The Pakistan Credit Rating Agency Limited
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Muhammad Adil Kaleem

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PACRA Maintains Instrument Rating of Soneri Bank Limited | TFC (Tier II) | Jul-15

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 slightly-inched up system share (9MCY20: 1.9%, CY19: 1.8%). Markup Income witnessed jump attributable to hike in asset yield and higher earning asset on a period on period basis. The net revenue witnessed significant increase whilst gain on securities was also recorded. Core Spread witnessed a dip (9MCY20: 3.7%, 9MCY19: 4.4%) on the back of reduced policy rates. Sustainability in NIMR & non-markup income, continued enhancement in non-fund based exposure is important for future years. SNBL’s customer deposits grew and CASA ratio experienced uptick (9MCY20: ~67%; 9MCY19: ~59%); where deposits remained tilted towards saving. Going forward deposit mobilization remains critical. Covid-19 has posed challenges to all segments of the economy, worldwide and domestically, most sectors are getting negatively impacted. The ramifications would continue to unfold, warranting vigilance and timely actions where needed. The central bank has taken well-tailored and comprehensive actions including reduction in key policy rates (~625bps down since January 2020) and deferment of repayment obligations for a defined period. While reduction in interest rates would determine the bank’s profitability, these measures have cushioned the allied risks surrounding the credit exposures. The Investment book has expanded significantly and fueled by borrowings from financial institutions. The bank’s total CAR stands at 17.3%. The bank also issued additional Tier-1 TFC (PKR 4,000mln) in CY18, 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
SNBL, established in 1991, operates with a network of 324 branches in 9MCY20 (CY19: 308) 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. Muhtashim Ahmad Ashai, CEO since Apr-20, is a seasoned banker. The Deputy CEO (formerly Executive Director), Mr. Amin A Feerasta - is a member of Feerasta family and has been associated with bank since 1999. They are supported by an experienced management team.

About the Instrument
SNBL 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.

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.