The Pakistan Credit Rating Agency Limited
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Sehar Fatima

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PACRA Maintains Instrument Rating of Soneri Bank Limited | TFC (Tier I)

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

The ratings reflect Soneri Bank’s maintained business profile as reflected by intact system share (end-Sep19: 1.8%, end-Dec18: 1.8%). The bank’s funding base comprise of deposits and borrowings. Markup Income witnessed substantial jump attributable to hike in asset yield and higher earning asset on a period on period basis. The net revenue also grew considerably. Fee & commission based income remained largely same while realized loss on securities & muted economy negated this positive impact. Spread also witnessed slight uptick (end-Sep19: 2.5%; end-Dec18: 2.4%). Reversals in provisioning further supported the overall profitability. Sustainability in NIMR, continued enhancement in non-fund based exposure and sustainable growth in fee income is important for future years. Current deposits witnessed a growth of ~6% in 9MCY19. Deposits recorded good growth however tilted towards term deposits; CASA ratio witnessed meager decline. Non-Performing Loans shrank which led to improvement in impairment ratio.The Investment book has expanded significantly and fueled by borrowings from financial institution. Going forward, the strategy is to mobilize low cost deposits. The bank’s CET-I stands at 10.18% as at end-Sep19. Total CAR stands at 15.2%. The bank has issued additional Tier-1 TFC (PKR 4,000mln) in CY18, which enhanced its capital base, thereby boosting its lending capacity.
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 296 (CY18: 295) branches across the country. The Bank’s primary sponsors are the Feerasta Family who collectively own majority share in SBL. The Feerasta Family has diverse commercial interests ranging from manufacturing, exporting, banking and trade financing. The eight-member BoD, with diversified experience, comprises three nominees of Feerasta family, two independent directors, one NIT representative, one non-executive director, and the CEO. Mr. Mohammad 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 has lately issued Unsecured, Subordinated, Rated, Listed, Perpetual and Non Cumulative Term Finance Certificates of PKR 4,000mln. 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.

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.