Karachi, June 29, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of United Bank Limited (‘UBL’ or ‘the Bank’) at ‘AAA/A-1+’ (Triple A/A-One Plus). Rating of UBL’s Basel III compliant additional Tier-1 (ADT-1) TFC has also been reaffirmed at ‘AA+’ (Double A Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 28, 2019.
UBL is the second largest private sector Bank in the country having a market share of 8.3% (Dec’18: 8.3%) in domestic deposits as at end-December’2019 with strong domestic franchise and diversified operations. The bank also has a sizeable presence in the overseas market, largest by a local bank. Overseas assets comprise over one-fifth of UBL’s asset base.
During 2019, UBL’s financing operations – both domestic and overseas – remained muted, and with excess liquidity being channelled towards sovereign securities, liquidity indicators have improved. As of end-2019, the bank’s liquid assets to deposits and borrowings (LADB) and ADR were comfortably aligned with the peer median, while the Bank’s cost of deposits, for 2019, was the lowest amongst peers. UBL’s profitability indicators, subsequent to experiencing a downswing in 2018, have depicted improvement in 2019. Despite the volatility in profitability indicators, these broadly remain aligned with the peers. UBL’s asset impairment ratios have depicted an adverse trend in 2019, which was partly driven by the overseas operations and an impact of currency devaluation.
Going forward, the oncoming pandemic-induced headwinds are expected to test the portfolio asset quality. So far, SBP has taken notable measures to ensure continued credit supply to the economy and maintain confidence in the banking system to ease the expected credit crisis, resulting from the pandemic. These measures are expected to delay the impact of prevailing headwinds on portfolio asset quality indicators. Furthermore, sector-wide profitability is expected to weaken, in the medium term, on account of projected spread shrinkage, increased credit impairment charge (both on account of Covid-19 and IFRS-9 related), and lower fee income on account of depressed trade volumes and economic activity.
In view of the heightened credit risk environment, UBL’s asset impairment ratios, and capital adequacy, is likely to come under pressure. However, capitalization buffers, built up over the past few years, are expected to provide adequate cushion to absorb projected credit impairment. Our credit impairment expectations are conservative, albeit downside risk is elevated amidst an uncertain economic environment.
The assigned ratings continue to be underpinned by UBL’s strong market positioning and are supported by the Bank’s sound liquidity metrics and robust capital reserves. The assigned ratings remain dependent on maintenance of liquidity, capitalization and asset quality indicators, within threshold.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan