Research Analyst
Nov 16 - 22, 2009

Faysal Bank Limited started its operation in Pakistan in 1987 first as a branch setup of Faysal Islamic Bank of Bahrain and then in 1995 as a locally incorporated Pakistani bank under the present name of Faysal Bank Limited.

On January 1, 2002 Al Faysal Investment Bank Limited another group's entity was merged into Faysal Bank Limited.

Faysal Bank Limited is a full service banking institution offering consumer, corporate, and investment banking facilities to its customers. The products and services include deposit accounts, consumer loans for both houses and cars, corporate and investment banking along with other services.


The holding company enjoys the highest short term rating of A1+ (A One Plus) and AA (Double A) for the long term by JCR-VIS (credit rating company). Another major credit rating company of Pakistan PACRA has also assigned the same ratings to the holding company.


As a result of growth in assets, total markup income for the nine months ended September 30, 2009 was Rs. 2,851 million or 30% higher than last year. This was however offset by increase in markup expenses due to higher cost of deposits. Difficult economic conditions prevailing during the period were the main reason for the increase in provision for bad debts by Rs. 231 million i.e. 22%.

On the investments side, disposal of impaired equity securities resulted in reversal of provision for diminution in value of investments amounting to Rs. 117 million. Despite significant decline in dividend income of Rs. 544 million, non markup income for the nine months of 2009 was higher by 11% mainly due to realized capital gains from equity market of Rs. 665 million.


INDICATORS Sep 30, 2009 Dec 31, 2008
Total liabilities 145,811,937 127,286,290
Lending to financial institutions 1,025,954 2,861,401
Deposits 109,146,755 102,592,473
Advances 94,187,073 89,758,789
Investments 47,607,242 30,106,298
Net assets 12,817,188 10,875,628
. Sep 30, 2009 Sep 30, 2008
Loss/ PBT 1,521,000 2,430,512
Loss/ PAT 928,270 1,794,340
Loss/ EPS Rs 1.52 2.94 (sep)

Expenses have increased to Rs. 3,245 million from Rs. 2,338 million over last year due to opening of 24 branches in 2008, higher inflation, and investment in high quality HR and efficient systems. Accordingly, net profit after tax for the nine months ended September 30, 2009 was Rs. 928 million as against Rs. 1,794 million for the corresponding period last year.

Total assets grew 15% from 138.162 billion in December 2008 to Rs. 158.629 billion as at September 30, 2009. Higher investments in government securities by Rs. 13.796 billion, increase in surplus on revaluation of available for sale equity securities by Rs. 1.174 billion and increase in financing by Rs. 4.4 billion were the main reasons for this growth.

On the liability side, deposits grew by Rs. 6.5 billion to Rs. 109.147 billion. Deposit mix continued to improve and CASA constituted 56.7% of total deposits as compared to 44.6% as at December 31, 2008. Borrowings from financial institutions grew by Rs. 12.047 billion to Rs. 25.074 billion.


After enjoying healthy gains in the previous year, banking sector's profitability plunged by almost 31 percent during the 1st half of 2009. The dent in the profitability of the banking sector was caused higher provisioning on NPLs and higher impairment provisioning during the period. Besides, soaring expenses of the banks were also pointed out to be the leading reasons for the lowering profitability. The banks listed on the stock market recorded a net profit of Rs 26.8 billion in the half year ended June 30, 2009 against Rs 38.7 billion in the same half of last year, registering negative growth of 31 percent.

Administrative expenses increased cumulatively by 20% to Rs 74.4 billion during the period under review and the main reason is the inflationary pressure and in case of few smaller banks, while increase in branches network also lifted the operating expenses. Consequently, the cost to income ratio of the sector has also moved up to 45% from 42% a year earlier. A relatively slower growth in revenues is also a reason behind the rising cost to income ratio.

Provision against non-performing loans (NPLs) swelled by 88% to Rs 36 billion during the period. Though the flow of fresh NPLs have started to slow down but the continuous downgrading of exposures caused the banks to book provisions in the unveiled accounts. Moreover, the banks with higher exposure in consumer finance also wrote down the loans.

As a result, bad debt written off directly also increased to Rs 3.7 billion from Rs 1.7 billion a year earlier, an increase of 119%.

Provision against diminution in the value of investments recorded at Rs 3.2 billion during first half of 2009 versus only Rs 291 million a year earlier.

Most of the banks depicted growth in their Net Interest Income and, cumulatively, this head was up by 19% to Rs 122.7 billion during the period under review. This was due to both higher inventory of advances and firm margins during the said period against the previous year. On the other hand, non interest income witnessed a decline of 2% on yearly basis. Other income of commercial banks remained non-supportive with 2% YoY decline in 1st half of 2009. The lower other income is due to restricted advances growth, declining trade and corporate finance transactions and lower amount of corporate dividends.


Banking spread has widened to 7.52 percent in a from 6.78 percent a year earlier, with deposit rates relatively rigid in an upward direction, which is a positive sign for the banking industry. However increasing NPLs and higher provisioning will have a negative impact on the profitability of Faysal bank this year.