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May 21, 2024

Country Spotlight: Mongolia & Banking

Mongolia, a landlocked nation nestled between Russia and China, is riding high on an economic wave. An impressive 7% GDP growth in 2023 sets the stage for even more success, with forecasts predicting a 4.1% expansion in 2024 and 6.0% in 2025. The 2022 current account surplus, a first in over a decade, is a clear sign of Mongolia’s economic strength. Driving this growth is Mongolia’s flourishing banking and finance sector, with 12 commercial banks and 522 non-banks, the banking and finance sector boasts assets worth MNT 53 trillion, equivalent to 101% of GDP as of 2022. This robust financial landscape highlights Mongolia’s strategic location, abundant resources, and a maturing economy poised for further prosperity.

Over the past three decades, Mongolia’s banking landscape has undergone a remarkable transformation, laying the foundations for a robust two-tiered system officially established in 1991. With the central bank steering policy and commercial banks facilitating financial intermediation, the sector has steadily gained strength. As of early 2023, the regulatory capital adequacy ratio stood at a robust 16.3%, well above the 12% minimum requirement. Profitability soared in 2022, with the sector’s net profit reaching MNT 1.0 trillion, five times increase since 2012, translating to a 2.4% return on assets and an impressive 17.0% return on equity. Since 2012, total capital has quadrupled to MNT 4.8 trillion, underscoring the sector’s remarkable growth trajectory.

Mongolia implemented sweeping banking reforms in 2021, amending laws to convert banks to transition from limited liability to joint stock companies, especially systematically important banks, boosting governance and efficiency. Ownership caps were imposed, limiting single shareholders to 20% and ownership across multiple banks to 5%. A pivotal outcome was the mandatory initial public offerings for systemically vital banks, significantly boosting lending capacity, capital adequacy, and financial performance. Moreover, Mongolia is now opening its doors to foreign banks for the first time, aiming to attract foreign currency liquidity, expand lending opportunities, modernize its banking sector to be more investor-centric, and foster long-term economic growth through deeper financial markets.

Fueling Mongolia’s banking boom is the surge in digital banking services, catalyzed by rising internet and smartphone penetration. With 99% of Mongolians over aged 14 owning bank accounts and over 4 million smartphones for a population of 3.5 million, technology adoption is skyrocketing. As sweeping reforms enhance governance and transparency, and foreign investment flows in, Mongolia stands poised for remarkable economic growth. Delphos, with its expertise and commitment to sustainable development, is well-positioned to foster economic prosperity within Mongolia’s rapidly evolving banking landscape. The nation’s digital drive and investor-friendly policies present immense opportunities.

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