Press Release

JCR-VIS Reaffirms Ratings of Faysal Bank Limited

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Karachi, June 30, 2015: 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, 2014.

FBL is classified amongst the medium sized banking institutions in Pakistan, having market share of 3.4%, in terms of domestic deposits. Over time, the stress on financial indicators of the bank has alleviated, as evident from growing operating profits and an enhanced liquidity profile. Asset quality and capitalization indicators have also depicted improvement.

Growth in asset base of the bank has lagged behind industry growth rate. Exposure to the sovereign has increased on a timeline basis given that additional liquidity was channelized towards PIBs. Corporate loan book continues to remain the mainstay of the bank’s lending operations comprising over three-fourths of the financing portfolio. Overall portfolio quality indicators have depicted improvement with reduction in portfolio concentration and decline in net infection. Net infection at 3.5% is however still higher than peer median of 2.1% at year-end 2014.

Core earnings of the bank have depicted significant growth in 2014 and 1Q15. Profitability of the bank is expected to remain strong on the back of PIB holdings and benefit of lower administrative expenses due to impact of Voluntary Separation Scheme introduced by the management. However, if low interest rate environment persist over the long term, spreads and profitability are expected to come under pressure with maturity of PIBs in line with sector trends, particularly following the recent cut in discount rate whereby the downward adjustment in cost of saving deposits will be less than the re-pricing on loans.

Capitalization indicators of the bank have improved on a timeline base with increase in Tier-1 and overall CAR and a reduction in net NPLs to Tier 1 equity. Given the bank’s growth plans, enhanced capital requirements under Basel 3 and increase in risk weight on unrated exposures, there is a need to further strengthen capitalization levels. Liquidity profile of FBL has also depicted improvement in 2014 as evident from an increase in liquid assets to deposits & borrowings ratio. The management plans to undertake steady expansion in branch network to provide greater momentum to deposit mobilization activities.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA or Mr. Javed Callea at 021-35311861-70 or fax to 021-35311872-3.

Mohammed Khalid Ali

Applicable Rating Criteria: PRIMER - Commercial Banks (December 2001)
Rating the Issue (September 2014)

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 2015 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