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- Depository Insurance: MNT 20,000,000
- Income Tax: 10%
- Corruption Index: 80
- Peace Index: 41
- Date Modified: Jul-2015
Syndicated Analyses:Moody's Corporation "Moody's assigns B2 global local currency long-term deposit rating to Golomt Bank" 20-May-2015:
Mongolian banks face a very challenging operating environment, due to the small size of the economy and the country's low income levels. In addition, Mongolia's institutions are underdeveloped and there is a high susceptibility to event risk, including volatility in commodity prices and exchange rates. Nevertheless, Mongolia's abundant natural resources relative to its population provides it with strong growth potential.Moody's Corporation "Moody's: Mongolia banking system outlook negative; economic pressure rising" 06-Mar-2015:
the negative outlook on Mongolia's banking system -- unchanged since 2013 -- reflects the multiple headwinds that continue to challenge Mongolian banks.
While Mongolia's expanding mining capacity is a main driver in our growth assumption, weak commodity prices and slowing global demand continue to weigh on the outlook for the country's national income and external position
We expect Mongolian banks' credit profiles to suffer broad pressure after a period of rapid policy-triggered credit growth in recent years, which will be reflected in a continued deterioration in asset quality, liquidity and capitalization
looks at Mongolia's banking system in terms of five factors: Operating environment (which is classified as deteriorating); funding and liquidity (deteriorating); asset quality and capital (deteriorating); profitability and efficiency (deteriorating); and systemic support (stable).
Moody's assessment of Mongolia's banks takes into account the consideration that published metrics may not accurately reflects the true financial situation. For example, Moody's estimates that reported capital ratios are overstated by as much as 100 basis points due to regulatory forbearance.Fitch Ratings "Fitch Affirms Mongolia at 'B+'; Outlook Remains Negative" 11-Dec-2014:
Unstable Policy Environment: Prolonged commercial disputes between public officials and Rio Tinto have halted progress on the USD5bn Oyu Tolgoi Phase 2 copper mining project. To counteract the resulting slowdown in economic activity, policy makers have enacted aggressive monetary and fiscal stimulus measures that have had a destabilising effect on the economy. Growth has slowed, inflation has averaged 13.1% in 2014, foreign reserves have fallen by 41% year-on-year, FDI has contracted sharply, and a further 12% depreciation of the domestic currency year-to-date has worsened banking sector asset quality. Weak External Liquidity: Mongolia's stock of foreign reserves is low at USD1.4bn as at end-October 2014, and it has effectively been debt-funded through external bond issuance and a swap arrangement with the People's Bank of China (PBOC). Reserve coverage is weak compared to peers at 2.1 months of current account payments versus the 'B' median of 3.4 months. Fitch believes Mongolia's aggregate external liquidity resources (defined as gross foreign reserve assets plus the estimated undrawn portion of the PBOC swap line) are barely sufficient to meet liquidity requirements over the coming two years, given current trends. - Positive Political Developments: The recent appointment of a new prime minister and the formation of a "super coalition" are broadly positive political developments, which Fitch believes have increased the prospects of a favourable resolution to the Oyu Tolgoi dispute. - High Public Indebtedness: Persistent fiscal deficits and sizeable off-budget spending through the state-owned development bank will result in Mongolia's public debt rising to an estimated 59% of GDP in 2014, significantly in excess of the 'B' median of 43%.
- Favourable Development Prospects: Mongolia's long-term development prospects are supported by its generous endowments of coal, copper, gold, and rare earths, which have been estimated at USD1.3trn. A small population under 3 million also suggests that per capita incomes have the potential to rise dramatically if the country is able to successfully harness its natural resource endowments. - Strong GDP Growth: Mongolia's five-year average real GDP growth of 11.2% is far stronger than the 'B' median of 3.9%. The country also scores above its peer group in many structural features, including governance indicators, savings and investment rates, and per capita incomes.
The Negative Outlook reflects the following risk factors that may, individually or collectively, result in a downgrade of the ratings: - Continued depletion of Mongolia's external liquidity resources. - Emergence of systemic financial stress such as a run on deposits and/or a flight out of the Mongolian tugrik into foreign currency.
Mongolia maintains stable political and economic relations with China, its largest export destination and key provider of its international liquidity resources.Moody's Corporation "Moody's downgrades XacBank; lowers BCA to b3" 30-Oct-2014:
However, Moody's has incorporated one notch of systemic support to its local currency deposit rating of B2, given the proven track record of the Mongolian government in providing support to the depositors of failed banks. This was the case with the failures of Anod Bank (unrated), Zoos Bank (unrated) and Savings Bank (unrated). Moody's expects the government to continue to provide support for deposits at banks considered as of high systemic importance to the economy.Moody's Corporation "Moody's downgrades Mongolia's sovereign rating to B2; outlook negative" 17-Jul-2014:
Moody's Investors Service has downgraded Mongolia's foreign currency government bond rating to B2 from B1. The outlook remains negative.
Moody's decision to downgrade Mongolia is driven by the country's strained external liquidity position, as reflected by a sharp loss in foreign-exchange reserves. Expansionary monetary and fiscal policies have added to demand pressures, fueled inflation, and heightened spillover risks to the banking system and the balance of payments. Accompanied by a continued rise in the external debt burden, these factors increase the country's vulnerability to external and domestic shocks relative to rating peers.
Further ahead, instability in the investment regime threatens to dampen the development of the mining sector. This would have negative consequences on Mongolia's ability to ramp up foreign-exchange export earnings to repay its external debt.
The development of Mongolia's mineral resources will play an increasingly important role in this context. Moody's External Vulnerability Indicator -- which gauges the adequacy of reserves with respect to maturing external debt obligations over the next year -- has risen to an estimated 130% in 2014 and will increase further to 196% in 2015, significantly above a prudent 100% threshold for systems that are heavily dependent on foreign creditors.
The central bank's pursuit of expansionary monetary policies since 2013, including liquidity injections to banks, low-cost mortgage loans, and support to the construction and real estate sectors, has boosted demand. Although it is gradually withdrawing some programs, inflationary pressures continue to build, while credit is still growing at a rapid pace. This increases pressure on the balance of payments, raising the risk of capital flight, and further weakens the external payments position. Given regulatory forbearance in the provision of credit and weakening asset quality, there could also be spillover risks for the banking system.
The negative outlook reflects the risk of: (1) a continuing decline in foreign-exchange reserves that increases Mongolia's vulnerability to external shocks, (2) continued rapid credit growth and persistent inflationary pressures, and (3) sustained fiscal imbalances over the near term through large off-budget spending that would result in a deterioration in debt metrics.Economic Research Institute, National University of Mongolia " 30-Apr-2014:
The stable outlook weighs possible faster improvements in the business environment and fiscal management against potential shocks in external demand and slower-than-expected foreign direct investment inflows.
We lowered the long-term rating on Mongolia to reflect the country's weakened external and debt profiles. Weak inflow of foreign direct investment (FDI) and lower exports contributed to a sharp decline in the country's gross official foreign exchange reserves over the past year. These trends weakened Mongolia's external balance sheet beyond what we had expected earlier, resulting in increased external risk over the next three years and highlighting Mongolia's exposure to shifts in FDI
Mongolia's external risk is high. We project the country's external financial needs to be about 119% of the sum of current account receipts and usable reserves on average over 2014-2016. Mongolia's volatile terms of trade add another layer of external risk to this country, where minerals dominate exports.
We forecast increases in exports and FDI as helping the gross official foreign exchange reserves rebound 50% by 2016 from the end of 2013 and lowering the narrow net external debt gradually to 83% of current account receipts by 2016, from 101% in 2014. Mongolia's governance and policy effectiveness is weak, in our view. The government's more business-friendly investment law approved late October 2013 has been slow in attracting foreign investors, in our opinion, because of Mongolia's past record in policy shifts. However, we believe the government is likely to improve policymaking and implementation over the next three years, which will benefit investments and the economic ties with neighboring countries--Mongolia's key export destinations and sources of FDI.
The government's fiscal flexibility is constrained because of its significant reliance on the volatile mining sector for revenue and the notable shortfall in basic services and infrastructure across the country.
We estimate the country's GDP per capita at US$4,071 in 2013. Mongolia's strong growth potential offsets some of the weaknesses in its sovereign creditworthiness. We expect the long-term trend growth of GDP per capita in Mongolia to be 8.4% in 2014. Mongolia's monetary policy puts economic growth ahead of keeping inflation low, in our view, which limits the country's monetary flexibility for attenuating economic or financial shocks down the road. The parliament can effectively define monetary policy, indicating the central bank's lack of independence. Inflation in 2013 exceeded the central bank's target of 8%. We expect inflation to be about 10% over the next three years.
We estimate the net general government debt to be about 37% of GDP at the end of 2014, gradually improving to about 34% by 2016
Our local currency rating on Mongolia is equal to the foreign currency rating, because of the central bank's lack of independence in its monetary policy.Wikileaks Public Library of US Diplomacy "Central Bank Head: Mongolia Not Threatened By Asian Market Downswings" 27-Aug-2007:
Mongolia is home to 17 banks, most concentrated in Ulaanbaatar and many believed to be on shaky financial ground.Wikileaks Public Library of US Diplomacy "Financial "Mongol-Philia": An Investment Debutante Emerges On The International Stage?" 12-Feb-2007:
Mongolia has recently become a minor investment "phenom" among the Pacific Rim investment community. One local bank has gone from being unable to get long-term debt-financing to having access to more than it can use, for example. The odd handful of Mongolian IPO's and bond issues are now hot prospects for JP Morgan, Citibank, and Dutch ING. Experienced and reliable Mongol hands attribute this new found passion to the fact that mining giant Rio Tinto made a US$300 million buy-in investment into the Mongolia mining sector, a move interpreted as a financial housekeeping seal of approval for this developing nation.Wikileaks Global Intelligence Files "Mongolia: Government Plans Bank Bailout" 28-Oct-2008:
Mongolia is planning a bailout of its banks that could cost $500 million to $600 million, Reuters reported Oct. 28, citing comments from the former governor of Mongolia's central bank. O Chuluunbat told Reuters that the government and parliament are considering "whether it is the right time for us to take action to rescue the commercial banks," many of which have frozen mortgage lending for several months. The bailout would target "maybe three or four large banks where the most of these mortgage loan packages are placed," Chuluunbat said, declining to name specific banks. Mongolian Finance Minister S. Bayartsogt told Reuters that all commercial banks in the country have fulfilled the central bank's requirements, but the government might need to take action to prevent the spread of rumors about the banks' soundness.Wikileaks Global Intelligence Files "A giant leap for Mongolia, but where to?" 26-Aug-2009:
Investors in Mongolia are jubilant after parliament put an end to years of debate on Tuesday, passing a package of laws that could turn the poor agrarian country into a powerhouse of mining and resources. To some, the vote has unlocked the door to economic growth that will turn Mongolia into Dubai within a decade. To others, the task of turning a rich land into a rich population is one that is fraught with pitfalls, and the journey has only begun. "Predicated on this decision, Mongolia will generate the highest rate of growth of GDP of any country in the world over the next 10 years, surpassing that of Qatar, which had fulfilled that role over the past decade and a half," said John Finigan, CEO of Mongolia's Golomt Bank. "This is transformational." Mongolia's potential as an Asian tiger is not immediately apparent from its broken down and dusty capital, ringed by a city of tents, or its endless grasslands and deserts. But on paper at least, the path out of poverty is clear, now that parliament has unblocked foreign mining investment with a landmark agreement on Oyu Tolgoi, Ivanhoe Mines' (IVN -news) huge copper and gold project.
As well as copper and gold, Mongolia has huge potential in uranium and coking coal, a high grade fuel that is in short supply in neighbouring China, where demand from steelmakers has sent volumes of shipments from Australia rocketing this year. The World Bank estimates that by 2015, mines in southern Mongolia could be exporting enough coking coal to satisfy Chinese demand of about 20 million tonnes a year, with overall coal exports of 45 million tonnes, up from about 5 million tonnes now. Coking coal could bring in revenues of $2 billion and thermal coal another $1 billion, on top of the $2.3 billion a year from Oyu Tolgoi's output of 2 million tonnes of 30 percent copper concentrate, the bank estimates. Government revenues could swell further from gold, uranium and even oil.