Hong Kong, May 21, 2012 -- Moody's Investors Service has downgraded the foreign currency long-term
senior unsecured debt ratings of four Mongolian banks to B1 from Ba3.
The rating action follows the revision of their standalone bank financial
strength ratings (BFSR) to E+ from D-, which now map
to a baseline credit assessment (BCA) of b1 on the long-term scale.
The four banks are: Golomt Bank, Khan Bank, Trade and
Development Bank of Mongolia, and XacBank
This downgrade took place in the context of an ongoing global review affecting
all banks whose standalone ratings are higher than the rating of the government
of the country in which they are domiciled.
The ratings outlook is stable.
This rating action concludes the review for downgrade on the four Mongolian
banks that was initiated on 26 March 2012.
RATINGS RATIONALE
The rating action is driven by Moody's revised assessment of the linkage
between the credit profiles of sovereigns and financial institutions globally,
which is discussed in the rating implementation guidance "How Sovereign
Credit Quality May Affect Other Ratings" published on 13 February 2012,
and further detailed in the special comment "Banks and Sovereigns:
Risk Correlations Constrain Standalone Bank Credit Assessments" published
on 30 April 2012.
As per the guidance, the downward revision of the four Mongolian
banks' standalone ratings reflects our view that a bank's rating ultimately
cannot be completely insulated from the credit quality of the government's
creditworthiness, taking into account (i) the extent to which their
businesses depend on the domestic macroeconomic and financial environment;
(ii) the degree of reliance on market-based confidence-sensitive
funding; (iii) their direct or indirect exposures to domestic sovereign
debt, compared with their capital bases; and (iv) foreign ownership
which can provide a critical level of offshore business or substantial
permanent funding to the subsidiary.
We believe that the standalone ratings of the four Mongolian banks should
be positioned in line with the rating of Mongolian government to capture
the appropriate credit risks of the banks given relatively low level of
cross-border diversification in their operations.
In Moody's view, the creditworthiness of the sovereign is
highly correlated to the banks'. As such, this does
not justify rating the banks at one-notch above their sovereign
rating.
Mongolia's economy is transforming because of the rapid development
of its natural resources industries. While this is having a strongly
positive effect on the economy's growth rates, it does create
the risk of an overheating of the economy, inflationary pressure,
and, ultimately, the risk that boom could be followed by bust.
These risks could affect the banks as well as the sovereign's credit
profile, since it is likely that the asset quality and liquidity
of banks would be significantly impacted in such a downturn, particularly
because of the rapid growth in their lending in the past two years.
On the other hand, Moody's notes that these banks have relatively
low direct exposures to the government excluding loans to public sector
entities, especially XacBank, Khan Bank, and Golomt
Bank. Furthermore, the banks have a low reliance on wholesale
funding. These factors may mitigate the correlation between the
sovereign credit profile and those of the banks. However,
in our view, these considerations are not sufficient to merit rating
the banks above the sovereign. Deposits have proved to be quite
confidence sensitive in Mongolia, meaning that the banks'
liquidity could erode rapidly in a sovereign credit crisis.
We assign a B1 to the long-term local currency deposit ratings
as well as issuer ratings of all four banks. The banks' foreign
currency ratings are constrained by Mongolia's B1 foreign currency bond
rating and B2 foreign currency deposit ceiling.
THE RATINGS OF THE FOUR MONGOLIAN BANKS ARE AS FOLLOWS:
Khan Bank -- Incorporating the downgrade of the bank's standalone
rating discussed above, the new ratings of Khan Bank are:
Bank Financial Strength of E+; local currency bank deposits
rating of B1; issuer rating of B1; and local currency/ foreign
currency long-term senior unsecured MTN/ Subordinate MTN of (P)B1/(P)B2.
All other ratings were unaffected: foreign currency bank deposits
rating of B2; and local currency/ foreign currency short-term
deposits rating of NP.
Golomt Bank -- Incorporating the downgrade of the bank's
standalone rating discussed above, the new ratings of Golomt Bank
are: Bank Financial Strength of E+; local currency bank
deposits rating of B1; Issuer rating of B1; and foreign currency
long-term senior unsecured debt of B1. All other ratings
were unaffected: foreign currency bank deposits rating of B2.
Trade Development Bank of Mongolia -- Incorporating the
downgrade of the bank's standalone rating discussed above, the new
ratings of Trade Development Bank of Mongolia are: Bank Financial
Strength of E+; local currency bank deposits rating of B1;
Issuer rating of B1; foreign currency long-term senior unsecured
debt / subordinate debt of B1/B2; and foreign currency long-term
senior unsecured MTN/subordinate MTN of (P)B1/(P)B2. All other
ratings were unaffected: foreign currency bank deposits rating of
B2; local currency/ foreign currency short-term deposits rating
of NP; local currency/ foreign currency short-term issuer
rating of NP; and other short-term rating of (P)NP.
XacBank -- Incorporating the downgrade of the bank's standalone
rating discussed above, the new ratings of XacBank are: Bank
Financial Strength of E+; local currency bank deposits rating
of B1; issuer rating of B1; foreign currency long-term
senior unsecured debt of B1; and foreign currency long-term
senior unsecured MTN of (P)B1. All other ratings were unaffected:
foreign currency bank deposits rating of B2; local currency/ foreign
currency short-term deposit rating of NP; local currency/
foreign currency short-term issuer rating of NP; and Euro
MTN program of (P)NP.
The methodologies used in these ratings were Bank Financial Strength Ratings:
Global Methodology published in February 2007, and Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: Global
Methodology published in March 2012. Please see the Credit Policy
page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
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rating practices. For ratings issued on a support provider,
this announcement provides relevant 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
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this announcement provides relevant regulatory disclosures in relation
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Hyun Hee Park
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.)
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
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Releasing Office:
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Moody's downgrades the ratings of four Mongolia banks to B1
