🏦 BANKS: ASSET QUALITY REVIEW | LATELY IN CRYPTO | TOP-20: SHAREHOLDER INCREASE

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Good morning! If you’re in Ulaanbaatar, you probably already feel the slight smokiness in the air - it’s the air pollution kicking in, with people starting to burn coal for heating. Wear your mask, use an air purifier and try to do everything to protect your health.

🤔 DID YOU KNOW?

🏛️ ASSET QUALITY REVIEW OF SYSTEMICALLY IMPORTANT BANKS

In order to facilitate the reincorporation process of the five domestic systemically important banks (D-SIBs) and, accordingly, their IPOs, the Bank of Mongolia carried out an asset quality review (AQR) from June 2 until August 2, 2022. A Kazakh company, PricewaterhouseCoopers Tax & Advisory LLP, acted as an external consultant to the review process.

Overview

It covered 70% of the D-SIBs’ total loan portfolio, with the consultant company reviewing and validating over 300 corresponding collaterals. The scope of the AQR is relatively broad and is consistent with the general practice of on-site bank inspections by the Bank of Mongolia.

As the AQR is a point-in-time assessment, its results reflect the asset quality of the banks as of March 31, 2022.

Key findings

• Required capital: Collectively, an additional capital of ₮22.2 billion, 0.05% of the country’s GDP, is required. The amount is significantly less than it was before and, thus, can be replenished in a comparable shorter period of time - the previous AQR revealed a required capital of ₮512 billion, 1.9% of the GDP.

• CAR ratio: The D-SIBs are obliged to comply with the minimum capital requirement with a capital adequacy ratio (CAR) of 12%. The combined AQR-adjusted CAR of the D-SIBs stands at 14.49% - well above the minimum requirement.

• Liquidity ratio: The AQR-adjusted liquidity ratio equals 34.8% - also well above the minimum of 25%.

Going forward

A review of similar nature was last conducted five years ago in 2017, which sets the potential precedent for the Bank of Mongolia to conduct AQRs every five years from now on.

With D-SIBs transitioning into open joint-stock companies, aside from the Bank of Mongolia, other domestic regulatory bodies, including the Financial Regulatory Commission and the Deposit Insurance Corporation of Mongolia, will implement supervisory and control functions as specified by the law.

As the publicly listed banks will be obliged to disclose more detailed information within their annual audited financial statements, their IPOs will ensure increased transparency and necessitate all stakeholders, including retail investors, to closely monitor the banks’ decisions and operations.

In the end

Not long after the completion of the AQR, the State Bank became the first D-SIB to IPO, receiving orders 3 times more than initially planned and successfully raising ₮67 billion. Their shares rose by a record 15% for four consecutive days as soon as the bank started trading on the secondary market. This shows that the remaining 2022 IPOs of Khan Bank and Golomt Bank are destined to be a success story as well.

📈 DATA STORY

Overall, the number of the TOP-20 index shareholders reached 198.2 thousand in September of this year, 14.5% more than in the same month of 2021. APU JSC experienced the biggest shareholder increase, with more than 5 thousand new investors buying the company’s shares over the last year.

💰 LATELY IN CRYPTO

A total of nine crypto exchanges have recently received an official status of virtual asset service providers from the Financial Regulatory Commission (FRC) as required by the law adopted earlier this year.

Why it matters

The event sheds a light of clarity on Mongolia’s crypto scene that was previously stuck in legal suspension - or the transitory period - where a wide range of crypto activities, including the issuance of new tokens and coins, was forbidden until the official registration of exchanges by September 26, 2022. Essentially, the crypto market is now more regulated than ever, with the registered exchanges having to:

• Submit detailed trading information to the FRC on a monthly and quarterly bases;

• Fill out a risk assessment questionnaire against money laundering and financing of terrorism twice a year;

• Report on suspicious trading activity etc.

In addition, despite some legal restrictions, including the requirement that providers offering staking services must not manage assets 30 times more than their own, crypto exchanges will still have full authority over which tokens and coins to register.

What to expect

Although the crypto winter hasn’t spared Mongolia, we are still optimistic about the future of our crypto market thanks to the legal regulation successfully being implemented, as well as the recent developments showing our potential in the field. Various crypto events have taken place since the start of the year with the participation of global professionals, including Cardano’s founder and the Vice President of Polygon. On top of that, even our education institutions are joining the scene, with the National University of Mongolia planning to issue NFTs.

🏃‍♀️ QUICK STORIES

📌 Germany's Scholz calls Mongolia an important strategic partner. During Prime Minister L.Oyun-Erdene’s visit to Berlin, the two leaders discussed a number of issues pertaining to energy cooperation. Olaf Scholz mentioned that Mongolia will become an important partner for many raw materials.

📌 Numur Credit NBFI successfully issues asset- backed securities (ABS). The company raised a total of ₮10 billion from orders of 113 investors during their initial offering on the Mongolian Stock Exchange between October 7 and October 13, 2022. The ABS interest rate stands at 17.5% with quarterly returns for 24 months.

📌 Chinggis Khaan museum opens to public. The opening ceremony was held with the participation of high-ranking officials, including the prime minister and members of parliament. The museum has more than 12,000 cultural exhibits from various periods of Mongolian history, spanning from the ancient states to the Great Mongol Empire.

📌 Inflation drops to 13.8% in September, 20 basis points less than the previous month. This is still a high number compared to the same period last year when inflation stood at 10.2%. The increase in food prices remains the main driving factor for high inflation in the country, accounting for 4.4% of 13.8%.

🟦 TOP NEWS

1. China-Mongolia ties to embrace greater potentials from infrastructure to trade under China’s BRI and Mongolia’s Steppe Road Program: envoy (Global Times)

2. Mongolia, Friedrich Ebert Foundation to continue to cooperate in strengthening parliamentary governance (MONTSAME)

3. Mongolia has taken significant steps to protect against arbitrary detention; vital to continue the work, UN experts say (OHCHR)

4. PM meets CEO of Transparency International (MONTSAME)

5. Genoa resident rides 3,600 kilometers for children in Mongolia (The Record Courier)