S&P Global lowers long-term credit rating on Union Bank

Mumbai, Aug 12: S&P Global Ratings has lowered its long-term credit rating on state-owned lender Union Bank of India to 'BB+' from 'BBB-', taking into account the weakening of its asset quality over the past few quarters. The rating agency has also downgraded the bank's asset quality from 'moderate' to 'weak'.

“We downgraded Union Bank because we expect the bank's asset quality to remain weak over the next 12 months, following a deterioration over the past few quarters,” said Nikita Anand, analyst at S&P Global Ratings. She said the rating agency has also lowered its assessment of the bank's standalone credit profile to 'bb' from 'bb+'.

“The pick-up in corporate performance and debottlenecking of stressed sectors in India is likely to be gradual, hurting Union Bank's asset quality. The bank has high exposure to the corporate and small and midsize enterprise segments,” S&P said.

However, the rating agency said it believed it that the government would likely to continue to provide Union Bank with "timely and sufficient" extraordinary support. It added that this belief came from an assessment of how important the bank is for the government, which is also why the long-term credit rating is a notch above the standalone credit profile assessment.

On Union Bank's financial performance, Anand said she predicted the bank's profitability to remain modest over the next 12 months owing to elevated credit cost. “The bank's profitability has reduced in recent years because of margin pressure and increasing credit costs stemming from a rise in NPLs. However, Union Bank has been able to remain profitable in recent quarters, unlike some of its peer public sector banks,” Anand said.