Soneri Bank Limited

Soneri Bank Limited (SNBL) was incorporated in Pakistan in September 1991. The first branch commenced its operations in Lahore in April 1992, followed by the launch of Karachi's first branch on May 1992. With 233 branches and 258 ATMs across the country, SNBL is a growing bank, well poised to provide competitive services in all spheres of banking.
The Bank has been expanding its network rapidly in urban as well as rural areas. Besides conventional banking, SNBL offers a wide range of Riba-Free banking products which cater to the modern banking needs of clients in a Shariah compliant manner. Along with a series of retail banking services, SNBL offers banking products and services to high-end customers for their working capital and long-term financing requirements. In addition, the bank also caters to advisory, debt rescheduling and capital market needs of the corporate clients.
FINANCIAL PERFORMANCE, 1QCY13 SNBL deserves recognition for being one of the few players in the Pakistani banking industry that are moving against the bandwagon by focusing more on core banking activities instead of parking the funds in government securities.
With its Advances-to-Deposit ratio (ADR) lingering well above the Investment-to-Deposit ratio (ADR), SNBL is sure to defy the herd mentality. Conversely, a noticeable dip in its ADR with burgeoning IDR during the first quarter of CY13 definitely raises some eyebrows.
During 1QCY13, non-performing loans (NPLs) of SNBL grew by over 19 percent year-on-year. To put a cap on its toxic assets, SNBL's disinterest towards private sector lending should come as no surprise. Despite a 28 percent year-on-year growth in its earning assets, the top line of SNBL couldn't impress, witnessing a nominal uptick. Who else could be the culprit than the discount rate shaving off 250 basis points since 1QCY12?
SNBL's focus towards mobilising low cost deposits enabled it to hold back its mark-up expenses in spite of a remarkable 25 percent year-on-year growth in its deposits. However, due to weak top line, the spread ratio lost its grounds by three percent year-on-year.
Admirably, SNBL's was able to keep its CASA intact even with the rising deposits. Among the low-cost deposits too, non-remunerative current accounts witnessed the highest year-on-year growth during 1QCY13. The major brunt to SNBL's bottom line comes from its growing provisioning charges owing to NPLs raising its head during the period. Besides this, the addition of 19 branches since 1QCY12 also propelled the non mark-up expense during the period.
During an interview of President, Soneri Bank, Aftab Manzoor with BR Research, it was learnt that the bank can't afford lazy banking as it doesn't justify the cost. Being small in size, SNBL's cost of funds and intermediation cost is almost twice than that of large banks. Thus, for SNBL, risky private sector lending is inevitable. Soneri Bank enjoys an excellent foothold in domestic retail sector. Thus, going forward, in order to be successful, bank should retain its focus on adopting the policy of prudent lending and proactive loan restructuring and recoveries.
PERFORMANCE RECAP (CY11-CY12) CY12 was an upbeat year for SNBL as the bank posted the highest profit after tax in last six years, registering a 41 percent year-on-year growth. Despite the back-to-back rate cuts that irked the banking sector at large, SNBL was able to post a healthy nine percent year-on-year growth in its top line in CY12. It appears that a 30 percent year-on-year growth in investments and 18 percent year-on-year growth in advances were quite enough to offset the impact of multiple discount rate reductions.
Another laudable feat in CY12 was SNBL's ability to keep its mark-up expense in check despite SBP's mandate to increase the floor rate on saving deposits from five percent to six percent. This helped the bank improve its spread ratio from 30 percent in CY11 to 34 percent in CY12. A notable drop in the provisioning expense during the year especially provisioning against non-performing loans lent a hand in bottom line growth.
On the negative note, non mark-up income decreased by two percent year-on-year due to depressed dividend income and income from dealing in foreign currencies. Moreover, mark-up expense hiked on account of growth in the branch network from 214 branches in CY11 to 233 branches in CY12, continuous expansion in IT infrastructure as well as new initiatives undertaken by the bank in the areas of credit administration and centralisation of branch network.
During the year, infection ratio fell from 14 percent in CY11 to 13 percent in CY12. The Bank continued to follow a prudent policy for making provisions for the infected loan portfolio in line with regulatory requirements and is confident that actions taken in 2012 would further help in controlling future infections and securing upcoming recoveries.
OUTLOOK In the latest MPS, the SBP slashed the Discount Rate by another 50 bps bringing the policy rate down to nine percent. With banking sector's spreads already on a declining trend on account of reduction in interest rates and higher deposit costs; another reduction in policy rate by 50bps will place spread under further pressure.
Keeping in view the fact that the banks are already operating at historically low lending to deposit spread, 50 bps reduction in policy rate will result in further decline in net interest margins of the banks. Large banks shall tolerate the headwinds and continue to maintain ROEs. However, smaller banks which are faced with red bottom line shall face further difficulties in improving their profitability that might trigger mergers and acquisition activities in the banking sector.

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Soneri Bank Limited

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(Rs mn)                              CY11     CY12   1QCY13

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Markup Earned                      12,910   14,068    3,365

Markup Expenses                     8,997    9,224    2,177

Net Markup Income                   3,912    4,844    1,188

Provisioning                        1,272      520      205

Net Markup Income after provision   2,640    4,324      983

Non Mark-up / Interest Income       1,887    1,857      515

Operating Revenues                  4,527    6,181    1,498

Non Mark-up / Interest Expenses     3,448    4,459    1,040

Profit Before Taxation              1,078    1,722      457

Taxation                              295      618      158

Profit After Taxation                 784    1,104      300

EPS (Rs)                             0.78     1.10     0.30

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Source: Company Accounts.

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Soneri Bank Limited

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Indicators           CY11    CY12    1QCY13

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Infection Ratio       14%     13%       13%

Coverage Ratio        64%     65%       63%

Spread Ratio          30%     34%       35%

Capital Ratio        8.5%    7.8%      7.5%

IDR                   46%     49%       50%

ADR                   66%     64%       61%

CASA                  60%     66%       65%

ROA                  0.6%    0.7%      0.2%

ROE                  7.1%    8.9%      2.4%

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