Bangkok--12 Dec--Moody's
Moody's Investors Service has placed the following ratings of XacBank in Mongolia on review for possible downgrade: its D bank financial strength rating (BFSR), Ba1 long-term local currency deposit ratings, and Ba1 local currency issuer ratings.
Meanwhile, the bank's Non-Prime short-term local currency deposit rating, B2/Non-Prime long-term/short-term foreign currency deposit ratings and Ba2 foreign currency issuer rating remain unchanged.
"This rating action reflects the bank's deteriorating asset quality, occurring against the backdrop of an economic slowdown," says Cherry Huang, a Moody's VP/Senior Analyst. "In the meantime, the bank's growing exposures to SME lending entail rising concentration risk, which may in turn raise its risk profile," adds Huang.
Mongolia also has a high dependence on exports, particularly copper and gold, and its deteriorating trade account may significantly affect the repayment capabilities of borrowers, businesses or individuals. Whether the bank's relatively small capital base can weather the consequent strains is an area of concern.
In this environment, Management has tightened risk controls and plans to adopt de-leveraging measures and raise capital to navigate through the down-cycle, though containing a rising non-performing loan ratio may prove challenging.
Meanwhile, concerns over the liquidity flight evident in Mongolia's banking system in recent months and the volatility in the USD/MNT exchange rate have exacerbated pressure on the bank's credit fundamentals.
It remains to be seen if the government's blanket deposit guarantee announced on Nov 25 and if its sales of the USD against the MNT can restore public confidence and stave off a deposit flight.
Moody's notes that system-wide M2, cash in circulation, savings deposits and foreign currency deposits shrunk by 6.6%, 8.8%, 3.6% and 12.2%, respectively, from September to October. Meanwhile, the togrog, the Mongolian unit of currency, has depreciated against the USD by approximately 11% in the past two months.
The focus of Moody's review will be on developments of the bank's asset quality and the impact on its capital adequacy. Further development of the liquidity flight across the banking sector and its effect on XacBank will also be closely monitored.
The last rating action on XacBank was on May 4, 2007 when its local currency deposit rating and issuer rating were upgraded to Ba1 from Ba2 as a result of Moody's rollout of its JDA methodology.
The principal methodology used in rating XacBank was the Bank Financial Strength Rating Methodology and Joint Default Analysis, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating XacBank can also be found in the Credit Policy & Methodologies directory.
XacBank is headquartered in Ulaanbaatar, Mongolia. It reported assets of MNT 198.6 billion (approximately USD 172.7 million) as at June 2008.
Taipei
Cherry Huang, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Taiwan Corporation
Telephone: 886-2-2757-7125
Facsimile: 886-2-2757-7129
Singapore
Karolyn C. Seet
Asst Vice President - Analyst
Financial Institutions Group
Moody's Singapore Pte Ltd.
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