NPL provisioning hits Faysal Bank

Faysal Bank Limited (FABL) did what banks should do and ended up posting a near 13 percent year-on-year decline in profits for 9MCY12. FABL, in contrast to the recent industry trend, adopted the strategy of stepping on lending to the private sector, as evident by a sizeable 18 percent increase in advances over December end 2011.
FABLs top-line grew by a minimal 1.2 percent year-on-year, despite a decent increase in advances. A plausible reason is the declining interest rate scenario coupled with 18 percent less exposure in investments in government papers and securities. The gross spread ratio, as a result slipped further by two percentage points to 30.3 percent, well below the mid-sized peer banks gross spread ratio of around 40 percent.
The deposit growth clocked in at a subdued six percent over December end 2011, tad lower than the money creation during the period. However, even the near six percent growth in deposit played its part in narrowing the spreads as banks now pay increased return on deposits. The deposit composition remained nearly similar to the corresponding period last year, with a much comparable CASSA ratio of 56 percent to the peers.
What made the major difference to the bottom-line was a significant increase in provisioning charges for the period, against the industry-wide trend. FABLs aggressive lending led to a six percent increase in NPLs over December end 2011. FABLs infection ratio stands at a slightly worrying 14.3 percent with a low coverage of 65 percent.
The banks management has sought SBP extension to withhold provision on two classified advances of nearly Rs759 million to Agritech and Azgard Nine, and therefore has not made any provision to these exposures. Had the provisions been made, the pre-tax profit would have been lower by a significant Rs611.5 million, according to the management.
A positive account on an otherwise disappointing income statement was controlled administrative expenses. This is a commendable feat and speaks volumes of FABLs focused efforts of targeted cost reduction despite expansion in branch network. Going forward, FABL should eye more deposit growth, but needs to be wary of the increasing NPLs.

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FAYSAL BANK LIMITED

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(Rs mn)                                9MCY12     9MCY11      chg

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Mark-up Earned                         21,595     21,345       1%

Mark-up Expensed                      (15,043)   (14,459)      4%

Net Markup Income                       6,552      6,885      -5%

Provisioning                             (753)        82

Net Mark-up income after provisions     5,799      6,967     -17%

Other income                            4,195      3,167      32%

Operating revenues                     10,747     10,052       7%

Other expenses                         (8,277)    (8,258)      0%

Profit before taxation                  1,717      1,876      -8%

Profit after taxation                   1,128      1,293     -13%

EPS (Rs)                                 1.37       1.57

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Source: Company Accounts

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