Steady State

Dec 24, 2009 (LBO) – Rating agency Fitch confirmed Union Bank of Colombo Limited’s long term rating of ‘BB+(lka), reflecting the bank’s moderate asset quality and lack of a broad deposit base.

Several equity infusions occurred between 2003 and 2007 from both existing and new shareholders, which increased equity to 1.5 billion rupees as at the third quarter 2009.

“Given Union Bank’s low profitability due to the low yielding Deep Discount Bond and the resulting constraints in generating internal capital, Fitch notes that achieving the 2.5 billion rupee minimum capital requirement by the first half 2010 would require a further equity infusion of approximately 1 billion rupees.”

“Union Bank’s management has informed Fitch that investors are committed to infusing this balance equity by the stipulated deadline.”

Non-performing loans deteriorated in the third quarter 2009, while its loan book remained flat amidst challenging macroeconomic conditions.

As a result, Union Bank’s gross loans increased to 11.6 percent in the third quarter of 2009.

“Focused recoveries in the period ensured that ‘advances in arrears more than 12 months’ remained static in nominal terms throughout the p