Collapse of Savings Bank leads to calls for better regulation
It came like an unseasonal Siberian wind from the steppe. Anointed the "Best Managed Bank in Mongolia" by The Asian Banker magazine in April this year, the collapse of Savings Bank, the country's fifth-largest lender, only three months later, has led to calls for further regulation and oversight as the country upgrades its financial services.
It came like an unseasonal Siberian wind from the steppe. Anointed the "Best Managed Bank in Mongolia" by The Asian Banker magazine in April this year, the collapse of Savings Bank, the country's fifth-largest lender, only three months later, has led to calls for further regulation and oversight as the country upgrades its financial services.
Branded with a negative outlook by ratings agency Moody's, the banking sector faces challenges, "in managing what will likely be a period of rapid loan growth in an economy that is increasingly exposed to commodity-driven boom-bust cycles", said Graeme Knowd, Moody's associate managing director of financial instruments group at a recent investment forum in the Mongolian capital of Ulan Bator.
Golomt Bank, one of the big four banks, which combined hold 77 per cent of the nation's deposits, is late in filing its 2012 end of year accounts. PwC has recently been appointed as a second auditor to help review the bank's off-balance-sheet risks.
At the head of a recent government-backed credit splurge on mortgages and corporate loans, banks have struggled with the fallout from the slowdown in neighbouring China, the destination for 80-90 per cent of Mongolian exports. Cheap credit has been made available to banks to lend at favourable rates to key industries including food processing and construction as a way to bring down double digit inflation. The move is credited by the government for bringing near term inflation below 10 per cent.
"Overall asset quality is under pressure due to the volatile environment," says Chikako Horiuchi, a Mongolian banking analyst at Fitch. She estimates 30 per cent of bank loans are in foreign currencies, placing additional pressure on borrowers given a 17 per cent drop in the tugrik against the US dollar during the past month.