CHAPTER No. 1 INTRODUCTION Faysal Bank started operations in Pakistan in 1987, first as a branch set-up of Faysal Islamic Bank of Bahrain and then in 1995 as a locally incorporate Pakistani bank under the present name of Faysal Bank Limited. On January 1, 2002, Al Faysal Investment Bank Limited, another group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger, stronger and much more versatile institution. In fact it has the highest share capital amongst private banks in Pakistan and is amongst the largest in terms of equity. Faysal Bank Limited is a full service banking institution offering consumer, corporate and investment banking facilities to its customers. The Bank’s widespread and growing network of branches in the four provinces of the country and Azad Kashmir, together with its corporate offices in major cities, provides timely and differentiated services in an effective manner. The strength and stability of Faysal Bank Limited is evident through the 1
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CHAPTER No. 1
INTRODUCTION
Faysal Bank started operations in Pakistan in 1987, first as a branch set-up of Faysal Islamic
Bank of Bahrain and then in 1995 as a locally incorporate Pakistani bank under the present
name of Faysal Bank Limited. On January 1, 2002, Al Faysal Investment Bank Limited,
another group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger,
stronger and much more versatile institution. In fact it has the highest share capital amongst
private banks in Pakistan and is amongst the largest in terms of equity. Faysal Bank Limited
is a full service banking institution offering consumer, corporate and investment banking
facilities to its customers.
The Bank’s widespread and growing network of branches in the four provinces of the country
and Azad Kashmir, together with its corporate offices in major cities, provides timely and
differentiated services in an effective manner. The strength and stability of Faysal Bank
Limited is evident through the Credit Rating assigned by JCR-VIS Credit Rating Company
Limited of “AA” (Double A) for long to medium term and “A-1+” (A One Plus) for short
term.
The majority share holding of Faysal Bank Limited is held by Ithmaar Bank B.S.C an
investment bank listed in Bahrain. The remaining shareholders comprise of general public,
NIT and other Pakistani institutions.
VISION
“Excellence in all that we do.”1
MISSION
“Achieve leadership in providing financial services in chosen markets through innovation.”
Group Information
Ithmaar Bank B.S.C. is licensed by the Central Bank of Bahrain and listed on the Bahrain
Stock Exchange (ITHMR). It has a paid-up capital of US$360 million, total equity of US$1.1
billion and is a full investment bank with its direct business covering the Middle East and
North Africa (MENA) region, as well as South Asia, Asia-Pacific and Europe. Besides
holding significant investments in the banking, financial services and real estate sectors in
different markets, the main activities of the Bank include underwriting (equity and other
financings), private equity (structuring, participation and portfolio management), Islamic
financing, private banking, and advisory services covering project financing, investments,
capital markets and mergers & acquisitions.
Capital and Ownership
The majority share holding of Faysal Bank Limited is owned by companies of the Dar Al
Maal Al Islami Trust (DMI) including Shamil Bank of Bahrain E.C. The remaining
shareholders comprise of the general public, NIT and other Pakistani institutions. The Bank’s
shares are quoted on the Karachi and Lahore Stock Exchanges.
Conformity to Islamic Sharia’a
The Holy Quran outlines for Muslims a complete code of life for dealing individually or
collectively. This is future amplified by saying and practice of Holy Profit(May be upon him)
From these guidelines , an Islamic economic system can be elaborated upon, aimed at
creating a socially, economically and politically viable and just environment supporting the
universal well being of humanity
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In this context all functions of the bank are performed in strict adherence to the principles of
Islamic Sharia’a. In order to ensure such conformity of Sharia’a, the Bank operations are
checked and monitored by its Religion Supervisory Board to whom the management reports
periodically. In case of new operations and activities prior approval of Religious Supervisory
Board is invariably obtained by the bank management.
The Religious Supervisory Board of the bank itself comprises eminent scholars of Islamic
Sharia’a from Bahrain, Egypt, Saudi Arabia, Turkey, and Pakistan possessing in-death
knowledge of the conditions in which the Bank operates. The Groups Religion Board,
composed also of many internationally renowned Islamic Scholars, provides advice from
time on issue that pertain to Group level implementation
Board of Directors
Syed Naseem Ahmad Chairman
Naved A. Khan President & CEO
Graham Roderick Walker Director
Mohamed A. R. Hussain Director
Mohammed A. Rahman Bucheerei Director
Farooq Rahmatullah Director
Tariq Iqbal Khan Director
Shahid Ahmad Director
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The members of the board are highly respected individuals who have substantial knowledge
and experience of corporate law and regulatory practices and running successful businesses,
industries and financial sector enterprises.
The day to day affairs of the bank are managed by professionally qualified and experienced
finance, business and banking professionals with substantial exposure in their respective
fields of specialization providing the bank with a fine blend of expertise in various
financials/banking disciplines under one roof.
Management Information
Naved A. Khan President & CEO
Nauman Ansari Head of Corporate & Investment Banking
and Acting Head of Commercial Banking
Aarij Ali Head of Retail Banking & Acting Head of
Strategic Development
Salman Ahmed Usmani Head of Treasury
Ahmed Kamran Head of Services
Mehreen Amin Head of Human Resources
Nasir Islam Head of Compliance
Bashir A. Shaikh Advisor on Special Assets and Acting Chief
Risk Officer
Syed Majid Ali Chief Financial Officer
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PRODUCTS AND SERVICES
FBL offers a wide range of banking products and services to public and private sector
corporations, partnerships, individuals, professional, and expatriate Pakistan working abroad.
These include:
Deposit Products (Accounts)
Faysal Savings Account
Rozana Munafa Plus Account
Basic Banking Account
Faysal Moavin
Faysal Premium
Faysal Izafa
Mahfooz Sarmaya
FCY Saving Plus
Faysal Savings Account
Faysal Savings is specially designed to cater to the need of those who like to earn on their
hard earned savings. This account provides convenience for the account holders.
Faysal Sahulat
Faysal Sahulat is a transactional account specially designed for individuals and business
customers who seek instant access to their funds at any FBL branch in Pakistan.
Rozana Munafa Plus
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Rozana Munafa Plus is a savings account in which profit is calculated on day end balance,
and is disbursed on a monthly basis. The customer gets benefited because it provides
customer with the option of a high value, monthly profit account.
Basic Banking Account
As per SBP prudential communicated via BPD circular No.30, Faysal Bank has introduced
the Basic Banking Account (BBA) to cater the needs of low income groups having the
following features.
Faysal Moavin Savings Account
Faysal Moavin is a Savings account made for genuine individual savers. Faysal Moavin
offers the perfect combination of savings account matched with the flexibility of a current
account.
Faysal Premium
Faysal Premium is a savings account specially designed for high value deposits with
attractive profit rates.
Faysal Izafa
Faysal Bank realizes that every customer's financial needs are different. As a result, the
Faysal Izafa Term Deposit is designed to provide individuals and corporate customers an
opportunity to grow their money securely and earn attractive profits.
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Faysal Mahfooz Sarmaya
Faysal Bank endeavors to build and strengthen customer relationships by providing
innovative banking products and services. To provide convenience and value to customers
with foreign currency related needs, Faysal Bank's Mahfooz Sarmaya foreign currency
account offers attractive features:
FCY Saving Plus
FCY Saving Plus is a new foreign currency savings account with attractive profit rates where
Provision Against Non Performing Loans 1797432 517027 -19026 51609 208097
Bad Debts Written Off Directly - 67 1118 141
Other Provisions / Write Offs 6061 - - 1742
Other Charges 9855 32857 2220 1150 11935
Total Operating Expenses 4613095 2416535 1412024 2377098 1056669
Profit Before Tax 2697827 3870340 4018476 2207470 2745272
Less: Tax 425719 1053768 902338 454000 593928
Profit After Tax 2272108 2816572 3116138 1753470 2151344
Faysal Bank Ltd
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Vertical analysis of Income statement
Years 2008 2007 2006 2005 2004
Mark Up / Interest Income
100.00 100.00 100.00 100.00 100.00
Fee, Commission And Brokerage Income
6.41 6.21 9.21 14.42 12.11
Divided Income
10.52 12.84 11.42 25.33 36.81
Income After Dealing In Foreign Currencies
2.70 1.24 1.51 5.90 5.18
Other Income
0.38 4.60 -0.02 0.18 0.12
Total Income:
120.00 124.90 122.12 145.84 154.22
Less: Mark Up / Interest Expenses
64.25 62.59 52.38 40.61 45.62
Gross Profit
55.76 62.30 69.75 105.23 108.60
Less: OPERATING EXPENSES
Administrative Expenses
24.11 19.19 22.61 41.21 40.24
Provision Against Non Performing Loans
15.48 5.31 -0.30 1.87 10.03
Bad Debts Written Off Directly
0.00 0.00 0.00 0.04 0.01
Other Provisions / Write Offs 0.05 0.00 0.00 0.00 0.08
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Other Charges
0.08 0.34 0.04 0.04 0.58
Total Operating Expenses
39.73 24.84 22.34 86.33 50.93
Profit Before Tax
23.24 39.79 63.59 80.17 132.33
Less: Tax
3.67 10.83 14.28 16.49 28.63
Profit After Tax
19.57 28.95 49.31 63.68 103.70
Faysal Bank Ltd
Horizontal analysis of Income statement
Years 2008 2007 2006 2005 2004
Mark Up / Interest Income
559.66 468.91 304.61 132.72 100
Fee, Commission And Brokerage Income
296.16 240.32 231.64 158.07 100
Divided Income
159.91 163.61 94.51 91.33 100
Income After Dealing In Foreign Currencies
291.79 112.58 88.81 151.15 100
Other Income
1715.78 17529.68 -40.09 197.73 100
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Total Income:
435.48 379.74 241.21 125.50 100
Less: Mark Up / Interest Expenses
788.12 643.35 349.71 118.13 100
Gross Profit
287.34 269.00 195.63 128.60 100
Less: OPERATING EXPENSES
Administrative Expenses
335.40 223.61 171.17 135.93 100
Provision Against Non Performing Loans
863.75 248.45 -9.14 24.80 100
Bad Debts Written Off Directly
0.00 47.52 0.00 792.91 100
Other Provisions / Write Offs
347.93 0.00 0.00 0.00 100
Other Charges
82.57 275.30 18.60 9.64 100
Total Operating Expenses
436.57 228.69 133.63 224.96 100
Profit Before Tax
98.27 140.98 146.38 80.41 100
Less: Tax
71.68 177.42 151.93 76.44 100
Profit After Tax
105.61 130.92 144.85 81.51 100
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RATION ANNALYSIS RATION ANNALYSIS
Short Term Liquidity Analysis:
Current Ratio
Current ratio =Current Assets/Current liabilities
Year 2004 2005 2006 2007 2008
Current ratio 1.49 1.588 1.48 1.75 2.08
Interpretation:
Current ratio is used to assess the short term debt paying ability of the firm. FBL in starting was not good in paying its short term debt but now in 2008 it is very good in short term paying ability .Its reason is FBL now have much focus on deposits and reserves, now they can pay its liabilities immediately.
Quick Acid Test RatioAcid-test ratio =Current assets – Inventory/Current liabilities
Year 2004 2005 2006 2007 2008
Quick acid test
ratio 1.35 1.48 1.37 1.75 2.0
Current Ratio
0
0.5
1
1.5
2
2.5
2004 2005 2006 2007 2008
Years
Current Ratio
63
Interpretation:
Acid test ratio is useful in measuring the liquidity position of the firm. It is more liquid ratio than current ratio. Here the result of current ratio and Acid test ratio is almost same because the reason is that FBL has no inventory so, the result of both ratios are same.
Cash Ratio
Cash ratio =Cash Equivalents + Marketable Securities/Current liabilities
Year 2004 2005 2006 2007 2008
Cash Ratio 0.113 0.178 0.121 0.161 0.163
Quick Acid Test Ratio
0
0.5
1
1.5
2
2.5
2004 2005 2006 2007 2008
Years
Quick Acid TestRatio
Cash Ratio
0
0.05
0.1
0.15
0.2
2004 2005 2006 2007 2008
Years
Cash Ratio
64
Interpretation:
The cash ratio indicates the immediate liquidity of the firm. A high cash ratio indicates that the firm is not using its cash in a better way. While the cash ratio which is too low could indicate an immediate problem with paying bills. The cash ratio of FBL in 2007 and in 2008 is remain stable.
Working Capital
Working capital= Current asset – Current liabilities
Year 2004 2005 2006 2007 2008
Working capital(Rs
) 15253891 28367022 35327904
47500530
70308646
Interpretation:
It is also used to indicate the short term solvency of the business. The higher the ratio the better the position of company in debt paying. The working capital ratio of FBL is sharply increases every year from 2004 to 2008 because its liabilities are decreases.
Profitability Analysis Ratio:
Net Profit Margin
Net profit margin = Net profit / Total income
Working Capital
0
20000000
40000000
60000000
80000000
2004 2005 2006 2007 2008
Years
Working Capital
65
Year 2004 2005 2006 2007 2008
NPM (%) 23.13% 35.70% 35.08% 23.79% 9.15%
Interpretation:
This ratio is used to measure the profit return on sales. It is used to measure net income generated by each rupee of sale. The higher the ratio the better the company in profitability. The ratio of FBL is going to decrease from 2006 to 2008; this thing indicates that FBL is not in position in profitability.
Operating Profit Margin
Operating profit margin =Operating income/ Net sales
Operating profit is "pure" because they measure only the profit earned on operations. The Operating Profit Margin is going to decrease every year from 2004 to 2008 because of increase in expenses, this thing is not better for FBL.
Return on Average Asset
Return on average assets = Net operating income/ Total assets
Year 2004 2005 2006 2007 2008
ROA (%) 5.11% 2.78% 3.25% 2.5% 1.77%
Interpretation:It is also called firms return on investment (ROI). It measures the overall effectiveness of management in generating profit with its available assets. Higher this ration better is company, but FBL ROA show decreasing trend expect of 2004. This show that FBL is not in good in profitability.
Operating Profit Margin
0%
50%
100%
150%
2004 2005 2006 2007 2008
Years
Operating ProfitMargin
Return on Assets
0.00%
2.00%
4.00%
6.00%
2004 2005 2006 2007 2008
year
Return onAssets
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Return on Equity
Return on equity (ROE) = Net Income/ Average stockholder’s equity
Year 2004 2005 2006 2007 2008
ROE (%) 44.22% 29.57% 42.74% 32.67% 23.33%
Interpretation:
It measures the overall effectiveness of management in generating profit with its Shareholder’s equity. Shareholders of the bank may be interested in this ratio as to check the firm’s effectiveness in using the capital provided by them. This ratio measure both common and preferred shareholders. Higher this ratio, more effective the firm is .Return on total asset ratio of FBL shows decreasing trend.
Return on Common Equity
Return on common equity = Net income/ Average total asset
Year 2004 2005 2006 2007 2008
Return on common equity 44.22% 29.57% 42.74% 32.67% 23.33%
Return on total Equity
0.00%
20.00%
40.00%
60.00%
2004 2005 2006 2007 2008
Years
Return on totalEquity
68
Interpretation:
It measures the return only to the common shareholders. The Return on equity of FBL is decreasing in 2007 and in 2008. Its mean that the profit by using common equity is decreasing.
Long term Solvency Ratio:
Debt Ratio
Debt Ratio = Total Liabilities/Total Assets
Year 2004 2005 2006 2007 2008
Debt Ratio (%) 83.24% 86.57% 86.75% 88.05% 88.56%
Return on Common Equity
0.00%
20.00%
40.00%
60.00%
2004 2005 2006 2007 2008
Years
Return onCommon Equity
69
Interpretation:
The debt ratio indicates the percentage of assets financed by creditors, and how well creditors are protected in case of solvency. The lower the ratio the better the company position in long term liability. Here the debt ratio of FBL is going to increase from 2004 to 2008, so, this thing is not better for FBL.
Debt to Equity Ratio
Debt equity ratio =Total liabilities/Shareholders Equity
Year 2004 2005 2006 2007 2008
Debt to Equity ratio 706% 117.9% 109% 108.9% 119.6%
Debt Ratio
80.00%82.00%84.00%86.00%88.00%90.00%
2004 2005 20062007 2008
year
Debt Ratio
Debt To Equity Ratio
0%
200%
400%
600%
800%
20042005200620072008
year
Debt To Equity Ratio
70
Interpretation:
It also tells that creditors are protected in case of insolvency. The lower the ratio the better the company's debt position. Debt/Equity Ratio indicate the outsider's portion of equity. The outsider's proportion in total equity is decreasing each year in previous 5 years but it is still very bad for FBL because its proportion is so high.
Analysis for the Investor:
Earnings per Share
Earning per share (EPS) = Net Income/ Weighted average no of shares outstanding
Year 2004 2005 2006 2007 2008
EPS 8.12 6.02 8.33 6.65 4.29
Interpretation:It represents the number of rupee earned on behalf of each outstanding share of common stock. The graph shows the decreasing trend in 2007 and in 2008 while in 2006 the ratio is high but after that decreases.
Price Earning Ratio
Price earning ratio = Market price of common stock per share/ Earning per share.
EPS(Rs)
0
2
4
6
8
10
2004 2005 2006 2007 2008
Years
EPS(Rs)
71
Year 2004 2005 2006 2007 2008
P/E (%) 4.43% 7.23% 8.89% 9.10% 15.35%
Interpretation:It measures the amount investors willing to pay for each rupee of the firm’s earning. It also shows the degree of confidence of investors on firm. Higher this ratio higher is the investor’s confidence. Here this ratio indicates the increasing trend from 2004 to 2008 and its better for company.
Dividend Payout Ratio
Dividend payout =Dividend per Common share/Diluted earning per share
Year 2004 2005 2006 2007 2008
Dividend payout ratio 55.42% 74.75% 42.01% 75.19% 58.27%
Price Earning Ratio
0.00%
5.00%
10.00%
15.00%
20.00%
2004 2005 2006 2007 2008
Years
Price EarningRatio
72
Interpretation:
This ratio indicates that from earnings what percent of it given to outsiders inform of dividends. Here it shows that from 100 Rs earnings a big portion of it is given to outsiders. This thing FBL is very attractive for investors.
Dividend Yield
Dividend Yield =Dividend per common share/ Market price per common share
Year 2004 2005 2006 2007 2008
Dividend yield ratio (%) 12.50% 10.34% 4.72% 8.26% 3.79%
Dividend Payout Ratio
0.00%
20.00%
40.00%
60.00%
80.00%
2004 2005 2006 2007 2008
Years
Dividend PayoutRatio
Dividend Yield 12.50%
0.00%
5.00%
10.00%
15.00%
2003 2004 2005 2006
Years
Dividend Yield12.50%
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Interpretation:
This ratio indicates that from investment how much dividend is generated. The higher the ratio the better the position of company. Here the ratio has decreasing trend from 2004 to 2008 and it is very disappointed for investors.
Book Value per Share (Rs)
Total stockholder equity –preferred stock equity/ No. of common shares outstanding
Year 2004 2005 2006 2007 2008
Book Value per share(Rs) 21.19 21.46 22.02 21.55 19.53
Interpretation:
It indicates the amount of stockholders equity that relates to each share of outstanding common stock. It also compare with market price per share. If book value is less than market price per share its mean it is overprice share bur if book value is high than market value per share than it is under price.
Book Value Per Share(Rs)
181920212223
2004 2005 2006 2007 2008
Years
Book Value PerShare(Rs)
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SWOT ANALYSIS
Strengths
FBL has strong background because it is backup by sheikh of Saudi Arabic.
FBL has much focus on personal marketing for this purpose they send letters to every client whenever they launch any new product or service.
The software which is used in FBL is managed in Singapore.
Its deposits are 48 cruor in Rahim Yar Khan branch , it is on second in R.Y.K
The bank has established a good branch network within a short span of time.
FBL has a countrywide network of online branch banking business and ATM’s in all major cities of the country.
Bank has well-developed intra-net and inter-net communication network.
FBL offer Pocket mate card which is acceptable worldwide at more than 10 lack ATM machines.
During the year Faysal bank was placed in the top 25 performing companies by the Karachi Stock Exchange (KSE) for the year 2003.
The annual report of Faysal bank for 2006 won the first price in the Best Corporate Rewards
Weaknesses
Bank has no adequate number of branches as compared to its competitors like Askari Bank etc.
To improve the services and to handle the problem of customers, the bank has no customer complaint department.
The procedure and documentation for loaning is very difficult.
No job security is there for the employees, and no union exits to secure them.
As every person in the bank has his/her own computer in the branch but he or she are not well equipped with the knowledge of using the computer efficiently.
Bank has no grievance-handling department for the internal problems of the employees.
Due to lack of computer specialist at branch level it has to take assistance from the head office so in case they waste their lot of time.
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Opportunities
FBL can introduce special schemes of lending for potential small industries.
Increase the capacity of branch instead of going towards overstaffing.
Bank has no foreign branches so it should open its branches outside the country
FBL has applied for a license for separate "Islamic banking branches"
Barclays' which is an American bank wants to takeover FBL, in this situation there overall system become international.
Threats
SBP levy heavy penalties on bank in case of violating the prudential regulations especially in case of advances.
Now the other players of banking are also providing the modern technology based services like online and Internet banking facility so there is no more competitive advantage in this area
The bank stop it's working in case of system failure or in load shading.
Responding to the SBP's l regulations management takes too much care while granting loans.
Because of takeover of Barclays it is a big threat that the top management will totally change.
Because the takeover of Barclays new and strike rules and regulations will impose on employees.
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CHAPTER NO. 5
CONCLUSION AND RECOMMENDATIONS
CONCLUSION
Faysal Bank Limited is a full service banking institution that offers consumer, corporate and
investment banking facilities to its customers. The bank offers a variety of consumer products
such as auto finance, home loans, saving schemes and debit cards.
The bank also offers specialized products for the agricultural sector. Its trade finance services
include a range of import, export and guarantee products. The bank also offers services such
as cash management, automated teller machines, traveler’s cheque, transfer of funds, safe
deposit lockers and non stop banking.
Faysal Bank continues to pursue a goal of improving upon its risk management procedures
with the aim of attaining full compliance of the State Bank of Pakistan guidelines.
I observed Faysal Bank Limited a financially sound bank. Its profits are increasing year by
year. Its staff is very good and sincere with bank.
Faysal Bank views specialization and service excellence as the cornerstone of its strategy.
The people at Bank realize that innovation, creativity, reliability, customized services and
their execution are the key ingredients for their future growth
They are aware that they have stepped into 21st century and they must meet its challenges by
acquiring the highest level of technology. They will thus be accelerating their technological
advance to enable them to distribute their products and services through most efficient and
modern technology means.
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RECOMMENDATIONS
Global competition, customer attrition and the pressures to reduce the operating costs have
created a harsh environment for the world’s financial institutions. Banks face many
challenges in today’s dynamic market place. In a global economy, bank needs efficient
development of products that can quickly satisfy a more demanding customer base and build
long term customer trust. Customers now have many choices than ever before. Many
institutions are struggling to find the right mix of retail and commercial strategies as well as
the optimal way to combine their self service, online and branch channels.
In order to cope with today’s turbulent environment, Faysal Bank must adopt a strategic
approach toward information and process management that enables customer centricity,
demonstrates a commitment to world class customer service and improve the depth of their
relationship with customers.
I have a very limited knowledge to give suggestions about the bank. But my stay in Faysal
Bank as an internee has given the chance to explore different aspects of the organization. In
view of these aspects, I have some suggestions for the bank which are as follows:
Faysal Bank should increase the efficiency and effectiveness of their marketing
campaigns.
Faysal Bank should have a close look on regularity measures of anti-money
laundering.
Effective implementation of corporate governance is the key for sustainability of
banking sector. Faysal Bank should also consider this point.
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The promotion criterion in Faysal Bank is not satisfactory. It must initiate reasonable
steps for the improvement of this system and should develop a performance based
reward system.
One way to retain customers is to offer a wide range of services such as tax advice,
free life insurance equivalent to amount deposited, shares portfolio management and
fund management facility etc. Banks should have a slightly different mix of services
and means of providing these such that customers can choose the mix that suits them
best.
The top management should immediately start thinking in terms of rotating the
employees in various departments, as this transforms work force into human capital.
If a particular individual keeps on employing his/ her efforts in one sphere of banking
it would not only create a sense of monotony and boredom, but also let the employees
not interested in polishing their skills.
One of the most pressing needs of the time is to advertise the products and services in
the electronic media. Faysal Bank Limited has not yet employed advertisement in
electronic media as a full fledge marketing tool, It should start doing this as a mean to