Transcript financial supervision: banking sector

Mongolian Financial
Supervision Mechanism
by Zol Ganbat (GMBA student)
Student ID: MA3N0219
December 2nd, 2014
CONTENT
BRIEF INTRODUCTION TO MONGOLIA
FINANCIAL SECTOR IN MONGOLIA
FINANCIAL SUPERVISION: BOM, FSC AND FRC
CONCLUSION
BRIEF INTRODUCTION TO MONGOLIA
 Territory:
country)
 Ethnicity:
 Predominant religion:
 The capital:
 Official language:
 Political system:
 Currency:
 Economy:
 Industries:
 Population:
 Age structure:
1,564,116 square kilometers(The second largest landlocked
Mongolian
Tibetan Buddhism.
Ulaanbaatar (urban population is 62% of the total population).
Mongolian.
Parliamentary democracy.
Tugrug (MNT, ₮ ), 1 USD =1,880.00 MNT .
Fast growing economy in the next decade (2010-2020).
Mining, banking, property, consumer goods.
2,953,203 (November, 2014.)
0-14 years: 26.8% (male 404,051/female 388,546)
15-24 years: 18.7% (male 278,912/female 273,167)
25-54 years: 44.5% (male 636,799/female 677,236)
55-64 years: 5.9% (male 80,267/female 94,021)
65 years and over: 4.1% (male 49,314/female 70,877)
 Population growth rate: 1.37% (2014)
 Gender ratio:
male population (49.4%)
female population (50.6%)
GDP AND NATIONAL DEBT
$17 731 875 994
GDP this year (PPP)
$6 120
GDP this year per capita (annual $6 912)
$45 432 158
GDP today
$16
GDP today per capita
$12 014 794 611
Total National Debt (Public Debt Clock)
$4 147
Total National Debt per capita
$1 797 994 611
National Debt this year
$4 606 776
National Debt today
FINANCIAL SECTOR IN MONGOLIA
 14 commercial banks, 245 non-banking financial institutions (NBFI) and about 143
savings and credit cooperatives (SCCs) (3rd quarter of 2013).
 The banking sector currently dominates the financial sector.
 Main organizations responsible for Financial stability and supervision of Mongolian
sector are:
 Bank of Mongolia (BOM) - responsible for supervision of banks
 Financial Stability Council (jointly established by the Bank of Mongolia, Ministry
of Finance (MOF) and Financial Regulatory Commission (FRC) on May, 2007).
The mission of the Council is to contribute to a sustainable economic growth by
developing a sound and competitive financial infrastructure along with improving
financial services in terms of quality and access.
 The Financial Regulatory Commission (FRC) - responsible for supervision of all
other financial institutions including insurance companies, savings and credit
cooperatives and non-banking financial institutions)
 Strategy for Supervision:
 The objective of the Supervision Department is to reduce financial risk and to
increase risk tolerance of the industry.
FINANCIAL SUPERVISION:
BANKING SECTOR
 The banking sector, which dominates the financial sector, underwent several crises in
the 1990s.
 Pressures faced by the banking sector during the 2008-2009 crisis have further
eased. Nevertheless, challenges remain. The banking sector benefited from a faster
than expected recovery of the economy as a whole.
 There are currently 14 registered commercial banks in Mongolia
 The banking sector accounts for 96 percent of total assets of the financial system.
The banking system is highly concentrated, with the top 3 banks accounting for about
70 percent of market share, and the top 5 banks accounting for over 86 percent.
FINANCIAL SUPERVISION:
BANKING SECTOR
 Bank lending is growing rapidly to both households and corporates.
 Access to financial services in Mongolia appears to be relatively high when
measured by the demographic penetration of branches.
 Loan and deposit penetration is also high.
FINANCIAL SUPERVISION:
BANKING SECTOR
 The banking system has grown rapidly from a small base, yearly average asset
growth of over 30 percent from 2006-2009. In 2010, the ratio of total bank assets to
GDP was 7 percentage points higher than in 2007.
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Figure 2 : Comparative indicators (financial assets to GDP ratio in 2009)
FINANCIAL SUPERVISION:
BANKING SECTOR
 Summary for the Mongolian banking sector as of January, 2011 compiled
by Resource Investment Capital:
 The minimum capital requirement for commercial banks ordered by the
Bank of Mongolia is MNT 8.0 billion ($6.4 million).
 In Q3 2012, non-performing loans as percentage of total outstanding
loans declined to around 3%, significantly reduced from the previous
year.
 General levels of NPLs (Non performing loan) were considerably low
throughout 2012.
 Real interest rates are going up, due to lower inflationary pressure.
 Business activities have decreased in 2012. Therefore, coping with the
potential fundamental weaknesses of the banking sector in Mongolia
could be a top priority for the officials in charge.
 Deposit Guarantee Law has ended December 2012. Hence,
consolidation of the industry is inevitable.
FINANCIAL SUPERVISION:
BANKING SECTOR
FINANCIAL SUPERVISION:
BANKING SECTOR
FINANCIAL SUPERVISION:
BANKING SECTOR
FINANCIAL SUPERVISION:
BANKING SECTOR
FINANCIAL SUPERVISION: BOM

Bank of Mongolia ("BOM") is the central bank of Mongolia, operates in accordance with the
Constitution of Mongolia, the Law on Central Bank (Bank of Mongolia), and other laws of Mongolia.
 Established in June 2nd, 1924 under the resolution of the Government of Mongolia
 BOM system includes 17 regional offices in Mongolia, its
representative office in London, England.
 The primary function of the BOM:
 ensuring the stability of the national currency of Mongolia
 to promote balanced and sustained development of the
national economy, through maintaining stability of finance markets
and banking system.
 The main functions of the BOM are as follows:
 issue of national currency of Mongolia and organization of its
circulation;
 formulation and implementation of monetary policy by
regulating money supply in the economy;
 acting as depository of the Government of Mongolia
 exercising banking regulation and supervision;
 organization of interbank payments and settlements;
 holding and management of the State’s reserves of foreign currency;
 acting as a lender of the last resort for banks and organizing a system of refinancing;
 representing Mongolia in other central banks, international banks and other credit institutions where
cooperation is maintained between the central banks;
 exercising other functions in financial and credit areas within the competence defined by the Law.
FINANCIAL SUPERVISION: BOM

According to the Law, the BOM provides following things:
 loans to banks to support their liquidity
 buys and sells securities in the secondary market
 buys and sells foreign currency valuables, precious metals,
 sells commemorative coins made of precious and non-precious metals in the domestic and
foreign markets,
 performs operations of servicing of the Government debt in respect of placement of
Government securities, their redemption and interest payments,
 maintains accounts of the Government and other government institutions, including accounts
of the Ministry of Finance (fiscal agent of the Government of Mongolia), accounts of
international organizations
 conducts other operations necessary for the performance of its functions.
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The charter capital of the BOM is fully owned by the State of Mongolia.
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In accordance with the Law, the main task of the BOM Council (Board) is to develop principles of
monetary policy and exercise control over implementation of the monetary policy.

BOM Council approves annually the BOM budget of income and expenditure for the next year,
approves annual financial statements of the BOM, report on fulfillment of the BOM budget of
income and expenditure and distribution of profit t for the reporting year, as well as performs other
functions according to its authority defined by the Mongolian legislation.
Foreign Investment Legal Framework
FINANC IAL SUPERVISION: FSC
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The Financial Stability Council (FSC) was established by joint decree dated May 9th, 2007 by the
Central Bank of Mongolia (BoM), Ministry of Finance (MoF) and the Financial Regulatory
Committee (FRC).
The primary objectives: safeguarding the financial stability of the markets by determining any kind
of financial risks and managing them within the current laws and regulations.
FSC is the first ever body of this nature established in Mongolia.
There is a research unit responsible for studying the solvency related issues in banking and nonbank financial institutions sectors, securities and insurance markets.
The Steering Committee of the Financial Stability Council has regularly scheduled meetings every
quarter to assess internal and external factors underlying financial risks and formulate policies to
address them.
The Financial Stability Council has been set up in line with international best practices and is keen
to co-operate with other international financial and standardization institutions.
Reports on balance sheets and other documents analyzing financial institutions is released in the
form of a Financial Stability Report every 6 months.
“THE REGULATION ON FINANCIAL STABILITY COUNSIL” was approved on April 5th, 2010 by
FSC.
The purpose of this regulation was to define organizational structure and accountabilities of the
Financial Stability Council that been jointly established by the Bank of Mongolia, State authority of
finance and economic affair and the Financial Regulatory Commission and hence to set out
working relationship of the parties.
FINANC IAL SUPERVISION: FRC
 The Financial Regulatory Commission (FRC) of Mongolia was
established under the Law on the Legal Status of the Financial
Regulatory Commission on January 24th, 2006 and the Parliament
of Mongolia appoints its Chairman and Commissioners.
 FRC has been working to create a fair and sound environment for the whole nonbanking financial industry.
 The establishment of the Commission is the mark of a new financial regulatory
system in Mongolia which separates banking and non-bank institutions.
 More than 1000 legal entities such as legal entities participating on the securities
market, commercial insurance organizations, non-bank financial institutions, and
savings and credit cooperatives are regulated by the FRC.
FINANC IAL SUPERVISION: FRC
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Mission: “We aim to ensure nation’s financial market stability.”
The Commission is organized into the following operational units:
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The Administration Department
The Insurance Market Department
The Microfinance Department
The Legal Division
The International Cooperation Division
Internal Control Unit
The Financial Reporting, Auditing and Valuation, Assessment Quality Control Department
The Financial Regulatory Commission, the organization, generally, is in charge of the following
affairs:
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Organize and supervise activities related to the implementation of laws and regulations in relation with
financial services
Draft, amend and approve regulations as needed
Grant, terminate, revoke, make changes and approve certifications and specific license for operation of
financial services
Supervise and regulate license holders
Establish charges pertaining to license holders
Examine, make decisions, and resolve matters or disputes between license holders and their customers
Establish ethical regulations for companies and supervise the implementation
Maintain the stability and sustainable of the Mongolian financial sector
Protect and promote the rights of consumers and rights of financial depositors
Educate the public and heighten its awareness
Additionally, the Commission acts according to other related provisions of the laws in the financial sector
CONCLUSION
 Main organizations responsible for Financial stability and supervision of Mongolian
financial sector are: Bank of Mongolia (BOM), Financial Stability Council and
Financial Regulatory Commission (FRC).
 Sustainable development of the financial system will also depend on improvements to
the supervisory framework. The bank of Mongolia has a reasonably well developed
risky- based approach to bank supervision, given the current stage of banking
development. However, there is room for improvement in the implementation of bank
supervision, especially the supervision of banks liquidity and operational risk, which
will become important as banks become more sophisticated.
 The legal and regulatory framework should also be improved.
 FRC ‘ supervision non-bank financial institutions and the capital markets is much less
developed than bank supervision
 FRC needs a substantial increase in resources, more training and better industry
statistics to strengthen its performance.