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 end-December.

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 non-interest 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-over-year 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 non-performing 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.

Published in Dawn, Economic & Business, August 24th, 2015

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