VIS reaffirms entity ratings of FABL

June 30, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Faysal Bank Limited (PSX: FABL) at ‘AA’ for long-term and ‘A-1+’ for the short term with a stable future outlook, a latest press release issued by VIS showed.

The previous rating action was announced on June 30, 2022.

A long-term rating of ‘AA’ indicates high credit quality; protection factors are strong.

While, a short-term rating of ‘A-1+’ indicates the highest certainty of timely payments; short-term liquidity, including internal operating factors and/or access to alternative source of funds, is outstanding and safety is just below risk-free Government of Pakistan’s short-term obligations.

The assigned rating incorporates FABL’s market positioning as a medium-sized bank, given its market share of 3.4% as of Mar’23.

As of January 1, 2023, the Bank has successfully converted into an Islamic bank.

The rating also incorporates improvement in gross infection (GI) noted across the segments.

Moreover, as of Mar’23, the net infection rate of 0.6% compares favorably with peers and industry.

However, specific provisioning coverage of 85.6% is considered adequate, compared to peers with room for improvement when benchmarked against the industry.

The liquidity metrics of the Bank are slightly affected by deposit concentration.

While there has been improvement in deposit composition, with an increase in Current Account Saving Account (CASA), deposit growth from relatively larger-sized depositors has impacted deposit granularity.

This, along with greater reliance on relatively more volatile deposits, has led to a slight decline in Liquidity Coverage Ratio (LCR) over time which remains comfortably above the regulatory threshold.

Margin improvement is expected to continue, allowing the Bank to absorb the potential provisioning burden amid a heightened credit risk environment.

Maintenance and further enhancement of the low-cost deposit base will remain important for future profitability given challenges for pricing improvement in the financings market.

The capital adequacy of FABL, with some attrition on timeline, is expected to remain sound relative to peers.

The higher provisioning burden and credit headwinds could limit internal capital generation.

However, the impact on Capital Adequacy Ratio (CAR) is not expected to be significant, with the bank expected to maintain CAR above the industry average.

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