The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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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 maintained a business profile as reflected by intact system share in terms of deposits (end-Dec20: 1.8%, end-Dec19: 1.8%). SNBL’s customer deposits observed growth of 12.9%, CASA ratio also witnessed growth (CY20: ~69%; CY19: ~63%); where deposits remained tilted towards saving. Going forward enhanced deposit mobilization will remain vital in maintaining system share. Total income witnessed an increase of 34% YoY attributable to increased net mark up income and gain on securities. Spread also witnessed uptick (end-Dec20: 3.1%; end- Dec19: 2.8%). Sustainability in net mark up income & non-markup income and continued enhancement in non-fund based exposure is important for future years. Attrition in advances, compared to meagre growth observed by industry, led to an increased infection ratio (CY20: 6.2%; CY19: 5.1%). The Investment book has expanded significantly by 41% YOY,
dominated by investments in PIBs. Going forward, the strategy is to strengthen the existing good relationships and digital platform by offering various unique solutions to its customers. The Bank’s Tier-I ratio stands at 14.1% as at end-Dec20. Total CAR stands at 17.0%. COVID-19 is an ongoing challenge. While it has taken a toll on many businesses, its ramifications are still unfolding. The proactive measures are taken by the regulators and other concerning bodies have mitigated the potential damages much anticipated from this pandemic. As a result, the banking industry remained protected and in fact posted record profits. Vigilance is required as the loan repayment cycle resumes amid variants of the pandemic continue to re-emerge.
The rating is a function of a 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 340 (CY19: 308) branches across the country. The Bank’s primary sponsors are the Feerasta Family who collectively owns the majority share in SBL. The Feerasta Family has diverse commercial interests ranging from manufacturing, exporting, banking and trade financing. The overall control of the bank vests with an eight-member board of directors (BoD) comprising five non-executive directors, two independent directors and one executive director (CEO). Three of the Board members are nominees of the Feerasta family while one is an NIT representative. Mr Alauddin J. Feerasta is chairman of the board. Independent directors on the Board are Ms Navin Salim Merchant and Mr Jamil Hassan Hamdani.

About the Instrument
Soneri Bank Limited issued unsecured, subordinated, rated, listed, perpetual and non-cumulative term finance certificate of PKR 4bln (inclusive of greenshoe option of PKR 1bln)p in Dec-18. The TFC was issued to supplement the bank's Tier I CAR. The amount raised will be utilized in SNBL's normal business operations. The profit is being paid off semiannual at the rate of 6M KIBOR +200bps on a non-cumulative basis on the outstanding principal amount of the issue. Tier I TFC is differentiated from Tier II in two key aspects: (i) perpetual & (ii) non-cumulative. Furthermore, upon reaching a pre-defined trigger point or point of non-viability (PONV), the 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.