THE DEVELOPMENT BANK OF MONGOLIA ANNUAL REPORT 2013 2 The Development Bank of Mongolia - Annual Report 2013 THE DEVELOPMENT BANK OF MONGOLIA TABLE OF CONTENTS MISSION VISION MESSAGE FROM THE CHAIRMAN OF THE BOARD OF Directors MESSAGE from THE CHIEF EXECUTIVE OFFICER economic OVERVIEW BANKING AND FINANCE sector overview INTERNATIONAL DEVELOPMENT BANKS THE INSTITUTION’S DEVELOPMENT CORPORATE GOVERNANCE BOARD OF Directors ORGanisation STRUCTURE CHRONOLOGY FINANCIAL INDICATORS BUSINESS OPERATION credit AND FINANCING OPERATIONS FUNDING OPERATIONS BUSINESS COOPERATION RISK MANAGEMENT INDEPENDENT AUDITOR’S REPORT The Development Bank of Mongolia - Annual Report 2013 3 To be a leading institution investigating financial solutions Mission which ensure and diversify sustainable economic development in multiple sectors, support manufacturing of value added products, and consolidate and implement the country’s development policies. 4 The Development Bank of Mongolia - Annual Report 2013 THE DEVELOPMENT BANK OF MONGOLIA To make Mongolia a developed country Vision ranking high in competitiveness and economic strength. The Development Bank of Mongolia - Annual Report 2013 5 MESSAGE FROM THE CHAIRMAN OF THE BOARD OF Directors By successfully raising low-cost funds from the international markets and by financing projects which accelerate the country’s development, the Development Bank of Mongolia has expanded its operations and succeeded in strengthening its position for future stability and success. This is a result of the efforts of the Bank’s employees, customers and cooperating entities. During the reporting period, the Bank financed MNT2,179.6 billion for major projects and programmes, and placed MNT652.3 billion with commercial banks. As a result, the Bank’s total assets reached MNT3,230.9 billion. In order to enhance the Bank’s lending capacity, we increased the shareholder equity by MNT50.0 billion during the reporting period, thereby resulting in a shareholder equity of MNT123.3 billion and a total equity of MNT143.9 billion. The Development Bank of Mongolia operates to increase its economic strength by further enhancing its financial capacity through conducting operations in accordance with the law. This includes the financing of strategically- significant projects, issuance of securities in its own name, fund raising, and financial consultancy services. The operations of the Development Bank of Mongolia will be fair, transparent and always open to the public. Thanks and best wishes to our colleagues and customers who share our aim to promote Mongolia’s continuing development and prosperity! THE DEVELOPMENT BANK OF MONGOLIA IS A NATION- WIDE FINANCIAL INSTITUTION WHOSE AIM IS TO PROVIDE MEDIUM- AND LONG-TERM FINANCING TO MAJOR PROJECTS WHICH SUPPORT ECONOMIC DEVELOPMENT. SHINEBAATAR B. CHAIRMAN OF THE BOARD OF DIRECTORS 6 The Development Bank of Mongolia - Annual Report 2013 THE DEVELOPMENT BANK OF MONGOLIA MESSAGE from THE CHIEF EXECUTIVE OFFICER Dear customers and cooperating entities, It is my pleasure to present the report of the Development Bank of Mongolia for 2013. In the past year (2013) there was a 32.8% decrease in the sale price of our country’s export coal and a 54% decrease in foreign direct investment. These factors slowed economic growth. However, in 2013, economic growth was 11.7% as a result of a 20.7% increase in mining production, a 66.5% increase in construction and a 17% increase in commerce. During the reporting period, there was an increase in the Development Bank’s loan portfolio of MNT1,686.6 billion, a figure which is greater than investments by the state’s general budget funds. The Development Bank’s lending to strategically-significant sectors, including roads, railway, mining, processing, power plants, infrastructure, housing and transport, will continue to serve as leverage for the country’s accelerating development in the near and ongoing future. At the end of the reporting period, the Development Bank’s total assets were MNT3,230.9 billion, which equals 18.4% of our country’s gross domestic product. Our Bank’s pre-tax profit was MNT35.1 billion and we paid the state MNT17.7 billion in income tax. The Development Bank’s foreign cooperation expanded in 2013 – we signed memorandum of understanding with the Japan Bank for International Cooperation and the China Development Bank. We issued “Samurai bonds” in Japanese financial market, and reached an agreement to obtain financing from the China Development Bank. Here at the Development Bank, we have sincere and genuine aspirations for the development of Mongolia, and work with determination and tenacity to ensure our country’s brighter future. Sincere regards and great success to our customers and organisations, both foreign and domestic, who cooperate with the Development Bank of Mongolia! MUNKHBAT N. chief EXecUtive officer The Development Bank of Mongolia - Annual Report 2013 7 ECONOMIC OVERVIEW Real GDP growth (%) ECONOMIC GROWTH 17.5% The 2013 preliminary performance estimations are that Mongolia’s nominal gross domestic product (GDP) reached MNT17,600.0 billion. 12.4% GDP consisted of revenues from the agricultural (14.4%), industrial 11.7% (26.6%), construction (2.6%) and service (44%) sectors as well as taxation income (12.4%). 6.4% Although real GDP growth reached 11.7%, slightly slower compared to the previous year, the two-digit number increase was mainly achieved thanks to the growth in the agricultural, mining, construction and 2010 2011 2012 2013 trade sectors. Source: The National Statistical Office Whereas copper concentrate production associated with the Oyutolgoi pit’s commissioning into operation and mining activities The state budget balance was 517.9 thousand tons in 2012, it reached 803.0 thousand tons in 2013. In addition, oil and petroleum production grew from 3.6 million barrels The amount of revenue and aid Expenditure and repayable net loans to 5.1 million barrels, this also had a positive impact on our industrial Balance sector growth. In 2013, the construction sector’s actual value rose by 66.5% as a result of MNT477.0 billion of road work and MNT399.5 billion 6,178 5,928 5,994 of housing construction work. 4,958 4,997 4,468 3,081 3,122 THE STATE BUDGET Total revenue and aid of Mongolia’s general budget reached MNT5,927.6 billion, rising by 19.6%, and total expenditure and repayable net loans In billion reached MNT6,178.0 billion, rising by 3.1%, whereby the state’s general 529 250 MNT 1,036 budget deficit was MNT250.4 billion, a 4.1-fold decrease compared to 2010 2011 2012 2013 the previous year. Source: The National Statistical Office Money supply MONEY SUPPLY Money supply volume Annual growth At the end of 2013, М2 money supply reached MNT9,461.0 billion, growing by 24.2% compared to the beginning of the year. 9,461 62.5% 7,617 Although the price of our country’s main export mineral products decreased and foreign direct investment reduced, the domestic 6,412 37.0% economy was restored thanks to the expansion policies implemented 4,682 24.2% by the Government and the Mongolbank as well as the funds raised in 18.8% the international financial markets. Accordingly, money supply growth accelerated compared to the previous year. In billion MNT 2010 2011 2012 2013 Source: Mongolbank 8 The Development Bank of Mongolia - Annual Report 2013 THE DEVELOPMENT BANK OF MONGOLIA INFLATION Inflation measured by the CPI The level of inflation measured by the consumer price index (CPI) was 14.0% 13.0% 12.5% in 2013, a slight decrease nationwide compared to the previous 12.5% year. Price increases of flour and flour products (16.2%), milk and dairy 10.2% products (20%), fruits (16.2%), non-alcoholic drinks (16.3%), the clothing, textile and shoe category (17.6%) and education services (27.2%) were the main factors affecting inflation. As the vast majority of Mongolia’s total consumption is composed of imports, the weakening of the MNT exchange rate against foreign currencies in the second-half of 2013 exerted substantial pressure on our country. 2010 2011 2012 2013 The year of 2013 was rather specific one in terms of budgetary and Source: The National Statistical Office monetary policies. The Government of Mongolia and the Mongolbank are jointly implementing a “Price stabilisation programme” comprised of five sub-programmes in order to reduce the supply-caused inflation pressure. Foreign trade balance Export Import FOREIGN TRADE 6,738 Balance 6,598 6,355 Mongolia’s foreign trade turnover totaled USD10,627.4 million in 2013, 4,818 falling by 4.5% compared to the previous year. Total exports were 4,385 USD4,272.7 million, a decrease of 2.6%, and total imports were USD6,354.7 4,273 3,200 million, a decrease of 5.7%. This resulted in a foreign trade deficit which 2,909 dropped to USD2,082.0 million. In 2013, the sale price of our country’s coal fell by 32.8% resulting in In million coal exports of USD1,100.0 million, a 41% decrease compared to the 292 1,781 2,082 USD 2,354 previous year. Copper concentrate exports rose by 13.2%, iron ore 2010 2011 2012 2013 exports by 22.9%, crude oil and petroleum exports by 53.4% and gold Source: The National Statistical Office exports increased by 2.5 times. There was a 15.6% fall in machinery and mechanical equipment imports and a 21.3% decrease in vehicle imports. These strongly affected the overall decline in imports. Foreign direct investment 4,715 FOREIGN DIRECT INVESTMENT 4,452 The foreign direct investment flowing into Mongolia in 2013 was USD2,047.0 million, decreasing by 54% compared to the previous year. The decline of the main performance indicators, which included export coal and foreign direct investment led to a scarcity of foreign currencies in Mongolia.