PACRA Maintains Entity Ratings of Faysal Bank Limited

Ithmaar Bank B.S.C (closed), a banking entity regulated by the Central Bank of Bahrain, is the parent company holding directly and indirectly 66.78% (2022: 66.78%) of the Faysal Bank Limited ("FBL" or the "Bank") shares. Ithmaar Bank B.S.C. (closed) is a wholly owned subsidiary of Ithmaar Holdings B.S.C. Dar Al- Maal Al-Islami Trust (DMIT) is the holding entity of Ithmaar Holding B.S.C. and the ultimate parent of the Bank. During CY23, Faysal Bank Limited made history in Pakistan by converting a full-fledged Conventional Bank into a Shariah Compliant Bank. The transition took place smoothly and FBL got an Islamic Banking license from the regulator after surrendering the Conventional Banking license. This strategic move aligns with broader trends in the banking industry, where Islamic banking continues to gain prominence globally. The bank is committed to digital transformation, promoting eco-friendly practices such as Green Banking, e-banking etc. FBL is a medium-sized bank with a market share of ~3.7% (CY22: 3.5%) driven by an increase of ~30% in deposit growth. During CY23, the total deposits crossed PKR 1 trln however, the CASA mix due to growth in Term Deposits, decreased from 80.0% to 75.0%. While several new products were added to the suite to cater to diverse market segments: contributing PKR 5.9bln in deposit growth. The bank's gross financing grew by 26.8%, reaching PKR 600bln, showcasing expansion in lending activities majorly in power, gas, pharma and chemical. The NPA coverage ratio decreased slightly to 87% (CY22: 89%). The bank's investment portfolio grew by 25.5% to PKR 589bln, with a significant majority (89%) allocated to government securities. This concentration highlights the bank's conservative investment strategy, prioritizing stability and liquidity. Diversifying the investment mix could optimize returns while balancing risk in the bank's portfolio. The Bank reported a PAT of PKR ~ 20bln (CY:22 PKR ~ 11.2bln) driven by an increase in net spreads influenced by a high interest rate environment and lower deposit costs compared to the MDR for Islamic banking. The bank's total expenses have risen by 48.4% over 2022. However, the cost-to-income ratio has improved from 56.2% in 2022 to 49.1% in 2023. The equity of the Bank stood at PKR 90bln, while CAR is reported at 17.5% (CY22: 15.5%) well above the required limit of 12.5% (with a 1% relaxation due to Covid-19). Under the recent development, the shareholders of Ihtmaar proposed to sell 75% of Ihtmaar's stake in FBL to GFH Financial Group B.S.C (GFH). This would bring the Ihtmaar holding to 16.67%. Post acquisition, FBL plans to continue its current strategy including continuity of leadership/senior management team, translating into FBL's mission of Islamic banking.
Going forward, adeptness in preserving profitability while safeguarding the profit rate spreads and maintaining asset quality would bode well.

About the Entity
FBL's shareholding is dominated by Ihtmaar Bank B.S.C holds 66.78% shares. The remaining belong to the general public and are divided among directors, CEO, Banks, and DFIs. Ithmaar Holdings B.S.C. and its subsidiaries are engaged in a wide range of shariah compliant financial services including retail, commercial, investment banking, private banking, takaful and real estate development. A mix of seasoned bankers and businessmen with both domestic and foreign expertise make up the twelve-member BoD, which also includes the Chairman. Since May 2017, Mr. Yousaf Hussain has served as the company's CEO and president. He is a seasoned banker with over 27 years of experience, the majority of which was gained with ABN AMRO.