Saturday, December 27, 2014

Fitch Affirms Mongolia's Khan Bank at 'B', Outlook Negative

(The following statement was released by the rating agency)
HONG KONG/SINGAPORE, December 12 (Fitch) Fitch Ratings has affirmed the 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 action commentary. KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT The VR-driven IDR of the bank captures the weakening operating environment in Mongolia. Fitch expects asset quality of the bank to worsen as the weakening local currency lowers the capacity of borrowers to repay their foreign-currency loans. Liquidity is tightening following the policy rate hike in July 2014, while banks will face higher funding costs because of higher risk premiums demanded by international investors and stronger deposit competition. A rise in US dollar rates would also have negative impact on funding costs and the performance of 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 asset quality from the deteriorating operating environment. The rating also captures the 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 borrowers would 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 franchise, strategic discipline and better risk standards compared with peers' remain its strength. Khan Bank's corporate governance benefits from the involvement of international shareholders in the bank's management. RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT Fitch would downgrade Khan Bank's ratings if the bank becomes significantly more vulnerable to the weakening operating environment than in the past. Positive rating actions could derive from improving operating conditions, including a favourable resolution to a dispute between Rio Tinto and the government over the Oyu Tolgoi copper mining project and successful gradual 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 SUPPORT RATING FLOOR 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 local currency, 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 support systemically important banks has not reduced. The SR and SRF of the bank now reflect Fitch's view that sovereign support, although possible, cannot be relied upon. The rating actions are as follows: Khan Bank 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' Contact: Primary Analyst Ivan Lin Associate Director +852 2263 9984 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 +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014 are available at 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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