Soneri shines

Big or small, it is time for banks to make money and Soneri Bank did just that last quarter. The 1H CY14 profits welled considerably, driven from the top, ably aide by non-core operations. Soneri Bank, unlike the bigger banks has a much higher ADR being in the 60s as of latest available numbers. But, one wouldn't be surprised, if that ratio changes for June end 2014, in favour of investments.
The lucrative yields on offer in PIBs seem to have done the trick for Soneri. Advances being on the higher side are sure to have contributed too. The gross spread ratio remains in the mid-30s, as the CASA still has a lot of room for improvement and obviously the higher ADR may have played its role. The provisioning charges reduced a bit during the quarter, showing good signs--although the coverage ratio could still get more attention going forward.
The non-core income offered good support mainly on the back of dealing in foreign currencies.
But the good work was by and large undone by an excessive increase in administrative expenses. Soneri may want to keep a lid on these charges, if it has to compete in the low spreads scenario.
With the asset mix already tilted towards advances, it is hard to see a major shift in the near future, especially given the expected cycle of interest rates.
The focus would hence be on correcting the deposit mix and attract more low cost deposit and reduce the cost of funds. Improved spreads are the way forward for Soneri.

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Soneri Bank Limited  (Unconsolidated P&, 1QCY14)

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Rs( mn)                               1HCY14    1HCY13      chg

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Markup Earned                          7,900     6,784      16%

Markup Expensed                        5,010     4,357      15%

Net Markup Income                      2,890     2,427      19%

Provisioning/(Reversal)                  297       446     -33%

Net Markup Income after provisions     2,593     1,981      31%

Non Mark-up / Interest Income          1,435     1,059      36%

Operating Revenues                     4,027     3,040      32%

Non Mark-up / Interest Expenses        2,959     2,207      34%

Profit Before Taxation                 1,068       833      28%

Taxation                                 404       282      43%

Profit After Taxation                    664       551      20%

(Loss)/earnings per share             0.60      0.50

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