Mongolian banks enjoy improved governance and asset quality

The listing of D-SIBS in 2022 has improved disclosure and asset quality.

Mongolia’s banking sector is enjoying improving operating conditions, with improving governance and asset quality.

The banking sector’s systemwide bad loans ratio is expected to decline to about 8% over the next 1-2 years, from 11.3% by the end-2023, according to S&P Global Ratings.

The Bank of Mongolia’s 2022 asset quality review targeting domestic systemically important banks (D-SIBS) has improved asset-quality classification, assessment of collateral, and adequacy of provisioning, the ratings agency added.

The listing of D-SIBS in June has also led to better disclosure of information by banks. 

“We also expect these banks to be more cautious about their governance structure, management strategy, and risk control under more public oversight,” S&P said, adding that the listing of new shares has also added some capital buffer to the banks.

Notably, Golomt Bank JSC and the Trade and Development Bank JSC (TDB) are noted to have enhanced business stability, backed by their well-established businesses and customer bases in Mongolia.

Overall, local credit demand should remain strong, benefitting from favorable economic conditions along with policy rate cuts. 

"We believe banks strengthened capital buffers, rebalancing of asset portfolios in favor of more loans over lower-yielding fixed-income securities, and digitalization also contribute to high growth,” S&P said.

But this growth could in turn result in higher credit losses when the loan book seasons over time, it warned.