Bank: SONERI BANK LIMITED - Analysis of Financial Statements Financial Year 2005- Financial Year 2009

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Highlights - Corporate News

OVERVIEW : Soneri Bank Limited was incorporated on September 28, 1991. Its first branch opened doors for operations in Lahore on April 16, 1992 followed by Karachi branch on May 09, 1992.

The bank now has a network of 154 branches all over
Pakistan, including the Northern Areas where no other private bank has ventured so far. The bank operates in four segments. Corporate banking includes syndicated financing and services provided in connection with mergers and acquisitions, underwriting, privatisation, securitisation, research, debts, equity, syndication, initial public offering (IPO) and secondary private placements.Trading and sales include fixed income, equity, foreign exchange, commodities, credit, funding, own position securities, lending and repos, brokerage debt and prime brokerage. Retail banking includes retail lending and deposits, banking services, trust and estates, private lending and deposits, banking service, trust and estates investment advice, erchant/commercial/corporate cards and private labels and retail. Commercial banking includes project finance, real estate, export finance, trade finance, factoring, leasing, lending, guarantees, bills of exchange and deposits.


Growth Rates 2005 2006 2007 2008 2009




Profits After Tax 41.93% 7.07% 1.53% -29.92% -79.27%

Advances 31.49% 10.48% 13.39% 18.48% 2.42%

Deposits 27.34% 11.33% 13.49% 2.47% 19.33%

Investments 17.22% 2.04% 14.69% -26.74% 110.18%

Net Interest Income 39.46% 6.04% 9.59% 52.00% -7.13%

Non Interest Income -16.61% -47.64% 19.97% -221.29% -25.55%

Return on Assets 11.70% -4.11% -6.56% -33.49% -82.38%


Industry Averages


Profits After Tax 114.27% 42.79% 4.82% -4.37% 26.07%

Advances 45.53% 19.45% 14.05% 22.89% 4.75%

Deposits 14.15% 16.01% 19.80% 12.98% 10.03%

Investments 0.40% -2.06% 69.85% -8.69% 33.53%

Net Interest Income 83.08% 38.05% 9.86% 15.98% 19.69%

Non Interest Income 68.66% 5.49% 16.85% 75.05% 21.12%

Return on Assets 35.72% 18.39% -10.44% -13.72% 4.02%

The Pakistan Credit Rating Agency Limited (PARCA) has maintained bank s long-term and short-term entity ratings at AA- and A1+ respectively and A+ for the Term Finance Certificates. These ratings denote a very strong capacity for the timely payment of financial commitments.

Banking industry

In FY09, the banking sector remained stable despite the adverse economic conditions. The industry absorbed the upsurge of NPLs in the system while maintaining profitability and robust balance sheets. Overall profits of the industry grew by 26.07% in FY09. Deposits also increased but at a slower pace. Gradual improvements in the economic environment are good signs for the banking sectors.

Some favourable developments include the reversal of the monetary stance due to the easing-off of inflationary pressures, restoration of the regular functioning of the Karachi Stock Exchange and relative stability in the exchange rate. These developments not only helped in stemming the rapid deterioration in some of the financial indicators of the banking sector, but also signaled gradual improvement in the stability of the banking sector in 1H09, as against the position at the end of FY08.

Currently, the banking sector is facing two major problems. The first one is the decline in credit demand due to slowdown in the economic activities due to poor law and order situation, power crisis, inflationary pressure, and high interest rates. The other problem is the mounting amount of NPLs (non-performing loans). With the exception of a few banks all the banks are exhibiting considerable rise in NPLs. These two issues are collectively dampening the banking sector s performance.

Recent results of FY09

SNBL posted a profit after tax (PAT) of Rs 145 million in FY09, which was 79.27% lower than the previous year mainly due to large amounts of provisions for diminution in the value of investments and loss on sale of securities which grew by 1184.89% and 4439.92% in FY09. Also, the net interest revenue dropped by 7.13% in FY09 as interest expenses grew by 35.35% while interest income grew only by 19.36%. This increase in interest expenses can be attributed to the 19.33% rise in the deposits.


Net Interest Margin


(Rs 000)


2005 2006 2007 2008 2009


Interest Revenue 3,680,956 5,536,098 6,271,636 7,822,941 9,337,284

Yield on Earning Assets 0.007% 0.010% 0.010% 0.012% 0.012%

Interest Expense 2,013,862 3,768,323 4,334,355 4,878,347 6,602,779

Cost of Funding 0.004% 0.007% 0.007% 0.007% 0.008%

Net Interest Income 1,667,094 1,767,775 1,937,281 2,944,594 2,734,505

Net Interest Margin 0.003% 0.003% 0.003% 0.004% 0.003%

CASA ratio for SNBL did not show much improvement in FY09, as it stood at 55.81% as compared to 55.50% in FY08. The big players in the industry like MCB and UBL stand at 88% and 75% respectively, which allowed them to operate very cost-effectively. SNBL has a long way to reach closer to these big players in the industry.

SNBL has not been showing much improvement in terms of net non-interest income, which dropped further by 25.55% in FY09, as compared to 221.29% in FY08. This decrease of net non-interest income can be attributed to a huge loss on sale of securities, which stood at 4439.92% in FY09. Also, the dividend income dropped by 51.26% in FY09 to Rs 130.64 million.

Financial performance FY06-FY09

If we compare the banking industry growth rates with the SNBL growth rates, we will find out that the growth rate of PAT of SNBL was 133% than the industry average due to the negative growth of PAT in FY09. The growth rates of the advances of the bank were also down by 96% than the industry average, reflecting that there was not much growth in asset base of the bank. However, the deposits were 48% higher than that of industry averages. Similarly, the investments of bank were higher by 70% than the industry average in FY09. The bank s net interest income, non-interest income, and ROA showed negative growth; they were lower by 376%, 183%, and 105% respectively, than the industry averages in FY09. This can be attributed to the negative growth of PAT.

Earning ratios

The earning ratios of the bank have been consistently declining since 2006. The low earning ratios reflects the low earnings (PAT) of the bank. In FY07, PAT of the bank grew just by 1.53% to Rs 1 billion and dropped by 29.92% to Rs 701 million in FY08 and by 79.27% to Rs 145 million in FY09. One of the reasons for such low profits was the provisioning for diminution in the value of investments and loss on investments due to poor economic conditions of the country. The collective loss on ordinary shares, mutual funds and other securities rose by 4439.29% in FY09 only. ROA, ROD, and ROE dropped by 33.49%, 31.61%, and 34.87% respectively in FY08 and by 82.38%, 82.62%, and 81.10% in FY09.

Asset quality ratios

The bank s non-performing loans have been increasing throughout. It grew by 263.22% in FY07 and by 149.71% in FY08. In FY09, it grew by 56.81%. This significant growth rate of NPLs can be attributed to the higher interest rates and the low growth environment. SNBL s rising NPLs are in line with the banking industry trend. In FY09, NPLs to advances ratio grew by 53.11% as advances grew just by 2.42% that year and NPL grew by 56.81%. Provisions to NPLs dropped by 32.56% in FY09 as compared to FY08 when it grew by 111.60%. The asset side of the balance sheet grew in FY09 due to 110.2% growth in investments. Total assets stood at Rs 95 million up from Rs 81 million as at
December 31, 2008.

Debt management ratios

The debt management ratios of SNBL grew in FY09. The debt to equity ratio grew by 7.99%, deposit times capital grew by 8.78%, and debt to asset grew by 0.65% in FY09. 18.47% increase in debt, which includes 19.33% of deposits growth justifies these increasing ratios. Debt-to-equity ratio dropped by 2.28% and 8.42% in FY08 and FY07 respectively. Deposits time capital decreased by 4.77% in FY08 and by 3.65% in FY07. Debt to asset ratio remained stabled through out, and only minor growth was seen in this ratio.

CASA ratio

CASA ratio for SNBL stood at 55.81% in FY09 while it stood at 55.50% in FY08 and 65.18% in the FY07. Comparatively, low CASA ratios of SNBL also explain the very low interest margins of 0.003-0.004%. Higher CASA minimizes the cost of funding and consequently, increases the profitability.

Market value

In FY09, the market price of SNBL s stock dropped significantly. It came down to Rs 12.14 in FY09 as compared to Rs 31.24 in FY08. Price-to-earnings ratio also fell by 46.66% to 2.38% due to losses that company suffered in FY09. A decline in price-to-earnings ratios and other market value ratios suggest decline in investors confidence and hence growth prospects for SNBL. This decline can mainly be attributed to a tight monetary policy and adverse economic and social environment of the country.

Liquidity ratios

Earning assets to assets ratio increased by 3.28% in FY09 as compared to 3.51% drop in FY08. This reflects that SNBL s liquidity position has improved previous year. In FY08, 79.51% of the assets comprised of earning assets (advances, lending to financial institutions and investments), and in FY09, it reached to 82.12%. Overall earning assets grew by 23.47% in FY09.

Bank s advance-to-deposit ratio decreased by 14.17%, due to relatively high growth of deposits than advances of the bank. Bank s deposits grew by 19.33% while advances grew by only 2.42% in FY09. This indicates the improvement of liquidity position of the bank. Low advance to deposit ratio also reflects the prudent and conservative lending practice of SNBL in terms of asset quality.

The worsening business and economic environment somewhat increased the credit risk, which compelled the banks to adopt cautious lending strategy, particularly in consumer sector where the advances have been decreasing since the start of FY08. Slackness in the demand for bank credit during FY07 coupled with slowdown in economic activities and tightening of monetary regime, forced the banks to reposition their lending strategy and asset profile. The asset mix of the banking system gradually shifted from lending to investments in FY09. Yield on earning assets dropped by 3.33% in FY09 while the cost of funding earning assets increased by 9.62%.


Equity-to-asset ratio and equity-to-deposit ratio declined in FY08 and FY09, which reflects a poor solvency position of the bank. Equity to assets ratio of the bank dropped by 6.79% to 8.19% while the equity to deposits ratio dropped by 8.07% to 10.61% in FY09. The earning assets to deposits ratio increased 2.44% in FY08 but then it further grew by 3.47% in FY09. This shows that the earning assets are growing faster than deposits. Earning assets of the bank grew by 23.47% to Rs 81 billion while deposits grew by 19.33% to Rs 73.5 billion in FY09.

Balance sheet growth

The total assets of the bank grew by 17.07% in FY09 as compared to 5.36% in FY08 while the total liabilities grew by 67% in FY09 as compared to 5.15% in FY08. The earning assets of the bank grew by 23.47% in FY09 largely due to 110.18% increase in investments. The lending to financial institutions decreased by 30.95% in FY09.

The bank s borrowings have increased by 13.86% since FY05. This explains that bank s liquidity position has been almost at the same levels in the past five years. The bank s equity increased by 9.7% to Rs 7.8 million in FY09.

Future outlook

Macroeconomic indicators in
Pakistan improved in FY09 and State Bank of Pakistan eased the monetary policy by reducing the discount rate to 12.5 bps. Record remittances coupled with lower commodity prices provided a major boost, easing the twin external deficits. A combination of inflows from International Monetary Fund and other multilateral sources greatly helped to build foreign exchange reserves up to US $15 billion (22 months of import cover) at year end. The Banking sector remained under pressure, with growth in credit off take of 4.2% (the slowest since 2002).

Weak corporate demand along with erosion in asset quality hurt overall sectoral performance. Economic slow down amid high interest rates and an energy crisis affected quality of corporate earnings and had a trickle down effect on banks in the form of higher provisions which rose by Rs 55 billion in 2009. It is anticipated that banking sector advances to rise gradually, in line with economic activity in 2010. On a positive note, a gradual pick up in demand as infrastructure activities gather pace and from the energy sector in particular, is likely to help revive loan growth.


Soneri Bank Limited: Financial Ratios


2005 2006 2007 2008 2009



Return on Assets (%) 1.45% 1.39% 1.30% 0.87% 0.15%

Return on Deposits (%) 1.93% 1.86% 1.66% 1.14% 0.20%

Return on Equity (%) 20.96% 17.56% 15.13% 9.86% 1.86%




NPL to Advances (%) 1.09% 0.99% 3.18% 6.71% 10.27%

Provisions to NPLs (%) 20.05% 10.41% 18.38% 38.89% 26.23%

Non Performing Loans (mn) 350 352 1,276 3,190 5,002

NPLs Growth (%) 33.50% 0.40% 263.22% 149.71% 56.81%




Price to Earnings (%) 7.06% 6.74% 4.87% 4.47% 2.38%

Market Value to Book Value 2.97 2.61 3.11 2.20 0.78

Market Price 43.63 48.76 49.97 31.24 12.14




Debt to equity 13.43 11.60 10.63 10.38 11.21

Deposit times capital 10.84 9.44 9.10 8.66 9.43

Debt to asset 0.93 0.92 0.91 0.91 0.92




Earning assets to assets (%) 81.52% 78.20% 82.40% 79.51% 82.12%

Advance to deposit (%) 67.33% 66.81% 66.76% 77.19% 66.25%

Yield on earning assets (%) 6.91% 10.01% 10.03% 11.92% 11.52%

Cost of funding earning assets 3.78% 6.81% 6.93% 7.43% 8.15%




Equity to assets (%) 6.93% 7.93% 8.60% 8.78% 8.19%

Equity to deposits (%) 9.22% 10.59% 10.99% 11.54% 10.61%

Earning assets to deposits 1.12 1.04 1.04 1.06 1.10




CASA (%) 77.49% 59.00% 65.18% 55.50% 55.81%




Dividend per share 0.55 0 0 0 0

Dividend Yield (%) 1.27% 0.00% 0.00% 0.00% 0.00%

Dividend Cover 5.57 0 0 0 0




Cost of funds (%) 22.11% 38.16% 57.75% 50.31% 59.22%

Intermediation Cost (%) 8.70% 10.42% 17.04% 17.26% 18.96%

Net Profit Margin (%) 10.10% 9.98% 13.33% 7.23% 1.30%

Interest Margin 0.45 0.32 0.31 0.38 0.29

Net Interest Margin 1.19 1.22 1.31 3.09 14.36

DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].

Courtesy: Business Recorder


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