Everything seems to be working for banks. Those that refuse to lend have made good profits. Those who still lend more than they invest, are also making good profits. Profit is the only constant it seems and Faysal Bank almost trebled its year-on-year profits during 1HCY15. A modest single digit top line growth yielded massive after-tax profit improvement - which tells there is much more than core banking out there.
In the absence of detailed numbers, taking 1QCY15 numbers as proxy, FABL has not been a reluctant lender unlike most its peers. Yes, it has invested a sizeable amount in government securities too, but not at the expense of advances. A modest top line growth reflects the low interest rate scenario. The net mark-up income did improve, although very slightly - suggesting FABL may still need some catching up to do in terms of its deposit mix.
The two factors that made the real difference were the non-core income and administrative expenses. The expenses were kept in check which is quite against the industry norm. The non-core income mainly on the back of gains on securities lent a good hand to the bottom line. FABL still has a fair ground to cover in terms of improving its deposit mix, as the CASA sits at low levels when compared to peers average.
With interest rates tipped to go further down, spreads are likely to be squeezed. FABL would do well to keep its loan book cleaner and provide well for it. Cost of deposit also has room to be rationalized further. Non-core income and check on administrative costs, delivered the results this time - but you cannot rely on these factors forever. Luckily, FABL is not a reluctant lender and should the opportunity arise, it will be ready to pounce on.
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