PACRA maintains Debt Instrument Rating of Samba Bank Limited | PPTFC

The rating of Samba Bank Limited (“Samba” 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 the Kingdom of Saudi Arabia (KSA) with an equity base of SAR 183.8bln at the end of 9MCY24 (CY23: SAR 176.6bln). On 29th Mar'24, SNB received a non-binding offer from Bank Alfalah Limited (BAFL) to acquire its 84.51% stake in Samba Bank. SNB agreed to evaluate the offer, subject to regulatory approval. On 20th May'24, the State Bank of Pakistan (SBP) permitted BAFL to conduct due diligence. However, on 12th Nov'24, SNB decided to terminate the sale process of its stake in Samba Bank. As of 9MCY24, the Capital Adequacy Ratio (CAR) of the Samba stood at 26% as of the end of Sep'24 (Dec'23: 21.3%) 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. In 9MCY24, the Bank recorded net mark-up income at PKR 5.6bln (CY23: PKR 8.1bln) primarily directed from investments. During 9MCY24 the Bank optimized its ADR (Advances to Deposits ratio) at 58.0% (9MCY23: 58.9, CY23: 64.0%). The management has prudently recognized all infectious exposure. Consequently, there was a consistent increase in the infection ratio (9MCY24: 12.9 %; CY23: 9.1%) while the NPL Coverage Ratio has consistently remained near 100% over the years. In 9MCY24, the Bank's investments grew significantly (9MCY24: PKR 88.9 billion, CY23: PKR 70.4 billion), primarily driven by the increased investment in government securities in response to the higher policy rate. The equity of SBL stood at PKR 17.3bln as of 9MCY24. The SBL has paid the 07th redemption of Tier-II TFC due on Sep 01, 2024.
The rating relies on the Bank’s ability to sustain its current risk profile while enhancing performance metrics. Key factors include maintaining asset quality, increasing its deposit market share, diversifying income streams, preserving a buffer in CAR, and upholding a strong governance framework. The potential change in ownership structure will also be closely monitored.

About the Entity
Samba Bank Limited is primarily owned by Saudi National Bank (formerly Samba Financial Group) of Saudi Arabia, which holds an 84.51% stake. The Bank operates a network of 50 branches (CY23: 47 branches) across 15 major cities nationwide.

About the Instrument
Samba Bank issued PKR 5,000 million worth of PPTFC-Tier II instrument ("TFCs" or the "Instrument") 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.