Fitch however, said business or financial alternatives may be available to meet future commitments.
The rating also reflects the bank’s restructuring efforts since mid 2003, including an equity infusion by a consortium of investors led by Sampath Bank, the appointment of a new CEO and strengthening of the senior management.
The restructuring tied equity infusion saw Union Bank shift a large part of its bad loans to a special purpose vehicle, in consideration for a long-term bond.
Fitch says this allows the bank to report significantly better asset quality indicators.
Union Bank's gross non-performing loan (NPL) ratio at the end of 2005 was four percent, down from around 38 percent in December 2002.
The bank meanwhile, is expected to raise new capital this year, to address its low capitalisation position and meet Central Bank’s new capital guidelines