The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Entity Ratings of Soneri Bank Limited | TFC II

Rating Type Entity
(15-Dec-17 )
(16-Jun-17 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect Soneri Bank’s sustained business profile; system share remained intact YoY. There was a meager increase in deposit base - lower than average industry. The bank continues to make fresh deployment in advances, hence an increase was witnessed in the bank’s ADR - which is comparatively higher than industry average. The reduction in net interest revenue translated into reduced profitability YoY, a factor of squeeze in spreads – an industry wide phenomenon. Going forward, the bank, while focusing to improve asset quality, intends to follow a prudent strategy in terms of advances growth. Enhancing non-fund based exposure, in turn fee income and would be targeted while capitalizing on potential business opportunities expected from China-Pakistan Economic Corridor. At the same time, the strategy would be to mobilize low-cost deposits with an increase in branch network. The bank’s CAR reduced to 13.0% (end-Dec16: 14.1%) primarily on account of increase in risk weighted assets.<p>The rating is dependent on the bank's ability to maintain its market position in banking industry while strengthening its overall risk profile. Bringing efficiency in overall operational structure is important to rationalize costs. In comparative landscape, adding granularity to core operations - deposits and advances - is critical. Meanwhile, sustainable increase in system share and consequent profitability would be ratings positive.

About the Entity
SBL, established in 1991, operates with a network of 286 (CY16:288) branches across the country. Feerasta family, owners of the Rupali group, holds the controlling stake (58%) through three trusts and individuals. 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 and COO, Mr. Amin A Feerasta - a member of feerasta family - has been associated with the bank since 2000. They are assisted by an experienced management team.

About the Instrument
SBL has issued its 2nd unsecured, subordinated, and listed TFCs of PKR 3,000mln in July-15 to enhance cushion in capital adequacy. The tenor of the instrument is eight years ending in 2023. Profit rate is based on 6M-KIBOR Plus 135bps p.a. payable semi-annually in arrears. Major principal repayment (99.7%) would be in bullet form at maturity in Jul-23 (96th month). SBL retains the call option on the instrument, which may be exercised, in part or full, after five years (Jul-20) of issue, subject to SBP's approval. The issue carries a lock-in clause and is also subject to loss absorbency. Keeping in view projections, cushion to loss absorbency is expected to remain comfortable.

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.