For Soneri, core banking is a tough cookie!

While bigger banks are oblivious of their core duty, Soneri is doing quite well. With a 23 percent year-on-year growth in its advances in the first half of 2013, Soneri appears to be strengthening its foothold in the private sector credit.
It is commonly argued that high yielding advances is Hobsons choice for small banks as they can afford risk-free lending owing to their higher cost of funds. But, Soneri bank is surely not among those banks. The bank has significantly overcome its cost of funds over time, as evidenced by its low-cost deposits (CASA) growing from 62 percent to 1H CY12 to 69 percent in 1H CY13.
At a time when other banks are experiencing compressed spreads, higher concentration of advances in the asset portfolio and higher proportion of low-cost deposits allowed SNBL to enjoy a growth of 7 percent in the net interest margin (see spread ratio).
What steals the charm, however, is a 19 percent year-on-year growth in its non-performing loans. Although a stream of fresh loans given out during the period have kept Soneris infection ratio constant, higher quantity of bad assets triggered a provisioning expense of Rs446 million.
And this is where things started getting frosty for the bank. Non-mark-up expenses also piled up as twenty new branches opened over the period which took the tally of total branches to 234.
Even a staggering 25 percent rise in the non-mark-up income couldn rescue banks bottom line which dropped by 27 percent year on year but still managed to boast a profit of Rs551 million.
The current results clearly indicate that rising NPLs is the only culprit that is battering the banks bottom line which otherwise would have posted tremendous growth.
Given the current situation, whether Soneri bank joins the industry stream and starts risk-free lending or instead employs sound recovery mechanisms will be found out soon.

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SONERI BANK LIMITED - KEY INDICATORS

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Indicators          1HCY13    1HCY12

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Infection Ratio        13%       13%

Coverage Ratio         66%       65%

Spread Ratio           36%       33%

Capital Ratio           8%        8%

IDR                    42%       52%

ADR                    62%       59%

CASA                   69%       62%

ROA                   0.3%      0.5%

ROE                     4%        6%

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Source: Company Accounts

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SONERI BANK LIMITED

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(Rs mn)                              1HCY13   1HCY12     Chg

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Markup Earned                         6,789    6,873     -1%

Markup Expenses                       4,362    4,599     -5%

Net Markup Income                     2,427    2,274      7%

Provisioning/(Reversal)                 446      (63)      -

Net Markup Income after provisions    1,981    2,337    -15%

Non Mark-up / Interest Income         1,066      855     25%

Operating Revenues                    3,048    3,191     -4%

Non Mark-up / Interest Expenses       2,215    2,054      8%

Profit Before Taxation                  833    1,138    -27%

Taxation                                282      385    -27%

Profit After Taxation                   551      753    -27%

EPS (Rs.)                              0.55     0.75    -27%

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Source: Company Accounts

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