Moody’s Affirms State Bank at ‘B1’ with Stable Outlook, Citing Strong Capital and Funding
Moody’s Ratings affirmed State Bank JSC’s long-term foreign and local currency deposit ratings at ‘B1’, along with its ‘b2’ Baseline Credit Assessment (BCA) and Adjusted BCA. The outlook remains Stable.
The affirmation reflects State Bank’s strong capitalization and funding profile, supported by its retail deposit franchise and Mongolia’s second-largest branch network, balanced against weak asset quality and lower operating efficiency than domestic peers. Its tangible common equity to risk-weighted assets declined to 16.5% at end-2025 from 18.7% due to 23% loan growth, while its Tier 1 capital ratio stood at 15.8% at end-June 2026. Deposits accounted for around 70% of total liabilities, and the bank’s USD 300 million three-year bond issued in September 2025 improved funding diversification, with currency risk fully hedged through Bank of Mongolia swap facilities.
Asset quality is expected to remain weak, although the problem loan ratio fell to 4.7% at end-2025 from 6.0% in 2024 and 9.2% in 2023. Key risks include the bank’s herder loan portfolio, which exceeds a quarter of gross loans, and unseasoned consumer loans from rapid growth in 2024-25. Profitability improved, with annualized net income to tangible assets rising to 1.8% in 1H 2026 from 1.4% in 2025, driven by low-cost current deposits growing to nearly 40% of total deposits. Liquidity remains moderate at 19.8% of tangible banking assets, lower than most peers due to a larger allocation to government securities and central bank bills.
The ‘B1’ rating incorporates a one-notch uplift for government support, reflecting State Bank’s government ownership and status as a domestic systemically important bank. As the rating is at the sovereign level, an upgrade is unlikely without a sovereign upgrade. The BCA could be upgraded if net income to tangible banking assets exceeds 2%, problem loans fall below 5% and liquidity rises above 25% on a sustained basis, while it could be downgraded if capital falls below 13% or problem loans exceed 8%. As of end-2025, State Bank reported total assets of MNT 6.7 trillion (USD 1.9 billion) and shareholders’ equity of MNT 682 billion.
CMM Perspective
Moody’s affirmation highlights State Bank’s solid capital buffer and deposit-driven funding base, with rising current deposits supporting improved profitability. However, rapid loan growth is gradually eroding capital headroom, and the bank’s large herder exposure leaves it more vulnerable to weather-related shocks than its peers. Key factors to monitor include capital levels as lending expands, credit costs from herder and consumer portfolios, and progress in improving operating efficiency.
