JCR-VIS Credit Rating Company Limited (JCR-VIS) finalized rating of ‘AA+’ (Double A Plus) to United Bank Limited’s (UBL’s) Basel 3 compliant additional Tier-1 (ADT-1) TFC on Thursday, 6th September.
Outlook on the assigned rating is ‘Stable’.
According to the rating agency, the assigned rating to ADT-1 instrument incorporates JCR-VIS standard notching criteria for Basel 3 compliant ADT-1 instruments issued by AAA rated Banks.
The report suggests that UBL is in the process of issuing a listed, perpetual, unsecured, subordinated, non-cumulative and contingent convertible debt instrument. The issue proceeds will contribute towards the bank’s ADT-1 capital and will be utilized towards enhancement of the bank’s business operations. UBL’s ADT-1 instrument will rank ahead of claims of ordinary shareholders but below the bank's senior creditors, including depositors.
JCR-VIS assigned entity ratings of AAA/A-1+ (Triple A/A-One Plus) to UBL indicating highest credit quality. The assigned ratings reflected the Bank’s strong domestic franchise, existing market share and diversified operations.
Moreover, financial profile was deemed strong which was evident from robust liquidity profile and healthy existing and projected capitalization buffers. Asset base of the Bank stood at Rs. 1.82trillion at end-June’2018 while domestic deposits increased to Rs. 1.06trillion. Tier-1 and overall CAR stood at 11.9% and 16.3% at end-1H18, respectively; significantly above regulatory requirements.
As per JCR-VIS, the assigned rating portrays the relative risk of the Tier-1 instrument wherein issuer has full discretion on coupon payments, interest servicing from only profits for the year and conversion feature in the event of pre-specified trigger events, lock-in clause and point of non-viability in terms of regulatory requirements.
While the regulatory framework may not consider a missed coupon payment as a default; the credit rating methodology employed by JCR-VIS would treat such missed payments as an event of default. In normal course of business, JCR-VIS believes that chances of non-performance risk are considered remote.
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