PACRA assigns SBL an initial entity rating of AA

July 07, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has assigned Samba Bank Limited (PSX: SBL), an initial entry rating of "AA" for long-term and "Al" for short term with a stable outlook, a latest press release issued by PACRA showed.

The ratings reflect the bank’s very strong ownership structure.

SBL  intends to leverage its parental strength to penetrate into the local market.

While the system share of the bank is humble, it plans profitable expansion, going forward.

The growth trajectory continued in CY22, reflecting a 33% expansion.

ADR is high, though it has improved post-deposit growth. The deposit base reflects a high concentration of term deposits.

The management has prudently recognized all infectious exposure. Consequently, there was an increase in the infection ratio (CY22: 6.5%; CY21: 5.3%).

The comfort is drawn from the fact that all NPLs are provided for.

The bank’s investment book is majorly vested with government securities.

During CY22, the investment portfolio portrayed a sizeable decline (CY22: Rs76.9 billion; CY21: Rs93.9bn) attributable to a change in strategy to offload securities.

The sizeable improvement in the coverage of NPLs is considered positive (CY22: 115.5%; CY21: 91%).

Moreover, the bank’s risk absorption capacity is high: CAR is reported at 18.7% (CY21: 20.2%).

The markup income witnessed an enormous increase clocking at Rs22.5bn (CY21: Rs13.9bn) attributable to a high contribution of markup from advances and investments.

The bank recorded a net loss of Rs428m against the profitability of Rs789m during CY21, attributable to higher provisioning and squaring off of the bank’s position on fixed investments.

During 1QCY23, the bank’s bottom line improved to PKR 280m.

Looking ahead, the macroeconomic landscape is fraught with numerous challenges, including macroeconomic stability, elevated interest rates, demand tightening, sizable rupee depreciation, and heightened inflation, all of which reverberate across all sectors of the economy.

Ratings are dependent on the bank's ability to sustain and improve performance parameters.

Meanwhile, upholding asset quality, enhancing its share of deposits in the banking sector, adding diversity to the income stream, maintaining a cushion in CAR and a strong governance framework are critical.

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