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Friday, 28 March 2014

Pakistan:Faysal Bank to turn to the Islamic banking system

KARACHI: Faysal Bank is going to turn itself into a full-fledged Shariah-compliant institution in the next two to three years.
Quoting the CEO of Bahrain’s Ithmaar Bank – which owns a 66.7% stake in Faysal Bank along with associated companies, undertakings and related parties – news agency Reuters has reported the Gulf-based Islamic retail bank wants to consolidate its business line.
According to Ithmaar Bank CEO Ahmed Abdul Rahim, the Islamic bank wants to extract up to $35 million in savings from a turnaround plan after posting a net loss of $79.3 million last year.
Faysal Bank operates 216 branches for conventional banking and 58 branches for Islamic banking. It is in discussion with the State Bank of Pakistan (SBP) on the conversion of the entire operations to Shariah-compliant banking, Rahim told Reuters. In case Faysal Bank gets regulatory approvals, its conventional banking arm will merge into its Islamic banking operations.
According to Standard Capital Securities Research Analyst Rajesh Kumar Maheshwari, earnings per share of the bank are expected to increase from Rs1.77 in 2013 to Rs3.54 in 2014. Faysal Bank’s profit after tax for 2013 remained Rs1.85 billion, which was 30.28% higher than the net profit recorded in the preceding year.
The majority shareholder intends to add two more members to Faysal Bank’s board while its shareholding in the bank is expected to remain unchanged.
After increasing at an annualised rate of 9.95% for the last three years, total assets of Faysal Bank stood at Rs355.2 billion at the end of 2013. The annual increase in deposits has been 11.55% during 2010 and 2013.
Maheshwari believes Faysal Bank is focusing on increasing its margins by acquiring low-cost deposits and strengthening its current and savings accounts (CASA) mix. “As per the 2013 report, the bank was able to improve its CASA mix to 64.9% against 60.9% reported in 2013,” he said.
He added that Faysal Bank has the highest advances-to-deposits (ADR) ratio of 68% among middle-tier banks given that their ADR ratios hover around 45%-50%. “This is a double-edged sword for Faysal Bank, as it needs to jack up its deposit base,” he said.
He noted that Faysal Bank has benefited by its growing Islamic banking segment, which posted 36% year-on-year increase in deposits. Referring to the absence of the minimum rate of return condition on Islamic deposits, he said the substantial growth in this segment will help attain Faysal Bank low-cost deposits.
The market share of Islamic banking assets in the overall banking industry increased from 9.5% in September 2013 to 11.2% at the end of 2013. Similarly, the market share of Islamic banking deposits in the total banking industry increased from 10.1% by the end of September to 12.1% on December 31.

(The Express Tribune / 28 March 2014)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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