Fitch Ratings yesterday announced it has revised the outlook on Sri Lanka-based UB Finance PLC (UBF) to negative from stable and affirmed its National Long-Term Rating at ‘BB(lka)’.

The revision in UBF’s Outlook stems from similar action on its parent, Union Bank of Colombo PLC (UB; BBB-(lka)/Negative), on 29 August 2024.

“The rating continues to factor in our expectation of shareholder support for UBF, as UB remains the largest shareholder (89.9 percent), UB’s record of support, including a capital infusion in June 2024, UB’s involvement in UBF’s strategic decisions through board representation, as well as common branding,” Fitch Rating said.
UBF is rated two notches below its parent’s rating given its limited importance to the UB group. UBF’s main products, leasing and gold lending, accounted for 5.4 percent of the group’s gross loans while UBF’s entire loan portfolio was just 10 percent of group gross loans at end-June 2024.

Furthermore, the rating agency noted that synergies are limited between the bank and UBF, given minimal overlap between UB’s and UBF’s target customer profiles. UBF’s weak and inconsistent profitability record also limits its importance to the group.

“We believe UBF’s intrinsic financial strength is weaker than its support-driven rating. UBF has a small franchise, with market share of less than 1 percent by assets as of end-2023,” Fitch said.

The rating agency said it views UBF’s risk appetite as high while its financial profile is weak, characterised by poor asset quality, weak earnings, thin capital buffers and significant deposit concentration.