Mongolia Enacts Amendments to Banking Law: A Step Towards Decentralization and Financial Market Development
The Mongolian Parliament has recently enacted amendments to the country’s banking law, aimed at decentralizing commercial bank ownership and promoting financial market development.
Key Changes in the Banking Sector
The amendments introduce several key changes to the banking sector, including:
- New Approach to Defining Systemically Important Banks: The Bank of Mongolia (BoM) is now authorized to determine which banks meet this criteria based on a range of factors including assets, debt ratio, and relevance in the financial system.
- 20% Ceiling Limit on Individual or Joint Shareholding: Commercial banks must meet this requirement by December 31, 2023, and are prohibited from creating security interests over their shares.
Reorganization Plans
Banks are required to submit reorganization plans to the BoM and Financial Regulatory Committee (FRC) by July 1, 2021, which will be reviewed and approved before implementation. The changes aim to lead to further development of the securities market in Mongolia.
Changes to Ranking of Creditors’ Claims
The amendments introduce changes to the ranking of creditors’ claims in the event of a bank’s liquidation. The expanded list includes new rankings for:
- Employee compensations
- Uninsured savings accounts
- Government claims
These changes are seen as a significant step towards increasing retail and corporate customer confidence in the banking sector.
Implementation and Collaboration
The successful implementation of these amendments will depend on close collaboration between the BoM, FRC, and banks themselves. The expanded ranking of creditors’ claims is expected to lead to further development of the securities market in Mongolia.
Timeline:
- February 25, 2021: Amendments take effect
- June 30, 2022: Commercial banks must operate as joint stock companies
- December 31, 2023: Banks must meet 20% ceiling limit on individual or joint shareholding
- July 1, 2021: Banks required to submit reorganization plans to BoM and FRC