Press Release

VIS Reaffirms Instrument & Entity Ratings of United Bank Limited

Karachi, June 30, 2022: 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). The medium to long-term rating of ‘AAA’ denotes highest credit quality, with negligible risk factors, being only slightly more than for risk-free debt of Government of Pakistan (GoP). The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk-free short-term obligations of GoP. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 30, 2021.

Ratings factor in strong franchise value of the Bank, diversified revenues, sizeable asset base, and strong capitalization indicators. Market position of UBL provides comfort to the ratings with the Bank classified as the third largest private sector Bank in Pakistan. UBL, through its subsidiaries, associated companies and representative offices, has global presence in UK, UAE, China, Bahrain, and Qatar. As part of its global re-alignment strategy, the bank has limited its presence overseas by exiting from non-core markets. The bank also has a fairly diversified revenue stream in domestic operations. Fee income on trade credit/debit cards, home remittances and bancaassurance have remained major contributors over the years.

Ratings take into account improvement in asset quality indicators in 2021. Global realignment strategy has stabilized credit risk in the overseas portfolio and while movement in NPL portfolio is a result of currency devaluation on international non-performing exposures, overall asset quality indicators improved, albeit remaining one of the highest in the peer group. The bank remains exposed to heightened market risk emanating from the investment portfolio which comprises sizeable portion of asset base (~57% at end-Dec’21). This is more recently on account of country risk and a sharp rising interest rate environment, impacting foreign currency denominated exposures and fixed rate PIBs. With reducing spreads in 2021, net interest income and margins have compressed. However, overall profitability profile was driven by strong build up in non-interest income (largely contributed by gain on sale of securities) as well as higher recoveries. Going forward, given heightened credit risk environment along with elevated market risk, maintenance of profitability levels is considered important for ratings.

The assigned ratings continue to be underpinned by UBL’s sound liquidity metrics and robust capital reserves. Liquidity profile of the bank improved on account of buildup in deposits and liquid assets with the latter providing sufficient coverage of deposits and borrowings. Going forward, in order to further strengthen its market position, the Bank’s focus will remain on low cost deposit mobilization supported by investments in its digital capabilities. While CAR has reduced in the outgoing year due to greater quantum of risk weighted assets (RWA); the same has strengthened on a timeline basis and classifies as one of the highest amongst the peers.

Ratings remain dependent on maintenance of liquidity, capitalization, and asset quality indicators, within designated threshold.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 021-35311861-70 or fax to 021-35311872-3.

Javed Callea

Applicable Rating Criteria: Commercial Banks Methodology - June 2020

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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .