(The following statement was released by the rating agency) HONG KONG/LONDON, April 30 (Fitch) The extension of a debt repayment by Mongolian Mining Corporation (MMC) highlights the pressures for the industry and the risks for local banks, Fitch Ratings says. Mongolian banks do not have excessively high direct exposure to mining, but the deteriorating operating environment for the country's key export sector heightens wider macro risks to the banking system. There are no immediate rating implications for the banks, as our ratings and their Outlooks for Khan and Xac (both 'B/Negative') already reflect the harsher operating environment. Mongolian banks are susceptible to the liquidity and profitability pressure in the mining sector as this flows through to the broader economy.
Mining's weakness stems largely from depressed demand, as indicated by falling prices. This also has a negative impact on the Mongolian turgrik, which depreciated by 20% in 2013 and by another 6% so far this year. With foreign-currency loans at around 30%, banks are exposed to credit risk from a weaker local currency, even though foreign-currency lending is largely to corporates with natural or financial hedges.