Transcript Монгол Улсын банкны зээл: эдийн засгийн

Study initiated by Open Society Forum
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Team Leader: D. Jargalsaikhan, MBA (Finance), Daniels
College of Business, University of Denver, USA
Senior Researcher: B. Otgontugs, Master of Economics,
University of Manchester (UK), Doctorate fellow of Columbia
University (USA)
Coordinator: Ch. Khashchuluun, PhD in Economics, Keio
University, Japan
Researcher: S. Dulbadrakh, Master of Economy, School of
Economic Studies, National University of Mongolia.
Researcher T. Oyunbaatar, Master of Economy, School of
Economic Studies, National University of Mongolia.
Economic freedom index in banking
sector of Mongolia – 5 indicators:
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Ownership of banks,
Competition (local banks vs. foreign banks),
Percentage of credit extended to private sector,
Avoidance of interest rate falling to negative real,
Government control over interests rates
Overall finding of the study
Fraser’s Economic Freedom Index in
Mongolia
 was 5.5 in 2000
 Improved to 6.9 in 2004
 Credit freedom in banking sector of
Mongolia is improving
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Credit market freedom in Mongolia
2000
2001
2002
2003
2004
Bank ownership
2
5
5
8
8
Competition
-
6
6
7
7
Credit extended to private
sector
5.5
5.8
5.5
4.3
5
Interest rate in negative real
8
8
8
8
8
Interest rate controls
6.5
6.5
6.5
6.5
6.5
Economic freedom index
on the credit market
5.5
6.26
6.16
6.76
6.9
Year
Credit market freedom index in transition
economies
Country
2000
2001
2002
Bulgaria
5.9
6.9
7.9
Latvia
7.9
8.3
8.4
Lithuania
6.4
6.8
7.9
Mongolia
5.6
6.26
6.16
Russia
3.7
5.1
6.0
Poland
7.1
7.7
8.1
Romania
4.6
6.7
7.2
Slovakia
7.4
7.4
7.9
Slovenia
6.5
6.7
8.0
Ukraine
4.6
5.5
6.9
Hungary
8.1
8.1
7.9
Croatia
7.7
9.1
8.9
China
4.7
4.7
4.7
Czech
Republic
5.8
6.8
8.1
Estonia
7.8
9.0
9.0
Source: Economic Freedom of
the World 2004 Annual Report
Credit market freedom index, ranking
Country
2002
New Zealand
9.7 (2)
USA
9.2 (8)
Great Britain
9.2 (11)
Canada
9.0 (16)
Hong Kong
8.9 (19)
Chile
8.3 (34)
Singapore
7.9 (50)
Philippines
7.6 (57)
South Korea
7.4 (63)
Japan
7.3 (69)
Turkey
6.1 (102)
India
5.9 (106)
Bangladesh
5.8 (108)
Indonesia
5.2 (115)
Myanmar
2.8 (123)
Mongolia
6.9 (83)
Mongolia’s index
and rating as of
2004
Five indicators of Mongolia’s credit market
freedom index did not improve in last 4 years
9
8
Bank ownership
7
6
Competition
5
4
Credit extended to private
sector
3
Interest rate in negative real
2
Interest rate control
1
0
2000
2001
2002
2003
2004
Economic freedom on the
credit market
Avoidance of interest rate falling into negative real:
Difference of interest rates between credits and
deposits was more than 8% annually, thus 8 points
Inflation, interest rate, real interest rate in Mongolia, (%).
Interest rate,
Interest
rate,%%
Inflation, %
Real Interest
rate, %
Source: Bank of Mongolia, National Statistics Office
2000-2004: improvement of “ownership
structure of banks” indicator
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As a result of rapid privatization held in recent
years, proportion of foreign ownership in the
banking sector has significantly increased
Number of state-owned banks reduced
Total banking assets reached 141 billion tug, of
which 48.92% (one bank - 27%) owned by
foreigners (in the first half of 2004)
Competition:
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If foreign ownership means foreign investment,
competition index would be 6 in 2001-2002 and 7 in
2003-2004
If proportion of banks with foreign ownership will be
considered as representation of foreign banks in
Mongolia, the competition index would remain 6 in 20012004
Taking into account findings of additional studies
performed in finance and banking system of Mongolia,
the competition index reduces to 3-4 points
Credit extended to private sector:
Total amount, of which extended to private sector, million tugrugs
Years
Total
Extended to private sector
Percentage
2005.06
764,605
411,315
53.8%
2004.12
648,979
360,219
55.5%
2003.12
448,759
222,096
49.5%
2002.12
235,068
138,675
59.0%
2001.12
137,537
85,934
62.5%
2000.12
67,881
40,127
59.1%
1999.12
49,466
23,997
48.5%
1998.12
86,328
40,580
47.0%
1997.12
51,516
26,825
52.1%
1996.12
35,562
17,937
50.4%
1995.12
66,925
43,012
64.3%
Credit freedom in Mongolia decreased from 6.0 points in 1995 to 5.0 points in 2004
Is there a control over the bank deposit
and/or credit interest rates in Mongolia?
Is the interest rate determined by market
rules?
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According to the Fraser Institute assessment,
the difference between interest rates of deposits
and credits was as follows:
in 1995 - 8.8,
in 2001 - 10.7,
in 2002 - 11.4,
in 2003 - 9.5,
in 2004 - 9.6, or 8 points .
Additionally developed indicators
In performing Mongolia-specific calculation
of Fraser’s sub-indexes, we considered
not only interest rates,
 But also duration of credit (short money)
 This indicator gained 6.5 points
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Issues on the current banking market in
Mongolia:
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Required bank reserve limit was very high. Some
changes were introduced recently. Bank of Mongolia
issued bonds which are considered as cash.
Profit margin in banking sector is considerably high
High demand on credits, high interest rates of Nonbanking Financial Institutions and Credit & Saving Funds
Huge amounts of money is outside banking system
Enterprises pay high taxes
Government is the biggest buyer, but holds big amounts –
State Fund framework limits the market
Large amount of “bad” loans
Half of bank deposits in USD
1992-2004: “bad performance” loans
increased 60 times, ratio halved
1992
1994
1995
1998
2000
2001
2002
2003
2004
Total assets (billion tug)
24.3
83.4
102
180
215
304.4
448
767
962
Credit portfolio (billion
tug)
19.1
52.8
63.4
85.6
66.8
135.1
231
442
606.8
Total loans/total assets,
%
78.6
63.3
62.1
47.6
31.1
44.4
51.6
57.7
63.1
Bad loans (million tug)
1.1
7.3
13.5
32.6
15.9
10.9
16.6
36.7
60.7
Bad loans/total loans,%
5.76
13.8
21.3
38.1
23.8
8.1
7.2
8.3
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Source: Research of Bank of Mongolia, Page 676
Challenges in banking system
Only over 20 % of total credits in Mongolia
were extended for more than one year
period.
 Average interest rate is 30%,
 Maximum reaches 48% per annum
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As a result, limited private investment and
negative impact to economic development
Lack of resources on the
Mongolian market
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Compared to developed economies,
financial deepening or М2 (money
supply/GDP) ratio is just 50%.
Quantitative vs. qualitative
developments
2000-2004: positive changes in bank ownership
structure:
 Rapid development of private banks
 Privatization of state-owned banks
However, no positive impact to “credits extended
to private sector” and “interest rate control”
indicators
Comparison of indicators
Rapid privatization and increased number of
foreign banks:
 Encourage competition,
 Reduce interest rates,
 Build up resources for long-term credit,
 Introducing new know-how in banking sector,
enhancing human resource capacity
These changes have no real impact
Superficial changes and reforms
Number of foreign banks increased,
however it does not produce expected
results.
 Still no big foreign bank entered Mongolia
 No real competition on the banking
market. All banks accept apartments as a
collateral.
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Conclusion: changes in banking
sector (2000-2004)
Clients, domestic businesses, individuals are yet to
benefit from qualitative changes such as:
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Financial sources for low-cost, long-term credits
Encouragement of private investment
Economic growth
Thank you