PACRA Maintains Instrument Rating of Soneri Bank Limited | TFC (Tier I)
|Rating Type||Debt Instrument|
The ratings reflect Soneri Bank’s maintained business profile as reflected by intact system share (end-Dec19: 1.8%, end-Dec18: 1.8%). The bank’s funding base comprise of deposits and borrowings. Markup Income witnessed jump attributable to hike in asset yield and higher earning asset on a period on period basis. The net revenue witnessed marginal increase where fee commission inched up whilst loss on securities was recorded. Core Spread also witnessed uptick (end-Dec19: 4.4%; end- Dec18: 3.2%). Sustainability in NIMR & non-markup income, continued enhancement in non-fund based exposure is important for future years. SNBL’s customer deposits observed growth of 11.4% consequently, CASA ratio witnessed meager growth (CY19: ~63%; CY18: ~61%); where deposits remained tilted towards saving. Going forward deposit mobilization remains critical. Absolute NPLs declined which led to improvement in impairment ratio (CY19: 5.1%; CY18: 5.8%). 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 (~525bps 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 institution. Going forward, the strategy is to strengthen the existing good relationships. The bank’s CET-I stands at 13.4% as at end-Dec19. Total CAR stands at 15.8%. 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.
SNBL, established in 1991, operates with a network of 308 (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. 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 the Bank since 1999. They are supported by an experienced management team.
SNBL has issued its Unsecured, Subordinated, Rated, Listed, Perpetual and Non Cumulative Term Finance Certificates of PKR 4,000mln in Dec-18. 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) noncumulative. 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.