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- Country Name: Mongolia
- Assets: MNT 1,752,184,000
- Profits: MNT 19,323,000
- Ownership: 75.22% Deposit Insurance Corporation,
24.78% Ministry of Finance of Mongolia
- Date Modified: Jul-2015
Syndicated Analyses:Moody's Corporation "Moody's assigns first-time ratings to State Bank LLC" 02-Mar-2015:
State Bank's BFSR reflects firstly, the bank's solid franchise in Mongolia, which results in a less concentrated loan book when compared with its domestic peers, and secondly, its capitalization and liquidity levels, which are stronger than those of its similarly rated domestic peers
State Bank's strengths are offset by its limited track record of asset quality, as well as its lower but improving profitability when compared with its domestic peers.
Moody's says the high probability of support from the Government of Mongolia (B2 negative) to the bank is underpinned by the bank's ownership by the government as well as by the bank's systemically important position as the fourth-largest bank in the country by assets. The key drivers of State Bank's ratings are: 1) The bank's solid franchise; namely its strong retail footprint in Mongolia, given its position as the country's fourth-largest commercial bank by assets. 2) Its strong capital position. The bank's Tier 1 ratio of 13.1% at 30 June 2014 was the strongest in Mongolia's banking system. 3) Its limited track record of maintaining good asset quality, given that it received Savings Bank's good assets less than 18 months' ago, in July 2013. In addition, the bank has not established a track record of maintaining its asset quality through economic cycles. Nevertheless, Moody's notes that State Bank's asset quality is sound, driven by its granular loan book. 4) Its low loan-to-deposit ratio. The ratio was at 88.6% at end-June 2014, a result which was low when compared to the system average of 100.8% in the same period
State Bank is 24.78% owned by Mongolia's Ministry of Finance. While the bank is 75.22% owned by the Deposit Insurance Corporation, the majority shareholder does not hold any voting rights.Fitch Ratings "Fitch Rates Mongolia's State Bank 'B'; Outlook Negative" 04-Feb-2015:
The IDRs, SR and SRF of State Bank reflect Fitch's view that it would be the domestic bank most likely to receive state support in case of need. This assessment reflects State Bank's strong relationship with the government as evidenced by its 100% state-ownership and the Ministry of Finance has seconded personnel to take up key positions at the bank. Furthermore, State Bank is Mongolia's fourth-largest bank with a 13% share of total system deposits. It maintains a comparatively strong nationwide retail banking presence and the authorities have designated it one of the country's six systemically important banks. State Bank emerged from the government's efforts to maintain banking sector stability by bailing out two failed banks: Zoos Bank, which failed in 2009, and Savings Bank in 2013.
The IDR is driven by the SRF and as such State Bank's ratings are sensitive to Fitch's assessment around the likelihood for government support. Fitch applies a one-notch differential between the Long-Term IDR of the sovereign (B+/Negative) and State Bank's SRF. A potential change in the government's ownership, which is not yet reflected in these ratings, could lead to a wider notching if Fitch believed this would impact the state's willingness to provide support.
State Bank's VR reflects the bank's leading franchise and adequate asset quality, characterised by limited foreign currency lending (2.3% of total loans at end-November 2014). The rating also captures the bank's limited loss absorption capacity, moderate profitability and Fitch's assessment of corporate governance, which is considered weaker than privately-owned peers' due to the lack of external or international shareholder representation. The bank's Fitch core capital ratio of 13.8% at end-1H14 compares favourably with peers'.
The regulatory total capital ratio was 15.1% at end-2014 compared to the minimum requirement of 14%. Liquidity is adequate with the bank maintaining a low 83.8% loan-to-deposit ratio at end-1H14 compared with peers'. Profitability is weakened by low revenue contribution from non-loan businesses and high operating costs from managing its large branch network. In addition the bank incurred non-recurring expenses related to performing structural adjustments and improving bank practices following the takeover of Savings Bank's non-problematic assets. Furthermore, the regulator's 60% net loan to asset cap constrains State Bank's growth and profitability.