Despite a tough interest rate scenario and requirements of higher returns on deposits, Soneri Bank (SNBL) did a wonderful job, reporting a 53 percent year-on-year increase in net profits. Unlike its peers, Soneri does what banks should be doing more often, i.e. lending.
SNBLs ADR at 64 percent is among the highest in the industry. It did take advantage of risk-free lucrative returns on offer by investing in government securities, but the tilt towards investments from advances was not as huge as few other banks. The top line grew in double digits, and the gross spreads of yesteryear were maintained.
It is to SNBLs credit that despite a higher ADR the NPLs have been kept well in check. An infection ratio of 10 percent can no doubt be improved and be better provided for, but a slowdown in provisioning expenses has ably supported the NII.
The non-core income offered good support mainly due to dealing in foreign currencies.
But the good work was by and large undone by an excessive increase in administrative expenses. The bank in its previous financial report attributed the increase to branch expansion. The deposit continues to grow at a healthy pace and SNBL would ideally want to continue improvement in its CASA ratio.
With the asset mix already tilted towards advances, it is hard to see a major shift in the near future, especially given the expected cycle of interest rates.
SNBL appears to be better poised to tackle the slowdown in rates, than most its peers and would likely reap results.
The focus on correcting the deposit mix and attract more low cost deposits and reduce the cost of funds, is likely to continue as well.
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SONERI BANK LIMITED
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Rs (mn) CY14 CY13 chg
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Markup Earned 16,871 13,601 24%
Markup Expensed 10,626 8,751 21%
Net Markup Income 6,245 4,850 29%
Provisioning/(Reversal) 549 735 -25%
Net Markup Income after provisions 5,696 4,115 38%
Non Mark-up / Interest Income 2,645 2,400 10%
Operating Revenues 8,341 6,515 28%
Non Mark-up / Interest Expenses 5,899 4,985 18%
Profit Before Taxation 2,442 1,530 60%
Taxation 860 494 74%
Profit After Taxation 1,582 1,037 53%
EPS (Rs) 1.44 0.94
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Source: KSE Notice
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