Asset management and non-performing loans

As of August 2026, non-performing loans (NPLs) in the banking sector totaled MNT 2.3 trillion, representing 5.1 percent of total loans. Court-based recovery of non-performing loans takes an average of 6.2 years. Such prolonged recovery periods tie up bank resources, increase the costs and risks associated with lending and constrain the availability of new credit. The accumulation of non-performing assets, coupled with an inefficient and protracted resolution framework, has also contributed to delays in resolution and liquidation pf insolvent banks. Mongolia has yet to establish a comprehensive framework, aligned with international standards and good practice, for resolving non-performing assets, removing them from bank balance sheets where appropriate, and restoring their productive use in the economy. Nor does Mongolia have a specialized asset management company (AMC) mandated to manage and resolve such assets on a professional basis. These institutional and legal gaps impede the effective resolution of non-performing assets and the reduction of associated financial-sector risks.

Bank of Mongolia’s Medium-Term Strategy (2026–2030) identifies the reduction of non-performing assets and the establishment of a legal framework for an AMC as key policy priorities. The strategy envisages the following measures:

• Determining the appropriate institutional and operational model for an AMC based on a comprehensive study and preparing a draft law to establish its legal framework.
• Linking the resolution of non-performing assets to an assessment of asset quality. An independent asset quality review (AQR) of the banking sector will be undertaken to identify any previously unrecognized non-performing exposures. Subject to the findings of the review and the applicable legal and prudential requirements, measures to restructure and, where appropriate, transfer eligible assets to the AMC will be implemented in phases over the medium term.

• The legal and institutional framework for resolving non-performing assets will be reformed in line with international good practice, with a view to ensuring that such assets are managed and resolved in a timely, transparent and independent manner. A draft Law on Asset Management Companies will be prepared as the principal legislative instrument, together with consequential draft amendments to the Civil Code, the Law on Civil Procedure, the Law on Enforcement of Court Decisions and other relevant legislation governing the out-of-court enforcement of obligations and the realization of collateral. The draft legislation will be submitted to the entities constitutionally authorized to initiate legislation.
• The Regulation on the Classification of Assets and the Establishment and Use of Provisions for Loan Losses will be reviewed and, where necessary, amended to clarify the circumstances and conditions under which assets may be written off without a court decision, in accordance with applicable accounting standards and prudential requirements. Banks will be required to submit non-performing loan reduction plans containing measurable targets, and implementation of those plans will be subject to systematic monitoring.
• The Bank of Mongolia will work with the Government to establish the legal framework for a specialized National Asset Management Company (AMC). The proposed framework will provide for the acquisition, management, restructuring and disposal of eligible non-performing assets, with the aim of maximizing recoveries and restoring asset value where feasible. It will also define the AMC’s governance arrangements, mandate, powers, operational scope and accountability requirements.

The transfer, where appropriate, of non-performing loans and related collateral from bank balance sheets to a specialized institution, followed by their effective management and resolution, is expected to release capital and operational capacity for productive lending, subject to the applicable accounting and prudential treatment of such transfers. Banks’ operating and provisioning costs are expected to decline, and a secondary market for non-performing assets is expected to develop, supported by transparent and competitive mechanisms for the valuation, sale and transfer of such assets, including digital platforms where appropriate. This could contribute to a gradual reduction in lending rates over the medium term, provided that the resulting efficiencies are passed through to borrowers and other macroeconomic and market conditions are supportive. Credit to the real sector is expected to expand, improving businesses' access to finance. A functioning framework for resolving non-performing assets should also strengthen the resilience of banking systems and reduce the fiscal and economic costs associated with future financial distress.