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

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, 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 remaining 99.64% in two equal semi-annual installments of 49.82% each in the last year.