Press Release

JCR-VIS Reaffirms Ratings of Faysal Bank Limited

Karachi, July 2, 2012: 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). Ratings of the unsecured, subordinated term finance certificates (Issue I & II) of FBL have also been reaffirmed at ‘AA-’ (Double A Minus). Outlook on the outstanding ratings is ‘Stable’.

Over time, FBL has been able to improve the mix of its deposits, reflected in reduced reliance on large ticket deposits. Both organic and in-organic growth in branch network has enabled wider access to deposits. Moreover, FBL’s deposit cost has also received positive impetus from the merger compared to historical levels. The bank was operating through a network of 257 branches at end-FY11 and plans to increase this to 300 over the near to medium term. Number of Islamic banking branches has increased to 45 and this is an area of focus, with deposit cost from this avenue being more favorable. The bank also consolidated its back office functions by successfully enabling the unification of a single IT platform across all areas.

Spreads of the bank remained under pressure in the outgoing year, though bottom line displayed improvement owing to reduced charge in lieu of credit related losses, as the bank availed additional benefit of collateral and provisioning relaxation in case of certain exposures. However, core earnings have yet to gain strength as the bank’s profitability is significantly dependent on realization of recovery targets; the management is making efforts to rationalize administrative costs in order to enhance core earnings.

Portfolio quality indicators remain under stress, with net infection reported at 6.1% at end-FY11. In addition to classified exposures in the loan book, the bank’s corporate debt portfolio also includes certain high risk exposures. Furthermore, although the bank has reduced its exposure to equity market lately, it is still exposed to significant market risk. Given the nature of the bank’s exposures and the challenges in the external environment, a higher level of capital adequacy ratio may be warranted vis-à-vis the current level, for the bank to maintain sound risk profile.

For further information on this rating announcement, please contact the undersigned (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 506) at 35311861-70 or fax to 35311872-3.





Javed Callea
Advisor

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 2012 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .