Trade Finance

XacBank of SME Trade Finance in the CAREC Region 1 XacBank

• XacBank is a wholly-owned subsidiary of TenGer Financial Group (“TFG”). TFG is a diversified financial services holding company with a portfolio of subsidiary companies in commercial banking, leasing, insurance, brokerage, investment banking and microfinance providing access to broad financial services to our customers. • XacBank is a founded in 2001 and headquartered in Ulaanbaatar, Mongolia. We provide deposit, , digital, card, payments services, trade finance and insurance brokerage across our two major business lines of retail and business banking through our branch and digital network. • XacBank is the only Mongolian financial institution which is majority owned by a broad base of globally recognized institutional investors, including the IFC, ORIX, EBRD, the National Bank of Canada and Ronoc. The Bank regularly partners with these and many other MFIs and IFIs. 2 XacBank

$ 1.0 85 140 2,700 700K 1.4K billion branches ATMs POS terminals Clients Employees

ASSET 2,246 2,500 LOAN 1,600 DEPOSIT 1,200 1,231 BN MNT billion 1,400 MNT billion 978 MNT billion 1,000

2,000 MNT MNT BN MNT

MNT BN MNT 1,200 800 LANET 1,500 1,000 P 800 600 1,000 600 400 EOPLE 400 500 200 200 ROSPERIT - - - 2003 2007 2011 2015 2003 2007 2011 20152016 2003 2007 2011 2015 2016 Y 2016 30 ROE % 100 Efficiency % 30 CAR %

25 25 BANK by BOM 80 18.9 20 20 60 53.2 15 15 40 10 10 20 5 Average ~16% 5 0 0 0 2003 2007 2011 20152016 2003 2007 2011 20152016 2003 2007 2011 20152016 3 Trade Finance for SMEs

The Trade Finance is most effective financial solution for both domestic and international traders. It can be balance interest of both exporter and importer into the equal line.

Low Hig h Advance Payment

Exporters RiskBank Guarantee Importers Risk Documentary Credit Open Account Hig Low h 4 Dedicated Trade Finance for SMEs

Quality Risk Transportation Risk

Payment Risk Performance Risk

Export Import 5 Financial Access of SME, Bank of Mongolia

Number of registered SMEs Type of Business Year of Operation

Trade 4% 3% 2% 14% 4% Service 25% Above 10 years 36% Capital city 13% Manufacture 5-10 years 45% 19% Other province Other 3-5 years 64% Construction 1-3 years 23% 29% Agriculture 19% up to 3 years Farmer

Financing Result Source of Fund Fund Expenditure Working Capital

4% 2% 4% 1% 0% 0% 0% Machinery, Equipment 6% 9% 7% Commercial Bank Expand Business 9% 44% Non-Banking FI Yes No Extend Building 56% Project Fund 12% Purchase Building Partner 65% Run New Business 81% Others Analysis, Survey

Employee Training

Advertisement 6 Financial Access of SME, Bank of Mongolia

Institutions supporting the SMEs Prospects for SMEs

Commercial Banks Others Favorable Tax Environment Local Government Government Increase access to finance Trade Union Empowering Public Service Other Financial Institutions Non-governmental organization Promote National Production Chamber of Commerce Industry Association Reduce Corruption International Institution Improve Legal Environment Private Consulting companies Increase Participation of Local Gov To decrease no of license, approval Type of supports Improve Control System Reduce fee for the license Financing No support Improve Infrastructure Do not know Support Innovation Training, Advice Others Do not know Forum, workshop Improve Legal Environment Training, advice Improve infrastructure Marketing Support Support Tax Policy Increase Competitiveness Center of Manufacture and Techno Exempt from VAT Information Access Technological Innovation Built key center for SME Others 7 SME Portfolio on Trade Finance

USD 40.0 mil USD 22.0 mil

USD 13.0 mil

Retail SMEs Corporate 8 Supply Chain Finance

The current economic climate is forcing many companies to better manage liquidity and strengthen their balance sheet. Supply chain finance can be an attractive way for companies to improve their working capital position.

The key concept behind SCF is to provide suppliers with access to advantageous financing facilities by leveraging the buyer’s stronger credit rating.

9 First ever SCF product to be introduced by XacBank to Mongolian market

The product meets numerous needs of suppliers of OT

Supplier liquidity needs

Supplier relationship improvement Working Capital optimization Principal reasons for implementing an SCF program

Supply chain stability improvement

Additional revenues, cost reductions 10 Supply Chain Finance Progress

Request for Discount Facility Goods/ Services and invoices 04 Confirmation/Approval of Invoices 03 05

Purchase Order Provide Financing

02 06

Supply Agreement Invoice Payment

01 SCF Process 07 11 BENEFITS

Benefits for the Supplier Benefits for the Buyer Benefits for the Bank

Reap early settlement discounts Reduction of Trade Receivables and Bank earns a healthy margin on an while still paying at invoice maturity increase in cash position investment level grade paymaster

Longer supplier payment terms Faster access to cash at Introduce both the supplier and buyer advantageous rates to other banking products and increase cross sale Strong cooperation with the buying company; creates a competitive advantage

Faster cash conversion cycle from delivery to cash

12 Complex Financing Structure

Supply Agreement Importer

Sales and Purchase Agreement Trade Finance Supply Chain Finance

Exporter

1. Bank will issue Letter of Credit to purchase goods from Exporter upon the request of Importer 2. The Importer received goods from Export and supply to OT 3. Once OT received good s and confirmed, XacBank will provide supply chain financing to the Importer. 13 Complex Financing Structure

Supply Chain Loan Repaid Solution Trade Finance Finance

Activities Sales and Purchase Issue DC Goods Received Supply goods to OT OT confirmed Order next Payment received Agreement procurement from OT

Benefit Support suppliers Working Capital

Fees up to 8% p.a Lowest price in market Government Support for SMEs

Project Name Price Stabilizing Program

Purpose Stabilize Prices of Key Commodities and Products

Applicable Sector Fuel, Imported consumption goods, Construction Sector,

Duration FY2012-FY2015

Source of Fund Finance Department of Mongolia

Implementing Unit Commercial Banks

No of Borrowers 15 at XacBank

Total Volume MNT 25.0 billion Government Support for SMEs

Project Name Project for supporting the SMEs, operating in Agricultural sector

Purpose Increase Employment

Applicable Sector Production of Cashmere, Wool Textile

Duration FY2018-FY2019

Source of Fund Government through Development Bank of Mongolia

Implementing Unit Commercial Banks

No of Borrowers 10 at XacBank

Total Volume MNT 15.0 billion

Total Volume Until end of 2019 Government Support for SMEs

Project Name Organic Mongolia

Purpose Increase Employment, produce value added products

Applicable Sector Agricultural sector

Loan tenor Up to 36 months

Interest rate 12% per annum

Source of Fund Government

Implementing Unit Commercial Banks

Affirmative condition Grace period up to 12 months

Maximum amount for Up to MNT 60.0 million single Borrower Government Support through Credit Guarantee Fund to SMEs

7. Deposit fund of Guarantee

2.Credit analysis application 5.Credit analysis 3. Approval for Credit analysis

Credit 4.Credit Decision Guarantee Fund 6.Credit Guarantee SMEs Decision Commercial Bank

8. Drawdown

1.Credit Guarantee Application

FY2013 - FY2018 In MNT Million Indicator No of Client Share % Loan Portfolio Credit Guarantee Amount Share % Approved 674 63,4% 178,660.37 82,275.79 58.39% Declined 260 40.75% 42,531.90 17,317.70 23.24% Government Support through Credit Guarantee Fund to SMEs

Terms of Credit Guarantee Loan Amount Up to MNT 1.0 bln Tenor Up to 10 years

Interest rate 12%-15% per annum

Grace period on Not exceed 24 months principal amount

30-60% of Loan Amount Guarantee amount % /not exceeding the MNT 500 thou/

Credit Guarantee Fee 1.0% per annum