PACRA Maintains Entity Ratings of Soneri Bank Limited | Tier 2 Capital TFC | PKR 4bln | Dec'22

The ratings reflect the astute leadership of Soneri Bank’s (or the "Bank"). This has been the driving force behind the bank's sustainable business profile over the years. The bank saw a robust 27% growth in deposits during CY23, driven by a steady CASA ratio of 79%. Of note, Islamic deposits constituted 8.3% of the total. The bank's lending portfolio showed a slight decline, resulting in an ADR down from 40% (CY22: 51%). Despite this, Soneri Bank maintained a strong NPL coverage of 81%, with a slight increase in the infection ratio to 5.1% (CY22: 4.7%). Financially, Soneri Bank's net profitability surged by 2.2 times primarily due to a significant increase in net markup income, supported by a favorable high-interest rate environment in CY23. The bank anticipates some pressure on net interest margins due to expected rate cuts, although revenue from non-core income streams is poised to mitigate this effect. In terms of market presence, Soneri Bank commands a 6% share in the trade business, reflecting its strengthened position. The bank's equity rose to PKR 29bln in CY23 from (CY22: PKR 21bln), with a robust (CAR) of 18.4%, up from 15.2% in CY22. Looking ahead, Soneri Bank aims to continue enhancing its deposit base, sustain growth in net markup and non-markup income, and expand its digital platforms to offer innovative solutions to customers, thereby strengthening its market position and operational efficiency.
Bringing efficiency to the operational structure is important for long-term growth. 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 443 as of end-Dec23 (end-Dec22: 403) branches across the country. The Bank’s primary sponsors are the Feerasta Family who collectively own a majority share in SNBL. The overall control of the bank vests with an eight-member board of directors (BoD) comprising four non-executive directors, three 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. Amin A. Feerasta is the newly appointed Chairman of BOD.

About the Instrument
SNBL issued unsecured, DSLR listed, subordinated and rated TFCs in Dec-22 of PKR 4bln to contribute towards Bank's Tier II Capital. The funds raised were utilized in the Bank's normal business operations. The profit rate is 6MK+1.70% and is being paid semiannually in arrears on the outstanding principal. The TFCs are tenured 10 years and can be recalled, subject to SBP approval, after five years from the issue date on principal redemption date or thereafter, subject to call option condition. As per lock-in clause requirement, neither profit nor principal would be payable (even at maturity), if such payment will result in a shortfall in Bank's MCR, CAR or LR. The TFC is subject to a loss absorbency clause, which upon the occurrence of non-viability event, SBP may fully or permanently convert the TFCs into common shares of the Bank. The instrument is subordinated as to payment of principal and profit to other indebtedness of the Bank, including deposits, but will rank pari passu with other Tier II instruments and superior to Additional Tier I instruments and common shares. The principal will be redeemed 0.36% during the first 9 years and the remaining 99.64% in two equal semi-annual installments of 49.82% each in the last year. The Bank has paid a third coupon payment amounting to 463mln in Jun'24.