Faisal Bank 5 Year Report 1

LAHORE SCHOOL OF ECONOMICS

Banking

SUBMITTED TO:

Mr. Waqas Anwar

SUBMITTED BY:

Shayan Buksh

M. Shehryar Najmi

M. Abdullah Khawaja

Bushra Azmat

Ismail Abdullah

Bayburs Barki Zaman Khan

 Faisal Bank 5 Year Report 2

Contents
Introduction:........................................................................................................................................3

2. Analysis of Financial Reports of Faysal Bank...............................................................................4

Vertical Analysis of Balance Sheet.................................................................................................4

Horizontal Analyses of Balance Sheet............................................................................................7

Analysis of Income Statement.......................................................................................................10

3a) Major uses of bank......................................................................................................................13

3b) Major sources of the bank..........................................................................................................15

3c) Major sources of income and expenses......................................................................................17

Return on equity- the DuPont Model...............................................................................................22

5) Credit Rating:................................................................................................................................24

Ratio Analysis....................................................................................................................................25

1. Expense Control Measures....................................................................................................25

2. Credit Risk Ratios..................................................................................................................26

3. Liquidity Risk Ratios.............................................................................................................27

4. Profitability Ratios.................................................................................................................28

5. Market Measures...................................................................................................................29

6. Capital Adequacy Ratio........................................................................................................30

7) Conclusion.....................................................................................................................................31

Recommendations..............................................................................................................................31

Future Plans...................................................................................................................................31

Details of Lending and Advances.....................................................................................................31

Faisal Bank 5 Year Report 3
 Faisal Bank 5 Year Report 4

Introduction:
Faysal Bank was incorporated in 1984 with the backing of Ithmaar bank which is a Bahrain
based Islamic retail bank. With over 700 branches in over more than 270 cities in the country
the bank boasts a deposit of 1 trillion and achieved a profit of 20 billion in the previous fiscal
year. Faysal bank provides five major services for their customers

The first being Islamic Banking they offer products & services are able to cater to all types of
customers Individuals, Institutions, Corporate, Trusts, Consumer and SME. As for Shariah
complaint modes they offer modes of financing such as Murabaha, Ijarah, Istisna, Musharaka.
They are also options available for multiple and flexible investment certificates, saving
and/or checking account options, both in local and foreign currencies. Aswell as a host of
Banca, takaful solutions to cover a person’s need for saving, retirement, child education,
health and marriage.

The second segment of service which they offer is Personal banking which consists of
numerous subparts such as Car loans, home loans, literacy loans and Women banking. One
unique feature of which Faysal Bank is the pioneer is the introduction of Noor card which is
the country’s first Islamic debit card which is Shariah complaint.

Business Banking is also provided for small, medium and large business as well as for SME
customers. Faysal Bank provides Murabaha, Istisna’a, Diminsihing Musharakah, Running
Musharakah, ijarah and Trade services. SME have been given different criteria’s for each
industry/ sector they are given in

The forth service provided is Wealth management which consists of insurance and saving
plans for your family. The segments are Takaful and Investment plans, Life Takaful, Health
Takaful, general Takaful, Investment products and Digital Health care

The final service provided by the bank is e-Banking which consists of providing debit, credit
cards, E-statements, Whatsapp banking, ATM withdrawals and transferring of funds.
 Faisal Bank 5 Year Report 5

2. Analysis of Financial Reports of Faysal Bank

This section will cover the Horizontal and Vertical Analysis of the Balance sheet as well as
the Income statement of Faysal Bank. In order to do the vertical analysis of the Balance sheet,
the value of Total Assets is kept as a key matric. . This is because total assets show the entire
pool of a company’s resources that a company is using to generate revenue. Similarly,
Liabilities and Equity add up to give us the value of Total Assets and for the Liability and
Equity Analysis we will be taking Total Liability and Total Equity into account respectively.

Vertical Analysis of Balance Sheet

1) Assets

This table shows the 5 year data of Assets and its each component with respect to percentage
of Total Assets. Let's analyse how the bank assets have changed over time.

The analysis shows that approximately 40% of financing has been from the Investments
followed by almost the same or at times relatively high percentage from Islamic Financing
and related assets or you can call them advances. So roughly about 80-85% of Financing of
Faysal Bank is from these two components. Then we have cash and balances with treasury
banks, in 2023 the value was 6.13% and in 2019 it was 9.58, overall Cash and Balances
contribute as the 3rd most important component of total assets. After that other assets
contribute a small percentage of total assets followed by fixed assets. Other assets include
components like Credit cards and other products fee receivable, Receivable from brokers
 Faisal Bank 5 Year Report 6

against sale of shares, Dividend receivable and many more. In all the years other assets
along with fixed assets have contributed between 5-8% of total assets. Lastly Balances
with other banks and Intangible assets have less than 1% of contribution and deferred tax
asset has no contribution at all.

2) Liability

As the data suggests, for Faysal Bank the deposits and other accounts are the main
component of Liability of Bank. The value varies from 80-83% and upon close analysis we
could see that the most deposits were made by the private sector followed by individuals and
then there was the Government and Public sector. Thus we can say that Faysal Banks is
mostly funded by these sectors. Moving on, the other major component of Liability of Faysal
Bank is Borrowing or due to financial institutions meaning that Faysal bank also borrows
from other financial institutions for the operations. The % varies between 9-15%, it is not as
high as the deposits but it is relatively higher than other components. The Bills payable is
relatively 1-2% which shows us that Faysal bank is not that much dependent on short term
finances to effectively operate its day to day activities. Lastly the other tax liabilities and
deferred tax liabilities have shown minor variations in the last 5 years but overall both of
them account for almost 5.5-6% of liability for Faysal bank.
 Faisal Bank 5 Year Report 7

3) Equity/ Shared By

For the start lets ignore Total Equity attributable to Equity Holders of the Bank, if we see
closely, the unappropriated profit accounts for the most percentage of Equity. Meaning that
profit is not yet paid out as dividend and is not yet decided for what purpose it will be used.
The value touched an all-time high of 50% in 2023 but it was relatively not the case in 2019
as at that time the value was almost 35%. Other than that all the 3 major components, Share
Capital, Reserves and Surplus on the revolution of Assets have contributed the remaining
50% of total equity. The share capital was high in 2019 till 2021 for being the major
contributor in the Equity with 27.5% to 23% but recently it has decreased. The Non-
Controlling Interest component means that the ownership of minority shareholders of the
bank. It has been always very less than we get a small value on 3 decimal places meaning that
the major shareholders of the bank account for the Majority of the Equity of the Bank.
 Faisal Bank 5 Year Report 8

Horizontal Analyses of Balance Sheet

1) Assets

Cash and Balances has significantly improved from being in deficit in 2020 to being almost
50% in 2023, meaning that Faysal bank has managed its cash in the best appropriate way.
However the balances with other banks have worsened over the years. In 2020 it had a value
of 1.52 and it went to 22% in 2021 but now in 2023 it has a value of 35% which is not a good
thing.

Investments have shown an increasing and decreasing trend in the last 4 years. However they
were all time high in 2020 but all time low in 2023. If we talk about Islamic Financing in
recent years, it has significantly increased and part of that is also because Faysal Bank has
converted to Islamic Bank. Over the years the fixed assets have increased and intangible
assets have decreased in the recent year. The fixed assets in 2023 were 14% which is half of
2022 and intangible assets were ⅓rd of what were in 2022.

Overall the other assets have shown improvement as compared to data of 2020 but have
fallen with respect to the data of 2022. We can conclude that The change in total assets of
Faysal Bank show a significant improvement and each year since 2020 they have improved
being all time high, standing at 27.56%
 Faisal Bank 5 Year Report 9

2) Liabilities

The situation in terms of Bill Payable has improved as in 2020 the bills payable were 62%
but now in 2023 the situation is different. A negative 22% shows that all the bills have been
paid, and it paid more than it accrued. Also there has been a steady decrease in the borrowing
from financial institutions. The value of borrowing was at an all-time low in 2023. On the
contrary the deposits are all time high with the value of 30% and they have been on the rise
since 2020. If we look at the deferred tax liabilities, it has significantly increased which is not
a good thing for the company, the reason for such increase is not specified. It is not just
deferred tax liabilities that are increasing but other tax liabilities are also increasing. However
they are a fraction less in 2023 as compared to 2022 but are still relatively high as compared
to 2020.

The total Liabilities have also increased and in between 2020 and 2021 was the highest jump
in the % value of Liabilities. Since then it has gradually increased.

3) Equity
 Faisal Bank 5 Year Report 10

Starting with the Share Capital, there was no change as it remained the same throughout the
years. However the reserves of Faysal Bank have shown improvement from 2020 to 2023 of
20% and being 33% in 2023, there was a decrease in 2022 but it has been significantly cover
in the 2023.

The surplus on Revaluation of Net Assets has also increased in recent years from being
negative to 42% in 2023 which is a good sign for Faysal Bank and same goes for the
unappropriated profits. The unappropriated profits currently stand on an all time high with the
value of 35.9% although it was relatively quite less in 2022. Lastly if we talk about the value
of Total Equity it was close to 10% in 2020 and 2021 but a fall in 2022 led to a sharp increase
of 23% in 2023 with now it being 29%. We can say that total equity is more than the liability.

Analysis of Income Statement

● Vertical Analysis

Starting from the income side first, interest income in each year is the most. The Net profits
account for 75% to 85% of the total income. After that Fee and commission income
contributes the most, although it is not as much as net profit but it is second highest with
11.21% in 2023. It is followed by Foreign Exchange income and the value remains between
 Faisal Bank 5 Year Report 11

5% to 10% in between the years. Loan on securities has been negative in the last 2 years but
it has shown less values previously as well. The dividend overall contributes very less with
respect to total income and same goes for the other income section.

Now if we talk about the expenses side the operating expenses are quite high of Faysal Bank.
In the year 2019 they were 60% which is a very high. Similarly with respect to Total income
the operating expenses are high in 2023. After that if there are other expenses that contribute
the most in terms of percentage it is Total other expenses. The value of total other expenses is
the same as operating expenses in each year respectively with a minor variation.

Talking about the profit before provisions and profit before tax, the value is almost same for
2023, 2022 and 2021 but has a drastic fall for the value in 2020 because the provision and
writeoff is 6% in 2020.

Lastly the Tax is almost half for each year and when you pay about 50% of tax the value for
Profit after Tax is 24% in 2023 and shows minor variation in the previous years.

Horizontal Analysis
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From 2020 to 2021 the Net profit decreased but after that till 2023 it increased significantly to
touching 77.7%. Faysal bank earned the most of it income from Interest income and Foreign
exchange income. Foreign exchange had the most contribution for with 82.9%. In the prior
years, the value wasn't that much and it was negative in 2020 but things changed in 2023.

The fee and commission has been steady over the years although recently it has decreased in
2023 but overall it has seen improvements since 2020. For the dividend income, 2021 showed
a gain in dividend income and that gain dropped by quite some margin in 2022 but in 2023
the dividend income was negative which not a good thing is for Faysal Bank. The profit made
from selling assets that were owned more than one year or also referred as income from
derivatives has seen constant loss or negative value meaning that Faysal bank has not earned
anything in the last 4 years and the value was greatest in 2022. The situation was somewhat
similar for Loan on securities but for the year 2023 there was a positive value meaning that
the bank was able to generate income.

Now if we talk about the expenses side, operating expenses in the recent years has increased
and so has workers welfare fund. There has been a massive increase in other charges which is
alarming as the value has reached 218.6% which is highest of all in all expenses components.

Total other expenses and share of profit of associates also has increased in the recent years
and profit before provisions has seen massive improvements from being 4% in 2021 and now
the value is almost 98% in 2023.

The provisions and write off has decreased and on the contrary the profit before tax has seen
improvements and a positive trajectory in the recent years.

Although the tax has also increased in the recent years but it showed that the profit after Tax
has been highest in 2023 and profit after tax has been increasing each year alongside total
income. The total income has been highest in 2023 for Faysal Bank which is good
 Faisal Bank 5 Year Report 13

Source Data (In Rupees ‘000s):

2023 2022 2021 2020 2019
Investemnts 589,954,839 469,308,034 357,249,356 276,469,824 203,594,303
Islamic Finaancing 580,711,316 454,260,608 396,295,362 318,179,878 309,573,002
Lending to Financial deposits/Advances 0 9,815,098 0 2,985,000 0
Deposits 1,018,264,979 781,556,223 644,039,999 540,632,217 457,785,183
Borrowing from financial institutions 166,886,803 150,134,396 111,189,829 58,446,516 72,746,795
Sub-ordinated loans 0 0 0 0 0
Interest income 71,070,743 39,991,295 25,839,432 24,547,742 21,126,534
Non-Interest income 13,055,760 9,532,248 8,916,040 8,351,906 7,350,648
Interest Expense 118,391,676 64,537,133 28,032,641 31,378,104 37,272,534
Non-Interest expense 41,254,079 27,864,255 21,076,313 19,910,781 17,211,009
Taxation 21,599,624 11,251,283 5,339,341 4,210,115 4,154,446
PLL Total 19,172,592 18,557,417 19,544,542 20,649,632 23,475,724
PLL (Substandard) 104,142 82,646 117,909 541,529 262,576
PLL (Doubtful) 170,824 242,963 215,372 237,209 1,164,514
PLL ( Loss) 18,897,178 18,231,738 19,211,197 19,870,894 22,048,624
PLL (Others) 448 70 64 0 10

Total Assets 1,371,284,914 1,075,006,469 869,968,496 710,064,202 629,860,533

Total Liabilities 1,280,359,651 1,004,392,266 803,838,096 649,846,100 577,655,106
Total Income 84,126,503 49,523,543 34,755,472 32,899,648 28,477,187
Total Expense 181,245,379 103,652,671 54,448,295 55,499,000 58,637,989
Net Advances 589954839 454260608 396295362 318179878 309573002

3a) Major uses of bank

Q.3a 2023 % Change 2022 % Change 2021 % Change 2020 % Change 2019
Lending to financial institutions/TA 0 -100 0.913026878 0 -100 0.420384522 0
Investments/TA 43.02204691 -1.45282972 43.65629859 6.311190741 41.06463138 5.467295812 38.93589104 20.45612633 32.32371173
Advances/TA 42.34796942 0.216352179 42.25654646 -7.236198822 45.55284057 1.657721387 44.81001536 -8.829064622 49.14945226

Lending to financial institutions/TA: "Lending to financial institutions/TA" represents the

proportion of a bank's total assets that have been set aside or utilized for giving loans to other
financial institutions such as other banks. Faysal bank has limited assets for lending policy
for other banks as we can see that in 2020, they had a lending ratio of less than one percent
which shows this is not a major area of focus for the bank. Though it did show overall growth
of 117% if we are to compare 2020 to 2022 but it still it does not even cross the 1% mark of
overall assets. It is also interesting to note that the bank chooses to lend to other financial
institutions on even years and did not lend on every odd year. Possible reasons could be that
 Faisal Bank 5 Year Report 14

it might see market opportunities elsewhere and decide to use their capital there such as in
investments. Faysal Bank’s minimal approach might also be because they want to increase
profits by invest in higher risk higher return options, even though that may increase their
exposure risk. One more thing we can determine from this is a bank’s interbank relationship
is not very strong as it has a very limited lending trend for other financial institutions.

Investments/TA: This ratio refers to the banks’ capital in investment compared to its total
assets. Investments can be in the form various securities such as federal government
securities, bonds, external company shares, etc. It is interesting to note that this bank’s
security mostly based on federal government securities that are available for sale securities,
meaning that these are sold before they reach the maturity date. In 2019 Investments
accounted for 32% of the total assets which then increased by 20% to 38% of total assets in
2021. In 2022 it further showed 5% growth and so investments were 41% of total assets. The
growth trend continued with 6% growth to around 44% of total assets. In 2023 the growth
trajectory shifted and there was downward trajectory of -1.4% compared to last year and so
the final investment to total assets ratio is 43%.

Advances/TA: This ratio refers to the banks’ capital that has been allocated to give out
loans/advances compared to its total assets. The bank gives these loans to various customers
such as individuals, businesses, and other entities. In this scenario the bank gave it out
interest-based loans till 2022, but decided to shift to only Islamic financing as of 2023 as it
became an Islamic bank in 2023 and thus started Islamic asset financing and stopped loans
(interest related). In 2019 the bank had a ratio percentage of 49% which saw decline of
almost -9% in 2020 and so decreased to around 45% percent. From 2020 to 2021 there was
growth of around 1.5% and that made advances around 46% of total assets. From 2021 to
2022 there was a decline of around -7% that made the ratio for the year 2022 around 42%.
From 2022 to 2023 there was an increase of 0.2% and it still stands at around 42% of
advances. It is important to note that there is an overall trend of when advance/total assets
decreased that investments/total assets increased. This could indicate that they are focusing
on investments more.
 Faisal Bank 5 Year Report 15

It is important to note that the bank sees investments as much as important as giving loans if
not mire as of 2023 investments compromise of 43% while advances compromise of 42% of
the total assets. Overall, in the last 5 years the importance of advances has taken a back seat
in favour of investments as there has been a decrease, from 49% in 2019 to 42% in 2023, of
advances portion of the total assets. On the other hand, investments have made a massive
jump from 32% in 2019 to 43% in 2023. Meaning now investments is more than advances
while financing to other financial institutions is almost non-existent.

3b) Major sources of the bank

Q.3b 2023 % Change 2022 % Change 2021 % Change 2020 % Change 2019
Deposits/TL 79.52960547 2.20495762 77.8138432 -2.879119839 80.12061163 -3.694109678 83.19388498 4.977998924 79.24887675
Borrowing from financial institutions/TL 13.03436912 -12.80066469 14.94778495 8.063831949 13.83236619 53.79717794 8.993901171 -28.58279276 12.59346524
Sub-ordinated loans/TL 0 0 0 0 0

Deposits/TL: This ratio tells us what portion of the capital possessed by the bank has been
sourced by deposits of customers compared to total liabilities. Deposits can come in various
forms such as saving accounts, checking accounts, pension accounts, etc. From 2019 to 2020
there was a positive increase of around 5%, going from around 79% to 83% of total
liabilities. From 2020 to 2021 there was a negative decrease of around -4%, going from
around 83% to 80%. From 2021 to 2022 the negative decline continued there was a negative
decrease of around 3%, going from around 80% to 78% of total liabilities. From 2022 to 2023
there was a positive increase of around 2%, going from around 78% to 80% of total
liabilities. This high percentage of deposits/TL indicate that the bank has lower liquidity risk.
 Faisal Bank 5 Year Report 16

It also indicates that the bank has trust and confidence of its customer that believe in the
bank’s stability and reliability. It can also indicate that the bank’s funding cost is lower as it
heavily relies on deposits instead on depending on other financial institutions, thus also
increase bank profits and shareholder value.

Borrowing from financial institutions/TL: This ratio tells us how much of the capital
possessed by the bank comes from borrowing from other financial institutions such as other
banks. From 2019 to 2020 there was a negative decrease of around -29%, going from around
13% to 9% of total liabilities. From 2020 to 2021 there was a positive increase of around
54%, going from around 9% to 14%. From 2021 to 2022 the positive increase continued there
was an increase of around 8%, going from around 14% to 15% of total liabilities. From 2022
to 2023 there was a negative decrease of around -13%, going from around 15% to 13% of
total liabilities. Faysal bank has shown volatile changes in borrowing from financial
institutions on a year-to-year basis. This paired with an overall lower borrowing from
financial institutions/TL ratio could mean that Faysal bank only relies on other financial
institutions only if it is necessary and it could make an enough a profit to justify borrowing
money at a higher rate compare to normal deposits. This could have an impact of a healthier
liquidity position because it relies less on external funding, as well as a sign that the bank is
financially stable because it would have a lower debt burden.

Sub-ordinated loans/TL: This ratio tells us how much of the capital possessed by the bank
comes from borrowing from other subordinated loans. Sub-ordinated loans are type of loan
which of lower priority compared to normal loans and are paid after normal loans have been
paid, thus making them risky and having more interest rate. Faysal bank has no loan of this
sort for the last five years. This could be because this bank wants to not rely on a funding
method that has a comparatively higher interest rate and thus minimize its borrowing cost and
maintain profitability. It could also be that the shareholders this risker/high interest rate loans
while deposits are sufficient.
 Faisal Bank 5 Year Report 17

3c) Major sources of income and expenses

Q.3c 2023 % Change 2022 % Change 2021 % Change 2020 % Change 2019
Interest income/Total Income 84.4808003 4.617481039 80.75208795 8.616045884 74.34637055 -0.358679783 74.61399587 0.574789656 74.18757337
Non-Interest income/Total Income 15.5191997 -19.37203547 19.24791205 -24.97002388 25.65362945 1.054223884 25.38600413 -1.65193779 25.81240907
Interest Expense/Total Expenses 65.32121075 4.9119732 62.26287502 20.93428467 51.48488304 -8.937789102 56.53814303 -11.05292146 63.56379991
Taxation/ Total Expense 11.91733777 9.788713928 10.85479312 10.69249519 9.806259314 29.26905457 7.585929476 7.071712854 7.084905316
Non-Interest Expense/Total Expenses 22.76145148 -15.32932635 26.88233186 -30.5525053 38.70885764 7.89646525 35.87592749 22.22945452 29.35129477
PLL/Net Advances 3.24984062 -20.44827272 4.085191776 -17.16651361 4.931811945 -24.00817008 6.489923917 -14.41775216 7.583259473

Interest income/Total Income: This ratio measures the proportion of the banks total income
that comes from interest or Profit from loans or Islamic Financing, investments, etc. From
2019 to 2021 there was very little change in interest incomes at it remain around 74%. From
20221 to 2022 there was positive increase of around 9% and its percentage shifted from
around 74% to 81%. Then from 2022 to 2023 there was an increase of around 5% and
became 84% from 81%. It is interesting to note that from 2019 to 2021 the ratio was stable
and did not experience much change. This changed from 2022 and a possible reason could be
that due to inflation the interest rate increased due to PKR weakening against USD and it
effected this ratio as it has high interest rate sensitivity. This also tells us that the bank heavily
relies on lending activities and interest and profit from loans, investments to be their main
source of revenue. A high reliance on interest income might also make its risk profile higher
as interest rates can change in uncertain times.

Non-Interest income/Total Income: This ratio measures the proportion of the banks total
income that comes from activities other than interest/profit-based activities like loans or
investments such as commission income. For this bank the two most major contributors seem
to be card related fees (debit and credit) and branch banking customer fees. Similar to Interest
income/Total Income it seems that from 2019 to 2021 the ratio showed little change and was
around 26%. Similarly in 2022 there was a major shift, however this time there was a
decrease of around -25% and became around 19% from 26%. From 2022 to 2023 there was a
further decrease of -19% and the ratio dropped to around 16% from 19%. A possible reason
for this is that as in 2022 PKR weakened against USD the bank shifted their approach to be
more towards loans and especially investments to make as much profit as possible due to
 Faisal Bank 5 Year Report 18

high interest rates and so comparatively non-interest income proportion in total income fell as
it could not grow at the same accelerated pace. This also shows that the bank’s diversification
level and how it has decreased over the five years and might lead to the bank having less
stability than before as they now rely more on interest income which are sensitive to market
conditions and interest rate changes rather than fee incomes.

Interest Expense/Total Expenses: This ratio measures the proportion of the bank’s total
expenses that are attributable to interest payments. Interest Expense refers to the cost of
borrowing funds, including interest paid on loans, bonds, or other forms of debt. For this
bank its two highest interest expense factors are the expenses of deposits and securities sold
under repurchase agreements. From 2019 to 2020 there was a decrease of around -11% that
shifted the ratio from around 64% to 57%. From 2020 to 2021 there was a further decrease of
around -9% that shifted the ratio from around 57% to 51%. From 2021 to 2022 there was an
increase of around 21% that shifted the ratio from around 51% to 62%. From 2022 to 2023
there was a further increase of around 5% that shifted the ratio from around 62% to 65%. A
reason for a decline from 2019 to 2021 could be that interest rates were lower but drastically
increased from 2022 that caused a massive spike in interest expense. This change could also
be because of increased debt load and more focus on investments and thus increasing interest
expense. If there is a major increase in the ratio without corresponding improvements in
financial performance could raise concerns about the company's financial health and
management decisions, potentially leading to negative investor sentiment.

Non-Interest Expense/Total Expenses: This ratio measures the proportion of the bank’s
total expenses that are attributable to non-interest payments. These include other expenses
such as credit card bonus point’s redemption, utility costs, repair and maintenance, software
maintenance, etc. From 2019 to 2020 there was increase of 22% shifting the ratio from 29%
to 36%. This increased continued for 2021 where it increased by around 8% to around 39%.
From 2021 to 2022 there was a major decrease of around -31% dropping the ratio from 39%
to 27%. In 2023 there was further decrease of around -15% bringing the ratio down to around
23%. We can see overall there was increase but that was brought into controlled and then the
ratio was greatly reduced to a five year low of 23% in 2023, this could be because its
operational efficiency increased and reducing operational costs and improving profitability. A
 Faisal Bank 5 Year Report 19

lower non-interest expense ratio can also instill confidence in investors and shareholders.
Another outcome of a lower ratio is that it could be better positioned to tackle adverse market
conditions and financial shocks.

PLL/Net Advances: This ratio represents the (Provision for Loan Losses) amount of money
that a bank set aside to cover for potential losses from loans that may not be repaid in
proportion to net advances (loans) given out by the bank. Provision for Loan Losses includes
substandard loans, doubtful, and loss loans. PLL most major contributor for Faysal bank are
loss loans which are loans that have no chance of being recovered and are a confirmed loss
for the bank. From 2019 to 2020 the ratio decreased by around -14% from around 8% to 6%.
In 2021 it continued to decrease, now an around -24% decrease to around 5%. This decline
continued in 2022 where it further fell around -17% to around 4%. 2023 kept this trend of
decline and the ratio further dropped by around 20% to around just 3%. It is interesting to
note in this five-year period the PLL/Net Advances kept falling continuously. One reason for
this could be the bank may have experienced improvements in the quality of its loan
portfolio, leading to fewer expected losses and therefore lower provisions for loan losses. The
bank might have had implemented more effective risk management practices, such as
improved underwriting standards, better monitoring of borrower creditworthiness, etc. and so
it was able to collect its loans given out by giving to those who were most likely to be able to
payback the risk. We also saw investments increased even overtaking advances position as
the most major use by the bank. This reliance of investments could mean that the bank had
less pressure to give risker loans. The bank may have diversified its loan portfolio across
different sectors or geographic regions, reducing the overall risk exposure and consequently
lowering the need for provisions for loan losses. It is also important to note that this low
PLL/Net Advances ratio indicates a stable and predictability in banks earning and potentially
boost earnings used for reinvestment but also dividends for shareholders. This coupled with
banks ability to manage credit risk effectively and maximize profit leads to boosting investor
confidence.
 Faisal Bank 5 Year Report 20

2023
(MILLIONS)

PROFIT AFTER TAX = 20046

TOTAL OPERATING INCOME= 83143

NET PROFIT MARGIN

= 20046/83143
= 24.11%

2022

PROFIT AFTER TAX = 11233

TOTAL OPERATING INCOME = 48947

NET PROFIT MARGIN

= 11233/48947
= 22.95%

2021

PROFIT AFTER TAX = 8153

TOTAL OPERATING INCOME = 34343

NET PROFIT MARGIN

= 8153/34343
 Faisal Bank 5 Year Report 21

= 23.73%

2020

PROFIT AFTER TAX = 6511

TOTAL OPERATING INCOME = 32765

NET PROFIT MARGIN

= 6511/32765
= 19.87%

2019

PROFIT AFTER TAX = 6041

TOTAL OPERATING INCOME = 28369

NET PROFIT MARGIN

= 6041/28369
= 21.30%
 Faisal Bank 5 Year Report 22

Return on equity- the DuPont Model

The Dupont model consists of three factors:

Net profit margin, asset turnover and equity multiplier.
The board of directors and shareholders may assess a company’s financial health.
Using the Dupont model, shareholders can evaluate a company's financial standing and
identify its advantages and disadvantages.
The following analysis

NET PROFIT MARGIN:

The net profit margin reflects the effectiveness of expense management including cost control
and service pricing policy. The result is derived by dividing net income after taxes by total
operating revenue . This shows the percentage of profit after all the expenses and costs
including tax has been made.
Faysal banks net profit margin 24.11% for the year 2023 is the highest in five years, as it was
22.95% in 2022, 23.74% in 2021, 19.87% in 2020 and 21.30% in 2019.
Over the course of five years (2019-2023) faysal banks net profit margin has seen a variation
of trend from decreasing during the time period of 2019-2020 to then showing a positive
trend in 2021 with a slight dip in 2022 and finally an increase in 2023.
This positive trend could be a indicator towards the company managing their expenses in a
better and efficient way and showcases their ability to control costs while being profitable

ASSET UTILISATION:
Asset utilization shows how well a business is utilizing its asset to generate a profit,
This is done by dividing total operating revenue by total assets.
Faysal bank has had a 6.80% asset utilization in 2023 which had increased from 2022’s
5.04%, followed by 4.35% in 2021 which was a dip compared to 2020’s Asset utilization rate
of 4.89% and lastly 4.61% in 2019.
This shows an overall increase in the rate of asset utilisation which means that faysal bank
has been steadily its asset to generate a profit, in 2023 for every rupee of asset faysal bank
owns they made a profit of 0.068 rs.
 Faisal Bank 5 Year Report 23

Faysal bank recorded its highest asset utilisation in 2023 with 6.80% compared with the ratio
of 2022 this was an increase of 1.76% this is a result of the total operating revenue
increasing and an increase in the yield over these earning assets.

LEVERAGE RATIO/EQUITY MULTIPLIER:

These are the financing policies and the sources chosen to fund the bank. It is calculated by
dividing total assets by total equity capital. From 2019 (14.83%) faysal bank saw a dip till
2020 which had a 14.02% leverage ratio following 2021 which had a marginal increase to
14.38%, it was not until 2022 where they improved by 2.07% to 16.45% but faysal bank
recorded its highest ratio of 18.18% in 2023.
This shows that faysal bank is incurring more debt to finance its assets and operations, this
also indicates that they will have to pay interest on that debt

RETURN ON EQUITY:
The return on equity has overall increased apart from the duration from 2019-2020 in which
it dipped from 14.57% to 13.62%, after which they continuously rose from 13.62% to
14.84% in 2021, 19.01% in 2022 and an all time high of 29.81% in 2023. This high return on
equity shows that faysal bank is becoming more effective towards generating profit from its
assets and converting its equity financing into profits and has been increasing its profitability
and has become more efficient.

2019 2020 2021 2022 2023

NPM 21.30% 19.87% 23.74% 22.95% 24.11%

ASSET 4.61% 4.89% 4.35% 5.04% 6.80%

UTILIZATI
ON

LEVERAGE/ 14.83% 14.02% 14.38% 16.46% 18.18%

EQUITY
 Faisal Bank 5 Year Report 24

2019 2020 2021 2022 2023

ROE 14.57% 13.62% 14.84% 19.01% 29.81%

5) Credit Rating:

Faysal bank’s financial statements confirm that their credit ratings are based on Pakistan
Credit Rating Agency Limited (PACRA). PACRA was founded in 1994 as the first rating
agency in Pakistan and since then it has been evaluating the capacity and willingness of
obligors to honor its financial obligations. PACRA provides objective, independent, and
expert opinions on the risk management and credit ratings of different institutions. It uses
four key rating factors for the analysis of a bank’s credit rating.

Four key rating factor are:

1. Operating environment - economic risk, industry risk, and relative positioning.

2. Bank profile - governance, ownership and support, and management quality and
strategy.
3. Risk management - credit risk, market risk, and operational risk.
4. Financial profile - earnings and performance, funding and liquidity, and
capitalization.
PACRA has a long term rating scale and a short term rating scale for credit rating. The long
term credit rating scale ranges from AAA (highest credit quality) to D (in default risk). The
short term rating scale ranges from A1+ (hight capacity for timely repayment) to A4 (low
capacity).
 Faisal Bank 5 Year Report 25

Source: https://www.pacra.com/summary_report/RR_13_11632_23-Jun-23.pdf

The table above shows the credit rating history of Faysal Bank over the years. The data is
collected from Pakistan Credit Rating Agency Limited (PACRA). Firstly, the long term
rating from the year 2019 till 2023 has remained constant at AA. This implies that Faysal
Bank has a very high credit quality and there are very low expectations of credit risk. It also
indicates that Faysal Bank has very strong capacity for timely payments of financial
commitments and it is not vulnerable to any unforeseeable events. Secondly, the short term
rating of A1+ also indicates that this bank has the highest capacity for timely repayments. A
stable outlook for last 5 years shows that this rating is not likely to change.

Ratio Analysis
We will now be looking at various ratios giving us a look into the financial standing of the
company over the last 5 years.

1. Expense Control Measures

Expense control measures are used to evaluate the expense-managing capabilities of a firm. A
firm with high expenses would therefore have less profit or funds available for other means.
Faisal Banks operating expenses are relatively low throughout the 5 years. However interest
expense has been steadily increasing from 5.91% in 2019 to 8.63% in 2023, indicative of
greater costs associated with borrowing funds to finance its operations. This could be due to
several reasons such as greater borrowing, higher interest rates, or an asset-liability
mismatch.
 Faisal Bank 5 Year Report 26

Interest expense/Interest bearing liabilities have also increased from 9.24% in 2019 to
13.33% in 2023. This indicates that the cost of borrowing has gone up. Interest-bearing
liabilities were calculated by adding deposits and bill payables and subtracting current
account deposits.

2. Credit Risk Ratios

Credit risk ratios showcase valuable insights into a bank's exposure to credit risk and asset
management capabilities. It helps us assess a banks loan portfolio and its ability to manage
credit risk effectively. These ratios can help us identify emerging risks, and effectively plan
against them, we can analyse where the company is going wrong, and then take necessary
steps needed to correct them.

Non-Performing Loans/Gross Advances and leases

The last 5 years have shown a fall in the ratio, meaning it has shown a consistent downward
trend over the past five years, indicating improving asset quality and reduced credit risk for
the bank. This can be due to more effective lending practices, risk management and better
loan approval mechanisms.

Charge offs/ Gross Advances and Leases

Charge offs are barely existent. The ratios were near 0. The bank did not have to charge off
much and were doing very well in this regard

PLL/ Gross Advances and Leases.

Between 2019 and 2023, the PLL/Gross advances and leases ratio showed a consistent
downward trend. From 7.03 in 2019 to 3.19 in 2023, it declined gradually. This declining
 Faisal Bank 5 Year Report 27

trend points to increased loan loss provisioning efficiency, which implies improved risk
control procedures and maybe reduced credit losses. Over the time, the bank has experienced
improved asset quality and decreased exposure to credit risk, as evidenced by the declining
ratio.

Gross Advances/Total deposits

Gross advances made up the majority of the total deposits each year. Yet showcased a steady
decline from 72% in 2019 to 59% in 2023. This declining trend could point towards the fact
that the previous two ratios are somewhat losing their authority. This is a positive trend
though, showing that the bank's loan portfolio is smaller relative to its deposit base,
suggesting lower reliance on borrowing or other funding sources to support lending.

3. Liquidity Risk Ratios

The CASA Ratio has been fairly stable at around 75% throughout the 5 years. A high point
of 80% was reached and a low point of 70.70 %. The ratio measures the total deposits in a
bank in relation to current accounts and savings accounts. Faisal Bank has managed to keep
an impressive ratio throughout the years and as such is performing in a positive way.

Government sector investments have been steadily increasing from 21% to 38%.
Government sector investments are always more secure and as such it is a positive outlook
that they are increasing the percentage of investments in government investments. This
indicates a conservative investment approach, focusing on safety and liquidity provided by
government securities.

Cash assets at other banks were a negligible amount as compared to total assets, rounding
down to 0% each year. This could be due to the investment strategy of the bank.

Liquidity Coverage Ratio

 Faisal Bank 5 Year Report 28

The liquidity Coverage Ratio is a measure of a bank's ability to withstand liquidity stress for
a 30-day period. The formula for calculating the LCR is as follows:

LCR = High-Quality Liquid Assets (HQLA) / Net Cash Outflows over the next 30 days.

The values showcase that the bank generally meets a healthy position in the given time
period. The variations in the ratios over time (from 1.42 to 2.14), could be caused by shifts in
the market, in regulations, or in the bank's operations and point to variations in the bank's
liquidity position.

4. Profitability Ratios

ROA

The return on assets is slowly increasing, and has a value of around 1%, which indicates a
healthy ratio and is the industry average. No major changes show that the bank7s profitability
is relatively stable.

Equity Multiplier

A higher Equity Multiplier indicates a higher degree of financial leverage or reliance on debt
financing. This means that the bank is relying less on equity and more on debt. The value
went from 12 to 15.

Net Profit/ Return to total revenue

This showcases a healthy trend, profitability has gone up in the last 5 years, from 75% to
85.46%

Net Operating margin

The trend showcases initial stability till 2021 and then a subsequent increase in the
profitability. This can be due to a number of reasons, efficient management techniques and
operational improvements boosting the business's profitability and value creation
 Faisal Bank 5 Year Report 29

5. Market Measures

Earning Per Share

The earning per share has increased each year leading to a more that 100% increase in 5
years. This can be attributed to higher than normal profits, value generation and an increase
in investor confidence.

The value of stock

The value of stock has increased from 21.8 o 32.58. This can be attributed to factors such as
revenue growth, cost management, or increased efficiency in operations. The value of stock
can also increase due to the increase in demand of the stock, attributed to a higher EPS.

The PE Ratio

The price-to-Earning (P/E) ratio for the last 5 years is showing an increasing trend, showing
growing investor optimism about the company's potential for future profit growth. The ratio
indicates that the firm is doing very well and that it has a very bright future. An increase in
the P/E ratios indicate that investors are optimistic and anticipate continued growth,
indicating that they are willing to pay a premium for earnings.

Market Capitalization of the Bank

 Faisal Bank 5 Year Report 30

The overall market capitalization of the bank has been increasing for some time. This is due
to both th number if shares available in the market increasing as well as their value increasing
in the stock market. This trend indicates greater leverage over competitors in the market.

6. Capital Adequacy Ratio

The Capital Adequacy Ratio shows fluctuations, indicating changes in the company's ability
to maintain the expected levels of capital. It has mainly gone into a decline, showing the
banks lending practices have some problems. The ratios for Total Assets to Total Equity and
Total Liabilities to Total Equity remain relatively stable, suggesting a consistent balance
between equity and debt financing. The Tier 1 Capital Adequacy Ratio fluctuates, indicating
variations in the quality of the company's core capital relative to its risk-weighted assets.
Overall the firm seems to be in a stable position in the last 5 years

Ratio Calculation Minimum Bank’s Bank’s Bank’s Bank’s Bank’s

Requirement holding holding holding holding holding
by SBP % % % % % %

2019 2020 2021 2022 2023

Total Total 12% 19.92% 19.44% 18.20% 16.38% 18.19%

Capital/Risk-
 Faisal Bank 5 Year Report 31

Capital Weighted Assets

Tier 1 Tier 1 9.5% 15.45% 16.02% 15.67% 12.93% 14.68%

Capital Capital/Risk-
Weighted Assets

Leverage Tier 1 3% 5.80% 5.95% 5.44% 4.50% 4.60%

Capital/total
exposure

7) Conclusion
The first and foremost one is that Faysal bank continues its asset utilization which has
increased by 1.74% from last years. In the equity area the company had an impressive
increase of 10% from the previous year which showcases how the bank is gearing towards
more efficiency and profitability. The bank has also kept its own standards high by
maintaining AA credit rating for the past six years, there are very low expectations of credit
risk. It also indicates that Faysal Bank has very strong capacity for timely payments of
financial commitments and it is not vulnerable to any unforeseeable events. The value of
stock has a continuous increase and its most recent one is 11% which solidifies the banks
position in the market as well as providing a solid foundation for its shareholders.
 Faisal Bank 5 Year Report 32

Recommendations
The bank should target customers which are in the industry that the bank already lends to
increase outreach. The bank can focus on attracting more deposits from the textile industry.
The bank’s loan portfolio should be broadened by investing in successful industries such as
Chemical, Automotive, textiles, and energy industries. Self-banking is a new concept which
should be implemented by the bank as well.

Future Plans
FBL’s strategic roadmap includes further technological integrations, expansion into emerging
markets, and a relentless pursuit of excellence in customer service. FBL envisions a future
whereby it will continue to be a catalyst for positive change, fostering modern financial well-
being, globally.

Details of Lending and Advances

 Lending to Financial Institutions

2023: Rs- 0

2022: Rs. 9,815,098

2021: Rs. 0

2020: Rs. 2,985,000

2019: Rs. 0

 Gross Advances

2023: Rs. 600,761,578

2022: Rs. 473,589,634

2021: Rs. 416,785,477

2020: Rs. 339,745,286

 Faisal Bank 5 Year Report 33

2019: Rs. 333,811,345

 Total Advances
 2023: Rs. 624,292,526
 2022: Rs. 494,572,099
 2021: Rs. 424,254,356
 2020: Rs. 345,785,655
 2019: Rs. 340245431

Summary

Lending to financial institutions saw a 100% decrease in 2019, then an increase of 100% in
2020, and last year it stood at 9,815 million in 2022 but now it went through a 100%
decrease. The total advances represent the overall lending portfolio of the bank, which
includes lending to financial institutions and gross advances. This data helps reveal the
bank’s lending activities and its exposure to different segments of the economy. It is vital in
determining the bank’s risk profile, profitability, and potential impact on its financial stability