Samba Bank Limited

CREDIT RATING REPORT | Dec-24

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
20-Dec-24 AA A1 Stable Maintain -
26-Jun-24 AA A1 Stable Maintain YES
06-Jul-23 AA A1 Stable Initial -
About the Entity

Samba Bank Limited is majorly owned by Saudi National Bank (formerly Samba Financial Group) of Saudi Arabia. Saudi National Bank currently holds an 84.51% stake in Samba Bank Limited. The Bank has a network of 52 branches (CY23: 47 branches) located in 17 major cities across the country. The Board comprises nine members, including the President and CEO. The five members of the board are representatives of SNB. The Bank's President & CEO, Mr. Ahmad Tariq Azam, has broad experience in the banking and financial services sector.

Rating Rationale

The rating of Samba Bank Limited (“Samba” or “the Bank”) is reinforced by the strong profile of the sponsoring group i.e., Saudi National Bank (SNB). The SNB is the largest commercial bank of the Kingdom of Saudi Arabia (KSA) with an equity base of SAR 183.8bln at the end of 9MCY24 (CY23: SAR 176.6bln). On 29th Mar'24, SNB received a non-binding offer from Bank Alfalah Limited (BAFL) to acquire its 84.51% stake in Samba Bank. SNB agreed to evaluate the offer, subject to regulatory approval. On 20th May'24, the State Bank of Pakistan (SBP) permitted BAFL to conduct due diligence. However, on 12th Nov'24, SNB decided to terminate the sale process of its stake in Samba Bank. Hence, the Rating Watch assigned to the Bank has now been removed. As of 9MCY24, the Capital Adequacy Ratio (CAR) of the Samba stood at 26% (Dec'23: 21.3%) well above the minimum requirement prescribed in SBP banking regulations. The consistent improvement in CAR over the years has augmented the risk absorption capacity of the SBL and provides comfort to the currently assigned rating. In 9MCY24, the Bank recorded net mark-up income at PKR 5.6bln (CY23: PKR 8.1bln) primarily directed from investments. During 9MCY24 the Bank optimized its ADR (Advances to Deposits ratio) at 58.0% (9MCY23: 58.9, CY23: 64.0%). The management has prudently recognized all infectious exposure. Consequently, there was a consistent increase in the infection ratio (9MCY24: 12.9 %; CY23: 9.1%) while the NPL Coverage Ratio has consistently remained near 100% over the years. In 9MCY24, the Bank's investments grew significantly (9MCY24: PKR 88.9 billion, CY23: PKR 70.4 billion), primarily driven by the increased investment in government securities in response to the higher policy rate. The equity of SBL stood at PKR 17.3bln as of 9MCY24.

Key Rating Drivers

The rating relies on the Bank’s ability to sustain its current risk profile while enhancing performance metrics. Key factors include maintaining asset quality, increasing its deposit market share, diversifying income streams, preserving a buffer in CAR, and upholding a strong governance framework.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Samba Bank Limited

rating analysis

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Profile
Structure

Samba Bank Limited ("Samba" or the "Bank") is a banking company listed on the Pakistan Stock Exchange. In 2007, Samba Financial Group (SFG) of Saudi Arabia acquired a 68.4% stake in Crescent Commercial Bank Limited (CCBL), which was subsequently rebranded as Samba Bank Limited in 2008.

Background

In 2021, Saudi National Bank (SNB) was formed by the merger of two big banks National Commercial Bank and Samba Financial Group. As a result of the merger, the shares of Samba Bank held by SFG were transferred to SNB by operation of law, establishing SNB as a leading banking entity in Saudi Arabia

Operations

The Bank is operating as a scheduled bank. The Bank’s registered office is located on the 1st Floor, 19 - Saleem Plaza, Blue Area, Jinnah Avenue, Islamabad. Currently, the Bank is operating with 52 branches (CY23: 47 branches) located in 17 major cities nationwide.

Ownership
Ownership Structure

The majority of the bank’s stake (84.51%) is held by Saudi National Bank (SNB) and the general public (9.91%). While the remaining stake vests with mutual funds (0.16%), public sector companies and corporations (0.26%), and others (5.16%).

Stability

As the major shareholding of the Bank remains with a very strong sponsor (Saudi National Bank), the Bank’s shareholding pattern is expected to remain stable in the foreseeable future.

Business Acumen

Saudi National Bank is the largest financial group in Saudi Arabia in the banking sector. It is owned by the Saudi Government with a global presence operating in eight countries.

Financial Strength

SNB has a very strong presence in the diverse sectors. The subsidiaries of Saudi National Bank are SNB Capital Company (SNBC), NCB Capital Dubai Incorporation, NCB Capital Real Estate Investment Company (REIC), SNB Markets Limited, and Al-Ahli Insurance Services Marketing Company.

Governance
Board Structure

The Bank's Board comprises nine members, including the President and CEO. The five members of the board are representatives of the Saudi National Bank (SNB).

Members’ Profile

The Chairperson, Mr. Mustafa Ilyas also serves as an adviser to SNB and brings over 17 years of audit experience which focused exclusively on the banking sector. Each member of the Board contributes significant expertise, with the majority having extensive backgrounds in banking, thereby enhancing the overall strength of the Board.

Board Effectiveness

The Board monitors the key functional and risk areas through its four committees; i) Audit Committee, ii) Nomination & Remuneration Committee, iii) Risk Committee, and iv) IT Committee.

Financial Transparency

The Bank has an internal audit function in place which reports directly to the Board Audit Committee. M/s. KPMG Taseer Hadi and Co. Chartered Accountants are the external auditors of the bank. They have expressed an unqualified opinion on the bank’s financial statements for the year ended December 31, 2023.

Management
Organizational Structure

The Bank operates through a well-defined organizational structure headed by the President & CEO, Mr. Ahmad Tariq Azam. The organization is structured along functional lines with the various department heads, along with the management committees, reporting directly to the President & Deputy CEO.

Management Team

The President & CEO, Mr. Ahmad Tariq Azam has been associated with Samba Bank since December 2013. He brings with him an extensive experience of three decades in the banking sector, non-banking financial institutions, investment banks, and leasing companies. The Deputy CEO, Mr. Rashid Jahangir, and CFO, Mr. Basit Hamanyun are highly qualified and experienced professionals.

Effectiveness

The Bank has various committees in place at the management level to oversee its day-to-day operational matters and take decisions to implement the strategy outlined by the board. These include (i) Executive Team, (ii) Investment Committee, (iii) Asset and Liability Committee (iv) Management Credit Committee, (v) Real Estate Committee (vi) Remedial Assets Committee (vii) IT Steering Committee.

MIS

Samba Bank Limited has deployed Temenos T24 as its centralized core banking system. It includes all the basic modules including branch banking, trade finance, corporate loans, and anti-money laundering. Samba Bank has undergone a significant technological transformation, upgrading its ATM controller, card management and fraud risk management system to the advanced BPC system. The Bank has enhanced customer experience through digital touchpoints including ATMs and launching a new Samba Digital Platform encompassing internet, mobile banking and electronic KYC module.

Risk Management Framework

The Board has formed special committees named Integrated Risk Management Committee (IRMC), Management Credit Committee (MCC), and Country Risk and Compliance Committee (CRCC) to manage the credit, market, operational and other risks. The supervision and oversight of the Bank's operations is managed by a twelve-member team, including the President & CEO, Deputy CEO, and the Group heads of each business and support function.

Business Risk
Industry Dynamics

In 9MCY24, Pakistan’s listed banks demonstrated resilience amid low-interest rate environment. Although year-on-year profitability saw a slight dip, quarterly performance improved, driven by volume growth and favorable repricing effects. Provisioning charges for the quarter ending September 2024 rose by approximately 28%, reflecting the impact of IFRS-9 implementation and sector-specific pressures, particularly in the textile and steel industries.

Relative Position

In CY23, the Bank’s relative position in the banking industry by the deposit system share stands at 0.4% (end-Dec22: 0.6%).

Revenues

In CY23, the Bank's financial performance was marked by notable growth in markup-related metrics. The markup earned increased significantly by 27.3% YoY, reaching PKR 28.7bln, up from PKR 22.5bln in CY22. Markup expenses also rose, totaling PKR 20.6bln compared to PKR 17.8bln in CY22. Despite the rise in expenses, the net markup income increased to PKR 8.1bln from PKR 4.7bln in CY22. In 9MCY24, Samba's net markup income declined by 2.2% year-on-year to PKR 5.6bln (9MCY23: PKR 5.7bln; CY23: PKR 8.1bln) due to increased deposit costs.

Performance

The non-markup income recorded an increase on a YoY basis to stand at PKR 1.2bln (CY22: PKR 0.244bln). The bank booked a total provision of PKR 2.2bln during CY23 (CY22: PKR 1.8bln). The Bank's profit after tax has increased to PKR 1.2bln during CY23 (CY22: Loss of 0.428bln). In 9MCY24, the Bank’s non-markup income rose to PKR 1.3bln (9MCY23: PKR 847mln), driven by a capital gain on investments of PKR 118mln as compared to a loss of PKR 465mln in 9MCY23. Provisioning expenses grew to PKR 1.5bln due to IFRS-9 implementation. Profit after tax for 9MCY24 decreased to PKR 767mln (9MCY23: PKR 1.1bln), primarily due to lower markup income.

Sustainability

Currently, the Bank operates with 52 branches (CY23: 47 branches) located in 17 major cities across the country.

Financial Risk
Credit Risk

In CY23, the bank's gross advances witnessed a marginal increase to PKR 80.7bln from PKR 80.5bln in CY22, This minimal growth led to a decline in the Advances to Deposit Ratio (ADR), which dropped to 64% from 70.7% in CY22. Additionally, the infection ratio rose to 9.1% from 6.5% in CY22, reflecting a deterioration in asset quality and an increase in non-performing loans. This trend highlights the need for improved credit risk management and loan portfolio quality. During 9MCY24, the net advances of the Bank further declined to PKR 60.6bln (9MCY23: PKR 68.2bln).

Market Risk

During CY23, the Bank’s investment portfolio illustrated a sizeable decrease on a YoY basis recorded at PKR 70.4bln (CY22: PKR 76.9bln). The Bank’s exposure in Federal Government Securities has displayed a decline (CY23: PKR 67.7bln; CY22: PKR 74.8bln) attributable to a change in the strategy and offloading of investments in government and equity securities. During 9MCY24 the investment portfolio rose to PKR 88.9bln, with large exposure towards government securities.

Liquidity and Funding

The Advances to Deposits Ratio (ADR) dropped to 64.0% in Dec'23 (Dec'22: 70.7%) due to reduced advances and a higher deposit base, and stood at 58% by Sep'24, with loan loss coverage at a conservative 100.9%. The Bank’s Current Account & Saving Account Ratio (CASA) declined to 43.9% as of the end Dec'23 (Dec'22: 50.5%), with term deposits at 56.1%. By Sep'24, CASA improved to 47.8% (Sep'23: 46.4%), reflecting active management of the deposit mix.

Capitalization

The Bank’s equity base rose to PKR 16.3bln as of the end Dec'23 (Dec'22: PKR 14.6bln), driven by a stronger bottom line, and further increased to PKR 17.3bln by Sep'24 (Sep'23: PKR 15.2bln). The Capital Adequacy Ratio (CAR) improved to 21.3% in Dec'23 (Dec'22: 18.7%) and reached 26% by Sep'24, enhancing the Bank’s risk absorption capacity.

 
 

Dec-24

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Samba Bank Limited

financial summary

(PKR mln)

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Sep-24
9M		 Dec-23
12M		 Dec-22
12M		 Dec-21
12M
A. BALANCE SHEET
1. Total Finances - net 60,649 73,377 75,268 80,773
2. Investments 88,987 70,412 76,904 93,975
3. Other Earning Assets 4,142 9,231 8,378 6,979
4. Non-Earning Assets 24,776 25,655 19,338 19,008
5. Non-Performing Finances-net (79) 59 (813) 404
Total Assets 178,474 178,734 179,074 201,140
6. Deposits 104,512 114,732 105,244 79,267
7. Borrowings 46,051 35,977 50,823 98,018
8. Other Liabilities (Non-Interest Bearing) 10,539 11,662 8,354 7,954
Total Liabilities 161,102 162,371 164,421 185,239
Equity 17,372 16,363 14,653 15,900
B. INCOME STATEMENT
1. Mark Up Earned 22,171 28,705 22,545 13,983
2. Mark Up Expensed (16,571) (20,604) (17,811) (9,676)
3. Non Mark Up Income 1,317 1,208 244 1,471
Total Income 6,917 9,310 4,978 5,777
4. Non-Mark Up Expenses (3,871) (4,830) (4,059) (3,424)
5. Provisions/Write offs/Reversals (1,540) (2,286) (1,845) (1,049)
Pre-Tax Profit 1,505 2,193 (926) 1,304
6. Taxes (739) (958) 498 (515)
Profit After Tax 767 1,235 (428) 789
C. RATIO ANALYSIS
1. Performance
Net Mark Up Income / Avg. Assets 4.2% 4.5% 2.5% 2.4%
Non-Mark Up Expenses / Total Income 56.0% 51.9% 81.5% 59.3%
ROE 6.1% 8.0% -2.8% 5.1%
2. Capital Adequacy
Equity / Total Assets (D+E+F) 9.7% 9.2% 8.2% 7.9%
Capital Adequacy Ratio 26.0% 21.3% 18.7% 20.2%
3. Funding & Liquidity
Liquid Assets / (Deposits + Borrowings Net of Repo) 59.0% 46.8% 41.6% 32.0%
(Advances + Net Non-Performing Advances) / Deposits 58.0% 64.0% 70.7% 102.4%
CA Deposits / Deposits 20.1% 22.2% 22.4% 27.3%
SA Deposits / Deposits 27.7% 21.8% 28.1% 24.2%
4. Credit Risk
Non-Performing Advances / Gross Advances 12.9% 9.1% 6.5% 5.3%
Non-Performing Finances-net / Equity -0.5% 0.4% -5.5% 2.5%

Dec-24

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Samba Bank Limited

rating scale

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Dec-24

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Samba Bank Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
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    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
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  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
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    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or otherwise reproduced, stored, or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent.

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