In a press release of non-solicited ratings, Fitch Ratings-Singapore, has downgraded Pakistan-based United Bank (UBL) individual rating to ''D/E'' from ''D'', and affirmed its support rating at ''5''. Concurrently, the agency has also affirmed the ratings of the following three Pakistani banks.
HABIB BANK LIMITED (HBL): Individual rating affirmed at ''D/E'', Support affirmed at ''5''; MCB Bank Limited (MCB): Individual rating affirmed at ''D'', Support affirmed at ''5''; and National Bank of Pakistan (NBP): Individual rating affirmed at ''D'', Support affirmed at ''5''.
The low Individual ratings of all four banks reflect their modest balance sheet strength in international context and the very volatile operating environment in Pakistan, which poses significant challenges and risks. The agency expects the prevailing extremely weak economic conditions in Pakistan, which have since been compounded by the global economic slowdown, to affect the financial profile of Pakistani banks over the next 12 to 18 months.
Although the immediate effects at present seem less pronounced, the already low individual ratings of the four banks, particularly the ones that are still rated ''D'' on the Individual rating scale, do carry further downside risks.
The downgrade of UBL Individual rating, in the current weak operating environment, reflects the bank''s constrained ability to accommodate the deterioration in its asset quality due to its weak capitalisation (restated total capital adequacy ratio (CAR) of 10.6 percent at end-2008; regulatory minimum of 9 percent - to be increased to 10 percent by end-2009) and lower than peer profitability (ROA of 1.7 percent in the first quarter of 2009).
Underlining UBL asset quality risks are its aggressive loan growth (20 percent-35 percent) since 2004, elevated risk of delinquencies in a high interest rate - inflation environment and possible weakening in its Middle East operations amid the global economic downturn.
HBL''s Individual rating of ''D/E'' reflects its weaker side than peer, albeit slightly improved, financial profile (The first quarter of 2009: gross NPL ratio of 8.7 percent, equity/assets 8.5 percent and ROA of 1.9 percent). While there are downside risks for the bank''s financial profile in the current environment, the downside risks on the rating is limited as it is already at a very low level.
MCB''s financial profile was also impacted by rather sharp weakening in its asset quality (gross NPL ratio of 7.6 percent at end-first quarter 2009; 2007: 4.7 percent). Despite this weakening, the bank''s rating is supported by its adequate capitalisation (equity/assets of 12.0 percent at end-first quarter 2009 and total CAR of 16.0 percent at end-2008) and still strong profitability (ROA of 3.7 percent in the first quarter of 2009), which should enable MCB to absorb the likely increase in credit costs.
Despite this, given the very weak domestic economy, any significant weakening in asset quality or pre-provision profitability levels could prompt a downgrade of MCB''s rating.
NBP''s rating may face downward pressure, should its already weak asset quality (gross NPL ratio of 13.6 percent at end-first quarter 2009) deteriorate further. However, still sustaining NBP rating is its capitalisation (equity/assets of 10.2 percent at end-first quarter 2009 and total CAR of 16.6 percent at end-2008) and profitability (ROA of 2.0 percent in the first quarter 2009), which should enable it to absorb the likely increase in credit costs.
Fitch''s Support rating for all four banks is at ''5'', the lowest on the agency''s scale. This is premised on Fitch''s assessment that although the propensity for support from the government (the eventual supporter) may be high due to the systemic importance - both individually and collectively - of these banks (about 45 percent of banking system assets), the timeliness of such support may be severely constrained by the government''s own very weak financial condition.-PR
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