Khan Bank
From Mongol Studies Online Reference
| Khan Bank LLC | |
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| Formation | 1991 (as "Agricultural Bank of Mongolia") |
| Type | Limited Liability Company |
| Purpose/focus | Banking |
| Headquarters | Ulaanbaatar, Mongolia |
| Chairman CEO |
Hideo Sawada J. Peter Morrow |
| Staff | Approx. 3,000 |
| Website | www.khanbank.com |
Khan Bank, based in Ulaanbaatar, is the most profitable bank in Mongolia and the leading lender in the country.[1] Each of the 21 regional offices throughout Mongolia supervise an additional 15 to 25 smaller offices in its area and serve the banking needs of a community of 15,000 to 60,000 people. Khan Bank currently has 3560 employees and a network of 466 offices (318 of which are linked online).[2]
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[edit] Corporate History
Khan Bank was established in 1991 as an Agricultural Cooperative Bank with the goal of providing assistance to the agricultural sector. For many years, it had been insolvent and in a worsening financial condition as a result of inherited loans from the former State Bank, poor lending practices, weak management and a lack of effective internal control.[3]
As a result of a restructuring plan employed by USAID, the World Bank, the Government, among others, the Government again became the sole owner of the Bank. USAID provided funds for an outside management contract, while the Government agreed to give the outside manager full authority to manage the institution free from any interference. Development Alternatives, Inc. (DAI) of Bethesda, Maryland, USA, agreed to manage the Bank. In July 2000, a team led by current Chief Executive Officer J. Peter Morrow arrived in Mongolia.
The Bank was breaking even after four months and thereafter began to generate profits. In 2003, H.S. Securities of Japan was the highest bidder for the Bank at US$6.85 million and retained DAI to continue to provide management to the Bank.[4]
[edit] Corporate Products
Khan Bank’s current credit and deposit products are customized to respond to the specific changes to the market and are diversified by geographic area.
According to a survey by the Bank of Mongolia, 15 percent of the population had an active micro loan from a regulated lender in 2002, compared to 1 percent in 1998. Of Mongolia’s 16 major banks, only three—Khan Bank, Post Bank, and XAC Bank have a significant rural presence, and of the three Khan Bank has the largest rural branch network in the country.
There are several factors contributing 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, like Khan Bank, have been able to profitably enter the rural microfinance market.[5]
Khan Bank has introduced various loan products according to the following schedule:[6]
- 2001 – Salary Loans
- 2002 – Pensioner Loans
- 2002 – Herder Loans
- 2002 – Business Term loans
- 2003 – Agricultural Loans
- 2004 – Mortgage Loans
- 2004 – Leasing Loans (Consumer Finance)
- 2005 – Corporate Loans
The Bank's total loan portfolio increased by MNT 244 billion in 2007 to MNT 483.5 billion; this represented a 102 percent increase from the previous year. Business loans increased by MNT 125.1 billion (122%); corporate loans increased by 41.3 billion (212%); consumer loans increased by MNT 82.4 billion (114%); mortgage loans increased to 62.1 billion (100%); and herder and agricultural loans increased by MNT 36.8 billion (57%). Furthermore, the non-performing loan ratio decreased to 1.59 percent from 2.1 percent.[7] Khan Bank's herder loans were formed to meet the distinctive needs of nomadic Mongolian herders. These loans are available for terms of up to a year and assist herders with living and operating expenses in the months when they are not generating income or to purchase herd-related goods. These loans are often tied to cash flows coming from cashmere shearing or slaughter of livestock. Typically, livestock is used as collateral; thus failure to pay these loans would possibly result in a removal of their herd.[8]
The minimum amount of a micro express loan is MNT 100,000, while the maximum is MNT 2,000,000 for ordinary borrowers and MNT 5,000,000 for preferred customers. This loan is available for terms of up to 12 months at a 27.6% interest rate (2.3% monthly). Herder and agricultural loans are available for terms of up to 12 months. Agricultural loan amounts vary between MNT 100,000 and 5,000,000, while herder loans vary by livestock ownership: MNT 5,000,000 for herders with below 350 animals, MNT 5,000,000 to 8,000,0000 for herders with 350 to 1000 animals and MNT 8,000,000 to 10,000,000 for herders with over 1000 animals.[9] Apart from its micro and small business products, Khan Bank has expanded to medium enterprise, pensioner, payroll deduction, agricultural loans, and mortgage loans.[10] Although Khan Bank introduced ATM service in 2007, it now operates 55 ATM's (including 26 in rural areas), forming the most extensive ATM network in Mongolia. The success of automatic queuing machines for teller services installed at five rural branches has led to more being installed in other rural branches in 2008. The Bank also opened internet cafes in nine soums, bringing the number of Khan Bank Internet Cafes to 13.[11]
The primary challenges that Khan Bank faces is to turn all its branches and sub-branches to the online management information system in a cost-effective manner and to bring in additional capital to accompany the growth of the Bank.[12]
[edit] References
- ↑ Khan Bank. (2006). Annual Report. Retrieved on 2008-06-24
- ↑ Khan Bank. Annual Report 2007. Retrieved on 2008-08-04.
- ↑ Oyunjargal, Tsendbazar & Oyunjargal, Tsendbazar. 2002. Sub-Sector Review of Micro-finance in Mongolia. UNDP Mongolia. Retrieved on 2008-06-24
- ↑ Gutin, John. 2005. Khan Bank, The Agricultural Bank of Mongolia. USAID - U.S. Agency for International Development. Retrieved on 2008-06-24
- ↑ Gutin, John
- ↑ Morrow, J. Peter. [siteresources.worldbank.org/FSLP/Resources/khanbank.ppt "Khan Bank of Mongolia: SME Lending."] World Bank Workshop on SME Finance, Dar-es-Salaam, Tanzania. 26-27 June 2007.
- ↑ Annual Report 2007.
- ↑ Brooke, James & Byambasuren, Jargal. "In Mongolia, a Tilt Toward a Free Market", The New York Times, 21 October 2003. Retrieved on 2008-06-24
- ↑ Khan Bank. Khan Bank Loan Products. Retrieved on 2008-08-04.
- ↑ Gutin, John
- ↑ Annual Report 2007.
- ↑ Serres, Philippe & Gutin, John. Khan Bank: Mongolia–August 2006, Planet Rating: The Global Microfinance Rating Agency, August 2006. Retrieved on 2008-07-08.
