Press Release

VIS Reaffirms Entity Ratings of Faysal Bank Limited

Karachi, June 30, 2022: 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). 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. The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk-free short-term obligations of GoP. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on June 30, 2021.
The assigned rating incorporates FABL’s market positioning as a medium-sized bank, given its market share of 3.2% and 4.1% in terms of deposits and financings respectively, as of Dec’21. During 2021, FABL made swift progress on its conversion into a full-fledged Islamic Bank, and as of March 2022, 90% of the financing book and 75% of the deposit book was Shariah compliant.

The rating incorporates improvement in FABL’s asset quality indicators. FABL’s net infection, at 0.9%, and specific provisioning coverage at 83.7% is considered adequate. The rating takes into account FABL’s liquidity profile, which derives impetus from its sizable and growing branch network; accordingly the Bank gained market share, particularly in the Islamic Banking segment, since our last review. Furthermore, the Bank’s overall cost of funding stands lower than the peer median. Deposit composition continued to depict improvement, as reflected by the proportionate increase in CASA. Nevertheless, it is pertinent to mention that much of the deposit growth manifested in larger-sized depositors, as a result of which deposit granularity has been affected. The liquidity profile of FABL also derives strength from sizable coverage of deposits and borrowings by liquid assets. As of Mar’22, the Bank’s liquid assets to deposits and borrowings (LADB) was lower at 55.1%, which was in line with the peer median.

In line with the industry trend, wherein average benchmark rate prevailing during 2021 was lower than preceding year, FABL’s spread depicted contraction. Nevertheless, given the volumetric growth in assets deployed the Bank’s net spread income was up by 5% and 32% in 2021 and Q1’22 respectively. FABL’s RoAA is aligned with its peers.

As of Mar’22, FABL’s CAR stood at 16.8%, significantly higher than the minimum requirement set by the SBP and superior to the peers. Going forward, as the management grows its financing book, in line with their vision of a higher Financings to Deposits ratio, the resultant uptick in risk-weighted assets is likely to weigh on the Bank’s capital adequacy. Moreover the credit headwinds may translate in a higher provisioning burden, which may curtail internal capital generation capacity. Nevertheless, the stress on CAR, will be an industry phenomenon for 2022, and accordingly FABL’s CAR is expected to remain strong in relative terms. The assigned rating remains dependent on maintaining the financial risk metrics in line with benchmarks.

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Arsa; Ayub, CFA Ext: 216) at 021-35311861-71 or fax to 021-35311872-3.

Javed Callea

Applicable rating criterion: VIS Commercial Banks Methodology -

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 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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .