Soneri Bank's ris­ing earn­ings

The Pak Banker - - 4EDITORIAL - Ali Raza Me­hdi

LAST week, Soneri Bank - a mid-sized bank with Rs225.2bn in as­sets by end-March - listed its sec­ond term fi­nance cer­tifi­cate at the Karachi Stock Ex­change. It suc­cess­fully raised Rs3bn through the TFC, of which Rs2.25bn was raised through pri­vate place­ment and the rest through an ini­tial public of­fer­ing held last month. Ac­cord­ing to media re­ports, the bank's TFC of­fer had been over­sub­scribed by 1.3 times.

Soneri Bank Ltd (SNBL) de­cided to raise its cap­i­tal lev­els de­spite the fact that it met the cen­tral bank's re­quire­ment for all banks to meet a risk-weighted cap­i­tal ad­e­quacy ra­tio (CAR) of 10pc and min­i­mum cap­i­tal (MCR) of Rs10bn (net of losses) by end-2014. SNBL's CAR stood at 12.5pc and the MCR at Rs11.02bn by end-2014.

And while some banks that did not meet the re­quired cap­i­tal lev­els till ear­lier this year have is­sued rights shares to be­come com­pli­ant, a few oth­ers, par­tic­u­larly mid- and small-tier firms like SNBL, are rais­ing cap­i­tal so that they can fi­nance their growth plans and bet­ter com­pete in the com­pet­i­tive bank­ing en­vi­ron­ment.

The bank recorded a 47pc growth in its mo­bile bank­ing cus­tomers in CY14. For in­stance, SNBL, apart from re­ly­ing on its branch net­work of 247 out­lets, has also been court­ing new clients through dig­i­tal av­enues. This is re­flected in the 47pc growth in its mo­bile bank­ing cus­tomers in CY14.

The first among the small banks to come out with its half-yearly re­sults, SNBL's net earn­ings for the first two quar­ters of 2015 have roughly dou­bled over the same pe­riod last year, mainly ow­ing to the big ad­di­tions of gov­ern­ment se­cu­ri­ties to its bal­ance sheet.

For the half year (1HCY15), the bank posted af­ter- tax earn­ings of Rs1.11bn, up a big 67pc from Rs663.8m in 1HCY14. This trans­lated into earn­ings-per-share of Re1, up from Rs0.6 last year.

Mean­while, the bank earned a net Rs494.3m in the three months end­ing June 30 (2QCY15), an im­prove­ment of 36.3pc over 2QCY14. How­ever, on a sequential ba­sis, the 2QCY15 earn­ings were down when com­pared with the first quar­ter's af­ter-tax profit of Rs613.3m. The ma­jor rea­son for this was the ex­pected rise in the bank's tax bill for the sec­ond quar­ter, which ex­ploded to Rs469.2m from Rs246.5m in 2QCY14.

In­vest­ments: While de­tailed ac­counts for the sec­ond quar­ter are not avail­able yet, the bank's in­vest­ment in gov­ern­ment se­cu­ri­ties (Trea­sury bills, Pak­istan In­vest­ment Bonds and Ijarah Sukuk) had gone from Rs69.1bn to over Rs92bn in just three months to March 31. Its T-bill port­fo­lio had al­most dou­bled to Rs30.3bn, while its PIBs rose by about Rs9bn to Rs59.6bn dur­ing the pe­riod.

As a re­sult, its in­ter­est in­come clocked in at Rs9.16bn for the half year, de­pict­ing a rea­son­able 16pc in­crease over 1HCY14.

And in or­der to ben­e­fit from the rise in bond prices in a de­clin­ing in­ter­est rate en­vi­ron­ment, the bank parked a ma­jor­ity of its PIBs in the avail­able for sale (AFS) and held for trad­ing (HFT) cat­e­gories. PIBs in the AFS port­fo­lio had swelled to Rs57.7bn from Rs49.8bn in the first quar­ter, while those in the HFT cat­e­gory went to Rs1.7bn from just Rs256.5m at endDe­cem­ber.

This is likely to have con­trib­uted to the huge 113.5pc rise in its net cap­i­tal gains to Rs582.8m in 1HCY15, in­clud­ing Rs261.2m that were booked in the first quar­ter.

"Higher spreads and av­er­age net earn­ing as­sets are the key fac­tors un­der­pin­ning this growth. The bank po­si­tioned it­self pru­dently in the cap­i­tal and money mar­kets, re­al­is­ing 53pc higher cap­i­tal gains in the quar­ter," wrote SNBL Chair­man Alaud­din Feerasta in his first quar­ter re­port to share­hold­ers.

The higher cap­i­tal gains also led to an 18pc rise in the bank's over­all non­in­ter­est in­come to Rs1.7bn for 1HCY15. Other ma­jor con­trib­u­tors to the seg­ment were bank­ing fees and com­mis­sions (up 7.3pc to Rs704.8m) and div­i­dends (up 24.3pc to Rs86.4m).

The bank also man­aged to keep its non-core ex­penses in check, as these went up by a mea­gre 4pc year-overyear to Rs3bn dur­ing Jan­uary-June.

Ad­vances: Af­ter ris­ing at a com­pounded an­nual growth rate (CAGR) of 18pc from 2010 to 2014, the bank's net ad­vances shrunk 6.5pc to Rs99.2bn in the three months to March 31.

While this might be ow­ing to sea­sonal fac­tors, the bank's ag­gres­sive lend­ing stance over the past few years has re­sulted in a piling up of bad debts on its book. The Rs10.25bn in non­per­form­ing loans that it had by March 31 were vir­tu­ally un­changed from end-De­cem­ber lev­els. Mean­while, its pro­vi­sions against NPLs shot up to Rs420m till June 30, up a big 41pc from 1HCY14.

By end-CY14, over half of the bank's over­all NPLs were con­cen­trated in the textile sec­tor (Rs5.7bn).

Mean­while, per­sis­tent mon­e­tary eas­ing also played a role in keep­ing the rise in the bank's core ex­penses in check. Soneri's in­ter­est ex­penses for the sec­ond quar­ter stayed vir­tu­ally static at Rs2.6bn, while those for the half-year went up around 8.8pc to Rs5.5bn over the same pe­riod last year. As a re­sult, the bank's net in­ter­est in­come grew 28.4pc to Rs3.7bn in 1HCY15, and by 23.5pc to Rs1.89bn in 2QCY15.

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