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The Pakistan Credit Rating Agency Limited
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Date
25-Jun-20

Analyst
Sehar Fatima
sehar.fatima@pacra.com
+92-42-35869504
www.pacra.com

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

Rating Type Debt Instrument
Current
(25-Jun-20)
Previous
(19-Dec-19)
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-Dec19: 1.8%, end-Dec18: 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 marginal increase 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. The bank’s total CAR stands at 15.8%. The bank has 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 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 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.