Mongolian manufacturing dreams crushed by the banking sector

Trans. by Ch.KHALIUN

If a recent report from the National Statistical Office is correct, it seems that most of the commercial banks in Mongolia might soon close their doors. We can find pawnshops on the corner of every building in every district in Ulaanbaatar, which means that pawnbrokers are seeing strong business while banks suffer.
The National Statistical Office of Mongolia (NSO) reported that according to data from local banks, the amount of non-performing loans was 625.7 billion MNT by the end of 2014, showing an increase of 5.7 billion MNT (0.9 percent) from the previous month and an increase of 59.9 billion MNT (10.6 percent) compared to the same period in 2013.
As the Mongolian President said, commercial banks in Mongolia are working like pawnshops. They just care about their interests and benefits, not thinking about the consumer’s satisfaction.
Pawnbrokers check every cleft of earrings and rings, and every scratch on cell phones and televisions, exploiting people with high interest rates on collateral loans. When the deadline for loan repayment passes, pawnbrokers just sell people’s collateral without warning, and many of the pawnbrokers never return the lost money to owners.
Parliamentarians wanted to draft a law on the issue, but lobbies of people who have become rich through the pawnshop business stopped the draft before its first discussion was held.
The same issue applies to commercial banks, they just think about how to get more money from consumers, instead of thinking of their satisfaction. It can be proven through many examples.
Mongolia dreams of becoming a manufacturing country. A policy was even created and a ministry established dedicated to pursuing the goal, and a project named “Supporting Export, Replacing Import 888” was initiated. But unfortunately, the criteria of commercial banks operating in Mongolia are really high and discourage businesses. They just focus on collateral requirements and real estate, instead of valuing people’s ideas and their desire to do something.
Therefore, we need to increase the independence of banks, which are surviving day by day thanks to rich people’s savings, and regulate them to have active capital for bearing risk. Domestic banks have become barriers for foreign banks that can become investors in major projects and programs supporting and valuing Mongolian ingenuity.
Consumers choose the best among the competition in a free market. Banks should benefit while having the ability to bear risk and invest in big projects or programs. The world’s largest banks operate on this principle, while in Mongolia, the biggest banks with capital have insurmountable criteria. The banks with less capital list a bunch of reasons why they can’t offer loans, directing the blame at the government.
In these times, talking about manufacturing development will always be only a dream.

We need to refresh the banking sector

Last week, Mongol Bank raised its policy rate to 13 percent, citing the increase of the USD exchange rate and the MNT’s depreciation.
There are murmurs that some commercial banks that can’t bear risk have stopped approving loans. In particular, they are following a principle to not issue eight percent interest rate mortgage loans, because the banks are not benefiting from these low interest mortgage loans.
The criteria for mortgage loans are quite high, but thanks to these loans, thousands of young families have apartments. Of course, some of them can’t repay their loans, repayment will take a long time, and deadlines must be delayed. It’s obvious, but if Mongolian banks refuse to issue mortgage loans, they should give foreign banks the opportunity to enter the domestic market.
There are lots of foreign banks with tremendous assets that want to operate in Mongolia, supporting domestic production. They just want us to open the domestic market to them, but we are insisting that we can do it by ourselves. We isolate the Mongolian market, but we need to think about why we are saying that mortgage loans are not efficient and that we will not issue those loans.
In the opinions of only some banking officials, opening the market to foreign banks will influence Mongolia’s national security, and bankruptcy in the banking sector shouldn’t limit people’s choices.
It’s an appropriate time for banks to understand that if they can’t provide loans to people, they need to step down.
We are offering our salaries and properties as collateral, and then take out loans, but banks are earning interest from our loans. The issue of taking only interest has been touched upon several times. If you have taken out one loan, you can’t apply for another within the same year. If you take out a loan from one bank, you can’t go to another bank for more loans. When you use an automated teller machine, you pay fees ranging from 100 to 500 MNT. The fee for inter-bank transactions has surged from 300 to 2,000 MNT.
After collecting a bunch of documents, you can receive only salary loans of up to 10 million MNT.
Only five or six banks that would consider herder’s livestock as collateral, or that fairly values people’s property, would be enough for a low-population country like Mongolia.
We need banks that can invest in nationwide developments, that can correctly value people’s income, that support people without real estate, that support production, and that value intelligence instead of only property. We need banks that consider projects and programs collateral and not only property.
If we have such banks, as many as possible, then we will be able to develop domestic production and become a wealth-generating country.
It may also open more opportunities for the wealthy to invest their money in the stock market, instead of just placing their money in banks and living off interest from savings.

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Posted by on Jan 26 2015. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

1 Comment for “Mongolian manufacturing dreams crushed by the banking sector”

  1. According to the consolidated balance sheets of banks, between Dec 31, 2013 – Dec 31, 2014, total loans of the banking sector grew 16%, while the sector’s NPL ratio declined from 5.3% to 5.0% and the share of loans issued in a foreign currency declined from 27% to 23%.

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