Considering you can rename everything in .txt's (including all troop tree names, all titles, all lord/lady names, all towns, all weapons, all armor) and change everything related to these troops, trooptrees, armor and weapons, you can make a new faction.
BASICALLY you can make a new faction, but it'll replace an existing one, so it would never be a real new faction, but some mods have added factions for you and all you have to do is replace their stuff ^^
I replaced the Khergit Khanate in Floris with a Shogunate, didn't even take that long.