♣️ CASINO IN MONGOLIA? | NPLs | MONGOLIAN FINTECH MAP

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Hey there! Today’s edition includes some important third-quarter figures about the Mongolian market. We hope that you’ll find them useful. 😊

🤔 DID YOU KNOW?

💸 ALL ABOUT NPLs

In Q3 2022, non-performing loans (NPLs) in the banking sector increased by ₮463 billion to ₮2.56 trillion, accounting for 11.2% of the sector’s total loans.

What’s going on?

The sharp increase in NPLs is bad news amid the long-awaited IPO season of systemically important banks that has already begun. Here’s how Ch. Sosorbaram, Chief Economist of the Academy of Banking and Finance, explains the reasons behind it:

• Worsening transport and logistics, as well as border conditions are directly affecting mining, processing and construction sectors;

• The consequences of pandemic policies aimed at supporting the economy, extending the repayment of loans and temporarily changing the classification of assets are starting to show;

• The reclassification of some loans during top banks' asset quality reviews is also beginning to reveal its repercussions.

Winter is coming?

Despite the dramatic increase in Q3 2022, the ratio of NPLs still maintains at more or less the same level as the last few years. Considering banks have also created risk funds equal to 88.3% of their NPLs, there’s no need to panic, but there’s ground for worry - everything depends on how the country’s economic conditions will further develop.

Currently, NPLs make up 16.4% of corporate loans and only 4.3% of individual ones. The situation may worsen if high inflation and currency devaluation persist next year, as people start paying off their postponed mortgages next year.

Will it affect bank IPOs?

With growing NPLs and risk reserves, banks are likely to experience a drop in both profits and revenue. This might result in higher investment risk and, consequently, lower investor confidence.

• Fun fact: Mongolia’s five systemically important banks made a total profit of ₮869 billion in Q3 2022.

In the end, if you’re interested in participating in the banking sector’s IPOs or simply worried about your bank’s deposit risk, it’s probably a good idea to pay a visit to the relevant banks’ official websites. 😉

📉 DATA STORY

The map includes as many as 187 logos, including the overlapping ones that belong to companies providing services in multiple different fintech branches. It’s worth noting that fintech is taking the NBFI sector by storm, accounting for 92.2% of its total customers and 88.8% of its YoY customer growth in Q3 2022.

🃏 FUTURE OF GAMBLING IN MONGOLIA

Casinos are currently illegal in Mongolia. However, the Ministry of Justice and Internal affairs has recently placed a number of draft laws on their official website regarding gambling, casinos, betting and lotteries. Here’s what you need to know.

Casinos

Back in 1998, Mongolia adopted the Law on Launching and Operating Casinos, announcing a tender for running the country’s first gambling house. Unfortunately, the selected company, Mon Macao, soon got embroiled in bribery scandals, resulting in the revocation of the law and the ban on casinos altogether. Since then, multiple draft laws have been introduced to the Parliament of Mongolia, but none of them passed into law.

In this sense, the bringing of the new draft laws to the public eye may be interpreted as the Government’s ambition to finally legalize gambling businesses in Mongolia. To mention some of the provisions:

• A special license to operate a casino will be issued to 3 companies at most based on tender selections.

• A special license will be granted for 30 years with a possibility of a one-time extension for 10 years.

• A casino will be launched exclusively in a free-trade zone.

• The Government of Mongolia will control casinos through its Special Committee by auditing their business operation, approving the list of acceptable gambling games etc.

• The minimum initial investment required for running a casino will be set at $300 million which must be imported into Mongolia within the first 3 years of operation.

• When the special license expires, 50% of the total shares of the licensed company must be transferred to the Government of Mongolia.

• A casino will provide services exclusively to foreign citizens.

• A casino must ensure its transparency and compliance with Mongolia’s tax system, and that all payments, including daily transactions, are made through Mongolian commercial banks.

Of course, it’s too early to foretell the end results of these laws since there is still a long way until the drafts make their way to the Parliament. But, if they get adopted, they will surely bring a significant change to the country and catch the eye of foreign investors and tourists.

Betting and Lottery

The current law requires that both betting and lotteries are carried out only with a special license. In reality, only few such licenses have been granted because of the lack of some procedural regulations. The new law might close this loophole and bring such activities under state control.

In addition, the drafts suggest that the minimum charter capital amount for license applicants is set at ₮1 billion for betting and ₮500,000 for lottery, and the term of the license be for 10 years - twice as longer than the current one.

Horse race betting

In this regard, the drafts propose to build special horse race circuits and allow betting only within them. Requirements for organizers and participants are also included in the proposal. Organizers, for instance, must be authorized associations for horse racing, and the jockeys - certified professional riders.

In the end, the adoption of these laws has the potential to open space for new kinds of businesses, including horse resting/cooling services, betting softwares, rider training etc. The legalization might also result in the development of a legal framework for regulating crimes and other incidents, such as match-fixing, that could ensue from the legalization itself.

🏃‍♀️ QUICK STORIES

📌 Mongolia’s capital market reaches ₮4.8 trillion valuation in Q3 2022. Securities worth ₮328.4 billion were traded in the third quarter, with the average stock liquidity currently standing at 2.7%. Industrial enterprises made up the majority 56.3% of the TOP-20 Index companies’ total valuation.

📌 Total assets of insurance market increases by 1.1% to ₮449.6 billion in Q3 2022. 2,948,989 items worth ₮127.2 billion were covered with general and long-term insurance, leading to ₮216.3 billion in collected premiums - a 14.7% increase compared to the same period last year.

📌 Construction of highway route connecting ports with both neighbors completed. The 745 km road between Altanbulag (Mongolian-Russian border) and Zamiin Uud (Mongolian-Chinese border) is the first major route that makes Mongolia a transit country directly connecting Europe and Asia by road.

📌 Joint Statement on Japan-Mongolia-United States trilateral meeting. With Japan and the United States expressing their support for Mongolia’s democracy and Third Neighbor policy, the parties exchanged views on matters of global importance, such as the war in Ukraine and nuclear development in North Korea.

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