Karachi, June 28, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Faysal Bank Limited (FBL) at ‘AA/A-1+’ (Double A/A-One Plus). Rating of the unsecured, subordinated term finance certificates (Issue II) of FBL has also been reaffirmed at ‘AA-’ (Double A Minus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 30, 2015.
The assigned ratings to FBL incorporate improving financial profile of the Bank as evident from adequate liquidity and capitalization indicators and growing operating profitability levels. Ratings also reflect FBL’s position as a mid-sized bank having a market share of 3% in domestic deposits and stacking of other key performance indicators vis-à-vis peers. In order to maintain its competitive position, aggressive branch expansion is planned over the next three years. Branch expansion is planned to facilitate in achieving growth momentum in deposits, improve depositor granularity and CASA mix alongwith further reduction in cost of deposits.
Financing portfolio remained stagnant in the outgoing year with additional liquidity generated by way of borrowings and deposits deployed in government securities. Broad based growth in financing portfolio is targeted in corporate, consumer and commercial &SME segment (CBSME) for 2016. For corporate exposures, a strong product pipeline has been developed which comprises lending to power, infrastructure and other growth sectors.Consumer portfolio (both secured and unsecured products) is targeted to grow aggressively while focused growth is planned in the CBSME segment. Overall asset quality indicators compare less favorably to peers.
Profit before tax of FBL increased by 95% during 2015driven largely by investment income and increase in efficiency as a follow-up of voluntary separation scheme; retaining this given the aggressive branch expansion would pose a challenge ahead. Capitalization levels of the bank have improved on account of retained profits and managed growth in risk weighted assets.In the backdrop of aggressive branch expansion and projected growth in financing book, consolidation of capitalization indicators of the bank would be needed, going forward.
As part of the strategic direction of the Board of Directors and shareholders, the Bank remains committed to its vision to convert to an Islamic Bank over the medium term. In order to achieve smooth conversion, a comprehensive business transformation plan has been developed and adherence to the same has been observed on a timeline basis.
For further information on this rating announcement, please contact the undersigned or Mr. Javed Callea at 021-35311861-70 or fax to 021-35311872-3.
Mohammed Khalid Ali
Applicable rating criterion: Commercial Banks Methodology - November 2015
Rating the Issue (September 2014) http://www.jcrvis.com.pk/Images/criteria_instrument.pdf
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