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Faysal Bank treaded cautiously in 2014; keeping costs in check to boost profitability. Its mark-up earning increased by 16 percent while the interest bearing expense was up by just nine percent to make the net mark-up income growth 28 percent for CY14. There was no significant change in provisioning as the core income after provisioning jumped by 31 percent.
The bank's balance sheet didn't really grow in the first nine months as both advances and investments in September 2014 were lower than their size at the end of 2013. The re-profiling of investment in government papers is similar to the rest of the industry, as its portfolio size in PIBs increased by around Rs35 billion in 9MCY14 while the decline in T-Bills (Rs41bn) was higher and that resulted in marginal decline in overall investment portfolio. Assuming a similar trend in the fourth quarter, higher return on PIBs than on T-Bills explains the growth of 16 percent in mark-up income.
This is evident from that fact that in 9M net advances were down by five percent and income earned on advances must have fallen as well since interest rates were on a downward trajectory in 2014. Hence, virtually all the growth is primarily attributed to the shift from T-Bills to PIBs, which is an industry-wide phenomenon.
The stagnation in balance sheet size is also taking toll on the non-core income of the bank, which was down three percent in 2014 to Rs4.4 billion. The fall in fee, commission and brokerage income and dividend income has more than offset the spike in income from dealing in foreign securities and gain on sale in securities. The bank ought to focus on expanding core business as well as non-core avenues to sustain its profitability growth as 2015 would be a tough year and there is no easy ride of surpluses from converting government securities profile is available anymore.
Still, the bank has kept a check on its administrative expenses, which grew by 11 percent in CY14. But there could have been more room in curtailing these expenses given the banks inability to grow. Moreover, single digit inflation growth warrants a better expense management by Faysal Bank.
Nonetheless, the juice from the PIBs was enough for Faysal Bank to exhibit a handsome 64 percent growth in profits before taxation, while the net income increased by 34 percent in 2014 to post an EPS of Rs2.37.


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Faysal Bank Limited (Unconsolidated P&L)
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Rs (mn) CY14 CY13 Chg
Markup Earned 32,313 27,790 16%
Markup Expenses (18,480) (16,945) 9%
Net Markup Income 13,833 10,845 28%
Provisioning/(Reveral) against
NPLs & advances (2,056) (1,905) 8%
Net Markup Income after provisions 11,474 8,730 31%
Non Mark-up/Interest Income 4,373 4,525 -3%
Total income 15,847 13,255 20%
Non Mark-up/Interest Expenses (12,295) (11,101) 11%
Profit Before Taxation 3,552 2,161 64%
Taxation (1,075) (311) 246%
Profit After Taxation 2,477 1,850 34%
EPS (Rs.) 2.37 1.77
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Source: KSE announcement

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