Hong Kong, January 19, 2018 -- Moody's Investors Service has upgraded the long-term local currency
deposit ratings of Bogd Bank LLC, Khan Bank LLC, State Bank
LLC and XacBank LLC to B3 with a stable outlook from Caa1.
At the same time, Moody's has upgraded Development Bank of
Mongolia LLC's (DBM) long-term foreign currency issuer rating
to B3 with a stable outlook from Caa1.
Moody's has also placed under review for upgrade the Caa1 long-term
local currency deposit ratings of Golomt Bank LLC and Trade and Development
Bank of Mongolia LLC.
Moody's has affirmed Capital Bank LLC's long-term local
currency deposit rating at Caa1 and revised the outlook to positive from
stable.
Today's rating actions follow Moody's upgrade of Mongolia's
sovereign rating on 18 January 2018.
Moody's has changed Mongolia's Macro Profile to "Weak-" from
"Very Weak +". The higher Macro Profile was driven by Moody's
raising of Mongolia's "institutional strength" score
to "Low" from "Low-" and "susceptibility
to event risk" score to "High-" from "High+".
Please see the related press release for more information on the sovereign
review at this link:
https://www.moodys.com/research/Moodys-upgrades-Mongolias-rating-to-B3-outlook-stable--PR_377740
A full list of the affected ratings can be found at the bottom of this
press release.
RATINGS RATIONALE
CHANGE IN MACRO PROFILE REFLECTS IMPROVING MACRO ENVIRONMENT IN MONGOLIA
The change of Mongolia's Macro Profile to "Weak-"
from "Very Weak+" reflects structural improvements in
the macro environment as a result of reforms prompted by the ongoing International
Monetary Fund (IMF) program, in particular strengthened institutions
and reduced susceptibility to event risk.
The higher institutional strength assessment of "Low" from
"Low-" reflects ongoing reforms under the structural
benchmarks of the IMF program centered around improving budgetary processes,
strengthening the banking system and enhancing the capabilities of the
central bank.
Moody's has changed its assessment of susceptibility to event risk
to "High-" from "High+", reflecting
improvements in foreign direct investment inflows, narrower current
account and fiscal deficits and successful refinancing of upcoming debt
obligations.
The change of Mongolia's Macro Profile positively affects the rated
Mongolian banks' baseline credit assessments (BCAs), and as a result
their long-term deposit ratings and Counterparty Risk Assessments
(CRAs). The Macro Profile constitutes an assessment of the macroeconomic
environment in which a bank operates.
BANK SPECIFIC CONSIDERATIONS
The rating action on the eight banks' ratings reflects Moody's view of
the 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.
Moody's has upgraded the BCAs of Bogd Bank, Khan Bank, State
Bank and XacBank to b3 from caa1, in line with the sovereign rating
upgrade to B3 from Caa1. The upgrade reflects Moody's expectation
that the asset quality review will have limited impact on these banks,
as well as Moody's view of recovering economic conditions and ongoing
structural reforms.
Moody's has placed the local currency deposit rating, long-term
counterparty risk assessment, BCA and adjusted BCA of Golomt Bank
and the local currency long-term deposit rating, local currency
and foreign currency long-term issuer ratings, long-term
counterparty risk assessment, BCA and adjusted BCA of Trade and
Development Bank of Mongolia under review for upgrade. Moody's
review will focus on the impact of the asset quality review and determine
if the banks' recapitalization plans, if any, are sufficient
to merit an upgrade in their BCAs, which are currently at caa1.
Moody's has changed Capital Bank's outlook to positive(m)
from stable to reflect the potential for a higher BCA if it successfully
executes an already agreed investment from an international private equity
fund. The bank's BCA is currently positioned at caa1.
The rating action on DBM was driven by its strong linkages with the government
through the government's direct ownership and its clear public policy
mandate. DBM also benefits from certain forms of explicit government
support through the DBM Law. Consequently, its ratings are
closely linked to the sovereign rating, and Moody's expects the
government to support the bank, if needed. The upgrade of
DBM's BCA to caa1 from caa2 reflects its very strong capital after
a capital injection by the government and Moody's view of improved
underwriting standards after the revision of the DBM Law to restrict lending
to commercial projects only.
The differentiated ratings among the Mongolian banks reflects Moody's
view of the varying impact of the asset quality review on the banks.
Moody's expects banks with a higher portion of corporate loans will
be at risk of a larger recapitalization requirement, given the higher
risk of different collateral valuations between international and domestic
standards.
The upgrade of Mongolia's sovereign rating to B3 from Caa1 reflects (1)
abating liquidity pressure; and (2) the implementation of wide-ranging
policy reforms targeted at improving economic fundamentals.
Towards the end of last year, Mongolia refinanced debt maturities
that were due in early 2018. The refinancing has eased immediate
government liquidity pressure until 2021, when the next external
maturities are due. The refinancing has also significantly mitigated
external risks arising from a thin foreign reserve position relative to
the government's maturing debt obligations.
Higher economic growth has allowed the government to implement reforms
aimed at (1) increasing accountability and restraint over budgetary spending;
(2) strengthening fiscal health through improvements in tax collections
and reducing pro-cyclical spending by tightening the budgetary
process; (3) strengthening the banking system; and (4) enhancing
the independence and effectiveness of monetary policy.
WHAT COULD CHANGE THE RATINGS UP
The BCAs of Bogd Bank, Khan Bank, State Bank and XacBank are
at the same level as the sovereign rating, and as such a positive
rating action is unlikely in the absence of upward pressure on the Mongolia's
sovereign rating.
DBM's long-term rating incorporates a one-notch uplift
from its BCA and is at the same level as the sovereign rating.
As such, a positive rating action is unlikely in the absence of
upward pressure on the sovereign rating. Nevertheless, Moody's
will consider raising DBM's BCA if the bank demonstrates capitalization
and liquidity levels consistent with a BCA of b3 upon the completion of
the asset quality review.
For Golomt Bank and Trade and Development Bank of Mongolia, Moody's
will consider upgrading their BCAs and long-term ratings if asset
risk, capitalization and liquidity levels improve to levels consistent
with a BCA of b3 upon the completion of the AQR.
Moody's will upgrade Capital Bank's BCA and long-term
ratings if the asset quality review and additional funding from an international
fund result in asset quality and capitalization levels consistent with
a BCA of b3.
WHAT COULD CHANGE THE RATINGS DOWN
For Bogd Bank, Khan Bank, State Bank and XacBank, 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.
For DBM, factors that could lead to a downgrade include (1) a downgrade
of Mongolia's sovereign rating; or (2) a weakening in the strategic
importance to the government, as a result of which Moody's
changes its assessment of government support.
The ratings of Golomt Bank and Trade and Development bank of Mongolia
may be confirmed at Caa1 with a stable outlook if their asset quality
or capital strength deteriorates significantly after the completion of
the AQR, without sufficient measures to recapitalize a shortfall
in capital, if required.
The outlook on Capital Bank's long-term ratings could be
changed to stable from positive if the bank is unable to secure additional
capital to improve its capitalization.
The principal methodology used in these ratings was Banks published in
September 2017. 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 2016:
Bogd Bank LLC: MNT61.5 billion (USD24.7 million)
Development Bank of Mongolia LLC: MNT4.84 trillion (USD1.95
billion)
Golomt Bank LLC: MNT4.66 trillion (USD1.87 billion)
Khan Bank LLC: MNT6.48 trillion (USD2.60 billion)
State Bank LLC: MNT2.09 trillion (USD840.7 million)
Trade and Development Bank of Mongolia LLC: MNT6.65 trillion
(USD2.67 billion)
XacBank LLC: MNT2.26 trillion (USD907.3 million)
Capital Bank LLC had assets of MNT745.6 billion (USD374.1
million) as of 31 December 2015
Issuer: Bogd Bank LLC (Lead Analyst: Tae Jong Ok)
- Baseline Credit Assessment (BCA) upgraded to b3 from caa1
- Adjusted BCA upgraded to b3 from caa1
- Long-term Counterparty Risk Assessment upgraded to B2(cr)
from B3(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- Local Currency (LC) Long-term Deposit Rating upgraded
to B3 from Caa1, outlook is stable
- Foreign Currency (FC) Long-term Deposit Rating upgraded
to Caa1 from Caa2, outlook is stable
- LC/FC Short-term Deposit Rating affirmed at NP
- Outlook maintained at stable
Issuer: Capital Bank LLC (Lead Analyst: Tae Jong Ok)
- BCA of caa1 affirmed
- Adjusted BCA of caa1 affirmed
- Long-term Counterparty Risk Assessment affirmed at B3(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Long-term Deposit Rating of Caa1 affirmed, outlook
changed to positive from stable
- FC Long-term Deposit Rating upgraded to Caa1 from Caa2,
outlook maintained at stable
- LC/FC Short-term Deposit Rating affirmed at NP
- Outlook changed to positive(m) from stable
Issuer: Development Bank of Mongolia LLC (Lead Analyst: Tae
Jong Ok)
- Foreign currency long-term Issuer Rating upgraded to B3
from Caa1, outlook is stable
- Long-term Counterparty Risk Assessment upgraded to B2(cr)
from B3(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- BCA and adjusted BCA upgraded to caa1 from caa2
- Outlook maintained at stable
Issuer: Golomt Bank LLC (Lead Analyst: Sophia Lee)
- BCA of caa1 under review for upgrade
- Adjusted BCA of caa1 under review for upgrade
- Long-term Counterparty Risk Assessment of B3(cr) under
review for upgrade
- Short-term Counterparty Risk Assessment of NP(cr) affirmed
- LC Long-term Deposit Rating of Caa1 under review for upgrade
- FC Long-term Deposit Rating upgraded to Caa1 from Caa2,
outlook maintained at stable
- Outlook changed to rating under review for upgrade from stable
Issuer: Khan Bank LLC (Lead Analyst: Sophia Lee)
- BCA upgraded to b3 from caa1
- Adjusted BCA upgraded to b3 from caa1
- Long-term Counterparty Risk Assessment upgraded to B2(cr)
from B3(cr)
- Short-term Counterparty Risk Assessment, affirmed
at NP(cr)
- LC Long-term Deposit Rating upgraded to B3 from Caa1,
outlook is stable
- FC Long-term Deposit Rating upgraded to Caa1 from Caa2,
outlook is stable
- LC/FC Long-term Issuer Rating upgraded to B3 from Caa1,
outlook is stable
- LC/FC Short-term Deposit Rating, affirmed at NP
- Outlook maintained at stable
Issuer: State Bank LLC (Lead Analyst: Tae Jong Ok)
- BCA upgraded to b3 from caa1
- Adjusted BCA upgraded to b3 from caa1
- Long-term Counterparty Risk Assessment upgraded to B2(cr)
from B3(cr)
- Short-term Counterparty Risk Assessment, affirmed
at NP(cr)
- LC Long-term Deposit Rating upgraded to B3 from Caa1,
outlook is stable
- FC Long-term Deposit Rating upgraded to Caa1 from Caa2,
outlook is stable
- Outlook maintained at stable
Issuer: Trade and Development Bank of Mongolia LLC (Lead Analyst:
Sophia Lee)
- BCA of caa1 under review for upgrade
- Adjusted BCA of caa1 under review for upgrade
- Long-term Counterparty Risk Assessment of B3(cr) under
review for upgrade
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Long-term Deposit Rating of Caa1 under review for upgrade
- FC Long-term Deposit Rating upgraded to Caa1 from Caa2,
outlook maintained at stable
- LC/FC Short-term Deposit Rating, affirmed at NP
- LC/FC Long-term Issuer Rating of Caa1 under review for
upgrade
- LC/FC Short-term Issuer Rating, affirmed at NP
- Backed FC Senior Unsecured of Caa1 under review for upgrade
- FC Senior Unsecured MTN of (P)Caa1 under review for upgrade
- Outlook changed to rating under review for upgrade from stable
Issuer: XacBank LLC (Lead Analyst: Sophia Lee)
- BCA upgraded to b3 from caa1
- Adjusted BCA upgraded to b3 from caa1
- Long-term Counterparty Risk Assessment upgraded to B2(cr)
from B3(cr)
- Short-term Counterparty Risk Assessment affirmed at NP(cr)
- LC Long-term Deposit Rating upgraded to B3 from Caa1,
outlook is stable
- FC Long-term Deposit Rating upgraded to Caa1 from Caa2,
outlook is stable
- LC/FC Long-term Issuer Rating upgraded to B3 from Caa1,
outlook is stable
- FC senior unsecured MTN upgraded to (P)B3 from (P)Caa1
- LC/FC Short-term Deposit Rating, affirmed at NP
- LC/FC Short-term Issuer Rating, affirmed at NP
- FC Other Short-term Program, affirmed at (P)NP
- Outlook maintained at stable
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.
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
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
Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 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
Client Service: 852 3551 3077
