Mongolia’s Banking Regulations Under Fire: Independent Evaluation Reveals “Less Than Successful” Outcome

A recent independent evaluation has cast a shadow over Mongolia’s banking regulations, citing a “less than successful” outcome for the country’s financial sector development program. The assessment comes as no surprise given the nation’s tumultuous history of financial crises and economic instability.

Challenges in Financial Sector Development

Since transitioning from a monobanking system to a two-tiered model in 1991, Mongolia has faced numerous financial crises, including those in 1994, 1996, and 1999. The global financial crisis of 2008 only added to the country’s woes, prompting the government to seek assistance from the International Monetary Fund (IMF). The IMF standby arrangement ended in October 2010.

Support from the Asian Development Bank

The Asian Development Bank (ADB) has provided significant support to Mongolia’s financial sector development through loans and technical assistance. However, despite these efforts, the country’s financial system remains fragile, with a history of illiquid and insolvent banks.

Shortcomings in Banking Sector Regulation and Supervision

The independent evaluation cites several areas where the program fell short, including:

• Inadequate regulation and supervision of the banking sector
• Limited access to credit for small and medium-sized enterprises (SMEs)
• Insufficient development of alternative financial channels

Lessons Learned and Recommendations

The report concludes that the program’s overall assessment is “less than successful,” with lessons learned and recommendations put forth for future improvement.

A Wake-Up Call for Policymakers

The findings of this evaluation come as a wake-up call for Mongolia’s policymakers, who must now take decisive action to address these weaknesses and ensure a more stable and resilient financial system.