KARACHI (August 04 2003) : Faysal Bank Ltd witnessed a robust growth in the six months ended on June 30, 2003, where its profits almost tripled, compared with last year, on account of increase in dividend income and capital gains.
The result of the first half of the current fiscal year verifies the reason of investors' improved sentiment in Faysal Bank's stock that has surged by 39 percent (outperforming the market by 20 percent) during the last over a one and a half month.
Faysal's profitability has greatly benefited from the capital gains and dividend income, predominantly resulting from equity investments by the bank, which added another Rs 496 million in the latest quarter in addition to Rs 547 million already earned during the 1Q-FY03, increasing the net income to Rs 943 million (EPS: Rs 3.56 per share) up by Rs 629 million (200 percent) as against Rs 314 million reported in the same period last year, says a report prepared by Iffat Zehra Mankani, head of research at Capital One Equities.
While on quarter-to-quarter basis, the second quarter reports a decline of around 31 percent in the net income, the board of directors of the bank has also declared an interim cash payout of Rs 2.5 per share.
As far as the business earnings are concerned, the bank has shown improvement under this head, owing to the net interest margin that shows an improvement of 22 percent.
The net interest margin of the bank for the first half of 2003 stood at 48 percent as compared to 26 percent recorded in the same period last year.
The improvement has arrived, despite reporting a lower interest income figure that has decreased by 39 percent to Rs 1,087 million from Rs 1,769 million in the corresponding period of 2002.
The probable negative impact of low interest rates has been taken care of by managing to report lower expense on deposits through reduced rates and maintaining a more profitable deposit mix.
Furthermore, lowering of interest rates for lending purpose being a slower phenomenon in relation to lowering of returns offered on deposits that is much quicker has resulted in better margins for almost all the commercial banks and so does for Faysal Bank.
On the expense side, the bank has kept a cushion of Rs 355 million to cover any potential non-performing finances and losses in future while administrative expenses have increased by a nominal Rs 77 million.
The merged entity (amalgamated with Al-Faysal Investment Bank in FY02) also managed to report a higher profit after tax because of the lower provisioning for taxation.
However, apart from the increase in net interest margin and investment income that has increased the bottom line of the bank, growth in deposits and advances are major factors in determining the long-term growth of any bank.
During the first quarter of FY03 and as well as in FY02, the deposits and advances of the bank have not shown any attractive growth and therefore, we would be back with our revised earning forecast and deposit and advance analyses of Faysal Bank once the balance sheet figures for 1H-FY03 are made available, the report said.
For the time being, it is believed that the bank's plans of floating a mutual fund and its consistent influx in housing and consumer finance business, coupled with focus on adding new branches, are the other factors that can play a vital role in the long term growth for the bank.