PACRA Assigns Initial Instrument Rating to Soneri Bank Limited | Tier 2 Capital TFC | PKR 4bln | Dec'22

The ratings reflect Soneri Bank’s ("SNBL" or the "Bank") improved business profile as reflected by system share of 1.8% in terms of deposits as of Sep'22. SNBL’s customer deposits observed growth of 6.9% since Dec'21, where CASA recorded further 19.9% improvement to stand at PKR 337.2bln (Dec’21: PKR 281.3bln). Net income witnessed a decrease of 45.1% during 9MCY22 as compared to same period in previous year attributable to higher markup expense. Improvement in net mark-up income and continued enhancement in non-fund-based exposure are important for future years. Advance book recorded 17.7% uptick whereas, infection ratio declined to 4.9% as of Sep’22 (Dec’21: 5.9%). The Investment book witnessed attrition by 16.2% since Dec'21, mainly due to divestment from market T-Bills. In order to increase the advances book capacity, the Bank has issued tier-II capital amounting PKR 4bln. The tier-II is exposed to non-payment (principal & interest) risk in case the CAR falls below the minimum regulatory requirements. Being cumulative in nature, the interest payment falling due during that specific period would be paid to the investors once the CAR meets minimum regulatory requirement. The Bank’s total Capital Adequacy Ratio (CAR) stood at 14.14% as of Sep’22, while the issue of new tier-II instrument strengthens the CAR further. Going forward, the macro-economic environment is beset with myriad challenges due to heightened interest rate, tightening of demand, rupee depreciation and higher inflation.
The growth trajectory of the bank especially nurturing of the deposit & advances base and enriching the granularity would be considered positive.

About the Entity
SNBL, established in 1991, operates with a network of 367 branches including 35 Islamic banking branches, 15 Islamic banking windows and 1 sub-branch. The Bank’s primary sponsors are the Feerasta Family who collectively own majority share in SNBL. The Feerasta Family has diverse commercial interests ranging from manufacturing, exporting, banking and trade financing. The eight-member board of directors comprises five non-executive, two independent and one executive director (CEO).

About the Instrument
The Bank issued rated, unsecured, subordinated, ten years tenured Term Finance Certificates amounting to PKR 4bln bearing exercisable call option after five years of the issue date. The TFC is to be listed and is subordinated to the payment of principal and profit, to other indebtedness of the Bank, including deposits, but rank pari passu with other Tier 2 instruments and superior to ADT1 instruments. Neither profit nor principal will be payable in respect of TFC, if such payment will result in a shortfall in the bank’s Minimum Capital Requirement (MCR) or CAR. The bank may call the TFCs, with prior approval of SBP, any time after five years from the date of issue. The TFCs shall, if directed by the SBP, be fully and permanently converted into ordinary shares and/or have them immediately written off (partially or in full) upon the PONV Trigger Event. The TFCs contribute towards the Issuer’s Tier II Capital bearing a floating coupon rate of 6MK+1.70%. The principal will be redeemed 0.36% during the first 9 years after the Issue Date and the remaining issue amount of 99.64% in two equal semi-annual installments of 46.82% each in the last year.