KUALA LUMPUR (May 15): Public Bank Bhd (KL:PBBANK) has announced a RM3.5 billion capital return plan to analysts, signalling a major payout that is expected to be delivered through special dividends over the next three years.

The plan, which was revealed to analysts following the bank's first quarterly results, could pave the way for special dividend payments of 5.9 sen per share, or a 1.2% yield annually, over the next three years, on top of Public Bank's 60% ordinary payout ratio, according to a research note by Kenanga Investment Bank.

Meanwhile, CIMB Investment Bank said the capital plan reflects a more active approach to capital optimisation while potentially lifting the bank's return on equity over the financial year 2026 (FY2026) to FY2028 period.

The plan follows Basel III changes taking effect in July 2026, which are expected to release about 100 points of excess capital for the group. Analysts were informed that the capital will be returned progressively over the next three years, subject to regulatory approval.

Despite the flat quarterly results, analysts stayed bullish on the bank. For the quarter ended March 31, 2026 (1QFY2026), Public Bank posted a net profit of RM1.75 billion, a 0.4% increase from a year earlier. Net interest income was up by less than 1% to RM2.82 billion while non-interest income was 4% higher at RM825.9 million.

Analysts said the bank's first-quarter earnings were within their expectations. Kenanga IB added that the flat quarter was largely due to cost-to-income ratio (CIR) widening to 35.5% with personnel costs growing faster to 5%.

Bloomberg data shows 21 research houses on Public Bank's counter, with 16 'buy' calls, five 'hold' ratings, and no 'sell' recommendations. The 12-month average target price is RM5.50.

"PBB's premium is underpinned by its defensiveness, supported by strong capital and provisioning buffers while sustaining its industry-leading return on equity," said CIMB IB, while reiterating its 'buy' call with an unchanged target price (TP) of RM5.50.

Kenanga IB added that it believes Public Bank is a stronger standout against peers in the banking sector as its return on equity is leading with over 12% and it has a gross impaired loan ratio of 0.5%. It maintained its 'outperform' rating and raised Public Bank's TP to RM5.95.

However, structural pressure on net interest margins (NIM) is still a key risk as higher-yielding legacy loans are gradually replaced by lower-yielding loans while competition for deposits and financing continues to compress spreads. Analysts pointed to this after Public Bank's NIM fell to 2.11% in the first quarter.

Analysts added that they expect margin pressure to persist in the near term despite Public Bank's efforts to diversify into lower-cost funding channels such as commercial papers and repurchase agreements.

There could also be slower loan growth and asset quality deterioration from broader macroeconomic slowdown, according to analysts. Prolonged geopolitical tensions could also pose further downside risks to their calls.

At the time of writing on Friday, Public Bank's shares rose by nine sen or 1.9% to RM4.92. At its last price, it has a market value of RM95.5 billion.

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