FABL to convert its balance sheet to 80% Islamic by the end of CY22

September 9, 2021 (MLN): Faysal Bank (PSX: FABL) conducted its analyst briefing session yesterday where the management discussed Company’s latest financial performance as well as a future roadmap.

To recall, the company witnessed a 7% YoY increase in its consolidated net profits that reach Rs4.1billion during 1HFY21 against Rs3.8bn reported in the same period last year.

The positive income statement is owing to the Improved Non Funded Income (NFI) and provisioning reversal.

The bank also announced a dividend of Rs 0.50 per share.

As per the key takeaways of the briefing covered by AKD Securities, the management strongly believes that they will be able to convert its balance sheet to at least 80-85% Islamic by the end of CY22.

This will allow bank to officially submit request to SBP for its conversion where the FABL will surrender its conventional banking license for Islamic banking license from the SBP.

FABL has converted 74.1% of advances to Islamic as compared 59.8% in CY20 while the rest of 26% are conventional advances. Banks has converted 49.2% of deposits into Islamic and rests are conventional deposits.

Management aims to convert 65 branches into Islamic by CY21 along with Rs100bn in deposits in the coming months. This will help FABL to achieve its target of 90% branches to be Islamic by CY21.

Regarding the conventional banking operations, management stated that around 10 branches will be kept as conventional banking branches at strategic places post conversion to Islamic banking.

As of Jun’21, ROE stands at 15.1%, management justified the lower ROE is due to retention of profits while, CASA stands at 76% where in Current Account deposit mix clocked in at 36.3% while the saving and term deposit mix stands at 40% and 24% respectively.  At present, Bank’s Capital Adequacy Ratio (CAR) stands at 18.85% which is above minimum benchmark of 14%.

FABL’s NPL ratio and NPL coverage ratio stand at 6.5% and 82% respectively. Meanwhile, gross advances of the bank grew by 8% to Rs344bn as compared to Dec’20 wherein most of the advances lent to CIBG (77%), as per noted by Spectrum Securities.

During 1HCY21 the Cost of Income ratio arrived at 58.8% due to increase in branch network and impact of PKR devaluation and inflation while the management is targeting this ratio to 55% by the end of this year.

On the investment front, the portfolio of FABL comprises of 78% of Government securities, 3% shares & mutual funds and rest of the 19% comprises of corporate debt securities. Mix of Islamic and Conventional remained unchanged at 21% and 79% respectively because there was no sukuk issue during this year.  

During the session, the management also informed the house that FABL has launched WhatsApp Banking and became one of the few banks offering services through WhatsApp, a report by Arif Habib Limited said.

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