Fitch affirms UB’s National Rating

Fitch Ratings Lanka has affirmed Union Bank of Colombo Ltd’s (UB) National Long-term rating at ‘BB+(lka)’. The Outlook is Positive.

The rating reflects UB’s moderate asset quality and lack of a broad deposit base. Also, the rating remains constrained by the bank’s low profitability given the low-yielding deep-discount bond, (DDB) and challenges to the scalability of its operations.

The positive outlook reflects the bank’s plans to raise equity in 2010 and the expansion plan under way that is expected to improve its profitability.

UB was restructured after posting negative equity in 2002, after the bank transferred Rs.600m in cash and Rs.978m of NPLs to a special-purpose vehicle (SPV), in return for a 20-year DDB guaranteed by Sampath Bank PLC (SB, ‘AA-(lka)’/Stable Outlook); SB was involved in UB’s restructuring process and also made equity infusions.