Faysal Bank: hit the ground running

As evident by Faysal Banks (FABL) latest financial result (for CY11), the Bank has managed to steer its operations successfully through post-merger integration in the space of a few months. Backed by higher net mark-up income and lower provisioning expenses, coupled with expansion in business size after RBS acquisition; the Bank managed to record profit before taxation of around Rs.1.5 billion in CY11, marking a whopping growth of 79 percent compared to CY10. However, the Banks net bottom line (after taxes) grew marginally by 8 percent, since the Bank had realised one-off tax credit in CY10. It is pertinent to mention here that FABL had incorporated RBSs last quarter (nearly two and a half months) result in its annual CY10 result. Compensated by expansion in its business portfolio, the Banks mark-up revenues grew by 46 percent to around Rs.29 billion in CY11 relative to the previous year; whereas, the Banks mark-up revenues jumped by 18 percent, year on year, in 4QCY11. The Banks asset base increased to around Rs.293 billion as on December 31, 2011, up by 9 percent and 62 percent compared to asset base at the end of CY10 and CY09, respectively. As the Bank stayed active on both advances and investment front, its advances and investment portfolio grew by 11 percent and 8 percent, respectively, during CY11 to Rs.148 billion and Rs.93 billion, respectively, at the end of December 2011 relative to same period of last year. FABL increased its exposure to advances when the industrys (all scheduled banks) advance portfolio fell by 1 percent. The Banks ADR stood at 69 percent at the end of December 2011, a cut above the industrys average ADR of 53 percent. The Banks growing exposure in advances makes it a poster child for other peer banks, who are currently conservative on lending front. While Banks deposit mobilisation was slower compared to the industry, given that the Banks deposit base grew by 10 percent during CY11 to around Rs.215 billion as on December 31, 2011, when the industry deposit base grew by 15 percent. This is likely due to the focus on improvement in deposit mix. However, a key overwhelming development was the improvement in the Banks gross spread ratio, jumped to around 32 percent in CY11, nearly 2.6 percentage points higher than CY10, supported by RBSs lower cost deposit portfolio. Another favorable development was lower provisioning cost against loans and advances during CY11, likely due to slow down in growth in NPLs. The Banks provisioning expenses against loans and advances summed to Rs.330 million in CY11, as opposed to Rs.1.9 billion in CY10. Although detailed annual financial notes are not available a cue can be taken from September 30, 2011, financial accounts that suggest that the Banks NPLs stayed virtually unchanged during the first nine months of CY11 to Rs.25 billion at the end of September 30, 2011. The Bank non-mark-up income stayed unchanged compared to the last year. This is down to realisation of Rs.256 million loss on sale of securities in CY11 as opposed to gain of Rs.1.33 billion in CY10, which annulled the impact of higher income from investment banking activities, dividend income, dealing in foreign currencies and other income. In CY10, FABL realised one-off capital gain on redemption of NIT-LOC fund. Higher non-mark-up expenses have tapered down the Banks total operating revenues to expense ratio to 1.2 in CY11, from 1.4 in CY10. But, the Banks non-mark-up expenses were down by 3 percent, year on year, in 4QCY11. Given the pace at which Bank has trekked its operations to normalcy after the merger, the market could expect further strengthening in FABLs financial health on account of realisation of operational and financial synergies down the line.

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Faysal Bank Ltd
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(Rs mn)                                 CY11      CY10   chg
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Mark-up Earned                       28,825    19,710    46%
Mark-up Expensed                    (19,619)  (13,919)   41%
Net Markup Income                     9,206     5,791    59%
Provisioning                           (695)   (2,202)  -68%
Net Mark-up income after provisions   8,511     3,589   137%
Other  income                         4,070     4,012     1%
Operating revenues                   13,277     9,804    35%
Other  expenses                     (11,103)   (6,775)   64%
Profit before taxation                1,478       827    79%
Profit after taxation                 1,280     1,190     8%
EPS (Rs)                               1.55      1.45
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Source: Company Accounts