Faysal Bank Report Sikandar

Sikendar Razak

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Analysis of Financial Strength 2011

Table of ContentsCompany Overview.......................................................................................................................................4

Customer Franchise:..............................................................................................................................4

Service Quality.......................................................................................................................................5

Wealth Management..............................................................................................................................5

Bancassurance........................................................................................................................................5

People.....................................................................................................................................................5

Risk Management..................................................................................................................................6

Financial Perspective.............................................................................................................................6

Credit Rating:.............................................................................................................................................6

Milestones......................................................................................................................................................7

Corporate Social Responsibility............................................................................................................7

Bancassurance........................................................................................................................................7

MarketLink............................................................................................................................................7

Islamic Banking.....................................................................................................................................7

Awards...................................................................................................................................................7

Alternate Delivery Channels..................................................................................................................7

SWOT Analysis.............................................................................................................................................8

Strengths....................................................................................................................................................8

Weaknesses................................................................................................................................................8

Opportunities..............................................................................................................................................8

Threats........................................................................................................................................................8

Challenges......................................................................................................................................................9

Societal Environment.................................................................................................................................9

a) Economic...........................................................................................................................................9

b) Technological....................................................................................................................................9

c) Socio cultural.....................................................................................................................................9

d) Political-legal.....................................................................................................................................9

Task Environment (Industry).....................................................................................................................9

a) Threat of new entrants.......................................................................................................................9

b) Bargaining power of buyers..............................................................................................................9

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c) Threat of Substitute products or Service..........................................................................................10

d) Bargaining power of suppliers.........................................................................................................10

e) Rivalry among competing firms......................................................................................................10

Company Organogram.................................................................................................................................11

Finance Department Job Description...........................................................................................................12

Key Ratios of 2007, 2008, and 2009............................................................................................................13

Analysis........................................................................................................................................................14

Recommendations........................................................................................................................................16

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Company OverviewFaysal Bank started operations in Pakistan in 1987, first as a branch set-up of Faysal Islamic Bank of Bahrain and then in 1995 as a locally incorporated Pakistani bank under the present name of Faysal Bank Limited. On January 1, 2002, Al Faysal Investment Bank Limited, another group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger, stronger and much more versatile institution. In fact it has the highest share capital amongst private banks in Pakistan and is amongst the largest in terms of equity.

Faysal Bank Limited is a full service banking institution offering consumer, corporate and investment banking facilities to its customers. The Bank’s widespread and growing network of branches in the four provinces of the country and Azad Kashmir, together with its corporate offices in major cities, provides efficient services in an effective manner.

Bank’s Performance:As part of their strategy of profitable growth, the bank has acquired controlling interest of Pakistan Operations of The Royal Bank of Scotland Limited (RBS Pakistan) on October 15, 2010. RBS Pakistan comprises of Retail, Corporate, Commercial and Islamic businesses spread across the country. This is a significant milestone for the bank as it complements their ambitious growth plans. RBS Pakistan provides a strong customer franchise and an excellent fit to Faysal Bank’s existing businesses. The combined entity will have an asset base in excess of Rs. 265 billion with a network of over 220 branches, making FBL one of the top ten banks in Pakistan.

As envisaged in the five year strategy of the bank, following new initiatives were launched during the period under review:-

Customer Franchise:

Corporate and Investment Banking GroupCorporate and Investment Banking Group accomplished following major transactions during the quarter:

FBL extended a PKR 2.2 billion working capital finance facility to a leading local business group engaged in the production of cold rolled coils, galvanized sheets and welded steel pipes and tubes.

FBL served as a joint lead arranger for a PKR 11 billion structured long-term vessel finance facility to a large shipping company.

FBL extended a PKR 600 million finance facility to a leading denim fabric & garment manufacturing house for their backward integration project.

FBL was awarded a mandate for exclusive management of rights issue amounting to PKR 300 million for a leading modaraba company.

FBL was awarded dividend mandate for a large multinational company dealing in the business of paints, polyester and chemicals.

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Service QualityThe key to improving customer satisfaction with our service, is the ability to measure the quality of our processes in quantitative and qualitative terms. Hence, a set of service indicators has been introduced in Branch Banking that measure Turnaround Times of commonly used services. In addition, customer experience is continually assessed for walk-in and phone-in customers through Mystery Shopping.

A monthly Service Metrics Report encompassing all the service indicators is being shared with the retail management and the branches with a view to improving the failing indicators. As a result of ongoing feedback and coaching, almost all indicators have shown a positive trend during the year so far, most notably those of Service Turnaround Time and of Branch Preparedness. To reinforce the Service Culture, a “Service Branch of the Quarter” award has been initiated, which is encouraging branches to outdo each other in Customer Service and is helping build a Service Culture in the Bank.

Wealth ManagementFaysal Bank Wealth Management inaugurated two priority centers at the Head Office Main Branch and the Khayaban-e-Tanzeem Branch. Faysal Bank’s Priority banking services have been introduced under the name of Solitaire Wealth Management. The launch of these centers is the first step towards building a strong customer proposition that revolves around excellence in service quality. During the course of the year the Solitaire Wealth Management platform shall see a significant augmentation via addition of new centers across major cities of Pakistan. We look forward with great passion towards enhancing our footprint in this segment and developing this proposition as an industry leader.

BancassuranceThe launch of the Faysal aikFaisla Family Assurance Plan marked the first in the line of value added products, offered under the umbrella brand of aikFaisla Bancassurance products. This is an affordable and unique insurance package for customers, which offers built-in terrorism cover - a market first amongst Bancassurance products.

A major highlight during the second quarter was the release of the Faysal aikFaisla above-the line advertising campaign which was the first time the bank has used television and radio media since 2008. The campaign was designed to enhance brand awareness and recognition for the aikFaisla brand amongst potential customers.

PeopleAn Employee Engagement Survey (EES) was conducted by HR in collaboration with external consultants with the objective to gauge employee commitment, engagement, organizational culture and alignment with Bank’s core values. The survey was further aimed at getting an insight into levels of satisfaction with key leadership, senior management and the environment. The response received was beyond the expected target, 94% of the employees participated in the survey.

On the HR automation front, the Performance Management module has been configured and tested. Further, Phase II implementation of i-Recruitment web portal was successfully launched, giving external candidates the ability to explore opportunities at FBL. The HR Business Partners now match online profiles with job requirements giving them a greater database to choose from.

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Risk Management In the month of July, the new Credit Policy Manual (CPM) governing the rules for the extension of

credit for conventional banking was rolled out. This document replaced the existing Credit Policy and Credit Manual (CPCM) of the Bank as part of Risk Management Group’s philosophy of adopting best market practices for improving the risk culture in the Bank. The new document aims at further strengthening the credit risk management framework of the Bank. The highlights of the amendment were introduction of new policies and fortification of existing ones to improve risk monitoring, risk identification and risk approval mechanisms.

The Bank also enhanced the overall internal risk rating framework in line with industry best practices and regulatory guidelines. A two dimensional rating system has been introduced for Corporate and Commercial borrowers, which has been calibrated based on empirical evidence.

On Operational Risk front, the bank has implemented enterprise wide Key Risk Indicators program for robust Operational Risk management and monitoring.

Financial PerspectiveAfter implementation of Oracle General Ledger module in December 2009, the Accounts Payable and Fixed Assets modules of Oracle Financial were successfully launched during the period. With this implementation most of the finance related processing functions have been automated and centralized. The implementation of the Oracle Procure to Pay Cycle modules will not only provide a strong platform for effective control over authorization, recording and monitoring of administrative expenses but will also lead to considerable improvement in TATs. On the development of MIS front we introduced a new set of interactive deposit MIS at the regional and area manager level. This easy to use MIS tool enables the users to dissect their deposit base from various angles thus providing them a greater capability to monitor and manage their performance.

Credit Rating:JCR-VIS Credit Rating Company Limited (JCR) and Pakistan Credit Rating Agency Limited (PACRA) have re-affirmed the following entity ratings as on June 30, 2010:

Long-Term AA

Short-Term A1+

Negative outlook previously assigned to the ratings has been removed by both the agencies. The ratings denote very low expectation of credit risk emanating from a very strong capacity for timely payment of financial commitments. The ratings have been placed on ‘Ratings Watch Developing’ status and ‘Rating Watch’ by JCR and PACRA respectively in view of the acquisition of The Royal Bank of Scotland Limited(Pakistan operations).

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Milestones

Corporate Social ResponsibilityFaysal Bank being a socially responsible corporate entity has been a regular contributor to the society and communities it operates in. Recognizing this responsibility the employees of the bank established a relief fund for Internally Displaced Persons from Swat, with the bank contributing by matching the employees’ contribution. The bank entered into a partnership with the Institute of Business Administration (IBA) Karachi to provide Rs. 50 million over a period of 3-5 years for sponsorship of one academic chair in IBA’s Executive MBA program. The bank also donated 183 computers to various educational institutions with a focus on promoting education for the underprivileged.

BancassuranceFaysal aikFaisla was launched in the last quarter, as Faysal Bank’s line of customized Bancassurance products to meet customers’ growing needs. The range of products being offered includes Savings Plan and Education Plan.

MarketLinkFaysal MarketLink Savings Account was introduced, as a KIBOR-linked savings product. Profit rates are directly linked to Karachi InterBank Offered Rate (KIBOR), and the account is accessible through chequebook or Pocketmate Visa Debit Card.

Islamic BankingBarkat Islamic Banking was launched in the third quarter, with the aim of introducing Shariah-Compliant Banking transactions. The current deposit products being offered are Barkat Islamic Current Account, Barkat Islamic Basic Banking Account, Barkat Islamic PLS Account, Barkat Islamic Investment Certificate and Barkat Islamic FCY Account.

AwardsThe Bank continued to follow the Best Practices in the area of financial disclosure. This was acknowledged by SAARC, when Faysal Bank's Annual Report 2008 won a 'Merit Award' in the South Asian Federation of Accountants (SAFA) Best Presented Accounts Awards 2008, in the category of 'Banking Sector Subject to Prudential Supervision'. The professional quality of the same report was also acknowledged by the Joint Committee of the Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Cost and Management Accountants of Pakistan (ICMAP), which awarded it 3rd prize in the 'Best Corporate Reports Award', in the financial sector category.

Alternate Delivery ChannelsWith a view to provide convenience to customers, the bank expanded its ATM network by adding 23 new ATMs, taking the total ATM network to 116 ATMs across the nation. The bank also introduced a real-time Cash Deposit facility through ATMs, on 13 Cash Deposit ATMs in selected cities. Through this service, our customers are now able to deposit cash in their accounts twenty-four hours a day. The scope of the SMS Alert Facility was also enhanced to include alerts on various types of branch transactions, in addition to the alerts on card-related transactions.

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SWOT Analysis

Strengths Based on financial strength and superior performance, Faysal Bank Limited has been assigned the

highest short term rating of A1+ (A One Plus) and AA (Double A) for the long term by JCR-VIS (credit rating Company).

Better technology like Symbols, implementation of Financial Oracle, HRMS. Very attractive salary packages to employees.

Heavy internal financing i.e. from heavily growing deposits.Attracted big corporations like SNGPL, Attock Group of Companies, Zaver Petroleum, etc.

Weaknesses Weak branch network across the country.

High employee turnover.

Low number of ATMs.

Attracting only upper and middle class customers.

Market share is declining from new competition.

Employees’ frustration due to excessive work burden.

Opportunities It can capture agriculture market by offering innovative agri finance products. Impressive print and electronic media campaign highlighting FBL’s role in the development of rural

economy of Pakistan can give it competitive edge over its competitors. Through re-branching, FBL can capture lot of new customers. Merger with Barclays or Bank of China to become part of larger international banking network and to

increase the profit.

Threats Declining trend in banking sector, which can affect it to large extent because of its big corporate

customers which are few in number. Arrival of Barclays and Bank of China in Pakistan, which can increase the competition in banking

sector. Decreasing trend in Earning per share and stock prices. Moving of key employees, e.g. Corporate Relationship Managers, which means moving of corporate

clients to other banks.

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Challenges

Societal EnvironmentFollowing are the forces which are currently affecting Faysal Bank and the Banking Industry:

a) EconomicThe main things affecting Faysal Bank and the banking industry are increase interest rates, and the rising inflation rate in the economy, for example, currently KIBOR which is benchmark for industry lending is at highest ever point.

b) TechnologicalDevelopments like introduction of oracle financial systems, symbols, and different application are increasing productivity of the Faysal Bank as well as the banking industry, but on the other its initial implementation costs are causing increased administrative cost to FBL.

c) Socio culturalSocio cultural forces like values, demographic characteristics, etc. are also affecting FBL as well as the banking sector. Because of these values some professionals don’t want to join banking sector, and some people don’t keep their money in the banks, because of religious believes. But on the other hand such believes are also helping banks to introduce Islamic products. FBL has lost various customers because of this reason due to shift from Islamic Banking to conventional banking.

d) Political-legalThese include the forces like political conditions in country, SBP regulations, etc are also affecting FBL as well as banking sector. For example, SBP is increasing discount rates, Minimum Capital Requirement (MCR), cash reserve ratio, etc. which is causing liquidity problems for FBL as well as banking sector. Due to MCR, various mergers took placed in the banking sector, and few mergers are also expected in near future.

Task Environment (Industry)Many forces in the industry are causing competition, these include, technology i.e. communication system like Symbols, Sun, Oracle, etc, larger branch network, ATM locations, unique products, entry of foreign banks, etc. Task environment of FBL can be discussed through following Porter Model:

a) Threat of new entrantsOpening of braches by Barclays (which in international reputable bank), threat of entering of Bank of China (BOC) by acquiring SME Bank, and Industrial Development Bank of Pakistan (IDBP), while BOC is also planning to acquire 26% stakes in National Bank of Pakistan.

b) Bargaining power of buyersDue to increase in interest rates, small firms are not in a position to take loan from banks, while number of corporations in Pakistan, is limited. Therefore, key customers/buyers (corporate customers) of banks

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have gained substantial power and now they can bargain the spread with the relationship managers due of availability of the large number of the banks.

c) Threat of Substitute products or ServiceAs such there is no significant threat of substitute products or service, but few services like investment related services are offered by various Mutual Funds, and Security Dealers, but these services are limited to big cities. While, on deposits side, National Saving Organization, is providing substitute products to the depositors of the banks through attractive packages, at very attractive rates.

d) Bargaining power of suppliersCurrently this is big problem for FBL as well as industry, because of liquidity crisis and Pakistan’s poor international financial rating, all fund suppliers are avoiding to supply credit to Pakistani industry, moreover depositors bargaining power has also been increase due to high mark up rate offered by various banks, and due to dearth of deposits with bank

e) Rivalry among competing firmsBanking sector is facing severe competition, due to availability of many national and international banks in the industry. Currently HBL bank, is leading with 40% market share, while MCB with highest profits and National Bank of Pakistan with largest deposits.

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Company Organogram

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Finance Department Job Description

Name Financial Control Unit

Syed Majid Ali Chief Financial Officer

Akbar Ladak Head Management Accounting

Adeel Ali Khan Head Statutory Accounting

Arif Akmal Saifie Head Product & Cost Control

Asghar Qureshi Head Centralized Reporting

Muhammad Ashraf Head Project Management

Mansoor Khalil Head Business Strategy

Syed Zaka ur Rehman Head Consumer Finance

Shahzad Jiwani Manager Group Reporting

Shahid Hameed Sr. Manager Taxation

Shahzad Ghori Sr. Manager MIS Development

Zafer Hassan Askari Sr. Manager Budget Retail MI, Business & Services

Rizwan Haroon Manager Statutory Reporting

M. Nauman Rauf Sr. Manager System Support

Mushtaq Abubaker Senior Manager Payment & Cost Control

Faisal Ahmed Assistant Manager Treasury Product & ALCO

Irfan Sheikh Assistant Manager Fixed Assets

Baqar Rizvi Manager SBP Reporting

Irfan Hanif Manager e-CIB

Imran Hussain Assistant Manager Data Management

Ali Nasir Regional Manager Legal-North/Central

Maliha Khushnood Regional Manager Legal South

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Key Ratios of 2007, 2008, and 2009

Ratio 2009 2009 2008 2008 2007 2007

Capital Adequacy Ratio 12.36 19.07 10.84 16.28 10.27 16.75

Profit before tax ratio 7.67% 55.91% 13.41% 63.80% 23.24% 70.16%

Gross spread ratio 29.43% 69.31% 36.92% 71.13% 35.75% 75.26%

Income/Expense Ratio 1.81 3.84 2.13 4.10 2.70 5.06

Return on capital employed 9.00% 27.35% 10.57% 31.49% 11.34% 37.66

Return on Avg. Equity 11.18% 13.65% 10.89% 10.1% 23.33% 13%

Return on Avg. assets 0.75% 3.25% 0.80% 3.60% 1.77% 4.06%

Current Ratio 0.51 0.63 0.54 0.63 0.65 0.64

Advances/Deposits ratio 77.22% 77.37% 83.41% 82.64% 91.69% 80.34%

Price Earnings Ratio 8.90% (5.69%) 6.29% (4.22%) 15.37 (7.8%)

Earnings per share 1.97 5.3 1.83 5.56 4.29 7.8

Market Value Per share 17.53 219 11.51 155 65.95 319

No. Of Employees 2042 - 1929 - 1759 -

No. of Branches 133 - 129 - 105 -

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Analysis

Prof

it be

fore

tax ra

tio

Gross

sprea

d rati

o

Return

on ca

pital

empl

oyed

Return

on A

vg. E

quity

Return

on A

vg. a

ssets

Advan

ces/D

epos

its ra

tio

Price

Earn

ings

Rati

o

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

20092008

2007

7.67%

29.43%

9.00% 11.18%

0.75%

77.22%

8.90%

13.41%

36.92%

10.57% 10.89%

0.80%

83.41%

6.29%

23.24%35.75%

11.34%23.33%

1.77%

91.69%

15.37%

Faysal Bank

2009

2008

2007

14

Prof

it be

fore

tax ra

tio (I

ndus

try)

Gross

sprea

d rati

o (In

dustr

y)

Return

on ca

pital

empl

oyed

(Ind

ustry

)

Return

on A

vg. E

quity

(Ind

ustry

)

Return

on A

vg. a

ssets

(Indu

stry)

Advan

ces/D

epos

its ra

tio (I

ndus

try)

Price

Earn

ings

Rati

o (In

dustr

y)

-10.00%

10.00%

30.00%

50.00%

70.00%

90.00%

2009

2007

55.91%69.31%

27.35%

13.65%

3.25%

77.37%

-5.69%

63.80%71.13%

31.49%

10.10%3.60%

82.64%

-4.22%

70.16%75.26%

37.66%

13.00%4.06%

80.34%

-7.80%

Industry

2009

2008

2007


Recommendations

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Capital Ad-equacy Ra-

tio

Income/Expense

Ratio

Current RatioEarnings per

share Market Value Per share

0

10

20

30

40

50

60

70

2009

2008

2007

12.36

1.810.51 1.97

17.53

10.84

2.130.54 1.83

11.51

10.27

2.70.65 4.29

65.95

Faysal Bank

2009

2008

2007

Capital Adequacy Ratio (Industry)

Current Ratio (Industry)

Market Value Per share (Industry)

0

50

100

150

200

250

300

350

2009

2008

2007

19.07

3.840.63 5.3

219

16.284.1

0.63 5.56

155

16.755.06

0.64 7.8

319

2009

2008

2007

Documents

Faysal Bank Report Sikandar