STEEPLE Analysis of FAYSAL Bank

SOCIO-CULTURAL FACTORS:
Demographic changes:
Through their impact on GDP and population growth rates – may result in a downward pressure on banks'
intermediation ratios and to reduced demand for consumer credit and mortgages, lowering interest income.

Traditions:
The identified traditional practices with MBS are expected to bring clarity to the issue of employee response,
customer reaction and loyalty.

Level of Education:
Customers with low financial literacy tend to spend more, buy on credit, and pay unnecessary fees and fines,
resulting in lower levels of wealth over time. Those with higher levels of financial education are able to make good
financial decisions, save, pay bills on time, invest, and otherwise increase wealth.

Customers Preferences:
First, your current customers are far more likely to open more accounts or use more services if they've had an
overall positive experience. A client with just a checking account could add a savings account and use you for their
mortgage when they buy a home.

SOCIO-CULTURAL FACTORS IMPACT RATE SCORE

Demographic Changes Negative 10 -5
Traditions Positive 10 4
Level Of Education Positive 10 7
Customer Preferences Positive 10 6

Review: As maximum sub factors of Socio-Cultural factors have positive impact, so this factor is beneficial
for the Banking sector.

TECHNOLOGICAL FACTORS:
The use of technology in every field has become essential. With the upgradation of technology, upgradation
for banking industry has become necessary for them. Technological factor is also very important factor which
effected on banking industry in positive and negative way. Financial technological services regarding
deposits, lending, payment transfers, utility services and so on, have on boom after technology revolution in
banks.
SBP Framework:
The SBP has introduced a framework to grant lisences for setting up wholly digital banks that will provide all
the banking services, from account opening to deposit and lending, through digital means and the customers
will not need to visit any branch physically. Other recent digitalization initiatives introduced by the SBP,
which are gaining traction and have opened new avenues for introducing innovative solutions, include
customers’ digital on-boarding, Roshan Digital Account, Raast — instant payment system, electronic money
institutions lisences, Asaan Mobile Accounts.
Under this framework, the SBP may grant two types of digital bank licences, Digital Retail Bank (DRB) or
Digital Full Bank (DFB). DRBs will primarily focus on retail customers while DFBs can deal with retail
customers as well as business and corporate entities.
Block chain:
A block chain is essentially a shared, encrypted “ledger” that cannot be manipulated, offering promise for
secure transactions that allow anyone to get an accurate accounting of money, property or other assets. The
block chain offers potential to the traditional finance sector due to its ease of transaction with verification
from any point on the platform.

Cyber Security Threats:

With the advent of technological changes in banking service, with some opportunities, threads have also
grown up. The first and foremost risk is to keep data save and in protection umbrella from hackers. Cyber
security issues, social media, data privacy and third party risks have emerged strongly.
The emerge of fin tech in Pakistan has created a new challenge for traditional banking sector in Pakistan.

Fin tech Industry:

Fintech is a service technologically incentive to promote digitalization in financial services then traditional
banking system. The Jazz Cash and Easy Paisa are most common example in Pakistan for Fintech. Through
Fintech services, non-bank people of Pakistan can easily access to if Fintech around 7 percent. If we talk
about Fintech importance, almost 14 billion non-banks persons
this reliance on automation also causes a lingering risk of a breach in cyber security which can ultimately
cause the entire fin tech industry to collapse. This is because no physical data or money is stored instead all
of it is stored via the cloud.

TECHNOLOGICAL FACTORS IMPACT RATE SCORE

SBP Framework Positive 10 8
Block chain Positive 10 7
Cyber Security Threats negative 10 -6
Fin tech Industry negative 10 -3

Review: Technological factors have average impact of both positive and negative. But if we see the
rankings, the positive factors influence more on banks.

ECONOMICAL FACTORS:
In the connection of economic factors, the role of bank in economy of any country cannot be undermined.
There are several factors of economy that possess positive and negative factors both.

Gross Domestic Product:

Gross domestic product (GDP), the value of all goods and services produced in a country, envisages the
situation of people/public in terms of domestic conditions. The role of bank in creating GDP is very important.
The value/ goods produced in Pakistan, 57 percent have financed by banking sector. However, the self-role
of banking industry in GDP of Pakistan is 7.7 percent.

Inflation:
The current inflation in Pakistan is also the source of worry in terms of their operations. The current inflation
is reducing the spending power of people in Pakistan. The consumer price Index inflation surged in Pakistan
is 24.67 percent. In which the role of SBP become very important. The monetary policy of SBP indicates the
direction to commercial banks about their lending and financing projects. The policy interest rate is the rate
at which the central bank will pay or charge commercial banks for their deposits or loans. This rate will
consequently affect the interest rates that commercial banks apply with their customers, both borrowers
and depositors. The current policy rate of SBP is 15 percent. However, the commercial banks charge from
their clients about 20 to 25 percent to undertaking the risk factor.

Currency Valuation:
The depreciation/appreciation of Pakistani currency also effects the operation of commercial banks. The
State Bank of Pakistan (SBP) on Friday reported the closing price of the dollar at Rs236.84, an increase of 96
paise compared to the previous day’s rate of Rs235.88. (Published September 17, 2022). According to
experts, the commercial banks, the average banks’ buying per week was around two to four million dollars,
which has now gone up to $12m on an average. The foreign travelers want to seek currency is about $10000
average. The should decrease the limit of buying foreign currency exchange by $5000. the government is
trying to boost country’s foreign exchange reserves by restricting spending and borrowing from global
lenders, but the outflows from banks’ via credit cards could undermine the efforts. Some experts assert that
some banks buys dollars from grey market at a high rate. the outflow through credit cards has added to the
vulnerability of the exchange rate, which further strengthens the US dollar in Pakistan.

Employment:
After pandemic, the world’ economy is striving hard to grown out the economic recessions from world’s
economy. Millions of people lost their jobs during pandemic. However, after pandemic era, there is a need
to help in growing private sectors to create new jobs in the market, especially SMEs because no government
in the world that can alone fulfill the demand of jobs without assistance of private sectors. Due to risk factors,
the banks in Pakistan are largely investing in government securities rather than private SMEs. This issue is
highlighted by the World Bank in its report. Especially in Pakistan, which has the labor intensive economy,
there is a need to invest or finance in private sectors with feasible rate and SBP should formulate policies
regarding this.

ECONOMICAL FACTORS IMPACT RATE SCORE

Gross Domestic Product positive 10 6
Inflation negative 10 -8
Currency Valuation negative 10 -6
Employment positive 10 7

Review: Economy’s most sub factors have negative impacts so the economical factors are unhealthy for
banks.

ENVIRONMENTAL FACTORS:
The environmental problems in the whole world is becoming an alarming situation. Pakistan, a country,
which is not primary responsible for global warming and climate change but include in those’ list, which are
highly venerable. So, it is a reality, and Pakistan should be ready to combat with this reality.

Environmental Hazards:
For banking industry in Pakistan, the environmental implication may be the opportunities or threads.
Usually banks or other financial institutions have those clients or customers who are lending money for the
projects that are menacing for environment. For example, a coal mining projects for private companies and
other projects that can produce carbon emissions above predetermined measures and authorize, and
government put bans on these projects, obviously the lending business of banks may be effected. Bank
may also face some legal risks if it invests or finances on environment unhealthy projects. Reputation of
bank may also be effected by invest on those projects that are environmentally unhealthy.
International Concerns:
Despite of above all factors, banks have many opportunities and social obligations as well. In this
connection, the United Nations Environment Programme (UNEP), this is the main UN institution that deals
with environmental questions. As part of its work, it has established a Financial Institutions Initiative on the
Environment which is a partnership between UNEP and leading banking and insurance companies to
promote sustainable development and environmentally sound business practices. The basic role of the
Initiative is to promote the integration of environmental considerations into all aspects of the financial
sector’s operations and services.

Green Banking Guidelines:

Pakistani banks are not primary responsible for climate change, but due to highly effected country by
climate change, it has become an obligation to banks in Pakistan to transform themselves as green banking
industry. In this connection, State Bank of Pakistan (SBP) issued Green Banking Guidelines on 9th October,
2017, but aftermath, no further policy/guideline/regulation has been issued by the central bank yet. A
review of the banking industry’s financing activities shows a continuous increase towards the financing of
various polluting industries such as paper, coal, chemicals, mining, etc. A minimum target should be given
to banks by the SBP, such as in Bangladesh where all banks have a 5pc green financing target as part of
their total financing portfolio.

Barriers TO Green Banking:

Researchers have identified a number of barriers towards green banking adoption, including insufficient
government support, difficulty in attracting clients towards clean energy projects, reluctance in stopping
financing of high pollution industries such as the coal or oil sector, lack of practical examples in this field,
inadequate knowledge of its business case, and high cost of certain green initiatives, such as biodegradable
ATM cards and green internet technology.
Among these barriers, the most relatable to an economy like Pakistan is the low level of stakeholder
awareness regarding its importance. The majority of the bank branches cannot be converted into green
branches because of incompatible locations, old architecture and other issues. Many branches do not even
have the infrastructure for the installation of solar panels. In the light of these issues, the SBP should not
issue a license for opening a new bank branch unless it meets the international green building standards.

ENVIRONMENTAL FACTORS IMPACT RATE SCORE

Environmental Hazards negative 10 -4
International Concerns negative 10 -5
Green Banking License positive 10 8
Barriers To Green Banking negative 10 -3

Review: The overall environmental factors are positive and beneficial for the banks.
POLITICAL FACTORS:
At present time, there are 41 schedule banks are operating in Pakistan according to State Bank of Pakistan.
These banks are highly contributor in the economy of Pakistan. Commercial banks are highly sensitive
regarding the political situation/factors in a country. In other words, the political situation in a country
directly effects on the performance of banks.

Modes of Government:
The important modes of government in Pakistan are Democracy and Dictatorship. Almost half years from
the inception of independence have gone throw the era of dictatorship. Both democracy and dictatorship,
have their own repercussion on banking business. For example, Non-Performing Assets (NPA) of banks are
considered as a loss for banks. In democracy, the percentage of NPA in Pakistan is about 23 percent or 76,800
crores in banking sectors loan. Mostly from them are sugar and energy sector loans. The instant political
pressure/Mafia are involved in NPA. This NPA throw down the interest profit of banks via loans, that will
directly hit the growth of banking sectors and return to shareholders.

Political Turmoil:
The political turmoil in any country also impacts on the performance of banking sector with other sectors.
The recent turmoil in our country has led the banking sector into another stumbling block. Recently the
budget 2022-23 has been publicized. The corporate tax rate has been risen from 35 percent to 45 percent.
As well 2 percent poverty alleviation tax (Super Tax), if annually profit exceeds Rs.300 million. By inclusive of
super tax and corporate tax, it is estimated that 20 percent of banking sector profit would be declined. The
political turmoil, and instability of government are major key issue to face this problem.

International Turmoil:
The international political factors are also impacted on the value and recognition of banks. Recently, during
the Russia Ukraine war, Russia is facing the severe political restrictions for the selling the oil and gas to other
countries. So without any G2G agreement, the commercial banks have denounced to open LCs. Because the
banks are ambiguity because of the restrictions on Russia, so the payments in US Dollar is almost necessary
for every country for trade. This international political unrest is effecting the whole world.

Political Stability:
Investors need political stability in a country to make investment. Foreign investment is the main source of
making dollars for economy. This investment requires a proper channel to scrutiny and verify of flow. The
political drama in Pakistan or 4 to 5 months led the investors more ambiguity and less investment activities.

Bankruptcy:
Along with other factors, Pakistan’s political situation is putting negative economic situation. Experts has
showing concerns about foreign exchange reserves, that are vanishing gradually. In other words, Pakistan is
on the verge of bankruptcy. Foreign investors have fear to invest in Pakistan due to political fight. So the
repercussion of all these scenario is coming in the form of fear among the deposit-holders. In case Pakistan
goes bankrupt, the accounts of bank customers may be seized for temporary basis. People will not be able
to use their accounts for several periods. This scenario envisages as the harsher for customers/public but
banks as well.
POLITICAL FACTORS IMPACT RATE SCORE
Modes Of Government negative 10 -8
Political Turmoil negative 10 -7
International Turmoil negative 10 -6
Political Stability positive 10 5
Bankruptcy negative 10 -6

Review: Maximum factors of politics have negative impacts regarding their score that reduces the productivity of
banking sector.

LEGAL FACTORS:
The legal factors also effect on banking industry. In Pakistan, commercial banks are controlled by State Bank
of Pakistan (SBP). The rules and laws and all other legal matters are the scope of SBP. SBP announces its
monetary policy at the beginning and middle of fiscal year.

Monetary Policy Requirements:

Monetary policy involves central banks’ use of instruments to influence interest rates and/or money supply
in the economy with the objective to keep overall prices and financial markets stable.
It is mandatory for all commercial banks in Pakistan to implement monetary policy according to the SBP
requirements. Monetary policy primarily focuses on inflation and deflation control via interest rate and other
tools. SBP also determines the sufficient liquidity ratio for commercial banks to meet their Net Demand &
Time Liability (NDTL) requirements. The SBP uses CRR and SLR and Repo Rate and Reserve Repo Rate etc.

Anti-Cyber Crime Rules:

However, with above factors, the protection for customer data is also mandatory for banks. Recently, last
two to three years, the cyber-attacks on the customers’ data in banks has been increased. Especially in 2018,
this has been the worst year for cyber-security in Pakistani banks. According to Dawn news, “hackers based
outside Pakistan had breached the security systems of several local banks. "The hackers have stolen large
amounts of money from people's accounts,". In 2022, hundreds of customers of one of Pakistan’s largest
banks reported that they had lost money through unapproved bank transfers, bill payments and online
purchases.
So, Pakistan need a strong anti-cyber-crimes network to mitigate this unlawful crime and protect digital
transactions. Otherwise, people would loss trust from banks’ security and hit the vision of digitalization of
banks.
To mitigate cyber-threats and improve cyber security the ministry of Information Technology and
Telecommunication have prepared a NATIONAL CYBER SECURITY POLICY 2021, in which the certain
measures and rules are highlighted to mitigate the chances for hackers.

Customer’s Secrecy:
Bank’s duty to maintain secrecy of customer’s information is not moral but legal one. Section 33A of the
Banking Companies Ordinance, 1962 has imposed legal duty upon the bank and its officials to not to
disclosed customer’s information to any person. So in any case where private information of account holder
/ customer is disclosed, any loss or damage caused to the customer shall be repayable by bank for such
breach.
LEGAL FACTORS IMPACT RATE SCORE
Monetry Policy Requirement negative 10 -6
Anti-Cyber Crime Rules positive 10 7
Customer's Secrecy positive 10 9

Review: Most legal factors have positive impact which means legal factors are advantageous for banking
sector.

ETHICAL FACTORS:
Trust:
Trust is central to the success of a bank. It can drive engagement, increase loyalty and has a direct impact
on a bank's bottom line. Customers should feel that they can trust their financial services partner to
provide them with products and services that they really need.

Transparency issues:
It aims to facilitate more effective communication between central banks and their various stakeholders,
reducing uncertainty and contributing to better policy choices. More transparency and accountability are
required to maintain public support to central banks, safeguard independence and enhance policy
effectiveness
Growing Pressure of Competition:
If banks compete against each other, they have to provide great services for their customers – otherwise people will
switch to another, better, bank. This makes banks more efficient and productive, which is good for the economy.
Through pursuit of ethical practices, banks can acquire brand reputation. This should help them expand
customer base and increase income. The brand name reputation is also likely to attract ethically conscious
clients. As a result, the banks will be greatly relieved of the problem of non- performing loans.

Issue of Money Laundering:

Financial crime is a wide-reaching and prolific issue that banks are struggling to tackle. Laundered money is
known to be funding illegal activities, including terrorism, which places banks under immense pressure to
identify the source of such funds.

ETHICAL FACTORS IMPACT RATE SCORE

Trust Positive 10 8
Transparency Issues Negative 10 -6
Growing Pressure 0f Competition Positive 10 5
Proper Ethics Training Positive 10 5
Issue Of Money Laundering Negative 10 -7

Review: Maximum ethical factors have positive impacts so the overall ethics is a sign of positivity for
banking sector.
 Porter’s 5 Forces and the Banking Industry:
Threat of New Entrants:
Despite the regulatory and capital requirements of starting a new bank, between 1977 and 2002 an average of 215
new banks opened each year according to the FDIC1. With so many new banks entering the market each year the
threat of new entrants should be extremely high. However, due to mergers and bank failures the average number of
total banks decreases by roughly 253 a year2. A core reason for this is, what is arguably, the biggest barrier of entry
for the banking industry, trust. Because the industry deals with other people’s money and financial information new
banks find it difficult to start up. Due to the nature of the industry people are more willing to place their trust in big
name, well known, major banks who they consider to be trustworthy. The banking Industry has undergone a
consolidation in which major banks seek to serve all of a customer’s financial needs under their roof (this can clearly
be seen in the business model of banks like Wells Fargo’s). This consolidation furthers the role of trust as a barrier to
entry for new banks looking to compete with major banks, as consumer are more likely to allow one bank to hold all
their accounts and service their financial needs. Ultimately the barriers to entry are relatively low for the banking
industry. While it is nearly impossible for new banks to enter the industry offering the trust and full range of services
as a major bank, it is fairly easy to open up a smaller bank operating on the regional level.

Power of Suppliers:
Capital is the primary resource on any bank and there are four major suppliers (various other suppliers [like fees]
contribute to a lesser degree) of capital in the industry.

1. Customer deposits. 2. Mortgages and loans. 3. Mortgage-backed securities. 4. Loans from other financial
institutions.

By utilizing these four major suppliers, the bank can be sure that they have the necessary resources required to
service their customers’ borrowing needs while maintaining enough capital to meet withdrawal expectations. The
power of the suppliers is largely based on the market their power is often considered to fluctuate between medium
to high.

Power of Buyers:
The individual doesn’t pose much of a threat to the banking industry, but one major factor affecting the power of
buyers is relatively high switching costs. If a person has one bank that services their banking needs, mortgage,
savings, checking etc. It can be a huge hassle for that person to switch to another bank. To try and convince
customers to switch to their bank they will often times lower the price of switching, though most people still prefer
to stick with their current bank. The Internet has greatly increased the power of the consumer in the banking
industry. ING Direct introduced high yield savings accounts to catch the buyers’ attention, then they went a step
further and made it very easy for customers to transfer their money from their current bank to ING. ING was
successful in their attempt because they managed to make switching costs very low in terms of time and capital.

Availability of Substitutes:
In case of commercial banks, the Non-Banks Financial Institutions may be substitute for consumers. These
institutions are controlled by the Security & Exchange Commission of Pakistan (SECP). They provide financial
services like commercial banks except deposits. Examples of NBFCs include investment banks, mortgage
lenders, money market funds, modaraba sector, insurance companies, hedge funds, private equity funds,
P2P lenders, and lease companies etc. NBFCs can offer services such as loans and credit facilities, currency
exchange, retirement planning, money markets, underwriting, and merger activities.

Non-bank financial institutions offer borrowers multiple benefits such as:

• Less prohibitive criteria: customers with average or poor credit scores are more likely to access loans
from non-bank lenders where traditional banks would turn them away.
 • Expedited loan application process and faster funding: non-bank lenders often approve loan
applications swiftly and fund borrowers promptly.
• Willingness to take higher risks: non-bank lenders don’t shy from higher-risk loans as traditional
lenders do. This makes them ideal for small business lending.
In case of Pakistan, the importance of NBFI has been increased so far. The SECP has licensed six fintech-
enabled NBFCs, which have collectively reached out to 365,239 borrowers with disbursement of over
Rs6,139 million through 858,998 loans, which signifies that many borrowers have obtained more than one
loan from these lenders. The data released by the SECP shows that the average loans size of these digitally-
enabled NBFCs ranges from Rs1,000 to Rs80,000 depending upon the nature of business and target market
of these entities. The first fintech-enabled NBFC licence was issued in 2019 and only 55,528 requests were
honoured, disbursing Rs495 million, while by the end of 2021, the six licence holders disbursed a total of
Rs6.13 billion to 365,239 borrowers.

Competitive Rivalry:
In banking sector in Pakistan, there is a lot of competition. Almost 41 Commercial banks are operating in
Pakistan currently. So let’s assume the level of competition among banks in Pakistan.
The basic features of any banks are depositing and lending money. Among the banks, different rates of
depositing flow in market. There are currently 21 Islamic banks in Pakistan, 5 out of which are full fledge,
while remaining are with conventional banking.
Faysal bank is going to become full fledge Islamic bank for December 2022. Being as Islamic compliant bank,
Faysal bank’s biggest rivalry is with Meezan bank. Meezan bank is currently the biggest Islamic bank in
Pakistan. Meezan bank’s Modarba’s certificate average rate is 7 percent while Faysal Bank’s rate is 6.56
percent. Which need to be improved. While FAYSAL ISLAMIC SAVINGS ACCOUNTS / DIGITAL SAVING
ACCOUNTS average rate is 7.50 percent as compared to 7.01 percent of Meezan Bank.
A regulatory filing body of Meezan Bank declared a cash dividend of Rs1.75 per share and a 10pc bonus
shares entitlement.
In Pakistan, two important Islamic bank’s credit rating has been increased so far. Meezan Bank’s rating is
‘AAA/A-1+’, highest credit quality with high certainty of timely payments to its lenders, deposit holders etc.
while Faysal Bank’s credit rating is lie as ‘AAA/A1+’, its means very high credit quality and strong capacity of
timely payments to stakeholders.
The degree of differentiation of products in case of banks is almost nothing because almost all the banks in
Pakistan are providing same services to some extent with different names. This in differentiation of services
decrease the chances of high competition. So the customer switching cost in case of services of products I
may be zero.
Faysal Bank scored higher in 3 areas: Culture & Values, Diversity & Inclusion and Positive Business Outlook.
Meezan Bank scored higher in 5 areas: Overall Rating, Senior Management, Compensation & Benefits,
Career Opportunities and Recommend to a friend. Both tied in 1 area: Work-life balance.