Press Release

VIS Reaffirms Instrument & Entity Ratings of United Bank Limited

Karachi, June 29, 2020: 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 & overseas - remained muted, and with excess liquidity being channeled towards sovereign securities, liquidity indicators have improved. As of end-2019, the bank’s liquid assets to deposits and borrowings (LADB) & 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 further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-70 or fax to 021-35311872-3.

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Commercial Banks Methodology - March 2018

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited