The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Rating of Soneri Bank Limited | Tier 1 TFC

Rating Type Debt Instrument
Action Maintain Initial
Long Term A A
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect Soneri Bank’s sustained business profile as reflected in slightly higher net interest margin. The bank’s funding base comprise of deposits and borrowings. During 9MCY18, customer deposits witnessed growth of 3% against industry growth of 6% - customer deposit system share inched down to 1.7% as at end-Sep18 (end-Dec17: 1.8%). Contribution of low costs deposits witnessed marginal decline. The lending portfolio recorded growth of ~6% (against industry growth of 14%). Non-Performing Loans witnessed a slight increase. Fee based income also witnessed some growth and needs to seek a higher stimulant. With a largely maintained cost structure, the bank’s profitability got additional support from reversal in provisioning. Hence, spread was largely maintained. Continued enhancement in non-fund based exposure and sustainable growth in fee income is important for future years. At the same time, the strategy would be to mobilize low cost deposits with an increase in branch network. The bank’s CET-I stands at 10.04% as at end-Sep18. Total CAR stands at 12.60%. The bank has issued additional Tier-1 TFC (PKR 4,000mln), which will enhance its total eligible capital further.
The rating is a function of bank's ability to maintain its market position in the banking industry while strengthening its overall risk profile. Bringing efficiency in operational structure is important for long term growth. In the comparative landscape, adding granularity to deposits and advances is critical. Meanwhile, a sustainable increase in system share and consequent profitability would be ratings positive.

About the Entity
SBL, established in 1991, operates with a network of 291 (CY17: 290) branches across the country. The Bank’s primary sponsors are the Feerasta Family who collectively own majority share in SBL. The eight-member BoD, with diversified experience, comprises three nominees of Feerasta family, three independent directors, one NIT representative, and the CEO. Mr. Aftab Manzoor, CEO since 2011, is a seasoned banker. The Executive Director, Mr. Amin A Feerasta - is a member of Feerasta family and has been associated with the Bank since 2000. They are supported by an experienced management team.

About the Instrument
SBL issued its 2nd unsecured, subordinated, and listed TFCs of PKR 3,000mln in July-15 to enhance cushion in capital adequacy. Profit rate is based on 6M-KIBOR plus 135bps p.a. payable semi-annually in arrears. Major principal repayment (99.7%) will be at maturity in Jul-23. SBL retains the call option, which may be exercised, in part or full, after five years (Jul-20) of issue, subject to SBP's approval.
SBL has lately issued Unsecured, Subordinated, Rated, Listed, Perpetual and Non Cumulative Term Finance Certificates of PKR 4,000mln. Profit payments are subject to the condition that such payments will not result in breach of Soneri's MCR or CAR requirements. The Instrument is subject to loss absorption upon the occurrence of a Pre-Specified Trigger. The TFC is unique as it would supplement the bank's Tier I CAR. Tier I TFC is differentiated from Tier II in two key aspects: (i) perpetual (ii) non-cumulative. Upon reaching a pre-defined trigger point or point of non-viability (PONV), Tier I TFC may be partially or fully converted into equity/written off as per the discretion/instructions of SBP (vide Annexure 5, BPRD Circular No. 6 of 2013).

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.