Debentures of Sanima Bank Limited receive rating from ICRA; other ratings upgraded

ICRA Nepal has assigned [ICRANP] LA to the proposed subordinated debentures of NPR 4,000 million of Sanima Bank Limited (Sanima). ICRA Nepal has also upgraded the rating of Sanima’s existing subordinated debentures of ~NPR 1,725 million from [ICRANP] LA- to [ICRANP] LA. Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

ICRA Nepal has also upgraded the issuer rating of Sanima to [ICRANP-IR] A from [ICRANP-IR] A. Issuers with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such issuers carry low credit risk

The rating assigned/ upgraded factors in the bank’s strong asset quality and low delinquency levels maintained on a sizeable scale of operations. This reflects on the bank’s established underwriting norms and risk management practices. The rating action also factors in the improvement in Sanima’s market positioning, supported by portfolio growth, driven by recent geographical expansion. Because of the focused strategy towards retail deposits, Sanima maintains fair CASA proportion despite the recent deposit crunch. The strategy has also helped Sanima maintain a relatively low portfolio concentration among top accounts. The bank’s capitalization profile remains comfortable and the outlook remains supported by a healthy rate of internal capital generation. Sanima’s profitability remains supported by its progressive NIMs and adequate non-interest income levels. Its incremental growth prospect remains supported by the bank’s growing footprint, comfortable capitalization and experienced management team.

The ratings are, however, constrained by Sanima’s relatively short track record as a class A commercial bank. The bank’s credit portfolio as on date has originated mostly during the moderate to comfortable liquidity situation. The moderately seasoned portfolio could come under stress with a rise in lending rates. This is also evident from the rise in 0+ days’ delinquency levels as of mid-July 2019.

Sanima’s cost of funds remains higher than the industry average and its larger peers, despite its current and savings account (CASA) deposits being higher than the industry average. This could affect competitive positioning, especially in the Base Rate Plus lending rate regime implemented by the Nepal Rastra Bank (NRB).

However, a strong retail credit book of the bank results in lower repricing risk, enabling the bank to pass on the increased cost to the borrowers, shielding the impact of the rising cost of fund on the bank’s net interest margins (NIMs) and profitability. The rating is also constrained by an uncertain operating environment that the banks in Nepal are currently facing.

Source: ICRA Ratings Nepal