Financial Sector Structure And Authorities Responsible For Financial Stability

Financial Sector Structure

The Mongolian financial sector consists of 14 commercial banks, 188 nonbank financial institutions (NBFI), and about 207 savings and credit cooperatives (SCCs). The banking sector, which dominates the financial sector, underwent several crises in the 1990s. Following the severe banking crisis of 1998-1999, the Government implemented measures to restructure ailing banks, privatize major banks, improve the Bank of Mongolia’s ability to enforce compliance with prudential regulations, and strengthen market discipline and incentives for sound bank management.

The following is the Executive summary for the Mongolian banking sector as of January, 2011 compiled by Resource Investment Capital:

  • The minimum capital requirement for commercial banks ordered by the Bank of Mongolia is MNT 8.0 billion ($6.4 million).
  • In Q3 2010 non-performing loans with arrears in principals as percentage of total outstanding loans declined to 17% from 25% in November 2009.
  • General levels of NPLs were considerably high throughout 2010.
  • Real interest rates plummeted, resulting in negative returns, especially on depository accounts, due to inflationary pressure.
  • Bank lending more concentrated, with around 50 largest borrowers accounting for approximately 30% of total loans or $690 million.
  • MNT deposits continued to rise reaching $1.3 billion in mid 2010 (51% increase yoy), 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 needed capital due to liquidity problems.
  • Business activities increased in 2010; nevertheless, coping with the fundamental weaknesses of the banking sector in Mongolia remains a top priority for the officials in charge.
  • Demand for credit will substantially increase in the coming five years as greater necessity for capital will spread across all sectors in the economy.
  • Deposit Guarantee Law has been amended, the pledge is no longer unlimited.

Authorities responsible for financial stability and institutional Coverage

The Bank of Mongolia, Financial Stability Council (jointly established by the BoM, Ministry of Finance and Financial Regulatory Committee on 9 May 2007) and Financial Regulatory Commission are responsible for financial stability and supervision of the financial sector in Mongolia.

The BoM, the Central bank, is responsible for supervision of banks while the Financial Regulatory Commission is responsible for supervision of other financial institutions including insurance companies, security companies, credit and savings unions and non-banking financial institutions. The mission of the Council is to contribute to sustainable economic growth by developing sound and competitive financial infrastructure and improving financial services in terms of quality and access.

Strategy for Supervision

The Supervision Department’s objective in 2009 was reducing financial risks of the banking sector and adding risk capacity. Within the framework, a new banking law was approved by the Parliament. The Supervision Department has accomplished preparatory work for the establishing arrangements of consolidated supervision, information technology inspection, proper management monitoring and amendments on supervisory regulations.