Press Release

JCR-VIS Reaffirms Ratings of Faysal Bank Limited

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Karachi, June 30, 2014: 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’.

FBL is a medium size bank in Pakistan with a steady market share of 3.6% in deposit terms. Various developments have taken place recently, which mark a transition for the bank’s future strategic direction. These include Board reconstitution with a higher representation of largest shareholder, Ithmaar Bank (IB) signifying its greater involvement in the affairs of FBL, appointment of a new President & CEO, staff retrenchment along with consolidation of business processes with a focus on cost rationalization and planned transition of banking operations into Islamic mode in the next two-three years. In line with the Fatwa issued by its Sharia Supervisory Board, IB has an agreed time period for conversion of its conventional assets and liabilities into Islamic alternatives, with FBL being a significant one of these.

On a timeline basis, FBL has posted improvement in some financial indicators. While spreads of overall banking sector remained under pressure during FY13, FBL was able to withstand the impact of declining asset yields on its spreads by posting volumetric growth in earning assets and improving its cost of deposits. Increase in consumer lending also allowed the bank to contain the decline in return on advances. Moreover, the management has made various concerted efforts to rationalize overall cost structure. Sustainability of positive trend in earnings will be tested as the bank absorbs the impact of additional provisions in lieu of run down in FSV benefit.

Capital Adequacy Ratio (CAR) depicted improvement during the out-going year. While having declined on a timeline basis, net non-performing exposures are still sizeable in relation to the bank’s own equity; future stress on capitalization may arise on account of the same. In this scenario, increase in level of other sources of risks, such as rate risk and market risk, as observed in 1Q14, may need to be contained.

With incremental funding mainly channelized towards short term low risk assets, overall liquidity profile of the institution has improved. The management expects further improvement in deposit mix in the coming year along with reduction in cost of deposits.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA at 021-35311861-70 or Mr. Maimoon Rasheed at 042-36610681-84 or fax to 021-35311872-3.

Abdur Rahim

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 2014 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited