Table of Contents

Introduction .................................................................................................................................................. 3 About Faysal Bank: .................................................................................................................................... 3 Horizontal Analysis........................................................................................................................................ 4 Liquidity Ratio ........................................................................................................................................... 5 Current ratio.......................................................................................................................................... 5 Efficiency Ratios ........................................................................................................................................ 5 Fixed Assets Turnover ........................................................................................................................... 5 Total Asset Turnover ............................................................................................................................. 6 Profitability Ratios...................................................................................... Error! Bookmark not defined. Gross Profit Margin ................................................................................ Error! Bookmark not defined. Operating Profit Margin ......................................................................... Error! Bookmark not defined. Net Profit Margin ................................................................................... Error! Bookmark not defined. Operating Income Return on Investment .............................................. Error! Bookmark not defined. Return on Total Assets ........................................................................... Error! Bookmark not defined. Return on Equity .................................................................................... Error! Bookmark not defined. Banking Ratios ............................................................................................ Error! Bookmark not defined. NPL Ratio ................................................................................................ Error! Bookmark not defined. Advances to Deposits Ratio ................................................................... Error! Bookmark not defined. Vertical Analysis ............................................................................................. Error! Bookmark not defined.

Introduction
About Faysal Bank:
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 incorporated 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. Currently the FBLs shares are listed in all the major stock exchanges of Pakistan. It is engaged in Commercial, Consumer, Corporate and Islamic Banking. Currently Faysal Bank employs 6000 people from its banking activities and with its recent successful acquisition of RBS, has managed to become one of the top rated banks in Pakistan and has expanded its operations to over 220 branches, with combined business assets of over PKR 250 billion The Pakistan Credit Rating Agency Limited (PACRA) and JCR-VIS Credit Rating Company Limited have determined the Bank's long-term rating as 'AA' and short term rating as 'A1+'. The majority shareholding of Faysal bank is held by ihtmaar bank awhich is an investment bank located in Bahrain. About the Group Ithmaar Bank B.S.C. is licensed by the Central Bank of Bahrain and listed on the Bahrain Stock Exchange and the Kuwait Stock Exchange. It has a paid-up capital of US$598 million, total equity of US$1.1 billion and is a full service 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 and financial service sectors in different markets, the main direct activities of the Bank include underwriting (equity and other financings), private equity (structuring, participation and portfolio management), Islamic financing and advisory services covering project financing, investments, capital markets and mergers & acquisitions. Ithmaar Bank's flagship subsidiaries and associates include Shamil Bank of Bahrain (headquartered in Bahrain), Ithmaar Development Company, Faysal Bank Limited (Pakistan), Faisal Private Bank (Switzerland), Sakana Holistic Housing Solutions, Solidarity (an Islamic insurance company), BBK B.S.C., Bahrain based First Leasing Bank, and Ithraa Capital (Saudi Arabia)

Horizontal Analysis
Horizontal Analysis at a glance 2006 Current Ratio Debt Ratio 0.64 0.8789 % Change 2007 100% 100% 100% 0.65 0.88 4.62 % Change 2008 % Change 84.38% 2009 0.51 % Change 79.69% 2010 0.47 % Change 73.44% 106.70% 51.24%

101.56% 0.54 100.68% 0.91 104.67% 5.06

103.64% 0.93 114.81% 6.08

105.66% 0.94 137.92% 2.26

Fixed Asset Turnover 4.41 Gross Profit Margin

38.31% 100%

35.86% 93.60% 19.09% 65.76%

36.92% 96.38% 8.32% 28.65%

29.55% 77.14% 7.15% 24.63%

29.40% 76.75% 6.08% 20.93%

Net Profit Margin 29.04% 100% Operating Income Return on Investment 3.40% Operating Profit Margin

100%

1.87%

55.14%

1.30%

38.24%

0.73%

21.49%

0.31%

9.13%

39.71% 100%

22.79% 57.37% 23.33% 71.41% 21.38% 68.69%

13.40% 33.75% 10.89% 33.33% 11.00% 35.34%

7.78%

19.60%

4.21% 8.51% 7.15%

10.59% 26.05% 22.97%

Return on Equity 32.67% 100% Return on Equity 31.12% 100% Return on Total Assets 2.48% Total Assets Turnover NPL Ratio

11.18% 34.22% 10.66% 34.25%

100%

2%

63.20%

0.81%

32.46%

0.67%

26.99%

0.45%

17.95%

0.0856 4.74

100% 100%

0.08 7.6

96.11%

0.10

113.32% 0.09 221.52% 11.68

109.62% 0.07 246.41% 18.48

86.18% 389.87%

160.34% 10.5

Advances to deposits Ratio 91.00% 100%

91.00% 100.00% 83.00% 91.21%

77.00% 84.62%

70.00% 76.92%

Liquidity Ratio
Current ratio

The current ratio at Faysal Bank remained stable between the period of 2006 2007. Since then, 0.8 0.64 0.65 however the current ratio has 0.54 0.51 0.6 0.47 been declining slowly but steadily. Now a declining current ratio is 0.4 Current Ratio not good for any institution and 0.2 thus it is essential to recognize 0 the reason behind this falling 2006 2007 2008 2009 2010 ratio. In 2008 we see that short term advances decreased by almost 30 percent and long term advances increased by almost 66 percent. On the other hand the composition of deposits based on maturity remained constant. This was a problem Faysal Bank tried to fix in 2009 by restructuring their advances to include more short term and reduce long term. However, again their current ratio decreased slightly because they experienced an increase of 95% in deposits due within a year. This greatly outstrips the growth in deposit of 20%. The more current nature of Faysal Banks deposits in 2009 thus pulled the current ratio further down. In the year 2010 a similar pattern of increasing short term deposits slightly exceeding the rate of increasing short term advances pushed the current ratio further down to 0.47.

Current Ratio

Efficiency Ratios
Fixed Assets Turnover

The Fixed Asset Turnover ratio of Faysal Bank has moved in the right direction from 2006 2010. If we look at the figures carefully we see a steady and increasing growth up till 2009. It is only in 2010 when the fixed assets turnover ratio drops by almost 80 percent. However, this does not call for alarm bells as the fall in ratio is due to the RBS takeover. Due to this takeover, all RBS fixed assets absorbed by Faysal Bank pushed up its asset base or the denominator in this formula. On the other hand, as the takeover took place in the middle of 2010 Faysal Bank has not had the time to put these resources to efficient use or discard them if they are unwanted. Thus it is too early to raise alarm bells and only the next couple of years will tell whether Faysal Bank is able to put these new found resources to better use and push this ratio back up or do they fail in this strategic venture of theirs.

Total Asset Turnover

In 2007 we see a Total Assets Turnover 4% decrease in the total asset turnover ratio. Even though 0.07 2010 we see an increase 0.09 of almost 17.5% in 2009 sales, the ratio is 0.10 2008 Total Assets Turnover still declining because the asset 0.08 2007 base of the 0.086 company has 2006 increased by a 0 0.02 0.04 0.06 0.08 0.1 greater extent. Assets have increased due to two main particulars, advances and investments, which have contributed to almost 85% of the increase in total asset value. Advances and investments have a very direct impact on interest revenue earned. However, in this case we do not see an immediate increase in interest mark up earned. When we take a look at comparative KIBOR rates we notice that KIBOR increased from around 9.5 percent for a one year loan to around 11 percent for a one year loan in 2006. In 2007 it falls from around 11 percent for a one year loan to 10.4 percent for a one year loan, a decrease of 60 basis points. On average the KIBOR rate in 2007 is very close to the KIBOR rate in 2006, if not lower. Thus the fall in income mark up earned from increasing advances and investments cannot be attributed to a fall in market interest rate. The decrease has come from more internal factors. A possible explanation could be that the bank has invested in less riskier investments and thus an increase in advancements or investments have not been complimented by an increase in interest mark up. Another explanation and a more probable looking is that the bank must have lowered its spread due to a surplus of cash deposits. We can see that deposits have increased by 26% from 2006 to 2007, a substantial increase, leading the bank to lower its spread or asking rate and put the excess deposits to use. In the year 2008 we see that even though the asset base has shrank as compared to 2007 interest mark up has continued to increase. This has lead to an approximate 17% increase in asset turnover ratio. This increase bodes well for the company as they were able to increase their mark up income earned even with a slight shrinkage in assets. The reason for this can be attributed to more external factors then internal ones. KIBOR increased by around 550 basis points from December 2007 to December 2008. This would have a direct impact on interest mark up earned as the bank would now be charging higher rates to its clients. This could also

explain why advances and investments remain steady during this period. Such a steep increase in KIBOR would have led to reduced demand due to the high cost of borrowing. In 2009 we see a 4% decline compared to the previous year. Even though mark up income has again shown a substantial increase, asset increase has been comparatively greater leading to falling asset turnover ratio. The increase in assets can be primarily attributed to investments and lending to other banks. In investments the increase can be primarily attributed to an increase in the market treasury bills held by the bank which increased by approximately 19 million from 2008 to 2009. So even though assets have increased and the composition of asset increase consists of those assets that increase mark up earnings, asset turnover ratio has still declined as the mark up rate on treasury bills and funds lent to other banks is comparatively lesser due to the less risky nature of these investments. In 2010 we see a sharp decline in the total asset turnover ratio of 23 percent. Even though mark up earnings has increased during this period assets have increased at a much faster pace. Assets increased by almost 32.5% with substantial increases in both advances and investments. Fixed assets during the period also registered an increase of almost 3 times compared to the previous year due to the RBS takeover. In this particular year a strange pattern emerges however, as KIBOR is increasing and so are advances and investments, yet such increases did not reflect positively on the firms interest earnings. This can again be attributed to the substantial increase in deposit base, an increase of 36.7% most probably due to absorbed deposits of RBS after the takeover. This absorption must have pushed down the company spread. Secondly, even though investments have increased they have again been in less riskier assets namely treasury securities. As for the advances figures it also includes advances classified as non-performing. Advances classified as non-performing have increased by a substantial 140% from 2009. This means that even though advances have increased their interest mark up is most likely not going to be realized and thus not accounted for in the mark up earnings provided in the profit and loss account. Thus we can see why the increase in assets has not been complimented by an increase of similar rate in interest mark up earned in 2010.