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Brief Information on Banking and Financial system of Mongolia.
Country Overview
Mongolia has made significant strides in achieving macroeconomic stability and fundamental structural reforms since its transition to democracy and a market-based system in 90's. With the help of international financial institutions and the wider donor community, Mongolia has made substantial progress over the past decade of democratic restructuring in laying down sustainable macroeconomic foundations and creating a private sector-led open economy. The next development challenge is to improve the lives and welfare of its people and reduce poverty by accelerating sustained and equitable economic growth.
This vision is articulated in its Economic Growth Support and Poverty Reduction Strategy (EGSPRS), a comprehensive medium-term framework of strategies, policies and programs to raise average annual growth and to reduce poverty from its current incidence of 36 percent. Currently, the EGSPRS is being updated.
 The country adopted a new constitution in 1992 that embraces principles of democracy and private ownership. The country has become one of the most open economies in the region, setting free government-administered prices, exchange rates, and interest rates, as well as establishing a two-tier banking system and opening doors for private initiatives.
In 2004, Mongolia’s GDP growth was at 10.6%, a significant improvement from 5.6% in 2003 and much higher than the projected 6%, due to the sustainable development in the livestock industry (favorable weather conditions caused an increase in livestock numbers),
the increase in agricultural sector production and the production of main industrial products (unit price of gold and copper increased due to favorable world market prices).
In 2004, the gross industrial output is expected to grow by 13% compared to 2003. End year inflation was 11% and transferred to two digit number due to external factors such as oil price increase in the Russian market, the price of imported diesel fuel and petrol sharply increased in the second half of 2004 and domestic consumption price went up following the petrol price increase.
The banking sector is small, but developing. Currently 12 commercial banks are licensed. The Trade and Development Bank (TDB), the Golomt, and Investmentand Technological Investment Bank (ITI) account for 77 percent of banking system assets. TDB and Golomt Bank are the largest banks. Access to long term credit is largely limited to the largest companies that have links with foreign banks and market.
The ultimate goal of the banking sector reform is to create a system that would promote efficient intermediation of financial resources. In order to achieve this goal, the following measures are to be implemented:
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bring bank management and organization up to international standards;
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align banking legislation and standards with international practices;
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ensure disclosure of bank activities;
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terminate government intervening in bank operation and activities;
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drastically improve internal control system of banks;
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raise financial discipline and responsibilities of participants in financial transactions;
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strengthen and train bank personnel and staff
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strengthen the Central Bank`s independence and supervision
The banks in Mongolia, including the Central Bank, make a variety of transactions with several American banks like the Federal Reserve Bank, the Chase Manhattan and the Citi bank.
The Mongol Bank implements State monetary and credit policy by performing the duties of a central bank in a market economy: issuing banknotes, ensuring stability of Tugrug /tug/, determining the reserve ratio of commercial banks, carrying out unified interest rate policy and inter-bank settlements, managing inter-bank and government lending, supesrvision of commercial banks, etc. Parliament appoints the Governor of the Mongol Bank and approves its balance sheet and budget.
Mongolia's Stock Exchange The Mongolian Stock Exchange was set up in 1991 and trading started in February 1992. Its initial function was to implement the distribution of shares of companies. Thus the Mongolian Stock Exchange played the unconventional role of auctioneer in the privatization process.
Securities market The secondary securities market started in August 1995. This required the undertaking of several measures, such as restructuring and certification of broker firms, ensuring technical facilities, certain organizational measures, etc. The Securities Law of Mongolia came into effect on 1 January 1995 and set out the major regulations pertaining to issuing and trading of securities, providing depository, clearing and settlement services, the protection of investors and oversight of the issuers and other persons involved in the activities of the securities market.
Securities Commission A Securities Commission responsible for monitoring and regulating the market now exists, creating a proper regulatory and supervisory environment for capital market transactions. Secondary market trading and cash privatization began in 1995. The policy of the Securities Commission is to provide free access, with no restrictions, of foreign nationals and Legal entities to share ownership along with Mongolians.
References: The World Bank - www.theworldbank.org
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