(The following statement was released by the rating agency)
HONG KONG/SINGAPORE, December 12 (Fitch) Fitch Ratings has
Long-Term Issuer Default Rating (IDR) of Mongolia-based Khan
Bank LLC at 'B',
the Outlook remains Negative. The Viability Rating (VR) was
affirmed at 'b' and
the Support Rating Floor (SRF) revised to 'B-' from 'B'.
A full list of rating actions is at the end of this rating
KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT
The VR-driven IDR of the bank captures the weakening operating
Mongolia. Fitch expects asset quality of the bank to worsen as
local currency lowers the capacity of borrowers to repay their
Liquidity is tightening following the policy rate hike in July
2014, while banks
will face higher funding costs because of higher risk premiums
international investors and stronger deposit competition. A rise
in US dollar
rates would also have negative impact on funding costs and the
borrowers. Profitability remains under pressure as the loan
pricing under the
price stabilisation programme (PSP) and mortgage programme
launched by the Bank
of Mongolia are capped.
Khan Bank's Outlook remains Negative considering the pressure on
from the deteriorating operating environment. The rating also
bank's single related party lending exposure, which stood at
5.6% of total
capital at 1H14. While performing, it is a concentration risk.
We expect the
bank's large retail lending portfolio to hold up well as these
be less affected by depreciation in the local currency. Credit
growth has slowed
but it is subject to volatility and likely to limit an
improvement in the bank's
capital ratios. In addition, the bank's leading deposit
discipline and better risk standards compared with peers' remain
Khan Bank's corporate governance benefits from the involvement
shareholders in the bank's management.
RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT
Fitch would downgrade Khan Bank's ratings if the bank becomes
vulnerable to the weakening operating environment than in the
Positive rating actions could derive from improving operating
including a favourable resolution to a dispute between Rio Tinto
government over the Oyu Tolgoi copper mining project and
removal of government stimulus measures. Less reliance on
external parties to
fund growth would be another consideration.
KEY RATING DRIVERS AND RATING SENSITVITIES - SUPPORT RATING AND
Fitch downgraded the Support Rating (SR) and revised SRF of Khan
Bank amid a
weakening of the Mongolian government's ability to provide
timely support to the
banking system, due to shrinking foreign reserves and weakening
which is reflected in its 'B+' sovereign rating with Negative
Outlook. This is
in spite of Fitch's belief that the government's propensity to
systemically important banks has not reduced.
The SR and SRF of the bank now reflect Fitch's view that
although possible, cannot be relied upon.
The rating actions are as follows:
Long-Term Foreign Currency IDR affirmed at 'B'; Outlook Negative
Short-Term Foreign Currency IDR affirmed at 'B'
Long-Term Local Currency IDR affirmed at 'B'; Outlook Negative
Viability Rating affirmed at 'b'
Support Rating downgraded to '5' from '4'
Support Rating Floor revised to 'B-' from 'B'
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Additional information is available on www.fitchratings.com
Applicable criteria, "Global Financial Institutions Rating
Criteria", dated 31
January 2014 are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
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