PERFORMANCE EVALUATTION PUBLIC BANK AND AIA

TOPIC: PERFROMANCE EVALUATIONAND BANKING PRODUCTS AND SERVICES
(PUBLIC BANK AND AIA COMPANY)
PROGRAM: BA 242
CLASS: JBC 242 2B
SUBJECT CODE: FIN 435

LECTURER’S NAME: MADAM RUZIAH A LATIF
GROUP MEMBERS:

NAME MATRICS NUMBER

1. NUR AZREEN BINTI KAMIS 2020979243
2. NURAISHAH BINTI ROSLI 2020961001
3. NURFATHISYA BINTI MOHD RASID 2020994725
4. NURSYIFA SYARA BINTI YUSOF 2020968853
5. NURUL NAJIHAH BINTI ISMAIL 2020968783
6. VERALYNE DEMOND PETER 2020993103

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CONTENT PAGE (5%) Pages
2
No. Title 3
1. Content Page
2. Introduction 4 - 10
3. Internal Comparison of Public Bank 11 - 14
4. External Comparison of Public Bank 15 - 19
5. Internal Comparison of AIA Insurance Company 20 - 23
6. External Comparison of AIA Insurance Company 24 - 27
7. Product and Services offered by Public Bank
8. Conclusion 28
9. References 29
10. Appendix 30 - 31

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INTRODUCTION

Banks and non – bank institutions aim to gain high profits from doing its sales and purchase
activities. Bank makes money by receiving money and lending it back as loans to customers. The
interest charged on the loans is a major way for bank to make money. Banks also offer service
for people that want to make savings by keeping their money in the bank accounts. (Pettinger,
n.d.)

Non – bank company such as insurance company is established mainly for the purpose
of providing protection against unpredictable life occurrences and the person suffering losses will
be indemnified by the insurance company (McQuerrey, 2018). As an insurance company is a for
– profit business, it must collect more money than it pays out to customers by creating an internal
business model including underwriting and investments income. The underwriting revenues come
from the insurance premiums paid by the customers, minus money paid put on claims and
business expenses. As for the investments, insurance company takes the premium paid by the
customers and invests the money in the financial markets, to increases their income (O'Connell,
n.d.).

Public Bank is one of the biggest licensed banking institutions governed by the Central
Bank of Malaysia. Public Bank has stable growth strategy and is concentrated. The services focus
on the growth of retails loan, deposits and intermediate business
(Public Bank, n.d.). Today, Public Bank brand is an outstanding customer service provider with
steady operation, strong management, good asset quality and has secured stable profitability.

AIA Insurance is an insurance company that provides inclusive insurance plans and
protection products that help individuals and business. The company provides financial help to
customers including protection, health, personal accident, mortgage, retirement and family takaful
(AIA, n.d.). AIA Insurance aims to give protection to its customers and financial security needs.
AIA Insurance has been one of the best insurance companies in the country and score index of
21.3% in 2019.

Public Bank has an exclusive bancassurance partnership with AIA (Business, 2017).
Under this bancassurance, there is a product called ‘PB Care PA’. The product is created
exclusively for Public Bank account holders and AIA will pay the benefit to the assured. This report
is written to provide information obtained through ratio analysis made on Public Bank and AIA
Insurance. The ratio analysis focuses on the profitability, liquidity, capital adequacy and asset
quality.

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INTERNAL COMPARISAN OF PUBLIC BANK FOR THE YEAR OF 2018, 2017 & 2016

1. Profitability Bank Bank 2017 (RM’000) Bank 2016 (RM’000)
Measure ofperformance 2018(RM’000)
5 470 000 7 218 848
Return on Asset 4 551 065 313 664 765 303 809 743
Net profit 331 786 540
Total asset = 1.74% = 2.38%
= 1.37% 5 470 000 7 218 848
Return on equity 4 551 065 32 641 180 29 773 502
Net profit 35 279 804 = 16.76% = 24.25%
Equity = 12.90% 13 566 413 – 7 569 13 537 566 – (7 903 957)
14 529 609 – 8 409 303 809 743
Interest spread 308 = 1.85%
Interest income - interest 986 313 664 765
331 786 540
expenses = 1.91%
Total asset = 1.84%

2. Liquidity Ratio Bank rate 2018 Bank rate 2017 Bank rate 2016
Measure of performance (RM’000) (RM’000) (RM’000)

Loan to asset 247,690,397 240 576 248 232 794 693
Loan 331,786,540 313 664 765 303 809 743

Total asset = 74.65% = 76.70% = 76.63%

3. Capital Adequacy Ratio Bank rate 2018 Bank rate 2017 Bank rate 2016
Measure of performance (RM’000) (RM’000) (RM’000)
N/A N/A N/A
Risk Weighted Capital
Capital Base = 12.7% = 12.1% = 11.7%

Total risk weighted loan asset N/A N/A

Core Capital N/A = 13.10% = 12.80%
Debt = 13.40%
Bank rate 2017 Bank rate 2016
Capital (RM’000) (RM’000)
74 832 26439
4. Asset Quality Ratio Bank rate 2018
Measure of performance (RM’000) 240 576 248 232 794 693
106,310 = 0.03111% = 0.01136%
NPL ratio 240 576 248 232 794 693
Outstanding Loan 247 690 397 258 298 621 241 957 458
= 0.04292%
Total Loan = 93.14% = 96.21%
247 690 397
Loan to Deposit Ratio 271 364 622
Total Loan
= 91.28%
Total Deposit

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COMMENT AND SUGGESTION
PROFITABILTY RATIO

1. Return on Asset

Return on Asset

2.38% 1.74%

3.00% 1.37%
2.00%
1.00%
0.00%

2016 2017 2018
2016 2017 2018

Return on Assets (ROA) is a standard of how good a company utilizes its assets, by
determining how profitable a company is respective to its total assets. Company with higher ROA
reflects that it has more asset efficiency. Based on the chart above, there is a decrease in the
ROA of Public Bank. The ROA is 2.38%, 1.74% and 1.37% in 2016, 2017 and 2018 respectively.
This indicates how ineffective Public Bank is in converting the money it invests into net income.
The decrease in the return shows that the bank is less productive and has less efficient
management in utilizing its economic resources. The primary way for Public Bank to increase
ROA is through business deposit account in merchant services. Public Bank can also enhance
the ROA through income fee on payroll services, point of sale systems and gateway revenue.

2. Return on Equity

Return on Equity

40.00% 24.25% 16.76% 12.90%
20.00%

0.00%

2016 2017 2018
2016 2017 2018

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Return on equity (ROE) measures how effective a management is using a company’s
assets in making profits. ROE is considered as the return on net assets since shareholders' equity
is equal to a company’s assets minus its debt. ROE measures the profits made for each dollar
from shareholders’ equity. The chart above presents that the ROE of Public Bank in is a downward
trend from 2016 to 2018. The returns are 24.25%, 16.76% and 12.90% respective of the three
years. The declining return means that the bank’s management is making poor decisions on
reinvesting capital in unproductive assets. In order to enhance the ROE, Public Bank must be
able to raise their operating profit margins. Loans with higher return will offer better profit
opportunities. Through transactions and non-interest income activities, the bank can diversify its
earnings. Public Bank can also broaden its differentiated products, such as wealth management
and insurance to refine its ROE.

3. Interest spread

Interest Spread

2.00% 1.85% 1.91% 1.84%
1.90%
1.80%

2016 2017 2018
2016 2017 2018

Interest rate spread is the loans’ interest rate charged by financial institution to private sector
customers minus the interest rate that commercial or similar banks paid for demand, time, or
savings deposits. The main business of a bank is to manage the spread between the interest rate
on deposits that the bank pays consumers and the rate that the bank receives from its loans.
When a bank earns the interest from loans that is greater than the interest it pays on deposits, it
produces income from the interest rate spread. In other word, net interest rates spreads are like
profit margins. The bigger the spread, the more profitable the financial institution is likely to be.
From the chart above, interest spread of Public Bank increases in 2017 and then fall in 2018. In
2016, the interest spread is 1.85% and then it increases to 1.91% in 2017. However, in 2018, the
interest spread declines to 1.84%. Public Bank generates more interest income from its
customers’ loans in 2017.

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LIQUIDITY RATIO

1. Loan to Asset Ratio

Loan to Asset Ratio

77.00% 76.63% 76.70% 74.65%
76.00% 2017
75.00% 2016 2018
74.00%
73.00%

Loan to asset ratio measures the total outstanding loans as a proportion of the total
assets owned by a bank. It can compare the leverage of one bank with the other bank in which
can reflect how stable the bank is in term of financial. This ratio indicates that the higher the ratio,
the lower the liquidity and the higher the credit risk will be. Based on the graph above, it increases
slightly from 76.63% in 2016 to 76.7% in 2017. In 2018, it drops drastically to 74.65% which means
that 74.65% of its assets are financed by creditors, and 25.35% are financed by owners
(shareholders) equity. Public Bank’s loan to asset ratio is considered good as it is below 1 because
translates to the fact that a greater portion of its assets is funded by equity. Loan to asset ratio can
be improved by issuing new or additional shares to increase Public Bank’s cash flow. The cash
can be used to cover current obligations and lower the debt burden in return.

CAPITAL ADEQUACY RATIO

1. Risk Weighted Capital Ratio

Risk Weighted Capital Ratio

12.70%

13.00% 11.70% 12.10%
12.50%
12.00%
11.50%
11.00%

2016 2017 2018

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Risk weighted capital ratio measures the financial stability of a bank by measuring its available
capital as a percentage of its risk-weighted exposure to credit. The aim is to safeguard depositors
to ensure that it can modify a reasonable amount of loss if the bank were experiencing a loss and
must comply with statutory capital requirements. The graph above shows the risk weighted capital
ratio over a 3-year period from 2016 to 2018. There is an upward trend in risk weighted capital
ratio as it increases from 11.70% to 12.10% and 12.70% respectively from year 2016 until year
2018. Public Bank can use risk weighted capital to assess whether the bank has enough capital
to assume any losses before it becomes insolvent and in worst case, they may lose its depositor
funds which is the main source for this ratio. The bank needs to monitor this ratio so that they can
meet its financial obligations to avoid any economic downturn in their business. Ways to increase
its risk-adjusted capital ratio are by targeting the bank’s retained earnings, issue new equity in a
bank and make changes to the assets side of the bank’s balance sheet.

2. Core Capital Ratio

Core Capital Ratio

13.10% 13.40%

13.50% 12.80%

13.00%

12.50%

2016 2017 2018

Core capital ratio refers to the minimum capital required by a financial institution that
specializes in offerings savings account or a savings and loan company must have on hand in
order to comply with the regulations. Core capital can be used to cover its losses and does not
require the bank to discontinue their operations. Based on the graph above, it increases year by
year meaning that there is an upward trend in core capital ratio from 12.80% to 13.10% and
13.40% in year 2018. Public Bank’s core capital ratio is good as it is less susceptible to failure
because they have more core capital and fewer risk-weighted assets.

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ASSET QUALITY RATIO

1. NPL Ratio

NPL Ratio

0.05% 0.4292% 0.03111%
0.04%
0.03% 0.01136%
0.02%
0.01%
0.00%

2018 2017 2016

NPLs have been under the surveillance of the government and bank management,
since they are considered to be associated with bank failures and crisis whereby the loans that
overdue more than 90 days because the customer are in default due to the fact that they has not
made any scheduled payment of prinicipal and interest within specified period of time depending
on the types of their loan. Factors such as bank’s interest rate and economy of the country is the
another main reason must be weighted down. Loan is the asset of the bank. Hence, the
uncertainty that debtors will pay their loan in future, will increase the non-performing loan ratio,
which cause to the decline in bank’s asset quality and performances. Financial institution,
especially banks, use non-performing ratio to measure the bank’s asset quality as the higher the
ratio, the poorer the bank’s asset quality, the poorer the bank’s performance. The chart above
show that there is uptrend in Public Bank’s NPL ratio from the year of 2018, 2017 and 2016
whereas the percentage soar from 0.01136% in 2016, 0.03111% in 2017 and go up to
0.04292% in 2018 respectively. Therefore, overall for these respective years, it can be concluded
that Public Bank Berhad has a poor performance in managing its loan thus lowering its asset
quality. This can be an indicator that the decrease in NPLs is proven to have adverse impact on
the banking sector so that understanding the determinant of NPLs is immensely crucial to ensure
the efficiency and soundness of the overall banking operation and economy.

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2. Loan to Deposit Ratio

Loan to Deposit Ratio

98.00% 91.28% 93.14% 96.21%
96.00%
94.00% 2018 2017 2016
92.00%
90.00%
88.00%

Loan to deposit ratio is used to access the bank’s liquidity by dividing bank’s total loan and to its
total deposit within the same time of period. Laon to deposit ratio can be the benchmark that
banks may not have much liquidity to cover unforeseen fund requirement as well as bank abilities
to cover loan losses and withdrawals by the customers. In addition, investor use bank’s loan to
deposit ratio to monitor the bank’s ability in the event of economic downturn which likely resulting
in loan default. LDR is frail balance for banks, this is because there is pros and cons such as if
the banks extending too much of their deposits, they might overextend themselves, especially
during economic extension. However, if the banks lend only few of their deposits, they may be
having to forgo the opportunity to earns revenues by lending suitable amount to the borrowers as
they can obtain profit margin. The chart above portrays Public Bank’s loan to deposit ratio and it
shows that there is downtrend whereas the percentage plunge from 96.21% in 2016, to 93.14%
in 2017 and drop to 91.28% in 2018. Therefore, it can be concluded that the loan to deposit ratio
of Public Bank Berhad can be tool that measure asset quality performance as the higher ratio
indicates that better profit, but banks will face higher risk which is known as risk of non-performing
loan.

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EXTERNAL COMPARISON BETWEEN PUBLIC BANK AND RHB FOR YEAR 2018

PROFITABILITY Public Bank 2018 (RM’000) RHB Bank 2018(RM’000)

Return on Asset 4 551 065 x 100 x 2 308 912 x 100
Net profit 331 786 540 243 912 679
Total asset
= 1.37% = 0.95%
Return on equity 4 551 065 x 100 167 310 x 100
Net profit 35 279 804
Equity 7 551 127
= 12.90% = 2.22%
Interest spread 14 529 609 – 8 409 986
Interest income - interest 758 618 –262 768 x100
100 24 734 109
expenses 331 786 540 = 2.00%
Total asset
= 1.84%

LIQUIDITY RATIO Public Bank Rate 2018(RM’000) RHB Bank Rate 2018(RM’000)
Loan to asset 247,690,397 x 100 165 629 774 X100
Loan 331,786,540 243 165 679
Total asset = 74.65% = 68.11%

CAPITAL ADEQUACY Public Bank 2018(RM’000) RHB Bank 2018 (RM’000)
Risk Weighted Capital N/A N/A
Capital Base
= 12.70% = 19.21%
Total risk weighted loan asset 11 341 598
Core Capital 34,320,312 = 16.91%
Debt = 33.05%
Capital

Measure of performance Public Bank rate 2018(RM’000) RHB Bank Rate2018(RM’000)

NPL ratio 106,310 x100 3 251 593 x100
Outstanding Loan 247 690 397 168 881 367

Total Loan = 4.29% =1.93%

Loan to Deposit Ratio 247 690 397 168 881 367

Total Loan 271 364 622 197 147 224

Total Deposit = 0.9128% = 0.86%

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COMMENT AND SUGGESTION
PROFITABILITY RATIO

1. Return on Asset
Return on Assets (ROA) measures the income generated from total assets during a certain time
by comparing the net income to total assets. ROA is used to measure the efficiency of a
company’s management of its assets to make profits. The ratio can also prove how efficient a
company can turn money used to purchase assets into net profits
(MPIINC, n.d.). Assets are funded either by debt or equity, so investors try to set aside the
acquiring costs of the assets by adding back the interest expenses. Investors favour higher ratio
because it shows that the company is more effectively managing its assets and produce greater
net income amounts. From the table above, it is clearly calculated that in 2018, Public Bank has
the ROA of 1.37%, while RHB Bank records 0.95% as its ROA which shows that Public Bank
has greater return than RHB Bank. Without doubt, this proves that Public Bank manages its assets
more efficiently than RHB Bank. Public Bank has generated more income from its assets.

2. Return on Equity
Return on Equity (ROE) measures the return rate that the owners of common stocks of a company
gain from their shareholdings. Efficiency of the company in generating returns on the investment
received from the shareholders is marked by the ROE. The return can be used as a standard to
pick stocks within the same industry. Investors prefer company with higher return because
investors want to see their invested money is being used effectively. To track a company’s
progress and capacity to maintain productive earnings trend, investors choose to determine the
ROE at the beginning and end of a certain time to see changes in the return. Referring to the
table above, Public Bank has greater ROE of 12.90% than RHB Bank. Return on Equity for RHB
Bank is 2.22%. It shows that the stockholders of Public Bank gain more return than stockholders
of RHB Bank. Public Bank is better in utilizing the investments made by its stockholders and has
generated more income.

3. Interest Spread
Interest spread is like profit margin. If a bank has larger interest spread, the more it earns and
therefore the more the bank is worth. It is important for the bank to monitor changes in interest
spread along with the spread size. The interest that a bank gains on its assets and pays on
liabilities can fluctuate and it can affect the income when the interest rates changes. Changes in
the interest spread are an indicator of a bank’s profitability as the bank makes its money from the
interest spread. Based on the table, in 2018, interest spread of Public Bank is 1.84%, while RHB

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Bank’s spread is 2.00%. The spread in RHB Bank is slightly higher than Public Bank. It means
that RHB generate more earnings from its assets, loans and securities. Meanwhile, Public Bank
pays more interest on deposits and other interest – bearing liabilities. For Public Bank to increase
its interest spread, it must lend more money to customers and lessen its borrowing. By doing so,
the bank will be able to generate more interest on its lending, hence increases the bank’s profits.

LIQUIDITY RATIO
1. Loan to Asset Ratio
The loans to assets ratio are an indicator of financial leverage or a measure of solvency, while
others find it a vital insight into the financial health or distress of a company. The higher the ratio,
the lower the liquidity and the higher the credit risk will be. Based on the calculation above in the
year 2018, it is seen that Public Bank’s loan to asset ratio is 74.65% meanwhile RHB is being
recorded at 68.11%. Therefore, it indicates that RHB manages their loan to asset ratio well
compared to Public Bank because 68.11% of its assets are financed by creditors, and 31.89%
are financed by owners (shareholders) equity.

CAPITAL ADEQUACY RATIO

1. Risk Weighted Capital Ratio
Risk weighted capital ratio is used to protect depositors and to facilitate the stability and
effectiveness of financial structures worldwide. The purpose is to establish that banks have
enough reserve capital to handle a certain amount of losses, before they become insolvent. Based
on the calculation above, Public Bank records 12.70% for risk weighted capital ratio while RHB’s
ratio is 19.21% in the year 2018. This means that RHB is the bank with a high capital adequacy
ratio that is safer and meet the minimum criteria needed to indicate solvency. Hence, RHB is more
likely to able to overcome a financial downturn or losses than Public Bank.

2. Core Capital Ratio
This ratio can be used to cover its losses and does not require the bank to discontinue their
operations. Based on the calculated table ratio above, it is seen that Public Bank’s core capital
ratio is 13.40% while RHB’s ratio is recorded at 16.91% in year 2018. We can conclude that RHB
has many capitals held than Public Bank to prepare themselves for any financial emergencies to
continue to cater for its customers’ company needs. The lower the ratio, the more likely the bank
is considered to be safe because it meets its financial obligations. Therefore, the bank needs to
have enough money to fulfil the needs of their customers to avoid from being bankrupt.

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ASSET QUALITY RATIO
1. NPL Ratio
Non-performing loan is classified for the loans that overdue more than 90 days due to the
customer failure in meeting obligation that they have not made any scheduled payment of
principal and interest within specified period depending on the types of their loan. Based on the
table above, in the year of 2018, it shows that Public Bank NPL ratio is 4.29%, which is it is higher
when compared to RHB, that recorded 1.93% of its NPL ratio. Based on the differences, it
indicates that Public Bank has poor performance in managing non-performing loan than RHB
bank. Financial instituions, especially banks use non-performing loan ratio to measure the bank’s
asset quality as the higher the ratio, the poorer the bank’s asset quality, the poorer the bank’s
performance. Therefore, we can conclude that RHB Bank has higher asset quality than Public
Bank and has better performance in managing non-performing loan.

2. Loan to Deposit Ratio (LDR)
Loan to deposit ratio is used to access the bank’s liquidity by dividing bank’s total loan and to its
total deposit within the same time of period. Laon to deposit ratio can be the benchmark that
banks may not have much liquidity to cover unforeseen fund requirement such as bank’s abilities
to cover loan losses and withdrawals by the customers. Based on the ratio calculation above, the
comparison between both bank in the year of 2018, Public Bank’s LDR is 91.28% while RHB
Bank’s ratio is 85.66%. Based on the comparison, it displayed that Public Bank has better obtain
more profits than RHB Bank and it faces higher risk. In conclusion, the higher ratio indicates that
better profit, but banks will face higher risk which is known as risk of non-performing loan.

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COMPARISON OF AIA PERFORMANCE FROM 2016 UNTIL 2018

1.Profitability Ratios FORMULA AIA 2016 AIA 2017 AIA 2018 (RM’000)
(RM’000) (RM’000)
923,537
Return on Asset 897,608 812,470 51,217,468
48,379,601 50,873,931
=1.80%
R Return on Equity = 1.86% = 1.60% 923,537
812,470 4,786,671
897,608 4,773,708 =19.29%
4,773,278
= 17.02%
= 18.80%

2. Liquidity Ratio FORMULA AIA 2016 (RM’000) AIA 2017 (RM’000) AIA 2018(RM’000)
Debt to Equity 43,606,323 46,100,223 46,430,797
Ratio 4,773,278 4,773,708 4,786,671

= 9.14 = 9.66 =9.70

3. Asset Quality FORMULA AIA 2016 AIA 2017 AIA 2018
Ratio (RM’000) (RM’000) (RM’000)
4,773,278 4,773,708 4,786,671
Asset Quality 48,397,601 50,873,931 51,217,468

= 9.87% = 9.38% =9.35%

4. Underwriting FORMULA AIA 2016 AIA 2017 AIA 2018
Ratio (RM’000) (RM’000) (RM’000)
41,724 766,260 886,127
Expenses Ratio + 814,078 100 + 845,880 × 100 + 870,412 × 100
=+ 100 /7,857,840 /7,598,129 /8,616,712
LOSS
RATIO = 100 = 35.18% = 21.22% = 20.39%
COMBINED RATIO
Expenses Ratio + Loss 6,951,050 100 8,034,476 100 7,024,978 100
Ratio 7,857,840 7,598,129 8,616,712

= 88.46% = 105.74% = 81.53%

35.18% + 88.46% 21.22% + 20.39% +

= 123.64% 105.74% 81.53%

= 126.96% = 101.92%

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INTERNAL COMPARISON OF AIA INSURANCE COMPANY (2016,2017,2018)

PROFITABILITY RATIO

1. Return on Asset

Return on Asset

2% 1.60% 1.86%
2017 2016
2%
2% 1.80%

1%
2018

2018 2017 2016

This ratio measures how profitable a company is relative to its total assets. A high ROA
indicates that management is effectively utilizing the company’s assets to generate profit. Based
on 3 years analysis, there is downward trend and then upward trend which are from 1.86% (2016)
to 1.60% (2017) and then increase to 1.80% (2018). Improvement that can be done to increase
their ROA is reducing company expenses. AIA company can reduce their expenses such as
reduce management cost, restructuring cost and service level agreement charges.

2. Return on Equity

Return on Equity

20% 17.02% 18.80%
2017 2016
18% 19.29%
16%

14%
2018

2018 2017 2016

Return on Equity measures how much profit the shareholder’s investment has generated.
A higher ROE percentage indicates that shareholders are receiving a better return on their
investment. Based on 3 years analysis, there is declined and then went up trend which are from
18% (2016) to 17% (2017) and then increased to 19%. Return on equity in 2018 is higher than
2017, that means company used its debt effectively so that net income is increasing while
Common Equity is decreasing. One of the ways to improve their ROE is increase profit margins.

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3. Debt to Equity Ratio LIQUIDITY RATIO

10% Debt to equity ratio

10% 9.70% 9.08%
9% 2017
2018 2017 2016 9.14%
9% 2016

2018

Debt to equity ratio is a financial ratio that measure the relative value of shareholder’s
equity and debt used to finance assets of the company. Debt to equity ratio in 2016 is 9.14% and
then fall to 9.08% in 2017. But it seems to increase very large amount in 2018 which is 9.70%.
Lower ratio means good for the company. The higher the ratio, the more indebted the firm. The
ways to improve debt to equity ratio is AIA Company must focus on long term debt only. This is
because the risk on long term liabilities are different than for short term and payables.

ASSET QUALITY RATIO

4. Asset Quality Ratio

Asset Quality Ratio

10%

10% 9.38% 9.87%
2016
9.35% 2017
9% 2017 2016

2018

2018

Asset Quality Ratio can be defined to measure the degree of exposure to equity risk. High
asset quality ratio means the AIA Company facing little credit risk in manage their company. For
the three years, there shown fall performance of ratio from 2016 to 2018. The number decrease
from 9.87% to 9.38% in 2017 and then decrease to 9.35%. We can see the ratio shown that AIA
Company facing high credit risk in managing their business. Several suggestions to improve their
asset quality ratio is managing their asset by tracking assets as they come into the company or
acquired by the company. This help to make the asset conducted properly

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UNDERWRITING RATIO

5. Loss Ratio Loss Ratio

200% 81.53% 105.75% 88.46%
100% 2018 2017 2016

0% 2018 2017 2016

Loss ratio is a measure of the actual risk coverage per unit of premiums that the insurer
has already earned. The graph shows that, it indicates lower ratio from the year 2017 to 2018
where there is decreases in loss ratio from 105.74% to 81.53%. Meaning that, the lower the loss
rate ratio, the better for the company. While, For the year 2016 to 2017, it Indicates higher ratio
which is there is increases from 88.46% to 105.74%. The suggestion to lower the ratio so that the
insurance company can become more efficient which the insurance company may need better
risk management policies to guard against future possible insurance payouts.

6. Expenses Ratio Expenses Ratio -35.18
2016
40% -21.22
20% 2017
2018 2017 2016
-20.39%
0%

2018

Expense ratio reflects the efficiency of insurance operations. A high expense ratio may be due
to a rise in market competition such as high commissions and brokerage fee or inflation in the
territory of operation. There is decreases which are, from 35.18% to 21.22% to 20.39%. Meaning
that, the lower the loss rate ratio, the better for the company. The suggestion for improvement,
where the company should leverage advertising spending and have well-known brand names that
help attract investor and the company may employ direct-sales techniques to cut out the
insurance agents and brokers. So that the insurance company can become more profitable and
efficient in operation.

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7. Combined Ratio

200% 101.92% Combined Ratio 123.64
100% 2018 2016
126.96%
0% 2017

2018 2017 2016

Combined ratio shows how an efficient insurance company is to select the policy as well as
control the underwriting expense. The lower the ratio the better efficiency it indicates. A ratio
below 100 % represents a measure of profitability and the efficiency of an insurance firms
underwriting efficiency. Ratios above 100 % denote a failure to earn sufficient premiums to cover
expected claims in insurance company. Besides that, the graph shows a decline combined ratio
where there is decreases in combined ratio from 123.64% to 126.96% to 101.92%. Unfortunately,
it shows that the insurance company fail to earn enough premium to cover expected claim
because the ratio above 100%. The suggestion to lower the ratio so that the insurance do not
face failure where the investors should generally stick to investing in low-cost and disciplined
insurers.

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AIA BHD 2018 Ratio External Comparison

Profitability Ratio FORMULA AIA COMPANY (‘000) SUN LIFECOMPANY (‘000)

Return on Assets 923,537 130,443
(ROA) 51,217,468 2,222,390
= 5.86%
Return on Equity = 1.80% 130,443
(ROE) 923,537 588,586
4,786,671 = 22.16%

= 19.29%

Liquidity Ratio FORMULA AIA COMPANY (‘000) SUN LIFE COMPANY (‘000)

Debt to Equity 46,430,797 1,633,804
Ratio 4,786,671 588,586

= 9.70 = 2.78

Asset Quality FORMULA AIA COMPANY (‘000) SUN LIFE COMPANY (‘000)
Asset Quality
4,786,671 588,586
51,217,468 2,222,390

= 9.35% = 26.48%

Underwriting FORMULA AIA COMPANY (‘000) SUN LIFE COMPANY
Ratio (‘000)

Expenses exp + (−) 886,127 + 870,412 × 100 119,220 + 62,856 × 100
Ratio /( ) × 100 8,616,712 547,620

Loss Ratio = 20.39% = 33.25%

Combined × 100 7,024,978 × 100 269,103 × 100
Ratio 8,616,712 547,620
= 81.53% = 49.14%
+
81.53% + 20.39% 49.14% + 33.25%
= 101.92% = 82.39%

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COMMENT AND SUGGESTION

PROFITABILITY RATIO

1. Return on Asset
The return on asset (ROA) is the ratio that shows the percentage of how profitable a company’s
assets are in generating revenue. A high ROA indicates that management is effectively utilizing
the company’s asset to generate profit. Based on the above calculated table ratio, Sun Life
Insurance Company recorded a better ROA which is 5.86% compared to AIA Insurance Company
that recorded only 1.80% of ROA. From that graph, it shows that Sun Life Insurance Company
generate profit from total asset better than AIA Insurance Company. So, AIA Insurance Company
can increase its net profit. For example, the company could increase total sales for the period,
then net income will increase accordingly. By decreasing the total assets also can improve the
ROA.

2. Return on Equity
ROE is considered a measure of how effectively management is using a company’s assets to
create profits. A higher ROE percentage indicates that shareholders are receiving a better return
on their investment. Based on the above calculated table ratio, the ROE of AIA Insurance
Company is lower that Sun Life Insurance Company which is 22.16% compared to AIA Insurance
Company only get 19.29%. Meaning by that, Sun Life Insurance Company generate better profits
from its shareholders investment. A declining ROE could be a red flag for an investor since the
company may be experiencing business problems and the suggestions to improve ROE is by
improving the asset turnover because it measures the company’s efficiency. Hence, the more
sales a company produces relative to its assets, the more profitable it should be, and the higher
return on equity it should earn.

LIQUIDITY RATIO

1.Debt to Equity Ratio

The debt to equity ratio is used to evaluate a company’s financial leverage. It is a measure of the
degree to which a company is financing its operations through debt versus wholly owned funds.
It reflects the ability of shareholder equity to cover all outstanding debts in the event of a business
downturn. Based on the above calculated table ratio, it shows the different percentage between
AIA Insurance Company and Sun Life Insurance Company. 9.70% is recorded by AIA Insurance
Company while 2.78% is for Sun Life Insurance Company. A higher ratio will be riskier. By

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increasing in revenue can keep the ratio stable. Next, by keep focus on equity because it is
important for the company to ensure that they measure their growth by growth in equity more.

ASSET QUALITY RATIO

Asset quality ratio measures the degree of exposure to equity risk. To calculate this ratio, Equity
is divided by Total assets. This ratio indicates the proportion of total assets funded by equity
shareholders’ funds. A higher asset quality ratio is generally treated an indicator of sound financial
position from long term point of view, because it means that a large proportion of total assets is
provided by equity and hence the firm is less dependent on external sources of finance. Then, a
low ratio is a danger signal for long term lenders as it indicates a lower margin of safety available
to them. The calculated table ratio above show that AIA Insurance Company lower than Sun Life
Insurance Company which is 9.35% and 26.48% respectively. Meaning by that, Sun Life
Insurance Company is better than AIA Insurance Company. AIA Insurance Company should
manage their asset more effectively in order to avoid this problem.

UNDERWRITING RATIO
1. Expenses Ratio
Calculate the expenses ratio of an insurance company by dividing underwriting expenses by net
premium earned by the insurance company. The expenses ratio signifies an insurance company’s
efficiency before factoring in claims on its policies and investment gains or losses. Based on the
above calculated table ratio, both of the company recorded a positive percentage. AIA Insurance
Company lowers than Sun Life Insurance Company which is 20.39% and 33.25% for Sun Life
Insurance Company. It can be concluded that AIA Insurance Company is better because the lower
the expenses ratio the better, because it means more profits to the insurance company.

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2. Loss Ratio
Loss ratio is a measure of the actual risk coverage per unit of premiums that the insurer has
already earned. The amount of a company’s net premiums that were allocated to underwriting
cost, such as salaries, commissions to brokers and agents, state, benefits and other operational
expenses. This ratio is determined by dividing the net claim insured by net premiums earned. It
is the measure of an insurer’s business efficiency to investor; the loss ratio is a reflection on the
nature of risk underwritten and the adequacy or inadequacy of pricing of risks. The loss ratio
shows what percentages of pay-outs are being settled with recipients. Based on the calculated
table ratio, shows that the loss ratio for the year 2018, where the Sun Life Insurance Company is
lower which is 49.14% compared to AIA Insurance Company that is 81.53%. Meaning that, Sun
Life Insurance Company is better that AIA Insurance Company. The suggestion for AIA Insurance.
Company for improvement and lower the ratio is that the company may need better risk
management policies to guard against future possible insurance pay-out and to become more
efficient insurance company.

• Combined Ratio
Combined ratio is the addition of loss ratio and expense ratio, which shows in together how an
efficient insurance company is to select the policy as well as control the underwriting expense.
The lower the ratio the better efficiency it indicates. A ratio below 100 % represents a measure of
profitability and the efficiency of an insurance firms underwriting efficiency. Ratios above 100 %
denote a failure to earn sufficient premiums to cover expected claims in insurance company.
Besides that, based on the above calculated table ratio shows that the combined ratio for the year
2018, where the Sun Life Insurance Company is below 100% that is 82.39% compared to AIA
Insurance Company that is 101.92%. Unfortunately, it shows that the AIA Insurance company fail
to earn sufficient premium to cover expected claim because the ratio above 100%. The suggestion
for AIA Insurance Company for improvement is that the investors should generally stick to
investing in low-cost and disciplined insurers to avoid failure in the company.

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PART B: BANKING PRODUCT & SERVICES

CONSUMER PRODUCT

1. ATM OF PUBLIC BANK BERHAD

ATM stands for Automated teller machine and is a computerized system that enables the customer
to do financial transactions easily. It is an electronic banking outlet that enables customers to perform
financial transaction without the need of their bank branch representative and teller. ATMs are a
convenient and safe means of managing your fund and doing financial transactions.

The characteristics for ATM are it enables customers to check the balance of their bank account,
deposit or withdraw money, print account statements, transfer of money between your accounts.
Next, ATMs provide 24 hrs. a day and 7 days a week service to bank customers. ATM also is a
special type of plastic card that contains user information in a magnetic strip which helps in
identification and authentication of user’s details.

For the advantages, they provide convenience to customers and offers 24 hours service of
operation. Other than that, it reduces banks workload. It also enables access to bank account from
anywhere. Finally, it minimizes Transactions Cost. But ATM also have the disadvantages which are
involves charges Fees and limitation on Cash Withdrawal. Next, there are possibility of Frauds. Lastly,
non-reachable in rural areas.

2. CREDIT CARD PUBLIC BANK

Credit card let an individual borrow money at the point of sale to complete a purchase. These cards
are used by a customer to get goods and services on credit. The cardholder which is the borrower
must repay the bank for what they have purchased. Credit card has a limit on the amount to be used.
For example, Public Bank Credit Card with a line of credit granted to the Cardmember and where any
amount of the credit utilised by the Cardmember has not been settled in full on or before a specified
date, the unsettled amount will be subject to finance charge. A few examples of PB Credit Card are
PB Visa Infinite Credit Card, PB World Mastercard Credit Card, PB Visa Signature Credit Card, PB
Visa Platinum Credit Card and many more.

Credit card have a few advantages which are the Cash MegaBonus, the cardholder of PB
Visa/Mastercard Gold, PB-AIA Visa Gold, P-Petron Visa Gold, PB Visa Platinum, Mutual-Gold PB
Visa Platinum and PB visa Infinite will earned a Cash MegaBonus monthly that will be credited on the
Card Account. Next, Cash Bonus, for Mutual Gold-PB Visa Platinum Credit Card receive an additional
of 0.3% Mutual Gold Cash Bonus on monthly retail purchases will be accumulated based on the past

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months card usage prior to birthday month and credit to the card account in the same month or on
the following month. It accesses banking services any day of the year from wherever you are in the
world. Lastly, customers can sign-up for e-statements.

The disadvantages are failure to make the Minimum Payment by the Due Date, a further charge
of a minimum of RM10 or 1% of total outstanding balance as at statement date, whichever is higher,
capped to a maximum of RM100 and shall be debited to the Card Account. Public Bank Berhad has
the right to set-off all or any accounts of customers maintained with the Bank and / or its subsidiaries
against any outstanding balance in this credit card account with prior notice of seven (7) calendar
days. In the event of loss/ theft or the unauthorized use of the card, you shall be liable for all
transactions where you have acted fraudulently, delayed in notifying the Bank as soon as reasonably
practicable after having discovered the loss/ theft or unauthorized use of the card.

3. DEBIT CARD PUBLIC BANK
A debit card is a payment card that deducts money directly from a consumer’s checking account to
pay for a purchase. It is to be used by customer who does not want credit. It can be used for a single
transaction debit that is debiting of a current account in real-time or monthly debit that is giving the
cardholder the benefits of deferred payments. Examples of Public Bank Debit Card are PB RCB
Elite/Gold Debit – Savings Account/Current Account, PB Visa/MasterCard Lifestyle Debit – Generic,
PB Visa/MasterCard Lifestyle Debit – Basic Savings Account/Basic Current Account and PB
UnionPay Lifestyle Debit – PB UnionPay Savings Account.

The advantages of debit card are they have a Cash Access, the customer can withdraw cash at
all domestic and overseas ATMs. Next, Monthly Statement, the Cardmember will receive Free
Monthly E-Statement via PBe online services for the Cardmember to keep track of their retail
purchases using the PB RCB Elite/Gold Debit or PB Visa/MasterCard/UnionPay Lifestyle Debit. All
purchase transactions information is recorded in the Monthly E-Statement and only available for
Cardmember whose age is eighteen (18) and above. No monthly finance charges, no monthly late
charges and works as good as credit card.

The disadvantages are no credit allowed and it is difficult to dispute fraudulent use. Debit card
also have an additional fee on ATM withdrawals.

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4.CHARGE CARD PUBLIC BANK
A charge card is a type of electronic payment card that charges no interest but requires the user to
pay his balance in full upon receipt of the statement, usually on a monthly basis. Charge cards are
offered by a limited number of issuers. However, these cards typically include a high annual fee.
A charge card is a branded card that is available for use anywhere the brand is accepted for electronic
payment. These cards have a similar structure and similar features to a standard credit card however
they also have some distinct differences. Most of the charge cards are business and corporate charge
cards, not personal charge cards.

There are few characteristics which are expected to pay the balance in full on the monthly
payment date. There is no interest rate with a charge card, although annual fees and late charges
apply. Lastly, there is no credit limit on a charge card, but that doesn’t give you unlimited spending.

The advantages are paying the balance in full, there is no Limit amount and its easy purchasing.
But for the disadvantages are you don’t pay interest on any money you borrow with a charge card –
but you wouldn’t with a credit card either if you always paid it off at the end of the month and don’t
use it for cash withdrawals. They often have a higher spending limit, or no limit at all, so you can
make big purchases without worrying whether the card will cover it - but you need to be sure you can
afford to repay in full at the end of the month. You can’t borrow for longer than a month. You have to
repay the full bill by the repayment date shown on the statement. You don’t get the option to just pay
part of it, like you would with a credit card. If you don’t pay your bill, you’re in trouble. The late payment
fees are likely to be much more than the interest on credit card debt, and if you’re a repeat offender
your card could be cancelled.

CORPORATE PRODUCT

Electronic data interchange (EDI) is the intercompany communication of business documents in a
standard format. The simple definition of EDI is a standard electronic format that replaces paper-based
documents like purchase orders or invoices. EDI standards define the location and order of information
in a document format. This automated capability enables data to be shared rapidly instead of the hours,
days, or weeks required with paper documents or other methods. The characteristics are it is support
for EDI standard and support for EDI document type. It also supports for communication protocols.

The advantages are EDI technology saves time and money by automating a process previously
manually executed with paper documents. EDI solutions improve efficiency and productivity. More
business documents are shared and processed in less time with greater accuracy. EDI integration

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improves traceability and reporting. Electronic documents can be integrated with a range of IT systems
to support data collection, visibility and analysis. EDI automation supports positive customer
experiences. Enables efficient transaction execution and prompt, reliable product and service delivery.

The disadvantages of EDI are EDI programs are extremely expensive and it is very difficult for
small business to implement. There are various compliance standards working toward in developing a
consistent document format for EDI which can cause problems with cross compatibility between partner
companies. Many large organizations will only require working with others who utilize EDI. A small
company attempting to do business with a large organization may be limited. Each year, most standards
bodies publish revisions to the standards. This poses a problem to EDI users which may be using one
version of the standard while the trading partners are still using older version.

TRADE FINANCE (EXPORT CREDIT REFINANCING

A loan facility that extended to an exporter by a bank in the exporter country that can be used for
multiple purposes such as financing a project. There are two types of ECR whereas pre-shipment ECR,
(financing before exportation of goods) a loan advanced by EXIM Bank to facilitate the production of
eligible goods for export prior to shipment, in order to promote backward linkages to benefit the local
supplier (indirect exporter. In addition, there are post-shipment financing, a loan advanced by EXIM
bank to finance export of eligible goods on usance terms at certain prescribe interest rate. The example
of eligible goods of ECR are agricultural products, selected primary commodities and manufactured
products. The purpose of ECR is to enable financing of production and exporting costs of local
manufacturers and traders. This is intended to promote Malaysia's exports and international trade.

There are several advantages of choosing Public Bank’s Export Credit Refinancing whereas offer
low interest rates, maximum financing period of 120 days (pre-shipment) & 183 days (post-shipment),
minimum nominal value RM10K or up to 95% of export order or amount specified in the Certificate of
Performance (pre-shipment) and 100% value of export bill (post-shipment) and also their financing
available for pre-shipment and post-shipment transactions.

Hence, several disadvantages of Export Credit Refinancing by Public Bank are they did not offer
in Shariah Concept. Like Affin Islamic Bank, they offered Murabahah and Bay al-Dayn concept Next,
Public Bank’s website did not mention specific benefits that they offered to customers. Unlike CIMB
Bank, they stated benefits of ECR which is financing overhead expenses and purchase of domestic
and foreign input.

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CONCLUSION

The financial performance has been carried out in an effort to compare the performances
these two financial institutions which are Public Bank and AIA Insurance Company and its external
institutions. RHB and Sun Life Company are the companies that will be reviewed to draw some
conclusion for the year 2018. Financial statements of Public Bank and AIA Insurance were used
to analyses the financial performance and its trend over the years (2016-2018) under study.
Profitability ratios, liquidity ratio, capital adequacy ratio, asset quality ratio and underwriting ratio
were calculated to compare these financial institutions.

Examination of all ratios between Public Bank and RHB indicates that Public Bank is more
efficient in terms of generating income and expenses during the year 2018 as compared to RHB
bank. The findings also show that Public Bank is more efficient in terms of utilization of their assets
and equity which can increase the return of investment to the bank. However, Public Bank is
slightly weak in managing their assets and equity as most of their assets are financed by creditors
than its owners (shareholders). It is seen that Public Bank may have likely to not overcome a
financial downturn as less capitals are held than RHB and has poor asset quality which indicates
to bad performance in managing its non-performing loan. The bank may solve these problems by
buying additional shares to increase its liquidity to cover their unforeseen losses. It can also be
resolved by revising their lending policy so that the default risk can be minimized. Hence, the
efficiency and stability of the bank’s financial system can be achieved.

For AIA Insurance Company, it is being reviewed in terms of profitability, underwriting,
asset quality and liquidity ratio between Sun Life Insurance Company for the year 2018. The
finding shows that AIA Insurance Company is only good in managing its expenses over a year by
cutting down unnecessary expenses except that they need to improve more in utilizing its asset
to generate profit. It is seen that Sun Life Insurance Company is good in every ratio that is
calculated as compared with AIA Insurance Company except expenses ratio. The company needs
to formulate their guidelines and policy back so that they are on the right track by using their
assets and equity to get a better return on the investment. They also need to have better
management of claims subrogation for insurance provider to recover the money they spent on its
client or set rules and subrogation warnings for flag cases that requires immediate attention to
reduce loss ratio. The company needs to work and move towards a good return, because that is
a means of ensuring its market survival.

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Adam Hayes (2020, April 2007). Debt-to-Equity-Ratio- D/E Retrieved from
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Troy Segal, Reviewed by Amy Drury, (Mar 9, 2020). Non-Performing Loan
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Chris B. Murphy (2019, July 11) what is Loan to deposit Ratio
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PUBLIC BANK BERHAD: STATEMENT OF FINANCIAL
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L POSITION AS AT 31 DECEMBER 2018,2017 AND 2016

AIA INSURANCE COMPANY: STATEMENT OF FINANCIAL POSIT
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TION AS AT 31 DECEMBER 2018,2017,2016.