Bank Rating

July 4, 2008 (LBO) - Fitch Sri Lanka has today confirmed the BB+(lka) rating of Union Bank of Colombo (UB) saying its asset quality has improved, but more capital was needed to meet minimum requirements. UB's existing loan book has concentrations to the export-import and wholesale trader segments through overdraft facilities which were 39 percent of loans at the end of 2007.

But risks were somewhat mitigated in view of availability of readily realisable liquid security (27 percent of UB's loans).

After the transfer of old non-performing loans to the SPV, asset quality had been good relative to the sector and on a improving trend.

NPLs to gross loans was 3.1 percent at end 2007 and 1.8 percent at the first quarter of 2008 and 5.0 percent at the end of 2006.

Due to UB's low branch penetration, deposit growth was below sector at 14 percent in 2007 with a noticeable shift to more expensive time deposits which was typical of the sector.

Fitch says deposit concentrations with the 20-largest depositors accounted for 12 percent of deposits at June 2008 but the situation could improve once more branches are added to the network.

Established in 1995, UB is a small commercial bank (