Soneri Bank : SNBL | Soneri Bank Limited Transmission of Quarterly Report for the period ended 31-03-2024

QUARTERLY REPORT MARCH 2024 (UN-AUDITED)

QUARTERLY REPORT

MARCH 2024

(UN-AUDITED)

TABLE OF

CONTENTS

1. Corporate Information
2. Directors' Review

1. Condensed Interim Statement of Financial Position
2. Condensed Interim Prot and Loss Account
3. Condensed Interim Statement of Comprehensive Income
4. Condensed Interim Cash Flow Statement
5. Condensed Interim Statement of Changes in Equity
6. Notes to the Condensed Interim Financial Statements

1. List of Branches

DIRECTORS' REVIEW

On behalf of the Board of Directors, we are pleased to present the Directors' Review of Soneri Bank Limited ('the Bank') along with the un-audited condensed interim financial statements for the quarter ended 31 March 2024.

Economic Review:

In the first quarter of 2024, Pakistan's economy showed signs of improvement across various key indicators, with inflation beginning to decline as anticipated. This decline in inflation can be attributed to a combination of factors including fiscal consolidation, improved food supplies, moderating global commodity prices, and favourable base effects. While the trend is positive, the level of inflation still remains high, necessitating a cautious approach to ensure stability.

The latest economic data indicates a moderate uptick in economic activity, driven by a rebound in agricultural output. Additionally, the external current account balance has performed better than expected, helping to maintain foreign exchange reserves despite challenges in financial inflows. This improvement is primarily due to a narrowing trade deficit, increased exports, decreased imports, and rising workers' remittances. The rise in exports, particularly in the food sector, coupled with subdued import payments, has contributed to this positive trend.

However, one of the major challenges being faced is the significant increase in interest payments, stemming from high debt levels and a growing reliance on costly domestic financing. This has led to an expansion in the overall deficit, highlighting the importance of fiscal consolidation for macroeconomic stability. The fiscal deficit is projected to rise to 8.0 percent of GDP in FY24, primarily due to higher interest payments, but is expected to gradually decrease over the medium term as fiscal consolidation measures take effect.

To address these challenges and sustain economic growth, there is a need to implement a comprehensive and credible economic reform agenda. This agenda would focus on improving the quality of expenditures, reducing state intervention in the economy, reforming state-owned enterprises (SOEs), privatizing assets, rationalizing subsidies, and optimizing federal expenditures devolved to provinces. A well-defined tax reform strategy is essential to reduce uncertainty, restore confidence, and pave the way for sustained economic recovery.

Looking ahead, growth is projected to remain subdued in FY2024 but is expected to pick up in FY2025, contingent upon the effective implementation of economic reforms. Real GDP is forecasted to grow by 1.9% in FY2024, driven by increased private sector investment, enhanced consumer spending, and a rise in workers' remittances. The government's commitment to reform measures and fiscal consolidation will play a crucial role in bolstering growth and rebuilding economic confidence.

Furthermore, country's external financing requirements and weak external buffers underscore the importance of continued support from multilateral and bilateral partners. Additional assistance from the International Monetary Fund (IMF) for a medium-term reform agenda could significantly improve market sentiment and facilitate access to affordable external financing, strengthening the country's economic resilience.

In conclusion, while Pakistan's economy is showing signs of improvement, sustained recovery hinges on the effective implementation of economic reforms, prudent fiscal policies, and adequate financial support. By addressing key challenges such as inflation, fiscal deficits, and external financing needs, Pakistan can navigate the current economic landscape and set the stage for long-term growth and stability. Continued tight monetary policy, targeted fiscal consolidation, and timely realization of external inflows will be crucial in managing inflation expectations and sustaining this positive trajectory.

ASCENDING HEIGHTS

The Bank's Financial Position and Operating Results:

The summarized financial position and operating results of the Bank for the quarter ended 31 March 2024 are as follows:

The Bank posted Profit before tax (PBT) of Rs. 3,554.392 million and Profit after tax (PAT) of Rs. 1,760.031 million for the quarter ended 31 March 2024, as compared to Rs. 2,694.461 million and Rs. 1,489.013 million respectively for the comparative period last year. Earnings per share (EPS) was recorded at Rs. 1.5965 per share for the current reporting period, as compared to Re. 1.3506 per share for the comparative prior period.

The Bank's net interest income for the quarter ended 31 March 2024 improved to Rs. 5,848.674 million from Rs. 4,838.830 million for the comparative prior period, indicating an impressive growth of 20.87 percent, on the back of improved volumes and spreads. Non-interest income for the quarter was reported at Rs. 1,603.108 million as against Rs. 1,770.134 million against the comparative prior period, due to lower FX income which ended at Rs. 509.635 million for the current year quarter as against Rs. 1,055.487 million in CPLY; although the same was compensated by higher fee and commission income which improved by 45.66 percent, year on year. Resultantly, overall revenue of the Bank indicated an improvement of Rs. 842.818 million, or 12.75 percent, year on year.

The Bank's average net investments ended higher at Rs. 318.734 billion for the quarter ended 31 March 2024 as against Rs. 298.850 billion maintained in the comparative prior period. Moreover, the yields also improved to 19.89 percent for the quarter ended 31 March 2024; as against 16.29 percent for the comparative prior period. Therefore, the Bank's income from investments increased to Rs. 15,761.473 million for the current quarter, as against Rs. 12,001.013 million for the comparative prior period.

At the same time, net yields on advances also improved year on year, ending at 20.02 percent as against 15.60 percent for the comparative prior period, reflecting the repricing effect of the increase in policy rates by the State Bank of Pakistan over the course of last year. The Bank's average net advances book improved to Rs. 220.595 billion for the quarter ended 31 March 2024, as against Rs. 173.444 billion for the prior comparative quarter, and with volumetric as well as rate increases, income from advances ended higher at Rs. 10,980.459 million for the current quarter as against Rs. 6,672.435 million for the comparative prior period.

QUARTERLY REPORT MARCH 2024 (UN-AUDITED)

Period end deposits improved to Rs. 551.659 billion as at 31 March 2024, indicating a growth of 6.52 percent as against the year end 2023 position. In terms of averages, the portfolio grew impressively by Rs. 115.264 billion, or 28.30 percent year on year. The Bank's cost of deposits increased to 14.17 percent for the quarter ended 31 March 2024 as against 10.30 percent for the corresponding period last year. As at 31 March 2024, the Bank's CASA percentage stood at 79.99 percent (December 2023: 79.22 percent). For Current Accounts, the mix improved to 31.32 percent at 31 March 2024 from 30.42 percent in December 2023, and volumes grew by Rs. 18.225 billion or 13.03 percent year on year. The Bank's focus remains on CASA mix improvement and retention of current accounts, whilst ensuring service levels of the highest quality. This has helped the Bank to rationalize its funding costs, thereby leading to improved margins.

The Bank's period end borrowings were reported at Rs. 43.256 billion at 31 March 2024, with overall costs increasing to 17.03 percent for the current quarter as against 14.91 percent for the comparative prior period. The Bank's IDR ended at 59.05 percent reducing marginally from the 59.93 percent reported at the year end. Overall Cost of funds increased to 13.14 percent for the quarter ended 31 March 2024 as against 11.35 percent for the comparative prior period.

Non-Markup expenses were reported at Rs. 4,384.900 million for the quarter ended 31 March 2024 as against Rs. 3,497.268 million in the comparative period of 2023, indicating a growth of 25.38 percent which is broadly in line with the inflation levels and the additional costs on account of new branches opened in the latter half of the year 2023. In line with the directions set by the Board, the management remains committed on pursuing stringent cost discipline measures over the remaining course of the year.

A net reversal of Rs. 487.510 million has been recognized in respect of Credit Loss allowance and write offs subsequent to the implementation of IFRS 9, Financial Instruments, which became effective from January 1, 2024 due to recoveries during the quarter. In contrast, a charge of Rs. 417.235 million considered in the same period last year. The Bank continues to target a strong recovery pipeline in the remainder of the year so as to further augment profitability. At the same time, we continue to carefully and prudently monitor our portfolio, so as to avoid infection and maintain coverage at reasonable levels.

As at 31 March 2024, the Bank's Non-performing loans to total Advances ratio has reduced to 4.26 percent (December 2023: 4.90

percent), with specific coverage at 81.11 percent (December 2023: 80.01 percent) and overall coverage including the Expected Credit Loss provision under IFRS 9, Financial Instruments, clocking at 97.80 percent.

The Bank remains adequately capitalized, with a Capital Adequacy Ratio of 16.92 percent at 31 March 2024. The Bank's Liquidity Coverage Ratio and Net Stable Funding Ratios currently stand at 187.11 percent and 167.89 percent respectively, which are comfortably above the regulatory requirements.

The SBP, through BPRD Circular Letter No. 07 of 2023 dated 13 April 2023 has set the implementation date of IFRS 9, Financial Instruments, for all Banks as 01 January 2024. Through the said circular, the SBP also prescribed the revised format for interim financial reporting. The impact of initial adoption of the standard and subsequent measurement requirements which predominantly require booking Credit Loss allowances on Expected Credit Loss basis instead of Incurred Credit Loss have accordingly been incorporated/disclosed in the relevant notes in the accompanying condensed interim financial statements. The implementation of the revised forms has resulted in certain changes to the presentation and disclosures of various elements of the condensed interim financial statements which have been detailed in the notes to condensed interim financial statements.

Credit Rating:

The Pakistan Credit Rating Agency (PACRA) has maintained the long term credit rating of 'AA-' (Double A Minus) and short term rating of 'A1+' (A One Plus) with Stable Outlook of the Bank through its notification dated 23 June 2023 [2022: long-term'AA-' (Double A Minus): short-term 'A1+' (A One Plus)].

Furthermore, the Bank's unsecured, subordinated, rated, listed perpetual and non-cumulative Term Finance Certificates of Rs 4,000 million have been assigned the rating of 'A' with Stable Outlook by PACRA through their notification dated 28 December 2023.

The Bank's unsecured, subordinated, rated, privately placed Term Finance Certificates of Rs 4,000 million, have also been assigned a rating of 'A+' with Stable Outlook through PACRA's notification dated 28 December 2023.

ASCENDING HEIGHTS

The assigned ratings reflect the Bank's diversified operations, healthy financial risk profile, strong sponsors, lending capacity and market presence. These ratings denote a low expectation of credit risk, adequate capacity for timely repayment of financial commitments in the long term and the highest capacity for timely repayment in the short term, respectively.

Obituary:

With profound grief we regret to inform all the relevant stakeholders that Mr. Alauddin J. Feerasta, the Chairman of the Bank passed away on Thursday, 14th March 2024, 3rd Ramadan 1445 AH. May Almighty Allah bless his soul in eternal peace and grant him the highest place in Jannat-ul-Firdaus. He was a founding member of the Bank and his exemplary leadership and vision built a culture of meritocracy and ethical standards that has shaped the Bank. The Board has vowed to continue the legacy of this remarkable individual, whose impact will continue to resonate within our institution.

Acknowledgment:

On behalf of the Board, we thank the State Bank of Pakistan, the Ministry of Finance, the Securities and Exchange Commission of Pakistan, and other regulatory authorities for their continued guidance. We remain indebted to our valued customers for their patronage, and express our gratitude to our shareholders for their unwavering trust and support.

On behalf of the Board of Directors,

QUARTERLY REPORT MARCH 2024 (UN-AUDITED)