Moody's Investors Service has assigned a B1 rating to Trade and Development Bank of Mongolia LLC's (TDBM) proposed fixed rate CNY senior unsecured notes. The notes will be drawn from TDBM's $700 million Euro medium-term note (MTN) program, which in turn is rated (P)B1. The rating outlook for the notes is negative. The rating assigned to the notes is subject to the receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents reviewed by Moody's. TDBM's B1 rating incorporates a one-notch uplift to its foreign currency and local currency debt rating, from its standalone credit profile of b2, based on Moody's assessment of systemic support. The high probability of support from the Government of Mongolia (B1 stable) to TDBM is underpinned by the bank's systemically important position, as the largest bank in the country by assets. TDBM's baseline credit assessment (bca) of b2 reflects its: (1) solid market position as a leading corporate lender in foreign exchange and trade-related businesses; (2) sound profitability and good operating efficiency; and (3) diversified funding sources from both domestic depositors and foreign financial institutions. However, the ratings are constrained by the bank's: (1) high concentration risk, against the backdrop of the limited diversity of Mongolia's economy, and which renders the economy vulnerable to external factors; (2) substantial capital needs assuming that the Mongolian economy and credit continues to grow at a rapid pace; and (3) potential challenges related to corporate governance that could arise from its narrow shareholding structure. Moody's recent change in the rating outlooks of all rated Mongolia banks to negative reflects the banks' vulnerability to intensifying adverse developments in the operating environment. In addition, TDBM's is vulnerable to a deterioration in asset quality given its high loan concentration and the bank's portfolio of corporate loans. Moody's notes that TDBM's top 20 group borrower exposures were equivalent to 42% of its total loans at end-September 2013 . More than 50% of these borrowers were also in risky sectors such as mining and construction. The latter accounted for 17.2% and 16.2% of the bank's total loans at end-September 2013 . An upgrade of the bank's ratings is unlikely, given that the B1 ratings assigned to TDBM are at the same rating level as the sovereign rating. Nonetheless, the bca could be raised if the bank substantially reduces its borrower concentration and exposure to risky sectors.
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