Press Release

VIS Reaffirms Entity Ratings of Faysal Bank Limited

Karachi, June 27, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Faysal Bank Limited (FBL) at ‘AA/A-1+’ (Double A/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 29, 2018. Long term rating of ‘AA’ indicates high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Short term rating of ‘A-1+’ indicates highest certainty of timely payments; short term liquidity, including internal operating factors and/or access to alternative source of funds, is outstanding and safety is just below risk free Government of Pakistan’s short term obligations.

The assigned ratings incorporate sound capitalization, profitability and asset quality indicators as well as mid-tier position of FBL within the industry. Liquidity profile of the bank remains satisfactory; however, further room for improvement in liquidity buffer and depositor concentration exists. Transformation of the bank from a Conventional bank offering Islamic banking services to a full-fledged Islamic bank remains in place through adoption of asset led conversion model.

Gross financing portfolio of the bank depicted healthy growth of 25.2% during the outgoing year, thereby enabling the market share of the bank to inch up to 4.1% (2017: 3.9%) in domestic advances as at end-2018. Asset quality indicators improved during the reviewed period on account of recoveries and increase in the size of the portfolio; however, the same still compare less favorably to peers, primarily due to the sizable infected legacy portfolio. Credit and market risk emanating from the investment is considered low as majority of the investment portfolio comprises shorter duration government securities.

Overall liquidity profile of the bank remains satisfactory in view of adequate liquid assets in relation to deposits and borrowings. Moreover, the bank also maintains considerable cushion over the regulatory requirements of Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). However, room for further improvement exists in liquidity buffer and granularity in deposit base when compared with peers. As per management, steady expansion in branch network and implementation of a branch led SME model is expected to aid growth in deposit base and facilitate improvement in depositor granularity, going forward.

Operating profitability of the bank registered sizeable growth during the outgoing year on the back of improvement in topline revenue and controlled growth in expenses. Net markup income increased owing to volumetric increase in average earning assets. Spreads of the bank remained at a similar level vis-à-vis the preceding year due to lag in re-pricing of assets. Going forward, projected volumetric growth in advances coupled with improvement in spreads on account of rising interest rates are expected to bode well for operating profitability of the bank. However, growth in overall profitability will depend on quantum of impairment charges and impact of super tax.

Capital adequacy of the bank has improved on account of higher growth in capital in relation to Risk Weighted Assets (RWAs). The same continues to depict sizable room for growth in RWAs. In view of projected increase in RWAs, CAR is expected to remain comfortable at end-2019. Ratings are dependent upon sustained maintenance of sound asset quality indicators, reduced concentration levels in deposits, further strengthening of liquidity buffers and continued strength in capital adequacy.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Narendar Shankar Lal (Ext: 203) at 021-35311861-70 or fax to 021-35311872-3.

Javed Callea

Applicable rating criterion: Commercial Banks Methodology - March 2018

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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