"To offer to the market banking products and services which are needed, convenient, marketable and Shariah compliant" is the opening sentence of Strategy adopted by Faysal Bank Limited (Faysal Bank), incorporated in Pakistan as a public limited company on October 3, 1994.
The bank is listed on Karachi and Lahore Stock Exchanges and is engaged in commercial, consumer and investment banking activities. It started operations on January 1, 1995 by taking over Pakistan operations of Faysal Islamic Bank of Bahrain. On January 1, 2002, Al Faysal Investment Bank Limited merged with Faysal Bank, as a result, it was co-owned by companies of Dar Al-Maal Al-Islami (DMI) Trust, Bahamas including Shamil Bank of Bahrain E.C. Effective August 15, 2006, Ithmaar Bank B. S. C., an investment bank listed in Bahrain, has replaced DMI Trust as the ultimate holding company of Faysal Bank. However, DMI continues to be a major shareholder of Ithmaar Bank B. S. C., with 42% stake.
The bank enjoys "AA" (Double A) rating for medium to long-term and "A1+" (A One Plus) for short term assigned by JCR VIS and Pacra. Nineteen new branches were opened during 2006 bringing the network to 75 branches countrywide. Staff strength as on December 31, 2006 was 2,069 employee (including 606 outsourced employees (2005: 1,530 employees including 462 outsourced employees).
Faysal Bank has two subsidiaries viz Faysal Management Services (Private) Limited (FMSL) and Fayzan Manufacturing Modaraba (FMM). The Overview hereunder is that of Faysal Bank alone without consolidation with its subsidiaries. The Associates include Faysal Asset management Limited and Faysal Income and Growth Fund.
On December 31, 2006 authorised capital of Faysal Bank stood at Rs 6 billion, comprising 600 million shares of Rs 10/- each. On this date, paid up capital stood at Rs 4.237 billion, contributed by 15, 826 shareholders, of which 15,551 individuals hold 15.90% interest. Ithmaar Bank, an associate of DMI Trust, holds indirectly through subsidiaries or nominees 66.9% control of Faysal Bank. The directors, CEO, their spouse and minor children hold negligible (less than 1%) voting interest. The rest of the shares are distributed among a number of corporate entities including banks and DFIs.
Faysal Bank saw 5% increase in its total assets to Rs 115 billion as on December 31, 2006 compared to Rs 110 billion on December 31, 2005. The increase is largely due to 19% increase in Financing from Rs 62 billion as on December 31, 2005 to Rs 74 billion as on December 31, 2006. In the meantime, Investments decreased by 8% to Rs 22.5 billion (20% of Total Assets) compared to Rs 24.4 billion (22% of TA) as on December 31, 2005. Of the total, the bank has 78% investments in Available for Sale Securities (2005: 72%). The increase in Total Assets has been financed through increase in Bills Payable and Other Liabilities.
The bank's Net Financings as on December 31, 2006 at Rs 74 billion (64% of Total Assets) as compared to Rs 62 billion (57% of TA) as on December 31, 2005. As on December 31, 2006, gross NPLs were Rs 3.535 billion (December 31, 2005: Rs 2.488 billion). In percentage terms gross NPLs on December 31, 2006 were 4.6% of gross Financings (2005: 3.9% of GF). Faysal Bank has made full provision against NPLs according to the SBP criteria. The management might look into the reasons for worsening of NPL situation and take remedial measures. Moreover, as some doubtful loans have the tendency to stay under cover for sometime due to different reasons, a prudent policy for Faysal Bank would be that the management remains extra vigilant in the appraisal and monitoring of all loans.
The bank's Deposits as on December 31, 2006 amounted to Rs 74.4 billion (64% of Total Assets) as compared to Rs 74.7 billion as on December 31, 2005 (68% of TA). On this date Financing/Deposits ratio stood at 100% (December 31, 2005: 83%). The bank appear to be over-relying on Deposits while Shareholders Equity on December 31, 2006 is only Rs 9.132 billion (7.9% of TA) compared to Rs 8.112 billion as on December 31, 2005 (7.4% of TA). Faysal Bank's equity including Surplus on Revaluation of Assets on December 31, 2006 stood at Rs 13.796 billion (11.9% of TA) compared to Rs 14.260 billion (12.9% of TA) as on December 31, 2005. There were no subordinate loans.
According to note 44 to the financial statements, Capital Adequacy Ratio of the bank on December 31, 2006 is 11.42% (2005: 13.60%) as against prescribed minimum equivalent to 8% of the risk weighted assets of the banking company.
Total mark up income of Faysal Bank for 2006 increased by 53% to Rs 9.728 billion compared to Rs 6.338 billion for 2005. Total mark up-interest expense represented 63 % of total mark up income for 2006, compared to 52% for 2005. In other words, Gross Spread ratio for the year has declined to 37% from 48% for the previous year. Net interest income (after mark up expensed and provisions) for 2006 experienced 10% decrease to Rs 3.017 billion (2005: Rs 3.336 billion).
Non-mark up income of the bank for 2006 was 33% higher at Rs 2.753 billion as against Rs 2.063 billion for the previous year. The year under review was closed with After-tax Profit at Rs 2.817 billion (2005: Rs 3.069 billion), registering a decrease of 8%. ROE (Equity incl. Revaluation Surplus) for 2006 at 20.4% is still attractive (2005: 21.5%). Total cash dividend for 2006 comes to 50% compared to 35% cash and 30% bonus shares for 2005. Performance statistics are given below.
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Performance Statistics (Audited)
(Rs million)
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Balance Sheet (As on Dec. 31) 2006 2005
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Total Assets: 115,470 110,281
Cash, balances with banks: 10,091 8,743
Investments-Net: 22,525 24,412
Financing-Net: 74,469 62,323
Borrowing from fin. Institutions: 14,965 15,296
Deposits, other accounts: 74,414 74,737
Total Liabilities: 101,674 96,021
Net Assets: 13,796 14,260
Share Capital: 4,237 3,685
Reserves & Un-app. Profit: 4,895 4,427
Shareholders' Equity: 9,132 8,112
Surplus on Revalue, Assets: 4,664 6,148
Total Equity incl.
Revalue Surplus: 13,796 14,260
Financing-Gross: 76,284 63,516
Gross NPLs: 3,535 2,488
Total Provisions: 1,815 1,193
Conting. & Commitments: 64,988 59,560
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Ratios: 2006 2,005
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Cash & bank/Total Assets: 9% 8%
Investments/Total Assets: 20% 22%
Financing-Net/Total Assets: 64% 57%
NPLs/Financing-Gross: 4.6% 3.9%
Provision for NPLs/Financing-Gross: 2.4% 1.9%
Deposits/Total Assets: 64% 68%
Total Liabilities/Total Assets: 88% 87%
Shareholders' Equity/Total Assets: 8% 7%
Equity incl. R. Surplus/
Total Assets: 11.9% 12.9%
Deposits/Equity incl.
R.Surplus-Times: 5.39 5.24
Financing/Deposits: 100% 83%
Investments/Deposits: 30% 33%
Continuing & Comm./Equity-Times: 4.71 4.18
Book Value (incl. R.Sur)/Share-Rs: 32.56 38.70
KSE Price/Share ( 6-07-07) Rs: 74.60 -
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Income Statement (Y end Dec. 31) 2006 2005
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Markup-interest earned: 9,728 6,338
Markup-interest expensed: 6,089 3,312
Net Markup-interest income: 3,639 3,026
Provisions and write offs: 622 -310
Net mark up income (aft. Prov.): 3,017 3,336
Total non-markup income: 2,753 2,063
Income before Admn. Exp.: 5,770 5,399
Admin Expenses, etc: 1,900 1,430
Profit before Taxation: 3,870 3,969
Current & deferred tax: 1,053 900
Profit after taxation: 2,817 3,069
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Ratios: (Annual Basis) 2006 2005
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Markup earned/Total Assets: 8.4% 5.7%
Net Markup Income/TA: 3.2% 2.7%
Net markup (aft. Prov.)/TA: 2.6% 3.0%
Non-Markup Income/TA: 2.4% 1.9%
Income before AE/TA: 5.0% 4.9%
Admin Expenses/TA: 1.6% 1.3%
Profit before Taxation/TA: 3.4% 3.6%
Profit after taxation / TA: 2.4% 2.8%
Profit after tax/Total Equity: 20.4% 21.5%
EPS- (year-end paid up) - Rs: 6.65 8.33
Price/Earning Ratio: 11.22 -
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Cash flow Summary 2006 2005
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Net Cash flow, Operations: 12 10,471
Net Cash flow, Investing: 2,908 -9,085
Net Cash flow, financing: -1,792 -1,201
Change in Net Liquidity*: 1,348 130
Net Liquidity at beginning: 8,743 8,613
Net Liquidity at end: 10,091 8,743
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