Press Release

VIS Reaffirms Entity Ratings of United Bank Limited

Karachi, June 26, 2024: 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). Medium to long term rating of ‘AAA' indicates highest credit quality; the risk factors are negligible, being only slightly more than for risk-free Government of Pakistan’s debt. Short-term rating of 'A-1+' indicates strongest likelihood of timely repayment of short-term obligations with outstanding liquidity factors. Outlook on the assigned ratings is ‘Stable.’ The 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 ‘AA+’ denotes high credit quality, protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Previous rating action was announced on June 27, 2023.

The assigned ratings reflect UBL’s strong domestic franchise and market position, classified as a Domestic Systemically Important Bank (D-SIB). In 2023, UBL’s asset base grew, surpassing the industry's year-over-year increase, primarily driven by treasury market activities. Deposits also outpaced the industry’s growth, raising the Bank’s market share to 8.4% (CY22: 8.2%). However, UBL remained cautious with lending, reducing gross advances, in contrast to the industry’s growth. This reduction led to a drop in UBL's market share of gross advances to 5.8% (CY22: 8.5%). The financing portfolio is dominated by corporate exposures. International exposures also constitute a sizable part of the advances, rendering the portfolio trends relatively more exposed to currency valuation effects. By Mar’24, gross advances further decreased by 3.3%, reflecting sector-wide lending caution.

The Bank’s Non-Performing Loans (NPLs) increased, primarily due to currency devaluation impacts on international NPLs resulting in a higher gross infection ratio, being among the higher side in the peer group, by Dec’23. Consequently, the Net NPLs to Tier-1 equity ratio slightly rose. The implementation of IFRS-9 in 2024 led to higher reserves for Expected Credit Losses (ECL) against stage 1 and stage 2 assets, while ECLs against stage 3 assets remained comparable to specific provisions held against NPLs as of Dec’23; total provisioning coverage increased, mitigating asset loss risks.

Investments rose significantly as of Dec’23 and increased further by Mar’24, with more than ~95% comprising federal government securities. The Bank continued to increase its allocation to floating rate PIBs, which represented 64.3% of total PIBs by Mar’24. The average portfolio duration at below one year, reduced the risk of MTM losses.

By Dec’23, the Bank's deposits grew, driven by an increase in saving and current deposits, raising the CASA ratio. The LADB ratio improved as of Mar’24, and liquidity ratios remained well above regulatory requirements. The Capital Adequacy Ratio (CAR) fell to 16.6% by Dec’23 but improved to 17.5% by Mar’24. As of Mar’24, total Tier-1 capital comprising 75.3% of total eligible capital, also allows room for growth through Tier-2 supplementary capital if necessary.

The Bank’s profitability improved in 2023 due to higher net markup income, although non-markup income declined, and administrative expenses rose. The efficiency ratio improved and provision reversal during the year supported Profit before Tax (PbT). The outlook for profitability remains positive, backed by expected expansion in the spread in the short term along with non-interest income growth and potential gains from the investment book.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.



Applicable Rating Criteria:

Micro-Finance Banks
https://docs.vis.com.pk/Methodologies%202024/Financial-Institution-v2.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .