The Pakistan Credit Rating Agency Limited (PACRA) has maintained the long-term and short-term ratings of Union Bank Limited (UnBL) at “AA-” (Double A minus) and “A1+” (A One Plus) respectively. These ratings denote a very low expectation of credit risk and a very strong capacity for timely payment of financial commitments. The ratings of the unsecured, subordinated TFCs already in issue (first TFC issue of PKR 750mln, second TFC issue of PKR 750mln and third TFC issue of PKR 1,000mln respectively) have also been maintained at “A+” (Single A plus). These ratings denote high credit quality emanating from a strong capacity for timely payment of financial commitments. Meanwhile, pending the outcome of the negotiations regarding the acquisition of the bank by Standard Chartered Bank, the ratings have been placed on a RatingWatch with positive implications.

UnBL’s ratings reflect the sustained success of the bank in consolidating its competitive edge in consumer banking while continuing to expand the corporate finance and SME segments. Increasing exposure to consumer banking suggests a relatively high risk appetite. Nevertheless, effective risk management through stringent credit evaluation and monitoring supported by a strong I.T. structure and systems are expected to largely mitigate the potential risk of loss. However, the asset quality continues to be weighed down by the legacy of NPLs inherited from the acquired banks, and consequently, the historical infection ratios remain higher than peer banks. Given its established niche in the consumer segment, and backed by a strong human and physical infrastructure, the bank is well positioned to meet the challenges of the emerging competitive banking environment.

About the TFC issues: UnBL issued its first unsecured subordinated TFC during December 2002 for a tenor of 5 1/2 years at a floating rate of latest cut-off yield on 5 year PIB plus 225bps with a floor of 11.00% and a cap of 15.50%. The bank issued second unsecured subordinate TFC of PKR 750mln for a tenor of 7 years during January 2004. The profit payment is at a floating rate of 5% and cap of 10.75%. The third TFC of PKR 1,000 million was issued in January 2006, including an IPO of PKR 250mln. The TFC has a 7-year tenor, with profit payable at a floating interest rate of 6-months KIBOR + 2%. The TFC holders are exposed to a relatively higher risk, as the obligations towards the TFC holders are subordinate to those of other creditors, including depositors, of the bank.

About the bank: UnBL commenced operations in 1991 under the management of a local business group. However, the management changed subsequently in 1999, as a Saudi investor acquired the controlling interest in the bank. The bank is actively pursuing growth in all areas of operations. UnBL currently operates a network of 65 branches in 21 cities and has correspondent banking relationship with a large number of institutions in 89 countries. The bank has also expanded into the international arena by operating two branches in Sri Lanka. Standard Chartered Bank (SCB) has recently initialed an agreement with the bank’s sponsoring shareholders to acquire majority shares of UnBL. SBP has granted both banks the permission to undertake a due diligence exercise, which if completed to mutual satisfaction is expected to culminate in a sale-purchase agreement.