Jul. 23-- FITCH Ratings Inc. said Union Bank of the Philippines' capital adequacy ratio (CAR) has fallen below the regulatory minimum.

In a statement, Fitch said the lender's CAR declined to 9.5 percent in the first quarter this year, which is below the central bank's requirement of 10 percent. Union Bank's CAR stood at 11.6 percent last year.

CAR is a risk-sensitive measure of a bank's solvency. It relates capital to risk assets weighted according to their relative riskiness.

Fitch blamed the drop in the bank's CAR on its acquisition of International Exchange Bank in 2006 and strong loan growth last year.

The credit rating agency said Union Bank "has lower capital buffer against potential impairment losses that may arise from its investment properties and concentrated loan portfolio."

"As a consequence of the difficult economic environment and the bank's reduced capital position, [Union Bank's] credit profile has become slightly elevated, which has resulted in a downgrade of its individual rating to 'D' from 'C/D'," Fitch said.

It assigned Union Bank a national long-term rating of 'A+(phl)' with a stable outlook, and a long-term foreign currency issuer default rating (IDR) of 'BB-' also with a stable outlook.

Despite its CAR slipping below the regulatory minimum, further downside risks to the bank's ratings appear limited at this stage, Fitch said.

"This is in view of the relatively low proportion of loans, at 30 percent of assets, and improved non-performing loan [NPL] reserve cover of 86 percent last year, which suggest that delinquencies-related costs, while potentially higher amid difficult economic conditions, should be manageable for Union Bank," the rating agency said.

Justo Ortiz, Union Bank chairman and chief executive officer earlier said the bank plans to raise an additional capital of P5 billion.

He said the bank expects to improve its CAR to 12.7 percent with the capital raising-exercise.

With 169 branches nationwide, Union Bank's major shareholders are Aboitiz Equity Ventures Inc. with 36- percent ownership, state-run Social Security System, 23 percent; and Insular Life Assurance Co.,16 percent.

Union Bank said it posted a net income of P1.4 billion in the first five months this year, 44 percent higher than the P967.0 million in the same period last year as a result of interest earnings growth.

Its asset base stood at P212.6 billion at end-May, 4 percent higher than the P203.9 billion at end-December last year.

Capital funds stood at P28.9 billion, up from P27.1 billion at the end of last year.

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