Fitch assigns Union Bank’s proposed Basel III subordinated debt ‘BB(EXP)(lka)’

Fitch Ratings has assigned Union Bank of Colombo PLC’s (UB; BBB-(lka)/Negative) proposed Sri Lankan rupee-denominated Basel III-compliant subordinated debentures of up to Rs. 3 billion an expected National Long-Term Rating of ‘BB(EXP)(lka)’.

The proposed debentures, which will have maturities of five years, will be listed on the Colombo Stock Exchange (CSE). The bank plans to use the proceeds to strengthen its Tier 2 capital and support the expansion of its loan book.

The bank expects the proposed debentures to qualify as Basel III-compliant regulatory Tier 2 capital. The debentures include a non-viability clause whereby they convert to ordinary voting shares subject to the occurrence of a trigger event, as determined by the Governing Board of the CBSL.

The final rating is subject to the receipt of final documentation conforming to information already received.

Fitch rates the proposed Basel III Tier 2 notes two notches below the bank’s National Long-Term Rating to reflect Fitch’s baseline notching for loss severity for this type of debt and expectation of poor recoveries. There is no additional notching for non-performance risk, as the proposed notes do not incorporate going-concern loss-absorption features.

UB’s National Long-Term Rating is used as the anchor rating for the instrument, because the rating reflects the bank’s standalone financial strength and best indicates the risk of the bank becoming non-viable. Fitch reviewed UB’s ratings with no rating action on 8 September 2025. Please refer to the latest rating action commentary - Fitch Upgrades 10 Sri Lankan Banks’ National Ratings and Affirms Five after Scale Recalibration - published on 21 January 2025 for the key rating drivers and sensitivities.

A downgrade of the bank’s National Long-Term Rating would lead to the downgrade of the expected rating on the proposed debentures

An upgrade of the bank’s National Long-Term Rating would lead to the upgrade of the expected rating on the proposed debentures.