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Annual Report 2019 the BANK of MONGOLIA

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Annual Report 2019 the BANK of MONGOLIA THE BANK OF MONGOLIA CENTRAL BANK OF MONGOLIA ANNUAL REPORT 2019 THE BANK OF MONGOLIA ANNUAL REPORT 2019 FOREWORD BY THE GOVERNOR OF THE BANK OF MONGOLIA On behalf of the Bank of Mongolia, I extend my sincere greetings to all of you and am pleased to present the Bank of Mongolia’s annual report. The year 2019 was a year of successful resolving challenges, and sustained recovery of Mongolian economy. The Bank of Mongolia's policies and activities aimed at ensuring sustainable economic growth, financial stability, accelerating the development of the financial markets and promoting institutional developments. Along with contributing to the economic growth, the monetary policy decisions also aimed at maintaining the medium term stability of the national currency. The inflation, measured by consumer price index, contained at 5.2 percent nationwide, 5 percent in Ulaanbaatar city which is in line with medium term targets, and real GDP growth reached 5.1 percent. International reserves reached to 4.3 billion US dollars which is covering 9 months of imports. Favorable external sector conditions, and prudent policies to stabilize macro economy contributed to building up international reserves. Rise in international reserves boosted confidence in domestic currency, positively affected credit ratings and enhanced economic immunity. In order to implement strategy to lower interest rates the following policies and measures were undertaken such as to contain inflation at target level, to buildup international reserves, to reduce dollarization, to enhance credit registry activities and to create a legal framework for consumer protection in financial services market. As a result of maintaining economic and financial stability and positive developments, the weighted average lending rate issued by banks dropped to 16.8%, which is the lowest level for the last eight years. In order to maintain financial stability, the policies such as setting debt service to income ratio at 70 percent for pension backed loans, at 60 percent for consumer loans other than pension backed loans, limiting maturity of consumer loans to 30 months, raising risk weights of foreign exchange loans to 150 percent for corporates with no foreign exchange revenues are adopted and implemented which resulted in increase in corporate and domestic currency lending, and decline in asset dollarization. Within the IMF Extended Fund Facility program, the forensic audit on capital raise of banks was undertaken by Duff & Phelps company, and results came out in September 2019. Based on the findings, some parts of capital raise of banks were voided and banks’ balance sheets were adjusted accordingly in October 2019. Moreover, the Bank of Mongolia submitted to the Parliament of Mongolia the medium-term program to strengthen banking system resilience. Successful restructuring of the banking sector will pave the way for smooth continuation of financial intermediation regardless of economic cycles, and will create a basic foundation for financial stability. Those efforts are important parts to strengthen the economy and achieve sustainable and inclusive economic growth in the medium term. THE BANK OF MONGOLIA ANNUAL REPORT 2019 3 In October 2019, the global money laundering and terrorist financing watchdog FATF listed Mongolia as a jurisdiction with strategic deficiencies and agreed the Action plan with Mongolia for 6 action items for 4 Immediate Outcomes. Based on the Action plan, the Cooperation Council member agencies and the Bank of Mongolia have agreed and worked out action plan and implementing it. In financial markets and institutional development area, the introduction of the Automatic Clearing House system in 2019 has brought a significant progress in the Mongolian payment system. The technology and security of the national ₮ card has been improved and paved the road to its international use. In addition, the Bank of Mongolia, in line with best international practices of Central banks, began to renovate its core accounting and enterprise resource management (ERP) system software. The Bank of Mongolia continued its work on expanding its international cooperation in 2019. In this regard, roundtable meetings of Mongolian-Russian and Mongolian-Chinese banks were held. At the Global Financial Accessibility-2019 event in Johannesburg, Mongolia, out of 170 countries, was awarded the Best Partnership-2019 award for successful implementation of the Increasing public financial awareness program. The Bank of Mongolia will retain its 2019 achievements and respond to new challenges in timely and efficient manner, and will maintain economic and financial stability in the medium and long run.. LKHAGVASUREN B. GOVERNOR OF THE BANK OF MONGOLIA 4 THE BANK OF MONGOLIA ANNUAL REPORT 2019 ORGANIZATIONAL CHART OF THE BANK OF MONGOLIA (2019) GOVERNOR SUPERVISORY BOARD GOVERNOR’S BANKING OFFICE SUPERVISION COUNCIL MONETARY POLICY BOARD OF COMMITTEE DIRECTORS FIRST DEPUTY DEPUTY GOVERNOR GOVERNOR Policy and operation division Administration and PaYMENT Human Resources SYSTEMS Oversight Division DEPARTMENT division FINANCIAL Security Unit National electronic GENERAL INFORMATION transaction center MANAGEMENT UNIT DEPARTMENT Foreign Relations Banking Policy Unit FINANCIAL and Restructuring REPORTING AND Division Maintenance ACCOUNTING Division DEPARTMENT Supervision Division SUPERVISION Legal Policy DEPARTMENT Division Monitoring and LEGAL Financial Services DEPARTMENT Software Development Unit Division Compliance INFORMATION Division TECHNOLOGY AML-CFT DEPARTMENT System Supervision Unit Monetary Policy and Maintenance Unit RISK Forecasting Division MANAGEMENT MONETARY Economic Analysis UNIT POLICY and Policy Division DEPARTMENT Macroprudential REGIONAL Policy Department DIVISIONS (5), Banknote Policy and BRANCHES (12) Planning Division Reserve BANKNOTE RESERVE Management DEPARTMENT MANAGEMENT Division Currency Operation AND FINANCIAL Division MARKETS Financial Markets ECONOMIC DEPARTMENT Division RESEARCH AND TRAINING CREDIT INSTITUTE INFORMATION Treasury Fund UNIT Research Division RESEARCH AND RESIDENT STATISTICS REPRESENTATIVE DEPARTMENT IN EUROPE Statistics Division INTERNAL AUDIT DEPARTMENT Press Unit PUBLIC EDUCATION AND INFORMATION Information and CENTER Inquiry Unit THE BANK OF MONGOLIA ANNUAL REPORT 2019 5 CONTENT 1. MACROECONOMIC OVERVIEW OF MONGOLIA 9 1.1 Real sector .............................................................................................................................................9 1.2 External sector ....................................................................................................................................13 1.3 Monetary and financial sector ............................................................................................................18 1.4 General government budget ...............................................................................................................21 2. MONETARY POLICY IMPLEMENTATION 25 2.1 Monetary policy objective, actions and results ..................................................................................25 2.2 Policy implementation to maintain banking sector stability ...............................................................28 2.3 Foreign exchange reserve management ..............................................................................................38 2.4 Payment system of Mongolia ..............................................................................................................39 2.5 Banking sector legal reform ................................................................................................................44 2.6 National program for financial literacy ...............................................................................................45 3. THE BANK OF MONGOLIA’S MONEY MARKET OPERATIONS 49 3.1 Open market operations ......................................................................................................................49 3.2 Central bank standing facility .............................................................................................................50 3.3 Government securities (GS) ................................................................................................................51 3.4 Foreign exchange intervention ..................................................................................................52 3.5 Gold purchases ....................................................................................................................................54 4. ORGANIZATIONAL STRUCTURE AND OTHER ACTIVITIES OF THE BANK OF MONGOLIA AND FINANCIAL STATEMENTS 57 4.1 Organizational structure ......................................................................................................................57 4.2 Foreign relations .................................................................................................................................57 4.3 Public relations ....................................................................................................................................59 4.4 Measures of anti-money laundering and combating financing of terrorism .......................................60 4.5 Internal audit .......................................................................................................................................64 4.6 Risk management ................................................................................................................................64
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