The Pakistan Credit Rating Agency Limited
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Muhammad Harris Ghaffar

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PACRA Maintains Debt Instrument Rating of Samba Bank Limited | PPTFC

Rating Type Debt Instrument
(16-Nov-23 )
(19-May-23 )
Action Maintain Maintain
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

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 167bln as of Dec-22. As of 9MCY23, the CAR of the SBL stood at 19.8% (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 5.7bln (9MCY22: PKR 3.2bln) mainly attributed to the surge in the policy rate. During 9MCY23 the Bank optimized its ADR (Advances to Deposits ratio) at 54.0% (CY22: 70.7%). The management has prudently recognized all infectious exposure. Consequently, there was a consistent increase in the infection ratio (9MCY23: 9.0%; CY22: 6.5%). The bank’s investment book is majorly vested with government securities. During 9MCY23, the investment portfolio portrayed a sizeable decline (9MCY23: PKR 72.3bln, CY22: PKR 76.9bln) attributable to a change in strategy to offload securities. Also, the duration was deliberately decreased in order to minimize the risk. The sizeable improvement in the coverage of NPLs is considered positive. The equity of SBL stood at PKR 15.3bln as of 9MCY23. The SBL has been paid the 05th redemption of Tier-II TFC due on September 01, 2023.
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 is 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 (CY21: 44 branches) located in 15 major cities across the country. The board comprises eight members, including the President and CEO. The four members of the board are representatives of SNB. The bank’s President & CEO, Mr. Ahmed Tariq Azam has diversified business and leadership experience in the banking and financial services sector.

About the Instrument
Samba Bank issued PPTFC-TIER II in Mar-21. The amount of the instrument is PKR 5,000mln and priced at 6MK+135bps p.a. payable semi-annually. The tenor of this instrument is 10 years, callable from Mar-26 or thereafter with prior approval of SBP. The TFC Issue is unsecured, subordinated as to payment of principal and profit to all other indebtedness of the bank, including deposits and is not redeemable before maturity without prior approval of the SBP. The lock-in clause states that neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank's MCR or CAR or increase any existing shortfall in MCR or CAR. The TFC is also subject to loss absorbency clause as stipulated in terms of the Basel III Guidelines wherein upon the occurrence of a Point of Non-Viability ("PONV") event as defined in the Basel III Guidelines, the SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank and/or have them immediately written off (either partially or in full).

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.