Role of the Board in Enterprise-Wide Risk Management practise the highest standard of banking and finance in the country for appointment as Directors/CEO Islamic g Current and Future Prospects of Islamic Banking Banking g Enhancing the Resilience and Stability of the Islamic g In the case of persons for the position Financial System of Independent Non-Executive Director, to evaluate the persons’ ability to g Islamic Alternative Strategy Funds and Venture Capital discharge such responsibilities/ functions as expected from Accounting g Basel II in the Asia Pacific Banking Sector Independent Non-Executive Directors & Economics g Advanced Consolidation Principles g Mid-Term Review of the 9th Malaysia Plan

74 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD g To assess and recommend to the g To recommend to the Board the professional qualifications, experience and Board, the re-appointment of Directors/ removal of a Director/CEO if he is qualities; furthermore, all the Directors CEO upon the expiry of their ineffective, errant or negligent in have been assessed as meeting the “fit respective terms of appointment as discharging his responsibilities and proper” criteria established by BNM approved by BNM in the BAFIA and the Guidelines on g To oversee the appointment, Corporate Governance for Licensed g To oversee the overall composition of management succession planning and Institutions (Revised BNM/GP1). the Board in terms of appropriate performance evaluation of the key size, required mix of skills, experience Senior Management Officers The Nomination Committee has also upon and core competencies, and adequacy g To recommend to the Board the its recent annual review carried out, of balance between Executive removal of key Senior Management concluded that all the Directors have Directors, Non-Executive Directors Officers if they are ineffective, errant received training during the financial year and Independent Directors through or negligent in discharging their ended 31 December 2008 that is relevant annual review responsibilities and would serve to enhance their g To determine annually whether a effectiveness in the Board and the Audit g To assess and recommend to the Director is independent as may be Committee. Board, the terms of reference of defined in the guidelines issued by Board Committees and to review the BNM and in the Bursa Securities Meetings of the Nomination Committee adequacy of committee structure of Listing Requirements are held as and when required, and at Board Committees least once a year. The Members registered g To establish the mechanisms for the g To assess and recommend to the full attendance at all meetings held by the formal assessment on the effectiveness Board persons of acceptable Nomination Committee in 2008. of the Board as a whole; the reputation, character, integrity and effectiveness of each Director; and possess necessary knowledge, the performance of the CEO. The expertise or experience in Islamic Directors’ Remuneration and Terms annual assessment to be conducted jurisprudence (Usul al-Fiqh) or Islamic of Reference of Remuneration would be based on objective transaction/commercial law (Fiqh al- performance criteria as approved by Committee Mu’amalat) for appointment as the Board The Remuneration Committee carries out members of the Bank’s Shariah the annual review of the overall g To assess, on an annual basis, that Committee subject to the approval of remuneration policy for Directors, CEO the Directors/CEO and key Senior BNM and key Senior Management Officers Management Officers are not g To carry out such other responsibilities whereupon recommendations are disqualified under Section 56 of the as may be specified by BNM or submitted to the Board for approval. The BAFIA and that the Directors and delegated by the Board from time to Remuneration Committee and the Board CEO continue to comply with the time ensure that the Bank’s remuneration policy standards for “fit and proper” criteria remains supportive of the Bank’s corporate as approved by the Board The Nomination Committee upon its objectives and is aligned with the interest g To ensure that all Directors receive recent annual review carried out, is of shareholders, and further that the appropriate continuous training satisfied that the size of the Public Bank remuneration packages of Directors, CEO programmes in order to broaden their Board is optimum and that there is and key Senior Management Officers are perspectives and to keep abreast with appropriate mix of knowledge, skills, sufficiently attractive to draw in and to developments in the market place and attributes and core competencies in the retain persons of high calibre. with changes in new statutory and composition of the Board. The Nomination regulatory requirements Committee is satisfied that all the Members of the Board are suitably qualified to hold their positions as Directors of Public Bank in view of their respective academic and

Statement On Corporate Governance 75 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The Remuneration Committee reviews annually the performance of the CEO and the Executive Director and submits recommendations to the Board on specific adjustments in remuneration and/or reward payments that reflect their respective contributions for the year, and which are competitive and are in tandem with the Bank’s corporate objectives, culture and strategy.

The Board as a whole determines the remuneration of Non-Executive Directors, and each individual Director abstains from the Board decision on his own remuneration.

The Directors are paid annual fees, and attendance allowance of RM1,000 each for every Board meeting that they attend.

Details of the Directors’ remuneration (including benefits-in-kind) for each Director during the financial year 2008 are as follows:

RM’000 Other Benefits-in-kind Salary Fees Bonus Emoluments ESOS Others Total

Executive Directors Tan Sri Dato’ Sri Tay Ah Lek 936 125 2,702 850 — 37 4,650 Dato’ Lee Kong Lam 816 125 2,002 665 — 36 3,644 1,752 250 4,704 1,515 — 73 8,294 Non-Executive Directors Tan Sri Dato’ Sri Dr. Teh Hong Piow — 170 — 6,303 — 88 6,561 Tan Sri Dato’ Thong Yaw Hong — 170 — 371 — 25 566 Dato’ Yeoh Chin Kee — 125 — 82 — — 207 Y.A.M. Tengku Abdul Rahman Ibni Sultan — 125 — 82 — — 207 Haji Ahmad Shah Al-Mustain Billah Dato’ Haji Abdul Aziz bin Omar — 125 — 100 — — 225 Dato’ Dr. Haji Mohamed Ishak bin — 125 — 82 — — 207 Haji Mohamed Ariff Quah Poh Keat* — 52 — 35 — — 87 — 892 — 7,055 — 113 8,060

Total 1,752 1,142 4,704 8,570 — 186 16,354

* Appointed as Director with effect from 30 July 2008

The Remuneration Committee is made up The terms of reference of the Remuneration contributions to the Bank’s growth entirely of Independent Non-Executive Committee are as follows: and profitability; and that the Directors; all the six (6) Independent Non- remuneration policy supports the g To review annually and recommend to Executive Directors are Members of the Bank’s objectives and shareholder the Board the overall remuneration Remuneration Committee. value and is consistent with the Bank’s policy for Directors, CEO and key culture and strategy Senior Management Officers to ensure that rewards commensurate with their

76 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD g To review annually the performance of Re-Appointment and Re-Election of Directors the CEO and the Executive Director Pursuant to Section 129(2) of the Companies Act, 1965, Directors who are over the and recommend to the Board specific age of seventy (70) years shall retire at every annual general meeting and may offer adjustments in remuneration and/or themselves for re-appointment to hold office until the next annual general meeting. reward payments if any, reflecting their contributions for the year; and The Articles of Association of Public Bank provide that at every annual general meeting which are competitive and consistent of Public Bank, one-third of Directors for the time being and those appointed during with the Bank’s objectives, culture the financial year shall retire from office and shall be eligible for re-election. The Articles and strategy further provide that all Directors shall retire from office once at least in each three (3) g To ensure that the level of remuneration years but shall be eligible for re-election. for Non-Executive Directors and Independent Directors are linked to The re-appointment and re-election of Directors at the annual general meeting of Public their level of responsibilities undertaken Bank is subject to BNM’s prior approval being obtained for the Director to continue to and contributions to the effective hold office. functioning of the Board g Keeps abreast of the terms and conditions of service of the CEO, the BOARD COMMITTEES Executive Director and key Senior The Board has established several Board Committees whose compositions and terms Management Officers including their of reference are in accordance with the BNM Guidelines on Corporate Governance for total remuneration package for market Licensed Institutions (Revised BNM/GP1) as well as the best practices prescribed by comparability; and reviews and the Malaysian Code on Corporate Governance (Revised 2007). recommends changes to the Board whenever necessary The functions and terms of reference of Board Committees and Management Committees, as well as authority delegated by the Board to these Committees, are clearly defined g Keeps abreast of the remuneration by the Board. packages for Members of Board Committees to ensure that they The Board Committees in Public Bank are as follows: commensurate with the scope of responsibilities held and reviews and g Board Executive Committee recommends changes to the Board g Audit Committee whenever necessary g Nomination Committee g To determine the remuneration of the g Remuneration Committee members of the Bank’s Shariah g Risk Management Committee Committee, which shall be commensurate with and reflective of The composition of the Board Committees and the attendance of Members at Board the roles and functions of the Shariah Committees meetings held in 2008 are reflected as follows: Committee

Meetings of the Remuneration Committee Board Executive Committee are held as and when necessary, and at least once a year. The Members registered Attendance at Meetings full attendance at all meetings held by the Tan Sri Dato’ Sri Dr. Teh Hong Piow – Chairman 98/98 Remuneration Committee in 2008. (Non-Executive) Tan Sri Dato’ Sri Tay Ah Lek 94/98 (Managing Director/Chief Executive Officer) Dato’ Lee Kong Lam 97/98 (Executive Director)

Statement On Corporate Governance 77 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Audit Committee Attendance at Meetings Tan Sri Dato’ Thong Yaw Hong – Chairman 16/16 (Independent Non-Executive) Dato’ Haji Abdul Aziz bin Omar – Co-Chairman 16/16 (Independent Non-Executive) Dato’ Yeoh Chin Kee 16/16 (Independent Non-Executive) Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Al-Mustain Billah 16/16 (Independent Non-Executive) Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff 16/16 (Independent Non-Executive) Quah Poh Keat* 6/6 (Independent Non-Executive) * Appointed as Member with effect from 30 July 2008

Nomination Committee Attendance at Meetings Tan Sri Dato’ Thong Yaw Hong – Chairman 10/10 (Independent Non-Executive) Dato’ Yeoh Chin Kee 10/10 (Independent Non-Executive) Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Al-Mustain Billah 10/10 (Independent Non-Executive) Dato’ Haji Abdul Aziz bin Omar 10/10 (Independent Non-Executive) Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff 10/10 (Independent Non-Executive) Quah Poh Keat* 3/3 (Independent Non-Executive) * Appointed as Member with effect from 30 July 2008

78 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Remuneration Committee Attendance at Meetings Tan Sri Dato’ Thong Yaw Hong – Chairman 5/5 (Independent Non-Executive) Dato’ Yeoh Chin Kee 5/5 (Independent Non-Executive) Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Al-Mustain Billah 5/5 (Independent Non-Executive) Dato’ Haji Abdul Aziz bin Omar 5/5 (Independent Non-Executive) Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff 5/5 (Independent Non-Executive) Quah Poh Keat* 4/4 (Independent Non-Executive) * Appointed as Member with effect from 30 July 2008

Risk Management Committee Attendance at Meetings Tan Sri Dato’ Thong Yaw Hong – Chairman 12/12 (Independent Non-Executive) Dato’ Haji Abdul Aziz bin Omar – Co-Chairman 12/12 (Independent Non-Executive) Dato’ Yeoh Chin Kee 12/12 (Independent Non-Executive) Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Al-Mustain Billah 12/12 (Independent Non-Executive) Dato’ Dr. Haji Mohamed Ishak bin Haji Mohamed Ariff 12/12 (Independent Non-Executive) Quah Poh Keat* 5/5 (Independent Non-Executive) * Appointed as Member with effect from 30 July 2008

Statement On Corporate Governance 79 2008 ANNUAL REPORT PUBLIC BANK BERHAD The salient terms of reference and g Remuneration Committee MANAGEMENT COMMITTEES frequency of meetings of the Board • The terms of reference of the The Board has also established various Committees are as follows: Remuneration Committee are set Management Committees to assist it in g Board Executive Committee out in the paragraph on “Directors’ the running of the Bank. Remuneration and Terms of • Manages the Bank in all aspects Reference of Remuneration of its business The main Management Committees are as Committee” in this Statement on follows: • Implements strategic business Corporate Governance plans and policies as approved by g Group Human Resource Committee • The Remuneration Committee the Board of Directors g Credit Committee meets as and when required, and • Identifies, formulates and prioritises at least once a year g Credit Risk Management Committee strategic issues and charts g Operational Risk Management strategic directions for action by g Risk Management Committee Committee the Management and staff • Oversees the overall management g Assets & Liabilities Management • The Board Executive Committee of all risks covering market risk Committee holds meetings with Heads of management, liquidity risk g Share Investment Committee Divisions and Senior Management management, credit risk g IT Steering Committee staff twice every week management and operational risk management g Business Continuity Management g Audit Committee Committee • Reviews and approves risk • The terms of reference of the management policies and risk The salient terms of reference and Audit Committee are set out under tolerance limits the Audit Committee Report frequency of meetings of the main • Ensures infrastructure, resources, Management Committees are as follows: • The Audit Committee meets at processes and systems are in least once a month place for risk management g Group Human Resource Committee • The Risk Management Committee • Formulates human resource g Nomination Committee holds monthly meetings policies and practices for the • The terms of reference of the Bank and wholly-owned Nomination Committee are set out subsidiaries of the Bank in the paragraph on “Appointment • Deliberates and decides on human of Board Members and Terms of resource operational issues which Reference of Nomination do not fall within the ambit of Committee” in this Statement on authorised individual officers Corporate Governance • The Group Human Resource • The Nomination Committee meets Committee holds meetings twice as and when required, and at a month least once a year g Credit Committee • Approves loan applications which are beyond the individual discretionary powers of senior officers • Recommends credit policy and direction of lending • The Credit Committee holds meetings twice every week

80 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD g Credit Risk Management Committee g Share Investment Committee Indemnification of Directors and • Evaluates and assesses the • Formulates investment strategies Officers adequacy of strategies to manage and policies relating to the Bank’s Directors and Officers are indemnified the overall credit risk associated investment in shares and interest under a Directors’ and Officers’ Liability with the Bank’s activities in shares Insurance against any liability incurred by • Evaluates risks under stress • Ensures risk processes and them in the discharge of their duties while scenarios and the capacity of the systems are put in place and that holding office as Directors and Officers of capital to sustain such risk all risks on the Bank’s investment the Company. The Directors and Officers shall not be indemnified where there is • The Credit Risk Management in shares and interest in shares any negligence, fraud, breach of duty or Committee holds monthly are clearly identified and breach of trust proven against them. meetings monitored • The Share Investment Committee g Operational Risk Management holds quarterly meetings Committee ACCOUNTABILITY AND AUDIT • Oversees the formal development g IT Steering Committee Financial Reporting of operational risk management • Formulates short term and long The Board is committed to providing a policies encompassing all business term IT plans and the budgets to balanced, clear and comprehensible activities, and ensuring the be allocated assessment of the financial performance development of policy manuals, • Ensures that the IT short term and and prospects of Public Bank and Public processes, procedures and long term strategic plans support Bank Group in all the disclosures made practices the overall organisational strategic to the stakeholders and the regulatory • Evaluates and assesses the business plan and, where authorities. adequacy of controls to manage necessary, the group IT strategic the overall operational risks plan Timely releases of announcements on associated with business activities • The IT Steering Committee holds quarterly financial statements and the including physical/premises monthly meetings press releases accompanying these security results announcements reflect the Board’s • The Operational Risk Management g Business Continuity Management commitment to provide transparent and Committee holds monthly Committee up-to-date disclosures of the performance of Public Bank and Public Bank Group. meetings • Manages the overall formulation, implementation and maintenance The Board, assisted by the Audit g Assets & Liabilities Management of the Bank’s business continuity Committee, oversees the financial Committee plan reporting process and the quality of the • Develops the framework and sets • Compiles the overall schedule for financial reporting of Public Bank Group. the objectives for the asset and carrying out the Bank’s business The Audit Committee reviews and monitors liability management function continuity plan from all Head the integrity of Public Bank’s and the • Develops adequate policies, Office Divisions (including Group’s annual and interim financial procedures and internal control branches and IT systems) and statements. It also reviews the measures for the carrying out of plans for its testing at least once appropriateness of the Bank’s and the the asset and liability management a year or as and when Group’s accounting policies and the function appropriate changes to these policies. • The Assets & Liabilities • The Business Continuity Management Committee holds Management Committee holds monthly meetings meetings twice a year

Statement On Corporate Governance 81 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The Statement of Responsibility by The effectiveness of the system of internal Relationship With External Auditors Directors in respect of the preparation of controls of Public Bank and Public Bank It is the policy of the Audit Committee to the annual audited financial statements of Group is reviewed by the Audit Committee meet with the external auditors at least Public Bank and Public Bank Group is during its monthly meetings. The review twice a year to discuss their audit plan, set out on page 209 of this Annual covers the financial, operational and audit findings and Public Bank’s financial Report. compliance controls as well as the risk statements. These meetings are held management functions. Internal Audit without the presence of the Executive Division monitors compliance with policies Directors and the Management. The Audit and standards and the effectiveness of Related Party Transactions Committee also meets with the external internal control structures across the All related party transactions are reviewed auditors whenever it deems necessary. In Group. by the internal auditors on a monthly basis addition, the external auditors are invited and a report on the reviews conducted is to attend the annual general meeting of The Statement on Internal Control, which submitted to the Audit Committee for the Bank and are available to answer provides an overview of the state of their monitoring on a quarterly basis. shareholders’ questions on the conduct of internal controls within the Group, is set the audit and the preparation and content out on pages 98 and 99 of this Annual Details of these transactions are set out of the audit report. Report. under Notes to the Financial Statements on pages 313 to 317 of this Annual The Audit Committee is responsible for Report. approving audit, recurring audit-related Audit Committee and non-audit services provided by the In addition to the duties and responsibilities external auditors. These recurring audit- Internal Control set out under its terms of reference, the related and non-audit services comprise Audit Committee assists the Board in its regulatory reviews and reporting, interim The Board has overall responsibility for review of the effectiveness of the internal reviews, tax advisory and compliance maintaining a system of internal controls control, risk management and governance services. Terms of engagement for these that provides reasonable assurance of processes of Public Bank and Public services are reviewed by the Audit effective and efficient operations and Bank Group. The Group Chief Internal Committee and approved by the Board. compliance with laws and regulations, as Auditor is present at every Audit The Audit Committee approves all ad-hoc well as with internal procedures and Committee meeting. non-audit services on a case by case guidelines. basis. In approving such cases, the Audit The minutes of the Audit Committee Committee ensures that the independence The size and complexity of the operations meetings are tabled to the Board for and objectivity of the external auditors are of Public Bank and Public Bank Group noting and for action by the Board where not compromised. involve the acceptance and management appropriate. of a wide variety of risks. The nature of these risks means that events may occur The activities carried out by the Audit which would give rise to unanticipated or Committee during the year are set out unavoidable losses. The Bank’s and the under the Audit Committee Report on Group’s systems of internal controls are pages 103 and 104 of this Annual designed to provide reasonable and not Report. absolute assurance against the risk of material errors, frauds or losses occurring. The Risk Management Committee meets monthly to ensure that the accountability for managing the significant risks identified is clearly assigned and that identified risks affecting the Bank and the Group are being satisfactorily addressed on an ongoing basis.

82 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The details of the statutory audit, audit-related and non-audit fees paid/payable in 2008 The annual report of Public Bank remains to the external auditors are set out below: a key channel of communication with stakeholders. The contents of the annual report of Public Bank extend well beyond the Bursa Securities Listing Requirements Bank Group and other regulatory requirements of RM’000 RM’000 annual reports. As a financial institution, Public Bank prepares and presents its Fees paid/payable to KPMG financial statements in accordance with • Audit 891 1,126 BNM’s Guidelines on Financial Reporting • Audit-Related Service 158 333 for Licensed Institutions (BNM/GP8), – Half-year limited review 125 225 which set out the contents and format of – Withholding tax audit 20 20 financial statements of financial institutions – Review of Statement on Internal Control 13 13 and which mandate a significantly higher – Others — 75 level of disclosure of financial and risk management information than that of non- • Non-Audit Service* 52 124 financial corporations generally. The extensive BNM/GP8 information contents Fees paid/payable to other auditors and disclosure requirements also extend • Audit — 1,652 to financial institutions’ quarterly Bursa • Audit-Related Service — 91 Securities results announcements, thereby – Interim review 62 enhancing the transparency level of – Withholding tax audit 6 financial institutions generally. – Review of Statement on Internal Control 23 Public Bank also provides a separate • Non-Audit Service* — 59 executive summary together with its annual report in CD format, highlighting key Total 1,101 3,385 financial and corporate information, to facilitate shareholders’ easy access to * The non-audit fees paid/payable to the external auditors were for advice on such key information. taxation matters and for preparation, review and submission of tax returns. The provision of these services by the external auditors to the Bank and Group An important forum for communication were cost effective and efficient due to their knowledge and understanding of and dialogue with shareholders is the the operations of the Bank and the Group, and did not compromise their general meetings of Public Bank, where independence and objectivity. shareholders are given both the opportunity and the time to raise questions on the agenda items of the general meetings and EFFECTIVE As part of fulfilling its corporate governance where Directors and Senior Management Officers of Public Bank would provide the COMMUNICATIONS WITH obligations, the Public Bank Group maintains a high level of disclosure and answers and appropriate clarifications. SHAREHOLDERS extensive communication with its A key element of good corporate stakeholders with the provision of clear, governance is being transparent and comprehensive and timely information accountable to all stakeholders. Underlying through a number of readily accessible these transparency and accountability channels. This is particularly important to objectives is the communication of clear, shareholders and investors for informed relevant and comprehensive information investment decision making particularly in which is timely and which is readily periods of financial turmoil and extreme accessible by all stakeholders. volatility in the market place.

Statement On Corporate Governance 83 2008 ANNUAL REPORT PUBLIC BANK BERHAD

At the annual general meetings of Public Public Bank conducts separate media pursuant to the disclosure requirements Bank, the Chairman of Public Bank and analysts briefings upon the release of of Bursa Securities Listing Requirements presents a comprehensive review of the its half year and annual results and other corporate information are financial performance of the Public Bank announcements. The media briefings are available on Public Bank’s website, www. Group and value created for shareholders. intended not only to promote the publicbank.com.my. This review is supported by visual and dissemination of the financial results of graphical presentation of key points and the Public Bank Group to as wide an Prompt and timely information is essential financial figures. Printed copies of this audience of investors and shareholders as for shareholders and investors to make review of the Group’s financial performance possible, but also to keep the investing informed investments decisions. Information by the Chairman of Public Bank are also public and shareholders updated on the that is out of date, albeit comprehensive made available to shareholders upon their progress and development of the business and accurate, would be less useful for request and to the media. The turnout of of the Group. In addition, the Group also such investment purposes. As such, the shareholders at general meetings of Public provides press releases to the media on Public Bank Group accords a high priority Bank has always been high, a clear all significant corporate developments and to making available and disseminating indication of the extensive engagement of business initiatives. information as early as possible. The shareholders. A total of 3,000 and 3,400 release of periodic financial information shareholders attended the annual general To maintain as high a level of transparency such as the issuance of Public Bank’s meetings held in 2007 and 2008 as possible, all corporate and financial annual report and the Group’s quarterly respectively. information that is made public, such as financial results are generally earliest the annual report of Public Bank, the amongst large listed companies and are quarterly announcement of the financial always well ahead of the deadlines results of the Public Bank Group, specified in the Bursa Securities Listing announcements and disclosures made Requirements.

Release of Annual Report and Quarterly Financial Results Number of Days Date of Issue/ after end of Bursa Securities Release Year/Quarter Deadline

Annual Report 2008 3 February 2009 34 30 June 2009 Annual Report 2007 4 February 2008 35 30 June 2008

2008 Quarterly Results 1st Quarter 14 April 2008 14 31 May 2008 2nd Quarter 17 July 2008 17 31 August 2008 3rd Quarter 14 October 2008 14 30 November 2008 4th Quarter 20 January 2009 20 28 February 2009

The Public Bank Group has been able to achieve such early issuance of annual reports and releases of quarterly financial results despite the additional regulatory requirements that need to be complied with, including significantly higher level of disclosures of financial information, and the requirement of the approval of the Group’s annual financial statements and quarterly financial results by BNM prior to release to the public. The prompt and timely availability of information clearly enhances the value of such information to shareholders and investors and reflects the high standard of transparency that the Group seeks to achieve.

84 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD INVESTOR RELATIONS Public Financial Holdings Limited The extensive investor relations activities g Tan Yoke Kong, Executive Director of the Public Bank Group forms an important channel of communications with Public Bank conducts briefings of the media and equity research analysts and fund shareholders, investors and the investment managers immediately upon the release of the Public Bank Group’s half yearly and community broadly, both in Malaysia and annual results announcements. The information presented at these briefings are posted internationally. The Group has a strong on Public Bank’s website, www.publicbank.com.my, after the briefing to promote following amongst domestic and accessibility of information to all market participants. international institutional investors, fund managers and equity research analysts, Representatives of the Public Bank Group also conduct presentations and investor and a direct channel to them exists in the meetings at investor conferences or forums domestically, regionally and internationally. investor relations function of the Group. In addition, management personnel responsible for investor relations activities meet regularly with a high number of equity research analysts, fund managers, institutional It is particularly important to maintain an shareholders and investors on a one-on-one basis as well as host teleconferences with active level of dialogue and communication them. with shareholders and investors in the light of the current financial turmoil affecting global markets and the extremely Investor Relations Activities in 2008 volatile market conditions as shareholders Number Number of and investors would be monitoring their attended/hosted Investors Met investments more closely and require more up-to-date information in such trying Investors Conferences/Forums/ conditions. Roadshows 9 173

The very senior level of management Direct one-to-one Meetings 165 222 personnel responsible for the Public Bank Group’s investor relations function reflects Teleconferences Hosted 8 — the commitment of the Group to maintaining strong investor relations, as well as being able to provide views and The high level of investor interest in Public Bank and the extensive investor relations information on the Group that is activities of the Public Bank Group have resulted in the Group being widely covered appropriate and substantive to investors by stock brokerages and equity research companies. This is reflected in the high and equity research analysts. number of contributors to the Bloomberg earnings estimates for Public Bank.

Senior Management Personnel in Investor Relations Activities Public Financial Public Bank Public Bank Holdings Ltd g Tan Sri Dato’ Sri Tay Ah Lek, No. of contributors to Bloomberg Managing Director/Chief Executive earnings estimates 23 6 Officer g Leong Kwok Nyem, Chief Operating Officer g Wong Jee Seng, Chief Operating Officer g Nasaruddin Arshad, Group Economist g Chang Siew Yen, Chief Financial Officer

Statement On Corporate Governance 85 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Public Bank also has an Investor Relations Unit within the Bank’s Economics & Corporate Planning Division as a one-stop centre for the management of investor relations activities to further improve accessibility by equity research analysts, fund managers and institutional shareholders and investors to the Public Bank Group.

The significant level of resources in terms of time and human capital allocated to the investor relations function of the Public Bank Group is again a reflection of the commitment of the Group to achieve a high standard of communication with, and a high level of transparency to its shareholders and the investment community.

Primary Contacts for Investor Relations Matters

PUBLIC BANK

Leong Kwok Nyem Wong Jee Seng Chief Operating Officer Chief Operating Officer

Leong Kwok Nyem is an accountant by profession and was Wong Jee Seng is an accountant by profession. He joined attached to the accounting and auditing industry for 8 years Public Bank in 1993 as a Manager in Finance Division. He before joining the Public Bank Group in 1988. Attached was subsequently promoted Senior Manager in 1997 and initially to the Finance Division in Head Office, he was transferred to Treasury Division in 1998. He was promoted transferred to Public Finance Limited in Hong Kong in 1990. Director of Risk Management Division in 2000. He was He returned to Head Office in 1994 and was appointed appointed General Manager in 2002 and promoted to Senior Senior General Manager in 2001 and Chief Operating Officer General Manager in 2006 and Chief Operating Officer in in 2008. 2008.

Contact Details Contact Details Telephone number: 603-21766270 Telephone number: 603-21766320 E-mail: [email protected] E-mail: [email protected]

86 Statement On Corporate Governance 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Primary Contacts for Investor Relations Matters

PUBLIC FINANCIAL HOLDINGS LIMITED Tan Yoke Kong Executive Director

Tan Yoke Kong is an accountant by profession. He was appointed a Director of Public Financial Holdings Limited in 1992 and has more than 27 years of experience in the banking and finance industry, all of which were with the Public Bank Group since 1981. He is also the Chief Executive and a Director of Public Bank (Hong Kong) Limited and a Director of Public Finance Limited and is currently the Vice-Chairman of The DTC Association of Hong Kong.

Contact Details Telephone number: 852-28534228 E-mail: [email protected]

INVESTOR RELATIONS UNIT Denise Fong Po Yen Economics & Corporate Planning Division

Contact Details Telephone number: 603-21766293 E-mail: [email protected]

This Statement on Corporate Governance is made in accordance with the resolution of the Board of Directors dated 9 January 2009.

TAN SRI DATO’ SRI DR. TEH HONG PIOW Chairman

Statement On Corporate Governance 87 2008 risk management ANNUAL REPORT PUBLIC BANK BERHAD OVERVIEW OVERALL RISK MANAGEMENT FRAMEWORK The Public Bank Group’s continued focus The Public Bank Group’s risk management infrastructure provides clear accountability on enhancing risk management capabilities and responsibility for the risk management process which sets out the principal risk and proactive management of key areas management and control responsibilities: of credit, market, liquidity and operational risks has mitigated the impact arising from the spillover effects of the turbulence in the global financial markets on the ESTABLISH RISK Board of Directors Group’s operating performance. These APPETITE & key risks are comprehensively dealt with POLICY Risk Management Committee and systematically managed within established limits and controls, and supported by the prudent risk management Dedicated Committees culture across the Group. The Group’s enterprise-wide risk management Assets & Liabilities Management Committee framework emphasises effective risk Credit Risk Management Committee management in the enhancement of risk- Operational Risk Management Committee return as a critical success factor for ENSURE sustainable profitability, strong asset IMPLEMENTATION Independent Risk Management and Control quality and optimising shareholders’ OF RISK POLICY Units value. AND COMPLIANCE Banking Operations Division The Public Bank Group continues to Credit Administration & Supervision Division pursue Group-wide efforts to instill a risk par excellence culture across all levels of Internal Audit Division

staff through effective communication, Risk Management Division AUDIT COMMITTEE training, clear policies, procedures and organisational structure, as well as clearly Business Units defined roles and responsibilities. The foundation for delivery of effective risk Corporate Lending management within the Group is the Investment Banking commitment of all employees in managing IMPLEMENT AND risks, within a rigorous risk management COMPLY WITH Islamic Banking RISK POLICY framework. and Financing Operations Share Broking and Fund Management Treasury and Capital Market Operations

The Board of Directors (“Board”) is ultimately responsible for the management of risks. The Board, through the Risk Management Committee (“RMC”), maintains overall responsibility for risk oversight within the Public Bank Group. The risk appetite statement and level of risk tolerance are set in line with the Group’s strategic direction and business objectives and these are set out in the annual Business Plans approved by the Board.

The Assets & Liabilities Management Committee, the Credit Risk Management Committee and the Operational Risk Management Committee assist the RMC in

88 Risk Management 2008 ANNUAL REPORT PUBLIC BANK BERHAD managing market and liquidity risk, credit SENIOR INTERNAL CONTROL AND RISK MANAGEMENT risk and operational risk respectively. OFFICERS These dedicated committees are responsible for reviewing risk exposure Senior Internal Control Officer and portfolio composition, and ensuring Soong Hoe Seng that infrastructure, resources and systems Soong Hoe Seng is an accountant by profession. He has a total of 34 years of audit are put in place for effective risk experience. He was attached to an audit firm prior to joining Public Bank in 1991 as management activities. Head of Internal Audit Division. He is the Group Chief Internal Auditor.

The independent risk management and Senior Risk Management Officer control functions under the Banking Lim Then Fui Operations Division, Credit Administration Lim Then Fui is an accountant by profession. He worked in Bank Negara Malaysia for & Supervision Division and Risk 18 years prior to joining the private sector. He joined Public Bank in 2001 and became Management Division provide crucial the Head of Risk Management Division in January 2007. support to the dedicated committees and are responsible for ensuring the risk policies are implemented and complied with. They are also responsible for the RISK MANAGEMENT PROCESS identification, measurement and monitoring The Public Bank Group has established, within its enterprise-wide risk management of risks. framework, a structured approach to risk management which balances risks against returns, as well as integrated risk management processes for credit risk, market and The business units, being the first line of liquidity risk, operational risk, reputation risk, strategic risk and product risk. The risk defense against risks, are responsible for management activities encompass four broad processes which lead to a balanced risk- identifying, mitigating and managing risks return framework integrated across all areas of risk. within their lines of business. These units are to ensure that their day-to-day business activities are carried out within the established risk policies, procedures Integrated Across Risk or Strategy and limits. Balance Risk Against Return d The Audit Committee, supported by the Risk Monitoring Internal Audit Division provides an Monitor and Report on Progress and Compliance independent assessment of the adequacy and reliability of the risk management d processes and system of internal controls, Risk Control and Mitigation and compliance with risk policies and Recommend Measures to Control and Mitigate Risks regulatory requirements. d It is the Public Bank Group’s policy that Risk Assessment and Measurement all risk management policies are subject Quantify and Assess Risk Impact to more frequent reviews to ensure that d they remain applicable and effective in Risk Management Activities Risk Identification managing the associated risks brought Identify, Understand and Analyse Risk d about by the ever changes in the market d and regulatory environments. Appropriate Risk Originated by Business Units changes are also made to the Group’s risk reporting framework to ensure Credit Risk Operational Risk Market Risk Liquidity Risk adequate and timely risk reporting to the risk management committees for decision Reputation Risk Strategic Risk Product Risk making.

Risk Management 89 2008 ANNUAL REPORT PUBLIC BANK BERHAD CREDIT RISK MANAGEMENT The Public Bank Group’s asset quality As at the end of 2008, the weighted improved further in 2008 reflecting the average remaining maturity of the Public Credit risk is the potential loss of revenue Group’s prudent credit culture, policies Bank Group’s trading book position was as a result of defaults by borrowers or and practices, and proactive credit risk only 2 months and comprised mainly counterparties through the Public Bank management. The Group’s net NPL ratio government securities, Cagamas bonds Group’s lending, hedging, trading and was 0.9% as at 31 December 2008 and Negotiable Instrument of Deposits. investing activities. The management of (2007: 1.2%) and currently stands at On 20 October 2008, Bank Negara credit risk is governed by a comprehensive approximately 37.5% of the banking Malaysia issued a circular titled, set of credit policies and guidelines industry’s net NPL ratio of 2.4% as at “Reclassification of Securities Under documenting the lending standards, November of 2008. Specific Circumstances” which allows discretionary power for loans approval, banking institutions to reclassify securities credit risk rating, collateral and valuation, The Public Bank Group minimises its held in the Securities Held-for-Trading review, rehabilitation and restructuring of counterparties’ exposure through portfolio to the Securities Available-for- problematic and delinquent loans. The maximising placement of its surplus funds Sale or to Securities Held-to-Maturity Group practises a stringent credit with the central banks of the countries portfolios. The Group has not reclassified appraisal system which emphasises where the Group’s entities operate. any securities in the Held-for-Trading individual accountability and clear lines of Specific guidelines governing the dealing portfolio to the Securities Available-for- responsibility, with credit control function with counterparties are counterparty limit, Sale or to Securities Held-to-Maturity undertaken independently from the loan credit quality, tenure and types of portfolios. originating units. Qualified credit personnel permissible transactions and these are are involved in all credit processes to reviewed regularly to ensure they remain The Public Bank Group maintains its ensure risks are properly identified, effective and robust as market condition policy of prohibiting exposures in trading assessed, controlled and monitored changes. To effectively manage the off-balance sheet positions or derivatives throughout the credit chain. Independent exposures of various counterparties, positions unless with prior specific credit reviews are conducted to assess exposures to the same counterparties are approval of the Board of Directors. As at the quality of credit appraisals and aggregated and monitored against the the end of 2008, the Group did not have competency of credit personnel. limits set at the operating entity and the such exposures. Group level. As at the end of 2008, The Public Bank Group continues to money market lending to counterparties improve and upgrade its credit risk constituted 37.0% of the total placements Non-Trading Market Risk management information system to enable with financial institutions, of which 3.7% timely risk analysis and reporting for Non-trading market risk arises from is lending to non-Malaysian counterparties. effective decision-making. With a strong changes in interest rates, foreign exchange credit risk management information rates and equity prices. The Public Bank Group’s main non-trading market risk is system, the risks emanating from adverse MARKET RISK MANAGEMENT market changes that could lead to interest rate risks, arising from the re- deterioration in the credit quality of the Trading Market Risk pricing mismatches of its assets and portfolios and counterparties are analysed Trading market risk arises from changes liabilities from its banking activities and in depth to facilitate prompt and swift pre- in interest rates, foreign exchange rates, also the Group’s investment of its surplus emptive measures to be implemented to equity prices and credit spreads on the funds. Specific guidelines are set to mitigate such risk. value of assets held for trading. The govern the Group’s investment of its Public Bank Group’s trading market risk surplus funds including management limits The Public Bank Group remains focused arises from market-making, arbitrage and on portfolio size, credit quality and on retail lending activities. The retail loan proprietary position taking activities maximum tenure. portfolio accounts for 86.0% of the conducted primarily by the Treasury Group’s loans portfolio and is well operations of the Group. The Group’s Interest Rate Risk diversified with low volatility of credit risk market risk framework comprises market In managing interest rate risk, the primary as reflected in the Group’s low non- risk policies and practices, delegation of objective is to monitor and avert significant performing loan ratio. As part of the on- authority and market risk limits and volatility in net interest income (“NII”) and going credit monitoring process, the valuation methodologies. The Group’s economic value of equity (“EVE”). The independent credit control function has trading market risk for its interest sensitive Public Bank Group manages its interest also carried out pre-emptive measures fixed income instruments is measured by rate risk in a variety of ways that involve with more frequent review of delinquent the present value of one basis point the offsetting of positions against each accounts and to increase the recovery change (“PV01”) and is monitored on a other for any matching assets and ratio of these accounts. daily basis by a compliance unit which is independent of the business units. 90 Risk Management 2008 ANNUAL REPORT PUBLIC BANK BERHAD liabilities, the acquisition of new financial based on its potential economic benefit Aligning with Bank Negara Malaysia’s assets and liabilities to narrow the and is periodically assessed by the Assets New Liquidity Framework, liquidity risk is mismatch in interest rate sensitive assets & Liabilities Management Committee of measured and managed based on the and liabilities and through the use of the Group. projected cash requirements for the next derivatives such as interest rate swaps as 1 week and next 1 month. In addition, a hedge against interest rate risk. To Equity Risk cash flow mismatch limits are established monitor this risk, the Group uses various The management of equity risk is governed to limit the Public Bank Group’s liquidity tools including re-pricing gap reports, by the Share Investment Policy. The exposure. Liquidity contingency funding sensitivity analysis and income scenario Public Bank Group’s exposure in quoted plans are put in place to identify a liquidity simulations. equity shares remains insignificant. As at crisis through early warning indicators. the end of 2008, quoted shares held Crisis escalation processes, funding and The table on Note 47 to the financial under the Securities Held-for-Trading and communication strategies are clearly set statements represents the Public Bank the Securities Available-for-Sale had a fair out in these plans. Group’s interest rate risk sensitivity based value of RM1.0 million (2007: RM1.8 on contractual repricing mismatches as at million) and RM56.5 million (2007: The Public Bank Group practices pooling 31 December 2008. The Group and RM72.8 million) respectively. During the of funds where excess funds especially Public Bank had an overall positive year the Group recorded a realised loss US Dollar funds are centralised at Public interest rate sensitivity gap of RM17.8 of RM1.2 million (2007: a gain of RM42.4 Bank and channelled to its overseas billion and RM18.2 billion respectively, million) in its equity trading activities. branches and subsidiaries when the need which represented the net difference arises. In the event of a liquidity crisis between interest rate sensitive assets and when they are unable to source sufficient liabilities. The impact on the NII of the Liquidity Risk funds for their operational needs, the Group and the Bank based on a 50 bps Bank would meet such requirements. parallel change in interest rate at the Liquidity risk relates to the ability to beginning of the year from 1 January maintain sufficient liquid assets to meet The global financial turmoil did not have a 2009 for a 12 months period is as financial commitments and obligations significant impact on the Public Bank follows: when they fall due at a reasonable cost. Group’s liquidity position as the Group did not rely on wholesale markets for its Liquidity management within the Public deposits, and neither the Group has any Bank Group focuses on overall balance exposure to derivative activities. The The Bank The Group sheet structure and control, within prudent Group emphasises the importance of 2008 2007 2008 2007 limits, of risk arising from mismatches of using stable deposits as the primary (RM’Million) (RM’Million) (RM’Million) (RM’Million) maturities across the balance sheet and source of funds to finance its lending from exposures to undrawn commitments 76.4 67.3 76.3 74.2 activities and limits the growth rates of its and other contingent obligations. The subsidiaries’ and branches’ lending structure of the balance sheet is managed activities if there is no corresponding The impact on NII is well within the Public to maintain diversification and to minimise growth in stable deposits. Notwithstanding Bank Group’s risk tolerance limit for funding concentration as well as to the prudent lending culture, the Group changes in interest rates. maintain a portfolio of high quality continuously takes pre-emptive measures liquefiable assets. and the Capital, Funding and Treasury Exchange Risk Operations Work Group (“CFTWG”), The Public Bank Group’s sources of The Public Bank Group’s foreign exchange comprising members of senior management deposits are primarily from a retail deposit was formed at the onset of the financial exposure arises primarily from its net base and from the wholesale deposit investment in the Group’s overseas turmoil. The CFTWG identifies the markets. The retail deposit base has potential risks that may have an impact on operations. The Group’s policy is to traditionally provided a stable source of protect the net investment by identifying, the Group’s liquidity and capital and funding. Additionally, the Group accesses formulates strategies to address concerns measuring and managing the potential wholesale deposit markets through the adverse impact of foreign exchange on the credit crunch, counterparties’ credit issuance of certificate of deposits and the risk and mobilisation of deposits. movements. In this respect, the Group taking of money market deposits to meet funds its net investment by borrowings in short term obligations. The Group’s strong the same currencies as the functional reputation, earnings generation capacity, currencies involved, where possible. The strong financial position and strong credit decision to hedge the Group’s net rating are key to maintain customers’ investment in its overseas operations is confidence and ensure liquidity.

Risk Management 91 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The following table shows the contractual maturity analysis of the Public Bank Group’s assets and liabilities as at 31 December 2008 and after adjusting for the behavioural pattern of certain balance sheet items which have actual maturity dates that differ substantially from their contractual profile. The behavioural adjustments are estimated based on the past statistics and trend of the balances.

Over 7 days Over 1 to Over 3 to Over 6 to Over 1 7 days to 1 month 3 months 6 months 12 months year Total (RM’Million) (RM’Million) (RM’Million) (RM’Million) (RM’Million) (RM’Million) (RM’Million)

Cash, balances and placements with banks 18,149 22,898 2,454 179 — — 43,680 Securities 2,903 5,202 10,320 1,741 483 4,614 25,263 Loans, advances and financing 1,839 2,746 5,741 6,495 10,557 91,008 118,386 Other asset balances — — — — — 8,834 8,834 Total assets 22,891 30,846 18,515 8,415 11,040 104,456 196,163 Deposits from customers 21,845 12,081 9,868 6,772 12,181 102,595 165,342 Deposits and placements of banks and other financial institutions 3,408 1,834 240 108 — — 5,590 Recourse obligations on loans sold to Cagamas — 1,206 3,309 9 10 3 4,537 Borrowings — — — — 860 — 860 Debts issued — — — — 1,233 5,070 6,303 Other liability balances — — — — — 3,302 3,302 Total liabilities 25,253 15,121 13,417 6,889 14,284 110,970 185,934 Equity attributable to equity holders of the Bank — — — — — 9,537 9,537 Minority interests — — — — — 692 692 Total equity — — — — — 10,229 10,229

Net maturity mismatch (2,362) 15,725 5,098 1,526 (3,244) (16,743) —

Off balance sheet liabilities (a) (6,730) — — — — — (6,730) Add: Liquefiable assets (b) 15,103 — — — — — 15,103 Less: Maturity profile of the liquefiable assets (c) (299) (5,364) (7,161) (462) (135) (2,093) (15,514) Total available net maturity mismatch 5,712 10,361 (2,063) 1,064 (3,379) (18,836) (7,141)

Available cumulative maturity mismatch 5,712 16,073 14,010 15,074 11,695 (7,141)

Note (a) This represent 20% of the off-balance sheet credit related exposures as disclosed in Notes 51 to indicate that the Group is also subject to liquidity requirements to support calls under outstanding contingent liabilities and undrawn credit facility commitments. Note (b) This represent the discounted value of marketable instruments which comprised mainly of government securities and negotiable instruments of deposits held. Note (c) To eliminate double counting of liquifiable assets.

92 Risk Management 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Capital Management from diverse sources and all capital raising Included in the operational risk is agreed with major subsidiaries as part management framework is a disciplined The Public Bank Group’s capital of their individual and the Group’s capital product evaluation process. Each new management plan is driven by its strategy management process. Each major product or service introduced as well as and organisational requirements, taking subsidiary manages its own capital variations of existing products and services into account the regulatory and commercial required to support the planned business are subject to a rigorous risk review and environment in which the Group operates. growth and meet local regulatory sign-off process where relevant risks are The management of the capital is guided requirements, within the context of the identified and assessed by departments by the Group’s Capital Management approved annual Group capital plan. As independent of the risk taking unit Framework which outlines the Group’s part of the Group Capital Management proposing the product or service. objective to diversify its sources of capital Framework, capital generated in excess of and to allocate capital efficiently, directed planned requirements is returned to Public To manage and control operational risk, by the need to maintain a prudent Bank, normally by way of dividends. the operational risk management framework relationship between available capital and is supplemented with various tools risks in the underlying businesses to meet The Group Capital Management including: the expectations of key constituencies, Framework also aims to drive the risk- including investors, regulators and rating • Control self-assessment – developed return culture in the Public Bank Group. agencies. In this respect, capital targets to enhance management assessment Capital is allocated to all business units are set for both Tier 1 and Tier 2 capital of the state of the control based primarily on the business units’ that is above the minimum regulatory environment economic profit generation capability. The requirements and factors the capital risk adjusted returns on the capital required under the current and future • Key risk indicators – used to detect employed are proactively measured and operating environment to support the changes that may be indicative of risk managed. The management committee credit, market and operational risks as concerns and potential areas of responsible for the oversight of the Group well as capital required for the Group’s operational control weaknesses capital management is the Assets & business growth. Liabilities Management Committee. All • Operational risk incident reporting and proposals to address any deviation from data collection – to facilitate an The Public Bank Group stresses its capital targets or capital raising exercise enhanced analysis and reporting of capital under adverse but plausible events must be approved by the Board prior to operational risk data to assess the ability of the Group’s capital implementation. to withstand market shocks and to In order to further enhance operational facilitate the formulation of action plans in risk management in response to threats of advance if the stress test reveals that the external fraud, losses arising from fraud or Group’s capital is adversely impacted OPERATIONAL RISK control lapses are extensively analysed under such events. MANAGEMENT with emphasis on identifying the causes Operational risk is the risk of loss resulting of such losses and remedial actions The Public Bank Group recognises the from inadequate or failed internal needed to prevent recurrence. The Public effect on shareholder returns of the level processes, people and systems or from Bank Group keeps abreast with the of equity capital employed within the external events. It is monitored and emergence of new operational risks and Group and seeks to maintain a prudent controlled through an operational risk fraud trends and implements pre-emptive balance between the advantages and management framework designed to measures and guidelines to combat fraud flexibility afforded by a strong capital provide a sound and well-controlled and to minimise such losses. position and higher returns on equity that operational environment within the Public are possible with higher leverage. An Bank Group. The day-to-day management annual capital plan covering a 3-year of operational risk exposures is through a horizon is prepared and approved by the comprehensive system of internal controls Board with the objective of maintaining an to ensure that operational policies and optimal amount of capital and the mix procedures are being adhered to at all between the different components of levels throughout the Group. capital. The Group’s policy is to hold capital in a range of different forms and

Risk Management 93 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Another area of operational risk As events and business conditions evolve, The strategic risk is managed through management is the analysis of non- the Public Bank Group continues to refine both a top-down and bottom-up approach. performing loans attributed to operational its approach to managing operational risk The Public Bank Group’s business plans lapses where the findings are disseminated to ensure that current and potential addressing short-term as well as medium- to all business units to prevent recurrence. operational risk exposures are properly term to long-term corporate objectives The Public Bank Group places great understood and managed. and strategies are prepared annually by emphasis on the need to continuously the operating units and all major exercise vigilance and strict adherence to subsidiaries and reviewed on an on-going internal guidelines and established REPUTATION RISK basis to address issues arising from procedures by its staff to avert perpetration MANAGEMENT changes in both the external business of fraud and to minimise operational risk environment and internal operating incidents due to staff negligence. As a Reputation risk arises when a situation, conditions. The performance of the deterrent, appropriate punitive actions are occurrence, business practice or event operating units and subsidiaries is taken against errant staff involved. has the potential to materially influence assessed against the approved budgets the customer, the public and the and explanations are provided for The Public Bank Group continues to stakeholder’s perceived trust and significant variances on a monthly basis. direct Group-wide efforts to maintain its confidence in the Public Bank Group. legal and regulatory compliance culture in all jurisdictions that the Group operates Reputation risk management is governed PRODUCT RISK in. by Public Bank Group’s good corporate governance, ethical and trustworthy culture MANAGEMENT Disaster recovery and business continuity of conducting business, improved The Public Bank Group’s product risk is plans are put in place as an integral part resilience and preparedness to react to governed by the Group’s Policy and of the Public Bank Group’s strategy to and manage any adverse event. Proper Procedures on Risk Management Practices mitigate risks and manage the impact of controls in respect of these areas are put for New Products (“the New Products loss events. Where appropriate, the Group in place and reviewed periodically to Policy”). The objective of the New mitigates risk of high impact loss events ensure they remain applicable and Products Policy is to set out areas of risk by appropriate insurance coverage. effective for the current operations and which are to be appropriately addressed business strategies of the Group. prior to the launching of new products. The Public Bank Group continues to Simulations of business continuity as well One of the main focuses of the New undertake initiatives to maintain 100% as disaster recovery plans are periodically Products Policy is the safeguarding of systems availability and robust system conducted to ensure they are capable of customers’ interest in developing, performance for the Group’s computer providing the desired level of support to marketing and selling of new products. It systems, peripherals and network the critical business processes. serves to avoid mis-selling, terms and infrastructure and to enhance security conditions that are unfair to customers features on all its computer platforms and and business practices that restrict the network infrastructure to ensure secured STRATEGIC RISK freedom of choice to customers. In data protection and uninterrupted MANAGEMENT practicing this, the reputation risk of the transmission. Precautionary measures are Group would be mitigated and the Strategic risk arises from inappropriate regularly reviewed and enhanced to Group’s exposure to possible liability business goals, failure in formulation, ensure customers’ interests are protected under applicable anti-fraud and fair evaluation and selection or improper at all times for all online products and practice laws and regulations would be implementation of business strategies, services. minimised. lack of response to market demands and incompatibility with external changes.

94 Risk Management 2008 ANNUAL REPORT PUBLIC BANK BERHAD IMPLEMENTATION OF In keeping up with the international best Approach, on the other hand, computes BASEL II practices and to prepare for the migration capital charge based on various rates to the more advanced approaches for according to the gross income of different Basel II, which replaced the 1988 Basel credit risk, a data gap analysis and a cost business lines. As the Group’s income Capital Accord known as Basel I, was benefit analysis were conducted by an are mainly from the retail customers, such introduced by the Basel Committee on independent external consultant. Such approach will be more beneficial to the Banking Supervision and the Islamic migration to the more advanced Group’s overall capital management. Financial Services Board with the main approaches would require extensive Hence, active steps are currently being objectives of improving the overall risk preparation and the adoption of such taken by the Group to meet the BNM’s sensitivity of the capital adequacy approaches are also subject to the requirements for the adoption of the framework and promoting safety and approval from BNM. Based on the cost Standardised Approach for operational soundness in the international financial benefit analysis conducted, the Public risk. system. In line with Basel II, Bank Negara Bank Group’s risk-weighted capital ratio Malaysia (BNM) issued the “Risk Weighted is expected to further strengthen with the Capital Adequacy Framework” whereby adoption of the advanced approaches in STRESS TESTING for credit risk, banking institutions can view of the Group’s assets which are The Stress Test Programme has been either opt to implement the Standardised predominantly in retail-based loans. reviewed and redesigned against the Approach effective 1 January 2008 or Another benefit is the further enhancement backdrop of the global financial turmoil. migrate directly to the more advanced to the Group’s risk management The Public Bank Group’s stress test Internal Ratings-Based Approach effective capabilities and practices through the programme measures the impact of January 2010. The for adoption of better quantitative tools and abnormal changes in market conditions operational risk is also introduced for the methodologies. Such risk-sensitive on the asset quality, funding and liquidity first time under this Framework, and approaches will enable better decision- capabilities, profitability and capital banking institutions may adopt the Basic making on product pricing, capital adequacy of the Group to facilitate the Indicator Approach or the more advanced management and strategies formulation development of appropriate strategies for Standardised Approach or Alternative which would in turn further strengthen the mitigating such risks. To achieve this, the Standardised Approach. The capital financial soundness of the Group. As the Group adopts an integrated approach to requirement for market risk, however, Group stands to reap more benefits under stress-testing where the stress events for remains unchanged. the more advanced approaches than the major types of risk such as market, credit, Standardised Approach, the Board of country, liquidity and interest rate risks are The Public Bank Group elected to adopt Directors has approved the migration to incorporated and are periodically updated the Standardised Approach for credit risk the Internal Ratings-Based Approach for in the stress test scenarios to address and the Basic Indicator Approach for credit risk and the Programme Office has perceived vulnerabilities in both local and operational risk with effect from 1 January been set up to undertake the project. 2008. In moving from Basel I to Basel II, external markets. The results of the stress- testing together with remedial actions, if the Group enjoys lower capital charge for Although the Public Bank Group enjoys any, are tabled to the Risk Management credit risk attributed to its focus on retail- lower capital charge for credit risk under Committee and the Board of Directors for based loans and strong asset quality. This the current Standardised Approach, such deliberation. has resulted in an overall reduction in risk- gain is reduced by the first time capital weighted assets notwithstanding the charge required for operational risk. Under The stress tests results based on the continuous loan growth and thus an the Basic Indicator Approach for worst case scenario show that the Public improvement in the risk-weighted capital operational risk, the capital charge is Bank Group’s risk-weighted capital ratio ratio. The lower capital charge will further computed based on a fixed percentage remains well above the minimum regulatory enhance the Group’s capital management over the gross income of the Group for a requirement of 8% under such worst case capability in order to optimise the fixed number of periods. The more scenario. shareholders’ value. The disposition of advanced approach, the Standardised risk-weighted assets as set out in Note 51 of the Financial Statements provides an indication of the deployment of capital in various types of risk and portfolios.

Risk Management 95 2008 ethics, integrity and trust ANNUAL REPORT PUBLIC BANK BERHAD The Public Bank Group serves a market Code of Ethics Anti-Fraud Policy place where the trust and confidence in Bank Negara Malaysia issues guidelines Fraud by employees and management the Group are of paramount importance to financial institutions, amongst which is undermines the integrity and erodes the in its role as a custodian of public funds. BNM Garis Panduan 7 (“BNM/GP7”) in confidence and trust in, and poses The Group therefore actively seeks to respect of the Code of Conduct for significant reputational risks to a financial conduct itself with integrity and Directors, Officers and Employees in the institution and the banking system. In trustworthiness to engender such trust Banking Industry. Part 1 of BNM/GP7 addition to the extensive risk management and confidence as well as actively takes sets out the minimum standards of infrastructure that is in place in the Public steps to safeguard its integrity and conduct expected of directors, officers Bank Group to prevent and detect fraud credibility. The Group also seeks to and employees in the banking industry. In and fraudulent activities, the Group also minimise the exposure to reputational risk implementing the BNM/GP7 Code of has a formalised anti-fraud policy, with the arising from unethical or fraudulent conduct Ethics, the Public Bank Group issued following objectives: by the Group’s employees and customers. staff circulars to guide employees’ conduct g Ensure the Group’s business is based on 6 key basic principles: A key determinant of the reputation of a conducted in accordance with the law trusted financial institution is the way its g Avoid conflict of interest g employees conduct themselves in their Promote an environment of honesty g work and in the delivery of services to Avoid misuse of position and integrity customers and the public. The Public g Prevent misuse of information for g Enhance awareness of the Group’s Bank Group has taken, and continues to personal gain or any purpose other stand on improper, illegal and take, proactive initiatives to ensure that than its intended purpose dishonest acts and the consequences employees have values and principles, of such acts and conduct themselves to behavioural g Ensure integrity and completeness of standards that are consistent with the records g Create staff awareness of their roles, rights and responsibilities in relation to expectations of customers and the public, g Ensure confidentiality of communication improper, illegal and dishonest acts. of that of a trusted financial institution. and transactions with customers The Group’s commitment is continuously reinforced with constant training and g Fair and equitable treatment of The anti-fraud policy sets out the updating of employees on the values of customers responsibility of employees of the Public the organisation and the behavioural Bank Group for preventing and detecting standards and requirements of the industry. defalcations, misappropriations and other irregularities, the specific roles of The formalisation and dissemination of employees in prevention and detection of what constitute acceptable standards of fraud and fraud discovery reporting as conduct expected of employees of the well as the steps the Group will take in Public Bank Group in the form of clear respect of employees involved in fraudulent and documented codes and policies acts. The anti-fraud policy is regularly which are issued to all employees is an reviewed and updated where approriate essential part of building a culture of trust to further strengthen the Group’s and integrity in employee conduct. capabilities to reduce the risk to the Included amongst such codes and policies Group’s reputation from fraudulent acts. are a Code of Ethics, an Anti-Fraud Policy and an Anti-Money Laundering Policy.

96 Ethics, Integrity And Trust 2008 ANNUAL REPORT PUBLIC BANK BERHAD Anti-Money Laundering The exacting standards of behaviour Policy expected of the Public Bank Group’s staff is reinforced by training programmes on The Public Bank Group, as a leading internal controls, anti-money laundering Malaysian banking group and with an and prevention of fraud, whilst the conduct extensive network of branches throughout of staff in the Group’s day-to-day business the country, is at the forefront of the is also subject to extensive supervisory Government’s and Bank Negara Malaysia’s controls and procedures to ensure initiatives and efforts in the prevention of compliance with the high standards of the use of the banking system for illicit ethical behaviour required by the Group. and laundering activities as well as The regularity of such training courses financing of terrorist activities. The Anti- and their availability on the e-learning Money Laundering Act, 2001 provides the platform of the Group ensures that the legal framework to counter money commitment of the Group to building trust laundering and terrorist financing. The and integrity in employee conduct reaches Group has established processes and every single employee of the Group. infrastructure for the prevention and detection of illicit and laundering activities The Public Bank Group’s zero tolerance as well as the reporting of suspicious of fraud and the lack of integrity in staff activities and transactions to the Financial behaviour is supported by established Intelligence Unit of Bank Negara Malaysia. disciplinary procedures which, after due A key component of this infrastructure is process, would result in various forms of the Group’s anti-money laundering policy, action being taken against staff who lack which sets out the following: integrity or who are dishonest. g The purpose of the anti-money laundering policy g Expectations of employees in implementing the anti-money laundering policy g Accountability of each level of employee for anti-money laundering detection and prevention g Education and training in preventing and detecting money laundering g Extensive procedures covering customer identification, account opening, record keeping and recognition and reporting of suspicious transactions.

Ethics, Integrity And Trust 97 2008 statement on internal control ANNUAL REPORT PUBLIC BANK BERHAD RESPONSIBILITY KEY INTERNAL CONTROL g The Audit Committees of the Bank and its major subsidiaries review The Board of Directors (“Board”) is PROCESSES internal control issues identified by responsible for the adequacy and The key processes that have been the respective Internal Audit Division, effectiveness of the Public Bank Group’s established in reviewing the adequacy the external auditors, regulatory (“the Group”) system of internal controls. and integrity of the system of internal authorities and management, and However, such a system is designed to controls include the following: evaluate the adequacy and manage the Group’s risks within an effectiveness of the risk management acceptable risk profile, rather than g The Board Executive Committee is and internal control systems. They eliminate the risk of failure to achieve the established by the Board to assist the also review the internal audit functions policies and business objectives of the Board in ensuring the effectiveness of with particular emphasis on the scope Group. Accordingly, it can only provide Public Bank’s (“the Bank”) daily of audits and quality of internal audits. reasonable but not absolute assurance operations and that the Bank’s The minutes of the Audit Committee against material misstatement of operations are in accordance with the meetings are tabled to the Boards of management and financial information and corporate objectives, strategies and the Bank and its major subsidiaries on records or against financial losses or the annual budget as well as the a monthly or periodic basis. Further fraud. policies and business directions that have been approved. The Board details of the activities undertaken by the Audit Committee of the Bank are The Board has established an on-going Executive Committee also formulates set out in the Audit Committee process for identifying, evaluating and strategies on an on-going basis and Report. managing the significant risks faced by addresses issues arising from changes the Group and this process includes in both the external business g The Risk Management Committee was enhancing the system of internal controls environment and internal operating established by the Board to assist the when there are changes to business conditions. Management committees Board to oversee the overall environment or regulatory guidelines. The are established by the respective management of principal areas of risk process is regularly reviewed by the Boards of major operating subsidiaries of the Group. The other committees Board and accords with the guidelines for in the Group to assume the functions set up to manage specific areas of directors on internal control, the Statement as stated above in these subsidiaries. risk for the Group are the Assets & on Internal Control: Guidance for Directors g The Internal Audit Divisions of the Liabilities Management Committee of Public Listed Companies. Bank and its major subsidiaries which manages market and liquidity monitor compliance with policies and risks; the Credit Risk Management The Board is of the view that the system procedures and the effectiveness of Committee which manages credit risk of internal controls in place for the year the internal control systems and and the Operational Risk Management under review and up to the date of highlight significant findings in respect Committee which manages operational issuance of the financial statements is of any non-compliance. Audits are risk. sound and sufficient to safeguard the carried out on all units and branches, g Operational committees have also shareholders’ investment, the interests of the frequency of which is determined been established with appropriate customers, regulators and employees, and by the level of risk assessed, to empowerment to ensure effective the Group’s assets. provide an independent and objective management and supervision of the report on operational and management Group’s core areas of business The management assists the Board in the activities of these units and branches. operations. These committees include implementation of the Board’s policies The annual audit plan is reviewed and the Human Resource Committee, the and procedures on risk and control by approved by the respective Credit Committee, the Share identifying and assessing the risks faced, subsidiaries’ Audit Committees and Investment Committee, Business and in the design, operation and the findings of the audits are submitted Continuity Management Committee monitoring of suitable internal controls to to the said subsidiaries’ Audit and the Information Technology mitigate and control these risks. Committees for review at their monthly Steering Committee. or periodic meetings.

98 Statement On Internal Control 2008 ANNUAL REPORT PUBLIC BANK BERHAD g Annual business plans are prepared g Policies and procedures to ensure by the Bank’s business units and all compliance with internal controls and major operating subsidiaries and are the relevant laws and regulations are reviewed and approved by their set out in operations manuals, respective Boards. Annual budgets guidelines and directives issued by are also approved by the respective the Bank and its subsidiaries in the Boards and the business units’ and Group which are updated from time operating subsidiaries’ performance to time. are assessed against the approved budgets and explanations are provided for significant variances on a monthly REVIEW OF THE STATEMENT basis to the respective Boards. BY EXTERNAL AUDITORS g There are proper guidelines within the The external auditors have reviewed this Group for hiring and termination of Statement on Internal Control for the staff, formal training programmes for inclusion in the annual report of the Bank staff, annual or semi-annual for the year ended 31 December 2008 performance appraisals and other and reported to the Board that nothing relevant procedures in place to ensure has come to their attention that causes that staff are competent and them to believe that the statement is adequately trained in carrying out their inconsistent with their understanding of responsibilities. the process adopted by the Board in g The Boards of the Bank and its major reviewing the adequacy and integrity of subsidiaries receive and review reports the system of internal controls. from management on a regular basis. In addition to the monthly accounts and financial information reports and reports on monitoring of compliance with banking laws and Bank Negara Malaysia’s and other central bank’s guidelines on lending, capital adequacy and other regulatory requirements, monthly progress reports on business operations are tabled to the respective Boards at their monthly or periodic meetings. g There are policy guidelines and authority limits imposed on executive directors and management within the Group in respect of the day-to-day banking and financing operations, extension of credits, investments, acquisitions and disposals of assets.

Statement On Internal Control 99 MemberS of The Audit Committee 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Tan Sri Dato’ Thong Yaw Hong Dato’ Haji Abdul Aziz Dato’ Yeoh Chin Kee bin Omar Chairman/ Co-Chairman/ Member/ Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director

PSM, SIMP, DSAP, DIMP, JMN, SMP, JBS, AMN DIMP DIMP BA (Econs Hons), MPA (Harvard), AMP (Harvard), ACA (England & Wales), CA (M’sia), FIBM FCPA (Aust), F Fin (Aust) D.Econ (Hon) (M’sia)

AUDIT COMMITTEE REPORT

1. ATTENDANCE OF MEETINGS The details of attendance of each member at the Audit Committee (“Committee”) meetings held during 2008 are as follows:

Name of Committee Member Number of Committee Meetings Held Attended Tan Sri Dato’ Thong Yaw Hong 16 16 Chairman/Independent Non-Executive Director Dato’ Haji Abdul Aziz bin Omar 16 16 Co-Chairman/Independent Non-Executive Director Dato’ Yeoh Chin Kee 16 16 Member/Independent Non-Executive Director Y.A.M. Tengku Abdul Rahman Ibni Sultan Haji Ahmad Shah Al-Mustain Billah 16 16 Member/Independent Non-Executive Director Dato’ Dr. Haji Mohamed Ishak bin Hj Mohd Ariff 16 16 Member/Independent Non-Executive Director Quah Poh Keat 6 6 Member/Independent Non-Executive Director (Appointed w.e.f. 30 July 2008)

100 Audit Committee Report 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Y.A.M. Tengku Abdul Rahman Ibni Sultan Dato’ Dr. Haji Mohamed Quah Poh Keat Haji Ahmad Shah Al-Mustain Billah Ishak bin Hj Mohd Ariff Member/ Member/ Member/ Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director

DK II, SSAP DSPN, JSM, DJN, SMS, KMN, PPT, PJK FCCA (UK), CA (M’sia), CPA (M’sia) FRTPI (London), FMIP (M’sia), FILA (M’sia), ACMA (UK), Fellow MIT (M’sia) D.C.L. (Hon) Newcastle-upon-Tyne

2. COMPOSITION AND TERMS OF c. At least one member of the Committee: REFERENCE i. must be a member of the MIA; or 2.1 Composition ii. if he is not a member of the MIA, he must have at least three years working experience a. The Committee shall be appointed by the Board and: of Directors and shall consist of not less than three members, all of whom shall be non- • he must have passed the examinations executive directors. The majority of the Committee specified in Part I of the 1st Schedule members shall be independent directors. of the Accountants Act, 1967; or • he must be a member of one of the b. Chairman/Co-Chairman associations of accountants specified in • The Chairman and the Co-Chairman of the Part II of the 1st Schedule of the Committee shall be approved by the Board Accountants Act, 1967. of Directors and shall be an independent iii. fulfills such other requirements as prescribed non-executive director. or approved by Bursa Malaysia Securities • The Chairman or the Co-Chairman shall be a Berhad. member of the Malaysian Institute of Accountants (“MIA”).

Audit Committee Report 101 2008 ANNUAL REPORT PUBLIC BANK BERHAD

2.2 Frequency of Meetings 2.6 Responsibilities and Duties Meetings shall be held not less than four times a The responsibilities and duties of the Committee shall year. be: a. Risk Management To review the adequacy and effectiveness of risk 2.3 Quorum managment, internal control and governance A quorum shall consist of two members and shall systems instituted in Public Bank and the Public comprise independent directors. Bank Group.

b. Internal Audit 2.4 Secretary • To approve the appointment, replacement The Secretary of the Committee shall be the Head of and dismissal of the Chief Internal Auditor. Internal Audit Division. • To review the adequacy of the scope, functions, competency and resources of Internal Audit Division and that it has the 2.5 Rights necessary authority to carry out its work. The Committee shall have the authority to: • To evaluate the performance and decide on • seek any information relevant to its activities from the remuneration of the internal auditors. employees of Public Bank and the Public Bank Group. c. External Audit • obtain such independent professional advice as it • To review the external auditors’ audit plan, considers necessary. scope of their audits and their audit reports. • have full and unrestricted access to any information • To assess the performance of the external and documents pertaining to Public Bank and the auditors and make recommendations to the Public Bank Group. Board of Directors on their appointment and • to convene meetings with the internal auditors removal. without the presence of the Executive Directors • To review the independence and objectivity and Management staff whenever deemed of the external auditors and their services, necessary. including non-audit services. • to meet with the external auditors at least twice a • To approve the provision of non-audit services year without the presence of the Executive by the external auditors. Directors and Management staff. d. Audit Reports To review the: • Internal and external audit reports to ensure that appropriate and adequate remedial actions are taken by management on significant lapses in controls and procedures that are identified. • Significant internal and external audit findings and management’s response.

102 Audit Committee Report 2008 ANNUAL REPORT PUBLIC BANK BERHAD

e. Financial Reporting • Listing Requirements of Bursa Malaysia To review the quarterly and annual financial Securities Berhad; statements of Public Bank and the Public Bank • Applicable approved accounting standards in Group for recommendation to the Board of Malaysia, and Directors for approval, focusing particularly on: • Other legal and regulatory requirements. • changes in or implementation of new accounting policies and practices; In the review of the annual audited financial statements, the Audit Committee discussed with • significant and unusual events; and Management and the external auditors the • compliance with the applicable approved accounting principles and standards that were accounting standards and other legal and applied and their judgement of the items that regulatory requirements. may affect the financial statements.

f. Related Party Transactions To monitor and review any related party 3.2 Internal Audit transactions that may arise within Public Bank and the Public Bank Group. a. Reviewed the annual audit plan to ensure adequate scope and comprehensive coverage of g. Other Matters the activities of Public Bank and the Public Bank To consider such other matters as the Committee Group. considers appropriate or as authorised by the Board of Directors. b. Reviewed the effectiveness of the audit process, resource requirements for the year and assessed the performance of Internal Audit Division. 3. SUMMARY OF ACTIVITIES c. Reviewed the internal audit reports which were During the year, the Committee carried out the following tabled during the year, the audit recommendations activities: made and Management’s response to these 3.1 Financial Reporting recommendations. Where appropriate, the Committee has directed Management to rectify a. Reviewed the quarterly and half-yearly unaudited and improve control and workflow procedures financial results of Public Bank and the Public based on the internal auditors’ recommendations Bank Group before recommending them for and suggestions for improvement. approval by the Board of Directors. d. Monitored the corrective actions on the b. Reviewed the annual audited financial statements outstanding audit issues to ensure that all the of Public Bank and Public Bank Group with the key risks and control lapses have been external auditors prior to submission to the Board addressed. of Directors for their approval. The review was to ensure that the financial reporting and disclosures e. Reviewed Internal Audit Division’s audit are in compliance with: methodology in assessing and rating risks of • Provisions of the Companies Act, 1965 and auditable areas and ensured that all high and the Banking and Financial Institutions Act, critical risk areas were audited annually. 1989;

Audit Committee Report 103 2008 ANNUAL REPORT PUBLIC BANK BERHAD f. Conducted half-yearly reviews of the performance, 4. TRAINING progress and adequacy of coverage of the During the year, the Committee members have attended internal audit functions. conferences, seminars and training programmes on the following areas: g. Reviewed the staffing requirements of Internal Audit Division, skills and the core competencies a. Banking and Finance of the internal auditors. • Basel II in the Asia Pacific Banking Sector Survey 2008 • Current & Future Prospects of Islamic Banking 3.3 External Audit • Enhancing the Resilience and Stability of the a. Reviewed with the external auditors: Islamic Financial System • their audit plan, audit strategy and scope of • International Islamic Venture Capital Market Forum: work for the year. Islamic Alternative Strategy Funds and Venture • the results of the annual audit, their audit Capital report and Management letter together with Management’s response to the findings of b. Corporate Governance the external auditors. • Leading from the Board – Directors Should Take Long Term View b. Assessed the independence and objectivity of – Real Signs of a Strong Board the external auditors during the year and prior to the appointment of the external auditors for • Corporate Social Responsibility adhoc non-audit services. The Committee also • Directors’ Duties & Liabilities – Beyond received reports from the external auditors on Compliance their own policies regarding independence and the measures used to control the quality of their • Directors’ Performance Evaluation – Building a work. High Performance Board • Oversight of Risk Management: Considering the c. Evaluated the performance and effectiveness of Audit Committee’s Role and Responsibilities the external auditors and made recommendations to the Board of Directors on their appointment • Role of the Board in Changing Financial, Legal, and remuneration. Regulatory and Business Environment • Practices and Processes that Promote/Impede d. Reviewed the inspection and examination reports Effective Boardroom Deliberations issued by Bank Negara Malaysia and other regulatory authorities and the remedial actions c. Financial Reporting taken in respect of the issues raised by them. • Advanced Consolidation Principles

3.4 Related Party Transactions Reviewed the related party transactions entered into by Public Bank and the Public Bank Group.

104 Audit Committee Report 2008 ANNUAL REPORT PUBLIC BANK BERHAD 5. INTERNAL AUDIT FUNCTION Internal Audit Division also works collaboratively with the Risk Management Division to monitor the risk governance The Committee is supported by the Internal Audit Division framework and the risk management processes of Public in the discharge of its duties and responsibilities. Internal Bank and the Public Bank Group to ensure their adequacy Audit Division provides independent assurance on the and effectiveness. adequacy and effectiveness of the risk management, internal control and governance processes. The total costs incurred for the internal function of the Bank and the Group for 2008 are as follows: A structured risk assessment approach is used to examine all of the Public Bank Group’s activities and its inherent RM’000 risks. The high-risk activities in each auditable area are Bank 16,966 audited annually. Audits are prioritised according to an Group 20,461 assessment of the potential risk exposures.

The internal audits cover the review of the adequacy of risk Further details of the activities of Internal Audit Division are management, operational controls, compliance with set out in the Statement on Internal Control. established procedures, guidelines and statutory requirements, quality of assets, management efficiency and level of customer services, amongst others. These audits ensure that the instituted controls are appropriate, effectively applied and achieve acceptable risk exposures consistent with Public Bank’s and the Public Bank Group’s risk management policy.

Internal Audit Division also audits the various computer hardware and application systems and telecommunications network of the Public Bank Group.

Internal Audit Division assists in the evaluation of risk exposures of new business products and projects prior to implementation and ensures that control procedures are in place to mitigate the risks identified.

Audit Committee Report 105

PACE-SETTING TEAMWORK

A unified work culture, created from our shared values, helps us realise a stronger delivery channel that enables the Public Bank Group to seamlessly deliver only the best to all our stakeholders. For certain, we stay ahead by serving you better. 2008 BOARD EXECUTIVE COMMITTEE ANNUAL REPORT PUBLIC BANK BERHAD

Tan Sri Dato’ Sri Dr. Teh Hong Piow Tan Sri Dato’ Sri Tay Ah Lek Dato’ Lee Kong Lam Chairman Managing Director/ Executive Director Chief Executive Officer

A respected banking entrepreneur with a Holder of a Masters degree in Business An accountant by profession, Dato’ banking career spanning more than 57 years. Administration, Tan Sri Tay is a veteran Lee was attached to Bank Negara Commencing his banking career in Singapore, in the financial services industry with Malaysia for 29 years and retired as he founded Public Bank in 1965 after 48 years’ experience. A pioneer staff of Head of its Examination Department. spending 6 years in a senior management Public Bank in 1966, he held several He joined Public Bank as General position in another prominent local bank. portfolios over the years including the Manager in 1996 and was Since inception Tan Sri Teh has been at the Executive Vice President position in subsequently appointed Senior helm of Public Bank and personally steered Public Finance and Public Bank. He General Manager and Executive Vice its growth till today. was appointed Executive Director of President. He was appointed Executive Public Bank in 1997 and Managing Director in 2001. He is also a member Director/Chief Executive Officer in on the Board of Directors of several 2002. He sits on the Board of Directors subsidiary companies in the Public of several subsidiary companies in the Bank Group. Public Bank Group.

108 Board Executive Committee group management 2008 profile

1 Dato’ Chang Kat Kiam 3 Wong Jee Seng

Chief Operating Officer, Public Bank Berhad Chief Operating Officer, Public Bank Berhad ANNUAL REPORT Holder of a Masters degree in Business Administration, An accountant by profession. He joined Public Bank in

Dato’ Chang has been with Public Bank since 1975. He 1993 as a Manager in Finance Division. He was promoted PUBLIC BANK BERHAD is experienced in all aspects of banking having managed to Senior Manager in 1997 and transferred to Treasury branches and banking business portfolios in Head Office. Division in 1998. Wong Jee Seng was subsequently Appointed Senior General Manager in 2001 and Chief promoted to Director of Risk Management Division in Operating Officer in 2006. He oversees the Bank’s 2000 and was appointed General Manager in 2002 and overseas operations and retail lending operations. Senior General Manager in 2006. He was promoted to his present position in 2008, overseeing the Bank’s treasury operations, generation of non-interest income, and card operations and services. 2 Leong Kwok Nyem Chief Operating Officer, Public Bank Berhad An accountant by profession. Leong Kwok Nyem was attached to the accounting and auditing industry for 8 years before joining the Public Bank Group in 1988. Attached initially to the Finance Division in Head Office, he was transferred to Public Finance Limited in Hong Kong in 1990. He returned to Head Office in 1994 and was appointed Senior General Manager in 2001 and Chief Operating Officer in 2008. His portfolio includes supervision of the Bank’s Banking Operations, Finance, Property and Information Technology Divisions.

1 2 3

Group Management Profile 109 2008

4 Teoh Cheng Soon 5 Tuan Haji Ismail bin Ibrahim

ANNUAL REPORT Chief Executive Officer, Public Investment Bank Chief Executive Officer, Public Islamic Bank Holder of a Bachelor of Arts (Economics) degree, Teoh Holder of a Diploma in Business Studies. Tuan Haji Cheng Soon started his career as an Assistant Economist Ismail has been in the banking industry since 1973. PUBLIC BANK BERHAD with Bank Negara Malaysia in 1968. He held several Having gained wide experience serving in several financial positions during the 16 years he was attached to the institutions, he joined the Public Bank Group in 1992 as central bank. He was attached to several companies in Director of Credit Operations. He was promoted to the financial services industry before joining the Public General Manager in 1996. Tuan Haji Ismail was Bank Group in 1998 initially as the Chief Executive overseeing Public Bank’s Islamic banking business before Officer of the Group’s stock broking company and his appointment as Chief Executive Officer of Public subsequently the Chief Executive Officer of its merchant Islamic Bank in 2008. bank. He has been the Chief Executive Officer of Public Investment Bank since 2006. 6 Yeoh Kim Hong Chief Executive Officer, Public Mutual Berhad An accountant by profession. Yeoh Kim Hong was attached to an international public accounting firm for more than 12 years before joining Public Mutual in 1996 as Senior Manager. She was promoted to General Manager in 1999, Senior General Manager in 2004 and appointed Chief Executive Officer in 2007. She is currently a council member of the FMUTM and a board member of FPAM.

4 5 6

110 Group Management Profile 2008

7 Tan Yoke Kong 9 Phan Ying Tong

Executive Director & Chief Executive, Country Head, Cambodian Public Bank Limited ANNUAL REPORT Public Bank (Hong Kong) Limited Holder of a Diploma in Management, Phan Ying Tong An accountant by profession, Tan Yoke Kong has over has a total of 27 years’ service with the Public Bank PUBLIC BANK BERHAD 27 years’ experience in the banking and finance industry. Group. He was a Branch Manager of several branches in He was seconded from Public Bank to Hong Kong in Public Bank before his appointment as General Manager 1991 and was appointed Executive Director of Public of Cambodian Public Bank Limited in 2002. He is the Financial Holdings Limited, a company listed on the Country Head of Cambodian Public Bank Limited which Stock Exchange of Hong Kong, in 1992. He is currently has 12 branches located throughout Cambodia. the Executive Director & Chief Executive of Public Bank (Hong Kong) Limited and Executive Director of Public Finance Limited.

8 Lee Huat Oon General Manager/Chief Executive, Public Finance Limited Holder of a Bachelor of Accounting degree and a Registered Accountant with the Malaysian Institute of Accountants. Lee Huat Oon has more than 20 years’ experience in the banking and finance industry. He joined the Public Bank Group’s Hong Kong operations in 1995 and was appointed Chief Executive of Public Finance Limited in 2006. He is also an Executive Director of Public Finance Limited and Public Financial Holdings Limited, a company listed on the Hong Kong Stock Exchange.

7 8 9

Group Management Profile 111 2008 heads of division

1 Soong Hoe Seng

ANNUAL REPORT An accountant by profession with 34 years of audit experience. Having joined Public Bank in 1991, Soong Hoe Seng oversees the Group’s Internal Audit PUBLIC BANK BERHAD portfolio.

2 Chang Siew Yen An accountant by profession. Joined Public Bank in 2005 as Deputy Director of Finance Division, and subsequently appointed Head of Finance Division and Chief Financial Officer in 2006.

1 Soong Hoe Seng 2 Chang Siew Yen Group Chief Internal Auditor Chief Financial Officer

3 Chia Lee Kee Holder of ICSA degree and FCIS. Joined Public Bank in 1978 and was appointed Head of Secretariat Division in 1997. Chia Lee Kee is the Bank’s Company Secretary and she oversees the Group’s company secretarial matters.

4 Chong You Lin Holder of a Bachelor of Arts (Economics) degree with 28 years of experience in the card industry. Having joined Public Bank in 1991, she was appointed Head of Division in 2000 and promoted to General Manager in 2004.

3 Chia Lee Kee 4 Chong You Lin General Manager, General Manager, Secretariat Division PB Card Services & Support

112 Heads Of Division 2008

5 Nasaruddin bin Arshad

Holder of a Masters degree in Agriculture Economics. ANNUAL REPORT Was in the academic field for 17 years before joining the Public Bank Group in 1995 as Director of Economics Division. Was appointed Group Economist PUBLIC BANK BERHAD in 1999.

6 Sulaiman bin Abd Manap Holder of a Masters degree in Business Administration. Joined Public Bank in 1981 and experienced in both branch banking and Head Office credit. Was appointed Head of Credit Operations in 2003.

5 Nasaruddin bin Arshad 6 Sulaiman bin Abd Manap Group Economist, Economics & General Manager, Corporate Planning Division Credit Operations Division

7 Abd Razak bin Md Dali Holder of a Masters degree in Science (Corporate Communication). Joined Public Bank in 1977 and appointed Head of Public Affairs Division in 1994, he is responsible for the Bank’s PR, corporate communication, advertising and sports portfolio.

8 Salmah bt Mohd Yunus Holder of a Bachelor of Economics degree and a HR practitioner with more than 27 years’ experience. Has been with the Public Bank Group since 1984. She oversees the Group’s Human Resource portfolio.

7 Abd Razak bin Md Dali 8 Salmah bt Mohd Yunus General Manager, General Manager, Public Affairs Division Human Resource Division

Heads Of Division 113 2008

9 Eddie Chan Kok Kwai

ANNUAL REPORT Holder of a Bachelor of Economics degree, FSD and AIBM. Joined Public Bank in 1982 and was appointed Head of Credit Administration and PUBLIC BANK BERHAD Supervision Division in 1992. Responsible for credit control and recovery of NPLs for retail loans.

10 Chan Chew Fung Holder of a Bachelor of Arts (Economics) degree. Joined Public Bank in 1982 and was appointed Head of Corporate Banking & Trade Finance Division in 1995.

9 Eddie Chan Kok Kwai 10 Chan Chew Fung Director, Credit Administration Director, Corporate Banking & Supervision Division & Trade Finance Division

11 Tan Teck Kong Holder of a Bachelor of Science/Mathematics degree. Joined Public Bank in 1983 and was appointed Director in 2000 to head the Bank’s IT Division.

12 Chew Han Kang Holder of a Diploma in Management. Has a total of 32 years’ experience in HP financing. Joined the Public Bank Group in 1976 and was appointed Director of HP Financing in 1997. Responsible for the Bank’s HP Operations since 2008.

11 Tan Teck Kong 12 Chew Han Kang Director, Information Director, HP Operations Technology Division

114 Heads Of Division 2008

13 Lim Then Fui

An accountant by profession. Has a total of 29 years’ ANNUAL REPORT experience in Bank Negara Malaysia and commercial banking. Joined Public Bank in 2001 and appointed Head of Risk Management Division in 2007. PUBLIC BANK BERHAD

14 Nizam bin Hj Zainal Abidin Was attached to the Royal Malaysian Police for 13 years before joining Public Bank in 1993 as Head of Security Division.

13 Lim Then Fui 14 Nizam bin Hj Zainal Abidin Director, Director, Security Division Risk Management Division

15 Sim Goay Chye Holder of a Masters degree in Business Management. Joined the Public Bank Group in 1983. Held several managerial portfolios at Head Office before his appointment as Head of Property Division in 2004.

16 Wong Tuck Kwai Holder of a Bachelor of Science (Agribusiness) degree and IBBM. Joined Public Bank in 1984 and held several managerial positions before his appointment as Head of Banking Operations Division in 2008.

15 Sim Goay Chye 16 Wong Tuck Kwai Director, Property Division Acting Director, Banking Operations Division

Heads Of Division 115 highest yields and returns The Public Bank Group, having an unbroken profitability track record since inception, is committed to staying ahead with the highest yields and returns on your investments with the best banking practices in our ongoing pursuit of wealth creation. highest yields and returns The Public Bank Group, having an unbroken profitability track record since inception, is committed to staying ahead with the highest yields and returns on your investments with the best banking practices in our ongoing pursuit of wealth creation. 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Chairman’s Review

118 Chairman’s Review OVERVIEW BUSINESS OPERATIONS REVIEW 2008

120 Overall Business Environment 143 Retail Banking And Financing 157 Capital Market Operations 122 Summary Of Group Financial Performance Operations • Treasury • At A Glance • At A Glance • Corporate Lending • Profits And Dividends • Consumer Credit • Investment Banking • Balance Sheet Growth, Asset Quality • SME Lending 160 Islamic Banking ANNUAL REPORT And Capital Position 149 Wealth Management 163 International Operations

• Loans & Advances • Customer Deposits PUBLIC BANK BERHAD 168 Serving The Customer • Asset Quality • Fund Management • Customer Service • Customer Deposits • Bancassurance • Loans Service Delivery • Funding And Liquidity • Structured Investment 170 Information & Communication 130 Key Financial Indicators Products Technology • Setting High Standards 155 Transactional Services 172 Branch Performance – KPIs And 131 Benchmarking Against Banking Industry’s • Remittances Awards Performance • Cash And Channel Management Services 133 Capital Management • Capital Management Framework And Strategies OUTLOOK FOR 2009 • Efficient Capital Structure And Enhancing Value To Shareholders 174 Outlook For The Banking Industry 135 Credit Ratings 174 Expectations And Opportunities 136 Impact Of FRS 139 Financial Instruments: 175 Strategies And Direction Recognition And Measurement 175 Outlook For The Malaysian Economy

Chairman’s Review 119 2008 ANNUAL REPORT staying PUBLIC BANK BERHAD ahead

Overview

OVERALL BUSINESS ENVIRONMENT Malaysia’s 2008 GDP growth is expected to moderate to 5.0% following an earlier and larger- than-expected reduction in fuel subsidies and rising commodity prices in the first half of 2008 led to sharply rising inflation. In addition, increased market uncertainties due to political changes following the general elections in March 2008 resulted in greater investor caution and slower consumption. Externally, 2008 has been one of the most challenging periods that the global financial services industry has seen. The volatility in global credit markets, combined with the deceleration of the US economy afflicted by the continuing financial market turmoil which originated from the sub-prime mortgage crisis has led to an environment of increased uncertainty and slowing growth. Amidst the weak global economic growth outlook, the domestic economy is expected to see a moderation in growth with a forecast GDP growth of 3.5% in 2009. However, inflationary concerns have receded with headline inflation expected to continue to moderate given the decline in fuel prices and significantly lower commodity prices.

As a result of the economic slowdown, bank earnings and asset quality are expected to be adversely affected. Despite the Malaysian banking industry‘s stable business and financial fundamentals as well as moderate headline inflation, credit growth may moderate. The declining manufactured exports, lower commodities export proceeds and weakening consumption and investments are likely to adversely affect the economy in 2009. Accordingly, demand for bank loans is expected to soften, thereby impacting revenues. Excess liquidity in the banking system and competitive pressures would also drive net interest margins lower. Despite the challenging environment, the banking system will be able to withstand the current pressures with its sound level of capitalisation and stable asset quality, as reflected by the industry’s 12.5% risk- weighted capital adequacy ratio and 2.4% net non-performing loans ratio as at November 2008. As a pre-emptive measure aimed at supporting the domestic economy and preventing Malaysia from falling into a recession, Bank Negara Malaysia reduced the Overnight Policy Rate from 3.50% to 3.25% in late November 2008. The statutory was also reduced from 4.0% to 3.5% to further reduce the cost of financing.

The Public Bank Group, with its proven track record of profitability and strong asset quality, as well as healthy liquidity profile, will remain resilient in this challenging operating environment. The Group has weathered the recent events well and is in a strong position going into 2009. The Group believes that the current volatility in global financial markets is likely to persist. In this environment, the Group recognises the need to be prudent, and the importance of maintaining a sound capital base, high levels of liquidity and strong asset quality. The Group will remain focused on its strategy of building sustainable business growth, particularly in the expansion of its core businesses of lending to retail consumers and small- and medium-sized enterprises (“SMEs”) as well as in deposit-taking by leveraging on its wide branch network, efficient multiple delivery channels and superior service standards. The Group will further reinforce the PB Brand and continue to pursue opportunities to improve productivity and increase its fee-based revenue.

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PUBLIC BANK BERHAD ANNUAL REPORT 2008 2008 ANNUAL REPORT PUBLIC BANK BERHAD SUMMARY OF GROUP FINANCIAL PERFORMANCE At a glance

2008 2007 Growth RM’million RM’million %

Profit before tax expense and zakat 3,379 3,004 12.5 Net profit attributable to shareholders 2,581 2,124 21.5 Earnings per share (sen) 76.9 63.3 21.5 Total assets 196,163 174,155 12.6 Loans, advances and financing (net) 118,386 99,328 19.2 Deposits from customers 162,280 138,765 16.9 Shareholders’ equity 9,537 9,342 2.1 Net interbank lending 38,090 40,516 (6.0) Net return on equity 30.4% 26.3% 4.1 Cost to income ratio 31.2% 33.1% (1.9) Net non-performing loans ratio 0.9% 1.2% (0.3) Loan loss coverage 159.7% 119.5% 40.2 Net loan to deposit ratio 73.0% 71.6% 1.4 Risk-weighted capital ratio 13.7% 13.6% 0.1

Profits and Dividends g The Public Bank Group’s pre-tax profit improved by 12.5% g The Board of Directors recommends a final cash dividend of to RM3.38 billion in 2008 as compared to RM3.00 billion in 25 sen less 25% tax and a share dividend of 1 ordinary 2007, on the back of strong growth momentum of 9.9% in share of RM1.00 each for every 35 ordinary shares of operating revenue. Net profit attributable to shareholders of RM1.00 each held, to be distributed from the treasury shares the Group increased by 21.5% to RM2.58 billion. The strong held by Public Bank arising from share buy-backs by the profit performance was mainly attributed to healthy growth in Bank. Together with the interim dividend of 30 sen less 26% net interest and financing income and other operating income, tax, the total dividend for the financial year 2008 would as well as continued improvement in asset quality to a new amount to 55 sen gross cash dividend and a share dividend low net non-performing loan (“NPL”) ratio of 0.9%. which is equivalent in value to a gross dividend of 33.7 sen based on the share price of the Public Bank (Local) share of g Net return on equity for 2008 increased to 30.4% from RM8.85 as at 31 December 2008. The total value of 26.3% in 2007. dividends is equivalent to a gross dividend of 88.7 sen per g Earnings per share for 2008 increased by 21.5% to ordinary share for 2008, 18.3% higher as compared to the 76.9 sen from 63.3 sen in 2007. total gross dividend of 75 sen per ordinary share in 2007. g The Public Bank Group’s cost to income ratio was lower at 31.2% from 33.1% in 2007 reflecting continued improvement in productivity and efficiency.

122 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Profit Before Tax By Business Segment g Corporate lending registered a decrease in pre-tax profits to 2008 2007* RM96.7 million in 2008 from RM’million RM’million RM151.9 million in 2007 due mainly to net NPL recovery of RM49.7 million Retail Operations 2,731 2,201 in the previous year and additional Hire Purchase 224 268 specific allowance amounting to Corporate Lending 97 152 RM43.1 million in 2008 mainly in respect of impaired loans of its Hong Treasury and Capital Market Operations 291 291 Kong’s operations coupled with full Investment Banking 75 166 allowance made for old non-performing Fund Management 183 183 loan accounts secured by properties Others 15 6 which were more than seven years in arrears, whereby no value is assigned 3,616 3,267 to the collateral. Unallocated head office expenses, general g Despite the challenging market allowances and share of associated environment in 2008, Treasury and companies’ net profit (237) (263) Capital Market Operations and Fund Profit before taxation 3,379 3,004 Management recorded commendable pre-tax profits of RM291.1 million and * Comparative figures have been restated as a result of the early adoption of RM183.3 million respectively, FRS 8 Operating Segments marginally higher as compared to the previous financial year. g Retail Operations, being the core g Hire Purchase Operations registered a g Investment Banking’s pre-tax profits business of the Public Bank Group lower pre-tax profits of RM224.4 million declined by 55.0% to RM74.9 million accounted for 80.8% of the Group’s as compared to RM267.5 million in in 2008, caused by the lacklustre profit before tax in 2008, recording a 2007, a 16.1% decline due mainly to performance and low trading volumes 24.1% growth from the previous higher cost of funds and lower lending on Bursa Securities. financial year. rates.

Profit Before Tax By Geographical Locations and Major Companies

2008 2007 % of % of RM’million contribution RM’million contribution

In Malaysia 3,058 90.5 2,552 85.0 of which: Public Bank Berhad* 2,539 75.1 2,343 78.0 Public Islamic Bank Berhad** 64 1.9 — — Public Mutual Berhad 183 5.4 183 6.1 Public Investment Bank Berhad 33 1.0 96 3.2 Outside Malaysia 321 9.5 452 15.0 of which: Public Financial Holdings Group (Hong Kong) 166 4.9 348 11.6 Cambodian Public Bank Plc (Cambodia) 127 3.7 83 2.7 Profit before taxation 3,379 100.0 3,004 100.0 * Profit before dividends from subsidiaries and associated companies ** Public Islamic Bank Berhad commenced its Islamic banking business with effect from 1 November 2008 g Domestic operations accounted for 90.5% of the Public Bank Group’s pre-tax profits. The Group’s pre-tax profits contribution by its overseas operations declined to RM321.0 million or a 29.0% decrease in 2008 due mainly to an increase in allowance for impaired loans of its subsidiary companies in Hong Kong and higher overheads as a result of increased sales force and branch network expansion. The Group’s profits from its operations in Cambodia increased by 53.4% to RM126.7 million. Chairman’s Review 123 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Balance Sheet Growth, Asset Quality and Capital g Loan loss coverage further increased to 159.7% as at the Position end of 2008 as compared to 119.5% as at the end of 2007, and continued to be the highest and most prudent in the g Public Bank Group’s total assets increased by Malaysian banking industry. RM22.01 billion or 12.6% during the year to reach RM196.16 billion as at the end of 2008. g The liquidity position of the Public Bank Group remains strong with its net loan to deposit ratio standing at 73.0%. g Total net loans and advances showed strong growth of The healthy and strong liquidity position of the Group is 19.2%, increasing by RM19.06 billion to RM118.39 billion as further reflected in its net interbank lending position of at the end of 2008. RM38.09 billion as at the end of 2008. g Total customer deposits grew by RM23.51 billion or 16.9% g Risk-weighted capital ratio remains strong at 13.7% as at the to stand at RM162.28 billion as at the end of 2008. end of 2008, well above the statutory minimum requirement g Net non-performing loans ratio improved from 1.2% as at the of 8.0%. end of 2007 to a new low net NPL ratio of 0.9% as at the end of 2008, approximately one third of the banking industry’s net NPL ratio of 2.4%.

Loans & Advances Continued Strong Organic Loans Growth and Increasing Market Share

Loans, Advances and Financing Public Bank Group Outstanding (Gross) Growth rate 2008 2007 2008 2007 % %

Group (RM’mil)* 120,669 101,415 19.0 20.2 Public Bank (RM’mil) 94,691 Public Islamic Bank Berhad (RM’mil)** 12,440* 107,131 91,726* 16.8 18.8 Public Bank (Hong Kong) Ltd (HKD’mil) 20,124 15,464 30.1 51.2 Cambodian Public Bank Plc (USD’mil) 644 363 77.4 129.7 * Including Islamic Financing sold to Cagamas ** The Islamic Banking business of Public Bank Berhad was vested to Public Islamic Bank Berhad on 1 November 2008.

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Net Loans – Outstanding balance and market share Loan growth vs industry

14.4 14.9 23.9 125,000 13.2 15 25 21.8 11.1 12.0 19.7 20.2 19.0 100,000 12 20 75,000 9 15 8.5 8.6 8.8 50,000 6 10 6.4 RM’million Percentage Percentage 25,000 3 5 11.0

0 55,719 66,813 82,788 99,328 118,386 0 0 ‘04 ‘05 ‘06 ‘07 ‘08 ‘04 ‘05 ‘06 ‘07 ‘08 Year Year Loans, advances and financing Loan growth – Public Bank Domestic loan market share Loan growth – Industry

g The Public Bank Group achieved a gross loan growth rate 2008 Gross Loans – Economic Purposes of 19.0% in 2008, well above the banking system’s year-on- year loan growth rate of 11.0% as at November 2008. The 1.5% Purchase of securities Group’s strong loan growth over the past few years has 24.3% Purchase of transport vehicles been commendable as reflected by loan growth rates which 26.7% Purchase of residential properties were well above the industry’s loan growth rates. 19.7% Purchase of non-residential properties 0.2% Purchase of fixed assets g Total gross loans, advances and financing, including Islamic 6.0% Personal use financing sold to Cagamas, increased to RM120.67 billion as 0.9% at the end of 2008 from RM101.41 billion a year ago. 1.2% Construction g The Public Bank Group’s domestic market share for loans 15.6% Working capital and advances further strengthened to 14.9% as at the end 3.9% Other purpose of 2008 from 14.4% as at the end of 2007 and 11.1% as at the end of 2004. g The Public Bank Group’s lending activities continued to be focused on retail loans, with commercial lending to SMEs as well as consumer loans for the financing of residential properties and transport vehicles accounting for 65.4% for the Group’s total loan portfolio. g The Public Bank Group’s strong expansion of loans is driven mainly by the financing of residential properties, SMEs and transport vehicles which increased by 20.9%, 8.9% and 12.0% respectively in 2008 to stand at RM32.22 billion, RM22.96 billion and RM29.28 billion respectively as at the end of 2008.

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Asset Quality Superior and Robust Asset Quality vis-à-vis Banking Peers g The Public Bank Group’s asset quality has remained the best in the banking Gross NPL and Net NPL industry, a testimony to the Group’s prudent credit culture and stringent 2,000 3.0 2.7 lending policies, with its net NPL ratio 1,600 2.5 2.1 of 0.9% being one third of the industry 2.1 1.9 2.0 1,200 net NPL ratio of 2.4%. The Group 1.4 1.5 1.7 1.6 has been able to maintain its track 800 1.0 1.2 1.0 record of superior asset quality by

RM’million 0.9 Percentage 400 0.5 having in place a rigorous credit risk management infrastructure and 1,510 0 1,212 1,406 1,173 1,578 1,320 1,404 1,250 1,210 1,037 0 ‘04 ‘05 ‘06 ‘07 ‘08 thorough and stringent processes at Year the various stages of loan processing Gross NPL Net NPL and loan approval, as well as the Gross NPL ratio Net NPL ratio efficient restructuring, rescheduling and rehabilitation of non-performing loans.

g Despite the deterioration and volatility Gross NPL ratio by Public Bank Group Latest available in global credit markets, the Public sector 2008 2007 industry average Bank Group’s asset quality remained % superior as gross NPLs continued to % % show a declining trend. The Group’s Consumer: net NPLs further decreased by Residential properties 1.6 2.4 4.8 RM212.5 million or 17.0% to Transport vehicles 0.6 0.9 1.4 RM1.04 billion as at the end of 2008, despite a RM19.25 billion growth in Credit cards 1.5 1.6 1.8 the total loan base. g Gross NPL and net NPL ratios further Net NPL ratio Public Bank Group improved to 1.0% and 0.9% respectively as at the end of 2008 as 2008 2007 compared to 1.4% and 1.2% % % respectively as at the end of 2007. Group 0.9 1.2 These NPL ratios showed consistent improvement over the past 4 years Public Bank 0.9 1.3 despite the already low gross and net Public Financial Holdings Group 0.6 0.6 NPL ratios of 2.7% and 2.1% Cambodian Public Bank Plc Nil Nil respectively as at the end of 2004. g The Public Bank Group’s gross NPL ratio in the consumer and SME industry average of 4.8% and 1.4% respectively. The Group’s gross NPL ratio for sectors remained well below the credit cards of 1.5% as at the end of 2008 is lower than the industry’s average of industry’s average. The Group’s gross 1.8%. NPL ratio for residential mortgages of g The low net NPL ratios of the various major subsidiaries including the Public Bank 1.6% and financing of transport Group’s overseas subsidiaries reflects the consistent application of the Group’s vehicles of 0.6% as at the end of prudent lending policies across all the companies within the Group. 2008 is approximately one third the

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NPL formation Q1 Q2 Q3 Q4 2008 2007

Group New NPL (RM’mil) 565.2 519.6 561.2 668.1 2,314.1 2,583.6 Reclassified as performing (RM’mil) (499.5) (486.8) (442.4) (477.7) (1,906.4) (2,177.0) Net new NPL formation (RM’mil) 65.7 32.8 118.8 190.4 407.7 406.6 NPL formation rate (%) 0.06% 0.03% 0.10% 0.16% 0.37% 0.44%

Bank New NPL (RM’mil) 531.6 487.8 496.8 507.4 2,023.6 2,468.7 Reclassified as performing (RM’mil) (499.5) (486.8) (442.4) (411.2) (1,839.9) (2,176.8) Net new NPL formation (RM’mil) 32.1 1.0 54.4 96.2 183.7 291.9 NPL formation rate (%) 0.03% 0.00% 0.05% 0.10% 0.19% 0.35% g The Public Bank Group’s and Public Bank’s NPL formation g The Public Bank Group’s excellent asset quality is rate had declined from 0.44% and 0.35% respectively in complemented by its healthy loan loss coverage ratio, before 2007 to 0.37% and 0.19% respectively in 2008, as a result taking into account collateral, of 159.7%, which is significantly of close monitoring of loans in arrears. On a quarter to higher than the banking industry’s coverage ratio of 84.5% quarter basis, the NPL formation has remained stable for as at November 2008. The Group’s loan loss coverage ratio both the Group and the Bank, another testament to the increased as a result of setting aside additional general Group’s prudent credit culture. allowance while maintaining stable levels of NPLs. g As at the end of 2008, the Public Bank Group’s general allowance of RM1.76 billion exceeded the entire net NPL amount of RM1.04 billion despite that more than 90% of the NPLs are secured.

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Customer Deposits Healthy Expansion in Customer Deposits

Deposits from customers – Outstanding balance and market share Deposits growth vs industry

14.8 14.8 43.9 180,000 15 50 14.2 150,000 40 32.9 14 120,000 13.2 30 24.1 12.4 90,000 13 16.4 16.9 20 Percentage

RM’million 60,000 Percentage 12 10 30,000 16.8 17. 5 12.7 0 72,246 84,130 111,793 138,765 162,280 11 0 11.0 9.3 ‘04 ‘05 ‘06 ‘07 ‘08 ‘04 ‘05 ‘06 ‘07 ‘08 Year Year

Deposits from customers Deposits growth – Public Bank Deposits market share Deposits growth – Industry

2008 – Customer Deposits Mix 2008 Customer Deposits By Type of Customers

9.7% Demand deposits 0.8% Federal and state governments

11.7% Saving deposits 1.4% Local government and statutory authorities 47.8% Fixed deposits 22.6% Business enterprises 9.3% Negotiable instrument of deposit 42.9% Individuals

20.7% Money market deposits 8.6% Foreign customers

0.8% Other deposits 23.7% Others

g Total customer deposits expanded by RM23.51 billion or Core customer deposits continue to be the largest component 16.9% to stand at RM162.28 billion as at the end of 2008 of total customer deposits with outstanding balances as compared to the industry’s annualised deposit growth rate accounting for approximately 69% of the Group’s total of 9.3% as at November 2008. Over the years, the Public customer deposits as at the end of 2008. Bank Group has consistently registered strong deposit g The strong deposits growth led by the Public Bank Group’s growth at rates that are above the industry’s rate of growth superior customer service delivery, extensive branch network of deposits. and strong PB Brand has translated into a strong market g The Group’s wholesale funding position which comprise share of domestic customer deposits of 14.8% as at the end money market deposits and negotiable instruments of of 2008. deposits grew by 14.3% to RM48.63 billion in 2008. g Deposits mobilised from individuals accounted for 42.9% of g The core customer deposits of the Group comprising savings the Public Bank Group’s total customer deposits as at the deposits, current accounts and fixed deposits expanded by end of 2008. This represented an 18.0% domestic market 12.4%, 12.5% and 20.2% respectively during the year as share of deposits by individuals as at November 2008, compared to the domestic industry annualised growth rate of providing the Group with a low-cost and stable deposit 6.6%, 2.0% and 5.3% respectively as at November 2008. base.

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Funding and Liquidity Stable and Diversified Funding Base and Strong Liquidity

2008 Group Funding Profile

18.0% Core customer deposits 0.4% Term loans – one year or less – one year or less

40.2% Core customer deposits 2.2% Subordinated notes – more than one year – more than one year

13.2% Wholesale deposits 1.1% Hybrid capital – one year or less – more than one year 12.7% Wholesale deposits 2.4% Recourse obligations on loans – more than one year sold to Cagamas

2.9% Deposits and placements 1.6% Bills and acceptances payable of banks and other financial institutions – one year or less 5.3% Equity

Liquid Assets Profile

36.8 70,000 33.6 33.6 36.2 40 60,000 30.9 35 50,000 30 40,000 25 20 30,000 15 RM’million 20,000 10 Percentage 10,000 5 0 31,028 37,567 54,417 63,099 60,656 0 ‘04 ‘05 ‘06 ‘07 ‘08 Year Liquid Assets Liquid Assets Ratio

g Funding composition has remained stable over the years, g The strong liquidity position of the Public Bank Group is also reflecting the Public Bank Group’s strong credit rating and reflected in its net loan to deposit ratio of 73.0% as at the diversified sources of funding. Core sources of funding such end of 2008. as core customer deposits and wholesale deposits which g Subordinated notes and hybrid capital securities issued accounted for 58.2% and 25.9% respectively of the Group’s provide long-term funding and forms 3.3% of the total funding provide a stable source of funding and ensures the funding base of the Public Bank Group. strong liquidity level of the Group. g Liquid assets of the Public Bank Group has increased approximately 2 times from RM31.03 billion as at the end of 2004 to RM60.66 billion as at the end of 2008. This represents 30.9% of the Group’s total assets as at the end of 2008, providing a strong buffer against any adverse funding conditions.

Chairman’s Review 129 2008 ANNUAL REPORT PUBLIC BANK BERHAD KEY FINANCIAL INDICATORS Setting high standards The table below summarises the continuous improvement in the key financial indicators of the Public Bank Group and the medium- term targets set by the Group:

Medium Term Key Financial Indicators 2004 2005 2006 2007 2008 Targets

Profitability (%) Net Return on Equity 16.5 19.1 21.9 26.3 30.4 30.0 Cost-to-Income Ratio 35.3 33.8 32.7 33.1 31.2 30.0

Asset Quality (%) Net NPL Ratio 2.1 1.7 1.6 1.2 0.9 below 1%

Balance sheet (RM’billion) Assets 92.4 111.7 147.8 174.2 196.2 270.0 Net loans 55.7 66.8 82.8 99.3 118.4 160.0 Deposits 72.2 84.1 111.8 138.8 162.3 230.0

The Public Bank Group is committed to The strong financial performance was also Over the past few years, the Public Bank pursue long-term expansion and the underpinned by consistently strong and Group has demonstrated a track record maintenance of its market leadership improving asset quality. Net NPL ratio of of delivering superior financial performance. position, as well as further enhancing its the Public Bank Group continued to fall The Group is committed to build on this returns to its shareholders. The macro key consistently from 2.1% as at the end of record. In its medium-term plans, the performance objectives include delivering 2004 to a new low of 0.9% as at the end Group is targeting to increase its loans, consistent growth year-on-year in terms of of 2008. deposits and balance sheet to profitability and balance sheet as well as RM160 billion, RM230 billion and maintaining a high quality loan portfolio The Public Bank Group’s strategy of RM270 billion respectively in 3 years’ and improved productivity. pursuing strong organic business growth time with a net return on equity of 30.0% has yielded remarkable results in terms of whilst maintaining a stable net NPL ratio The Public Bank Group’s strong balance sheet growth. Total assets have of below 1.0% and a cost-to-income ratio profitability growth has led to rising net more than doubled from RM92.40 billion of 30%. return on equity from 16.5% in 2004 to as at the end of 2004 to RM196.16 billion 30.4% in 2008. In terms of cost efficiency, as at the end of 2008. Total net loans the cost-to-income ratio of the Group has expanded from RM55.72 billion as at the improved from 35.3% in 2004 to 31.2% end of 2004 to RM118.39 billion as at in 2008, maintaining the lowest cost-to- the end of 2008, consistently achieving income ratio amongst Malaysian banking annual loan growth rates of close to or groups. more than 20% over the past 5 years. The Group has also doubled its deposits base from RM72.25 billion as at the end of 2004 to RM162.28 billion as at the end of 2008.

130 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD BENCHMARKING AGAINST BANKING INDUSTRY’S PERFORMANCE The table below compares the key financial indicators of the Public Bank Group with those of the banking system in Malaysia.

2008 2007 Public Latest Public Latest Bank Industry Bank Industry Group Average Ranking# Group Average Ranking#

Profitability (%) Pre-tax Return on Average Equity 36.9 22.0 1 34.5 19.7 1 Pre-tax Return on Average Assets 1.8 1.7 @ 1.9 1.5 @ Cost-to-Income Ratio 31.2 43.9 1 33.1 43.9 1 Productivity (RM’000) Pre-tax Profit/Employee 209 199 1 210 168 @ Gross Loans/Employee 7,467 6,546 1 7,098 5,818 1 Deposits/Employee 10,042 8,596 1 9,713 7,884 1 Asset Quality (%) Gross NPL Ratio 1.0 4.3 1 1.4 5.6 1 Net NPL Ratio 0.9 2.4 1 1.2 3.2 1 Loan Loss Coverage 159.7 84.5 1 119.5 73.5 1 Growth rate (%) Assets 12.6 7.7* NA 17.8 11.8* NA Gross loans 19.0 11.0* NA 20.2 8.9* NA Deposits 16.9 9.3* NA 24.1 17.5* NA

* Banking industry annual growth rate # Latest available ranking for domestic commercial banking operations @ Above industry average; ranking not available NA Not available

The Public Bank Group continued to ratio of 31.2% was the lowest amongst The Public Bank Group’s asset quality strengthen its market share of total loans Malaysian banking groups and is well and loan loss coverage has remained the from 14.4% as at the end of 2007 to below the industry’s average of 43.9%. best in the industry with the lowest net 14.9% whilst its market share of total NPL ratio and highest loan loss coverage. deposits remained strong at 14.8% as at A key strategy of the Public Bank Group The Group’s gross and net NPL ratios November 2008. The Group’s total assets to maintain its profitability growth in an improved to 1.0% and 0.9% respectively represent a sizeable 12.7% share of the environment of intense competition is to as compared to 1.4% and 1.2% domestic market total assets as at enhance the productivity of its staff. The respectively as at the end of 2007. The November 2008. productivity of the Group’s staff continued Group’s net NPL ratio is about one third to be strong as reflected by the Group’s that of the banking system’s ratio of 2.4% The Public Bank Group remained the pre-tax profit per employee which remained as at November 2008, reflecting the clear leader in the domestic commercial high at RM209,000, whilst its gross loans Group’s prudent credit risk management. banking sector in terms of profitability and per employee and total deposits per The Group’s loan loss coverage stood at cost efficiency. The pre-tax return on employee achieved 5.2% and 3.4% 159.7% as at the end of 2008 as average equity and pre-tax return on growth respectively to RM7.5 million and compared to the industry’s average of average asset of 36.9% and 1.8% RM10.0 million respectively as at the end 84.5% as at November 2008. respectively were above the banking of 2008. The Group continued to rank industry’s average of 22.0% and 1.7% no.1 in terms of productivity per employee respectively. The Group’s cost-to-income amongst its domestic commercial banking peers. Chairman’s Review 131 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The table below compares the key financial indicators of the Public Bank Group with those of the leading regional banks in the Asia Pacific region.

Net return Cost to Dividend on equity income ratio payout ratio Banks % % %

Public Bank Group 30.4 31.2 86.1* SINGAPORE DBS Group 12.7 42.5 44.3 UOB 12.6 41.4 54.9 OCBC 14.8 39.2 46.0 HONG KONG Hang Seng Bank 35.4 26.6 66.0 Hongkong and Shanghai Bank Corporation Limited of Hong Kong (“HSBC HK”) 32.1 37.1 39.6 AUSTRALIA ANZ Bank 14.5 46.8 82.6 of Australia 19.3 48.9 74.1 National Australia Bank 14.5 55.4 81.4 * Including share dividend

When benchmarked against the leading regional banks, the Public Bank Group’s key financial indicators were also outstanding. In the Asia Pacific region, the Group’s net return on equity of 30.4% was the third highest after Hang Seng Bank and HSBC HK, reputed for their capital efficiency and high profitability. Public Bank Group’s cost-to-income ratio is the 2nd lowest after Hang Seng Bank.

The Public Bank Group will continue to benchmark itself against the leading banks in the region in its effort to further improve its return on equity, capital efficiency and in the Group’s continued commitment to the delivery of excellence.

132 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD CAPITAL MANAGEMENT Capital Management Framework and Strategies

The Public Bank Group pursues a pro- g Capital levels to maintain Public g Assigning return on equity as one of active approach to capital management. Bank’s strong credit rating the key performance indicators for This involves continuous review of the g Allocating appropriate amounts of assessing branch managers’ and Group level and composition of capital, capital level to business units and business heads’ performance achieved by putting in place a Group subsidiaries to optimise return on g Growing non-interest income sources Capital Management Framework with the capital which are less capital intensive following key objectives:- g Significant focus on measuring risk g Meeting regulatory capital The Public Bank Group seeks to achieve adjusted return on capital in evaluating requirements these objectives through a process of business proposals continuous monitoring and review of the g Optimising returns to shareholders g Continuous monitoring of the robustness Group’s capital position. This process g Maintaining adequate levels and of its capital and an efficient mix of also involves the establishment of a optimum mix of different sources of capital through a 3-year capital plan detailed strategic plan over a medium- capital to support underlying risks of term time horizon which incorporates the g Maintaining flexibility to enhance its business. Adequate capital should following key initiatives:- capital efficiency through the be available to withstand market distribution of treasury shares to g Continuous enhancement of the shocks and stress enhance equity capital efficient usage of capital

Efficient Capital Structure and Enhancing Value to Shareholders

Public Bank Group Public Bank 2008 2007 2008 2007

Shareholders’ equity (RM’mil) 9,537 9,342 9,392 9,351 Capital base (RM’mil) 15,775 13,478 12,729 11,869 of which: Tier 1 capital (RM’mil) 9,597 8,973 10,277 9,917 – equity capital 8,157 7,627 8,736 8,429 – debt capital 1,440 1,346 1,541 1,488 Tier 2 capital (RM’mil) 6,178 4,505 5,771 4,222 – loan loss reserves 1,759 1,523 1,433 1,382 – debt capital 4,419 2,982 4,338 2,840 Risk weighted assets (RM’mil) 115,342 99,092 94,647 89,152

Public Bank Group Public Bank Banking 2008 2007 2008 2007 System1

Core capital ratio 8.3% 9.1% 10.9% 11.1% 10.4% Ratio-weighted capital ratio 13.7% 13.6% 13.4% 13.3% 12.5%

1 As at 30 November 2008

Chairman’s Review 133 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The Public Bank Group’s and Public RM1.4 billion Subordinated Notes The Public Bank Group’s healthy level of Bank’s risk-weighted capital ratio from this Medium-Term Notes capital, including its subordinated notes (“RWCR”) remained strong at 13.7% and Issuance Programme. The Group’s and innovative Tier-1 capital securities 13.4% respectively as at the end of 2008 proactive measures in issuing and healthy dividend payout ratios has as compared to the banking system’s Innovative Tier-1 Capital Securities translated into a significant improvement RWCR of 12.5% and were well above and Subordinated Notes has allowed in the Group’s net return on equity from the statutory requirement of 8.0%. The the Group to pursue significant 16.5% in 2004 to 30.4% in 2008. With core capital ratio of the Group and the growth of its business without robust business fundamentals, strong Bank stood at 8.3% and 10.9% burdening shareholders for equity business growth, best asset quality in the respectively as at the end of 2008. capital and reducing the cost of industry and consistently high dividend capital, thus further enhancing the yields, Public Bank shares has all the The Public Bank Group has always sought Group’s return on equity. ingredients of a sound defensive stock. to maintain an efficient level of capital to Since the beginning of 2004, Public support the growth of the Group’s (ii) Share buy-backs Bank’s share price had appreciated by business. On 1 January 2008, the Public To date, Public Bank has bought 56% to RM8.85 per Public Bank (Local) Bank Group adopted the Standardised back a total of 176.3 million of the share and the price to book ratio has Approach for credit and market risks as Bank’s shares at a total cost of increased from 2.1 times as at the well as the Basic Indicator Approach for RM1.27 billion. This represent 5.0% beginning of 2004 to 3.1 times as at the operational risk under the Basel II Capital of the issued and paid-up share end of 2008. Despite periods of stock Accord. capital of the Bank. These shares market volatility as experienced recently in bought back were held as treasury the equity market, the value enhancement In its pursuit of an efficient capital shares. In 2008, the Board of to shareholders is still laudable. structure, the Public Bank Group had Directors of the Bank is proposing implemented several key strategies over to distribute 95.88 million of the Public Bank’s value in terms of market the years as follows: treasury shares to shareholders of capitalisation has nearly tripled from RM10.97 billion as at the end of 2002 to (i) Gearing up of capital the Bank as a share dividend of 1 treasury share for every 35 ordinary RM31.15 billion as at the end of 2008. Since 2004, the initiatives to gear shares held by shareholders. The Kuala Lumpur Composite Index up the capital of Public Bank had (“KLCI”) suffered steep foreign selling in included the issuance of a total of (iii) Healthy dividend payout 2008, tumbling 39.3% since the beginning USD750 million Subordinated Notes of 2008. Public Bank (Local) and Public and two issuances of Innovative The Public Bank Group maintained Bank (Foreign) share price remained Tier 1 Capital Securities amounting its healthy dividend payout in 2008. resilient, dropping 19.6% and 20.5% to USD200 million and RM1.2 billion. In addition to the interim dividend of respectively in 2008, significantly less The issuance of Innovative Tier-1 30 sen less 26% taxation, the Board than the drop in the KLCI. Public Bank Capital Securites has allowed the of Directors has proposed a final achieved yet another milestone in 2008 in Group to enhance its capital cash dividend of 25 sen less 25% terms of market capitalisation when it efficiency through share buy-backs taxation and a share dividend of became the largest listed bank on Bursa without compromising on the Group’s 1 ordinary share of RM1.00 each for Securities and improved its position from level of capital to support business every 35 ordinary shares of RM1.00 being the 5th largest listed company as at growth. each held, to be distributed from the the end of 2007 to be the 3rd largest treasury shares held by Public Bank listed company on Bursa Securities by During the year, Public Bank arising from share buy-backs by the market capitalisation as at the end of obtained the approval of Bank Bank. The distribution of cash and 2008. Negara Malaysia and the Securities share dividends during the year Commission for the setting up of a totalling RM2.22 billion, represent RM5.0 billion Subordinated Medium- 86.1% of the Group’s net profit Term Notes Issuance Programme attributable to equity holders of to further enhance its capital. Public Bank for 2008. In May 2008, Public Bank issued

134 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD CREDIT RATINGS

Public Bank Berhad Long Term Short Term

RAM AAA P1 Moody’s A3 P-1 Standard & Poor’s A- A-2

In September 2008, Rating Agency In December 2008, Standard & Poor’s Malaysia (“RAM”) reaffirmed Public Bank’s reaffirmed Public Bank’s long-term credit long-term and short-term general banking ratings of A- and short-term credit rating ratings at AAA and P1 respectively. The of A-2. The Bank continues to be one of AAA and P1 rating is the highest rating only two Malaysian banks with single A assigned by RAM and reflects the Bank’s ratings by Standard & Poor’s. The high ability to offer the highest level of safety credit ratings reflect Public Bank’s position for timely payment of its financial as a top-tier commercial bank, its strong obligations. The reaffirmation of the domestic retail franchise, good track highest ratings was based on the Bank’s record and sound financial profile strong financial profile, underpinned by its underpinned by good asset quality and track record of superior asset quality and strong income generation capability. sustainable profitability. Concurrently, the Standard & Poor’s has revised the outlook long-term ratings of the Bank’s RM1.4 of Public Bank from positive to stable to billion Subordinated Medium-Term Notes reflect the uncertainty in Malaysia’s outlook (“MTN”) issued under its Subordinated as a result of changes in the overall MTN Programme was assigned a rating political landscape after the general of AA1 whilst the rating of the Bank’s elections in March 2008. RM1.2 billion Innovative Tier-1 Capital Securities was reaffirmed at AA2.

In November 2008, Moody’s Investors Service reaffirmed Public Bank’s long- term deposit rating of A3 and short-term deposit rating of P-1. The Bank’s Financial Strength Rating of C was also reaffirmed for its strong earnings, underpinned by its well-established and profitable franchise, as well as its very liquid and adequately capitalised balance sheet. The USD750 million subordinated notes and USD200 million Innovative Tier-1 Capital Securities issued by the Bank were both rated at A3.

Chairman’s Review 135 2008 ANNUAL REPORT PUBLIC BANK BERHAD IMPACT OF FRS 139 Financial Instruments: RECOGNITION AND Measurement

In August 2008, the Malaysian Accounting The project was divided into the following stages: Standards Board (“MASB”) announced its 1. A gap analysis which involved an assessment of the Group’s current financial plan to bring Malaysia to full convergence reporting policies, underlying financial reporting information system and processes with International Financial Reporting and presentation of financial statements as compared to the requirements under Standards by 1 January 2012. This move FRS 139. will help place Malaysia’s capital market and companies on the same level playing 2. Development of a detail plan for compliance with FRS 139 which comprised field with international markets. As part of phases of technical evaluation, design, development and testing of systems. a phased convergence, the MASB announced that the effective date for 3. Actual implementation phase which included changes to accounting policies and applying Financial Reporting Standard information systems where required, developing methodologies and bases for key 139 (“FRS 139”) will be 1 January 2010. affected areas, system programming, process mapping and refinement as well as The adoption and application of FRS 139 documentation of methodologies and policies to be adopted. have major implications for banks as the 4. Close monitoring of the progress and achievement of the scheduled plan requirements for the accounting of milestones of the project as well as further refinement and enhancements where financial instruments under FRS 139 are required. complex and involve substantial changes to systems, processes and documentation. 5. Review of the various processes by the external auditors.

Public Bank’s preparation for FRS 139 The key areas identified by the Project Team which would impact the financial results had started in early 2007 with the setting of the Group are: up of a FRS 139 Project Team headed A. Areas covered under the BNM/GP8 Guidelines on Financial Reporting by the Chief Financial Officer of the Bank for Licensed Institutions which have already been adopted by the with key members from Finance Division Group and Risk Management Division of the Bank. The effort to prepare for the 1. Classification and measurement of securities implementation of FRS 139 also included Investment securities of the Group are classified according to the following significant involvement and contribution categories at initial recognition depending on the purpose for which the from the various business divisions as securities are acquired. well as the Information Technology Division of the Bank, especially in the areas of Securities Measurement Changes Impairment test extraction and analysis of historical data in fair value (if there is from various key systems in the Bank. The objective external auditors, Messrs KPMG, have evidence) worked closely with the Project Team in the preparation effort through the review Held-for-trading Fair value Income No of bases and methodologies to be statement adopted and resolution of various interpretation issues relating to FRS 139. Available-for-sale Fair value Equity Yes Held-to-maturity At amortised Not applicable Yes cost

136 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

2. Recognition of derivative B. Areas not covered under the BNM/GP8 Guidelines on Financial financial instruments and Reporting for Licensed Institutions and which have yet to be adopted hedge accounting by the Group All derivative financial instruments 1. Loan impairment are required to be recognised at fair value on the balance Presently, the Public Bank Group’s loan loss allowance is determined in sheet. accordance with BNM/GP3 Guidelines on the Classification of Non- Performing Loans and Provision for Substandard, Bad and Doubtful Debts FRS 139 requires that hedges (“BNM/GP3”). Consistent with previous years, the Group has adopted a meet certain criteria in order to more stringent policy on non-performing loans, whereby loans are classified qualify for hedge accounting. as non-performing and substandard when repayments are in arrears for more These include requirements for than three months from the first day of default or after maturity date. The formal documentation of the Group’s policy on provisioning requirements for non-performing loans is as hedging relationships as well set out below: as rules on hedge effectiveness. Period of default Classification Specific allowance A hedging relationship qualifies on the shortfall in for hedge accounting if, at collateral value inception of the hedge, there is over the formal documentation of the outstanding loan hedging relationship and risk amount management objectives and strategy for undertaking the 3 months from the first day Substandard 20% hedge. of default but less than 9 months Where fair value hedge 9 months from the first day Doubtful 50% accounting criteria are met, fair of default but less than 12 value changes on both the months hedged item and the hedging instrument will be recognised 12 months and above Bad 100% directly in the income statement. Where cash flow hedge Under FRS 139, the Group will not be allowed to recognise impairment until accounting criteria are met, fair objective evidence is available that a loss event has occurred. Loan impairment value changes on the related is calculated as the difference between the carrying amount and the present hedging instruments will be value of future expected cash flows discounted at the loan’s original effective deferred in an equity reserve interest rate. Significant loans will be assessed individually for impairment. and will then be transferred to Those loans that are not assessed individually as impaired will then be the income statement at the placed into portfolios of assets with similar risk profiles and be subjected to time the cash flows occur. a collective assessment of impairment. General allowance will be Where there is hedging of the discontinued. net investment in a foreign operation, the portion of the For the purposes of an individual evaluation of impairment, specific allowance gain or loss on the hedging for impaired loans is recognised when there is reasonable doubt over the instrument that is determined collectability of principal and interest in accordance with the loan agreement to be an effective hedge is (“an impaired loan”). Amounts to be provided for are determined by specific recognised directly in equity. identification or by management’s determination of probable losses for individual loans based on discounted expected future cash flows. The assumptions used for estimating future cash flows are reviewed regularly to reduce differences between loss estimates and actual loss experience.

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For the purposes of a collective evaluation of 2. Interest recognition impairment, exposures that are assessed collectively Presently, interest on loans is recognised in the are placed into pools of similar loans with similar income statement at contracted interest rates. FRS credit risk characteristics (for example, by collateral 139 requires interest income to be recognised on an types, geographical location, past due status and effective interest rate (“EIR”) basis. This will mainly other relevant common factors). Each portfolio of affect the Group’s loan portfolio with step-up interest individually smaller but characteristically homogenous rates, resulting in higher income recognition during the loans is collectively evaluated for impairment. The key initial period of the loan tenor under FRS 139 as the drivers of changes in the collective impairment effective interest rate is higher than the contracted allowances are observed historical loss experience, rate. Interest income will be lower in the later period which is determined by the probability of default and of the loan tenor when the effective interest rate is recoverability for each portfolio. Overall portfolio lower than the contracted rate. indicators, including historical credit losses and delinquency rates are considered in determining the Upon the adoption of FRS 139, a material positive probability of default of the portfolio. Probability of adjustment will be made to opening retained profits to recoverability is assessed based on the level of reflect the recognition of interest income on a constant collateral held of the loans comprising the portfolio, effective interest rate based on the carrying amount of determined on a loan-by-loan basis and based on the the loan. Group’s assessment of the loan’s collateral value at the time of loan application and any subsequent valuations. These historical loss experiences are built 3. Recognition of transaction costs on historical data of between three to five years of the respective pools of loans which are being assessed. Under FRS 139, except where a financial asset or liability is classified as fair valued through the income Upon the adoption of FRS 139, a significant positive statement, the amount initially recognised should adjustment will be made to opening retained profits as include any transaction costs and related fees. the cumulative impairment allowances is less than the Transaction costs must be direct and incremental to sum of the total outstanding specific allowances and the transaction, and are generally those paid to general allowances made which stands at 1.5% of external parties. This means that for items recorded at total net loans outstanding. Subsequent to the amortised cost, such expenses will be reflected in the adoption, there will be a positive impact to the annual effective yield. earnings as the amount of loan impairment charge required is expected to be significantly lower than the The adoption of FRS 139 in relation to recognition of sum of the specific allowances required and the 1.5% transaction costs is not expected to have a material general allowances made on the increase in loan base impact on the financial results of the Group as all under BNM/GP3. material transaction costs have already been capitalised and amortised.

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4. Embedded derivatives The progress of the project and the results of the parallel runs have been reported on a quarterly basis to the Board Under FRS 139, embedded derivatives are required to Executive Committee of the Bank. be separated and recorded at fair value, with gains and losses taken to the income statement, if: The overall impact arising from the implementation of i) the hybrid instrument is not already recorded at FRS 139 is positive and would result in: fair value with gains and losses taken to the 1. an increase in shareholders’ equity from general income statement; allowance written back and EIR adjustment upon initial ii) a separate instrument with the same terms as adoption of FRS 139. the embedded derivative would meet the 2. enhancing the Group’s annual earnings as a result of definition of a derivative; and lower allowances expected on impaired loans as iii) the economic characteristics and risks of the compared to the existing loan provisioning policy in embedded derivative are not “closely related” to accordance with BNM/GP3. those of the host instrument. 3. strengthening of the capital ratios of the Group as a result of a higher level of reserves and enhanced The adoption of FRS 139 in relation to embedded annual earnings. derivatives is not expected to have a material impact on the financial results of the Group.

The entire FRS 139 project was carried out in-house and the Public Bank Group is ready to adopt FRS 139, with ongoing minor refinement and enhancements to the methodologies and bases adopted. The Group will monitor developments on any technical amendments to existing guidelines issued by Bank Negara Malaysia which may incorporate the requirements of FRS 139. Meanwhile, existing prudential rules continue to apply. The actual impact to the Group’s financial result and the Group’s regulatory capital from the adoption of FRS 139 will depend on the treatment to be determined by Bank Negara Malaysia.

The Group had commenced parallel runs in the following key areas of FRS 139 since September 2007: 1. The assessment of loans impairment under FRS 139 for comparison against the current loan loss allowances made under BNM/GP3; and 2. The computation of interest income for multi-tier rate loans using the EIR bases under FRS 139 for comparison against the current bases using contracted rates.

Chairman’s Review 139 unmatched products & financial tools Our products and services are dynamically different, yet intrinsically the same. A common thread runs through our lineup of tools – we take great pains to tailor-make each offering to suit the sophisticated requirements of our customers. Indeed, our customers are staying ahead, equipped with all the right resources. 2008 ANNUAL REPORT PUBLIC BANK BERHAD business OPERATIONS REVIEW

142 Chairman’s Review 2008 ANNUAL REPORT staying ahead PUBLIC BANK BERHAD Retail Banking and Financing Operations

At a glance market share of the residential property loans sector increased from 14.2% as at 2008 2007 Increase/ the beginning of 2008 to 15.2% as at the (Decrease) end of the year as a result of achieving a % growth rate which was higher than the Retail Operations Segment industry’s loan growth rate.

Segment profit (RM’mil) 2,731.2 2,201.5 24.1 The Public Bank Group’s flagship Gross loans, advances and financing (RM’bil) 74.13 63.27 17.2 residential property loan packages, the of which: 5HOME (“Home Ownership Made Easy”) – Residential properties 31.58 26.20 20.5 Plan and MORE (“Mortgage Refinancing”) – SME 22.96 21.09 8.9 Plan continued to be the core lending – Personal loans 7.26 6.33 14.7 products for residential property loans. Net NPL ratio (%) 1.2 1.6 (0.4) During the year, a total of RM7.9 billion of residential property loans were approved Hire Purchase Segment under the 5HOME Plan and the MORE Segment profit (RM’mil) 224.4 267.5 (16.1) Plan. Of the total residential property loans approved in the year, the “Free Gross loans, advances and financing (RM’bil) 29.28 26.05 12.4 Legal Documentation” (“FLD”) package Net NPL ratio (%) 0.4 0.6 (0.2) under the 5HOME Plan and MORE Plan remained the most popular package. During the year, 18,487 loan applications or 42.9% of residential property loans In 2008, the Public Bank Group’s core CONSUMER CREDIT were approved under the FLD package. retail banking and hire purchase business accounted for 85.7% of total loans, Residential Property Financing To further penetrate the residential advances and financing of the Group. The The financing of residential properties property loan market, the Public Bank Group’s hire purchase loans and retail remained a key lending business activity Group continued its aggressive marketing loans which comprised mainly retail of the Public Bank Group. With the efforts through its well distributed network consumer loans and lending to SMEs healthy level of new household formation of 242 branches and an expanded sales grew by 15.8% to RM103.41 billion in in the country driving a robust demand for force of 501 Sales and Marketing 2008, continuing the Group’s track record residential houses, the Group saw Executives, up from 300 as at the of a rate of expansion of its retail lending sustained strong growth in its residential beginning of the year. In addition, the business that is well above the rate of property financing business. In 2008, the Group continued to expand and enhance growth of the Malaysian banking industry, Group approved total residential property its existing relationships with reputable leading to further market share gains. As loans amounting to RM8.4 billion, which developers, real estate agents and at the end of 2008, loans to consumers accounted for 24.5% of total retail loans solicitors for potential customer leads. accounted for 69.0% of the retail loans approved during the year. The Group’s Special end-financing packages with portfolio whilst loans to SMEs accounted lending to the residential property sector attractive pricing and special features for the balance of 31.0% of the retail grew by 20.5% or RM5.38 billion to stand were offered for 26 selected new housing loans portfolio. at RM31.58 billion as at the end of 2008 projects to attract house purchasers for and accounted for 26.2% of the Group’s these housing projects. During the year, total loans portfolio. The Group’s domestic the Group participated in 5 property

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roadshows and exhibitions held nationwide Vehicle Hire Purchase Financing was due partly to the Group’s aggressive such as the Penang International Property participation in 363 joint car sales In the first half of 2008, the overall promotions with established used car Expo 2008, the Malaysian Property Expo passenger vehicle industry remained dealers throughout the country. (MAPEX) 2008 in Kuala Lumpur, The Star strong and recorded total sales of Property & Home Fair 2008 in Penang, 254,252 units of new passenger vehicles During the year, the Public Bank Group the Financial Awareness Week 2008 in which was 27% higher than the total continued to upgrade the operational Johor Bahru and the Malaysian Property sales of 200,452 units of passenger efficiency of its vehicle hire purchase Expo (MAPEX) 2008 in Melaka as part of vehicles recorded in the corresponding financing business and improved its its marketing efforts in the residential period in 2007. However, the increase in customer service by centralising the hire property loan business. petrol prices in June 2008 and the global purchase operations of selected branches economic uncertainty adversely impacted to form another 3 Hire Purchase Centres. Public Bank’s residential property loans the demand for passenger vehicles Altogether, the Group has 26 Hire were predominantly given for the financing resulting in lower sales recorded by the Purchase Centres widely distributed all of residential properties costing between passenger vehicles industry in the second over Malaysia with over 1,000 experienced RM100,000 to RM250,000 which enabled half of 2008. staff force specially trained in vehicle hire middle income households to purchase purchase financing to serve a large their own houses. In 2008, 23,951 Despite the overall challenging business network of over 7,000 car dealers. The residential property loans were approved environment in 2008, the vehicle hire staff from these Hire Purchase Centres, for this segment, accounting for 53.2% of purchase financing business of the Public who are fully focused on providing vehicle the total number of residential property Bank Group maintained its leading market hire purchase financing to customers, are loans approved during the year. share, with a growth of RM3.23 billion committed to continuously improve their or 12.4% to reach RM29.28 billion as marketing activities, foster closer business The Public Bank Group also supports the at the end of 2008 as compared to relationships with car dealers and provide Government’s initiatives to promote home RM26.05 billion a year ago. The industry better turnaround time in the approval and ownership among low income earners. recorded a lower annualised growth rate disbursement of hire purchase financing. The Group continued to fulfill its of 9.4% as at November 2008. Notwithstanding this centralisation exercise obligations by widening its marketing Consequently, the Group’s market share in the hire purchase operations of Public efforts in the broad property sector to of passenger vehicle hire purchase Bank, vehicle hire purchase financing provide financing of residential properties financing increased to 23.7% as at the customers continue to enjoy the under this priority loan sector. In 2008, end of 2008, from 23.4% a year ago. convenience of accessing hire purchase the Group had committed to the financing financing, paying their monthly hire of a total of 2,028 units of low cost The strong performance of Public Bank’s purchase instalments and obtaining other properties costing RM100,000 and below vehicle hire purchase financing business hire purchase related services through for Peninsular Malaysia and RM120,000 was the result of higher consumer demand any of the Bank’s network of 242 branches and below for properties in East Malaysia. in the earlier part of 2008, prior to the nationwide. petrol price increase in June 2008, and As part of the Government’s initiatives to strong business support of major To assist existing vehicle hirers who were help ease the burden on Malaysians due passenger vehicle distributors and panel affected by the higher cost of living to the rising cost of living, the Employees car dealers. During this period, the Public especially due to the petrol price hike in Provident Fund (“EPF”) allows its members Bank Group also focused on the expansion June 2008, the Public Bank Group to withdraw from their EPF accounts to of the financing of used passenger provided greater flexibility in repayment pay the monthly instalments on their vehicles as well as commercial vehicles in terms to hirers by extending the repayment housing loans and to reduce the view of the better yields for the financing period of their vehicle hire purchase outstanding amounts of their housing of such vehicles. This segment registered accounts. During the year, the Group had loans in order to reduce the burden of a significant growth of RM1.84 billion or reduced monthly repayments for 2,390 housing loan repayments on increasingly 19.4% to RM11.36 billion as at the end vehicle hire purchase customers through tighter household cash flows. In 2008, of 2008 and accounted for 38.8% of the the extension of their vehicle hire purchase Public Bank took proactive steps to assist total vehicle hire purchase financing loans. more than 25,000 housing loan customers portfolio of the Group. The strong growth to access the EPF withdrawal scheme in order to ease their housing loan commitments.

144 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

With the Public Bank Group’s intense civil servants with attractive terms and and agencies, statutory bodies, institutions marketing efforts and efficient customer conditions. Public Finance Limited also of higher learning and government-linked service delivery, the Group is poised to introduced the Payment Holiday Personal corporations. In 2008, BAE Personal further expand its vehicle hire purchase Loans where customers are provided the Financing-i recorded a very strong growth financing business and maintain its flexibility to enjoy 2 months moratorium on of RM570.9 million or 54.4% to position as the leading vehicle hire their loan instalment repayment. RM1,619.9 million as at the end of 2008, purchase financier in Malaysia. from RM1,049.0 million as at the end of To further grow the personal consumer 2007. loan business, Public Finance Limited Personal Consumer Loans launched the Customer-Get-Customer During the year, Public Islamic Bank Programme where existing customers are further expanded its BAE Personal In Hong Kong, the personal consumer rewarded with shopping vouchers for Financing-i business by enlisting 70 financing business of the Public Bank introducing new personal loan customers additional government departments and Group is carried out by Public Finance to Public Finance Limited. In 2008, 1,080 agencies and government-linked Limited and Public Bank (Hong Kong) new customers with total personal loans corporations, increasing the total number Limited, leveraging on their large network approved of HKD62.1 million were of government departments and agencies of 70 branches in Hong Kong. The acquired under this programme. Public and government-linked corporations which personal consumer loans of Public Finance Finance Limited also launched a customer provide their staff with BAE Personal Limited constituted 97.2% of the acquisition campaign where new personal Financing-i from Public Islamic Bank to outstanding personal consumer loans loans customers are rewarded with 218. The number of BAE Personal portfolio of Public Financial Holdings vouchers which entitled them to purchase Financing-i sales and marketing personnel Group. electrical items or to dine at selected based in Public Bank’s regional offices all restaurants. over Malaysia was increased from 46 to Despite the challenging and competitive 90 to serve the BAE Personal Financing-i operating environment, the personal In 2008, Public Finance Limited continued customers. To improve the efficiency of consumer loans of Public Finance Limited to expand and grow its Overseas Contract customer service delivery, a centralised achieved a growth of 14.9% to stand at Workers Loan to domestic helpers in processing hub was established in Head HKD3.68 billion as at the end of 2008. Hong Kong by launching the Customer- Office to expedite the approval of BAE The strong growth was the result of a Get-Customer Programme for this Personal Financing-i applications. number of initiatives launched by both segment of its business and expanding its Public Finance Limited and Public Bank tie-ups with foreign labour recruitment In addition to the above personal consumer (Hong Kong) Limited such as the agencies. This initiative resulted in an financing, Public Islamic Bank also offers implementation of customer acquisition increase of 6,581 new customers during Plus BAE Personal Financing-i in the form campaigns, expansion of the direct sales the year with total loans approved of of term financing to existing Bai Bithaman team to aggressively promote and market HKD104.4 million. To further cement the Ajil (“ABBA”) house financing-i customers personal loan products, continued relationship with its existing overseas with healthy repayment track records as enhancement of existing loan product contract worker customers and enhance part of Public Islamic Bank’s enhanced features and introduction of new products the channel for remitting funds by these customer service strategy. Customers to selected customer segments. These overseas contract workers who stay and who have reduced their ABBA House, measures were complemented by instant work in Hong Kong, Public Finance ABBA Term Financing-i and Cash Line loan approvals by the Phone Application Limited will tie up with Western Union, a Facility-i are offered the Plus BAE Personal Centre and Centralised Telemarketing global leader in money transfer services, Financing-i which is priced competitively. teams. to offer remittance services in 2009. During the year, Public Islamic Bank approved a total of 138 new Plus BAE Both Public Finance Limited and Public In Malaysia, personal financing under the Personal Financing-i amounting to Bank (Hong Kong) Limited launched the Islamic principle of Bai Al Einah (“BAE”) RM5.5 million. Personal Tax Loan to targeted customers offered by Public Islamic Bank continued who need financial assistance in paying to be the main driver for the Public Bank their taxes. Public Finance Limited also Group’s personal consumer loan business. launched two personal loan schemes The BAE Personal Financing-i is offered specially designed for professionals and to employees of government departments

Chairman’s Review 145 2008 ANNUAL REPORT PUBLIC BANK BERHAD

For existing conventional housing loans, With the multiple credit card acquisition channels of the Public Bank Group, the credit fixed loans and overdraft facilities, a similar card base of Public Bank registered a higher 12.5% growth in 2008 as compared to personal consumer product known as the the 10.5% increase recorded by the banking industry. This was further complemented Plus Fixed Loan is offered to individual by the various acquisition campaigns held throughout 2008 offering attractive prizes and customers who have repaid part of their rewards. loans. During the year, Public Bank approved 1,568 new Plus Fixed Loan Despite the economic uncertainties, the healthy increase in card base translated into a facilities amounting to RM93.7 million. 15.0% growth in card sales, whilst card receivables increased by 8.9% to RM1.02 billion. This growth was further supported by numerous usage programmes promoted by the Public Bank Group which are mainly focused on tactical programme tie-ups with Credit and Debit Cards merchants and business partners such as 1 Utama Shopping Centre, Parkson the Spring, CIS Network Sdn Bhd, Popular Book Co. (M) Sdn Bhd, MasterCard Malaysia In view of the competitive credit card Mega Sale, HareNet Communications Sdn Bhd, Econsave Supermarket, Bata (M) Sdn market which is reaching saturation point, Bhd, Carrefour Supermarket and LG Showcase Suria KLCC. The Group also continued the Public Bank Group expanded into the to be a sponsor and the acquiring bank for major exhibitions such as Popular Book’s relatively untapped market by Bookfest @ Malaysia 2008, HOMEDEC 08, 4th Parenthood Expo 2008, PC Fair, launching the PB ING, PB UTAR and PB Malaysia Jewelry Festival 2008 and Epicure Malaysia 2008. TARC MasterCard Debit Card. All three debit card products were launched in In order to tap the younger segment of the Malaysian population who are more tech- collaboration with strategic partners, these savvy, the Public Bank Group launched an online shopping mall, the first online being ING Insurance Berhad, Universiti shopping mall in Malaysia which allowed zero interest instalment plans and also Tunku Abdul Rahman (“UTAR”)and Kolej cardholders of other banks to make purchases. The online shopping mall can be Tunku Abdul Rahman (“TARC”), in order accessed via pbbemall.com, offering value buys and attractive discounts to registered to tap the customer base of these co- users. branding partners. Responding to the rising cost of living and the squeeze on household disposable The launch of the PB ING credit and income, the Public Bank Group offered various flexible payment schemes to credit debit MasterCard Cards is one of the cardholders at attractive rates to ease their cashflow. The PB Balance Transfer and PB initiatives identified under the Public Bank FlexiPay scheme offer rates as low as 1.5% and 2.0% respectively with extended Group’s 10-year exclusive bancassurance repayment periods of up to 36 months. The Group also implemented the tiered interest distribution agreement with the ING rate structure in June 2008, in line with Bank Negara Malaysia’s call to inculcate Group, to provide a wider range of prudent financial management amongst credit cardmembers. The interest rate offered services to customers of both the Public under the tiered interest rate structure are as follows: Bank Group and the ING Group. The PB ING MasterCard Debit Card won an award as the world’s first insurance co- Repayment Behaviour Interest Rate branded EMV Debit MasterCard with PayPass. The co-branded card is i. With prompt minimum repayment for 15% per annum of the total outstanding distributed by more than 1,000 ING 12 months within 12 consecutive balance from the 13th month. Insurance Berhad insurance agents and months. 160 Public Bank Bancassurance Sales ii. With prompt minimum repayment for 17% per annum of the total outstanding Executive, as well as staff and branches 10 months and more within the last balance from the 13th month. of Public Bank and the ING Group. With 12 consecutive months. these new debit card products, the debit card base registered a healthy growth of iii. Credit cardmember who does not 18% per annum of the total outstanding 33.8% in 2008. meet the above. balance.

146 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

In assisting the Government’s drive to In 2008, Public Bank undertook various The Public Bank Group’s flagship expand the country’s electronic payment initiatives to expand the Bank’s customer commercial lending product, the SWIFT infrastructure, the Public Bank Group share trading and share margin business. (“Shophouse, Warehouse, Industrial rolled out more merchant terminals with These steps included increasing the Factory and Trade Financing”) Plan e-debit card acceptance capabilities. The Bank’s panel of stockbroking companies continued to be the key lending product proportion of merchant terminals with from 13 to 16, expanding the number of for SME financing. In 2008, total loans of e-debit acceptance capabilities increased Share Investment Units at strategically RM8.2 billion were approved for 14,467 to 87% of all merchant terminals in 2008 located branches from 32 to 36 to tap on loan applicants under the SWIFT Plan. as compared to 11% in 2007. The Group the branch’s potential customer base and Existing SME customers with good also promoted the 3D secured e-commerce to offer more convenient access to the conduct of their trade bills facilities and payment platform via the online shopping Bank’s competitive PB Sharelink service. overdraft facilities benefited from the mall and with merchant partners. The 3D “Utilisation Incentive Program”, which secured e-commerce business registered The Public Bank Group will continue to offers preferential pricing for incremental a growth of 44% in 2008 with main proactively review the competitiveness of utilisation of these facilities. merchant partners such as Jobstreet, its PB Sharelink product and improve its Tune Hotels, Star Publication, Air Asia service delivery standards in order to Another commercial lending product, “PB and MAS. With the promotion of its meet customers’ requirements in the Microfinance”, provides financing to small e-commerce business and aggressive highly competitive business environment. businesses and micro enterprises for recruitment of new merchants, the Group’s their working capital or for asset acquisition merchant sales registered an impressive to increase the productivity of their growth of 30.7% to reach RM6.19 billion SME LENDING businesses. Since the launch of PB in 2008. Microfinance in December 2006, the Small- and medium-sized enterprises Group had approved total loans of (“SMEs”) constitute the Public Bank RM58.4 million to 1,700 micro enterprises, Group’s main commercial loan customers. Share Margin Financing of which RM23.9 million were approved In line with the Government’s on-going in 2008. PB Microfinance is available at The performance of Public Bank’s efforts to develop and strengthen SMEs all domestic branches of Public Bank, customer share trading and share margin as a major driver of Malaysia’s economic which have also been actively identifying business, PB Sharelink, in 2008 was activities, the Group has continued to small businesses and micro enterprises in affected by the sluggish performance of provide financing to SMEs for their their locality for their marketing initiatives. Bursa Securities which was impacted by working capital and business expansion the global financial market and economic needs. In 2008, the Group approved a In November 2008, Bank Negara Malaysia turmoil. Despite the lacklustre performance total of RM10.49 billion of commercial launched a RM200 million Micro Enterprise of the Malaysian stock market and the loans to SMEs which accounted for Fund (“MEF”) to assist small businesses keen competition faced, Public Bank 26.9% of the Group’s total new loans and micro enterprises to obtain adequate registered a growth in the number of approved of RM38.95 billion for 2008. financing for their businesses which is accounts and in approved share loan In tandem with the higher volume of loans vital to enable them to contribute to the limits by 36.2% and 25.9% respectively approved to SMEs, the Group’s portfolio economic development of the nation. The to 23,710 and RM1,234 million respectively of loans granted to SMEs grew by 8.9% MEF provides small businesses and micro during the year. This resulted in an from RM21.09 billion as at the end of enterprises with a significantly cheaper increase in total gross interest income 2007 to RM22.96 billion as at the end of source of financing and speedier approval from the share margin business by 7.0%. 2008. Loans to SMEs accounted for processes. In support of Bank Negara However, customer share trading business 19.0% of the Group’s total loan portfolio Malaysia’s micro financing initiative, Public volume dropped by 47.7% whilst the as at the end of 2008. Bank had approved 34 new loans under Bank’s total gross brokerage income from the MEF totalling RM1.02 million during its customer share trading business the last two months of 2008. declined by 49.3%.

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Public Bank’s Bumiputra Business Public Bank’s trade finance business grew The Public Bank Group participated in Development Department has been by 57.2% or RM49.1 billion to major trade exhibitions and business actively supporting Bumiputra RM135.0 billion from RM85.9 billion events related to the promotion and entrepreneurs by increasing business recorded in 2007. development of SMEs either as a development activities with Bumiputra participant or as a sponsor. The Group SMEs and micro enterprises. The activities The Public Bank Group has promoted participated in trade exhibitions such as of the Bumiputra Business Development two trade financing facilities introduced by the Small and Medium Industry Department include the following: Bank Negara Malaysia, these being the Development Expo (“SMIDEX”) 2008, The g Conducting market studies on targeted Multi Currency Trade Financing and the Association of Banks in Malaysia’s 1st Bumiputra segments to identify their Indirect Exporter Financing schemes with Banking Industry Seminar for SMEs and financing needs. the objective of encouraging more SMEs the Yayasan Dakwah Islamiah Malaysia to access the export markets, particularly (“YADIM”) and Glomac Berhad (“YADIM- g Developing competitive loan products in the non-traditional markets as well as GLOMAC”) Women Entrepreneurs’ to meet the needs of Bumiputra trade with countries of the Organisation Carnival, as well as seminars organised entrepreneurs, including those which of Islamic Conference. These special by bodies such as the Malaysia External leverage on Credit Guarantee trade finance facilities provide SMEs the Trade Development Corporation, the SMI Corporation (“CGC”) schemes such benefit of lower financing cost without Association of Malaysia, the National SMI as the new “Credit Enhancer Scheme”, collateral requirements. Consultative Centre and the Federation of the revised “Small Entrepreneur Malaysian Manufacturers to establish and Guarantee Scheme”, the revised “Flexi In view of the higher costs faced by build business relationships with SMEs Guarantee Scheme” and Bank Negara SMEs under the present environment of and to obtain a better understanding of Malaysia funding schemes such as rising input costs, Bank Negara Malaysia the operations and financing requirements the “New Entrepreneur Fund 2” and has established two financing schemes of these SMEs. the “Fund for Small and Medium called the SME Assistance Facility (“SME Industries 2”. AF”) and the SME Modernisation Facility To further reach out to the SMEs and g Establish liaison and rapport with (“SME MF”) to assist SMEs to better improve SMEs’ knowledge of banking Government agencies and corporations manage the impact of higher input costs products and services, information on to explore new business opportunities on their operations. The benefits of the financing facilities, loan packages and for financing. two financing schemes include low other banking services are provided on g Participate in seminars and exhibitions financing cost with the provision of Public Bank’s website, www.pbebank. organised by Government agencies guarantee cover by CGC without any com. Through the website, SMEs can related to the development of guarantee fees charged to the SMEs. The also submit their enquiries on financing Bumiputra SMEs. Public Bank Group has been actively and banking related matters or seek an promoting these schemes as an avenue appointment with the sales and marketing To facilitate SMEs to purchase or import for SMEs to seek low interest rate financial personnel of the Public Bank Group. materials for their production activities assistance to enhance their efficiency and and to cater for the growth of SMEs in productivity. In 2008, Public Bank had the export market, the Public Bank Group approved total loans of RM362.7 million provides a full range of trade finance to 2,704 customers under the SME AF facilities geared towards meeting the scheme and RM28.5 million to 60 financing needs of these SMEs. In 2008, customers under the SME MF scheme.

148 Chairman’s Review 2008 ANNUAL REPORT staying ahead PUBLIC BANK BERHAD

WEALTH MANAGEMENT

Customer Deposits Public Bank has a stable portfolio of Among the initiatives taken by Public deposit customers with those having a Bank to enhance customer relationships The recent collapse of overgeared global banking relationship of 5 years and more are: investment banks due to under accounting for 57.0% of the deposit capitalisation and their heavy reliance on • Staying closer to customers by customer base. The distribution of wholesale funding resulted in other global opening 3 new branches over the last customer deposits is generally well spread investment banks converting to commercial 2 years and identifying locations for with small size account holders with banks to develop their funding base, 10 new branches in fast growing balances of up to RM15,000 constituting emphasising the importance of a stable areas to provide customers with 74.6% of total core deposits, which is customer deposit base as the core of a greater banking convenience largely due to the Bank’s high market long-term banking business, a philosophy • Product innovation emphasising on share of savings deposit of 18.8%. This that the Public Bank Group has always customers’ needs and striking a large base of retail deposit customers subscribed to. balance between returns, flexibility and provides the Bank with a stable, long-term customer service delivery funding structure. The Public Bank Group’s customer deposits • Expanding delivery channels in the grew by 16.9% to RM162.28 billion as In addition, Public Bank also expanded its form of more Self Service Terminals at the end 2008 as compared to wholesale customer deposit business by by increasing the number of Cheque RM138.76 billion as at the end of 2007. RM6.09 billion in 2008 through the Deposit Machines from 309 to 429, This rate of growth was significantly acceptance of money market deposits Cash Deposit Terminals from 231 to higher than the Malaysian banking and issuance of negotiable instruments of 359 and ATMs from 421 to 450 as industry’s annualised growth rate of 9.3% deposits, to mostly corporate and well as promoting utilisation of as at November 2008. Core customer institutional depositers, as the Malaysian e-channels through PbeBank.com to deposits comprising current accounts, banking system remained flush with complement the extensive branch and and fixed deposits grew excess liquidity whilst interest rates Self Service Terminal network by 17.7% in 2008, accounting for 57.1% remained stable. of the industry’s growth of core customer Public Bank has actively promoted Foreign deposits. The growth in core customer Despite intense competition, the Public Currency Fixed Deposit Accounts (“FCY deposits, at almost four times the pace of Bank Group continued to achieve above- FD”) to provide an alternative savings the domestic industry’s growth rate of industry rates of growth of customer option for customers seeking higher 4.7%, was mainly supported by the deposits. This can be largely attributed to yields. A proactive marketing plan, Group’s extensive branch network and its the strong PB Brand, the delivery of including the waiver of penalty interest for high standards of customer service courteous and excellent ISO-certified premature withdrawal of existing Ringgit delivery, as well as customers’ trust and customer service with a standard waiting fixed deposits for conversion to FCY FD, confidence in the Public Bank Group. time of 2 minutes and the strong financial was introduced. A promotional campaign standing of Public Bank as affirmed by which offered an additional interest rate of In 2008, the Public Bank Group’s fixed Rating Agency of Malaysia with the up to 1.0% p.a above the FCY FD counter deposits increased by 20.2%, savings highest long-term rating of AAA, and rates, launched in 2007, was extended to deposits increased by 12.4% and demand Standard & Poor’s and Moody’s Investor 2008 and enhanced with the offer of deposits grew by 12.5% as compared to Services’ long-term ratings of A- and A3 additional interest rate of up to 2.0% per the Malaysian banking industry’s annualised respectively. annum above the FCY FD counter rates growth rate of 5.3%, 6.6% and 2.0% in order to pass on maximum returns to respectively. During the year, more than customers. Public Bank’s FCY FD grew 700,000 deposit accounts were opened, from RM1.2 billion as at the end of 2007 representing approximately 14% growth in the Group’s customer base.

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to RM2.6 billion as at the end of 2008, the 1st tier based on counter rates and In Cambodia, Cambodian Public Bank Plc an increase of RM1.4 billion. The campaign the 2nd tier offering up to two times the (“Campu Bank”), a wholly-owned also boosted the number of FCY FD counter rates, was launched in June 2008. subsidiary of Public Bank continued with accounts from 9,105 accounts as at the In 2008, customer deposits of Public its efforts to increase its retail deposit end of 2007 to 25,821 accounts as at Bank (Hong Kong) Limited and Public base. Campu Bank launched two new the end of 2008. Finance Limited increased by 6.0% or deposit products, the Premier Savings HKD1.23 billion and 48.3% or HKD1.22 Account and Ace Current Accounts in As part of the Public Bank Group’s billion respectively from the end of 2007. June 2008 and November 2008 strategy to expand the savings and respectively. In 2008, customer deposits investment options available to the public, of Campu Bank increased by 24.2% to Public Bank launched the Gold Investment USD372.6 million. Account (“GIA”) in April 2008. The GIA provides an avenue to customers to invest in the purest form of gold without having to keep the gold physically. As at the Fund Management end of 2008, the Bank had attracted more than 11,700 GIAs valued at At a glance RM104.9 million. Public Mutual Berhad 2008 2007 Increase/ RM’million RM’million (Decrease) To further accelerate Public Bank’s % deposit growth, the Bank launched the PB FD Wonder promotion package on Operating revenue* 372.8 437.3 (14.7) 21 October 2008 which offered an Profit before tax 183.3 182.9 0.2 attractive 2-tier interest rate for 4-months and 7-months fixed deposits. As at Total assets 437.7 525.3 (16.7) 31 December 2008, the PB FD Wonder Shareholders’ funds 48.6 34.3 41.7 promotion attracted RM300.0 million of * After offsetting direct sales commission and including interest income of fixed deposits from both new and existing RM4.9 million received and receivable from Public Bank Group (RM8.1 million in depositors. 2007) The Public Bank Group’s subsidiaries in Hong Kong continued their extensive brand-building initiatives to create greater Number of Funds, NAV and Fund Holders of Public Mutual awareness and recognition of the PB 2003 2004 2005 2006 2007 2008 Brand in Hong Kong. As part of the strategy to expand the retail deposit base, No. of Funds 18 19 26 34 55 67 a 2-tier HKD fixed deposit promotion, with NAV (RM’billion) 8.23 9.88 12.08 16.19 28.39 23.32 Units in Circulation (billion) 14.77 16.91 23.59 32.70 68.70 82.05 No. of Account Holders (million) 0.54 0.57 0.73 0.91 1.66 2.05

150 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Despite the global financial crisis and the In spite of weak market sentiments and Sales of Public Mutual’s existing funds sharp retreat of asset markets in Malaysia, market volatility, Public Mutual launched remained resilient given their proven in the region and globally, the private unit 12 new unit trust funds in 2008, raising performance track records and fund trust industry in Malaysia remained the total number of funds under its awards history. Being the most awarded resilient, registering RM59.88 billion in management to 67 funds. 4 of these new fund management company in Malaysia, total assets under management in 2008 funds were distributed under the PB Fund Public Mutual secured the biggest share as compared to RM71.0 billion for 2007. Series by Public Bank, namely the PB of equity fund sales among private unit The net asset value of the unit trust Islamic Cash Plus Fund, the PB China trust management companies in 2008 industry as at the end of 2008 comprised ASEAN Equity Fund, the PB Capital and remained the largest recipient of RM29.71 billion in equity funds, Protected Dragon Fund and the PB long-term savings under the EPF Members RM9.14 billion in bond funds, Capital Protected Resources Fund. The Investment Scheme. RM14.49 billion in money market funds sales of the PB Fund Series raised Public and RM6.54 billion in capital guaranteed Bank’s share of fund distribution to 32.3% In terms of fund performance, the majority or protected funds. Reflecting the in 2008 as compared to 25.2% in 2007. of the funds managed by Public Mutual resilience of the private unit trust industry, To boost the efficiency and contribution under the Malaysia Equity Non-Islamic the ratio of the private unit trust industry’s of the Public Bank branch distribution Funds and Malaysia Equity Islamic Funds total NAV to Bursa Securities’ total market channel, a total of 100 new personal categories outperformed their respective capitalisation improved from 6.4% in 2007 financial executives (“PFEs”) were market benchmarks in 2008. On the to 9.0% in 2008. recruited and trained in unit trust product regional front, over half of the Far East and financial planning skills, including the regional funds managed by Public Mutual Public Mutual maintained its market capability to deploy the Financial Freedom returned better than their selected market leadership in the private unit trust industry FP Advisor, a Public Mutual financial benchmarks. with an overall market share of 39.0% as planning software, as a tool to promote at the end of 2008. Its assets under sales of unit trust funds at Public Bank For the fifth consecutive year, Public management stood at RM23.32 billion as branches. The total number of PFEs Mutual received the highest number of at the end of 2008, representing a decline increased from 109 as at the end of the fund performance awards among private of 17.9% over the year. Amidst the previous year to 209 as at the end of unit trust management companies in challenging market environment, Public 2008. Malaysia, winning a total of 20 fund Mutual continued to maintain its dominant performance and other related awards for 54.3% market share of the private unit For its agency distribution, Public Mutual 2007. Public Mutual received 8 The trust industry’s equity assets and a 68.1% introduced thematic funds such as the Edge-Lipper Malaysia Fund Awards, market share of the industry’s Islamic Public Far-East Consumer Themes Fund, including the prestigious Best Fund Group equity assets. The total number of the Public China Titans Fund, the Public (Equity Group) Award for 3 Years. Public investors in Public Mutual unit trusts Far-East Telco and Infrastructure Fund Mutual also won 4 out of a total of 6 fund increased by 23.6% to breach the and the Public Islamic Select Treasures awards at the inaugural Morningstar Asia 2 million accountholders mark. Fund which provided investors with better (Malaysia) 2007 Fund Awards. The fund opportunities to participate in selected performance awards won by Public Mutual sectors which possess attractive growth were in various key fund categories and prospects. for various performance periods, attesting to Public Mutual’s expertise in both conventional and Islamic fund management and in both short-term performance as well as investments over a longer investment horizon.

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Payment System-Financial Process FUND PERFORMANCE AWARDS Total Awards Exchange (“MEPS FPX”) gateway. An The Edge Lipper Malaysia Fund Awards 2008 accountholder operating from any bank which is linked to MEPS FPX can make a direct payment to Public Mutual online.

Year 1) Best Fund Group (Equity Group) for 3 Years 3 Category The number of Mutual Gold and Mutual 1) Equity Malaysia: PB Growth Fund Gold Elite members increased by 11% to 2) Equity Malaysia – Islamic: Public Ittikal Fund 8 51,712 in 2008. To enhance the benefits

Year 3) Equity Malaysia Small & Mid Cap: Public SmallCap Fund of Mutual Gold membership, Mutual Gold

5 4) Mixed Asset MYR Balanced: PB Balanced Fund Category Elite members were provided with an 5) Bond Malaysian Ringgit: PB Fixed Income Fund attractive increase in free permanent accident and permanent disability 1) Equity Malaysia – Islamic: Public Ittikal Fund

Year insurance coverage of up to RM750,000 2) Bond Malaysian Ringgit: Public Bond Fund as compared with the previous maximum 10 Category coverage of RM500,000, and accorded Morningstar Asia (Malaysia) 2007 Fund Awards waivers on commissions and stamp duties 1) Malaysia Equity: Public Growth Fund in their purchase of bankers’ 2) Islamic Syariah Equity: Public Ittikal Fund 4 from Public Bank branches. The Mutual 3) Malaysia Ringgit Balanced: PB Balanced Fund Gold Centre was relocated to larger 4) Malaysia Ringgit Bond: Public Bond Fund premises in Solaris Mont’ Kiara to better serve the needs of Public Mutual’s sophisticated investors and high net worth individuals. Public Mutual had also Public Mutual won the “Best Islamic Fund Public Mutual continued to receive introduced the Public Mutual Trust Manager in Asia” Award from Failaka recognition as the most trusted and Nomination service under which its Advisors at the Annual Failaka Islamic favourite brand in the Reader’s Digest unitholders would nominate the Fund Awards 2007 for its consistently annual survey, winning the Reader’s beneficiaries of their investment accounts outstanding performance in the Islamic Digest Trusted Brands 2008 Gold Award with Public Mutual. In addition, a call fund management industry. It also received for the Investment Fund Company category centre was established as part of the the “Most Outstanding Islamic Fund in Malaysia for the third consecutive year. continuous enhancement of customer Manager” Award at the Kuala Lumpur Public Mutual was again honoured with service delivery. Islamic Finance Forum Islamic Finance the BrandLaureate Award for brand Awards 2008 in recognition of its excellence in the Financial Services – The number of Certified Financial Planners consistently outstanding performance in Investment Funds Category for the second (“CFPs”) registered under Public Mutual the Islamic fund management industry. consecutive year at The BrandLaureate increased by 35.1% to 250 CFPs in Both of these highly coveted Islamic fund Awards 2007-2008. This award honour 2008, representing the largest group of management recognition awards were brand excellence amongst the best of CFPs being retained among unit trust won by Public Mutual for the second brands in Malaysia and globally. management companies and Institutional consecutive year. Unit Trust Agents of the industry. In 2008, Public Mutual achieved a further milestone Public Mutual improved on its value-added In addition, Public Mutual was awarded in the internet technology arena with the financial planning (“FP”) services to unit the Most Improved House and Most successful implementation of its trust consultants (“UTCs”) through Improved House for Offshore Funds at e-commerce website that enables investors introducing a practical training course that the Asia Asset Management Best of the to execute real-time account enquiries enabled UTCs to optimize the key Best Country Awards 2007. Public Mutual and sales transactions for their unit trust advantages of the Financial Freedom FP also won 2 AsianInvestor 2008 Investment fund investments. Under this new platform, Advisor in order to improve their client Performance Awards for the Five-year existing accountholders of Public Mutual service. The Financial Freedom FP Advisor Performance and the Malaysia Onshore can transact their unit trust fund is an effective in-house developed financial Fund House of the Year (Malaysia investments via the Malaysia Electronics planning software used by UTCs to deliver Equities) categories.

152 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD financial planning services to investors. A the bancassurance business, in addition the insured’s children. For the investment total of 1,478 UTCs were trained under to starting an active recruitment programme component, part of the allocated premium this programme during the year. to put into place a force of dedicated will be invested in mutual funds with 3 bancassurance sales executives (“BSEs”) different risk profiles based on the In 2008, special emphasis was placed on as part of the infrastructure being customer’s preference. agency development and training developed over the long-term to support programmes geared towards enlarging the bancassurance business of the Two single premium unit-linked capital the UTC force of Public Mutual and Group. guaranteed 3 year insurance product, enhancing the skills of the UTCs in namely the PB-ING Baraka Commodities agency management and leadership. The recruitment of BSEs in 2008 Plan and the PB-ING All Weather Plan Numerous new agency management proceeded well with 229 BSEs being were launched in January 2008 and courses were introduced for Agency employed, exceeding the target of 140 August 2008 respectively with a total of Managers and Group Agency Managers BSEs for 2008. The BSE sales force will RM345 million in premiums generated. to help train these leaders in forging and be increased to 350 BSEs by the end of These Plans provide protection against managing high performance UTC teams. 2009 and eventually to 600 BSEs by death and/or TPD with potential high As a result of the investment in agency 2014. Within one month of employment, growth returns. recruitment and development initiatives, the BSEs were trained and licensed with the number of UTCs of Public Mutual the Life Insurance Association of Malaysia Public Bank also started distributing the increased from 29,947 as at the end of to market insurance products. Further new Business Loan Decreasing Term 2007 to 42,003 as at the end of 2008. training on product knowledge and selling Assurance (“BLDTA”) and Business Loan skills via refresher courses under the sales Overdraft Level Term Assurance In February 2008, Public Mutual opened clinics programme to adequately equip (“BLOLTA”) via branches of the Bank in a new branch office in Bukit Mertajam to the BSEs were conducted. F1 Roadshows March 2008 for loans against commercial strengthen its market presence in the at shopping malls with F1 simulated properties to insure the sole-proprietor, northern region of Peninsular Malaysia. activities and Paramedic Roadshows with partners, directors, keyman, major Public Mutual’s flagship Bangsar branch free health check and talks at branches shareholders or guarantors of the loans. was further expanded through the were held throughout the year for the The BLDTA and BLOLTA cover the acquisition of an adjoining 5-storey BSEs to promote awareness of the PB- outstanding balance of the term loan and shoplot, boosting the floor space of its ING bancassurance arrangement and the the overdraft limit respectively of the largest branch to 33,604 sq. ft. Another bancassurance products available to business in the event of the death or TPD 12 branches were renovated or relocated customers. These events generated more of the person insured. to bigger, more centrally sited premises to than 2,900 leads for the BSEs to follow- increase convenience to unitholders and up. BSEs are rewarded with incentives for During the year, two telemarketing meet the increased demands of the their sales which included a trip to Korea insurance products were distributed via marketplace. 8 branches were also for those who achieved their incentive trip an outsourced telemarketing agent. The installed with “hotspot” wireless broadband targets. first was the Credit Sure Plan which internet access, bringing the total number covers a credit cardmember’s outstanding of branches offering “hotspot” wireless A core bancassurance product named the balances in the event of death, TPD or broadband access service to 22. One Solution Plan (“OSP”), which is a Temporary Total Disability, or those whole-life regular premium unit-linked suffering from CI. The penetration rate product was launched. The OSP comes was healthy as 19% of the customers Bancassurance with 4 packages – One Protect, One contacted took up the plan. The second Care, One Health and One Educate product was the Cash Secure Plan which The implementation of the 10-year which are targeted at customers of is a term life insurance with refund of exclusive distribution agreement between different age groups. Depending on the premium or a lump sum payment for death the Public Bank Group and the ING choice of the packages, the insurance or TPD. Group, signed in 2007, became effective benefits cover death and total and on 1 January 2008. The Group took permanent disability (“TPD”); critical illness From the full range of ING’s bancassurance immediate steps to launch a range of (“CI”); hospitalisation, surgical and medical products distributed by Public Bank, a bancassurance products and commenced needs and an education savings fund for total of RM463 million in premiums was training for staff of the Group involved in

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generated in the first year of the tie-up investment portfolios by offering different The “PB CARB Investment” has a lock-in with the ING Group representing 177% underlying assets including an equity feature where during any of the monthly of the initial premium target of index, commodities and a basket of observation dates, if the underlying basket RM262 million for 2008. Moving forward, foreign currencies. has appreciated to or above the lock-in the total premium is targeted to grow level, the minimum return to investors at at an annual compounded rate of The amount of savings garnered from the maturity will be the lock-in return of either 18.9% to RM1,300 million in year 10 of 3 structured investment products was 6% or 12%, depending on which lock-in the tie-up with the ING Group. RM488 million. These structured level is reached. investment products were offered to In Hong Kong, the Public Bank Group’s customers via Floating Rate Negotiable The capital protection offered by Public bancassurance business started in March Instruments of Deposit (“FRNID”) with a Bank’s structured investment products 2008. Since then, 19 bancassurance minimum investment of RM100,000, with provides investors the assurance that their products covering endowment plans, multiples of RM50,000 thereafter. wealth are preserved whilst participating mortgage life/term life plans, investment in the potential to enhance their returns link plans, medical plans and universal Public Bank launched its first FRNID from their investments. Investors are plans were distributed via Public Bank structured investment product, the “PB investing with Public Bank with the trust (Hong Kong) Limited through its 145 Asian ACES”, a 3-year investment product and confidence in the strength of Public Customer Service Officers in its 28 that invests in a basket of stocks providing Bank as seen in its profitability track branches in Hong Kong, and Public a potential for unlimited enhanced returns. record, strong credit rating and its ample Finance Limited through its 114 Technical The “PB Asian ACES” is based on a liquidity. The portion of the investment Representatives in its 42 branches. As at market neutral quantitative strategy, which that provides the capital protection for 31 December 2008, the total premium aims to buy low and sell high, and does structured investment products is managed production was HKD7.2 million. not depend on market timing and market by Public Bank in the same way as Public sentiment in investment decisions. Bank manages all its customer deposits.

Structured Investment The “PB TwinWIN Investment” was the Moving forward, the Public Bank Group Products next FRNID structured investment product seeks to continue to meet its customers’ launched where the underlying assets is needs and develop products taking into In order to deliver a broader range of based on crude oil. “PB TwinWIN consideration the market environment. The investment products to meet the demand Investment” has a short tenure of 1 year Group is leveraging on its strong clientele for increasingly sophisticated and that allowed customers to enjoy a and its reputation as a reliable partner to innovative products and to enhance the guaranteed coupon payment of 1.20% in its customers, supporting them with competitiveness of Public Bank’s wealth addition to 100% capital protection. advice and actions in the pursuit of their management offerings, Public Bank financial objectives. Customer satisfaction developed structured investment products At the beginning of the third quarter of and optimising customers’ returns on for customers with different risk-appetite. 2008, Public Bank launched the “PB investments are the main aims that the Commodities and Resources Basket (PB Group strives to meet, and this will be the Public Bank launched 3 structured CARB) Investment” with a tenure of 2 ultimate yardstick of the Group’s succes investment products in 2008, all of which years that allowed participation in the in the wealth management business. were 100% capital protected when held upward trend, at the end of two years, of to maturity and with short maturity ranging the currencies of key exporting countries from 1 year to 3 years. The structured of commodities and resources such as investment products launched in 2008 the Canadian Dollar, the Australian Dollar, provided diversification to customers’ the Russian Ruble and the Brazilian Real.

154 Chairman’s Review 2008 ANNUAL REPORT staying ahead PUBLIC BANK BERHAD

TRANSACTIONAL SERVICES

REMITTANCES Public Bank has also partnered with its CASH AND Channel key nostro agent banks in various countries As a result of continued globalisation of Management Services throughout the world to promote Public service and trade flows, there is a constant Bank’s remittance services. These The increase in demand for cash need for international money transfer partnerships aim to provide speed, lower management solutions is driven primarily services and remittances. Based on cost and value-added services to these by increasing cross-border trade flows independent research, it is estimated that customers. Promotional campaigns are and domestic transaction volumes. Having the compounded annual growth rate for conducted regularly with these nostro the right tools for the job can make the cross-border non-trade related remittances agent banks to increase Public Bank’s difference in profit margins for a business. is approximately 8%. In 2007, cross- non-trade related remittance market Recognising this, the Public Bank Group border remittances totalled an estimated share. continues to introduce new innovative USD369 billion and for 2008, it is electronic channels and cash management expected to reach USD400 billion. The Public Bank is the first bank in Malaysia services products to its corporate clients growth of cross-border non-trade related to partner with Bank of China to offer and government departments and remittances is mainly attributed to the Renminbi remittances to the People’s agencies. This is to enable them to meet growing trend of worldwide labour Republic of China. In order to create the challenge of the increasingly migration and students seeking to further awareness of this Renminbi remittance competitive and demanding marketplace. their studies in countries other than their service and increase the volume of own. transactions, Public Bank has together To further encourage the Public Bank with Bank of China carried out various Group’s customers to use the Group’s The Public Bank Group sought to tap into promotional activities throughout the year, electronic delivery channels which ensure this growing market for cross-border including offers of free gifts and lucky speed, security and convenience, the remittances by entering into strategic tie- draws. Group continued to promote the migration ups to offer foreign workers remittances. of manual salary and vendor payments to Public Bank had in August 2008 partnered In 2008, Public Bank was once again the Group’s electronic credit payment with The Western Union Company to awarded the JP Morgan & Chase Bank (“ECP”) service. ECP is a web-based launch the Public Bank -Western Union Elite Quality Recognition Award. This fund disbursement service that enables Money Transfer Service which is available award is in recognition of Public Bank’s the Group’s corporate customers to make throughout the 242 domestic branches of achievement of a consistent, high quality bulk payments electronically. As at the Public Bank. Currently, there are performance and best in class operating end of 2008, the number of companies approximately 2.1 million registered excellence of Public Bank’s remittance subscribing to the ECP service increased migrant workers in Malaysia which account operations throughout 2007. Public Bank to 112, a 111% increase as compared to for close to 20% of the country’s is the only bank in Malaysia to have won 2007. Customers are also provided with workforce. Public Bank seeks to achieve this Elite Award for 7 consecutive years. assistance in the migration process with a at least 15% market share of the migrant client software kit being made available to workers remittances business. customers who do not wish to engage external software vendors.

Chairman’s Review 155 2008 ANNUAL REPORT PUBLIC BANK BERHAD

The Public Bank Group is committed to The diversification of delivery channels supporting the Government’s move and increasing customer base has resulted towards electronic payments. The Group in the gross revenue of Public Bank has been working closely with the Group’s Cash and Channel Management government agencies subscribing to the Services increasing to RM39.3 million, Group’s cash management services in 3.1% higher as compared to the previous offering alternative services using year. electronic channels to the public. This includes the payment module under the Public Bank introduced PB Mobile Group’s ECP service and collection Banking to add to its list of available module via the Group’s Self Service alternative channels for the convenience Terminal (“SST”) channel, comprising of its customers. Retail customers can ATMs, Cheque Deposit Machines and register for the PB Mobile Banking service Cash Deposit Terminals. The Group via the Bank`s Internet banking service, expects its channel management business PBeBank.com, while corporate users can to grow with the recent launch of apply and register for this service at their “myBayar” by the Malaysian Administrative account holding branch. The PB Mobile Modernisation and Management Planning Banking service allows retail customers to Unit in collaboration with Bank Negara do account inquiries, fund transfers, make Malaysia in educating the public and payments, make additional investment in encouraging the use of electronic channels Public Mutual unit trusts, cheque status especially when dealing with government inquiries and issue stop cheque departments and agencies. instructions whilst corporate customers are able to perform account inquiries, The number of Public Bank ATMs cheque status inquiries and issue stop increased to 417 in-branch ATMs and 33 cheque instructions. off-branch ATMs while Cheque Deposit Machines and Cash Deposit Terminals PBeBank.com, Public Bank’s Internet increased to 429 and 359 units Banking channel, continues to see growth respectively. The Bank also recently in its transactions and new registered extended its SST services to include the users with an increase of 85% and 56% EPF Smart Kiosk service at selected respectively as compared to 2007. branches. This service enables EPF members to enquire and print their EPF account statement at the EPF Smart Kiosk. EPF members will also be able to register as EPF i-Account subscribers and obtain their Personal Identification Number to activate the EPF i-Account.

156 Chairman’s Review 2008 ANNUAL REPORT staying ahead PUBLIC BANK BERHAD

Capital Market Operations

Treasury stable sources of funds. As at the end of movements by hedging their requirements. 2008, the Group’s total deposits from Under increasingly stiff competition from The Public Bank Group’s treasury customers stood at RM162.28 billion other banking institutions in 2008, the operations are undertaken mainly through o r a n i n c r e a s e o f 1 6 . 9 % f r o m Public Bank Group continued its marketing the treasury offices of Public Bank, Public RM138.76 billion as at the end of 2007. efforts to maintain growth in its foreign Investment Bank Berhad and Public Bank Additionally, the Group’s negotiable exchange operations from the sale and (Hong Kong) Limited. These operations instruments of deposits and money distribution of foreign exchange related broadly include the management of excess market deposits grew significantly to services to the retail and corporate liquidity of the Group, the marketing of RM48.63 billion as at 31 December 2008 customers of the Group. In 2008, the foreign exchange related products to retail as compared to RM42.54 billion a year total foreign exchange profits of the Group and corporate customers and the soliciting ago. arising from such activities, as well as of deposits from retail and institutional from the Group’s limited proprietary customers. In addition, the Group is The Public Bank Group also maintained a foreign exchange trading activities actively engaged in proprietary trading in portfolio of high quality liquefiable assets amounted to RM174.3 million. Financial the Malaysian capital market for debt as liquidity reserve. Its investments in high market volatility also presented arbitrage securities through Public Bank and Public grade securities such as Malaysian opportunities for traders. The Group was Investment Bank Berhad, while Public Government Securities, Malaysian Treasury able to generate low risk returns by Bank (Hong Kong) Limited has limited Bills, Malaysian Government Investment arbitraging between the swap and money proprietary trading in the foreign exchange Certificates and Bank Negara Monetary markets whenever these opportunities market in Hong Kong. Notes increased by 41.4% as compared arose. to 2007. In addition, in the domestic bond In 2008, turmoil in financial markets with market, Public Bank as a Principal Dealer its origins in the subprime mortgage continued to be actively involved in problem in the US evolved into a major providing market liquidity for securities financial crisis which threatens a global specified by Bank Negara Malaysia. Its economic slowdown. Against this total market share of transactions in these backdrop of reduced liquidity and securities represented 4.9% of the increased volatility in financial markets, the banking industry’s total for 2008. Public Bank Group’s treasury operations were focused on actively managing a Increased volatility in foreign exchange liquid balance sheet for the Group. markets has led to businesses and Marketing efforts were intensified to grow investors seeking protection from the deposits from both retail and institutional vagaries of significant exchange customers which provide the Group with

Chairman’s Review 157 2008 ANNUAL REPORT PUBLIC BANK BERHAD Corporate Lending At a glance

2008 2007* Increase/ (Decrease) %

Segment profit (RM’mil) 96.7 151.9 (36.4) Gross loan, advances and financing (RM’bil) 16.65 11.54 44.3 Net NPL ratio (%) 0.3 0.4 (0.1) * Comparative figures have been restated as a result of the early adoption of FRS 8 Operating Segments during the year

The Public Bank Group enjoyed another year of healthy growth in corporate lending activities, with the Group’s corporate lending portfolio growing by 44.3% to stand at RM16.65 billion as at the end of 2008. The strong growth was supported by merger and acquisition funding exercises and strong demand for loans in the property, agriculture, business services and manufacturing sectors.

The profit before tax of the Public Bank Group’s corporate lending operations declined by 36.4% to RM96.7 million in 2008 mainly due to net NPL recovery of RM49.7 million in the previous year and additional specific allowance amounting to RM43.1 million in 2008 in respect of impaired loans of the Group’s Hong Kong operations as well as full allowances made for old non-performing loan accounts which were more than seven years in arrears. These accounts are fully provided for with no value assigned to the collateral. The strong volume growth in corporate loans over the years have also translated to higher net interest income of RM194.2 million in 2008 as compared to RM140.4 million in 2007 even as lending margins continued to be squeezed as a result of stiff competition.

In spite of the strong growth in Public Bank’s corporate loans, the net NPL ratio of the corporate loan portfolio continued to improve to 0.3% as at the end of 2008 as compared to 0.4% as at the end of 2007, bearing testimony to the Bank’s prudent lending practices and strong credit control policies.

Corporate lending activities remained focused on expanding recurring business from existing clients with good track record as well as tapping on new customers. At the same time, the lacklustre debt capital market has benefited the Public Bank Group’s wholesale banking as customers remained cautious of the bond market, preferring commercial loans instead of financing through issuance of private debt securities.

158 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD INVESTMENT BANKING At a glance

Public Investment Bank Berhad 2008 2007 Increase/ (Decrease) %

Operating revenue (RM’mil) 256.4 254.3 0.8 Profit before tax (RM’mil) 33.3 96.4 (65.5) Total assets (RM’mil) 5,748.6 5,442.6 5.6 Shareholders’ funds (RM’mil) 234.5 290.7 (19.3) Net NPL ratio (%) — — — Capital adequacy ratio (%) 20.9 24.9 (4.0)

The investment banking operations of the Pubic Bank Group is mainly undertaken by The investment banking arena will remain Public Investment Bank. Public Investment Bank provides a wide array of financial competitive and challenging in 2009. The solutions to its target clients, ranging from corporate advisory services, placement and uncertainties of the global financial market underwriting of public securities to private debt securities as well as share broking. and volatility of commodity prices are expected to persist. Public Investment In 2008, Public Investment Bank completed 46 corporate exercise mandates, including Bank will need to be sensitive to changes initial public offerings, corporate restructuring exercises and general offers, and in market conditions and innovative in its participated in a number of merger and acquisition exercises. The setting up of the Debt financial solution offerings in order to Capital Markets (“DCM”) team in 2008 provides Public Investment Bank with the remain competitive. Public Investment capabilities to offer its clients an additional avenue of fund raising via the debt capital Bank will focus on retail share broking markets. During the year, Public Investment Bank completed its maiden DCM transaction business and further develop its amounting to RM5.0 billion. The team continues to market its services to both the institutional business, particularly with Public Bank Group’s existing customers as well as to prospective clients in the local fund management companies, in line marketplace. Public Investment Bank maintained its market share of the share broking with its strategy to increase its market business by focusing on its retail business and leveraging on the Group’s large branch share of the share broking business. In network and retail customer base, as well as developing its institutional client base. addition, Public Investment Bank will also continue to expand the number of effective Amidst the challenging business conditions, Public Investment Bank reported profits dealers and remisiers as well as build a before tax of RM33.3 million in 2008, a 65.5% decline from 2007. The lower profit was stronger client base amongst the medium- mainly due to lacklustre performance and low trading volumes on Bursa Securities cap and small-cap companies. where the impact from the financial and economic crisis on the equity market was more pronounced. Consequently, net brokerage and commission income also dropped by Despite the current financial crisis, Public 32.4% in 2008. Investment Bank is in a strong financial position to weather the challenges and uncertainties by leveraging on the Public Bank Group’s well established middle market business customers to tap into their capacity and desire to access the capital market.

Chairman’s Review 159 2008 ANNUAL REPORT staying PUBLIC BANK BERHAD ahead

ISLAMIC BANKING

The Public Bank Group achieved another 14.4%. Islamic financing constitutes The Public Bank Group’s Islamic banking milestone in 2008, with the birth of Public 10.4% of the Group’s total loans, business is adequately capitalised with a Islamic Bank Berhad, a wholly-owned advances and financing. The growth in risk-weighted capital ratio of 11.2% and a subsidiary of Public Bank, on the Group’s Islamic financing was mainly core capital ratio of 9.5% as at the end 1 November 2008, to spearhead the driven by growth in Al-Ijarah Thamma of 2008. Islamic banking business of the Group. Al-Bai (“AITAB”) Hire Purchase-i and Bai The setting-up of Public Islamic Bank Al Einah (“BAE”) Personal Financing-i. Leveraging on the Public Bank Group’s reflects the Group’s strong commitment These two financing portfolios accounted proven management capability, strong PB to further enhance its Islamic banking for 76.9% of the Group’s Islamic banking Brand and its large network of branches, business in line with the objective of Bank business’s total financing. Public Islamic Bank is poised for further Negara Malaysia to position Malaysia as a growth with new innovative products to major international Islamic financial hub. There has been a continuous effort to meet the Islamic banking needs of its enhance the features of the financing customers. Public Islamic Bank will also Public Bank first launched its Interest- products in order to sustain Public Islamic explore new opportunities in the Islamic Free Banking services in 1993 when Bank’s competitive edge. The growth in capital market as well as the setting-up of Bank Negara Malaysia opened the doors Islamic financing is partly contributed by an Islamic International Currency Business for a dual banking system in which Islamic the beefing up of Public Islamic Bank’s Unit to take advantage of the incentives banking operates side-by-side with the dedicated marketing personnel from 46 in provided under the Malaysian International conventional banking system. Since then, 2007 to 90 in 2008. Islamic Financial Centre. Public Bank’s Islamic banking business has made significant strides in the Islamic In 2008, the Public Bank Group’s Islamic The Public Bank Group continues to banking industry in Malaysia. banking deposits grew by RM3.64 billion develop competent and knowledgeable from RM10.15 billion as at the end of Islamic banking staff as part of its human The Public Bank Group’s Islamic banking 2007 to RM13.79 billion as at the end of capital development. Currently, Public assets increased by RM2.87 billion from 2008. Islamic deposits constitutes 8.5% Islamic Bank is sponsoring 10 staff for RM13.74 billion as at the end of 2007 to of the Group’s total customer deposits. the Chartered Islamic Finance Professional reach RM16.61 billion as at the end of Wadiah Savings Account-i of RM3.23 billion programme conducted by the International 2008, representing a market share of and Wadiah Current Account-i of RM1.83 Centre for Education in Islamic Finance. 8.9%. Pre-tax profit of the Group’s Islamic billion accounted for approximately 36.7% banking business also registered an of total Islamic banking customer deposits. For its 2007 Islamic banking operations, increase from RM330.0 million in 2007 to This high proportion of low cost funds the Public Bank Group, which operated RM341.4 million in 2008. contributes to higher profitability. Public its Islamic banking business under the Islamic Bank has introduced the Basic Islamic window, paid a higher zakat of The Public Bank Group’s Islamic banking Wadiah Savings Account-i and Basic RM175,000 as compared to RM150,000 financing portfolio expanded from Wadiah Current Account-i, both to cater paid for 2006. The zakat was paid out to RM11.01 billion as at the end of 2007 to for the segment of customers who prefer zakat collection centres in eight states in RM12.59 billion as at the end of 2008, simple account features with minimum Malaysia and two deserving orphanage reflecting an increase of RM1.58 billion or charges. homes.

160 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Role and Authority of Shariah Committee The Shariah Committee’s (“SC”) main duty and responsibility is to advise Public Islamic Bank on the operations of its business in order to ensure that it is devoid of any element not approved by Islam. The roles of the SC in the activities of Public Islamic Bank include:- • Advising the Board of Directors on Shariah matters in its business operations • Endorsing Shariah compliance manuals which specify the manner in which a submission or request for advice is to be made to the SC, the conduct of meetings of the SC and the manner of compliance with any Shariah decision • Endorsing Public Islamic Bank’s products and services and validating relevant Islamic banking documentation to comply with Shariah principles • Assisting relevant parties such as legal advisors, auditors or consultants that require advice on Shariah matters • Advising on matters to be referred to the Shariah Advisory Council of Bank Negara Malaysia • Providing written Shariah opinions on operational matters

In compliance with Bank Negara Malaysia’s Guidelines on the Governance of Shariah Committee for Islamic Financial Institutions (BNM/GPS1) the following Shariah scholars were appointed to Public Islamic Bank’s Shariah Committee: The Shariah Committee members and details of attendance of each member at Shariah Committee meetings held during 2008.

Composition of Shariah Committee Number of Committee Meetings Held Attended

Professor Dato’ Dr. Mahmood Zuhdi Bin Haji Ab Majid 6 6 Associate Professor Mohd Ridzuan Bin Awang 6 6 Assistant Professor Dr. Mohd Afandi Bin Awang Hamat 6 6

Chairman’s Review 161 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Profile of Group Shariah Committee Associate Professor Mohd Ridzuan Assistant Professor Dr. Mohd Afandi Members Bin Awang Bin Awang Hamat Professor Dato’ Dr. Mahmood Zuhdi Associate Professor Mohd Ridzuan Bin Assistant Professor Dr. Mohd Afandi Bin Bin Haji Ab Majid Awang, aged 58, was appointed a Awang Hamat, aged 38, was appointed a member of Public Bank Group’s Shariah member of Public Bank Group’s Shariah Professor Dato’ Dr. Mahmood Zuhdi Bin Committee on 1 April 2005. Committee on 1 April 2005. Haji Ab Majid, aged 62, has been the Chairman of Public Bank Group’s Shariah He has a degree in Islamic Studies from He holds a Doctorate in Fiqh and Usul Committee since 1 April 2005. Universiti Kebangsaan Malaysia (“UKM”) Fiqh from International Islamic University and a Masters Degree in Comparative Malaysia (“IIUM”) and specialises in He holds a Masters Degree in Shariah Law from University of Malaya. His core Muamalat. He is currently the Head of from Al-Azhar University, Cairo, a Masters specialization is in Faraid and he is a Academic Advisors at Fiqh and Usul degree in Philosophy from Kent University frequent contributor to academic journals Department at IIUM. He has conducted in the United Kingdom and a Doctorate and books in this field. various research projects in his field of from University of Malaya. interest and published several academic He is currently attached with the Shariah papers. He also serves on other Shariah Department, Faculty of Islamic Studies at supervisory boards, including the Majlis UKM. He is also the Chief Editor of Al- Fatwa Negeri Kelantan and Mahkamah Shariah journal and is an editor for the Rayuan Shariah Kelantan. In previous Zakat Obligations Malayan Law News. In addition, he is years, he had been involved in various This represents business zakat payable by involved with the Malaysian Examination capacities relating to Islamic studies in Public Islamic Bank to comply with the Council as the Chief Examiner for a several government bodies and Islamic principles of Shariah. Zakat is calculated Shariah paper. Previously, he had served colleges. using the Profit and Loss method at a as a member of the Shariah Panel of the zakat rate of 2.5% and is based on the Securities Commission. percentage of estimated Muslim individual shareholders of Public Bank.

162 Chairman’s Review 2008 ANNUAL REPORT staying ahead PUBLIC BANK BERHAD

International Operations

At a glance

2008 2007 Increase/ (Decrease) %

Total overseas operations Operating revenue RM1,062.3 mil RM1,145.4 mil (7.3) Profit before tax RM321.0 mil RM451.5 mil (28.9) Profit before tax Public Financial Holdings Group HKD388.4 mil HKD785.1 mil (50.5) Cambodian Public Bank Plc USD38.0 mil USD24.0 mil 58.3 VID Public Bank USD9.7 mil USD4.8 mil 102.1 Gross loans, advances and financing Public Bank (Hong Kong) Limited HKD20,123.9 mil HKD15,464.5 mil 30.1 Public Finance Limited HKD4,246.3 mil HKD3,623.8 mil 17.2 Cambodian Public Bank Plc USD643.9 mil USD363.0 mil 77.4 Deposits from customers Public Bank (Hong Kong) Limited HKD21,671.4 mil HKD20,437.6 mil 6.0 Public Finance Limited HKD3,755.1 mil HKD2,532.0 mil 48.3 Cambodian Public Bank Plc USD372.6 mil USD300.0 mil 24.2 Net NPL ratio (%) Public Bank (Hong Kong) Limited 0.3 0.3 — Public Finance Limited 1.8 1.8 — Cambodian Public Bank Plc Nil Nil Nil Risk-weighted capital ratio (%) Public Bank (Hong Kong) Limited* 15.4 13.2 2.2 Public Finance Limited* 21.8 29.2 (7.4) Cambodian Public Bank Plc** 19.0 19.9 (0.9)

* presented in accordance with the Banking (Capital) Rules under Section 98A of the Banking Ordinance issued by the Hong Kong Monetary Authority ** represent the Solvency Ratio of Cambodia Public Bank Plc, which is the nearest equivalent local regulatory compliance ratio

The Public Bank Group has overseas operations in five countries with subsidiaries in Hong Kong and Cambodia, branches of Public Bank in Hong Kong, Sri Lanka and Laos and a joint venture bank in Vietnam. Against the backdrop of the global financial crisis and looming economic slowdown in the Asia region which has already affected Hong Kong, the international operations of the Group contributed 9.5% to the Group’s profit before tax for the year ended 31 December 2008.

Chairman’s Review 163 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Hong Kong Besides the Maxi-Wealth Savings Account Arising from the Public Bank Group’s 10- and the interest-bearing w-IN Current year exclusive bancassurance distribution The Public Bank Group’s operations in Account, which were first offered in 2007, agreement with ING Group covering the Hong Kong continued to carry out Public Bank (Hong Kong) Limited launched Group’s operations in Malaysia and Hong extensive brand-building initiatives in 2008 the HKD Fixed Deposit Promotion Kong, both Public Bank (Hong Kong) to create greater awareness and campaign in 2008 that offered an interest Limited and Public Finance Limited began recognition of the Group in Hong Kong. rate which was double the Hong Kong selling life and investment-linked insurance Advertisements in the print and electronic Dollar deposit counter rate for 20% of the products through their branches and media, sponsorship of TV programmes customers’ fixed deposit amount. Public dedicated Investment Consultants and and billboards on buses, trams, MTR Bank (Hong Kong) Limited’s deposits Insurance Advisors, to enhance the fee- stations and bus stops were some of the grew by 6.0% to HKD21.67 billion, based revenue of the Group’s business in activities carried out to promote Public contributed by an increase in both foreign Hong Kong. The total premium earned Bank (Hong Kong) Limited and Public currency deposits and Hong Kong Dollar was HKD7.2 million. Finance Limited as well as the continued deposits. promotion of the PB Brand. The pre-tax profit of the Public Financial Public Finance Limited launched the Holdings Group declined by 50.5% to Both Public Bank (Hong Kong) Limited Shopping Voucher Campaign in March HKD388.4 million in 2008 due mainly to and Public Finance Limited embarked on 2008 where both new depositors and higher specific allowance made for loan a number of measures to promote and existing depositors who top up their impairment as a result of the weaker market their deposit and loan products. deposits are given shopping vouchers economic environment in Hong Kong and Continuous enhancement of existing worth up to HKD1,600. This campaign higher overheads due to expansion of product features and new initiatives such increased Public Finance Limited’s branch network and sales force, coupled as the Staff-Get-Customer Programme deposits significantly from HKD2.53 billion with the active promotion of the PB and the Customer Incentive Programme as at 31 December 2007 to HKD3.76 Brand. In addition, included in the previous were implemented to further expand the billion as at 31 December 2008. year was an amount of HKD165 million Public Bank Group’s business in Hong non-recurring gain in respect of corporate Kong. To complement the cross-selling Public Bank (Hong Kong) Limited loan recovery and sale of investments. activities of their branches, both Public registered a strong 30.1% increase in This was partially offset by higher net Bank (Hong Kong) Limited and Public loans, advances and financing to interest income from loans and deposits Finance Limited expanded their marketing HKD20.12 billion, mainly attributable to growth. staff force to aggressively market their growth in residential and commercial products. mortgages. Public Bank (Hong Kong) Limited expanded its branch network during the In 2008, the Public Bank Group’s Hong Public Finance Limited reported a strong year with the opening of 5 new branches Kong operations increased its focus on 17.2% growth of its loans and advances in Hong Kong and 1 new branch in growing retail customer deposits to fund to HKD4.25 billion in 2008 on the back Shenzhen, in the People’s Republic of its strong lending growth. Despite the of a healthy 14.9% increase in the China while Public Finance Limited tighter liquidity conditions in Hong Kong, personal loans business. This was a result opened 1 new branch in Hong Kong. As core customer deposits of the Group’s of the launch of several loan products at the end of 2008, the Public Bank Hong Kong operations reported a growth such as the Payment Holiday Personal Group’s branch network in Hong Kong rate of 9.5% in 2008. Loan, where customers are granted a and Greater China expanded to 70 moratorium on their loan repayment for branches in Hong Kong, 3 branches in the first two months, as well as active Shenzhen and a representative office customer acquisition programmes. each in Shanghai and Shenyang in the People’s Republic of China and in Taipei, Taiwan. 164 Chairman’s Review 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Cambodia Bank’s branch network expansion plan, (“VPB”), recorded a profit before tax of another 7 branches are targeted to be USD9.7 million for 2008, an increase of Cambodian Public Bank Plc (“Campu opened in 2009. In addition, Campu Bank 102.1% as compared to 2007. The total Bank”), a wholly-owned subsidiary of also opened 2 bureau de change at the loans for VPB increased by 12.4% to Public Bank recorded yet another year of Crown and Holiday Resort casinos in Poi USD172.9 million notwithstanding the strong business and profitability growth in Pet in December 2008. tight monetary policies implemented 2008, chalking up a record profit before by the State Bank of Vietnam, while tax of USD38.0 million, an increase of Campu Bank’s ATM network in Cambodia customer deposits fell by 10.6% to 58.3% over that of 2007. Loans and was further expanded with the installation USD198.7 million. During the year, VPB deposits stood at USD643.9 million and of 19 new ATMs at locations which expanded its branch network to 7 branches USD372.6 million respectively as at the include existing and new branches, the with the opening of its Dong Nai Branch end of 2008, having grown by 77.4% and US Embassy, Lucky Shopping Mall in and plans to open another 2 branches in 24.2% respectively as compared to 2007. Phnom Penh and Siem Reap International 2009. The passenger vehicle financing business airports and at several petrol stations. of Campu Bank continued to grow Campu Bank will continue to place more healthily with a total of 797 passenger off-branch ATMs to further improve vehicle financing applications approved in Laos customer accessibility and convenience. 2008, amounting to USD18.7 million. Public Bank increased its presence in To better serve their customers, Campu Laos by opening two new branches in Bank will join the EasyCash ATM network During the year, Campu Bank launched 2008, bringing the total number of which enables its customers to perform the Premier Savings Account aimed at branches in Laos to 3. Public Bank is the ATM transactions at other banks. Campu attracting high networth customers to first foreign bank in Laos to be allowed to Bank has also launched its “One Card” enhance its deposit portfolio. To further open a branch outside the capital city, which is linked to customers’ deposit increase Campu Bank’s market share in Vientiane, with its Savannakhet City accounts and functions both as a debit customer deposits, Campu Bank launched branch. card and an ATM card. its ACE Account, an interest bearing account with cheque issuance facility in Campu Bank’s insurance subsidiary, November 2008. Sri Lanka CampuBank Lonpac Insurance PLC (“CLIP”), which commenced operations in The business environment in Sri Lanka Campu Bank increased its paid-up capital August 2007, capitalised on the growth continued to be constrained by negative from USD45 million to USD90 million opportunities in the Cambodian non-life developments at the global and local during the year to support its strong loan insurance sector and managed to book level. The impact of the global economic growth. Campu Bank is now the largest gross premiums of USD2.5 million in slowdown on Sri Lanka is felt through a lender and the highest capitalised bank in 2008. To further penetrate the general decline in exports and a slowdown in Cambodia. Due to its strong and sustained insurance market in Cambodia, CLIP will foreign direct investments. The escalation financial performance and prudent set up a corporate agency to build sub- of the war against the Tamil Tiger rebels management, Campu Bank was awarded agent teams in 2009. in the north has led to a widening of the the Bank of the Year in Cambodia 2008 budget deficit, while the tight liquidity and award by The Banker magazine. This is rising inflation has resulted in an increase the sixth time that Campu Bank has won in the cost of bank borrowings. Despite this best bank award. Vietnam these adverse developments, Public Despite the country being hit by rising Bank’s Colombo Branch expanded its Campu Bank expanded its branch network inflation and a slowdown in economic total loans by 46.1% in 2008. to 12 branches with the opening of 3 new growth, the Public Bank Group’s joint branches in 2008. As part of Campu venture in Vietnam, VID Public Bank

Chairman’s Review 165 HEALTHY GROWTH IN CUSTOMER DEPOSITS

Our industry-leading position tells of our customers’ strong confidence in the Public Bank Group. In the face of a challenging market, the value and strength of the Group are deciding factors when customers decide to expand their valued capital and stay ahead. HEALTHY GROWTH IN CUSTOMER DEPOSITS

Our industry-leading position tells of our customers’ strong confidence in the Public Bank Group. In the face of a challenging market, the value and strength of the Group are deciding factors when customers decide to expand their valued capital and stay ahead. 2008 ANNUAL REPORT staying PUBLIC BANK BERHAD ahead

SERVING THE CUSTOMER

Customer Service During the year, the Group invested compliance with the SWT together with aggressively in its self-service delivery preventive and corrective actions are The Public Bank Group has always channels. This includes self-service analysed, deliberated upon and maintained excellence in customer service machines throughout its branches and off- implemented for further improvement to as a corner-stone of its growth strategy. site locations, PBeBank.com Internet customer service. At Head Office level, Innovative products and services, banking and PB Telebanking which are branches’ QMS performance are tabled aggressive pricing coupled with a designed to provide banking convenience at the Customer Service Working Group commitment to continuously raise the bar to customers, both during banking hours (“CSWG”) and at the Board Executive of customer service standards are being and non-banking hours from a location of Committee for deliberation of the relentlessly pursued to ensure that the their preference. performance and recommendations for Group remains at the forefront of the improvement. more competitive banking landscape. The Public Bank Group’s network of self- service machines incorporates Automated To ensure excellent loan service delivery To nurture the culture of excellence in Teller Machines (“ATMs”), Cheque Deposit by the Public Bank Group, a Standard customer service throughout the Public Machines (“CDMs”) and Cash Deposit Turnaround Time (“STT”) is set to measure Bank Group, every new employee is Terminals (“CDTs”). A total of 277 units loan processing and disbursement required to undergo a course in core PB of self-service machines at a cost of activities within the Group. Similar to the Beliefs. This is to align the employees RM20 million were installed in 2008. This front-line SWT for counter services, credit right from the first day to the Group’s brings the Group’s network of self-service departments at branches monitor their customer centric service culture and that machines to a total of 450 ATMs, 429 own compliance level at the regular delivery of customer service is consistent CDMs and 359 CDTs across the Group’s branch CSFG meetings. Analysis of the throughout the organisation. Customer extensive branch network as well as at causes of shortfalls in the STT, together Service Focus Group (“CSFG”) meetings convenient off-site locations to provide with preventive and corrective actions are are held in all Public Bank branches even more banking convenience for the deliberated and implemented for future regularly to review and enhance efficiency Group’s customers. With the increased improvement. and service standards. deployment of self-service machines, the Group’s Standard Waiting Time (“SWT”) At Head Office, business units involved The Public Bank Group’s customer service for customer service at its front-line with loan processing and disbursement initiatives in 2008 continued with the two counters has also improved. activities meet on a monthly basis under prong strategy of enhancement of personal the Business Process Improvement Focus front-line counter service and the The Queue Management System (“QMS”) Group – Credit Operation (“BPIFG-CO”) promotion of self-service machines. This is implemented at all branches as a tool (Working Level) to review their STT is to meet the needs of the customers to measure and manage customers’ performance level. On a quarterly basis, who prefer the personal services rendered waiting times. The SWT is benchmarked the BPIFG-CO (Management Review by the Group’s front-line service providers at 2 minutes and each branch monitors Level) will review the effectiveness of the as well as those who prefer the its own compliance level on a daily basis. implementation of the activities to improve convenience of the Group’s self-service During the CSFG meetings conducted the STT deliberated at the BPIFG-CO machines. regularly in branches, reasons for non- (Working Level).

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In view of the strong loans growth and The key tool for the achievement of the As part of the continuous work process the high volume of loan applications, 210 STT for loan approval, loan documentation improvement, the eLDS was enhanced new graduate trainees were recruited and loan disbursement is the internally through interfacing with other systems to during the year as Trainee Credit Analysts developed eLDS which facilitates loan facilitate straight through processing and (“TCA”) to improve the speed of applications to be routed electronically by its functionality was extended with modules processing loan applications at Head branches to relevant approving authorities for loan related processes such as:- Office and branches. These TCAs have on a real-time basis and decisions in • e-DTS, the Disbursement Tracking been trained and equipped with credit respect of the loan applications are also System for loan documentation and skills through an intensive fast track routed electronically back to branches to loan disbursement programme that offers a holistic coverage be conveyed to customers. The eLDS • e-PBCS for credit card applications in credit processing. also extends to tracking loan documentation linked to retail consumer loans and loan disbursement STT. Public Bank Group’s ISO 9001:2000 • e-HP for hire purchase financing Certification for the “Provision of the With the eLDS, Public Bank achieved a applications Customer Service at the Front Office” 90% conformance level bank-wide for the • e-SIBC for share margin financing and the “Provision of Customer Service in STT for loan approval for consumer loans applications Loan Delivery” was reaffirmed recently by of 1 to 3 working days and commercial • e-Review for tracking and managing SIRIM QAS International Sdn. Bhd. for loans of 5 to 7 working days, depending the review of loans granted another 3 years. The renewal of the ISO on the approving level at branches or in 9001:2000 Certification is testimony to Head Office. This has been achieved The Public Bank Group will continue to the Group’s commitment to provide despite the continued growth of the enhance the eLDS and improve on the excellence in customer service throughout Public Bank Group’s lending business at work processes and procedures to ensure its business. twice the industry’s rate of loan growth that the Group’s customers experience a and the high volume of loan applications, consistent high standard of loan service loan documentation and loan disbursement delivery at any of the Group’s branches Loans Service Delivery processed. In 2008, the number of loan both domestically and in the region. applications processed through the eLDS Public Bank achieved the internationally numbered more than 125,000. recognised ISO 9001:2000 Certification for the “Provision of Customer Service in The eLDS has also been extended to Loan Delivery” in 2003. Since then, this cover loan processing and approval in the certification has been successfully Public Bank Group’s overseas operations reassessed and renewed by SIRIM QAS in Cambodia, Vietnam, Laos and Public International Sdn Bhd. Under the scope Bank’s Hong Kong branch. Currently, the of the ISO 9001:2000 standards, Public eLDS is being developed for Public Bank Bank implemented standard operating (Hong Kong) Limited in Hong Kong and procedures, continuous work process is expected to be implemented in 2009. improvement and compliance with the STT for processes from loan approval to loan documentation and loan disbursement.

Chairman’s Review 169 2008 ANNUAL REPORT staying PUBLIC BANK BERHAD ahead INFORMATION & COMMUNICATION TECHNOLOGY

The Information and Communication Socket Layer. The implementation of tape In response to constantly evolving cyber Technology (“ICT”) initiatives of the Public encryption will eliminate the risk of security threats, a unified security Bank Group in 2008 remained focused unauthorised disclosure of data should management suite was commissioned to on the pursuit of operational efficiency, any backup media be lost or stolen in provide firewalling, intrusion prevention, product innovation and service excellence. transit. To complement the new high security monitoring, analysis, and threat Against the backdrop of a fast-changing performance mainframes, a 30 terabyte mitigation capabilities. The collaborative business landscape and narrowing profit high-end EMC Symmetrix DMX-4 disk nature of the security suite facilitates margins, special attention was given to storage subsystem was also installed. identification of threats in a centralised the strategic use of ICT as a business With a 40% increase in throughput, the manner, and provides self-defending driver. Projects implemented sought to new disk storage subsystem has shortened network security capabilities to counter further integrate, automate and simplify the turnaround time for Input/Output new security threats. Two-factor the ICT environment. Streamlining ICT intensive batch processing. authentication was also introduced to policies for a consistent governance safeguard e-Banking customers against framework across the Group has similarly The Public Bank Group also embarked on unauthorized access. The enhanced helped align ICT goals with business key initiatives to expand the enterprise security system incorporates a Public Key objectives to further boost the Group’s network capacity. The network revamp is Infrastructure based hardware token which ability to meet its business challenges. an ‘out-tasking’ collaboration with Telekom must be used in tandem with a Personal Malaysia for the deployment of a high- Identification Number to thwart key logging In 2008, Public Bank invested performing, fault-tolerant and highly secure and phishing frauds. RM45 million in upgrading its existing network infrastructure based on the state- mission-critical ICT infrastructure and of-the-art Metro Ethernet technology. Amid this infrastructure efficiency drive, replacing legacy operating systems. The Powered by Cisco Integrated Service application development and deployment IBM z890 mainframe platform was Routers, the new RM10 million network of application systems have continued replaced with the latest IBM z10 Enterprise also facilitates convergence of data, voice unabated. One major undertaking is the Class mainframe computers with an and video traffic. It allows just-in-time overhaul of the Branch Delivery System increased total processing capacity and dynamic bandwidth expansion without (“BDS”) to run under the Microsoft.NET memory size of 1,908 million instructions having to replace any existing physical framework. The implementation is carried per second (“MIPS”) and 64 Gigabytes circuits or equipment. Such scalability out in phases and in co-existence with respectively. The new mainframes also permits bandwidth to be purchased on the present OS/2 environment with new have inbuilt enhanced non-disruptive demand according to the needs of the services being built to enhance and system maintenance features that allow business. The bandwidth for the link to eventually replace the legacy BDS. Some maintenance work to be carried out branches has been optimally configured of these new BDS services introduced without bringing down the system. Overall, at 1 Megabits per second (“Mbits/sec”) are the Signature Management System, the service level for core banking systems to 2 Mbits/sec and can be increased account opening authentication using in terms of availability and response time when traffic load increases. This saves MyKAD and the Western Union money has improved significantly. In addition, the unused capacity and drives down the transfer service. Progress has also been special-purpose Cryptographic total cost of network charges. The new made in migrating the Public Bank Coprocessor and zIIP Specialty Processor network also incorporates a comprehensive Group’s legacy human resource system of the new mainframes provide high speed network monitoring system with proactive to a new web-based system. Greater data encryption/decryption to facilitate network problem detection and alerting administrative efficiency was achieved tape encryption and end-to-end network capabilities to prevent performance following the implementation of Employee protection using standard industry security degradation from reaching critical levels. Self-Services and the e-Learning platform protocols such as IP Security and Secure of the new Human Capital Management

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System. In addition, various systems and and Conversion System (“CTCS”) has Compliance with Bank Negara Malaysia’s processes were re-engineered for greater been fully executed in accordance to the Guidelines on Management of IT levels of simplicity. The electronic Loan timeline imposed by Bank Negara Environment is also scrupulously adhered Delivery System (“eLDS”) was enhanced Malaysia. The implementation of CTCS for to. ICT spend on disaster recovery for the to interface with external systems such as the central, northern and southern clearing Public Bank Group has continued to Bank Negara Malaysia’s Central Credit regions was successfully completed on increase. In 2008, substantial investment Reference Information System to allow schedule. has been made in enhancing the necessary seamless straight through customer credit ICT infrastructure for disaster recovery checking prior to loan processing. The Public Bank Group’s new Islamic support, in particular the refinement of the Similarly, litigation workflows are automated banking subsidiary, Public Islamic Bank key performance indicator for Recovery under eLDS and this has facilitated opened for business on 1 November Point Objective from 15 minutes to speedier turnaround on legal matters and 2008. The common ICT platform was 1 minute. The contingency plans are better management of the panel of logically partitioned to segregate the constantly updated and disaster scenarios solicitors. The use of the eLDS application financial and accounting records of the are rehearsed regularly to ensure that has been expanded for regional use Islamic banking and conventional banking support personnel are ready to handle an encompassing the Public Bank Group’s systems. Under the ICT service emergency situation. loan operations in Sri Lanka, Laos and management framework, the IT Division of Hong Kong. The Customer Relationship Public Bank will continue to provide and The Public Bank Group is continuing with Management system was also enhanced deliver ICT services to Public Islamic servers consolidation of its large installed to incorporate business intelligence by Bank. base of Windows and Unix servers to capturing and analysing customer optimize the use of server resources. As feedback and marketing data from various A key thrust of the Public Bank Group’s part of the server consolidation blueprint, channels, thus enabling more effective ICT initiatives was in the area of fortifying virtualization technology will be deployed cross-selling and up-selling. risk management. Since 2007, a framework using energy efficient blade servers with for Basel II compliance was formulated in centralized Storage Area Network disk To satisfy customers’ demand for greater collaboration with i-Flex Consulting. For arrays and tape library systems. This convenience, contactless Europay the domestic operations, Public Bank initiative will enable better system Mastercard Visa chip with a hidden radio successfully implemented the Standardized management and agility in deploying frequency antenna was adopted for the Approach under the Bank Negara Malaysia server resources, whilst at the same time newly launched co-branded PB ING “Risk-Weighted Capital Adequacy reducing the energy consumption and Mastercard credit and debit cards. As Framework” (“Basel II”) on 1 January carbon footprint of the Group’s data cheques continue to be the dominant 2008. Implementation of the Internal centres. means of payment, risk mitigation and Ratings Based (“IRB”) approach under cost efficiency in processing cheques Basel II will demand greater integration of remain an important issue. The drive to data and processing systems. Plans are introduce a paperless cheque clearing underway for the implementation of the process, increase the efficiency of the IRB approach. clearing and settlement process and to achieve a common dayhold throughout the nation under the Cheque Truncation

Chairman’s Review 171 2008 ANNUAL REPORT staying PUBLIC BANK BERHAD ahead BRANCH PERFORMANCE – KPIs AND AWARDS

Branch Key Performance Indices themselves to their peer group of branches and to seek improvement to keep up or exceed their peer group of branches. The regular and close monitoring of branches’ Public Bank assesses the performance of KPIs by Head Office act as a catalyst for branches to achieve their KPIs. branches with the use of key performance indices (“KPIs”). These KPIs encompass The KPIs included in the performance measurement of branches, branch managers and all the key performance factors which are other key staff of branches are set out below:- used to assess the performance of branches in terms of profitability, loan and KPI Criteria for measurement deposit performance, asset quality, A. Profitability customer service delivery and staff productivity. i) Retail Profit g Achievement of incremental profit targets g Incremental profit per staff The KPIs are used to measure the g Profit contribution compared to peer group of performance of the key business drivers branches in branches and to reward them ii) Return on g Actual ROE vs budgeted ROE accordingly. These KPIs also assist Equity (“ROE”) g Improvement in ROE from the previous year management to identify business iii) Non-Interest g Achievement of non-interest income budget and opportunities at branch locations and Income improvement from the previous year allocate appropriate resources to assist g Achievement of targets for fee-based income products the branches in those locations in the development of their key business areas. B. Loan Performance i) Retail Loans g Achievement of retail loan growth targets The KPIs for measuring the performance g Growth in % and quantum from the previous year of key business drivers are reviewed compared to peer group of branches annually. During the review, the KPIs are ii) Hire Purchase g Achievement of hire purchase financing growth re-aligned according to Public Bank’s Financing budget current business strategies and g Growth in % and quantum from the previous year objectives. compared to peer group of branches

The full year’s targets for the various KPIs C. Deposits are set and conveyed to branches at the Performance beginning of each year. Every month, i) Demand, g Achievement of demand, savings and fixed deposits branches will receive reports of their Savings and targets performance against their KPIs for Fixed Deposits g Growth in % and quantum from the previous year branches to gauge their progress in compared to peer group of branches meeting their KPIs and to inspire them to D. Asset Quality strive for excellence and to exceed their KPIs. The performance and ranking of i) Credit Control g Reduction in non-performing loans peer branches are also disseminated to g Achievement of recovery targets branches to allow them to benchmark g Increase in new delinquent accounts

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KPI Criteria for measurement Branches are assessed in the key areas of business performance, asset quality, E. Productivity cost and risk management and customer i) Customer g Achievement of benchmark for standard waiting time service delivery for the Branch Performance Service g Number of counter transactions and productivity per Awards. The assessment is based on very teller stringent criteria with each branch rated against their peer group of branches. ii) Product g Achievement of targeted product holding of 3 products Holding per customer The Branch Performance Awards for (Cross-selling) g Improvement in average product holding from the 2008 comprised 16 Special Awards, 6 previous year Best Branch Awards for each branch iii) Loan Service g Achievement of benchmark for loan processing grouping and the coveted Founder and Delivery turnaround time Chairman’s Award for the Overall Best g Volume of loans processed compared to peer group of Branch for the year. The Special Awards branches which cover business performance, branch iv) Cost Efficiency g Actual cost-income ratio vs target cost-income ratio of management and service quality includes the branch key awards such as Highest Increase in g Improvement in cost-income ratio from the previous Retail Profit Per Staff, Highest Increase in year Retail Loans Per Staff, Highest Increase in Retail Deposits Per Staff, Highest F. Leadership and Increase in Non-Interest Income Per Staff, Resourcefulness Excellent Cedit Risk Management and i) Controls & g Internal controls and general management of the Outstanding Customer Service in Frontline Compliance branch Operations.

For 2008, the Founder and Chairman’s Branch Performance Awards Award, which included a cash prize of As part of its performance based reward structure and as a key motivational factor for RM50,000 and a gold crafted challenge the delivery of excellent results, Public Bank accords recognition to top performing trophy, was awarded to Sandakan Branch. branches in the form of the Branch Performance Awards annually. Besides rewarding A total of 85 awards and cash prizes of outstanding performance achieved by branches, these awards also inspire other RM1.0 million were awarded to the branches to strive for excellence in the achievement of targets for key performance winners of the Branch Performance factors, not only for the attractive monetary prizes but also the recognition as a top Awards for 2008, with a number of performing branch. The various categories of the Branch Performance Awards are branches winning awards in multiple reviewed annually to ensure that they are aligned to the business goals and strategies award categories. of the Bank.

Chairman’s Review 173 2008 ANNUAL REPORT staying PUBLIC BANK BERHAD ahead

OUTLOOK FOR 2009

OUTLOOK FOR THE 2008 and the new Bank Negara Malaysia EXPECTATIONS AND BANKING INDUSTRY special funds to support SMEs should OPPORTUNITIES support lending activities in 2009. The banking industry is expected to Furthermore, the Government’s stimulus The competitive financial landscape will remain resilient in 2009 due to its strong package and the measures to boost force banking institutions to further build capitalisation, continued profitability, private domestic demand announced in their capability and capacity to compete, healthy asset quality and improved risk November 2008 should also support including against non-bank financial management practices. The impact of the lending activities. institutions. Banks are expected to financial turmoil affecting the developed continue to pursue competitive pricing economies on the Malaysian banking The banking industry is also expected to strategies, effective customer relationship industry will continue to remain muted. further intensify its effort to increase management, expand their multiple delivery Confidence in the banking system has deposits in order to sustain a healthy channels and offer competitive products remained high, being supported by the funding base for its balance sheet. To and services to gain market share. Government’s guarantee of all deposits in achieve this, banks will continue to offer the banking system and also by the innovative and competitive products, Banking institutions are also expected to liquidity assurance announced by Bank including structured deposits and foreign further grow their fee-based activities, Negara Malaysia in November 2008. currency deposits, and high quality particularly in wealth management customer service. In view of the excess products and services, to mitigate The banking industry will remain liquidity conditions, banks are unlikely to pressures on net interest margins. The competitive, particularly in the retail space, raise deposit rates to compete for increasing number of affluent customers due to the presence of strong domestic deposits. in Malaysia with high savings in the players, a liberal operating environment, banking system should continue to provide strong liquidity conditions and the As the Malaysian economy is projected to opportunities for growth, particularly to continued expansion of players in Islamic continue growing, albeit at a more modest innovative financial services providers with banking. Banks are expected to continue pace in 2009, the asset quality of the strong value propositions to customers. to introduce innovative and competitive banking industry should remain healthy. products and services in seeking to gain The risk of loan delinquencies would On the liability side, banking institutions market share. As a result, the industry’s increase if the unemployment rate rises are also expected to further expand their lending spreads and net interest margins sharply. However, any rise in NPLs should retail and wholesale customer deposits, will continue to remain under pressure as be modest as banks have taken pre- foreign currency deposits and structured banking and non-bank financial institutions emptive measures to reschedule and deposits. In an environment of increasing continue to compete aggressively. restructure loans to assist borrowers to economic uncertainties, banking institutions manage their business or household cash are expected to continue to improve their Due to the increasingly challenging flows in an economic slowdown. Lower risk management capabilities. Some domestic economic outlook in the midst interest rates and high savings will help banking institutions will intensify their of an impending global recession, the mitigate increases in loan defaults. New preparation for the implementation of the banking industry expects loan growth to low cost funds established by Bank Basel II capital framework under the moderate to 7% in 2009, to be driven by Negara Malaysia to assist SMEs should Internal Ratings Based approach in 2010. consumer financing, particularly in also reduce the risk of defaults. In addition, residential mortgages and passenger households are not expected to be in Islamic banking is expected to further vehicle hire purchase financing, and retail negative equity for their residential expand in 2009. Coupled with the efforts commercial lending to SMEs. Lower mortgage loans due to stable property by Bank Negara Malaysia to further financing costs due to the reduction in prices and prudent loan to value ratios promote Islamic banking and the increased the Overnight Policy Rate in November adopted by banks generally.

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number of Islamic banking players in distribute unit trust funds and OUTLOOK FOR THE Malaysia, the level of competition in bancassurance products will be further MALAYSIAN ECONOMY Islamic banking is expected to intensify. expanded in preparation for the market recovery that will come in the future. While the slowdown in the global economy has led to a downward revision in STRATEGIES AND DIRECTION The Public Bank Group will further expand Malaysia’s growth outlook for 2009, the its Islamic banking business through its Malaysian economy is still expected to The Public Bank Group will continue to wholly-owned subsidiary, Public Islamic register modest growth on the back of pursue its organic growth strategies to Bank. In particular, Public Islamic Bank proactive Government fiscal stimulus increase market share for its core will focus on sourcing low cost deposits activities and easing monetary conditions, businesses of retail banking and financing and expanding Islamic retail financing to leading to increased domestic demand. services. This will be complemented by consumers and SMEs. In the medium The Malaysian economy continues to the Group’s corporate banking services, term, Public Islamic Bank will explore maintain relatively strong fundamentals treasury operations and Islamic banking business opportunities provided under the such as high national savings, a high business. The Group will also further Malaysian International Islamic Financial current account surplus, healthy external expand its business operations overseas Centre and offer new products and reserves, low external debt and a sound through organic growth strategies in Hong services, including Islamic credit cards banking system to help the economy Kong and the PRC, Cambodia, Vietnam, and wealth management products. weather the worst of the slowdown. Laos and Sri Lanka with the opening of Inflationary pressures is expected to ease new branches in these countries in To grow its business, the Public Bank further in the first half of 2009 due to the 2009. Group will continue to tap on its extensive sharp drop in global oil prices which is branch network, wide array of innovative translating into lower domestic fuel In its lending business, the Public Bank products and packages, and multiple prices. Group will remain steadfast in promoting electronic and self-service channels such residential property mortgages, passenger as Internet banking, ATMs, cheque deposit The Government’s expansionary fiscal vehicle hire purchase financing and retail machines and cash deposit terminals. The stance for 2008 and 2009 and commercial loans to mid-market SMEs Group will also continue to tap on its accommodative monetary policy should and micro enterprises, in addition to strong corporate image and the PB Brand, support economic growth. The expanding the Group’s personal financing its growing sales and marketing personnel Government’s fiscal deficit for 2009 is and credit card businesses. On liability and its superior delivery standards which projected to be 4.8%, a similar level to management, the Group will continue to will continue to be internationally ISO- that of 2008 due to increased public promote retail and wholesale deposits to certified. expenditure on domestic infrastructure maintain its healthy loan to deposit ratio. which is expected to have a large multiplier Foreign currency deposits and structured In its pursuit of its business expansion, and distributional impact on the domestic deposit products will also be promoted. the Public Bank Group will continue to economy. The RM7 billion fiscal stimulus remain prudent, maintain strong asset package announced in November 2008, Efforts to expand the fee-based activities quality, uphold strong corporate including the measures to support private of the Public Bank Group such as sales governance and implement sound risk investment and consumption activities, is of unit trust funds, bancassurance and management policies to ensure sustainable expected to support the Malaysian general insurance products, remittance long-term growth. As a responsible economy. The lower corporate tax rate in services, trade finance and treasury corporate citizen, the Public Bank Group 2009 and lower financing costs are activities will be accelerated. The Group’s will continue to implement its Corporate expected to encourage private consumption extensive infrastructure to sell and Social Responsibility programmes. and investment activities.

Chairman’s Review 175

ENRICHING COMMUNITIES

Our business is deeply rooted in giving back to the public through partnerships and programs that effectively reach out and touch society. In carrying out our activities in an economically, socially and environmentally sustainable manner, we stay ahead on a plane far above the rest. 2008 ANNUAL REPORT PUBLIC BANK BERHAD

KEY INITIATIVES

corporate responsibility

When the business of a corporate is conducted responsibly, the reputation and Corporate Responsibility standing of the corporate is enhanced and the high level of stakeholders engagement (“CR”) is increasingly in CR initiatives could lead to higher market valuations and greater competitiveness. being embraced by Good CR is also an indication of good management which is expected to deliver corporates and long term superior performance of the corporate and signals better risk management businesses as the capabilities, a vital ingredient especially in the current climate of uncertainty amidst the current financial and economic turmoil, the origins of which can be laid at the stakeholders of these door step of ethical failure, corporate misconduct and inadequacy in risk corporates and management. businesses demand In Bursa Securities’ Corporate Social Responsibility (“CSR”) Framework, Corporate Social Responsibility is defined as “open and transparent business practices that increasingly higher are based on ethical values and respect for the community, employees, the levels of accountability, environment, shareholders and other stakeholders. It is designed to deliver sustainable value to society at large.” This could well be the definition of Corporate Responsibility transparency, ethics as CR is about integrating responsible and ethical practices in all aspects of a corporate’s business and deals with the issues of ethics, governance, the environment and integrity in the and social obligations. Therefore, CR encompasses a wider scope of what a conduct of business. corporate does, how it behaves and how it affects the environment, in addition to the social issues focus of CSR. There is also growing CR can also be equated to the corporate version of the national agenda on the realisation amongst creation of a competitive nation and a moral, ethical, caring and economically just corporates that CR society.

makes good business Although not called CR, and well before it became part of the corporate vocabulary, the Public Bank Group had already subscribed to the notion of conducting its sense. business in an ethically, socially and environmentally sustainable manner which is encapsulated in its long held Corporate Philosophy which states that:

178 Corporate Responsibility 2008 ANNUAL REPORT PUBLIC BANK BERHAD staying ahead

Public Bank Cares...

For its Customers By providing the most courteous and efficient service in every aspect of its business By being innovative in the development of new banking products and services

For its Employees By promoting the well-being of its staff through attractive remuneration and fringe benefits By promoting good staff morale through proper staff training and development and provision of opportunities for career advancement

For its Shareholders By forging ahead and consolidating its position as a stable and progressive financial institution By generating profits and a fair return on their investment

For the Community it Serves By assuming its role as a socially responsible corporate citizen in a tangible manner By adhering closely to national policies and objectives thereby contributing towards the progress of the nation ...With Integrity

Corporate Responsibility 179 2008 ANNUAL REPORT PUBLIC BANK BERHAD

As a leading financial institution deeply residential mortgages approved were for since the beginning of 2003, Public Bank rooted in the Malaysian economy and in the purchase of properties costing has contributed significantly to the financial the community that it serves, the Public between RM100,000 and RM250,000. well-being and development efforts of Bank Group clearly subscribes to the Public Bank also consistently exceeds the Malaysia. fulfilment of its CR. The Group also minimum commitment levels for the subscribes fully to the notion that in the financing of low cost housing required by conduct of its business and the delivery Bank Negara Malaysia, with the Bank Road Safety of its corporate and social responsibilities, committing to finance over 2,000 low In promoting a more civil society in the the Group is creating value for all its cost houses in 2008. This core business country, Public Bank contributed stakeholders and enhancing the long-term of the Group is therefore helping RM400,000 to a road safety campaign by sustainability of the Group. Malaysians, particularly the average man the Polis Diraja Malaysia (“PDRM”) to in the street and low income families, in address and overcome the “mat rempit” The Corporate Responsibility initiatives of owning their own homes and generally problem amongst secondary school the Public Bank Group are focused on: promoting the level of home ownership in students under the PDRM-Public Bank the country. • Nation building Social Responsibility Programme. The • Enhancement of the marketplace objective of the campaign is to educate • Promotion of the workplace the nation’s youth at their most Firm Supporter of SMEs and Micro • Building the future through education impressionable age of the seriousness • Support of the community Enterprises of the “mat rempit” problem and turn • Greening the environment Besides the focus of the Public Bank them away from such unhealthy activities. • Customer care Group’s commercial lending business on financing SMEs, Public Bank has also been actively channeling low cost funds CR in the MarketPlace under Bank Negara Malaysia’s SME CR in Nation Building Commitment to Corporate Assistance Facility and SME Modernisation As the largest non-government linked Facility to SMEs, with Public Bank Governance corporation, and the largest bank in accounting for 42% of applications made The Public Bank Group’s excellent Malaysia by market capitalisation, Public for these low cost funds to the Credit corporate governance track record, Bank is an integral and vital part of the Guarantee Corporation. Bank Negara recognised by the Minority Shareholder financial system of the country. Together Malaysia has also launched the Micro Watchdog Group, together with the with its unbroken 42-year profitability track Enterprise Fund to assist micro enterprises Nottingham University Business School, in record, Public Bank has fulfilled its role in with low cost funds. Together with Public ranking Public Bank No.1 for corporate promoting the stability and integrity of Bank’s PB Microfinance, the access to governance for the fourth consecutive Malaysia’s financial system, particularly in financing is helping micro enterprises to year in their Corporate Governance Survey the current environment of global financial grow. Along with the support of SMEs, Report 2008 covering a total of 960 turmoil. As a strong and stable financial the commercial lending business of the companies listed on Bursa Securities, system is a necessary pre-requisite to a Group is helping SMEs and micro attest to Public Bank as a standard bearer healthy economy, the Public Bank Group enterprises to expand which, in the of corporate governance excellence in has played, and continues to play, a key medium- to longer-term, will benefit the Malaysia. This position is also reaffirmed role in the progress of the economic country through higher tax revenues and by Malaysian Business awarding the development of Malaysia and in the creation of employment opportunities inaugural Malaysian Business-CIMA contributing to nation building. for Malaysians. Enterprise Governance Awards 2008 to Public Bank for being the overall winner and for best returns to shareholders. Supporting Home Ownership Tax Contribution Being a key player in the financial services One of the core lending business of the sector of the economy, where public trust The strong and rising profitability of the Public Bank Group is the financing of is vital particularly in the present Public Bank Group means that the Group home purchases with over one quarter of environment of significant financial turmoil has been a significant contributor to the the Group’s total loan portfolio comprising and economic uncertainty, Public Bank, fiscal revenue of the country. With total residential mortgages. In 2008, 53% of with its excellent corporate governance tax payments made of RM3.26 billion and the high level of transparency which

180 Corporate Responsibility 2008 ANNUAL REPORT PUBLIC BANK BERHAD comes with it, is contributing to the Public Bank continued to support the more than 23,000 participants completed stability and integrity of the financial National Award for Management e-learning courses. In addition to system and the marketplace. Accounting (“NAfMA”), jointly organised enhancing the skills and competency of by the Malaysian Institute of Accountants the Group’s workforce to enable its and the Chartered Institute of Management employees to properly discharge their Ethical Business Culture Accountants Malaysia Division, as the duties, the training courses also prepare main sponsor of the NAfMA 2008, with a employees for progression up the The creation and proactive management RM50,000 contribution for the fifth structured career path that the Group of a culture of integrity, ethical behaviour consecutive year. offers to all employees. and honesty that is pervasive throughout the organisation as well as a zero tolerance of fraud and unethical conduct Career Development means that the way in which the Public CR in the WorkPlace Bank Group behaves in making its profits The Public Bank Group, which has over Promotion of employees from within the is just as important as the profits that it 16,000 employees spread across Malaysia Public Bank Group has always been a makes. and in its regional operations, underpins priority of the Group to accord upward its philosophy of caring for its employees opportunities to performing employees. In by: 2008, 1,660 staff were promoted to assume higher positions within Public Development of Malaysian Capital • Providing a fair and equitable Bank. As at the end of 2008, more than Markets remuneration to employees 90% of the Group’s managerial staff were The extensive engagement of shareholders • Ensuring that employees’ well-being is appointed from within. In addition, to and investors through the various channels well taken care of promote the professional development of of communication such as the high level employees, the Group sponsors staff for of investor relations activities, general • Providing growth and progression opportunities for all employees various relevant certification programmes meetings of shareholders, regular financial and provides incentives to staff to pursue results briefings for the investor community • Providing a safe, secure, healthy and related qualifications. and the media, ensures that the Public conducive work environment Bank Group remains at the forefront of the investing public, including global The activities and initiatives undertaken to Fair Remuneration institutional investors, thereby contributing put into practice the Group’s philosophy to the promotion of investments in and of caring for its employees and effectively The Public Bank Group constantly the development of the capital markets of discharging its corporate responsibilities monitors market developments on Malaysia. in the workplace cover the areas of human compensation and benefits both in the capital development, fair and competitive financial services industry as well as in remuneration, employee engagement, the wider marketplace. The Group Professional Development quality of life, health and safety and labour participates in industry specific and rights. broader remuneration surveys to A key area in the development of the benchmark its remuneration structure to marketplace is the Public Bank Group’s that of the marketplace and to provide all contribution to a broad spectrum of Skills and Competencies employees with a competitive and professional development activities which equitable remuneration that reflects fairly will benefit the marketplace in the long- The Public Bank Group invests substantial on the contribution of the employees to term. Public Bank, in collaboration with resources in the development and training the Group. the Malaysian Institute of Management, of employees to enhance their skills and supports the “MIM-Public Bank Manager competencies and has a policy of of the Year Award” programme to mandatory training for all levels of staff. Employee Engagement recognise exemplary managers and to The Group’s purpose built, dedicated promote the development of excellent Knowledge and Learning Centre located To promote employee engagement, twice managers and management practices in in Bangi is staffed by 18 full time skilled yearly management seminars are held the country, with Public Bank committing trainers. In 2008, over 50,000 man-days involving over 2,000 managerial and to a total funding of RM300,000 for of classroom training were conducted and marketing employees, including those 5 years of this programme.

Corporate Responsibility 181 2008 ANNUAL REPORT PUBLIC BANK BERHAD

from the Public Bank Group’s regional operations. With significant levels of input from employees, these management seminars provide opportunities for employee involvement in shaping the strategic business direction of the Group, as well as aligning delivery expectations of employees with the goals and strategies of the Group. In addition, by continuing to uphold a high level of transparency and adherence to high ethical standards, the Group continues to instil in its employees the core values of the organisation as a trusted financial institution.

Long Service Recognition Long service with the Public Bank Group is recognised tangibly by specially minted long service silver and gold medallions awards which were awarded to 1,411 employees in 2008 with a total value of RM2.3 million.

Graduate Development At the other end of the service scale, the Public Bank Group’s graduate employment initiatives provide the opportunity for young people just embarking on their career to develop within an award-winning and progressive yet stable, banking group. In 2008, the Group offered career opportunities to 949 fresh graduates.

Retirement and Insurance Benefits The Public Bank Group’s care for its employees extends beyond their tenure of service. The Group provides a defined benefits retirement plan to officers of the Group, in addition to the EPF defined contribution scheme. In 2008, a total of RM20.2 million was paid to employees from the defined benefits retirement plan. The Group’s employee protection insurance policies also provide for unexpected demise or incapacitation of employees whilst in the Group’s service,

182 Corporate Responsibility 2008 ANNUAL REPORT PUBLIC BANK BERHAD with RM2.6 million paid to employees or over 9,600 staff have benefited from the To reinforce the commitment of the Bank their families in 2008 under these Group’s initiatives to reduce the interest to provide a safe and healthy workplace, policies. rate for staff housing and vehicle loans posters setting out the Bank’s Safety and and extend the repayment period of these Health Policy Statement are put up in all loans. branches and in head office, to ensure Special Ex-gratia that all employees are aware of their roles With sharply rising inflation and cost of It is therefore not surprising that in an and responsibilities in relation to a safe living in 2008, employees were challenged article in the New Straits Times on workplace. To promote a healthy lifestyle in providing for themselves and their 21 July 2008 titled “Employers show they for employees through exercise and families. The Public Bank Group took have a heart”, it was reported that “Public sporting activities, Public Bank Group concrete steps to ease the burden of the Bank probably leads the pack in staff organises various sporting competitions rising cost of living, particularly on lower loans. It has slashed rates on staff loans amongst employees of the Group. All level employees whose salaries were more of RM100,000 and below to zero per employees are encouraged to attend stretched. The Group paid a special ex- cent...” biannual medical checks, at the Group’s gratia of up to RM2,000 to each and expense, at the panel clinics and hospitals every employee with the total amounting of the Group to help staff maintain a to RM13.9 million. Enhancing Quality of Life healthy lifestyle and facilitate early detection and treatment of any serious Over the longer term, the Public Bank illness. Public Bank also coordinates with Group continues to enhance the quality of health service providers and specialist Interest Rate Reduction for Staff life of its employees. The 42-year unbroken hospitals to enable staff to attend talks Loans track record of profitability and strong and forums on a wide range of health financial performance provide the backdrop The Public Bank Group also reduced the related topics that may help promote a to long-term stable employment for interest rates of its staff housing, car and healthy lifestyle amongst staff. employees who choose the Public Bank motorcycle loans and extended the Group. With competitive remuneration repayment periods of these loans. Again packages and employees’ well-being the emphasis was on loans for more looked after through attractive benefits Equal Opportunity and Meritocracy junior levels of staff. Staff housing loan such as medical and insurance coverage, The promotion of labour rights by the interest rates were reduced for all staff provision of low interest or interest free Public Bank Group involves the but the reductions were progressively loans for housing and purchase of cars employment of staff under fair and larger for smaller staff loans, with the and motorcycles, as well as other forms equitable terms and an equal opportunity interest rate of staff housing loans of of financial assistance, the Group seeks for career advancement based on merit. RM100,000 and below being reduced to provide a high and sustainable quality Employee remuneration and benefits from 3% to 0%. Interest rate for staff of life to its employees. packages are monitored and regularly motorcycle loans were reduced for all reviewed to ensure they remain competitive staff, with loans of RM5,000 and below in the labour market. A well established being reduced from 4% to 0%. The and highly quantitative performance monthly instalments for some staff were Health and Safety appraisal system, which is highly reduced by up to 40% with the rate Public Bank adopts a proactive role to transparent to employees, provide the reduction and extension of repayment promote a safe and healthy working basis of both a performance related periods. The cost to the Group of the environment for all its employees. The remuneration structure and a meritocracy interest rate reduction for staff loans is formulation and enforcement of the Bank’s based career path progression. Public over RM15 million per year but would Safety & Health Policy ensures that all Bank also adheres closely to the Code of significantly benefit the staff, particularly employees are aware of their roles and Conduct for Industrial Harmony to promote more junior levels of staff and their families responsibilities in respect of the safety a harmonious labour environment and by significantly easing their monthly outlays and health aspects of the workplace. adopts an open door policy where to own the roof over their heads and 80 Safety and Health Committees, employees are provided with access to reducing the staff’s burden in providing comprising representatives of management appropriate channels of communication for their families in times of rapidly rising and employees, at branches and in head for feedback and grievances. cost of living. As at 31 December 2008, office, meet quarterly to review safety and health matters.

Corporate Responsibility 183 2008 ANNUAL REPORT PUBLIC BANK BERHAD The Public Bank Group’s strong belief in Corporate Social Responsibility (“CSR”) that it is its people who will define the In fulfilling its Corporate Responsibilities to society and the community in which Group and has therefore, right at the it operates, the Public Bank Group had in 2008 focused on CSR initiatives and outset, sought to create a fulfilling, activities in the areas of: conducive and caring environment for its employees and be their “Employer of • Healthcare and the physically challenged Choice”. • Disaster relief • Youth and community activities Building the Future • Culture and the arts through Education • Support of the underprivileged The Public Bank Group continues to Public Bank published the book “Teh Hong Piow – A Banking Thoroughbred” support the building of the foundation for in 2007, a chronicle of the banking journey of the Founder and Chairman of the nation’s future with the Group’s Public Bank and his life time achievements in guiding Public Bank to its premier initiatives in working with and supporting position today. The sale of the book to the public raised gross proceeds of school children and university students nearly RM1,000,000 in 2008, all of which will be donated to worthy and and their activities. charitable causes. The gross proceeds from the sale of the Chinese language edition of “Teh Hong Piow – A Banking Thoroughbred” will similarly be donated Universiti TAR and TAR College students to such causes. continued to benefit from the RM2.0 million “UTAR-Tan Sri Dato’ Sri Dr. The effort of the Public Bank Group in fulfilling its corporate social responsibilities Teh Hong Piow Student Loan Fund” and and its CSR initiatives were recognised in 2008 with the award of the Malaysian the RM1.5 million “TARC-Tan Sri Dato’ Business CSR Awards 2007 for being the overall winner and for the best Sri Dr. Teh Hong Piow Student Loan innovation in CSR by the Malaysian Business. Fund” established in 2007 to support Malaysian youths who have the capacity and intellect but lack the means to pursue higher education.

Public Bank contributed RM70,000 to the Nanyang Press Foundation in 2008 in support of the Foundation in promoting its educational and youth activities. Public Bank continued with its support of the Bookfest @ Malaysia 2008 for the 3rd year with sponsorship of RM40,000. Public Bank’s branches in Miri also participated in the Student Financial Club Leadership Workshop 2008 jointly organised by the Ministry of Education and Bank Negara Malaysia to nurture the development of financial knowledge amongst young students.

Cambodian Public Bank Plc contributed USD25,000 for the construction of additional classrooms of the Hun Sen Prasat secondary school in Khum Prasat, Srok Sontok, Kompong Thom province in Cambodia.

184 Corporate Responsibility 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Healthcare and the Physically Challenged In 2008, the Public Bank Group contributed RM100,000 to the Institut Jantung Negara for the support of heart patients who require treatment but lack the financial resources for such treatment. Public Bank also contributed RM80,000 to support the activities of the Malaysian Red Crescent Society. In 2008, Public Bank continued with its support of the Persatuan Dialisis Kurnia, Petaling Jaya, with a contribution of RM100,000 to enable the Persatuan Dialisis Kurnia to provide affordable dialysis treatment for needy patients suffering from kidney diseases and kidney failures.

Public Bank contributed RM80,000 to the Malaysian Paralympic Council to enable physically challenged sportsmen and sportswomen to attend the Paralympic Games 2008 in Beijing in the People’s Republic of China.

Besides financial support, the Public Bank Group also organises activities or participates in events promoting a healthy lifestyle. Public Bank and the National Blood Centre jointly organised a blood donation clinic in 2008, which has been a yearly feature of the Public Bank’s CSR calendar since 1994, where nearly 200 staff and customers donated blood.

Disaster Relief Public Mutual Berhad, a wholly-owned subsidiary of Public Bank donated RM300,000 to the Malaysian Medical Relief Society (“MERCY Malaysia”) for its China Relief Fund to help victims of the earthquake in Sichuan Province in the People’s Republic of China. Public Mutual Berhad also donated RM200,000 to the Mercy Malaysia-Myanmar Relief Fund to help the victims of the cyclone disaster that affected millions of Myanmarese citizens.

Corporate Responsibility 185 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Youth and Community Activities Malaysian musical production, Puteri Public Bank distributed food hampers and Gunung Ledang – The Musical. This “angpows” amounting to RM100,000 to In 2008, Public Bank contributed a total wholly-Malaysian production, which has over 450 senior citizens and the needy in of RM160,000 to the Boy’s Brigade won considerable fame and credit amongst Klang Valley, in partnership with the Malaysia, with RM60,000 going towards the performing arts community, showcases Ministry of Women, Family and Community assisting the expansion of the Boy’s the talents and creativity of Malaysian Development in conjunction with Chinese Brigade brass band and RM100,000 to performers and the country’s unique New Year in 2008. Public Bank also support the activities of the Boy’s Brigade culture and arts. hosted a “RayaVali” celebration for over Malaysia 10th Kuala Lumpur Company, in 300 children from 9 orphanages who its promotion of the development of young Public Bank also contributed RM30,000 were given hampers and duit raya, in Malaysians and their healthy contribution to the Persatuan Karyawan Malaysia, a addition to the experience of the festivities to society. non-governmental organisation that in a leading hotel, whilst the 9 orphanage supports the welfare of domestic artistes homes received a total donation of In recognising the contribution of the and RM30,000 to the Kuala Lumpur RM120,000 in support of their activities country’s police force to the well-being Performing Arts Centre whose objective in looking after the orphans and the and security of the nation, Public Bank is to build a common platform to develop needy. continued to support the activities of the performing arts in Malaysia. various police associations with donations In 2008, Public Bank donated RM70,000 of RM100,000 and RM10,000 respectively and RM50,000 respectively to the Rumah to the Kelab Polis Trafik Kuala Lumpur Charis and the Rumah Orang Tua Seri and the Johor Police Family Association in Support of the Underprivileged Kembangan from the sale proceeds of the support of the welfare of the nation’s The Public Bank Group continued to book “Teh Hong Piow – A Banking policemen and their families. support the needy and the underprivileged Thoroughbred” to support the activities in the community in which it operates by and operations of these charitable lending a hand to the needy, with direct organisations in looking after the needy Culture and the Arts financial assistance as well as in the and the aged. organisation of festival celebrations for the Public Bank, in its endeavour to raise the underprivileged. profile of the Malaysian performing arts, contributed RM1,200,000 to the 3rd season of the critically acclaimed

186 Corporate Responsibility PERFORMANCE DATA 2008 Units 2008 2007

Economic Taxes to government RM'000 756,528 801,852 Distributions to shareholders and minority interests RM'000 1,415,555 1,933,175 Personnel costs RM'000 1,061,671 960,589 ANNUAL REPORT Reinvestment in the Group RM'000 1,325,964 371,732 Human Resources PUBLIC BANK BERHAD Group Total headcount 16,160 14,287 In Malaysia % 89.4 91.0 Outside Malaysia % 10.6 9.0 Malaysia Female % 43.8 58.0 Male % 56.2 42.0 Supervisory % 55.8 52.0 Non-supervisory % 44.2 48.0 Union members % 26.8 30.1 Non-union members % 73.2 69.9 Age group: <30 % 40.7 37.8 30 to 40 % 39.4 41.6 40 to 50 % 16.4 17.2 >50 % 3.5 3.4 Diversity: Malay % 40.0 41.3 Chinese % 52.3 50.4 Indian % 7.3 7.9 Others % 0.4 0.4 Women in management % 32.0 30.7 Women in top management % 37.5 33.1 Employee turnover rates Supervisory % 3.8 3.6 Non-supervisory % 3.8 4.3 Service in the Group < 1 year % 14.7 11.4 1 to 5 years % 20.3 16.9 5 to 15 years % 37.0 44.8 >15 years % 28.0 26.8 Employee Welfare Contribution to EPF RM'000 104,333 92,101 Benefits paid under defined benefits retirement plan RM'000 20,248 16,590 Benefits paid under the Group’s employee protection insurance policies RM'000 2,783 2,867 Staff Development Classroom training Man-days 50,000 42,600 Employee participation in training: Classroom headcount 24,481 18,551 E-learning headcount 23,832 21,147 Training expenditure over total human resources cost * % 3.7 3.6 Average number of participants per training programme headcount 22 22 Average training budget per employee RM 1,730 1,730 Total hours of training per employee hours 24 23 Community Investment Charitable donations RM'000 2,994 5,624 of which: Healthcare and the physically challenged RM’000 378 102 Disaster relief RM’000 3 99 Youth and community activities RM’000 1,001 1,436 Culture and arts RM’000 1,274 3 Support of the underpriviledged RM’000 338 3,984

* Exceed 2.5% minimum requirement of Bank Negara Malaysia in respect of staff training allocation.

Corporate Responsibility 187 2008 ANNUAL REPORT PUBLIC BANK BERHAD CUSTOMER CARE Bank’s branches are also on hand to generations of Malaysians and the citizens assist customers on all banking matters of the world. By playing its part in both The Public Bank Group is fully committed and to attend to customers’ queries. promoting environmental awareness and to providing the best to its customers in in the conservation of the environment, as terms of service and products. Not As part of its customer care initiatives, the well as direct participation in climate stopping at service delivery alone, the Public Bank Group has established an change initiatives, the Group continues to Public Bank Group is also conscious of efficient complaint resolution system. play an active part in environmental its responsibilities to assist borrowers Public Bank has set a maximum number CSR. who may face difficulties in meeting their of days for all customer complaints – financial obligations in the prevailing whether related to customer service, challenging economic environment. product or fraud – to be acknowledged, Public Bank – MNS Tree Planting resolved and notified to the customer – Climate Change Programme promptly. In 2008, Public Bank handled The Public Bank Group, together with its Customer Service and Satisfaction all cases of customers’ complaints well partners, the Malaysian Nature Society The Public Bank Group continuously within the maximum number of days set. (“MNS”) and the Ministry of Natural seeks to improve its service delivery to Resources and Environment, embarked on customers by having a Quality Management a tree-planting project in 2007 that will System in place. All of its domestic Extending Assistance to Borrowers have a long-lasting effect on the branches are certified for customer service Public Bank has taken various proactive environment. at branch counters and loan delivery steps to assist borrowers to meet their under the internationally recognized ISO repayment obligations, including extension Public Bank committed an initial 9001:2000 certification. Public Bank of loan tenor and EPF withdrawals for contribution of RM1,000,000 to the cost measures and monitors compliance to its housing loan repayments to ease of planting 20,000 trees on a 45-acre site 2-minute Standard Waiting Time (“SWT”) customers’ increased financial burden owned by the Drainage and Irrigation for customer service at the front counter in the more challenging economic Department. The site is called the Kolam of its branches for every single customer environment as well as engaging with Takungan Banjir Seri Johor in Cheras, encounter. Loan service delivery is also customers to restructure their loans. In Kuala Lumpur and is a flood retention benchmarked to measure conformance to 2008, Public Bank restructured and pond which forms part of the Kuala the Standard Turnaround Time (“STT”) for rescheduled over 8,700 loans totaling Lumpur city flood management system. loan approval for consumer loans of 1 to RM800 million, of which RM440 million The planting of suitable species of 3 working days and for commercial loans were in respect of residential mortgages. indigenous trees and the employment of of 5 to 7 working days. In 2008, Public appropriate planting techniques will Bank’s branches achieved a commendable significantly enhance the flood retention 90% compliance rate for the STT for the capabilities of the Kolam Takungan Banjir approval of consumer and commercial Environmental CSR Seri Johor site. loans. The SWT and STT are monitored In a world that is constantly reminded of regularly by Public Bank’s Customer the devastation and havoc wrecked by A total of 5,000 trees have been planted Service Working Group and the Board the effects of environmental changes and in the first phase of this tree-planting Executive Committee. global warming, there is an urgent need project. Upon the completion of the for everyone to address the issue of the planting of the targeted 20,000 trees and Public Bank also ensures that customers sustainability of the environment. upon their maturity, the project would are provided with adequate information on have an annual carbon absorption capacity products, pricing and services to enable The Public Bank Group, in its role as a equivalent to 450,000 kilograms of them to make informed decisions. Such long-term partner with the Government in environmentally harmful carbon dioxide information is available on the Bank’s nation building and as a responsible emissions. Besides providing a green lung e-Banking platform and from brochures corporate, is mindful of its role in helping in the midst of an urban landscape, the placed at all the Bank’s branches. to sustain and improve the environment project would also provide the local Customer Service Representatives at the as its responsibility to the future

188 Corporate Responsibility 2008 ANNUAL REPORT PUBLIC BANK BERHAD community with an amenity to enjoy the the US Green Building Council. Upon its The LEED environmental rating system wonders of nature with the flora and fauna completion, the new head office building offers 4 certification levels for new of the site as the trees mature. The Public of Public Mutual Berhad will be one of construction activities, where Public Bank Group is also committed to the the first “Green Building” in Malaysia. Mutual Berhad is seeking the Gold level subsequent maintenance of the site in certification, the second highest level of collaboration with the local authorities and The LEED environmental rating system sustainability. In undertaking the with the assistance of the MNS. was selected for the new head office certification, the LEED categories that building of Public Mutual Berhad due to need to be addressed relate to its worldwide recognition and stringent sustainability of the site, water efficiency, A Green Building criteria and is the recognised standard for energy and the atmosphere, materials and measuring building sustainability in the resources, indoor environmental quality, Public Mutual Berhad, a wholly-owned United States and a number of other as well as innovation and design subsidiary of Public Bank, is in the countries. The adoption of internationally processes. Some of the specific process of seeking planning approval to recognised standards and the engagement environmentally friendly design and build a multi-storey office building in the of a sustainability consultant as part of construction features include stringent central business district of Kuala Lumpur the project team demonstrates the construction erosion and sediment as its head office. This new building is commitment of the Public Bank Group in controls, stormwater management, energy designed for a Leadership in Energy and taking a proactive role in the preservation efficiency with the new head office of Environmental Design (“LEED”) Green of the environment. Public Mutual Berhad targeted to be 40% Building Rating System certification by more energy efficient than a comparable conventional high-rise commercial building and the use of environmental-friendly materials, including recycled content and wood from sustainably managed forests.

Raising Awareness of Environmental Change In conjunction with the International Day for Biodiversity, Public Bank organised the PB Nature Hunt 2008 to provide the staff of Public Bank and their families with the opportunity to explore their natural environment and to learn about the importance of safeguarding the natural resources of the country. Held at the Nature Education Centre in the Forest Research Institute of Malaysia, the activities included a nature hunt, nature educational tour and a children’s colouring contest with an environmental theme.

The Public Bank Group continued with its tradition of promoting environmental conservation with its annual corporate gifts. The theme for the Group’s corporate diaries and desktop calendars continued to promote environmental awareness with the 2009 theme featuring various species of the country’s indigenous trees.

Corporate Responsibility 189 2008 HUMAN Capital DEVELOPMenT ANNUAL REPORT PUBLIC BANK BERHAD

People are at the Heart of Our Business Human talent makes the difference! More so when the current global economic and financial environment is volatile and fraught with uncertainties. Meeting today’s business challenges places great demands on all the resources of the Public Bank Group. However one of the overriding focuses to ensure the long-term sustainability of the Group and secure long-term profitability is the management of the Group’s human capital. The Group strongly believes that our staff are central to the continued success of the Group’s business and reputation for service excellence.

Being the Right Partner to Our While the Public Bank Group constantly stretches and stimulates its employees, the Employees strong performance orientation is supported by a robust performance-linked reward As a leading financial services group infrastructure which recognises contributing individuals and encourages them to with a staff strength of over 15,000, continuously raise their standards. This, coupled with a caring and nurturing human the Public Bank Group recognises capital development strategy, has brought about an engaged staff force that is that for an organisation to be great, it passionate about the Group’s goals, acting as the Group’s best advocates. must become a living entity with both a heart and a soul. It requires values, Public Bank demonstrated what being a “right partner” means when it was amongst standards, responsibilities and team the first employers in Malaysia to respond empathetically to the financial pressures power. At the same time, it is about faced by its employees due to the escalating prices of essential food items and being the right partner to its petrol. The Public Bank Group reduced monthly repayments for staff loans by as employees, building a workplace much as 40% to provide immediate financial relief to the staff commencing from which allows each staff to grow and July 2008. This was done through reducing interest rates on all staff loans and make a difference as an individual extending the repayment of such staff loans. For staff housing loans, interest rates while working as teams to win. This were reduced from 4% to between 0% and 2% per annum, while those of staff car requires progressive HR initiatives to and motorcycle loans were reduced from 4% to between 0% and 2.5% per annum. support the Group’s expansion and to Although this reduction in interest rates will cost the Group over RM15 million prepare the staff for future per annum, it is deemed a worthwhile investment for the well-being of the Group’s challenges. employees and their family members.

190 Human Capital Development 2008 ANNUAL REPORT PUBLIC BANK BERHAD Our Competitiveness: The Driving Desired processes in all of the Bank’s 242 Passion of Our People Competencies and branches. Public Bank’s switchover to the CTCS was smooth and completed with Managing talent effectively by filling critical Behavioral Outcomes no major hiccups and no inconvenience roles with competent and committed The Public Bank Group’s human capital to customers. A total of 3,264 participants people each time and all the time is an development approach is always aligned underwent training on the CTCS over a absolute necessity that provides the to the optimisation of the Group’s business total of 212 training days in a very tight competitive edge. The secret of the Public goals. The Group recognises that aligning time window. Bank Group’s competitiveness lies in its its growth strategy to external changes ability to inculcate and instill Public Bank’s and mobilising its people to act quickly As a primary solution to provide a scalable best work practices, habits and values in and vigorously in response to these and systematic means of assessing, as all staff of the Group. Through active changes is critical to the Group’s well as raising, the competency and dissemination of its corporate values continued growth. As such, the Group performance levels of staff on a mass throughout the Group, both domestically invests substantially in the continued basis, Public Bank continued to invest in and regionally, the Group is able to development of its staff. its e-learning platform. This has provided solidify its Group-wide corporate identity. the flexibility and ease in knowledge This high degree of alignment has enabled To enhance the capability and capacity of dissemination and management whilst the Group to create a work culture that its staff, Public Bank’s training infrastructure enabling the Bank to track employees’ unleashes the power of its entire workforce emphasises the concept of 3:1, where learning capabilities. In 2008, a total of to focus their daily energies on delivering every staff is equipped with 3 skill sets to 23,800 participants benefited from the superior results. upscale their competencies while providing Bank’s online training platform covering them with opportunities for job rotation 730 training days. The Public Bank Group’s passion for and career mobility. service excellence is well demonstrated In order to capture and retain the best through the pursuit of continuous For 2008, the Bank invested RM25 million talents, clear career paths and career improvement. In the Group, improvements in human capital training and development development plans have been designed are a way of life as the Group recognises covering 23,450 participants over 2,200 with the objective of attracting, retaining that only through improvements and training days. This represented a doubling and building future capabilities of the positive change can the Group excel in of participants trained, an increase of Public Bank Group’s human capital. This the fast-paced business environment of 34% in training days and a hike of 65% includes structured “learning roadmaps” the 21st century. 42% of the Group’s in financial investment as compared to for staff to identify the knowledge and training investment is targeted at five years ago. skills they need to further their personal entrenching a workplace culture where and career development. the PB Work Values are instilled so as to The effectiveness of Public Bank’s impact the bottom line and add value to investment in training was most visible The Public Bank Group believes that its customers and stakeholders. and tangibly demonstrated during the human capital forms the backbone of the recent switchover from the old legacy organisation. The Group’s HR solution is paper-based industry cheque-clearing thus very closely aligned to its business system to the image-based Cheque priorities as the Group recognises the Truncation Clearing System (“CTCS”) financial symbiosis between an organisation implemented nationwide by Bank Negara and its human capital – one cannot thrive Malaysia. The CTCS system for Public without the other. Bank involved significant changes in

Human Capital Development 191 2008 CALENDAR OF SIGNIFICANT EVENTS 2008

1 2 ANNUAL REPORT PUBLIC BANK BERHAD

Corporate

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9 March 4 T h e 2 0 0 8 M a n a g e m e n t Seminar I was held at the Sunway Pyramid Convention 15 January 1 26 February 2 7 March 3 Centre with the theme Public Bank held its fourth Tan Sri Dato’ Sri Dr. Teh 90 overseas staff attended a “Pushing Beyond Barriers”. National Sales Convention Hong Piow presented a Working Session at Menara Tan Sri Dato’ Sri Dr. Teh 2008 with the theme “Pushing comprehensive review on the Public Bank that was Hong Piow presented the Beyond Barriers” at the Kuala performance of the Public conducted in conjunction with keynote address to over 1,300 Lumpur Convention Centre, Bank Group at the Bank’s t h e 2 0 0 8 M a n a g e m e n t participants, including 93 with 650 sales personnel, 42nd Annual General Seminar I. overseas staff. During the regional managers and 88 Meeting. 2008 Management Seminar I, overseas staff in attendance. Tan Sri Dato’ Sri Dr. Teh Hong Piow also announced a special ex gratia payment for staff in appreciation of their hard work and dedication.

31 March 5 23 April 6 Tan Sri Dato’ Sri Dr. Teh Hong Piow visited Vietnam to officiate Tan Sri Dato’ Sri Dr. Teh Hong Piow and members of the Board the opening ceremony of VID Public Bank’s 7th branch named of Directors of Public Bank (Hong Kong) Limited visited the Dong Nai Branch together with the Vice-Chairman of the Dong Shenzhen and Futian branches of Public Bank (Hong Kong) Nai People’s Committee, Mr. Dinh Quoc Thai, and the Director Limited in the People’s Republic of China. of the State Bank of Vietnam, Ms. Nguyen Thi Thom.

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3 June 7 30 July 1 August 16 August 9 Cambodian Public Bank Mr. Quah Poh Keat was Public Bank opened its 242nd T h e 2 0 0 8 M a n a g e m e n t opened its 11th branch in appointed an independent branch at Bandar Puteri Seminar II was held at the Mao Tse Toung, Phnom Penh, non-executive director of Puchong. Sunway Lagoon Resort Hotel Cambodia. The branch opening Public Bank. He is a Fellow of & Spa with the theme “Pushing was officiated by the Governor the Malaysian Institute of 6 August 8 Beyond Barriers”. Tan Sri Taxation and the Association of the National Bank of Public Bank launched the Dato’ Sri Dr. Teh Hong Piow of Chartered Certified Cambodia, His Excellency Chinese edition of the book presented the keynote address Accountants. Mr. Quah was Chea Chanto, with the which chronicles the banking to participants. also appointed an independent Malaysian Ambassador to journey of the Founder and non-executive director of Cambodia, His Excellency Chairman of Public Bank, Tan 20 August 10 Dato’ Adnan Othman, Tan Sri Public Investment Bank Bhd, Sri Dato’ Sri Dr. Teh Hong Tan Sri Dato’ Sri Tay Ah Lek Dato’ Sri Dr. Teh Hong Piow Public Financial Holdings Ltd, Piow and his lifetime was conferred the Panglima and Tan Sri Dato’ Thong Yaw Public Bank (Hong Kong) Ltd, achievements in guiding Public Setia Mahkota (“PSM”) by His Hong also in attendance. and Public Finance Ltd. Bank over the past 42 years Majesty, the Yang di-Pertuan which is titled Teh Hong Piow Agong XIII. – A Banking Thoroughbred.

1 November 1 DECEMBER 11 Public Islamic Bank Berhad, a wholly-owned subsidiary of Public Public Bank signed a Money Market Deposits Agreement with Bank commenced business as an Islamic bank, taking over the the Central Bank of the Republic of Uzbekistan to facilitate Islamic banking business of Public Bank previously carried out placements of money market deposits by the Central Bank with under Public Bank’s Islamic banking window, thereby enhancing Public Bank. the visibility of the Public Bank Group’s Islamic banking business and increasing its flexibility to further expand the Group’s Islamic banking business.

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Calendar Of Significant Events 2008 193 3 2 2008 ANNUAL REPORT PUBLIC BANK BERHAD

Corporate SOCIAL RESPONSIBILITY

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4 February 1 10 April 2 14 April 3 10 May 4 Public Bank distributed Tan Sri Dato’ Sri Dr. Teh The Polis DiRaja Malaysia and The Boys’ Brigade Malaysia hampers and ang pows worth Hong Piow presented a Public Bank launched a road received a RM60,000 donation a total of RM100,000 to 450 cheque of RM60,000 to the safety campaign called the from Public Bank to assist in senior citizens and the needy Chairman of the National “PDRM-Public Bank Social the expansion of the Boys’ in conjunction with the Chinese Award for Management Responsibility Programme” to Brigade brass band. New Year celebrations at Accounting (“NAf M A ” ) overcome the mat rempit Lembah Pantai. Tan Sri Dato’ Organising Committee, Mr. problem amongst secondary Sri Tay Ah Lek, accompanying Yeo Tek Ling, being Public school students, with the the then Minister of Women, Bank’s contribution as the objective of educating the Family & Community main sponsor of the NAfMA nation’s youth on the Development Dato’ Seri programme for the fifth seriousness of the mat rempit Shahrizat Abdul Jalil, handed consecutive year. problem and turn them away out the goodies. from such unhealthy activities.

23 May 5 24 May 6 Public Bank was the sponsor and sole credit card acquirer of The PB Nature Hunt 2008 was organised for the staff of Public Bookfest@Malaysia 2008 for the third time since the Bookfest@ Bank and their families numbering close to 200 in conjunction Malaysia’s inception in 2006, with Public Bank’s sponsorship of with the International Day for Biological Diversity to foster an RM40,000. appreciation of nature amongst Public Bank staff.

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28 May 17 June 8 25 July 9 6 August 10 Public Bank, on behalf of its Public Bank presented a Miri Branch and China Street Public Bank donated a total of wholly-owned subsidiary, cheque for RM60,000 to the Branch represented Public RM750,000 from part of the Public Mutual Berhad, donated Malaysian Institute of Bank in the Student Financial proceeds from the sale of the RM300,000 to the MERCY Management (“MIM”) in Club Leadership Workshop book Teh Hong Piow – A Malaysia-China Relief Fund to support of the “MIM-Public 2008 jointly organised by the Banking Thoroughbred to nine help victims of the earthquake Bank Manager of the Year” Ministry of Education and organisations, namely Institut in Sichuan Province in the award programme as part of Bank Negara Malaysia to Jantung Negara, Malaysian Red People’s Republic of China. its annual contribution to this nurture the development of Crescent, Malaysian Paralympic five-year programme. financial knowledge amongst Council, Rumah Charis, Rumah 2 June 7 young students and help them Orang Tua Seri Kembangan, MERCY Malaysia-Myanmar manage their finances at an Persatuan Dialisis Kurnia Relief Fund received a early age. Petaling Jaya, Boys’ Brigade donation of RM200,000 from Malaysia – 10th Kuala Lumpur Public Mutual Berhad to help Company, Nanyang Press the victims of the cyclone Foundation and the Kelab Polis disaster that affected millions Trafik Kuala Lumpur. of Myanmarese citizens.

29 October 11 29 October 12 6 November 13 Public Bank organised a “RayaVali” open house Public Bank contributed RM1.2 million to the Approximately 200 Public for over 300 children from nine orphanages in the third season of the critically acclaimed Bank staff and members of Klang Valley and members of the media to Malaysian musical production, Puteri Gunung the public came forward to celebrate Hari Raya Aidilfitri and Deepavali. A Ledang – The Musical and donated RM30,000 donate blood at Menara Public total of RM120,000 was also donated to these each to the Persatuan Karyawan Malaysia and Bank’s Main Lobby to boost nine orphanages in support of their activities. the Kuala Lumpur Performing Arts Centre in the blood bank at the National support of the performing arts in Malaysia. Blood Centre.

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Calendar Of Significant Events 2008 195 2008 ANNUAL REPORT

PUBLIC BANK BERHAD 1 2 3 AWARDS AND ACCOLADES

January 11 February 1 21 February 2 29 February 3 In Euromoney’s Asia’s Best The Cambodian Government Public Bank was named the Public Bank emerged the Managed Companies Poll awarded Tan Sri Dato’ Sri Dr. winner of Asiamoney’s “2007 “Overall Winner” of the 2007, Public Bank scored top Teh Hong Piow the “Honorable Best Managed Company – inaugural Malaysian Business marks in the “Most Convincing Medal for National Large Cap (Malaysia)” award. Corporate Social Responsibility and Coherent Strategy by Contribution” in appreciation Awards 2007 and was also Country – Malaysia” category, of his contribution to education the winner in the “Best CSR and performed commendably in Cambodia. Innovation” category. in the other poll categories.

28 April 4 31 May 30 JuNE 5 Public Bank was the winner of the The Asian Banker named Public Bank For the second consecutive year, Public Bank “Reader’s Digest Trusted Brand Gold “Best Retail Bank in Malaysia for was the proud winner of “The BrandLaureate Award” for the banking services 2007” for the fifth time since the 2007-2008 Award for Corporate Branding – category for the fifth consecutive year award’s introduction in 2001. Best Brands in Financial Services (Banking)”, a since 2004. prestigious recognition from the Asia Pacific Brands Foundation.

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17 July July 16 August 7 25 October 8 Public Bank was elected the Public Bank was selected as Leading Hong Kong-based Public Bank was named “Best “Best Bank in Malaysia for the winner of the “Best Bank financial publication Asian Bank” by FinanceAsia, 2008” in the Euromoney in Malaysia for 2008” award FinanceAsia awarded Public beating 10 other top banks in Awards for Excellence 2008 by Alpha Southeast Asia. Bank the “Best Bank in Asia which were the Best by Euromoney. Malaysia 2008” for the 10th Bank awardees in their 21 July 6 consecutive year and the respective countries. “Best Managed Company in July Public Bank was the proud Malaysia 2008” for the seventh Public Bank was the winner of recipient of the overall award NOVEMBER time, whilst Tan Sri Dato’ Sri Asiamoney’s “Best Domestic at the inaugural Malaysian Public Bank was named the Dr. Teh Hong Piow was Bank in Malaysia for 2008” Business–CIMA Enterprise “Best Domestic Bank in recognised with the “Asian award. Governance Awards 2008. Malaysia for 2008” by The Banker Par Excellence 2008” Public Bank also won in the Asset. award. “Best Return to Shareholder” category.

7 NOVEMBER 9 25 NOVEMBER 26 November 10 Public Bank’s 2006 Annual Report Public Bank was judged to be the Public Bank was the winner in the Corporate was accorded the Citra Award for the second most valuable brand in the Governance Survey of all public-listed companies on Private Sector Annual Report by Malaysia’s 30 Most Valuable Brands Bursa Malaysia. The Survey was conducted by the Dewan Bahasa dan Pustaka. 2008 list for the second consecutive Minority Shareholder Watchdog Group (MSWG) year. The survey was conducted by and the Nottingham University Business School. 19 NOVEMBER the Association of Accredited Having scored 90% in the survey, Public Bank Advertising Agents Malaysia. brought home the Industry Excellence Awards in the Public Bank’s 2007 Annual Report Finance Sector and the Overall Excellence Awards. was adjudged the best on three 9 counts at the National Annual Corporate Report Awards 2008. The Bank was accorded the “Most Outstanding Annual Report – Overall Excellence Platinum Award” for the second consecutive year and the seventh time since 1990, the “Industry Excellence Award” for the 12th consecutive year and the “Best Annual Report in Bahasa Malaysia – Platinum 10 Award” for the fifth consecutive year.

Calendar Of Significant Events 2008 197 2 4 3 2008 ANNUAL REPORT PUBLIC BANK BERHAD

PRODUCTS & 1 SERVICES

22 January 1 22 January 2 5 March 3 21 April 4 Public Bank re-launched the To celebrate the new year, The “PB China ASEAN The “Gold Investment Account” PB Platinum Card campaign Public Bank launched a six- Equity Fund” was launched was launched, offering individual as one of several initiatives for month credit card promotion to offer savers capital growth customers the option to purchase its card business in 2008. campaign called “PB Fortune over the medium to long and invest in the purest available Driven by the needs of its 2008 Contest”, which ran from term by investing in a gold of 99.99% purity. The more affluent cardmembers, 1 January 2008 to 30 June diversified portfolio of stocks “Gold Investment Account” was the campaign featured free- 2008. The campaign offered listed in the People’s launched to meet the rise in for-life cardmembership, a six- participants chances to win 10 Republic of China and other demand for gold and provides month PB Platinum Card Grand Prizes of RM20,000 cash ASEAN markets. customers the convenience of Contest with two grand prizes each and 10 Monthly Prizes of investing in gold without the of the latest Honda CR-V, RM1,000 cash each. With a need to keep physical gold, as travel insurance coverage of minimum RM50 retail transaction, trading will be carried out RM2 million and Cash cardmembers would be eligible through a passbook that records MegaBonus of up to 0.9%. to participate in the monthly purchases and sales of gold draws. made through the account.

14 May 5 3 JUNE 6 The PB UTAR Debit MasterCard card and the PB TARC Debit “PB Asian ACES”, which offers investors the opportunity to take MasterCard card were launched in collaboration with Universiti advantage of both bull and bear markets whilst immediately Tunku Abdul Rahman (“UTAR”) and Tunku Abdul Rahman College benefiting from a 2% rebate paid on the outset of the investment, (“TARC”). These co-branded debit cards offer a free-for-life card was launched. The three-year investment via a floating rate membership with no conditions, reward points for every ringgit negotiable instrument of deposit is 100% capital-protected if spent which can be used to redeem a range of attractive gift held to maturity and is suitable for investors seeking potentially items, and the convenience of fund transfer into the debit card higher returns as compared to the prevailing fixed deposit rates account at terminals available at all UTAR and TARC campuses. without taking any risk on their capital invested.

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4 July 7 9 July 8 17 July 9 13 August 10 24 delighted winners of the Two units of Toyota Camry Prizes of diamonds were The PB ING EMV-compliant “PB Diamonds Dazzle U cars and three units of the presented to winners of the MasterCard® PayPass™ Credit Campaign” received their Toyota Avanza were presented “PB Staff Switch2Win II/2007” and Debit unembossed payment attractive prizes from Tan Sri by Tan Sri Dato’ Sri Tay Ah contest. The grand and first cards were launched. The PB Dato’ Sri Tay Ah Lek. This Lek to the winners of the “PB prizes were solitaire diamonds ING MasterCard cards benefit cardholders with cash rebates eight-month campaign offered Switch2Win Camry” contest worth RM10,000 and RM6,000 of 2% for the attractive credit RM2 million worth of Lazare which ran for six months to respectively, whilst the second card and 1% for the debit card diamonds to reward Public encourage and reward PB prize was a diamond pendant worth RM2,000. exclusively to policyholders of Bank’s individual, business and Cardmembers every time they ING Insurance. Moreover, these institutional depositors. No swiped their PB Credit Card cardholders will enjoy up to contest forms, SMSes, creative for retail purchases. The 0.6% cash rebate for other signatures or slogans were c o n t e s t r e c e i v e d a n retail purchases made on the required, although a monthly overwhelming response with credit card and 0.5% cash average credit balance of at over 2.5 million entries rebate for transactions least RM3,000 was necessary submitted. conducted with the debit card. for eligibility for the prizes.

13 August 11 8 August 12 Public Bank and The Western Union Company, a global leader in Public Bank and ING Insurance jointly developed the second international money transfer services, announced an agreement to single premium unit-linked insurance product called the “PB- offer Western Union Money Transfer services through Public ING All Weather Plan” that gives a potential average return of Bank’s nationwide network of 242 branches. Customers can 8.1% p.a. The Plan invests in Ringgit-denominated financial remit and receive cash through the Western Union network of instruments to ensure customers receive their guaranteed 100% capital after three years. It will also invest in a three-year more than 355,000 service provider locations in over 200 outperformance option comprising global and Asian emerging countries within minutes without the need for a . markets, namely Russia, Brazil, Mexico, Taiwan, Singapore, Australia and Korea against the U.S. S&P 500 index.

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29 August 13 6 October 14 18 DECEMBER Public Bank launched another Public Bank launched the “PB Public Bank and ING Insurance structured investment product SMS2WIN” contest, offering Berhad unveiled “PB-ING One called the “PB Commodities up to RM130,000 worth of Educate”, an innovative and Resources Basket (PB prizes. With just one SMS, education plan designed for CARB) Investment”, offering customers stand a chance to discerning parents who want investors the opportunity to win any of the 1,133 prizes peace of mind on their child’s invest in the currencies of depending on the number of education. “PB-ING One countries that are rich in products these customers Educate” will add on to the natural resources and are net have with Public Bank. The existing series by offering exporters of those resources. chances of winning will double plans that meet customers’ This short two-year investment when customers send their saving needs for their child’s via a floating rate negotiable e-mail addresses together with education. instrument of deposit is 100% their contest SMS. capital-protected if held to maturity, making it suitable for investors who seek potentially higher returns as compared to the prevailing Malaysian Ringgit fixed deposit rates.

10 February 1 2 STAFF 9 March Tan Sri Dato’ Sri Dr. Teh Hong Tan Sri Dato’ Sri Dr. Teh Hong Piow and Tan Sri Dato’ RELATIONS Piow hosted the Special Chinese Sri Tay Ah Lek presented 78 Special Awards to top- New Year Dinner held at the performing branches in conjunction with the 2008 Renaissance Hotel, Kuala Lumpur Management Seminar I. The awards included the Best with the Board of Directors and Branch Awards and the prestigious “Founder and management staff in attendance. Chairman’s Award”, which went to Sandakan Branch.

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14 March 3 3 May 4 May – November 5 21 June Public Bank’s NUBE members, 100 staff from Head Office Public Bank’s various regions Tan Sri Dato’ Sri Dr. Teh represented by the Inter- and branches participated in in Malaysia and its subsidiaries Hong Piow announced the Relations Committee in Menara the Labour Day Rally 2008 overseas celebrated the 42nd reduction in staff housing, car Public Bank, paid a courtesy organised by the Ministry of Anniversary of the Public Bank and motorcycle loan interest call on Tan Sri Dato’ Sri Dr. Human Resources at Stadium Group with dinner events at rates, with small loans Teh Hong Piow to say a big Putra, Bukit Jalil. their respective locations. becoming interest-free. The “Thank you!” for the surprise repayment periods of these ex gratia payment made to staff loans were also extended, staff. resulting in some staff paying up to 40% less per month for their staff loans. This comes as a great relief to all staff, and in particular lower-level staff and their families who are affected by the sharply rising cost of living.

31 August 6 11 November 7 10 staff from various divisions in Head Office 231 long-serving staff from Head Office were recognised at the Service Recognition took part in the march past contingent in the Awards Presentation. The awards for staff with 15 and 20 years’ service were 51st Merdeka Parade held at Dataran presented by Tan Sri Dato’ Sri Tay Ah Lek whilst those with 25, 30 and 35 years Merdeka, Kuala Lumpur. of service received their awards from Tan Sri Dato’ Sri Dr. Teh Hong Piow.

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UNBROKEN TRACK RECORD OF PROFITABILITY

“Return on investment” takes on a whole new meaning with the Public Bank Group. We relentlessly put our stakeholders’ requirements at the top of our agenda, ensuring we take meticulous care of their every need. This gives much comfort to investors, thus helping us stay ahead whilst retaining the sobriquet “bank for the public.”