Moody’s upgrades local currency deposit ratings of Golomt Bank and TDB to B3

Moody’s Investors Service upgraded the longterm local currency deposit ratings of Golomt Bank LLC and Trade and Development Bank of Mongolia TDB to B3 from Caa1 on April 16.

Moody’s upgraded each bank’s baseline credit assessment (BCA) and adjusted BCA to b3 from caa1 in addition to upgrading each bank’s Counterparty Risk Assessment to B2 (cr) from B3 (cr).

It newly assigned a local currency and foreign currency issuer rating of B3 to Golomt Bank.

These rating actions conclude the review for upgrade placed on the two banks on January 19, 2018.

RATINGS RATIONALE

The upgrade of Golomt Bank and TDB’s ratings reflect Moody’s view that their capitalization will remain at levels consistent with a BCA of b3 upon the completion of the Asset Quality Review (AQR).

According to the International Monetary Fund and Mongol Bank, the AQR found a relatively modest capital shortfall in the banking system – about 1.9 percent of GDP at the end of 2017 – and a system-wide capital adequacy ratio of 13.7 percent at the end of 2017.

While bank-level information was not made public, Moody’s believes the two banks’ capitalization will remain sufficiently stable to merit the upgrade of their BCAs to b3 from caa1, given the better-than-expected AQR results, and Golomt Bank’s reported CET1 ratio of 9.45 percent and TDB’s CET1 ratio of 14.02 percent at the end of 2017.

Expecting loan growth to remain strong in 2018, Moody’s believes that the banks will have plans in place, including any capital raisings if necessary, to ensure adequate capitalization is maintained by the end of December, according to the schedule laid out by Mongol Bank.

It also believes that the banks will benefit from improving liquidity in Mongolia and the implementation of wide-ranging policy reforms targeted at improving economic fundamentals. For example, amendments to the Central Bank Law, Banking Law and Deposit Insurance Law have been completed. Growth also remains strong in Mongolia, which will be supportive of bank asset quality. Mongolia reported real GDP growth of 5.1 percent in 2017.