Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Banking system news in Mongolia

10.03 – XacBank’s President, Mr. Amartuvshin, signed a 11.23 – 9th anniversary of the State Bank. statebank.mn contract extension with Oyu Tolgoi to continue partnership and support Oyu Tolgoi suppliers.. xacbank.mn 11.27 – National Electronic Transaction Centre (NETC) of the Bank of Mongolia raised the daily limit for digital 10.13 – S&P Global Ratings upgrades Foreign Currency transaction to MNT 3 million, from previous limit of MNT 1 LT credit rating of Golomt Bank to "B" from "B-"; outlook million. montsame.mn stable. golomtbank.com 11.27 – At the unscheduled meeting, the Monetary Policy 10.19 – 28th anniversary of the Trade and Development Committee decided to increase the Policy rate by 1.0 Bank of Mongolia. tdbm.mn percentage point to 11 percent. mongolbank.mn

10.23 – How to make a secure online purchase? 11.28 – For the first time in Mongolia, TDB and Shoppy.mn golomtbank.com (online shop) introduced new online loan service which enables people to buy products. tdbm.mn 10.25 – Golomt Bank signed “Framework Agreement on Regular Cooperation Mechanism under the Belt and Road 11.28 – XacBank appoints Tsevegjav Gumenjav as Initiative” with Industrial and Commercial Bank of China President of Retail banking. xacbank.mn (ICBC). golomtbank.com 11.30 – “Transport and Development Bank” LLC has 10.26 – Capitron bank and Bank of Inner Mongolia signed received its professional underwriting license pursuant to foreign trade financing and interbank credit line Financial Regulatory Commission Resolution No. 361. agreements. capitronbank.mn transbank.mn

10.29 – Khan Bank introduced the financial education 12.11 – Mongolian sustainable finance forum 2018 was program Future (Ireedui), on the occasion of World held. toc.mn Savings Day. khanbank.com 12.13 – Mercy Corps’ Country Director to Mongolia, 11.01 – IMF executive board completes fifth review under Wendy Guyot, signed a partnership agreement with the extended arrangement for mongolia and approves XacBank CEO Bold Magvan. xacbank.mn US$ 36.22 million disbursement. imf.org 12.14 – The Monetary Policy Committee decided not to 11.05 – TDB extends auto car financing loan term up to 60 change the Policy rate thus it remains at 11 percent. months. tdbm.mn mongolbank.mn

11.10 – Standard and Poor's (S&P) rating agency has 12.26 – The Bank of Mongolia started using the developed upgraded the Mongolian sovereign credit rating to "B" from version of online platform for inter-bank currency "B-" with a stable outlook. xinhuanet.com exchange. montsame.mn

11.15 – Parliament of Mongolia has approved the State Guideline for the Monetary Policy of 2019. mongolbank.mn

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Key indicators of banking sector1

40 8% 33,1 Total assets = MNT 33.1 trillion 31 28,8 28,9 30,2 30 6% 6,6% Total assets of banking sector increased to MNT 33.1 trillion as of Q4, 2018, MNT 2.1 trillion (+6.6%) 20 4% 2,5% 4,5% higher than the previous quarter, and MNT 4.3 trillion (+14.8%) higher than Q4, 2017. 10 2,6% 2%

0,4% TRILLION MNT TRILLION 0 0% 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18 Assets Growth % (right)

4 400 Profit = MNT 96.8 billion 3,15 3,16 3,18 3,10 3,26 3 249,1 300 Bank capital has reached MNT 3.26 trillion as of Q4, 2 200 2018 which is MNT 0.11 trillion (+3.5%) higher than 96,8

58,7 Q4, 2017. Banking sector’s profit reached MNT BILLIONMNT

TRILLIONMNT 1 42,2 100 32,4 96.8 billion as of Q4, 2018 and 2.5 times less than 0 0 the Q4, 2017. 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18

Bank capital Profit, loss (right)

5 4,5 Bank reserve = MNT 4.5 trillion 4 3,4 2,9 3,1 3 2,5 Bank reserve reached MNT 4.5 trillion as of Q4, 2 2018 which is MNT 1.4 trillion or 46% higher than the previous quarter. 1 0 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18

Bank reserve, trillion MNT

16 14,5 15,3 16 12% 12,9 13,5 Non-Performing Loans = 11.1% 12 11,1% 8% Total loans reached MNT 16 trillion as of Q4, 2018. 8,9% 9,1% 9,0% 8,8% 8 However, NPL is still high. Total NPL reached MNT 4% 1.77 trillion which account for 11.1% of the total 4 domestic loans.

0 0% 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18

Total domestic loans NPL as of %

1 Source: Central Bank of Mongolia www.ecrc.mn www.aimagindex.mn www.facebook.com/ecrcmn www.twitter.com/ursulduhchadvar 2

Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

5 Mortgage = MNT 4.43 trillion 4,25 4,25 4,33 4,35 4,43 4

Total mortgage loan reached MNT 4.43 trillion as 3 of Q4, 2018. Total mortgages have increased 2 constantly since the ‘Program on the Development of Sustainable System of Mortgage MNT TRILLION 1 Financing’ program was implemented. 0 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18

Mortgage

Current + Deposit = MNT 17.5 trillion 20 17,5 15,4 15,9 Total deposit reached MNT 12.2 trillion (26.9% 16 13,5 13,9 growth since Q4, 2017) and total current account reached MNT 5.3 trillion (36.9% growth since Q4, 12 2017) as of Q4, 2018. 8

4

0 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18

Current Deposit Total

1 USD = 2637 MNT | 1 CNY = 383 MNT 3000 400

383

380 380

379

377 377

376

372

371 2800 366 380

Monthly average of official Foreign Exchange 365 360

Rates: USD reached 2637 MNT whereas CNY 2600 360

2637 2582

reached 83 MNT as of the DEC 2018. USD to MNT 2564

2503 2464

2400 2463 340

2432

2425

2405

2403 2395 rose by 204 MNT (+8.4%) and YUAN to MNT rose 2394 by 14 MNT (+3.8%) compared to the same quarter 2200 320 of the previous year. 2000 300

USD CNY (right) 29,8 Total liabilities = MNT 29.8 trillion 30 27,1 27,9 8% 25,6 25,8 As of Q4, 2018, total liabilities reached MNT 29.8 6,8% 6% trillion which is MNT 4.2 trillion (+16.3%) higher 20 5,0% than the same quarter of the previous year. 3,0% 4% 2,7% 10 TRILLION MNT TRILLION 2% 0,7%

0 0% 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18 Total liabilities Growth % (right)

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Featured: Bank lending across provinces

As of Dec 2018, around 608 thousand people from 21 provinces have borrowed from banks and have total outstanding loans of MNT 4.2 trillion. Only 2.5% of total outstanding loans is overdue or non-performing loans.

As shown in below figure, Orkhon province has the largest outstanding loans worth MNT 345.9 billion whereas Gobisumber province has the smallest outstanding loans worth MNT 73.8 billion. Darkhan-Uul and Orkhon provinces have the lowest average loan interest rate (16%) whereas Bayankhongor province has the highest average loan interest rate (17.8%) as for loans which issued only in Dec 2018.

MNT 2.5 trillion or 60% of total outstanding loans (MNT 4.2 trillion) of provinces are only salary and pension loans.

Total outsanding loan, provinces 400 20% 346 17,5% 325 307 300 286 276

227 220 225 198 192 192 187 200 171 180 10% 159 139 133 143 123 116 100 74

0 0%

Total outstanding loan, billion MNT Weighted average interest rate of loans which issued in Dec, 2018

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Banking system competition

Currently 14 commercial banks are operating in Mongolia. Quarterly financial reports of banks were used in this Khan, TDB, Golomt, Xacbank, State Bank, Ulaanbaatar report and compared by the following indicators: City Bank are systematically important banks according to  Assets Bank of Mongolia. These banks account for more than 90  Loan percent of the banking system in terms of assets.  Current account, Deposit  Profit The banks were classified as Top 3, Medium 3 and small banks, depending on their total amount of assets. Capital bank is not included in this report.

The figure below ranks the 14 banks, according to total assets under control. The banks were classified as Top 3, Medium 3 and Small banks. Only Capital bank is not included in this review.

TOTAL ASSETS BANKS

Trade and Development Bank TOP-3 BANK >3 trillion MNT Khan Bank Golomt Bank

Xacbank MEDIUM-3 BANK 1-3 trillion MNT State Bank Ulaanbaatar City Bank

Capital Bank Chinggis Khan Bank Capitron Bank National Investment Bank SMALL BANKS <1 trillion MNT Arig Bank Bogd Bank Credit Bank Trans Bank

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Assets

Total assets of the 13 commercial banks included in this Market share, by assets, 4Q'18 review have reached MNT 32.7 trillion. Top-3 banks, Хасbank 9.4% medium-3 banks and small banks account for 68.7%, TDB 23.5% and 7.8% of the sector respectively. State bank 22.3% NIBM - 0.8% Total assets of top-3, medium 3 and small banks have 9.1% Chinggis Khan- 1.6% risen 15.9%, 12.6% and 41.6% respectively. Capitron - 2.5% UBCbank Bogd - 0.6% 5.0% Credit - 0.3% Arig - 0.4% Khan bank Golomt Transbank - 1.5% 27.8% 18.6%

Assets, billion MNT and growth %

Top 3 Medium 3

25 000 467 22 30% 9 000 27% 30%

24% 701 7 19 380 380 19 20 000 25% 841 6 17% 20% 6 000 20% 15 000 16%

15% 13% 13%

9 090 090 9

3 078 078 3

3 038 038 3 2 992 992 2

10 000 319 7

7 286 286 7

6 856 856 6 2 357 357 2

6 091 091 6 10% 3 000 10%

5 205 205 5 1 631 631 1 5 000 446 1 5% 1% 6% - 0% - 0% TDB Khanbank Golomt Top-3 UBCBank State Bank Xacbank Medium-3 4Q'17 4Q'18 Growth(right) 4Q'17 4Q'18 Growth(right)

Small banks

900 818

613 613 527 527

600 502

399 399 360 360

267 203 203

300 181

144 144

135 135 112 112

74 17 17

- NIBank Chinggis Capitron Bogd Bank Credit Bank Arig Transbank Khan 4Q'17 4Q'18

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Loan

Market share, 4Q'18 Total loans of the 13 commercial banks reached 16.2 trillion MNT as of Q4, 2018. Top-3, medium-3 and Xacbank TDB small banks account for 65.1%, 27.4%, 7.5% of total 11.7% NIBM - 0.7% 19.9% loans respectively. State bank Chinggis Khan - 1.6% Capitron - 2.4% Top-3, medium-3 and small banks increased their 10.8% Bogd - 0.3% total loans by 23.5%, 32.4% and 50% respectively UBCBank Credit - 0.15% compared to Q4, 2017. Overall total loans of these 13 commercial banks increased by 27.5%. 4.9% Arig - 0.5% Transbank - 1.8% Golomt Khan bank 19.2% 26.1%

Loan, billion MNT and growth %

Top 3 Medium 3 5 000 50% 12 000 40% 447 4 10 567 567 10 42%

8 555 555 8 4 000 40% 27% 34% 30% 30% 359 3 8 000 25% 3 000 32% 30%

24% 20% 903 1

4 234 234 4 2 000 20%

1 753 753 1

1 344 344 1

3 345 345 3

3 224 224 3

1 407 407 1 3 110 110 3

4 000 892 2

2 318 318 2 791 791

10% 607 11% 1 000 10%

- 0% - 0% TDB Khanbank Golomt Top-3 UBCBank State Bank Xacbank Medium-3 4Q'17 4Q'18 Growth(right) 4Q'17 4Q'18 Growth(right)

Small banks

500

384

400

289 289 278 278

265

300

204 204 201 201

200

115 115

83 83 70 70

54

100 46

24 24

7 7 3 3 - NIBank Chinggis Capitron Bogd Bank Credit Bank Arig Transbank Khan 4Q'17 4Q'18

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Current and deposit account Market share, 4Q'18 Xacbank 8.0% Total current and deposit accounts of the 13 commercial TDB 17.6% banks reached 19.9 trillion MNT. Top-3, medium-3 and State bank small banks account for 69.3%, 23.8%, 6.9% of total NIBM - 0.9% 10.4% current and deposit account respectively. Chinggis Khan- 1.4% Capitron - 2.9% Top-3, medium 3 and small banks increased their UB city Bogd - 0.2% current and deposit accounts by 28%, 34% and 39% bank 5.5% Credit - 0.252% respectively since 4Q, 2017. Total current and deposit Arig - 0.5% accounts of these 13 commercial banks increased by Transbank - 0.7% Khan 30.5%. Golomt 30.1% 21.6%

Current and deposit account, billion MNT and growth %

Top 3

Medium 3 750 4 5 000 80%

16 000 35% 40% 13 822 822 13

4 000 533 3

26% 765 10 60% 12 000 30% 63% 21% 28% 3 000

8 000 20% 064 2 40%

6 010 010 6 1 590 590 1

2 000 567 1

4 447 447 4

4 303 303 4

1 295 295 1 1 095 095 1

3 509 509 3 34% 3 412 412 3

2 906 906 2 32%

4 000 10% 671 20% 1 000 23%

- 0% - 0% TDB Khanbank Golomt Top-3 UBCBank State Bank Xacbank Medium-3 4Q'17 4Q'18 Growth(right) 4Q'17 4Q'18 Growth(right)

Small banks 582 582

600 451 451

400

279

217 217

213 213 179 179

200 148,1

93 93

67 67

50 50 33 33

30

0,3 0,3 0 0 - NIBank Chinggis Capitron Bogd Bank Credit Bank Arig Transbank Khan 4Q'17 4Q'18

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Economic Policy and Competitiveness Research Center

BANKING COMPETITION REVIEW 2018 – Ⅳ Quarter

Profitability

Total net profit of the 13 commercial banks included in this review reached MNT 274.9 billion (after tax). Big-3 banks have increased their profit by 43% or MNT 87 billion compared to Q4, 2017 whereas profit of medium banks were decreased by MNT 45 billion compared to Q4, 2017 and reached MNT 20 billion. Small banks are operating with a loss worth MNT 38.5 billion.

Profit and loss by billion MNT and growth %

Top 3 Medium 3 54% 293

300 60% 80 0%

65 65 206 206 218 218 43% -27% -20%

200 20% 60 142 142 -40%

100 76 -20% 40

56 56 26 26

20 20 -60%

21 21

20 20

(12) 17 17 - -60% 20 -82% -69% -80%

TDB Khanbank Golomt Top-3 3 -94% 2 ( 100) -74% -100% - 16 -100% UBCBank State Bank Xacbank Medium-3 4Q'17 4Q'18 Growth(right) 4Q'17 4Q'18 Growth(right)

Small banks 11,7 4,8 10,0 4,4 5,2 1,4 2,3 0,1 0,2 2,2 ( 3,3)( 13,4) ( 0,9)

NIBank Chinggis Capitron Bogd Bank Credit Bank Arig Transbank ( 10,0) ( 6,1) Khan

( 30,0)

( 50,0) ( 43,5)

4Q'17 4Q'18

Sources:

1. Mortgage loan report, December 2018, Bank of Mongolia 2. Key indicators of banking system consolidated balance sheet, December 2018, Bank of Mongolia 3. Monthly foreign exchange rate, December 2018 Bank of Mongolia 4. Quarterly financial report of commercial banks, 4th quarter of 2018 5. Loan report of provinces, December 2018, Bank of Mongolia

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