Can Faysal Bank Limited (FABL) Double Its Earnings by 2027?

Faysal Bank Limited (FABL) is on a promising trajectory, with projections signaling a potential doubling of its earnings in a span of three years. According to BMA Capital Management’s recent research report, several factors contribute to this optimistic outlook:

Conversion to Islamic Banking

FABL’s transition to a fully Islamic banking model has paved the way for increased profitability. Islamic banks often benefit from higher multiples due to their unique positioning and the rising demand for Shariah-compliant financial products. The transition has led to significant deposit growth and increased returns on assets.

Strong Deposit Growth

FABL’s deposit growth has been impressive, with a historical CAGR of 23.5% over the last three years. This rapid growth is a consequence of the bank’s successful conversion to Islamic banking and its growing branch network. The bank’s deposits grew from PKR 248 billion in CY20 to PKR 1 trillion in CY23, showcasing a robust performance. A continued strong deposit growth of 30% is expected for the next two years, eventually stabilizing at around 13% by 2028.

Return on Equity (ROE)

The bank’s projected return on equity (ROE) is expected to reach 31% by CY26, a significant increase from previous years. This high ROE is a critical indicator of FABL’s efficient use of equity to generate profits, enhancing shareholder value.

Earnings Projections

The bank’s earnings per share (EPS) are forecasted to rise from PKR 13.2 in CY23 to PKR 21.1 in CY25. This projection underscores a strong upward trend in profitability. Additionally, the BVPS is expected to increase from PKR 59.4 in CY23 to PKR 82.0 in CY25.

Improved Asset Management

FABL has demonstrated effective management of its non-performing loans (NPLs), which have declined by 5% over the past four years. This prudent management has kept the provisioning charges low, contributing to the overall profitability. The focus on responsible lending and portfolio management further supports FABL’s growth prospects.

Strategic Branch Expansion

Despite a slower branch expansion in 2023, FABL plans to accelerate its growth in 2024 by opening the previously delayed branches. The bank’s efficiency in terms of deposits per branch has significantly improved, positioning it well for future growth. It is further projected that deposits per branch will rise to PKR 2.0 billion by CY25, from PKR 1.4 billion in CY23.

CASA Optimization

FABL’s focus on optimizing its Current Account Savings Account (CASA) mix is expected to provide a substantial boost to its earnings. A 5% shift from Fixed Accounts to Current Accounts could potentially increase FABL’s earnings by 15%, presenting a significant upside to the bank’s profitability.

Conclusion

Faysal Bank Limited is well-positioned to double its earnings in the next three years. The bank’s strategic initiatives, robust deposit growth, efficient asset management, and focus on CASA optimization collectively contribute to this optimistic outlook. As FABL continues to capitalize on its strengths and expand its operations, it is poised for substantial growth and increased profitability in the coming years.

Source: Company financial, BMA Research.