Otgonbayar M: Banks were and will be an essential pillar of the economy


Chief Executive Officer of TransBank

Source: Mongolian Economy magazine

How do you evaluate Mongolia`s banking sector development? Based on your evaluation, what can you say about the current position and participation of TransBank in the banking sector?

The banking system has positioned itself in the driving seat of Mongolia`s financial system for the last 28 years. Commercial banks accounted for 95 percent of the banking sector four to five years ago. This has been reduced to 88 percent as of the second half of 2018. This is a good sign. It means the activity of financial institutions other than banks have enhanced and intensified competition in the sector has contributed to multiple choices and accessibility of financial services. 

To ensure the stable development of our home country, the financial sector institutions must pay special attention to risk-free, reliable and profitable operation. Furthermore, the government should implement a policy aimed at strengthening and supporting the national financial sector. Consequently, the confidence of foreign and national investors who are interested in investment banking and the financial sector of Mongolia will rise.

Our bank was established 22 years ago and ownership of the bank changed in 2016 when new shareholders, owners, board of directors and executive management team started their operation. The main concept we adhere to is the shareholder`s equity is good enough to provide stable and long-term operation. In that way, the total assets of the bank have reached 81 billion MNT at the moment. This is the seventh most among Mongolia`s banking system. This year, our purpose is to increase that number to 100-150 billion MNT. 

Within the last 2 years, our bank has been successfully assessed and rated by PwC, KPMG and Moody's, an international audit and rating agency. Moreover, the total assets of the bank have increased 50 times in the last 2 years, and we have granted a 534.4 billion MNT loan with a weighted average interest rate of 15.67 percent in 2018. On top of this, a 319.3 billion MNT loan payment was made in 2018. 

In 2018, profit before taxes reached 5.2 billion MNT and more than 2 billion MNT was paid to the state budget in the form of taxes and fees.       

Could you please share your thoughts on relations between the Bank of Mongolia`s policy and the operation of commercial banks?

The Bank of Mongolia implemented many important measures in 2018 including amendments to the major laws and legal documents within the framework of legal reform. These measures have shifted strategy of the commercial bank supervision from performance-based to a risk-based concept and enhanced the responsibility of bankers. Positive outcomes of these actions include the optimized structure of supervision and examination which reduces future risks. Moreover, the Asset Quality Review was conducted in the Mongolian banking sector by the IMF and the necessary measures to increase the total assets of the banks were implemented. 

Consumption loan was limited to maintain the inflation rate around the target level and increase the foreign exchange reserve. These measures and the policy of the Bank of Mongolia were supported and cooperated by all commercial banks. Henceforth, together we must implement strategies aimed at reducing non-performing assets and loan interest rate. What do banks want from the government is to ensure macroeconomic stability in the long term. Specifically, the inflation rate should be low, the balance of payment be positive and the currency exchange rate be stable. If these conditions are met, then the financial intermediary cost of banks and financial institutions could be reduced.  This creates a favorable condition that could eliminate a certain amount of risks to businesses by offering them suitable financing options. This would certainly bring a positive impact on the economy.                          

What reforms was TransBank implementing when Fourth Industrial revolution is discussed almost in all sectors?

No sector is separate from this digital revolution. We should accept the fact that the bank, finance, education, media, and car manufacturing sectors are most affected by the revolution. Therefore, businesses must rethink their business models and make necessary adjustments in connection with the revolution. 

As for our bank, we analyzed the current competition status of the Mongolian banking and financial sector. Based on our findings, we have concluded that corporate and personal banking should be our business priority.  All the required measures have been made to achieve this goal. For us, the main objectives are to have a compact and skilled workforce, to reduce decision-making time, to ensure the fast and flexible operation and make operational costs as low as possible. In order to achieve our objectives, we are working hard to introduce innovations and information technology that offers all the necessary banking service to our dear customers. 

It is said that a financial crisis is inevitable. Do you think this is a well-reasoned prediction? How can we prevent another crisis? How do you see the future of the Mongolian banking sector?

The risk to the world economy is increasing and economic growth could be weakened. It was noted in the recent World Economic Outlook Report of the World Bank. Last year, the world economic growth was three percent and it could diminish to 2.7-2.9 percent in 2019 and 2.6-2.8 percent in 2020. The reason is a trade war between two nations that play leading roles in the world economy. If the war leads to commodity price falls in the international market, we can`t solve this problem individually. On the other hand, our country must make the foreign loan and interest payment total about 13 billion USD from 2020 to 2024. We must not forget that the parliamentary election is to be held in 2020. If the ruling political party violates the budget discipline, it increases unproductive public expenditure and conducts unnecessary investments that could certainly lead us to another economic crisis.

However, we consider the next 10 years of the financial sector development to be very positive. The past 10 years have witnessed 8-10 percent annual growth of total assets of the banking system. If we can keep this rate for another 10 years, total assets of the banking system shall approach 70-80 trillion MNT. No megaprojects and their influence are included in this estimation. Therefore, we can say domestic banks that manage money circulation of the nation were and will be an essential pillar to the Mongolian economy.