Hong Kong, May 11, 2020 -- Moody's Investors Service has today changed the outlook to negative from
stable and affirmed all ratings and assessments of the nine banks it rates
in Mongolia (B3 negative).
The rating action follows the outlook change to negative from stable on
the Mongolian government's B3 issuer rating on 8 May 2020. For
further information on the sovereign rating action, please refer
to Moody's press release: Moody's changes Mongolia's outlook to
negative from stable; affirms B3 rating (https://www.moodys.com/research/Moodys-changes-Mongolias-outlook-to-negative-from-stable-affirms-B3--PR_423017).
The nine affected banks are: (1) Bogd Bank LLC, (2) Capitron
Bank LLC, (3) Development Bank of Mongolia LLC, (4) Golomt
Bank LLC, (5) Khan Bank LLC, (6) State Bank LLC, (7)
Trade and Development Bank of Mongolia LLC, (8) Transport and Development
Bank LLC, and (9) XacBank LLC.
A full list of the affected ratings can be found at the bottom of this
press release.
RATINGS RATIONALE
The change in outlook to negative for the nine Mongolian banks reflects
Moody's view that there is high correlation between the creditworthiness
of the Mongolian banking system and that of the sovereign, given
(1) the concentration of their operations in Mongolia; and (2) their
significant direct and indirect exposures to domestic sovereign debt relative
to their capital bases.
In addition, Moody's expects that the operating environment for
Mongolian banks will deteriorate in the next 12-18 months due to
disruptions from the coronavirus outbreak, which may lead to a weakening
in the banks' asset quality and profitability.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, volatile oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The Mongolian banking system
has been one of the sectors affected by the shock, particularly
given the role that commodity exports play in Mongolia's economy.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety.
Notwithstanding the negative outlook, Moody's has affirmed the ratings
of the banks to reflect their current financial strength, underpinned
by favorable funding, liquidity and moderate capital buffers.
Rationales for the individual banks are provided later in this press release.
ISSUER-SPECIFIC RATING DRIVERS
Bogd Bank LLC
The affirmation of Bogd Bank's B3 long-term deposit ratings reflects
the affirmation of the bank's b3 Baseline Credit Assessment (BCA).
Bogd Bank's b3 BCA reflects its strong equity capital and highly liquid
balance sheet. At the same time, its BCA is constrained by
its modest funding profile with the highest level of market funds to tangible
banking assets among rated Mongolian peers, as reflected by a tangible
common equity to risk weighted assets of 31.2% at the end
of 2019.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
Bogd Bank's credit metrics.
Capitron Bank LLC
The affirmation of Capitron Bank's B3 long-term deposit ratings
reflects the affirmation of the bank's b3 BCA.
Capitron Bank's b3 BCA balances the bank's rising asset risks with
Moody's expectation of continued shareholder support that will help
the bank maintain a moderate capital position and liquid balance sheet.
Capitron Bank's asset risk has risen given its credit concentration
in the mining and construction sectors that Moody's view as high
risk sectors. The bank's problem loans ratio deteriorated
to 17.5% at the end of 2019 from 10.9% at
the end of 2018. Its capitalization also fell to 12.2%
at the end of 2019 from 16.1% at the end of 2018 driven
by high loan growth.
In a move that offset the bank's deteriorating asset quality and
capitalization, the shareholders of Capitron Bank injected equity
capital into the bank in 2019, and helped increase its share capital
by MNT5 billion to MNT80 billion at the end of 2019. Moody's
expects additional capital injections by shareholders, given the
tightening regulatory environment in Mongolia that requires banks'
share capital to reach MNT100 billion by the end of 2021.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
Capitron Bank's credit metrics.
Development Bank of Mongolia LLC
The affirmation of Development Bank of Mongolia's B3 long-term
issuer rating reflects the affirmation of the bank's b3 BCA.
Development Bank of Mongolia's b3 BCA balances the bank's
rising asset risk with a very high level of capitalization. The
bank's problem loans ratio deteriorated to 18.9% at
the end of 2019 from 10.3% at the end of 2018, reflecting
the high concentration risk associated with the bank's policy role
to provide funds to strategically important sectors and large projects.
However, Development Bank of Mongolia's capitalization is
very strong, as reflected by a tangible common equity to risk weighted
assets ratio of 30.0% at the end of 2019.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
Development Bank of Mongolia's credit metrics.
Golomt Bank LLC
The affirmation of Golomt Bank's B3 long-term deposit ratings reflects
the affirmation of the bank's b3 BCA.
The affirmation of Golomt Bank's b3 BCA reflects the bank's
strong funding and liquidity profile, which is helping offset its
high asset risk and weak profitability. The bank's reliance
on market funding is low relative to its domestic banking peers.
However, the bank's problem loans ratio was high compared
to domestic bank peers at 15.0% at the end of 2019,
reflecting the high asset risks stemming from its exposure to the corporate
sector.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
Golomt Bank's credit metrics.
Khan Bank LLC
The affirmation of Khan Bank's B3 long-term deposit ratings reflects
the affirmation of the bank's b3 BCA.
Khan Bank's b3 BCA reflects the bank's strong profitability, good
funding and liquidity, and moderate capitalization given its robust
franchise as the largest bank in Mongolia. Khan Bank's granular
loan book, with high retail borrower composition, supports
the bank's relatively stronger asset quality compared to domestic
bank peers.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
Khan Bank's credit metrics.
State Bank LLC
The affirmation of State Bank's B3 long-term deposit ratings reflects
the affirmation of the bank's b3 BCA.
State Bank's b3 BCA reflects the bank's strong retail franchise,
which is allowing the bank to maintain stable funding and liquidity.
In addition, its loan book is relatively granular with high retail
borrower composition. At the same time, the bank's
capitalization ratio improved to 8.9% at the end of 2019
from 7.8% at the end of 2018, driven by additional
capital injections from the government.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
State Bank's credit metrics.
Trade and Development Bank of Mongolia LLC
The affirmation of Trade and Development Bank of Mongolia's B3 long-term
deposit ratings reflects the affirmation of the bank's b3 BCA.
Trade and Development Bank of Mongolia's b3 BCA reflects Moody's
view that the bank will maintain sufficient liquidity to repay a maturing
$500 million bond on 19 May 2020. The bank's b3 BCA
also reflects its strong franchise as the second largest bank in Mongolia,
allowing the bank to maintain stable funding and liquidity despite its
very high level of problem loans and modest capitalization.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
the credit metrics of Trade Development Bank of Mongolia.
Transport and Development Bank LLC
The affirmation of Transport and Development Bank's B3 long-term
deposit ratings reflects the affirmation of the bank's b3 BCA.
The affirmation of Transportation and Development Bank's b3 BCA
reflects its relatively higher level of capitalization with a tangible
common equity to risk weighted assets ratio of 24.7% at
the end of 2019, which helps offset the challenges that the bank
faces as a small bank in accessing sticky deposit funding and managing
liquidity.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
Transport and Development Bank's credit metrics.
XacBank LLC
The affirmation of XacBank's B3 long-term deposit ratings
reflects the affirmation of the bank's b3 BCA.
The affirmation of XacBank's b3 BCA reflects its balanced asset
portfolio of retail and corporate clients and its low problem loans ratio,
which was 4.8% at the end of 2019, the lowest among
domestic banking peers. The bank's b3 BCA also reflects its
modest capitalization and weak profitability. The bank has a highly
liquid balance sheet with a liquid banking asset to tangible banking assets
ratio of 41.0% at the end of 2019.
The negative outlook reflects Moody's expectation for a significant
economic slowdown in Mongolia, as expressed by the negative outlook
on Mongolia's sovereign rating, and the resulting deterioration
in the operating environment of Mongolian banks, which may weaken
XacBank's credit metrics.
Moody's has not incorporated affiliate support for the nine Mongolian
banks, and therefore the adjusted BCAs are in-line with the
banks' BCAs of b3.
No government support uplift is reflected in the nine Mongolian banks'
ratings because the banks' BCAs are at the same level as the Mongolian
government's issuer rating of B3. Nonetheless, Moody's
assumes government-backed level of support for Development Bank
of Mongolia given its important policy role in supporting strategically
important sectors. Moody's assumes a high level of government
support for systemically important banks, including Khan Bank,
Trade and Development Bank of Mongolia, Golomt Bank, XacBank
and State Bank. Moody's assumes a low level of government
support for smaller banks, including Bogd Bank, Capitron Bank
and Transport and Development Bank.
For all affected Mongolian banks' long-term CR Assessment
of B2(cr) and long-term CRRs of B2 take into consideration the
b3 Adjusted BCA and Moody's Basic LGF analysis, which positions
the Preliminary Rating Assessment of the CR Assessment and CRRs one notch
above the bank's Adjusted BCA, prior to the incorporation of government
support.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING UP
Given the negative outlook, any upgrade of the banks' ratings is
unlikely in the near future. The outlook on the long-term
deposit ratings could be moved back to stable if the sovereign's outlook
moves back to stable and the risks in the operating environment remain
broadly stable.
WHAT COULD CHANGE THE RATING DOWN
Moody's could downgrade the ratings of the nine banks if their BCAs are
downgraded, and/or the sovereign rating is downgraded. The
banks' BCAs could be downgraded if their problem loans rise significantly
without a strengthening of capitalization. Material deterioration
of the banks' funding and/or liquidity strength could also result
in a downgrade of the banks' BCAs.
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
All entities are headquartered in Ulaanbaatar. The banks reported
the following assets as of 31 December 2019:
Bogd Bank LLC: MNT249 billion (USD91 million)
Capitron Bank LLC: MNT1.0 trillion (USD369 million)
Development Bank of Mongolia LLC: MNT4.27 trillion (USD1.56
billion)
Golomt Bank LLC: MNT6.64 trillion (USD2.43 billion)
Khan Bank LLC: MNT10.19 trillion (USD3.72 billion)
State Bank LLC: MNT3.30 trillion (USD1.20 billion)
Trade and Development Bank of Mongolia LLC: MNT7.80 trillion
(USD2.85 billion)
Transport and Development Bank LLC: MNT524 billion (USD191 million)
XacBank LLC: MNT3.45 trillion (USD1.26 billion)
LIST OF AFFECTED RATINGS
Issuer: Bogd Bank LLC (Analyst: Sophia Lee)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency short-term deposit
ratings of NP affirmed
- Outlook changed to negative from stable
Issuer: Capitron Bank LLC (Analyst: Tae Jong Ok)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency short-term deposit
ratings of NP affirmed
- Local currency and foreign currency long-term issuer ratings
of B3 affirmed, outlook changed to negative from stable
- Local currency and foreign currency short-term issuer
ratings of NP affirmed
- Outlook changed to negative from stable
Issuer: Development Bank of Mongolia LLC (Analyst: Tae Jong
Ok)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Foreign currency long-term issuer rating of B3 affirmed,
outlook changed to negative from stable
- Outlook changed to negative from stable
Issuer: Golomt Bank LLC (Analyst: Tae Jong Ok)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency long-term issuer ratings
of B3 affirmed, outlook changed to negative from stable
- Outlook changed to negative from stable
Issuer: Khan Bank LLC (Analyst: Sophia Lee)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency short-term deposit
ratings of NP affirmed
- Local currency and foreign currency long-term issuer ratings
of B3 affirmed, outlook changed to negative from stable
- Outlook changed to negative from stable
Issuer: State Bank LLC (Analyst: Tae Jong Ok)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Outlook changed to negative from stable
Issuer: Trade and Development Bank of Mongolia LLC (Analyst:
Tae Jong Ok)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency short-term deposit
ratings of NP affirmed
- Local currency and foreign currency long-term issuer ratings
of B3 affirmed, outlook changed to negative from stable
- Local currency and foreign currency short-term issuer
ratings of NP affirmed
- Foreign currency backed senior unsecured rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency senior unsecured MTN rating of (P)B3 affirmed
- Outlook changed to negative from stable
Issuer: Transport and Development Bank LLC (Analyst: Sophia
Lee)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency short-term deposit
ratings of NP affirmed
- Local currency and foreign currency long-term issuer ratings
of B3 affirmed, outlook changed to negative from stable
- Local currency and foreign currency short-term issuer
ratings of NP affirmed
- Outlook changed to negative from stable
Issuer: XacBank LLC (Analyst: Sophia Lee)
- Baseline Credit Assessment (BCA) of b3 affirmed
- Adjusted BCA of b3 affirmed
- Long-term Counterparty Risk Assessment of B2(cr) affirmed
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local currency and foreign currency long-term Counterparty
Risk Ratings of B2 affirmed
- Local currency and foreign currency short-term Counterparty
Risk Ratings of NP affirmed
- Local currency long-term deposit rating of B3 affirmed,
outlook changed to negative from stable
- Foreign currency long-term deposit rating of Caa1 affirmed,
outlook changed to negative from stable
- Local currency and foreign currency short-term deposit
ratings of NP affirmed
- Local currency and foreign currency long-term issuer ratings
of B3 affirmed, outlook changed to negative from stable
- Local currency and foreign currency short-term issuer
ratings of NP affirmed
- Foreign currency senior unsecured MTN rating of (P)B3 affirmed
- Foreign currency other short-term rating of (P)NP affirmed
- Outlook changed to negative from stable
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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 ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
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ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Tae Jong Ok
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
Client Service: 852 3551 3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077
