Faysal Bank Limited (FABL) was incorporated in Pakistan in 1994, as a public limited company. Faysal Bank is engaged in corporate, commercial and retail banking besides Islamic Banking activities under the brand name of Barkat Islamic Banking. FABL's footprint now spreads over more than 260 branches in over 70 cities, with combined business assets of over PKR 300 billion. Barkat Islamic Banking also continues its growth strategy by increasing its footprint across Pakistan. As of 2012, the Islamic banking division of FABL had 52 branches in 23 cities.
FABL became the only mid-tier bank with SBP's Primary Dealer status in 2011 and went on to attain a top 3 rating as a PD in 2012. This market positioning gave the bank the unique advantage and brought it at par with the best Treasuries in Pakistan--both in terms of product suit and income streams.
Financial Performance CY13 With an Advances-to-Deposit Ratio (ADR) in excess of 50 percent (68 percent to be exact), FABL is one of the few core bankers in the domestic banking industry. During CY13, the bank further grew its advances portfolio by embarking on a number of high-profile lending transactions together with building up its consumer finance portfolio.
During CY13, FABL's advances touted a moderate 7 percent year-on-year growth. Investments, on the other hand, grew by 29 percent year on year in CY13. The growth in investments mainly came on the heels of FABL's investment in Federal Government securities particularly market treasury bills. A nominal rise was also observed in the bank's investment in TFCs, while investment in equity market dropped.
However, a desirable asset-mix tilted in favour of private sector advance couldn't sustain the top line which slid year on year by 4 percent year on year in CY13. The low discount rate could be one of the culprits. However, FABL smartly offset the trickledown effect of a thin top line by religiously focusing on low-cost deposits.
During CY13, CASA of the bank moved up to 62 percent vis-à-vis 56 percent in CY12. The tremendous growth in the low-cost deposits during CY13 is what that plopped down its mark-up expense by 15 percent year on year and push the spread ratio up to 39 percent from 31 percent in CY13.
During CY13, FABL booked 51 percent higher provisioning compared to last year despite the fact that NPLs almost stood still during CY13. This is attributable to bank booking provision in a phased manner. Among the non-core income sources, fee, commission and brokerage income boasted striking growth. FABL launched mobile banking service "Mobit" during the year which covers variety of features like balance enquiry, interbank funds transfer, mini statement and utility bills payment, etc. The bank also successfully implemented IBAN.
Dividend income and foreign trade income also posted considerable growth. However, a drastic drop in the gains on the sale of securities turned everything sour and pushed down the overall non-mark-up income by 14 percent year on year.
Administrative cost was an area that remained in limelight in CY13 and various measures were taken by the bank to bring it down. The optimisation of technology, infrastructure and network resulted in major cost savings for the bank. For instance, the bank launched VDI (Virtual Desktop Infrastructure) that provided capital cost saving, data security, centralised efficient processing and low maintenance cost. Resultantly, the non-mark-up expenses grew by just 1 percent year on year in CY13. The bank inaugurated four new branches during CY13 which includes one Islamic banking branch.
The bottom line ended up growing staggeringly by 30 percent year on year in CY13 culminating into an after-tax profit of Rs 1.85 billion vis-à-vis Rs 1.42 billion in CY12.
Financial Performance CY12 The focus on private sector advances kept the FABL's top line afloat in 2012 despite the rate-cuts that wreaked havoc on the industry at large. However, the rise in mark-up expenses mainly owing to the hike in floor rate on saving deposits took its toll on the NIM which moved down a tad. Saving deposits constituted 31 percent of FABL's deposits at the end of CY12 as against 27 percent in CY11.
During 2012, the NPLs grew by 6 percent year on year. The fresh loans advanced during the period though kept infection ratio in check still, the NPL growth triggered enormous provisioning expenses as evident by the hike of 101 percent in the provisioning charges during the period.
The bank is booking provision against the non-performing outstanding facilities of Agritech Limited (AGL) and Azgard Nine Limited (ANL), Gulistan group of companies and impairment loss on acquired shares of AGL in a phased manner as per the relaxation provided by SBP. Had the SBP not provided this exemption, the profit before taxation for the current year would have been lower by Rs 1,472.1 million because of high provision booked on the three aforementioned companies.
What proved to be boon for the bottom line was a tremendous rise in non-funded income that primarily came on the back of gain on sale of securities specially PIBs, ordinary shares, Modarba and mutual funds. As part of this strategy the bank has been opening branches in smaller towns leading to generation of low cost core deposits for the bank and position itself to serve agriculture based sectors. The bank also rationalised administrative expenses through cost-cutting and synergies during the period. The drop in non-mark-up expenses despite the launch of eight branches during the period is a laudable achievement. The bottom line grew by 11 percent year on year during the period.
Future Outlook FABL has witnessed a lot of resilience in CY13. It deserves a pat on the back for its ability to muster low-cost deposits and boost its spreads amidst tough times. Besides, FABL also deserves admiration for keeping a check on its infection ratio despite rising Advances-to-Deposit Ratio (ADR).
While, provisioning expense is likely to grow in the coming times to improve the loan coverage and also on the back of the phased provisioning approach that the bank is undertaking, healthy spreads on the back of higher ADR and CASA will keep the boat afloat. Besides, non-mark-up income which slid in CY13 is also expected to rebound in CY14 mainly on account of bank's enhanced focus on fee-based income.
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FAYSAL BANK LIMITED (CONSOLIDATED P&L)
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Rs (mn) CY11 CY12 CY13
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Markup Earned 28,825 28,802 27,790
Markup Expenses 19,619 19,839 16,945
Net Markup Income 9,206 8,963 10,845
Provisioning/(Reversal) 695 1,401 2,116
Net Markup Income after provisions 8,511 7,563 8,729
Non Mark-up / Interest Income 4,070 5,282 4,526
Operating Revenues 12,581 12,844 13,255
Non Mark-up / Interest Expenses 11,103 11,004 11,101
Profit Before Taxation 1,478 1,840 2,161
Taxation 198 417 311
Profit After Taxation 1,280 1,423 1,850
EPS (Rs) 1.38 1.53 1.77
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Source: Company Accounts
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FABL - KEY PERFORMANCE INDICATORS
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Ratios CY11 CY12 CY13
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ADR 69% 72% 68%
IDR 44% 37% 42%
CASA 49% 57% 62%
Spread Ratio 32% 31% 39%
Infection Ratio 18% 16% 15%
Coverage Ratio 67% 67% 73%
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Source: Company Accounts
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