Fitch Affirms Two Mongolian Banks at ‘B’; Revises Outlooks to Negative
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Fitch Ratings has today revised the Outlook on the Long-Term Issuer Default Ratings (IDRs) of Khan Bank LLC and XacBank LLC to Negative from Stable. At the same time, the agency affirmed the two Mongolian banks’ IDRs and Viability Ratings (VRs) at ‘B’ and ‘b’. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS – IDRS, VRS AND SENIOR DEBT The revision of the Outlooks on both banks’ IDRs reflects weakening operating conditions, as indicated by the change in the Outlook for the Mongolian sovereign (B+) to Negative from Stable on 13 December 2013. The sovereign’s Outlook was revised due to mounting risks to the country’s economic and financial stability, including deterioration in its external finances, arising from very loose policy settings. The harsher operating environment is pressuring the banks’ standalone profiles. RATING SENSITIVITIES – IDRS, VRS AND SENIOR DEBT Ratings on the two banks could be downgraded if pressures on asset quality and liquidity intensify. Persistent local-currency depreciation would reduce borrowers’ repayment capacity and could lead to accelerated deposit withdrawals given the country’s high level of dollarization. The banks’ ratings also remain sensitive to the withdrawal of credit stimulus, as this could result in asset deterioration on slowing economic growth, and/or higher inflation. Further decline in the government’s international reserves could also trigger a negative rating action, as the banks’ currency-related risk is counterbalanced by the authorities’ swap facility and unlimited foreign-currency conversion. Both banks’ ratings are also sensitive to any changes in their steady access to capital from private-sector owners. Khan Bank’s existing shareholder subscribed to USD40m of the bank’s subordinated debt in October 2013 (2.2% of risk-weighted assets at end 1H13). Fitch also expects XacBank to issue new equity to accommodate further growth. Sustainable economic growth underpinned by stable foreign investment could lead Fitch to revise the rating Outlooks back to Stable. KEY RATING DRIVERS AND RATING SENSITVITIES – SUPPORT RATING AND SUPPORT RATING FLOOR Khan Bank’s Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch’s view that, as the largest bank in Mongolia, it would be likely to receive state support in case of need. However, the Mongolian sovereign’s ability to provide timely support to the banking system remains limited as underlined by its IDR of ‘B+’. A downgrade of the sovereign ratings would point to weakening in the Mongolian government’s ability to provide timely support to the banking system, which put negative rating pressure on Khan Bank’s SR and SRF. In contrast, Fitch expects XacBank’s SR and SRF of ’5′/’B-’ to be maintained, even if the sovereign’s rating is downgraded to ‘B’. This is because the current SR and SRF already reflect the agency’s view that support from the sovereign, in case of need, cannot be relied upon. The rating actions are as follows: Khan Bank Long-Term Foreign-Currency IDR affirmed at ‘B’; Outlook revised to Negative from Stable Short-Term Foreign-Currency IDR affirmed at ‘B’ Long-Term Local-Currency IDR affirmed at ‘B’; Outlook revised to Negative from Stable Viability Rating affirmed at ‘b’ Support Rating affirmed at ’4′ Support Rating Floor affirmed at ‘B’ XacBank Long-Term Foreign-Currency IDR affirmed at ‘B’; Outlook revised to Negative from Stable Short-Term Foreign-Currency IDR affirmed at ‘B’ Long-Term Local-Currency IDR affirmed at ‘B’; Outlook revised to Negative from Stable Viability Rating affirmed at ‘b’ Support Rating affirmed at ’5′ Support Rating Floor affirmed at ‘B-’ Contact: Primary Analyst Chikako Horiuchi Director +852 2263 9924 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Sabine Bauer Senior Director +852 2263 9966 Committee Chairperson Mark Young Managing Director +44 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, “Global Financial Institutions Rating Criteria”, dated 15 August 2012 is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM’. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. 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