Hong Kong, November 21, 2016 -- Moody's Investors Service has downgraded the local currency long-term
deposit ratings of seven Mongolian banks to Caa1 from B3, following
the downgrade of Mongolia's sovereign rating to Caa1 from B3 with
a stable outlook.
The seven banks are: Bogd Bank LLC; Capital Bank LLC;
Golomt Bank LLC; Khan Bank LLC; State Bank LLC; Trade and
Development Bank of Mongolia LLC; and XacBank LLC.
Moody's has also downgraded the foreign currency deposit ratings of the
seven banks to Caa2 from Caa1, as it had revised Mongolia's
long-term foreign currency deposit ceiling to Caa2 from Caa1.
The outlook for all banks is stable.
The rating actions follow Moody's downgrade of Mongolia's sovereign ratings
to Caa1 from B3 with a stable outlook on 18 November 2016. Please
see the related press release for more information on the sovereign downgrade
here: http://www.moodys.com/viewresearchdoc.aspx?docid=PR_356806
Today's rating action concludes the review for downgrade initiated
on 29 August 2016.
A full list of the affected ratings can be found at the bottom of this
press release.
RATINGS RATIONALE
The rating action on the seven banks' ratings reflects the high correlation
between the creditworthiness of the Mongolian banking system and that
of the sovereign.
Moody's believes that there is high level of dependency between
the creditworthiness of rated Mongolian banks and the sovereign mainly
because of (1) the high extent to which the banks' businesses depend
on macroeconomic and financial conditions in Mongolia, with the
low level of cross-border diversification in their operations;
and (2) their significant direct and indirect exposures to domestic sovereign
debt relative to their capital bases.
The downgrade of the sovereign rating was driven by (1) the increased
uncertainty over its ability to meet its direct and indirect debt service
obligations over the next 18 months and to shore up Mongolia's external
liquidity, and (2) Moody's expectation that the budget deficit
will remain wider for longer than previously expected, which,
combined with a weaker growth outlook in the coming 2 years, will
raise the government's debt burden.
As a result of this rating action, (1) the seven banks' foreign
currency deposit ratings have been downgraded to Mongolia's foreign currency
deposit ceiling of Caa2; and (2) the local currency deposit ratings
and senior unsecured debt ratings, where applicable, of the
seven banks have been downgraded to the same level as Mongolia's sovereign
rating.
In addition, Moody's has downgraded the Baseline Credit Assessments
(BCAs) -- which reflect our opinion of a bank's intrinsic
or standalone financial strength -- of Bogd Bank LLC;
Golomt Bank LLC; Khan Bank LLC; State Bank LLC; Trade and
Development Bank of Mongolia LLC; and XacBank LLC to caa1 from b3,
in line with Mongolia's Caa1 sovereign rating. The BCA of
Capital Bank LLC is affirmed at caa1.
What Could Change the Rating -- Up: Bogd Bank LLC;
Capital Bank LLC; Golomt Bank LLC; Khan Bank LLC; State
Bank LLC; Trade and Development Bank of Mongolia LLC; and XacBank
LLC.
Because these banks' caa1 BCAs are at the same level as Mongolia's
sovereign rating, an upgrade is unlikely in the near term.
An upgrade of the banks' BCAs would require an upgrade of the sovereign
rating, as well as evidence that the banks' asset quality
and profitability profiles, which are under pressure from the challenging
operating environment, show signs of clear stabilization.
What Could Change the Rating - Down: Bogd Bank LLC;
Capital Bank LLC; Golomt Bank LLC; Khan Bank LLC; State
Bank LLC; Trade and Development Bank of Mongolia LLC; and XacBank
LLC
Factors that could result in a downgrade include:
1) A downgrade of Mongolia's sovereign rating; or
2) A downgrade of the banks' BCAs
The banks' BCAs could be downgraded if: (1) asset quality deteriorates
significantly, for example, with problem loans/gross loans
exceeding 9.0% for a sustained period; (2) tangible
common equity falls below 8%; or (3) profitability deteriorates
significantly, leading to annual net losses on a sustained basis.
The resultant ratings and actions are listed below:
Issuer: Bogd Bank LLC
- Baseline Credit Assessment (BCA) downgraded to caa1 from b3
- Adjusted BCA, downgraded to caa1 from b3
- Long-term Counterparty Risk Assessment, downgraded
to B3(cr) from B2(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local Currency (LC) Deposit Rating, downgraded to Caa1
Stable from B3 Rating under review
- Foreign Currency (FC) Deposit Rating, downgraded to Caa2
Stable from Caa1 Rating under review
- LC/FC Short-term Deposit Rating, affirmed at NP
The outlook is stable
Issuer: Capital Bank LLC
- BCA affirmed at caa1
- Adjusted BCA, affirmed at caa1
- Long-term Counterparty Risk Assessment, confirmed
at B3(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Deposit Rating, downgraded to Caa1 Stable from B3 Rating
under review
- FC Deposit Rating, downgraded to Caa2 Stable from Caa1
Rating under review
- LC/FC Short-term Deposit Rating, affirmed at NP
The outlook is stable
Issuer: Golomt Bank LLC
- BCA downgraded to caa1 from b3
- Adjusted BCA, downgraded to caa1 from b3
- Long-term Counterparty Risk Assessment, downgraded
to B3(cr) from B2(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Deposit Rating, downgraded to Caa1 Stable from B3 Rating
under review
- FC Deposit Rating, downgraded to Caa2 Stable from Caa1
Rating under review
The outlook is stable
Issuer: Khan Bank LLC
- BCA downgraded to caa1 from b3
- Adjusted BCA, downgraded to caa1 from b3
- Long-term Counterparty Risk Assessment, downgraded
to B3(cr) from B2(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Deposit Rating, downgraded to Caa1 Stable from B3 Rating
under review
- FC Deposit Rating, downgraded to Caa2 Stable from Caa1
Rating under review
- LC/FC Issuer Rating, downgraded to Caa1 Stable from B3
Rating under review
- LC/FC Short-term Deposit Rating, affirmed at NP
The outlook is stable
Issuer: State Bank LLC
- BCA downgraded to caa1 from b3
- Adjusted BCA, downgraded to caa1 from b3
- Long-term Counterparty Risk Assessment, downgraded
to B3(cr) from B2(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Deposit Rating, downgraded to Caa1 Stable from B3 Rating
under review
- FC Deposit Rating, downgraded to Caa2 Stable from Caa1
Rating under review
The outlook is stable
Issuer: Trade and Development Bank of Mongolia LLC
- BCA downgraded to caa1 from b3
- Adjusted BCA, downgraded to caa1 from b3
- Long-term Counterparty Risk Assessment, downgraded
to B3(cr) from B2(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Deposit Rating, downgraded to Caa1 Stable from B3 Rating
under review
- FC Deposit Rating, downgraded to Caa2 Stable from Caa1
Rating under review
- LC/FC Short-term Deposit Rating, affirmed at NP
- LC/FC Issuer Rating, downgraded to Caa1 Stable from B3
Rating under review
- LC/FC Short-term Issuer Rating, affirmed at NP
- Backed Senior Unsecured, downgraded to Caa1 Stable from
B3 Rating under review
- FC Senior Unsecured, downgraded to Caa1 Stable from B3
Rating under review
- FC Senior Unsecured MTN, downgraded to (P)Caa1 from (P)B3
The outlook is stable
Issuer: XacBank LLC
- BCA downgraded to caa1 from b3
- Adjusted BCA, downgraded to caa1 from b3
- Long-term Counterparty Risk Assessment, downgraded
to B3(cr) from B2(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Deposit Rating, downgraded to Caa1 Stable from B3 Rating
under review
- FC Deposit Rating, downgraded to Caa2 Stable from Caa1
Rating under review
- LC/FC Issuer Rating, downgraded to Caa1 Stable from B3
Rating under review
- FC senior unsecured MTN, downgraded to (P)Caa1 from (P)B3
- LC/FC Short-term Deposit Rating, affirmed at NP
- LC/FC Short-term Issuer Rating, affirmed at NP
- Other Short-term Program, affirmed at (P)NP
The outlook is stable
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies 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 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.
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
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 813-5408-4110
SUBSCRIBERS: 813-5408-4100
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