In a quest to become one of the top ten banks in Pakistan, Faysal Bank (FABL) could not resist adding Royal Bank of Scotland to its cart last year. With the merger with RBS coming into effect from January 2011, the bank will be enjoying operating and financial synergies in the years ahead.
FABLs bottom-line performance in CY10 remained unimpressive. However, that appears to be a result of banks focus on securing the RBS deal, and, later, in accommodating new employees, infrastructure, systems and so forth.
Despite the one-off capital gain on redeeming NIT-LOC fund of around Rs1.7 billion in 2010, and the incorporation of RBSs last quarter performance, FABLs bottom-line fell slightly to Rs1.19 billion in 2010 from around Rs1.2 billion a year earlier. The bank did not declare any dividends.
Realising that the RBS deal would expand its client base, FABL adopted a conservative approach towards lending in 2010 as evident from a single digit growth in advances during the first nine months of CY10.
The merger with RBS bank has increased FABLs net advances by a whopping 46 percent to Rs133 billion at the end of CY10 as against a year earlier, lifting total markup income by 16 percent in CY10.
In an effort to avoid expensive deposits, the order of the day in banking industry, FABL rationally lifted its deposit base to Rs132 billion in the first nine months of the current fiscal year from around Rs123 billion in the year ago period.
As it was not easy for the mid-sized bank to enhance its CASA ratio (the ratio of current account and saving account to total deposits), FABLs exposure to fixed asset increased slightly in the first three quarters.
But cumulative deposits increased to Rs195 billion at the end of year from around Rs123 billion; the banks interest expense increased to around Rs14 billion from around Rs12 billion in 2009.
FABLs non-interest income - which has been one of its strong points historically - increased by 42 percent, year-on-year, in CY10. This rise, which came despite a substantial decline in its dividend income, was mainly on the heels of the capital gain booked on the settlement of NIT LOC and growth in commission and brokerage income.
Amid a backdrop of double-digit inflation, a 2.5 percent premium charged by NIT on the settlement of NIT LOC holders fund, post-acquisition expenses, and the banks continuous efforts to restructure and roll out new branches, the administrative expense surged by around 55 percent. The bank had opened 11 new branches between September 2009 and September 2010.
The future of Faysal Bank Ltd looks promising. As the bank intends to expand further and rollout new services, to qualify for top end of medium size banks, FABL is expected to remain aggressive in CY11.
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Faysal Bank Ltd
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P&L (Rs mn) CY10 CY09 chg
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Mark-up earned 19,710 16,958 16.2%
Mark-up expenses (13,919) (11,968) 16.3%
Net Mark-up Income 5,791 4,990 16.1%
Provisioning (2,202) (2,192) 0.5%
Net Mark-up income after provision 3,589 2,798 28.3%
Non Mark-up income 4,012 2,813 42.6%
Operating revenues 9,804 7,803 25.6%
Non Mark-up expenses (6,775) (4,311) 57.2%
Profit before taxation 827 1,301 -36.4%
Profit after taxation 1,190 1,200 -0.8%
EPS (Rs) 1.63 1.64 -0.6%
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Source: Company results