Analyst
Madiha Sohail
madiha.sohail@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Soneri Bank Limited | Tier 1 TFC
Rating Type | Debt Instrument | |
Current (28-Jun-24 ) |
Previous (28-Dec-23 ) |
|
Action | Maintain | Maintain |
Long Term | A | A |
Short Term | - | - |
Outlook | Stable | Stable |
Rating Watch | - | - |
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, 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, 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 Bank has paid an eleventh coupon payment amounting to 471.6mln in Jun'24