Times might have been tough for the banking sector, but for the investors of Soneri Bank there is less to worry. The bank made a fantastic start to CY15 as its bottom line boasted a heartening rise of 104 percent year-on-year in 1QCY15.
With its IDR rising sharply to 61 percent during the quarter (Dec’14: 46 percent), a double-digit year-on-year growth in top line seems to be a fair outcome. The focus was on building up the investment portfolio, whereby the share of government securities in the portfolio surged to 93 percent - 200bps higher than December 2014 levels.
In line with prevailing trends in the banking sector, the period saw a shift in Soneri’s strategy as the bank was seen shying away from lending to the private sector. This is evident as its advances inched down a tad, thereby taking the advances-to-deposits (ADR) ratio to 61 percent. Yet, the ADR is still at a finer level when compared to the industry trends.
Just at a time when banking sector margins were anticipated to face pressures, Soneri Bank’s NIMs maintained upward momentum, touching 39 percent as of March 2015. Besides the balanced asset composition, focus on improving CASA also lent a fair hand in easing the bank’s cost of deposits.
Further, Soneri’s asset quality has gained strength over time with the bank now boasting a finer infection ratio of 10 percent. While the bank adopted a cautious lending style this time, its non-performing loans (NPLs) stayed flattish. Still, the bank continued to adequately provide for bad loans on its lending portfolio, resulting in a healthier coverage ratio of 76 percent during the period.
The bank’s treasury wing also performed well as its non-mark-up income grew in double-digits. The growth was mainly driven by hefty gain on sale of securities, while dividends and fee, commission and brokerage income followed a downward spiral. Moreover, the bank successfully kept its administrative expenses in check whereby its cost to income ratio fell sharply by nearly 600bps to 32 percent during the period.
As interest rates decline further, yields on sovereign securities are likely to lose steam. Until then, the bank can reap revaluation gains on its investments, thus providing some comfort to the bottom line. Nonetheless, it will be a temporary relief. Sooner or later, focusing on high yielding advances will be the cure for its margins.
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SONERI BANK LIMITED (PROFIT & LOSS ACCOUNT)
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Rs (mn) 1QCY15 1QCY14 Chg
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Markup Earned 4,655 3,749 24%
Markup Expenses (2,834) (2,389) 19%
Net Markup Income 1,821 1,360 34%
Reversal against advances (183) (165) 11%
Net Markup Income after provisions 1,638 1,194 37%
Non Mark-up / Interest Income 786 671 17%
Total income 2,424 1,865 30%
Non Mark-up / Interest Expenses (1,475) (1,406) 5%
Profit Before Taxation 949 459 107%
Taxation (336) (158) 113%
Profit After Taxation 613 301 104%
EPS (Rs.) 0.56 0.27
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Source: KSE announcement
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