Hong Kong, June 15, 2015 -- Moody's Investors Service has assigned long- and short-term
Counterparty Risk Assessments (CR Assessments) to four Mongolian banks.
This announcement follows the publication of Moody's new bank rating
methodology published on 16 March 2015 (see "Banks," http://www.moodys.com/viewresearchdoc.aspx?docid=PR_320662).
Moody's has assigned CR Assessments of:
- B1(cr)/NP(cr) to Khan Bank LLC
- B2(cr)/NP(cr) to State Bank LLC, Trade and Development
Bank of Mongolia LLC, and XacBank LLC
Moody's has also affirmed the junior instrument ratings of Khan
Bank LLC and Trade and Development Bank of Mongolia LLC. Their
Baseline Credit Assessments (BCAs) and Adjusted BCAs remain unchanged.
Moody's has withdrawn the outlooks on all junior instrument ratings
for its own business reasons. Please refer to Moody's Investors
Service's Policy for Withdrawal of Credit Ratings, available on
its website, www.moodys.com.
A full list of the affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
RATIONALE FOR COUNTERPARTY RISK ASSESSMENTS
CR Assessments are opinions of how counterparty obligations are likely
to be treated if a bank fails, and are distinct from debt and deposit
ratings in that they (1) consider only the risk of default rather than
expected loss; and (2) apply to counterparty obligations and contractual
commitments rather than debt or deposit instruments. The CR Assessment
is an opinion of the counterparty risk related to a bank's covered bonds,
contractual performance obligations (servicing), derivatives (eg,
swaps), letters of credit, guarantees and liquidity facilities.
For the four Mongolian banks, the CR Assessment is positioned,
prior to government support, at one notch above the Adjusted BCA
and therefore above senior unsecured debt ratings, reflecting Moody's
view that its probability of default is lower than those of deposits and
senior unsecured debts. Moody's believe that senior obligations
represented by the CR Assessment will be more likely preserved in order
to limit contagion, minimize losses and avoid disruption of critical
functions.
For these Mongolian banks, the CR Assessments do not benefit from
government support because their CR Assessment prior to government support
at one notch above the Adjusted BCA is on par with Mongolia's (B2
negative) sovereign debt rating.
In the case of Khan Bank LLC, the B1(cr) CR Assessment of the bank
is one notch above the B2 government bond rating of Mongolia, while
it is below local currency deposit ceiling of Ba3. According to
Moody's methodology, CR Assessments are capped by the lower
of: (1) the local-currency deposit ceiling, or (2a)
the local government bond rating plus one notch, or (2b) the local
government bond rating plus two notches where the adjusted BCA itself
is already above the local government bond rating.
RATIONALE FOR AFFIRMED JUNIOR INSTRUMENT RATINGS
For the affirmed junior securities ratings, the rationale for the
affirmation is the continuation of their key credit metrics; deterioration
in asset quality, liquidity and capitalization from policy-triggered
credit growth in recent years, which could be offset by resuming
Oyu Tolgoi mining project Phase 2.
For the affirmed Basel II-compliant junior securities ratings,
we see a low probability of government support, resulting in no
uplift. This reflects that Moody's generally assesses the probability
of government support for a bank's junior obligations as low.
Khan Bank LLC's Basel II-compliant subordinated MTN program
rating of (P)B3 is positioned one notch below the bank's adjusted
BCA of b2. It receives no uplift reflecting a low probability of
government support.
Trade and Development Bank of Mongolia LLC's Basel II-compliant
subordinated debt and MTN ratings of Caa1 and (P)Caa1 are positioned one
notch below the bank's adjusted BCA of b3. They receive no
uplift reflecting a low probability of government support.
WHAT CAN MOVE RATINGS UP/DOWN
A bank's adjusted BCA -- which is the bank's
BCA plus any rating uplift for affiliate support, if applicable
-- is the anchor for the ratings of junior securities.
Hence the ratings of junior securities can be upgraded or downgraded if
their BCAs -- in absence of affiliate support for Mongolian
banks -- are raised or lowered.
For Khan Bank LLC, Given that the b2 BCA assigned to Khan Bank LLC
is the same as the sovereign rating, the possibility of raising
its BCA is unlikely unless sovereign rating is upgraded. The bank's
BCA could be lowered if: (1) its Tangible Common Equity capital
ratio falls below 9.0%; (2) its annual net income to
tangible assets ratio falls below 1.0% due to a sharp increase
in credit losses; (3) a significant deterioration occurs in asset
quality; for example, new non-performing loans (NPLs)
to gross loans exceeding 4.0%; or (4) a rise occurs
in concentration or exposure to risky sectors, in particular,
the construction sector.
For Trade and Development Bank of Mongolia LLC, its BCA could be
raised if the bank reduces its concentration risk and exposure to the
relatively higher-risk mining and construction sectors, to
levels more in line with its peers, while maintaining its asset
quality, capital and liquidity. Its BCA could be lowered
if (1) its Tangible Common Equity capital ratio falls below 9.0%;
(2) its annual net income to tangible assets ratio falls below 1.0%
due to a sharp increase in credit losses; (3) a significant deterioration
occurs in asset quality; for example, new NPLs to gross loans
exceed 4.0%; (4) a rise occurs in concentration or
exposure to risky sectors, in particular, the construction
sector; or (5) corporate governance-related problems cause
a loss of depositor confidence, therefore increasing the threat
of deposit flight.
RATINGS AFFECTED
Khan Bank LLC
- CR Assessment assigned at B1(cr)/NP(cr)
- Basel II-compliant subordinated MTN rating affirmed at
(P)B3
- BCA and Adjusted BCA unchanged at b2
Trade and Development Bank of Mongolia LLC
- CR Assessment assigned at B2(cr)/NP(cr)
- Basel II-compliant subordinated debt rating affirmed at
Caa1
- Basel II-compliant subordinated MTN rating affirmed at
(P)Caa1
- BCA and Adjusted BCA unchanged at b3
XacBank LLC
- CR Assessment assigned at B2(cr)/NP(cr)
State Bank LLC
- CR Assessment assigned at B2(cr)/NP(cr)
The principal methodology used in these ratings was Banks published in
March 2015. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The following information supplements Disclosure 10 ("Information
Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
of SEC Rule 17g-7") in the regulatory disclosures made at
the ratings tab on the issuer/entity page on www.moodys.com
for each credit rating as indicated:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person(s) that paid
Moody's to determine this credit rating.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Hyun Hee Park
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns Counterparty Risk Assessments to four Mongolian banks; affirms junior instrument ratings
