Bank governance, foreign banks and resolution

There is a need to strengthen the framework for improving bank governance by consistently implementing measures to reduce concentration of bank share ownership; enhance competition in the banking sector through the establishment of a legal framework for foreign banks; strengthen mechanisms for safeguarding financial stability and protecting depositor interests by ensuring the timely and effective implementation of resolution and liquidation measures prescribed under the Law on Banking for insolvent banks or banks that fail to meet regulatory capital requirements; and align the financial system with international standards through a comprehensive assessment of systemic risks and vulnerabilities under the Financial Sector Assessment Program (FSAP).

The Bank of Mongolia has been implementing measures aimed at reducing ownership concentration among bank shareholders, improving corporate governance, and establishing a legal framework to facilitate foreign investment in the banking sector. In this regard, amendments to the Banking Law were adopted in 2021 to enhance governance, transparency, and public participation in the banking sector. These amendments require systemically important banks to become publicly listed companies and other banks to operate as joint-stock companies, while limiting individual shareholding concentration to no more than 20 percent. Pursuant to these requirements, systemically important banks conducted public offerings of their shares, resulting in the banking sector having more than 84,000 shareholders as of 2025.

However, the limited size and liquidity of the domestic capital market, together with constrained investor demand, continue to pose challenges to reduce ownership concentration within a brief period. To fully comply with the 20 percent ownership cap, banks would need to offer approximately MNT 3.4 trillion worth of shares to the market. This amount is substantial relative to the overall market capitalization and could, if introduced within a short timeframe, adversely affect banks' market valuations, capital adequacy, and overall financial stability.

Accordingly, there is a need to implement shareholder concentration requirements in a phased manner that reflects market conditions, while also creating a more conducive legal environment for greater participation by foreign and strategic investors. This includes reviewing the maximum shareholding threshold and the definition of a significant shareholder, encouraging the participation of international and multilateral financial institutions, and enabling the listing of bank shares on foreign stock exchanges. The Bank of Mongolia will continue its efforts to reduce ownership concentration among bank shareholders, which is expected to improve governance and asset quality, strengthen banks’ resilience over the medium and long term, and attract reliable long-term investors.

As part of the amendments to the Law on Banking accompanying the Law on Economic Freedom, adopted by Parliament in July 2026, foreign banks operating abroad and establishing a banking subsidiary in Mongolia are exempted from the 20 percent shareholding limitation stipulated in Article 36.1 of the Banking Law. Reflecting this amendment in the relevant regulations issued by the Bank of Mongolia will facilitate the entry of foreign banks into Mongolia and increase foreign investment in the domestic financial sector.

Furthermore, there is a need to enhance the framework for identifying risks not only at the individual bank level but also across the financial system as a whole, detecting systemic risks arising from changes in macroeconomic and financial conditions, assessing the resilience of the banking sector through stress testing, and strengthening crisis preparedness and response mechanisms. Participation in the Financial Sector Assessment Program (FSAP) conducted by international institutions would facilitate an independent assessment of the financial system, help identify regulatory gaps and reform priorities, and support further alignment with international standards.

Under the Bank of Mongolia Medium-Term Strategy (2026–2030), particularly the strategic objective of strengthening financial stability and data-driven supervision, the following priorities have been identified:

• Reduce concentration of bank ownership.
• Improve regulations governing the entry and operation of foreign banks.
• Strengthen the bank resolution framework.
• Participate in the Financial Sector Assessment Program (FSAP).

Key measures include:

• Developing legislative proposals to limit ownership concentration to no more than 34 percent for publicly listed banks and 51 percent for privately held banks, and submitting such proposals to the legislative initiators.
• Developing legal amendments that provide flexibility for multilateral international financial and development institutions of which Mongolia is a member.
• Improving the legal and regulatory framework governing the operations of foreign banks in Mongolia.
• Strengthening the bank resolution framework.
• Participating in international financial sector assessments.

• Strengthening bank governance and ownership structure

Corporate governance and ownership structures will be improved by implementing the legal requirements for reducing ultimate ownership concentration in a manner that avoids disruption to financial stability. A flexible transition period extending through 2029 will be pursued, while simultaneously refining regulations governing the entry of foreign banks into the domestic market.

Specific measures include:

• Obtaining implementation plans from banks on compliance with statutory ownership limits and monitoring their implementation.
• Submitting proposed amendments to the Banking Law that revise ownership limits and establish a regulatory framework for foreign banks.
• Enhancing supervisory regulations in response to improvements in the legal framework governing foreign banks and their branches, and promoting investment in the financial sector through the following actions:
• Entering into memoranda of understanding and cooperation agreements with home-country supervisory authorities of foreign banks regarding supervision and enforcement actions.
• Establishing a legal framework for coordinated supervision, resolution, and liquidation measures.
• Strengthen the bank resolution framework

The regulatory and legal framework governing bank resolution and intervention in distressed banks will be aligned with internationally accepted principles and standards through amendments to relevant laws and regulations.

Measures include:

• Developing, approving, and implementing necessary amendments to legislation and regulations.
• Taking timely and effective remedial actions for troubled or financially distressed banks in accordance with applicable laws.
• Reducing risks arising from bank distress by accelerating asset recovery and ensuring prompt reimbursement to depositors during the resolution process.
• Participate in the financial sector assessment program (FSAP)

A comprehensive assessment of financial system risks will be undertaken through participation in the FSAP.

The Bank of Mongolia will:

• Complete preparatory work during 2027–2028.
• Plan for implementation of the assessment by the International Monetary Fund (IMF) and/or the World Bank during 2029–2030.
• Continue efforts to secure participation in the program at the earliest possible opportunity.

Specific measures include:

• Completing all preparatory requirements for FSAP participation.
• Conducting assessments of financial sector supervision, regulation, systemic risk management, and crisis management frameworks during 2029–2030.
• Developing and implementing action plans to address regulatory, institutional, and implementation gaps identified by the FSAP.
• Utilizing FSAP findings as a foundation for future reforms in banking supervision, macroprudential policy, and financial stability policy.

Reduced concentration of bank ownership and ownership-related risks will strengthen corporate governance, transparency, accountability, and internal control systems within banks, thereby enhancing their capacity to manage risks effectively.

Establishing a legal framework for foreign banks will facilitate greater foreign investment in Mongolia’s financial sector. The entry of foreign banks into the domestic market will promote the transfer of international best practices and banking expertise, improve competitiveness, and enhance the stability of the banking and financial sectors.

Participation in the Financial Sector Assessment Program (FSAP) is expected, over the medium term, to identify key risks and regulatory and implementation gaps in financial regulation, supervision, systemic risk management, stress testing, and crisis management frameworks. Addressing these shortcomings through targeted reforms will strengthen the resilience of Mongolia’s financial system against future crises.