The Pakistan Credit Rating Agency Limited
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Muhammad Azmat Shaheen

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PACRA Maintains Debt Instrument Ratings of Soneri Bank Limited | Tier 1 TFC

Rating Type Debt Instrument
(23-Jun-23 )
(25-Jun-22 )
Action Maintain Maintain
Long Term A A
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect Soneri Bank’s stable leadership since the inception of the bank along with its maintained business profile. Over the years, the system share of the bank in terms of deposits as largely remained intact (end-Dec22: 1.6%, end-Dec21: 1.7%). The bank was working on the composition of the deposit base and also improving its cost structure. During CY22, SNBL’s customer deposits observed growth of 6%, where CASA recorded further improvement (CY22: 79.2%; CY21: 69.8%) with greater contribution from CA (CY22: 32.7%; CY21: 27.2%). The advances book reflected an increase, subsequently, the infection ratio declined (CY22: 4.7%; CY21: 5.9%). The NIMR of the bank witnessed an improvement (CY22: PKR 11.2bln; PKR 10.9bln). Higher reversals recorded have supplemented the profitability. The increase in the overall cost structure has caused the net profitability of the bank to decline (CY22: PKR 1.9bln; CY21: PKR 2.8bln). During 1QFY23, the net profitability of the bank recorded a sizable improvement to PKR 1.48bln. Going forward, the strategy is to strengthen the existing good relationships and digital platform by offering various unique solutions to its customers. At end-Mar23, the total CAR of the bank stands at 14.8% (end-Dec22: 15.2%) with the Tier I ratio clocking in at 12.6% (end-Dec22: 12.9%), reflecting an adequate cushion for growth.
The rating is a function of the bank's ability to maintain its market position in the banking industry while strengthening its overall risk profile. 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 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).

About the Instrument
SNBL issued unsecured, listed, subordinated, perpetual, rated and non-cumulative Additional Tier-I TFCs in Dec-18 of PKR 4bln to contribute towards Bank's Tier I Capital. The additional tier-I is exposed to non-payment (principal & interest) risk in case the CAR falls below the minimum regulatory requirements. The profit rate is 6MK+2.00% and is being paid semiannually in arrears on the outstanding principal. The TFCs may be recalled and replaced with similar or better-quality capital, after five years from the issue date, subject to call option condition. Being non-cumulative in nature, the interest payment falling due during that specific period wouldn't be paid to the investors as per the regulatory disclosures. As per lock-in clause, neither profit nor principal would be payable, if such payment will result in a shortfall in Bank's MCR or CAR. Upon the occurrence of CET1 trigger or Non-Viability event, SBP may fully or permanently convert the TFCs into common shares of the Bank subject to a cap of 360mln ordinary shares. The instrument is unsecured and subordinated as to payment of principal and profit to all other claims except common shares and is pari passu to other Additional Tier I instruments. 

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.