Moody's: Entry of National Bank of Canada as strategic investor is credit positive for XacBank
Moody's Investors Service says that National Bank of Canada's completed acquisition of a 10.5% stake in TenGer Financial Group LLC -- the parent of XacBank LLC -- is credit positive for XacBank (B2 local currency deposit rating, negative; b3 baseline credit assessment).
Both the Bank of Mongolia and Office of the Superintendent of Financial Institutions in Canada have approved the transaction.
National Bank of Canada (Aa3 local/foreign currency deposit rating negative; a3 baseline credit assessment) acquired the stake from an existing shareholder of XacBank.
"This transaction is the first investment by a foreign commercial bank in the financial sector of Mongolia and is credit positive for XacBank," says Hyun Hee Park, a Moody's Assistant Vice President.
Moody's views National Bank of Canada as a strategic investor of considerable financial strength, as reflected in its a3 baseline credit assessment.
Its dominant position in commercial banking and strong second largest share of the retail banking market in Québec Province are the primary credit strengths supporting its high ratings.
Moody's also notes that National Bank of Canada has prior experience in foreign acquisitions.
In March 2015, the bank acquired a 20.9% stake in NSIA Participations (unrated), a financial group based in Côte d'Ivoire. It also holds a 42% stake in ABA Bank (unrated), based in Cambodia, and 9.5% in AfrAsia Bank Ltd. (unrated), a bank based in Mauritius with operations in Zimbabwe.
Therefore, it is positioned to support XacBank, if needed.
"We expect National Bank of Canada, as the sole foreign commercial bank among TenGer's investors, to play an active role in strengthening some commercial aspects of XacBank's operations; particularly in regard to risk management and control, as well as lending to small- and medium-sized enterprises. National Bank of Canada's presence could also broaden XacBank's access to long-term foreign currency funding," adds Park
National Bank of Canada's contribution will add to the technical transfers that XacBank already receives from key existing international investors in TenGer Financial Group LLC.
These investors include the International Finance Corporation and the European Bank for Reconstruction and Development. Both have contributed in areas like governance and microfinance.
XacBank LLC, headquartered in Ulaanbaatar, reported total assets of MNT1.9 trillion (US$1.0 billion) at end-September 2015.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
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