PACRA maintains Debt Instrument Rating of Samba Bank Limited | PPTFC

The rating of Samba Bank Limited (“SBL” or “the Bank”) is reinforced by the strong profile of the sponsoring group i.e., Saudi National Bank (SNB). The SNB is the largest commercial bank of KSA with an equity base of SAR 176bln as of Dec-23. However, the ownership structure of the bank is expected to change contingent on the successful acquisition of an 84.51% stake of SNB in SBL. The Saudi National Bank, as the majority shareholder of Samba Bank Limited (''Samba Pakistan''), has notified that they have received a non-binding offer from Bank Alfalah Limited relating to the proposed divestment of SNB's 100% stake in Samba Bank Limited. SNB has agreed to evaluate the non-binding offer and will, subject to compliance with the requirements under applicable laws and regulations. As of CY23, the CAR of the SBL stood at 21.3% (CY22: 18.7%) well above the minimum requirement prescribed in SBP banking regulations. The consistent improvement in CAR over the years has augmented the risk absorption capacity of the SBL and provides comfort to the currently assigned debt instrument rating. The Bank recorded net mark-up income at PKR 8.1bln (CY22: PKR 4.7bln) mainly attributed to the surge in the policy rate. During CY23 the Bank optimized its ADR (Advances to Deposits ratio) at 64.0% (CY22: 70.7%). The management has prudently recognized all infectious exposure. Consequently, there was a consistent increase in the infection ratio (CY23: 9.1%; CY22: 6.5%). In CY23, the bank's government securities portfolio decreased (CY23: PKR 70.4bln, CY22: PKR 76.9bln), reflecting a deliberate strategy to reduce risk by offloading securities and minimizing duration. The NPL Coverage Ratio continues to remain around 100% over the years. The equity of SBL stood at PKR 16.4bln as of CY23. The SBL has paid the 06th redemption of Tier-II TFC due on March 01, 2024.
The rating is dependent on the Bank's sustained risk profile along with improvement in performance parameters. Meanwhile, upholding asset quality, enhancing its share of deposits in the banking sector, adding diversity to the income stream, maintaining a cushion in CAR and a strong governance framework are critical.

About the Entity
Samba Bank Limited is majorly owned by Saudi National Bank (formerly Samba Financial Group) of Saudi Arabia. Saudi National Bank currently holds an 84.51% stake in Samba Bank Limited. The bank has a network of 47 branches (CY22: 47 branches) located in 15 major cities across the country. The board comprises nine members, including the President and CEO. The five members of the board are representatives of SNB. The bank's President & CEO, Mr. Ahmad Tariq Azam, has broad experience in banking and financial services sector.

About the Instrument
Samba Bank issued PKR 5,000 million worth of PPTFC-TIER II in March 2021, priced at 6-month KIBOR plus 135 basis points per annum, payable semi-annually. The instrument, with a tenor of 10 years, is callable from March 2026 with prior SBP approval. It is unsecured, subordinated to all other bank debts, and cannot be redeemed before maturity without SBP approval. Notably, the lock-in clause prohibits payment of profit or principal if it would breach MCR or CAR requirements. Additionally, it includes a loss absorbency clause where, upon a Point of Non-Viability event, SBP can convert the TFCs into common shares or write them off.