Banking Sector

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Between 1928 to 1991, Mongolia had a central banking system, under which all commercial activities were carried out by the State Bank of Mongolia. Only state enterprises and government agencies were allowed to have savings accounts and receive credit.[1]

According to the Ministry of Industry and Trade, a bank


"is a for profit legal entity which has the paid in capital consisted of cash funds invested by shareholders and the shareholders of which bear financial liability to the extent of their invested capital and is engaged in financial intermediary services such as accumulating as deposits cash funds of others, extending loans on its own behalf and providing current account services with the special permission of the Bank of Mongolia."[2]


A bank could be state, jointly, or privately owned. It could also be a joint-stock or limited liability company, as well as a general or specialized bank.

A commercial bank is defined as one that is less than 51 percent controlled by the government, while a government-controlled bank is one that is at least 51 percent controlled by the Government of Mongolia and is barred from partaking in activities that may create market distortions. A specialized microfinance bank is one that has a limited license to participate in a number of financial services designed for the low-income community

Upon receiving authorization from the Bank of Mongolia, a bank is allowed to accept deposits; disburse loans; offer transaction services and guaranties to third parties; buy, sell, and issue securities; offer financial consultancy services, among other things.

A bank must comply with the regulations set by the Bank of Mongolia with respect to compulsory and liquid reserves, as well as capital adequacy, loan loss provisioning, and other foreign currency. It cannot restrict customers from using other banks’ services or make transactions from the customer’s account, without his or her consent. The bank must also provide its customers with correct and accurate information regarding its activities. Furthermore, the total value of loans, loan equivalent assets and guarantees provided to one person or a group of related people cannot exceed 20 percent of the bank's capital.[3]

Of Mongolia’s 16 major banks, only three—Khan Bank, Mongol Post Bank, and XacBank—have a significant rural presence, and of the three Khan Bank has the largest rural branch network in the country.[4]

Several factors contribute to the lack of rural presence by the banking sector. For instance, Mongolia’s low population density and levels of rural economic activity contribute to a dispersed and uneven demand for financial services. Furthermore, rural financial service providers have to deal with seasonal fluctuations in demand, little collateral, and the costs associated with serving low-density rural areas, which explains why banks with existing infrastructure have been able to profitably enter the rural microfinance market.[5]

And although the majority of the rural population lives in the soum centers, branches, with the exception of three large soums, are generally established in aimag centers, due to limited economies of scale, high transaction costs, technical difficulties, and lack of qualified employees to serve as staff. Typically, to remain solvent a branch needs to operate in an area with a population of at least 10 to 20 thousand, though the average soum population is 2500.[6]

In order to reach these clients, banks such as XacBank have been trying several approaches including a mobile banking program, in which a crew from the aimag center visits the soum center once or twice a month to review and approve loans.[7] The bank is also considering a soum-based Savings and Credit Cooperative (SCC) that, other than technical and operational support from XacBank, is operated by the local community,[8] and has announced plans to begin a mobile phone banking program.[9]

Contents

[edit] Financial data

As of December 2007, total assets of the banking sector reached MNT 3383.9 billion, increasing by MNT 1068.2 billion or 46 percent from the previous year.

Total loans outstanding also reached MNT 2098.7 billion, increasing by MNT 875.4 billion (68.1 percent) from 2006 (See Table 1). Non-performing loans dropped by 1.6 percent to MNT 67.7 billion, now representing 3.3 percent of total loans. Savings and time deposits of various individuals, companies, and other entities reached MNT 890.6 billion, increasing by 60.8 percent.[10]

Table 1: Loans Outstanding (in million togrogs)[11]
Banks 2004 2005 2006 2007
Anod Bank 101 716.4 93 816.9 120 855.0 143 329.6
Capital Bank 8 764.6 15 527.8 22 804.7 33 125.0
Capitron Bank 20 788.7 27 922.8 28 448.2 69 306.5
Chinggis Khaan Bank 40 111.7 39 838.9 46 206.7 74 614.5
Credit Bank 8 705.4 10 575.4 8 582.2 5 531.1
Erel Bank 4 965.4 4 774.8 8 481.2 6 949.8
Golomt Bank 96 608.7 135 964.2 184 906.9 329 356.6
Khan Bank 81 074.6 134 355.7 238 986.5 476 778.1
Mongol Post Bank 42 769.0 62 072.3 91 993.7 161 432.9
National Investment Bank NA 976.8 7 562.2 10 138.3
Savings Bank 21 131.7 24 664.4 29 755.6 43 308.1
Trade and Development Bank 92 569.5 148 617.5 219 179.2 349 705.9
Transport Development Bank 7 312.8 4 794.6 6 679.7 6 631.8
Ulaanbaatar City Bank 13 021.6 49 725.0 66 113.3 99 042.5
XacBank 20 313.6 38 077.9 59 813.0 100 683.1
Zoos Bank 38 109.7 62 034.4 82 919.1 146 127.2
Total 606 798.6 606 798.6 1 223 287.3 2 056 060.8

Source: 2007 Statistical Yearbook

[edit] Banks Operating in Mongolia

[edit] Further Reading

Banking Law of Mongolia- published by the Ministry of Industry and Trade

[edit] References

  1. ↑ Goyal, Hari D. “A Development Perspective on Mongolia.” Asian Survey 39.4 (Jul. - Aug., 1999): 633-655.
  2. ↑ “Banking Law of Mongolia.” Ministry of Industry and Trade. Retrieved on 2008-07-24
  3. ↑ “Banking Law of Mongolia.”
  4. ↑ Gutin, John. 2005. Khan Bank, The Agricultural Bank of Mongolia. USAID - U.S. Agency for International Development. Retrieved on 2008-06-24
  5. ↑ Gutin, John.
  6. ↑ Hishigsuren, Gaamaa. 2006. Information and Communication Technology and Microfinance: Options for Mongolia. Asian Development Bank. Retrieved on 2008-07-22
  7. ↑ Hishigsuren, Gaamaa.
  8. ↑ XacBank. XacBank History. Retrieved on 2008-07-07
  9. ↑ Hishigsuren, Gaamaa.
  10. ↑ Anod Bank. Anod Bank 2007 Annual Report. Retrieved on 2008-07-28.
  11. ↑ 2007 Statistical Yearbook of Mongolia. National Statistics Office of Mongolia.
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