TEXT-Fitch affirms Mongolia's Khan Bank at 'B'; outlook stable
(The following statement was released by the rating agency)
Nov 20 - Fitch Ratings has affirmed Mongolia-based Khan Bank LLC's (Khan Bank) Long-Term Issuer Default Rating (IDR) at 'B' and its Short-Term IDR at 'B'. The Outlook is Stable. A full list of rating actions is provided at the end of this commentary.
The ratings capture the pressures on its liquidity, capital, and asset quality posed by rapid loan growth in a volatile operating environment. The ratings also reflect its strong market position as the largest bank in Mongolia with 23% of the system's assets, 24% of lending and 30% of deposits at end-H112.
Khan Bank's rapid loan expansion over the last three years (H112: 9%, 2011: 75%, 2010: 35%) resulted in tighter liquidity as indicated by its loan-to-deposit ratio of 81% at end-H112 (2011: 78%, 2010: 61%). Asset quality could quickly come under pressure if the economy slows. The bank's capital (Fitch Core Capital ratio: 10.7% at end-H112) provides limited buffer for potential loss as it has deployed retained earnings for additional loan growth. Internal capital generation is also likely to slow due to higher funding and operating costs.
The VR may be downgraded if the bank were to relax its underwriting policies, allow higher borrower concentrations or failed to maintain adequate liquidity and capital control. The IDRs are likely to remain unchanged even in the event of a downgrade of its VR, as they are underpinned by the Support Rating Floor of 'B'. Fitch does not expect an upgrade of VR at present as credit growth is likely to continue and limit improvements to the bank's loss-absorbing ability.
The Support Rating and Support Rating Floor reflect Fitch's view that Khan Bank would be the domestic bank most 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 IDRs of 'B+'.
Competition for deposit funding is intensifying amid recent rapid credit growth, which drives the bank's funding costs. Fitch expects large banks including Khan Bank to tap into foreign debt markets for additional funding to achieve its loan growth target (annual 30% in 2013). Increase in non-deposit funding will raise funding costs further and also pose refinancing risk.
The rating actions of Khan Bank are as follows:
- Long-Term Foreign Currency IDR affirmed at 'B'; Outlook Stable
- Short-Term Foreign Currency IDR affirmed at 'B'
- Long-Term Local Currency IDR affirmed at 'B'; Outlook Stable
- Viability Rating affirmed at 'b'
- Support Rating affirmed at '4'
- Support Rating Floor affirmed at 'B'
Nov 20 - Fitch Ratings has affirmed Mongolia-based Khan Bank LLC's (Khan Bank) Long-Term Issuer Default Rating (IDR) at 'B' and its Short-Term IDR at 'B'. The Outlook is Stable. A full list of rating actions is provided at the end of this commentary.
The ratings capture the pressures on its liquidity, capital, and asset quality posed by rapid loan growth in a volatile operating environment. The ratings also reflect its strong market position as the largest bank in Mongolia with 23% of the system's assets, 24% of lending and 30% of deposits at end-H112.
Khan Bank's rapid loan expansion over the last three years (H112: 9%, 2011: 75%, 2010: 35%) resulted in tighter liquidity as indicated by its loan-to-deposit ratio of 81% at end-H112 (2011: 78%, 2010: 61%). Asset quality could quickly come under pressure if the economy slows. The bank's capital (Fitch Core Capital ratio: 10.7% at end-H112) provides limited buffer for potential loss as it has deployed retained earnings for additional loan growth. Internal capital generation is also likely to slow due to higher funding and operating costs.
The VR may be downgraded if the bank were to relax its underwriting policies, allow higher borrower concentrations or failed to maintain adequate liquidity and capital control. The IDRs are likely to remain unchanged even in the event of a downgrade of its VR, as they are underpinned by the Support Rating Floor of 'B'. Fitch does not expect an upgrade of VR at present as credit growth is likely to continue and limit improvements to the bank's loss-absorbing ability.
The Support Rating and Support Rating Floor reflect Fitch's view that Khan Bank would be the domestic bank most 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 IDRs of 'B+'.
Competition for deposit funding is intensifying amid recent rapid credit growth, which drives the bank's funding costs. Fitch expects large banks including Khan Bank to tap into foreign debt markets for additional funding to achieve its loan growth target (annual 30% in 2013). Increase in non-deposit funding will raise funding costs further and also pose refinancing risk.
The rating actions of Khan Bank are as follows:
- Long-Term Foreign Currency IDR affirmed at 'B'; Outlook Stable
- Short-Term Foreign Currency IDR affirmed at 'B'
- Long-Term Local Currency IDR affirmed at 'B'; Outlook Stable
- Viability Rating affirmed at 'b'
- Support Rating affirmed at '4'
- Support Rating Floor affirmed at 'B'
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