Fitch downgrades Khan Bank, XacBank

Fitch Ratings said it downgraded the long-term issuer default ratings on Khan Bank LLC and XacBank LLC to B- from B and their viability ratings to B- from B.

The outlooks on both banks are stable.

The agency also said it affirmed State Bank LLC's long-term issuer default rating at B- with stable outlook and its viability rating at B-.

The rating actions follow the recent downgrade of Mongolia's long-term issuer default rating to B- from Band country ceiling to B- from B, Fitch said.

Under the agency’s global Bank Rating Criteria, the country ceiling of a sovereign constrains a bank's issuer default rating, Fitch explained.

The sovereign ratings downgrade reflects substantial fiscal deterioration and heightened external liquidity risks in the country, which affects banks' credit profiles because they have significant government exposure through securities and claims on the central bank from swap agreements to hedge their large foreign-currency mismatches, the agency said.

Access to funding from international financial institutions remains available, albeit at higher costs, Fitch added.

Also, the agency said it sees increased pressure on all three banks' funding and liquidity profiles, which could deteriorate significantly if the sovereign were to fail to obtain access to funding from bilateral and multilateral agencies.

The banks' asset quality also is expected to worsen due to the weak operating environment amid possible fiscal and monetary tightening measures, slower economic growth in Mongolia and China and continued depreciation of the local-currency against the U.S. dollar, Fitch said.

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