ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service, has reaffirmed the issuer rating of UB Finance Company Limited (“UBF” or the Company) at [SL]BB (Pronounced SL double B).
The outlook on the rating is Negative.
Rationale The rating reaffirmation factors in UBF’s weak capital profile and asset quality indicators as compared to the system average.
UBF’s capital profile deteriorated significantly since 2018 because of poor profitability and adjustments required as per the revised regulatory capital computation norms and very specifically due to the one-time adjustment of LKR 430 Mn on account of the IFRS-9 transition in Mar-19. Consequently, in Jan-19 Central Bank of Sri Lanka (“CBSL”) placed a lending cap of LKR 9.8 Bn (LKR 8.6 Bn 1as in Dec-19) and deposit cap of LKR 7.2 Bn (LKR 6.3 Bn as in Dec-19) on the Company.
ICRA Lanka had factored in timely capital and liquidity support from Union Bank of Colombo PLC (UBC or the parent; rated [SL]BBB/stable). However, UBC did not infuse fresh capital in the last fiscal year as UBF is in the process of raising a sizeable capital (in relation to its current net worth) from an external investor. The capitalraising process is still underway. ICRA Lanka takes into consideration the commitment from UBC via an undertaking letter, to provide capital support, if capital infusion from external investor does not materialise. In view of the commitment from UBC and the ongoing capital raising from an external investor, CBSL has granted an extension to UBF to meet various statutory thresholds till March 31, 2020.
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