Karachi, March 22, 2023 (PPI-OT): FABL: Analyst Briefing Key Takeaways

Faysal Bank Limited (FABL) held its analyst briefing earlier today. The key highlights of the call were as follows:

With regards to the financials, FABL posted its highest ever bottom line of PkR11.23bn (up 38%YoY) during CY22. On the balance sheet front, assets/deposits of the bank ended the year at PkR1.0tn/782bn with deposit market share averaging at around 3.5% during CY22. On the capital adequacy front, CAR stood at 15.5% as at CY22 end.

The company’s investment mix underwent a significant shift towards Ijarah Sukuks, which accounted for 81.3% of the total investment book in CY22, compared to 45% in CY21. This was due to the bank’s ongoing Islamic conversion, which led to the retirement of conventional products. With regards to leftover PIBs amounting to PkR14.7bn, these investments have been ring-fenced, and their future earnings will be pledged to charitable activities.

With regards to FABL’s cost-to-income ratio being one of the highest in the industry, management claims the ratio is overstated due to sharp increase in bank branches during the past few years (+300 branches since between CY18-22). The revenue and transaction generation in these newer branches are still in the early stages, and once the branch network begins to mature, the growth of operating expenses will slow down, and the ratio will normalize.

Regarding the pay out, the management stated that there is no clear-cut dividend policy, and it is at their discretion. However, with the conversion process now over and assuming that the CAR remains at healthy levels, the management claims that the bank may begin paying out regularly going forward.

With regards to deposit growth, management aims to achieve growth of 22-25% while estimating the overall industry growing by 14-15%.

With regards to future NPLs/provisions, management claims they’re keeping an eye on their loan-book portfolio and don’t see any significant provisions going forward. To note, bank posted reversals of PkR940mn during CY22.

Bank aims to achieve a healthy portion of current accounts in its mix going forward. However, it is worth noting that the current account segment mostly caters to SMEs and commercial businesses, making it a risky and volatile avenue in the present economic environment. Once the situation stabilizes, the bank aims to achieve solid current account deposits mobilization going forward.

Regarding IFRS-9 implementation, the company has been reporting an IFRS-9 adopted statement to its holding company in Bahrain for many years now. Once formally implemented, the company expects minimal impact on capital adequacy, estimated to be around 20-25bps