Lower Outlook

Dec 16, 2011 (LBO) – Fitch Ratings has lowered the outlook on the ‘BB+(lka)’ rating of Sri Lanka’s Union Bank of Colombo to negative from stable on operational risks from its information technology system and weak branch procedures. The rating agency said loan growth was high at 56.5 percent but the bank did not have a broad deposit base.

If a core banking information technology and a risk management system is implemented the outlook may be lifted to stable, Fitch Ratings Lanka said.

The full statement is reproduced below.

Fitch Ratings-Colombo/Mumbai/Singapore- December 2011: Fitch Ratings Lanka has revised Union Bank of Colombo PLC’s (UB) Outlook to Negative from Stable. Its National Long-Term rating has been affirmed at ‘BB+(lka)’.

The Negative Outlook reflects UB’s operational risks, given the nature of its disparate IT systems, weak operational branch procedures, while loan growth was high at 56.5% in nine months ended September 2011 (9M11).

The rating reflects UB’s moderate asset quality and lack of a broad deposit base. The rating also reflects the challenges to the scalability of its operations given operational weaknesses and the impact on profitability of its holding of low-yielding deep-discoun