Barring one-off gains on redeeming NIT-LOC fund, Faysal Bank posted a 15 percent growth in net earnings during Jan-Mar10 over the same period last year.
Just like bigger banks, in an effort to improve its mix towards low cost deposits, FABLs deposits base eroded by 10 percent to Rs111 billion in the last quarter. The entire reduction was virtually in expensive time liabilities which increased the current and saving accounts by 5 percent to 59 percent of the total mix.
It will not however be easy for the mid-sized bank to further enhance its CASA ratio. This is also evident from the fact that thanks to 3 percent increase in net advances, FABLs advance to deposits ratio jumped by 11 percentage points to 85 percent during the quarter.
This limits further financing ability of the bank in the absence of fresh deposit mobilization which helped core-income before provisioning increase by 12 percent, year-on-year.
FABL managers deserve a pat on their backs for reversing the industry-wide trend of shrinking advances and soaring bad debts as the banks advances grew by Rs3 billion and NPLS went down by Rs27 billion, on the back of strong recoveries during the quarter.
Provisions for bad loans, however, did not fall accordingly, thanks to high shift in non-payments due over one year. Net core income, nevertheless soared by 43 percent owing to a reversal of Rs189 million in the investment value of NIT portfolio.
Strongest support to the bottom line came through the one-off event of gain of Rs1.6 billion in sales of NIT units without which FABLs results would have been on the lower side.
Faysal Bank known for its highly paid shrewd human resource, unlike large banks, did not concentrate much on cost cutting as its operating expenses soared by 35 percent in the last quarter. However, taking off the effect of back end load payment to NIT on its units redemption, growth in expenses reduced to 24 percent.
Going forward, all eyes are on the potential acquisition of RBS - the banks Pakistan operations. FABL is still in the due diligence phase, while rumours in the market are getting strong on FABL being the buyer. RBS management, however, has thrown some ambiguity in the market by stating that it is in negotiation with both Faysal and EFG Hermes.
Nonetheless, the potential acquisition of a decent multinational corporate and excellent consumer portfolio including credit cards of ABN-AMRO bodes well for Faysal bank in the current scenario of limited room for organic growth.
This is because FABLs corporate portfolio is mostly local and it does not have credit card business at all. Moreover, FABLs commercial loans are concentrated in retail segment whereas Prime Banks commercial traders portfolio previously acquired by ABN-AMRO would offer a niche to the acquirer.
Moreover, owing to the risky off-balance sheet items to the tune of Rs40 billion in RBS Pakistan being hedged with its parent company, RBS UK might prefer a strong banking institution -FABL - to buy its local operations, over EFG Hermes - which is known more for its private equity ventures.
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FABL P&L
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Rs (mn) 1QCY10 1QCY09 % chg
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Mark-up earned 4,321 4,181 3%
Mark-up expensed (3,101) (3,092) 0%
Net mark-up Income 1,220 1,090 12%
Provisioning (107) (313) -66%
Net mark-up income
after provisions 1,113 777 43%
Non-markup income 2,158 476 353%
Operating revenues 3,378 1,566 116%
Non-markup expenses (1,214) (902) 35%
Profit after taxation 1,686 255 560%
EPS (Rs) 2.77 0.42
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Source: KSE notice