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Mongolia’s Financial Institution Security Measures Under Scrutiny

Ulaanbaatar, Mongolia - As Mongolia’s financial sector continues to grow, concerns over security measures have come under increased scrutiny. The country’s 14 commercial banks, 188 non-bank financial institutions (NBFI), and 207 savings and credit cooperatives (SCCs) are working to maintain stability in the face of a turbulent banking history.

Regulatory Measures

According to recent data, the minimum capital requirement for commercial banks stands at MNT 8.0 billion ($6.4 million), as ordered by the Bank of Mongolia. Non-performing loans with arrears in principals as a percentage of total outstanding loans declined to 17% in Q3 2010 from 25% in November 2009.

Despite this progress, general levels of non-performing loans remained high throughout 2010, and real interest rates plummeted, resulting in negative returns on depository accounts due to inflationary pressure. Bank lending has become more concentrated, with around 50 largest borrowers accounting for approximately 30% of total loans or $690 million.

Deposit Growth

MNT deposits continued to rise, reaching $1.3 billion in mid-2010 (51% increase year-over-year), despite falling real interest rates on deposits, owing to the Deposit Guarantee law and greater currency appreciation expectations. Nominal interest rates on lending and borrowing remained high as banks struggled with liquidity problems.

Supervision and Regulation

The Bank of Mongolia, Financial Stability Council, and Financial Regulatory Commission are responsible for maintaining financial stability and supervising the financial sector in Mongolia. The Supervision Department has been working to reduce financial risks by implementing a new banking law and establishing arrangements for:

  • Consolidated supervision
  • Information technology inspection
  • Proper management monitoring
  • Amendments on supervisory regulations

Future Outlook

The demand for credit is expected to increase significantly over the next five years as greater capital needs spread across all sectors of the economy. The Deposit Guarantee Law has been amended, pledging no longer unlimited, further highlighting the need for strengthened financial institution security measures in Mongolia.

Conclusion

With growing concerns over the country’s banking sector, officials are working to address fundamental weaknesses and ensure the long-term stability of the financial system.