VIS Credit Rating Company Limited€¦ · Rahmatullah is a seasoned professional with a diverse...
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VIS Credit Rating Company Limited www.vis.com.pk
RATING REPORT
Faysal Bank Limited
REPORT DATE:
June 29, 2020 RATING ANALYSTS:
Narendar Shankar Lal [email protected]
COMPANY INFORMATION
Established in 1994 External auditors: A.F. Ferguson & Co. Chartered Accountants
Public Limited Company Chairman of the Board: Mr. Farooq Rahmatullah
Key Shareholders (with stake 5% or more): CEO: Mr. Yousaf Hussain
Ithmaar Bank B.S.C – 48.06%
Faisal Finance (Luxemborg) S.A. – 8.55%
MFAI (Jersey) Limited – 5. 89%
State Life Insurance Corporation of Pakistan – 5.30%
General Public – 14.6%
RATING DETAILS
Rating Category
Latest Rating Previous Rating
Long-term
Short-term
Long-term
Short-term
Entity Rating AA A-1+ AA A-1+
Outlook Stable Stable
Date June 29, ‘20 June 27, ‘19
APPLICABLE METHODOLOGY(IES) Commercial Banks (March 2018): https://www.vis.com.pk/kc-meth.aspx
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Faysal Bank Limited
OVERVIEW OF THE
INSTITUTION RATING RATIONALE
Ithmaar Bank B.S.C (IB), a Islamic Retail Bank in Bahrain and Kuwait, is the parent bank of Faysal Bank
Limited, holding directly and indirectly,
66.8% of FBL’s shares.
FBL has a branch network of 555
branches (2018: 455); including 413 Islamic branches (2018: 254)
and 1 Islamic sub-branch (2018: 1) in
Pakistan.
Profile of Chairman
Mr. Farooq Rahmatullah is a
seasoned professional with a diverse
experience in several roles in different
organizations. He is a Law graduate and is currently serving on
Board of three other organizations.
Profile of CEO
Mr. Yousaf Hussain has over 25 years of
professional experience, primarily at ABN AMRO
Bank where he held multiple senior managerial positions including those
within the Corporate / Credit and Transaction Banking functions. He has been affiliated with
Faysal Bank since August 2008, with a significant
contribution to the franchise in his previous
positions as Chief Risk Officer.
FBL is a mid-sized bank engaged in provision of conventional and Islamic Corporate, Commercial and Consumer banking services. The bank has a market share of 4.1% (2018: 4.1%) and 3.1% (2018: 3.1%) in domestic advances and domestic deposits, respectively. Long term strategic vision of the bank entails transformation of the business model from a Conventional bank offering Islamic banking services to a full-fledged Islamic bank. An asset led conversion model has been adopted by the management in this regard. At end Q1’20, total Sharia compliant deposits as proportion of total deposits were reported at 27.5%, while Islamic advances represented 41.1% of total financing portfolio. Management expects to completely transform into an Islamic bank by end-2023.
Rating Rationale
Gross financing portfolio witnessed moderate growth but asset quality indicators declined slightly during 2019 (due to industry-wide defaults of a few borrowers). In the long run, asset quality indicators are expected to decrease further in line with the banking sector given the negative impact of COVID-19 on repayment capacity of many borrowers
Gross financing portfolio of FBL depicted modest growth of 4.2% to increase to Rs. 333.8b (2018: Rs. 320.3b) at end-2019. With conversion of conventional loans to Islamic loans and booking of new loans under Islamic mode of financing, Islamic financing and related assets registered increase to Rs. 116.1b (2018: Rs. 79.0b) at end-2019. Corporate advances continue to remain the mainstay of the bank as the same constituted more than three-fourth of the total advances portfolio. Going forward, focus will continue to remain on corporate segment with selective growth in commercial, SME and consumer segments. Government’s decision to enhance limits of SME borrowers in the wake of COVID-19 pandemic provides additional incentive to the bank to cater to this segment. Client wise concentration in advances witnessed slight decrease as funded exposures of top-20 clients accounted for 37.4% (2018: 39.0%) of total portfolio. Gross advances portfolio was reported at Rs. 331.7b at end-Q1’20.
Asset quality indicators of the bank declined slightly due to greater increase in quantum of NPLs vis-à-vis the increase in gross financing portfolio. Resultantly, gross and net infection ratios were reported higher at 9.1% (2018: 8.3%) and 2.2% (2018: 1.2%), respectively. Recent economic slowdown due to COVID-19 is expected to negatively impact repayment capacity of many borrowers; hence, asset quality indicators may witness pressure in the long run in line with the overall banking industry. In 2020, minimum impact will be observed on fresh NPLs as SBP has allowed banks to defer clients’ payment of principal on loan obligations by one year and also relaxed regulatory criteria for restructured/rescheduled loans for borrowers who require relief beyond the extension of principal repayment for one year. Maintaining assets quality indicators in line with rating benchmarks is considered an important rating driver going forward.
Credit and market risk emanating from the investment portfolio is considered low
Value of the investment portfolio was reported at Rs. 215.9b (2019: Rs. 204.1b; 2018: Rs. 214.2b) at end-Q1’20. Credit risk emanating from the portfolio is considered low as approximately 70% of the investment portfolio was deployed in government portfolio. Market risk is also considered low as investment in equity securities constituted less than 5%
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of overall investment portfolio during 2019 and Q1’20.
Overall liquidity profile of the bank is considered adequate in view of sizeable liquid assets in relation to deposits and borrowings; however, room for improvement in deposit granularity exists
Deposit base of the bank depicted double digit growth during 2019. CASA of the bank was reported higher at 70.1% (2018 67.4%). In terms of total quantum, saving accounts registered the largest growth as management offered special rates in both conventional and Islamic saving accounts to mobilize deposits and maintain Advances to Deposits (ADR) ratio of the bank. However, the management has converted these special rate saving accounts to rack rate accounts during 2020 in a bid to rationalize cost of deposits. Concentration in deposit base observed slight decrease vis-à-vis the preceding year, with top 20 and top 50 depositors accounting for 17.2% (2018: 18.8%) and 25.2% (2018: 27.1%) of total deposits at end-2019. However, further room for improvement exists in this regard. Growth in liquid assets was greater than growth observed in deposits and borrowings. Consequently, liquid assets in relation to deposits and borrowings were reported higher at 45.1% (2018: 40.8%). Going forward, management’s strategy is to focus on attracting low cost deposits rather than aiming for higher volume. However, economic slowdown due to COVID-19 is expected to present challenges in mobilizing low cost deposits.
Increasing interest rates contributed to improvement in profitability profile during the period under review; however, profitability is expected to remain under pressure in medium to long term in view of decreasing interest rate scenario and client repayment capacity being affected due to economic slowdown
Profit after tax of FBL was reported higher at Rs. 6.0b (2018: Rs. 4.8b) in 2019. Profitability of the bank registered sizeable growth during the outgoing year on the back of improvement in markup income along with controlled growth in expenses. Increasing interest rates were a key factor contributing to higher profitability. Net markup income increased owing to volumetric increase in average earning assets and improvement in spreads. Administrative expenses registered double digit growth on account of increase registered in compensation related expenses primarily due to branch expansion. However, with greater increase in recurring income vis-à-vis the growth in operating expenses, efficiency ratio (cost to income) of the bank improved to 59.9% (2018: 66.0%). Going forward, the COVID-19 crisis and its impact on the economy and the financial sector would make the operating dynamics of the banks in general challenging. SBP has announced regulatory relaxations to manage the asset quality of the banks’ portfolio which along with the relief package provided by the Federal Government is expected to provide certain respite to the banks in the short term. Profitability of FBL will be further supported during 2020 on account of lag in re-pricing of loan portfolio and efforts by the management to reduce the cost of deposits by mobilizing low cost deposits and reducing operational expenses to compensate for decrease in interest rates. However, the impact of curtailment of economic activity due to COVID-19 and lower lending rate scenario may cause NIM compression, thereby impacting the profitability of the bank in the medium to long term. Moreover, impairment charges due to adverse impact of economic slowdown on client’s repayment capacity are expected to put further downward pressure on profitability. Maintaining conservative lending strategy to maintain asset quality and cost efficiencies would be important rating drivers going forward.
Capitalization indicators are expected to remain sound Equity (excluding revaluation surplus) depicted increase on timeline basis due to profit retention. Capital Adequacy Ratio (CAR) and leverage ratio were reported at 19.1% (2018: 16.8%) and 5.9% (2018: 4.9%) respectively. Going forward, capitalization indicators of the bank are expected to demonstrate comfortable cushion over the regulatory requirements after accounting for projected growth in advances.
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Corporate Profile
Incorporated in 1994 as a public listed company,
Faysal Bank Limited (FBL) is engaged in provision
of Conventional and Islamic Corporate,
Commercial and Consumer banking services. The
shares of the bank are listed and traded on
Pakistan Stock Exchange (PSX). At end-2019, the
bank’s branch network included 555 branches
(2018: 455); including 413 Islamic branches (2018:
254) and 1 Islamic sub-branch (2018: 1) in
Pakistan.
Majority shareholding of FBL, either directly or
indirectly, is vested with Ithmaar Bank and its
subsidiaries (2019: 66.8%; 2018: 66.8%). No
significant change was witnessed in the
shareholding pattern during the outgoing year.
The following table presents the shareholding
pattern of the bank as at end-2019:
Figure 1: Shareholding Pattern of FBL
%
Ithmaar Bank & Subsidiaries 66.8%
- Ithmaar Bank (IB Bank B.S.C) 48.1%
- Faisal Finance (Luxembourg) 8.6%
- MFAI (Jersey) Limited 5.9%
- DMI (Jersey) Limited 4.2%
State Life Insurance Corporation of Pakistan
5.3%
General Public 14.6%
Foreign Investors 2.1%
Public Sector Companies & Corporations
0.01%
Banks and FIs 6.5%
Mutual Funds 1.5%
Others 3.2%
Total 100.0%
In May 2020, the Board of Directors (BoD) at
FBL was reconstituted and 11 members were
elected for a period of 3 years. Mr. Mohsin Tariq
replaced Mr. Fuad Azam Khan on the Board,
while Ms. Fatima Asad was also inducted on the
Board. New members inducted on the Board have
sound experience. Composition of the Board is
line with best practices as independent directors
constitute more than one-third of the total Board
members and a female director has been
appointed on the Board.
Figure 2: BoD composition
Names of Directors Position
Mr. Farooq Rahmatullah
Khan
Chairman/Non-Executive
Director
Mr. Ahmed Abdulrahim
Mohamed Abdulla Bucheery
Vice Chairman/ Non-Executive
Director
Mr. Yousaf Hussain President & CEO/Executive
Director
Mian Muhammad Younis Independent Director
Mr. Imtiaz Ahmad Pervez Non-Executive Director
Mr. Juma Hasan Ali Abul Non-Executive Director
Mr. Abdulelah Ebrahim
Mohamed AlQasimi Non-Executive Director
Mr. Abdulla Abdulaziz Ali
Taleb Non-Executive Director
Mr. Ali Munir Independent Director
Mr. Mohsin Tariq Independent Director
Ms. Fatima Asad Khan Independent Director
Six BoD meetings were held in 2019. Attendance
during BoD meetings is considered satisfactory.
Nature of the Board oversight is considered
comprehensive as depicted by detailed discussions
documented in Board minutes. Discussions in the
Board meetings pertained to Business
Transformation Plan (BTP), growth strategy,
regulatory approvals, branch expansion plan,
macroeconomic developments, bank’s
performance in terms of advances portfolio,
deposits, profitability profile and capitalization
indicators. Qualitative aspects such as review of
internal audit report and areas of improvement for
internal control environment are also thoroughly
covered.
In order to ensure effective oversight, five
committees exist at Board level. These include
Board Audit & Corporate Governance Committee
(BACGC), Board Risk Management Committee
(BRMC), Board Recruitment Nomination and
Remuneration Committee (BRNRC), Board
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Strategy Committee (BSC) and Board IT
Committee (BITC). With reconstitution of the
BoD, the committees will also be re-constituted.
The following table presents the composition of
Board committees prior to reconstitution of the
BoD:
Figure 3: Composition of Board Committees
Name BAC
GC
BR
MC
BR
NR
C
BSC BIT
C
Mr. Farooq
Rahmatullah C
Mr. Ahmed Abdul
Rahim Mohamed
Abdulla Bucheery
C M
Mr. Yousaf Hussain M M M
Mian Muhammad
Younis C M
Mr. Imtiaz Ahmad
Pervez C
Mr. Juma Hasan Ali
Abul M M M
Mr. Abdulelah
Ebrahim Mohamed
AlQasimi
M M
Mr. Abdulla Abdul-
Aziz Ali Taleb M M
Mr. Ali Munir M M C
Mr. Fuad Azim
Hashmi M M
BACGC is chaired by an independent director in
line with best practices. The composition of the
BRNRC is in line with the Revised Guidelines on
Remuneration Practices 2017 issued by the State
Bank of Pakistan which allows a non-executive
director to be the Chairman in case the majority
members of the committee are independent
directors.
The management team at FBL is led by Mr.
Yousaf Hussain, who has been serving as the
President and Chief Executive Officer (CEO) of
the bank since 2017. Mr. Yousaf has around 26
years of diverse local & international professional
experience. He is a seasoned banker with previous
experience in senior positions at ABN AMRO
Bank, Samba Bank and Mashreq bank, UAE. He
has been affiliated with FBL since 2008 and holds
MBA degree from the Lahore University of
Management Sciences.
One major change has been observed in the
senior management team since last review:
Mr. Muhammad Arif has been appointed
as Chief Digital Officer to initiate and
oversee implementation of digital
initiatives. Mr. Mohammad Arif has over
38 years of diversified experience in the
field of Fintech, Digital Banking, Islamic
Banking and Technology & Operations.
Prior to joining Faysal Bank in 2019, he
has worked with Bill & Melinda Gates
Foundation, Standard Chartered Bank
(Malaysia & Pakistan) and GBS –
Malaysia.
Detailed profiles of senior management team at
FBL are presented in Annexure I.
Eight committees are present at management
level. These include Senior Management
Committee, Asset & Liability Committee,
Conversion to Islamic Committee, Compliance
Committee, IT Steering Committee, Investment
Committee, Enterprise Risk Management
Committee and Country Credit Committee. All
the management level committees are chaired by
the CEO.
A Shariah Board is also in place to maintain
oversight of Islamic Banking operations of FBL.
No changes were witnessed in the composition of
the Shariah Board during 2019. The following
table depicts the composition of Shariah Board:
Figure 4: Shariah Board composition
Name Position
Mufti Muhammad Mohib ul Haq Siddiqui Chairman
Dr. Mufti Khalil Ahmad Aazami Member
Mufti Muhammad Abdullah Member
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Total staff strength of the bank was reported at
6,938 (2018: 6,141) at end-2019. Out of total
headcount, permanent employee headcount stood
at 6,916 (2018: 6,118).
Business Transformation Plan (BTP)
The management’s strategy to transform the bank
into a full-fledged Shariah compliant Islamic Bank
remains intact. The management is targeting full
conversion by end-2023. The bank is following an
‘asset-led’ conversion model under which
preservation of franchise value, commercial
considerations, profitability and availability of
deployment avenues for liabilities drive the pace
of conversion.
During 2019, the bank converted Rs. 37b
conventional loans to Islamic mode of financing
and the management has undertaken decision that
all new Auto and house loans will be issued under
Islamic mode to facilitate the conversion process.
Moreover, the bank successfully launched Tijarah
and disbursed its first Islamic personal finance
staff loan based on Tawarruq during 2019. The
management has established the following targets
for 2020 under BTP:
Launch of Musawamah and Dollar Bai
Salam facilities to augment its product
suite.
Soft launch of Islamic credit card.
Branch network
At end-2019, total branch network included 555
branches (2018: 455). The bank opened 100 new
Islamic branches and converted 59 conventional
branches to Islamic branches in 2019. Resultantly,
number of total Islamic branches stood at 413
(2018: 254), while 1 Islamic sub-branch (2018: 1)
was also operational. Islamic branches constituted
three-fourth of total branch network. In 2020, the
management plans to open 50 new Islamic
branches and convert existing conventional
branches to Islamic such that 90% of total branch
network constitutes Islamic branches at end-2020.
The bank converts branches in a single cutover
using its technology solution as per SBP and
Shariah guidelines.
Internal controls
External audit of the bank was conducted by M/s
A.F. Ferguson & Co. Chartered Accountants in
2019. The same auditors will continue to render
their services for the bank in 2020.
Internal Audit (IA) function at FBL is segregated
into five sub-divisions, namely Operational Risk
Review (ORR), IT Audit, Management Audit,
Shariah Audit and Credit Risk Review (CRR).
A risk based audit methodology is followed in all
audits including branches and management
functions. Overall ratings are assigned as
‘acceptable’, ‘needs improvement’ and ‘weak’. The
‘acceptable’ category represents strong control
environment and ‘weak’ represents unacceptable
control environment. Weak rated
functions/branches are audited every year, while
the audits with ‘acceptable’ control environment
are audited at least once in every three years.
Scope of the internal audit department is defined
by the Internal Audit plan which is approved by
the BoD. Audit activities comprise audit of all the
bank’s businesses, products, processes, entities
and technology platform systems.
The compliance department at FBL functions
under the stewardship of Mr. Abadullah, who
serves as the Chief Compliance Officer (CCO).
The compliance department is primarily
responsible for ensuring that the bank complies
with all the regulatory requirements. The Shariah
compliance division reports directly to the Shariah
board with a dotted line reporting to CCO.
Overall internal control framework at the bank is
considered sound with the bank ensuring that
satisfactory policies to govern various procedures
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are in place. One major instance of fraud
amounting to Rs. 19.8m was noted in the outgoing
year. A branch manager in Lahore branch forged
signatures of a corporate customer to withdraw
funds. Remedial legal actions have been
undertaken against the involved staff and the
customer was compensated for the required
amount.
Information Technology
IT department at FBL is further segregated into
separate sub-divisions, which include software
development & infrastructure (SD&I), IT
operations, IT development, IT governance, IT
technology solutions and project management
(TPMO). Mr. Syed Hasan Jafri serves as the Head
of Information Technology department. He has
over 34 years of diversified experience in both
financial and non-financial sectors. He holds a
Masters in Information Technology degree from
PIMSAT, Karachi.
At present, the bank is currently using two core
banking systems in order to manage its loan
portfolio. These include Symbols (Corporate-
conventional/Islamic and Consumer-Islamic) and
TCSS (Consumer-Conventional).
The bank’s Disaster Recovery Production Site
(DRPS) is located in Lahore. FBL also has a
comprehensive Business Continuity Plan (BCP) in
place. During 2019, key initiatives undertaken by
the management to improve IT infrastructure
included upgrading servers and enterprise storage
facilities in both primary data center located in
Karachi and in the alternate data center situated in
Lahore. New digital channels were also added
which enable the account holders to download
and use mobile and Internet Banking applications.
For the convenience of account holders and staff,
mobile based biometric verification application
was also introduced.
Financial Analysis
Figure 5: Asset Mix
(Rs. in billions) 2018 % 2019 % Q1'20 %
Cash and balances with treasury banks
43.2 7.2 60.4 9.6 44.5 7.1
Balances with other banks
1.8 0.3 2.8 0.5 1.6 0.3
Lending to FIs 3.0 0.5 - - - -
Investments 214.2 35.7 204.1 32.4 215.9 34.5
Advances 296.4 49.4 309.6 49.2 307.1 49.1
Fixed Assets 11.6 1.9 24.2 3.8 24.2 3.9
Intangible Assets 1.3 0.2 1.5 0.2 1.4 0.2
Deferred tax Assets 0.2 0.0 - 0.0 - -
Other Assets 28.1 4.7 27.3 4.3 30.6 4.9
Total Assets 599.9 100 629.9 100 625.4 100
Total asset base of the bank increased to Rs.
629.9b (2018: Rs. 599.9b) at end-2019. Increase
was primarily manifested in advances and cash and
bank balances with treasury banks. Given the
vision of transforming to an Islamic bank, growth
in Islamic financing portfolio was major focus of
the management. Growth in asset base was
funded by higher deposit base, while borrowings
decreased during the outgoing year.
At end-Q1’2020, asset base decreased to Rs.
625.4b (2019: Rs. 629.9b). Decline in the asset
base was primarily a function of lower cash and
bank balances as the bank deployed additional
liquidity into more profitable avenues. Decrease in
the asset base was accompanied by decrease in
repo borrowings on the liabilities side.
Credit Risk
Gross financing portfolio of FBL depicted a
growth of 4.2% and amounted to Rs. 333.8b
(2018: Rs. 320.3b) at end-2019. During 2019, the
bank converted Rs. 37b conventional loans to
Islamic portfolio. Gross Islamic financing and
related assets stood higher at Rs. 116.1b (2018: Rs.
79.0b). Given the impact of COVID 19 on
various industries, the management is targeting
cautious growth in gross advances portfolio.
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Figure 6: Segment wise advances and infection ratios
(Rs. in billions)
Gross Advances
Gross Infection (%)
Net Infection
(%)
2018 2019 2018 2019 2018 2019
Corporate 246.5 260.5 6.7 7.8 0.5 1.9
SME 15.7 14.1 34.0 35.7 9.0 9.1
Agriculture 8.1 4.8 17.0 28.8 6.3 11.8
Consumer 30.6 32.4 7.9 8.7 1.7 2.1
Commercial 16.4 18.1 4.9 3.8 2.4 2.1
Staff Loans 3.0 3.8 5.7 0.8 2.0 0.7
Total 320.3 333.8 8.3 9.1 1.2 2.2
Corporate financing continues to remain the forte
of the bank as it constitutes the largest proportion
of total lending portfolio. Growth in overall
portfolio was primarily driven by higher corporate
lending. Net infection increased in all segments
barring the commercial and staff loans. In order to
mitigate the impact of COVID-19, the State Bank
of Pakistan has increased the regulatory limit for
extension of credit to SMEs by 44% to Rs. 180m.
Hence, selective growth may be observed in this
segment depending on risk profile of clients.
Similar selective disbursement strategy is in place
for growth in consumer and commercial
portfolios. Corporate segment is expected to
remain mainstay of the bank.
Client wise concentration in advances witnessed
slight decrease in 2019 as top-20 funded
exposures accounted for 37.4% (2018: 39.0%) of
the gross portfolio at end-2019. Top 5 exposures
of the bank constituted public sector exposures.
Exposure to public sector entities constituted 22.7
% (2018: 22.6%) of the total gross advances
portfolio. In order to ensure that credit risk
remains manageable, the bank closely monitors a
list of watch-list clients. Average Obligor Risk
Rating (ORR) of the bank’s portfolio was reported
at 4.4 (2019: 4.4; 2018: 4.3) at end-March 2020.
Figure 7: Sectoral composition of advances
(Rs. in billions) Gross Advances
Sectors 2018 % 2019 %
Agriculture, forestry, hunting and fishing
39.8 12.4% 37.7 11.3%
Mining and Quarrying
7.4 2.3% 10.6 3.2%
Textile 37.1 11.6% 33.2 9.9%
Chemical and Pharmaceuticals
8.7 2.7% 10.1 3.0%
Cement 8.3 2.6% 6.3 1.9%
Sugar 9.6 3.0% 10.6 3.2%
Footwear and leather garments
1.5 0.5% 1.6 0.5%
Automobile and transportation equipment
3.8 1.2% 8.6 2.6%
Electronics and electrical appliances
7.9 2.5% 6.2 1.8%
Construction 6.3 2.0% 2.1 0.6%
Power (electricity), gas, water, sanitary
52.6 16.4% 57.5 17.2%
Wholesale and retail trade
11.5 3.6% 11.6 3.5%
Exports/imports 2.0 0.6% - 0.0%
Transport, storage and communication
21.0 6.5% 4.0 1.2%
Financial 4.7 1.5% 3.9 1.2%
Insurance 0.0 0.0% 0.0 0.0%
Services 18.0 5.6% 15.1 4.5%
Individuals 33.5 10.5% 36.2 10.8%
Others 46.6 14.5% 78.6 23.6%
Total 320.3 333.8
Overall lending increased during 2019 due to
increase in lending to power, and iron & steel
sectors. Sector-wise exposures depict considerable
diversification as no particular sector accounts for
more than 20% of total gross advances portfolio.
With slowdown in economic activity due to
COVID-19, management team conducted rapid
portfolio reviews to ascertain the industries most
impacted by the situation; certain high risk
industries were identified which are being closely
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monitored. Management will continue to monitor
sector wise lending in order to minimize its risk.
Figure 8: Sectoral infection ratios
Gross Infection Net Infection
2018 2019 2018 2019
Agriculture, forestry, hunting and fishing
3.5% 3.7% 1.2% 1.3%
Mining and Quarrying
0.0% 0.0% 0.0% 0.0%
Textile 25.5% 26.2% 2.1% 1.1%
Chemical and Pharmaceuticals
8.7% 7.1% 1.5% 1.1%
Cement 0.7% 0.7% 0.0% 0.0%
Sugar 0.2% 12.2% 0.2% 8.0%
Footwear and leather garments
34.1% 27.2% 15.2% 10.2%
Automobile and transportation equipment
4.9% 4.1% 0.5% 0.3%
Electronics and electrical appliances
17.2% 17.8% 1.1% 1.3%
Construction 6.2% 15.4% 0.0% 0.5%
Power (electricity), gas, water, sanitary
6.0% 8.2% 0.4% 2.8%
Wholesale and retail trade
15.6% 21.9% 3.7% 8.3%
Exports/imports 28.5% - 5.8% -
Transport, storage and communication
0.5% 6.2% 0.1% 2.7%
Financial 1.1% 1.3% 0.0% 0.0%
Insurance - 0.0% - 0.0%
Services 4.0% 3.1% 0.4% 0.6%
Individuals 7.7% 7.9% 1.7% 1.4%
Others 7.7% 6.6% 1.9% 2.7%
Total 8.3% 9.1% 1.2% 2.2%
As per management, overall gross infection
increased in 2019 primarily due to industry-wide
classification pertaining to companies belonging to
a single group. The companies include two sugar
mills, a power company and two companies
engaged in food production. Resultantly, gross
infection ratios are higher in sugar and power
segments. With increasing circular debt,
management must closely monitor its exposures in
the power sector. With regards to future growth,
the management has adopted a prudent lending
strategy by assigning higher priority to low risk
sectors such as food, FMCGs, etc. which are
expected to post sound profitability despite
slowdown in economic activity due to COVID-19.
Figure 9: Consumer portfolio
Gross Advances (PKR in millions)
Gross Infection
(%)
Net Infection
(%)
2018 2019 2018 2019 2018 2019
Credit Card
5,518 6,357 7.9 8.6 0.1 0.3
Auto Loan 16,316 16,702 1.7 2.3 0.5 0.7
Consumer Durable
1 1 88.9 88.9 - -
Mortgage loans
3,873 3,650 24.6 24.4 9.0 6.5
Personal Loans
4,863 5,729 15.7 17.5 2.4 2.7
Total 30,572 32,439 7.9 8.7 1.7 1.5
Consumer loan portfolio depicted growth of 6.1%
during 2019; growth was observed in credit cards,
auto loans and personal loans. Infection ratio is on
the higher side in mortgage portfolio, compared to
the rest of the products, because it primarily
comprises legacy portfolio. However, the same is
decreasing on a timeline basis on account of
delinquent account closures. Management is not
aggressively targeting growth in housing loans
given already high infection ratio in this segment.
Growth momentum in overall consumer portfolio
continued during first two months of 2020 but
with onset of COVID-19, consumer lending was
halted in the next two months given unsecured
nature of many consumer products. Management
has re-initiated cautious lending approach in this
segment in the fifth month of the ongoing year.
Going forward, auto loans, personal loans and
credit cards will continue to remain major drivers
of growth. Soft launch Islamic credit card is
expected during 2020.
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Asset Quality
Figure 10: Asset quality indicators
(Rs. in millions) 2018 2019
NPLs 26,687.6 30,409.3
Gross advances 320,258.3 333,810.7
Specific provisioning 23,135.3 23,475.7
General provisioning 678.2 762.0
Gross infection 8.3% 9.1%
Net infection 1.2% 2.2%
Provisioning coverage 89.2% 79.7%
Net NPLs to Tier I Equity 9.5% 15.8%
Asset quality indicators of the bank declined due
to greater increase in quantum of NPLs vis-à-vis
the increase in gross financing portfolio.
Resultantly, gross and net infection ratios were
reported higher at end-2019 in comparison to the
preceding year. As recent slowdown in economic
activity due to COVID-19 is expected to
negatively impact repayment capacity of many
individuals and organizations, asset quality
indicators may witness pressure in the long run in
line with the overall banking sector. In the short
run, minimum impact will be observed on fresh
NPLs as SBP has allowed banks to defer clients’
payment of principal on loan obligations by one
year and also relaxed regulatory criteria for
restructured/rescheduled loans for borrowers who
require relief beyond the extension of principal
repayment for one year. Resultantly, NPLs are
expected to remain at existing levels at end-2020.
At end-May 2020, FBL has already received
request for deferral of principal payment
amounting to Rs. 87.6b for one year.
Investments
Figure 11: Investment portfolio
(Rs. in billions) 2018 2019
Rs. % Rs. %
Government Securities
Market Treasury Bills 173.2 80.8% 118.7 58.2%
PIBs 3.8 1.8% 10.7 5.2%
Ijara Sukuk Bonds 5.9 2.8% 5.9 2.9%
Other Government
Securities 1.6 0.7% 1.6 0.8%
Total 184.4 86.1% 136.9 67.1%
Corporate Debt Instruments
Sukuks - Listed 1.1 0.5% 40.3 19.7%
- Unlisted 20.8 9.7% 18.8 9.2%
Total 21.9 10.2% 59.1 28.9%
Total Debt Portfolio 206.3 96.3% 196.0 96.0%
Equities
Ordinary - Listed 7.1 3.3% 7.4 3.6%
- Unlisted 0.1 0.0% 0.1 0.0%
Preference - Listed - - - -
- Unlisted - - - -
Total 7.2 3.4% 7.5 3.7%
Strategic Investment
Subsidiary 0.6 0.3% 0.6 0.3%
Total 0.6 0.3% 0.6 0.3%
Total Investment Portfolio
214.2 100.0% 204.1 100.0%
Investment portfolio decreased by 4.7% to Rs.
204.1b (2018: Rs. 214.2b) due to maturity of T-
bills. As majority (67.1%) of the bank’s portfolio is
deployed in GoP securities, credit risk emanating
from the portfolio is considered to be on the
lower side. Counterparty risk on Sukuks is
considered nominal due to sound credit quality of
Sukuk portfolio. Most of the risky/non-
performing exposures have already been provided
for by the management.
Given the uncertainty with regards to interest
rates during the last year, short tenor instruments
such as t-bills remained the preferred fixed income
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investment avenue by the management. Portfolio
duration was reported at 0.16 years (2018: 0.09
years) at end-2019.
Management has cautious investment strategy
with regards to equities given the volatile nature of
the equity market. Management strictly follows the
equity exposure limits defined in prudential
regulations. Overall exposure to market risk is
limited as equity investments constituted
approximately 13.5% (2018: 16.6%) of bank’s total
equity
At end-Q1’20, total market value of the
investment portfolio was reported at Rs. 215.9b,
with government securities constituting 69.3% of
total portfolio.
Liquidity
Overall liquidity profile of the bank is considered
adequate. While granularity in deposit base depicts
room for improvement, presence of sizeable liquid
assets in relation to deposits and borrowings
provides comfort to the liquidity profile of the
bank. The bank also maintains considerable
cushion over the regulatory requirements of
Liquidity Coverage Ratio (LCR) and Net Stable
Funding Ratio (NSFR).
Figure 12: Deposit Mix
(Rs. in millions) 2018 % 2019 % Q1'2
0 %
Customers
Current accounts-
Remunerative 4.1 1.0 12.4 2.7 11.2 2.4
Current accounts
- Non-remunerative
126.9 31.0 134.6 29.4 133.0 28.8
Savings Deposits 125.9 30.7 153.2 33.5 155.3 33.7
Term Deposits 120.4 29.4 127.7 27.9 140.0 30.4
Margin deposits 2.8 0.7 2.7 0.6 2.9 0.6
Total 380.1 92.8 430.5 94.0 442.4 96.0
FIs
Current Deposits 1.2 0.3 1.2 0.3 0.8 0.2
Savings Deposits 21.0 5.1 19.6 4.3 10.5 2.3
Term Deposits 7.2 1.8 6.5 1.4 7.3 1.6
Total 29.3 7.2 27.3 6.0 18.6 4.0
Cumulative Total 409.4 100 457.8 100 461.0 100
CASA 68.2% 70.1% 67.4%
Deposit base of the bank witnessed growth of
11.8% in 2019 on account of increase in current
accounts, saving accounts and term deposits.
CASA of the bank was reported slightly higher at
70.1% (2018 67.4%). As per management, one
major reason for increase in saving accounts was
that many consumers shifted from conventional
current accounts to Islamic saving accounts which
offered higher earnings as well as Shariah
compliance. Moreover, management offered
special rates in both conventional and Islamic
saving accounts to mobilize deposits and maintain
Advances to Deposits (ADR) ratio of the bank.
During the ongoing year, the management has
focused on converting these special rate saving
accounts to rack rates in a bid to rationalize cost
of deposits.
Growth in overall deposit base of FBL in 2019
was in line with the average growth in industry
deposits, as market share of the bank remained at
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3.1% (2018: 3.1%) at end-2019. At end-2019,
Islamic branches represented 75% of total branch
network but deposits maintained at Islamic
branches represented only 27.5% (2019: 26%) of
total deposit base at end-Q1’2020. It is important
for management to channel their efforts for
mobilization of deposits in Islamic branches to
comply with BTP targets.
Going forward, the deposit mobilization strategy
will focus on attracting low cost deposits.
However, given the current slowdown in economy
due to COVID-19, low cost deposit mobilization
may present challenges. Continuation of branch
led SME model yielded positive results in terms of
deposit mobilization during 2019 and will
continue to remain a key component of future
deposit mobilization strategy. Moreover, opening
of 50 new branches will aid growth in deposit base
from untapped locations.
Concentration in deposit base observed slight
decrease vis-à-vis the preceding year, with top 20
and top 50 depositors accounting for 17.2%
(2018: 18.8%) and 25.2% (2018: 27.1%) of total
deposits, respectively. However, the same still
depicts room for further improvement. As per
management, one key reason for lower deposit
granularity is higher return offered by other
investment avenues such as mutual funds. Going
forward, management is focusing on reducing
depositor concentration by increasing its deposit
base.
Size-wise breakup of deposits also indicates that
deposits over Rs 10m or more, which represent
only 0.8% of the total number of depositors
(2018: 0.7%), accounted for 63.3% (2018: 61.4%)
of the total deposit base.
Figure 13: Size-wise breakup of deposits
Size of Accounts
(Rs.)
end-Dec'18 end-Dec'19
No. of Account
s
Amount (in Rs.
m)
No. of Account
s
Amount (in Rs.
m)
Less than 5,000
377,850 326 373,033 330
5,000 to 40,000
133,521 2,182 143,510 2,434
40,000 to 90,000
49,808 2,977 52,887 3,185
90,000 to 500,000
85,777 19,452 89,189 20,315
500,000 to 1,000,000
25,301 18,247 25,955 18,767
1,000,000 to 6,000,000
35,172 84,105 36,481 88,353
6,000,000 to
10,000,000 3,927 30,886 4,349 34,767
10,000,000 and above
4,804 251,209 5,555 289,638
Total 716,160 409,384 730,959 457,789
Branch wise concentration continued to increase
despite expansion in branch during the outgoing
year. Top 10, 20 and 50 branches represented
34.2% (2018: 32.8%), 45.5% (2018: 45.5%) and
64.7% (2018: 64.2%) of the total deposit base,
respectively. This is largely due to the gestation
period required for new branches to mobilize
sizeable deposits.
Total borrowings of the bank depicted sizeable
decrease to Rs. 72.8b (2018: Rs. 98.4b) at end-
2019. The decrease was manifested in repo
borrowings which stood lower at Rs. 21.7b (2018:
59.0b). Remaining borrowings have largely been
mobilized from State Bank of Pakistan under
various schemes and also include unsecured call
borrowings and musharaka acceptances.
Trend of reduction in repo borrowing continued
in Q1’20, which decreased to Rs. 6.9b (2019: Rs.
21.7b). Resultantly, quantum of total borrowings
was reported lower at Rs. 61.3b (2019: Rs. 72.7b)
at end-Q1’2020.
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Liquid assets (adjusted for assets given as
collateral) amounted to Rs. 247.8b (2018: Rs.
240.7b). Growth in liquid assets was greater than
growth observed in deposits and borrowings.
Consequently, liquid assets in relation to deposits
and borrowings were reported higher at 45.1%
(2018: 40.8%). The bank remained comfortably
above the minimum regulatory requirements of
Liquidity Coverage Ratio (LCR) and Net Stable
Funding Ratio as the same stood at 141.6% (2018:
145.2%) and 135.6% (2018: 130.7%), respectively
at end-2019. Although advances to deposits ratio
of the bank registered improvement by decreasing
to 68.1% (2018: 73.6%), the same is still
considered to be on the higher side vis-à-vis peers.
Going forward, the management must closely
monitor the impact of payment deferrals granted
by SBP on liquidity profile of the bank.
Profitability
Operating profitability of the bank registered
sizeable growth during 2019 and Q1’20 vis-à-vis
corresponding periods in the previous year. This
improvement was achieved on the back of higher
markup income and controlled growth in
expenses. Increasing interest rates were a key
factor contributing to higher topline.
Improvement was also noted in spreads.
Figure 14: Profitability snapshot
(Rs. in billions) 2018 2019
Mark-up/ return/ interest earned 35.2 58.4
Mark-up/ return/ interest expensed 18.9 37.3
Net-markup/ interest income 16.3 21.1
Fee and commission income 3.9 4.1
Dividend income 0.2 0.4
Foreign exchange income 2.0 2.8
Income/ (loss) from derivatives 0.1 0.2
Gain/(Loss) on securities 0.1 (0.6)
Other income 0.4 0.3
Total non-mark-up/interest income 6.6 7.2
Total income 22.9 28.4
Operating expenses 14.8 17.1
Workers Welfare Fund 0.2 0.23
Other charges 0.1 0.03
Total non-markup/interest expenses 15.1 17.3
Profit before provisions 7.8 11.0
Provision/(reversals of provision) and recoveries
(0.4) 0.8
Profit Before Tax 8.2 10.2
Tax 3.4 4.2
Profit After tax 4.8 6.0
Markup up income of the bank registered growth
of 65.9% in 2019 on account of increase in the
quantum of advances and higher yield on earning
assets. Yield on advances increased on account of
higher prevailing interest rates vis-à-vis the
preceding year. Higher yielding short term t-bills
also contributed to higher average return on
earning assets. Cost of deposits also registered
increase due to higher interest rates and special
rates offered by the management to mobilize
deposits. However, increase in the cost of deposits
was lower than increase in average return on
earning assets, thereby resulting in improvement
in spreads.
Figure 15: Spreads
2018 2019 1Q'20
Avg. Return on Financing 8.11% 12.00% 13.24%
Avg. Return on Investment 6.80% 11.28% 12.76%
Avg. Return on earning assets
7.70% 11.79% 13.10%
Cost of Deposits 3.82% 6.83% 7.61%
Cost of Funds 4.40% 7.90% 8.50%
Spreads 3.30% 3.89% 4.60%
Non markup income also registered notable
growth due to higher fee, commission and
brokerage income, dividend income and foreign
exchange income. Fee, commission and brokerage
income registered growth mainly on account of
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14 | P a g e
improvement depicted by consumer finance
products of the bank, which include higher credit
card fees and processing of loan and early
redemption fees. Home remittances commission
also increased considerably vis-à-vis the preceding
year.
Figure 16: Composition of fee, commission and
brokerage income
(Rs. in millions) 2018 2019
Branch banking customer fees 652.9 710.1
Consumer finance related fees 298.3 366.8
Card Related fees (debit and credit)
1,273.8 1,675.9
Credit related fees 144.1 99.4
Investment banking fees 270.3 237.6
Commission on trade 289.8 275.7
Commission on guarantees 98.0 126.9
Commission on cash management 94.8 59.2
Commission on remittances (including home remittances)
40.6 119.3
Commission on bancassurance 349.4 412.4
Others 35.3 29.4
Total 3,547.4 4,112.6
Administrative expenses of the bank grew by
15.2% primarily on account of employee
compensation expense. Compensation expense
witnessed an increase due to higher average
headcount of employees along with inflationary
growth in managerial remuneration. Headcount
increased by 797 employees primarily due to
opening of 100 new branches, thereby
contributing Rs. 1.3 billion to compensation
expense. Currency devaluation resulted in higher
Information Technology expenses.
Figure 17: Breakup of operating expenses
(Rs. in millions) 2018 2019
Total compensation expense 5,287.8 6,507.2
Property Expense 3,667.0 3,940.2
Information Technology expenses
1,706.4 2,432.5
Other operating expenses 3,831.0 4,187.8
Total operating expenses 14,492.3 17,067.7
With greater increase in recurring income vis-à-vis
the growth in operating expenses, operating profit
of the bank was reported higher at Rs. 11.4b
(2018: Rs. 7.5b). Resultantly, efficiency ratio of the
bank improved to 59.9% (2018: 66.5%).
Profit before tax of the bank was reported higher
at Rs. 10.2b (2018: Rs. 8.2b). Post impact of
taxation, net profit of the bank amounted to Rs.
6.0b (2018: Rs. 4.8b). Tax incidence was higher in
2019 due to higher profit before tax and prior tax
charge of Rs. 258.9m due to implementation of
super tax on income of the year 2017.
In Q1’20, the bank posted higher profit after tax
of Rs. 2.1b (Q1’19: Rs. 1.6b), thereby depicting a
growth of 29.3% in profit after tax over the
corresponding period of previous year. The
growth was mainly attributable to increase in net
markup income due to low cost deposit
mobilization strategy and higher markup rates.
Going forward, VIS expects the operating
profitability of the bank to decrease in the
medium to long term due to considerable decrease
in the interest rates on account of COVID-19.
Moreover, slowdown in economy is also expected
to adversely affect the repayment ability of clients,
thereby resulting in higher provision/impairment
charges, which will erode profitability of the bank.
In the short run, the management is confident of
achieving its budgeted profitability target, which is
greater than 2019 profit after tax. Loan re-pricing
due to lower interest rates will be undertaken over
a period of 3 to 6 months, which will provide
ample room to the management to lower the
costs. Deposits will be re-priced earlier which will
lower the cost of deposits. Moreover, in current
scenario, the management is focused on acquiring
low costs deposits instead of focusing on higher
volumes. Furthermore, the management has also
converted a sizeable amount of special rate
deposits mobilized earlier to rack rate deposits.
Such measures are expected to improve deposit
profiling, which will further lower the cost of
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15 | P a g e
deposits. Management has also conducted a
thorough exercise to identify specific measures
through which operating costs can be lowered to
support profitability. One such measure includes
re-negotiation of branch rents with owners, while
decrease in fuel prices will automatically lower
many operating costs.
Capitalization
Figure 18: Capitalization indicators
(Rs. in billions) 2018 2019 Q1’20
Issued, subscribed and paid up capital
15.2 15.2 15.2
Equity (excluding revaluation deficit/surplus)
38.4 44.5 46.6
Revaluation Surplus 5.1 10.7 10.7
Equity (including revaluation surplus)
43.5 55.3 57.2
Tier I CAR (%) 14.81% 15.53% 15.73%
CAR (%) 16.80% 19.14% 19.20%
Leverage Ratio 4.85% 5.86% 6.23%
Net Stable Funding Ratio (NSFR)
130.67%
135.60%
143.75%
Equity (excluding revaluation surplus) depicted
increase on timeline basis due to profit retention.
The bank did not pay any dividend in 2019 and
Q1’20.
In order to encourage banks to extend further
credit to borrowers to facilitate economic
recovery, SBP has reduced Capital Conservation
Buffer (CCB) requirement to 1.5%, thereby
resulting in overall CAR requirement of 11.5%.
Presently, CAR of the bank remains comfortably
above the mandated regulatory requirement. Even
with projected growth in Risk Weighted Assets
(RWAs) during 2020, CAR of the bank is
expected to remain comfortable. The bank also
has sufficient cushion to meet any adverse
movement in credit, market and operational risks.
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Profile of Senior Management Team Annexure I
Names and Designations Profiles
Mr. Yousaf Hussain (President & CEO)
Mr. Yousaf Hussain has over 26 years of professional experience, primarily at ABN AMRO Bank where he held multiple senior managerial positions including those within the Corporate / Credit and Transaction Banking functions. He has been with Faysal Bank since August 2008, with a significant contribution to the franchise in his previous positions as Chief Risk Officer, Regional Corporate Banking Head-North and Head of Special Assets Management Group. His experience also includes a senior role with Samba Bank and earlier assignments with Mashreq Bank and Mobilink / Motorola. Yousaf has a Bachelor’s of Science degree in Electrical Engineering and has done his MBA from Lahore University of Management Sciences.
Mr. Raheel Ijaz (Chief Operating Officer)
Mr. Raheel Ijaz has more than 40 years of work experience. Before assuming this position, he accumulated a rich banking experience in institutions like MCB Bank Limited as Group Head Compliance and Controls, Country Head Sri Lanka, Head Corporate North & Public Sector, United Bank Limited as Regional Chief Executive North and also held key positions in Faysal Bank, Prime Commercial Bank, and Emirates Bank International. His last role with Faysal Bank Limited was as Head Compliance. Mr. Raheel holds an MBA degree from Quaid-e-Azam International University.
Mr. Salman Ahmed Usmani (Head, Treasury & ECM)
Mr. Salman Usmani has a rich experience of over three decades in the local as well as multinational banking sector. His broad expertise covers Treasury and Risk Management, Asset and Liability Management, Strategic Planning, Corporate Restructuring, Strategic Negotiations, Acquisitions and Strategic Alliances and International Operations. His vast skill set has been instrumental in the design and implementation of the in-house developed Treasury System which is capable of meeting front, middle and back office business requirements and generates a host of MIS while retaining the flexibility to adapt to an evolving product suite. Prior to joining Faysal Bank Limited, he was associated with MCB Bank Limited as Global Treasurer and Head Investment Banking Group. His past experience has been with organizations such as ANZ Grindlays, American Express, Bank of America, Mashreq Bank, United Bank Limited & MCB Bank Limited. He holds an MBA Degree from Grand Valley State University, USA.
Syed Majid Ali (Chief Financial Officer)
Syed Majid Ali is a fellow member of the Institute of Chartered Accountants of Pakistan and has over 30 years of experience in the field of accounts and finance disciplines of banking with exposure in IT and HR activities. He has been associated as CFO at Saudi Pak Commercial Bank Limited (now Silk Bank Limited) and Emirates Bank International PJSC (Pakistan operations). He has also served as Partner in KPMG Taseer Hadi & Co, Chartered Accountants. Mr. Majid has rich experience in Banking Finance amid mergers and acquisitions. He has also supervised Strategy, Technology and Administration Functions at Faysal Bank Limited.
Mr. Nasir Islam (Head, Internal Audit)
Mr. Nasir Islam is a qualified Chartered Accountant with over 26 years of multifaceted experience. His first assignment was as Manager Finance in ANZ Grindlays (Karachi), after which he was posted at the ANZ HO (Melbourne, Australia), as Manager Commercial Banking System (CBS) Project. He returned to Pakistan in 1997 as Manager Audit, joined ABN AMRO Pakistan as Audit Manager in 2000, and was appointed as Country
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Head of Compliance in 2004. He has been associated with Faysal Bank Limited since 2008.
Mr. Tahir Yaqoob Bhatti (Head, Retail Banking)
Mr. Tahir Yaqoob Bhatti has over 32 years of diverse experience in Retail, Commercial, Corporate, Operations, Special Assets Management and Digital Banking. He has previously been associated mainly with Allied Bank, Askari Bank and National Bank of Pakistan. Prior to joining Faysal Bank Limited, his last assignment was Business Head – Wholesale and Private Banking at JS Bank. Mr. Tahir holds an MBA Finance from IBA, Lahore and a Masters in Commerce from Hailey College. He is also qualified DCMA and holds a Banking Diploma from the Institute of Bankers in Pakistan.
Mr. Abadullah (Head, Chief Compliance Officer)
Mr. Abadullah brings with him over 30 years of diversified experience of Branch banking, Trade, Operations and Compliance. Prior to joining Faysal Bank Limited in 2005, he has been associated with Standard Chartered, ANZ Grindlays and United Bank Limited. His last assignment with SCB was as Head Corporate Service Delivery. Prior to his current appointment as Chief Compliance Officer, he has also held the position of Head Operations at Faysal Bank. Mr. Abadullah has been instrumental in implementing various projects and had led teams which migrated core banking systems in Faysal bank. He is a certified GRC professional from GRCP International and diploma holder from Institute of Bankers in Pakistan. Mr. Abad is a certified director from ICMA Pakistan and also holds MBA (Finance) degree from IBA Punjab.
Mr. Ali Waqar (Head, Corporate & Investment Banking)
Mr. Ali Waqar has over 17 years of professional experience, primarily in the field of Corporate & Investment Banking, and Commercial Banking. Throughout his professional career, he has been instrumental in driving the organization’s profitability through a diverse mix of transactions including Structured Finance, Project Finance, Mergers & Acquisitions and Derivatives. He has served at key positions in leading multinationals as well as local organizations including ABN AMRO Bank N.V., Barclays Bank Plc. and Faysal Bank Limited. Prior to his current assignment, Mr. Ali Waqar spearheaded Faysal Bank’s Regional Corporate Banking franchise for 9 years as the ‘Corporate Head-Central’ where he contributed significantly towards sustainable portfolio and revenue growth. Mr. Ali holds an M.Sc degree in Economics and Finance from Lahore School of Economics.
Mr. Mian Salman Ali (Chief Risk Officer)
Mian Salman Ali brings with him a banking experience of over 16 years in large local and multinational banks. During his career, he has held various leadership / supervisory roles in business and control functions. He has a diversified experience in the field of Corporate Banking, Commercial / SME Banking & Credit / Risk Management. Prior to joining Faysal Bank Limited, he has been associated with ABN AMRO Pakistan and Allied Bank Limited. Mian Salman holds a Master of Business Administration degree from Lahore School of Economics. He is also a certified Islamic Banking Professional from NIBAF.
Mr. Bashir Ahmed Sheikh (Head, Special Assets Management)
Mr. Bashir Ahmed Sheikh has over 49 years of diversified domestic as well as international banking experience of Operations, Corporate Banking, Commercial/Retail Banking, Investment and Risk Management with a proven record of superior performance throughout his career. He has strong skills in Syndications, Advisory Services, Acquisitions, Mergers, Privatizations, Agriculture Financing, Remedial Management, Compliance and dealing with the Regulators and other relevant agencies. Before joining Faysal Bank Limited in 2018, he has been associated with United Bank Limited, Union National Bank, BCCI, Indus Bank, Askari Bank, Faysal Bank Limited and Bank Alfalah. His last assignment was Group Head
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Special Assets Management at Bank Alfalah. Mr. Bashir Ahmed Sheikh holds a graduation degree from University of Punjab. He is also a Graduate of Executive Development Program, Johnson Graduate School of Management, USA.
Syed Muhammad Fraz Zaidi (Head, Strategy)
Syed Muhammad Fraz Zaidi brings with him over 15 years of experience in the financial services sector, where he has held leadership roles in Finance, Risk Advisory and Strategy. Prior to joining Faysal Bank Limited, he has been associated with organizations such as H & H Exchange Co. (Pvt.), A. F. Ferguson & Co. and United Bank Limited. His last assignment was Head Operational Risk & Basel-II Division at United Bank Limited. Mr. Fraz Zaidi is a Chartered Accountant from the Institute of Chartered Accountants, Pakistan.
Mr. Monis Mirza (Head, Human Resources)
Mr. Monis Mirza has over 23 years of leadership experience in Human Capital Management, Mergers & Acquisitions, Cultural Integration and Business Growth in multiple geographies. During his career, he has held key positions in Procter and Gamble (P&G), Standard Chartered Bank in Pakistan and Tenova Canada. He remained Director of Human Resources and a Management Committee member for SCB Pakistan for over a decade, and helped the bank manage organic and inorganic business growth, drive productivity through engagement and organizational design efficiencies. His last assignment was with HRS Global as Chief Executive Officer – Recruiting. Monis Mirza acquired his B.E. Electrical Engineering degree from University of Buffalo, USA and MBA degree in Human Resources from Institute of Business Administration, Karachi. He has also completed an advance diploma in Human Resources from McMaster University, Canada.
Mr. Aneeq Malik (Head, Operations)
Mr. Aneeq Malik is a solutions-focused banker with over 18 years of rich experience overseeing the compliance function and branch operations. Prior to joining Faysal Bank Limited, Mr. Aneeq was associated with banks like ABN AMRO and MCB. Mr. Aneeq is recognized for being both reactive to developments in the regulatory and governance environment and proactive in areas related to compliance education and training. Highly adept in identifying gaps and / or risk exposure in operations as well as developing and implementing strong systems of check and balances. Mr. Aneeq holds a graduation degree from Punjab University, Lahore. He is a certified expert in Corporate Governance & Leadership Skills from Pakistan Institute of Corporate Governance (PICG). He is also certified from NIBAF in Islamic Banking. He is on the board of directors of M/s. 1Link (Guarantee) Ltd as a nominee director from Faysal Bank Limited as well.
Syed Hasan Jafri (Head, Information Technology)
Syed Hasan Jafri brings with him over 34 years of diversified experience in both financial and non-financial sectors. Mr. Hasan is an accomplished technology professional having experience in Networking, Software design, Product development, Information security, Internet and Telecommunication technologies. Prior to joining Faysal Bank, he has been associated with organizations such as Shahnawaz Limited, Karachi Stock Exchange, Arif Habib Corporation, Summit Bank and Allied Bank Limited. His last assignment was Group Head Information Technology at Allied Bank Limited. Mr. Hasan holds a Masters of Information Technology degree from PIMSAT, Karachi.
Mr. Muhammad Faisal Shaikh (Head Islamic Banking)
Mr. Muhammad Faisal Shaikh is a graduate of Institute of Business Administration (IBA), Karachi with over 18 years of experience in the field of Shariah Structuring and Shariah Compliant Product Development. Prior to joining Faysal Bank Limited, he was associated with BankIslami Pakistan Limited and Meezan Bank Limited. He has been instrumental in the development of various pioneering Islamic Corporate & Consumer
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Banking Products and Sukuk structures in Pakistan including Islamic Export Refinance Scheme of State Bank of Pakistan and Pakistan’s inaugural sovereign International Sukuk. He led the team which converted conventional assets and liabilities of KASB Bank Limited after its acquisition by BankIslami Pakistan Limited. Prior to this, his team structured acquisition and conversion of Citibank’s conventional housing finance portfolio by BankIslami Pakistan Limited. He was an active member of the team responsible for conversion and merger of Pakistan operations of Societe Generale into Meezan Bank Limited. He has also served as a member of different advisory committees of State Bank of Pakistan on Islamic Banking.
Mr. Muhammad Aurangzeb Amin (Company Secretary & Head, Legal)
Mr. Aurangzeb Amin brings with him over 23 years of experience in the Financial Sector and Legal Consultancies both in Pakistan and in the USA. During his career he has worked with NIB Bank and Pak-Kuwait Investment Co. as Company Secretary and Head Legal. He has also worked with law firms locally and internationally, namely Orr, Dignam & Co. and Surridge & Beecheno. He has a Masters of Laws degree from Temple University, USA.
Mohammad Arif (Chief Digital Officer)
Mr. Mohammad Arif has over 38 years of diversified experience in the field of Fintech, Digital Banking, Islamic Banking and Technology & Operations. Prior to joining Faysal Bank in 2019, he has worked with Bill & Melinda Gates Foundation, Standard Chartered Bank (Malaysia & Pakistan) and GBS – Malaysia. During his tenure at previous organizations, he has been responsible for strategic planning of technology initiatives, system developments, core banking solutions, digital banking migration of channels, E-pay initiatives and managed investments in technology & operations.
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Faysal Bank Limited
FINANCIAL SUMMARY Appendix I BALANCE SHEET (Figures in PKR Billions unless
stated otherwise) DEC 31, 2017 DEC 31, 2018 DEC 31, 2019
Investments 180 214 204
Advances 232 296 310
Total Assets 495 600 630
Borrowings 55 98 73
Deposits & other accounts 372 409 458
Subordinated Loans (in PKR millions) - - -
Issued, subscribed and paid up capital 13 15 15
Tier-1 Equity 33 37 43
Net Worth 39 43 55
INCOME STATEMENT (Figures in PKR millions)
DEC 31, 2017 DEC 31, 2018 DEC 31, 2019
Net Mark-up Income 13,935 16,275 21,120
Net Provisioning/(Reversal) (492) (422) 843
Non-Markup Income 5,639 6,584 7,247
Operating Expenses 12,608 14,816 17,068
Profit Before Tax 7,292 8,202 10,192
Profit After Tax 4,530 4,837 6,041
RATIO ANALYSIS DEC 31, 2017 DEC 31, 2018 DEC 31, 2019
Market Share (Advances) (%) 3.9% 4.1% 4.1%
Market Share (Deposits) (%) 3.0% 3.1% 3.1%
Gross Infection (%) 10.7% 8.3% 9.1%
Provisioning Coverage (%) 88.9% 89.2% 79.7%
Net Infection (%) 1.5% 1.2% 2.2%
Cost of funds (%) 3.6% 4.4% 7.9%
Net NPLs to Tier-1 Capital (%) 10.8% 9.5% 15.8%
Capital Adequacy Ratio (C.A.R (%)) 15.9% 16.8% 19.1%
Markup Spreads (%) 2.8% 3.3% 3.9%
Efficiency (%) 67.9% 66.5% 59.9%
Basic* ROAA (%) 1.3% 1.4% 1.9%
ROAA (%) 1.0% 0.9% 1.0%
ROAE (%) 14.2% 13.4% 14.6%
Liquid Assets to Deposits & Borrowings (%) 45.1% 40.8% 45.1%
* Recurring Income – Administration Expenses
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ISSUE/ISSUER RATING SCALE & DEFINITIONS Appendix II
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REGULATORY DISCLOSURES Appendix III
Name of Rated Entity Faysal Bank Limited
Sector Commercial Banks
Type of Relationship Solicited
Purpose of Rating Entity Rating
Rating History Rating Date
Medium to Long Term
Short Term Rating
Outlook Rating Action
RATING TYPE: Entity 29-Jun-20 AA Stable A-1+ Reaffirmed
27-Jun-19 AA Stable A-1+ Reaffirmed 29-Jun-18 AA Stable A-1+ Reaffirmed
30-Jun-17 AA Stable A-1+ Reaffirmed 28-Jun-16 AA Stable A-1+ Reaffirmed
30-Jun-15 AA Stable A-1+ Reaffirmed 30-Jun-14 AA Stable A-1+ Reaffirmed
26-Jun-13 AA Stable A-1+ Reaffirmed 02-Jul-12 AA Stable A-1+ Reaffirmed
28-Jun-11 AA Stable A-1+ Reaffirmed 24-Feb-11 AA Stable A-1+ Rating Watch Removed
01-Jun-10 AA A-1+ Rating Watch - Developing
Instrument Structure N/A
Statement by the Rating Team
VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the credit rating(s) mentioned herein. This rating is an opinion on credit quality only and is not a recommendation to buy or sell any securities.
Probability of Default VIS ratings opinions express ordinal ranking of risk, from strongest to weakest, within a universe of credit risk. Ratings are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or particular debt issue will default.
Disclaimer Information herein was obtained from sources believed to be accurate and reliable; however, 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 is not an NRSRO and its ratings are not NRSRO credit ratings. For conducting this assignment, analyst did not deem necessary to contact external auditors or creditors given the unqualified nature of audited accounts and diversified creditor profile. Copyright 2020 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.
Due Diligence Meetings Conducted
S.No Name Designation Date
1 Mr. Tahir Yaqoob Bhatti Head of Retail
Banking May 21, 2020
2 Mian Salman Ali Chief Risk
Officer May 21, 2020
3 Syed Majid Ali CFO May 21, 2020