Financial system stability: Impacts on real sectorBatpurev A. (MSc)Mongolian Capital Market Council

Discover Mongolia Forum 2016-9-8

Financial system includes many sectors and affects all

Financial system stability is not only about financial institutions’ stability

Foreign sector pressures on BOP increasing(caused by sudden decrease in export & FDI)

Monetary policy indicators remain unfavorable

MNT/USD (left) MNT/EUR (right) Data: MB

MNT/RMB (left) MNT/RUB (right) Data: MB

Banking sector still vulnerable

2008

2009

2010

2011

2012

2013

2014

2015

2016

NPL by sectors

Whole & retail ConstructionProductionGross loan

Real estate MiningOthersGross loan

Source: Bank of Mongolia

Under-development of Financial market makes situation worse

Irresponsible fiscal policy – Budget on the edge of cliff

Financial system instability holds real sector back Personal loan

growth (right axis. Annual

%)

Total outstanding loan

(left axis. bln MNT) Data: Mongolbank

Financial crisis to Economic recession?

Are policy responses in right direction?

Options of short run policy response

Foreign sector shock

Unfavorable monetary indicators

Irresponsible fiscal policy

Vulnerable financial

institutions

Underdeveloped financial

market

Real sector recession

Debt restructuring

Privatization of strategic companies

IMF - Standby arrangement

Globalization of financial sector

Restructuring debts at higher cost

Bonds Coupon

Principal/

Mln.USD

Price*

Yield Maturity date

DBM bond 5.75 580 96.48 12.701

2017-03-21

DBM bond / Samurai

1.25 290 104.50

0.856 2023-12-25

Mongol 2018 4.125 500 9654 6.460 2018-01-05Mongol 2022 5.125 1000 88.17 7.427 2022-12-05Mongol 2018 / dim sum

7.5 150 94.80 10.518

2018-06-30

Mongol 2021 10.875 500 104.95

9.364 2021-04-06

*As of 2016-09-04

Privatizations of strategic mines require political will

IMF, friend or foe?

SDR interest rate at o.o5% floor level

Financial sector integration requires fundamental reform

• No foreign bank• Limited foreign

ownership• Simple deposit to loan

business model

Banks

96%• Insufficient portfolio investment • Almost no foreign investment fund• Inefficient insurance industry• Lack of market infrastructure

Non-bank financial industry

4%

• Limited access to

capital • High financing

cost • Short maturity • Growth

inclusiveness lack

• Risk management unavailability

• Captured regulation

• Bad corporate governance, transparency & Investor protection

• No confidence

Dom

estic

fina

ncia

l as

set a

lloca

tion

🚪🔓

🌐 International financial market- Capital

- Technology & Knowhow - Rules & regulation

- External risk exposure but more opportunity to manage risk

Thank you!bbatka@gmail.comwww.batpurev.mn, www.capitalmongolia.com

BBE Consulting LLC&

Mongolian Capital Market

Council2016