The JCR-VIS Credit and the Pakistan Credit Rating Agency have reaffirmed the long-term entity rating of Union Bank Limited at A+ (A plus) and short-term rating at A-1 (A one) with 'stable' outlook.
In addition, the rating of 'A' (single A) with 'stable' outlook has been assigned to the bank's second issue of subordinated, unsecured terms finance certificates worth Rs 750 million.
The JCR-VIS says that the bank achieved growth as projected, and has developed a sizeable portfolio of core earning products, adding the consumer banking assets have more than doubled over the last 12 months resulting in a gradual improvement in core earnings with improved capacity to absorb the high overheads of the bank.
To maintain the bank's capitalisation level vis-à-vis the growth in risk-weighted assets, the bank increased its Tier-II capital through issuance of an unsecured, subordinated TFCs.
Going forward, to support the growth momentum being experienced by bank, the capitalised levels will require to be addressed. The sponsors have, in the past, demonstrated support through two right issues. The Union Bank also has room to issue another subordinated TFC, if required.
Pacra says that Union Bank's ratings reflect enhancement in the risk absorption capacity resulting from the emergence of a stable earning stream in addition to a stronger franchise value, adding its ratings also recognise the ability of the management to leverage the bank's strong technology platform in retaining its lead in consumer financing, which is expected to remain a major growth area.