Union Outlook

Dec 07, 2007 (LBO) – Fitch Ratings Sri Lanka has lifted Union Bank of Colombo’s outlook on its BB + (lka) rating to ‘positive’ from ‘stable’ citing an asset quality improvement. “The recent equity injections and the benefits expected, specifically to profitability and scalability of the bank’s business is reflected in the revision of the Outlook to Positive,” Fitch Ratings said.

The agency said Union Bank’s profitability was constrained and the deposit base was not broad.

In 2007 an capital injection had boosted equity to 1,434 million from 746.9 million. Given the bank’s low levels of generating internal capital, Fitch says a further injection of around one billion rupees may be needed by end 2009.

Advances grew slowly at 4.5 percent during the first nine months of 2007, compared to 21.3 percent between 2005 and 2006.

Cautious lending practices and a relatively unseasoned loan book improved gross non performing loans (NPL) to gross loans ratio to 3.5 percent during the third quarter of 2007 from 5.0 percent at December 2006, which was well below the sector average.

Fitch says Union Bank has a 20-year deep discount bond (DDB) given for capital restruct