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 Maintain
Long Term A A
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect Soneri Bank’s sustained business profile as reflected in net interest margin. The bank’s funding base comprise of deposits and borrowings. During CY18, customer deposits witnessed growth of ~12%, at par with the small scale industry average growth - customer deposit system share remained the same at ~1.8% as at end-Dec18 (end-Dec17: ~1.8%). Current deposits witnessed a growth of ~4.3% YOY, however, current deposit mix declined from ~28% to 25%, due to overall growth in deposits. The lending portfolio recorded growth of ~14% (against industry growth of ~22%). Non-Performing Loans witnessed an increase in Dec18 and came down in 1QCY19. Fee based income also witnessed growth and needs to seek a higher stimulant. The Bank's operating cost is higher, yet the bank achieved optimization in 2018 and maintained it in the ongoing year. This could be a challenge from future growth perspective. But this has helped in achieving higher profitability. Spread also witnessed slight uptick. Sustainability in NIMR, continued enhancement in non-fund based exposure and sustainable growth in fee income is important for future years. Going forward, the strategy is to mobilize low cost deposits. The bank’s CET-I stands at 11.1% as at end-Mar19. Total CAR stands at 14.04%. 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 295 (CY17: 290) 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 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 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.