S&P Global Ratings has assigned Arig Bank LLC long-term and short-term issuer credit ratings of 'B-' and 'B', respectively, with a Stable Outlook on the long-term rating. The ratings reflect the bank’s small but growing market presence, particularly in SME lending, while rapid business growth, limited risk-management track record, and a small deposit franchise remain key credit constraints.
Growing SME Franchise Amid Credit Risks
Arig Bank’s market share increased to approximately 1.0% of Mongolia’s system loans and deposits at end-2024, from around 0.2% and 0.1%, respectively, at end-2021. The bank remains focused on SMEs and small businesses, particularly in wholesale and retail trade, and may collaborate with Nomin to expand its customer base.
However, S&P expects rapid business growth to test the bank’s ability to manage credit risks. Arig Bank’s gross nonperforming assets ratio was approximately 9.5% at end-2024, down significantly from 61.9% at end-2021, but remained above the domestic commercial-bank average of around 6.0%. The bank’s earnings also remain volatile, with a MNT4.9 billion net loss in the first half of 2025, primarily due to provisions related to unsecured digital retail loans.
Moderate Capitalization and Funding Constraints
S&P expects Arig Bank’s capitalization to remain moderate over the next 12–18 months, with loan growth likely slowing to 30%–40%. Its regulatory Tier 1 capital ratio stood at 23.6% at end-June 2025, above the 9% minimum requirement, while S&P forecasts its risk-adjusted capital ratio at 5%–6% over the next 12–18 months.
The bank’s small deposit franchise constrains its funding capability. Term deposits accounted for approximately 84% of customer deposits at end-2024 and are predominantly short-term, creating some maturity mismatches against longer-tenor loans. Nevertheless, broad liquid assets covered short-term wholesale funding by 1.6x at end-2024.
Stable Outlook and Rating Sensitivities
The Stable Outlook reflects S&P’s expectation that Arig Bank’s asset quality and profitability could face some pressure over the next 12–18 months, even as industry risk in Mongolia’s banking system eases through improved regulatory supervision.
A downgrade could occur if Arig Bank’s financial performance weakens relative to domestic peers, asset quality deteriorates significantly with rising credit losses, or funding and liquidity risks increase. An upgrade could result if the bank strengthens capitalization and sustains its RAC ratio above 7%, although S&P considers this unlikely over the next 12–18 months.
CMM Perspective
S&P’s 'B-/B' ratings reflect Arig Bank’s growing but still small market presence, with its credit profile constrained by rapid loan growth, limited risk-management experience, volatile earnings, and a relatively small deposit franchise.
For investors, the key areas to monitor are the sustainability of loan growth, asset-quality performance as the loan book seasons, credit losses from digital retail lending, capitalization, and the bank’s ability to strengthen its funding base.
