State Bank takes over insolvent Khadgalamj Bank
- Khadgalamj bank account holders will not lose after the State Bank take over, said the Central Bank -
Mongolia’s fifth-largest lender, Khadgalamj Bank, has been taken over by the government-owned State Bank after it was declared insolvent when affiliated companies defaulted on loans. The defaults left the bank with a total loss of 180 billion MNT (approximately 122 million USD), according to spokespersons from the banks in a press conference held on Monday.
“In accordance with the bank’s policies and acting director, on June 22, the active and passive assets of Khadgalamj Bank, all of its branches, and employees will be transferred to the State Bank’s control. This decision was reached on the basis that it is less costly than implementing structural reform at the bank. Starting [Monday], the bank’s interests, customers and account holders will be transferred to State Bank. Khadgalamj Bank’s state services and transactions will go through the State Bank. This ensures safety for the bank’s interests, including its 1.7 million customers, and 980 billion MNT in financial interest. At the moment, no request to buy the bank, in relation to its insolvency, has been made to the Central Bank of Mongolia,” said Danjilaa Ganbat, director of the banking supervision department at Mongol Bank.
Khadgalamj Bank was owned by Just Group, a holding company based in the capital, whose other assets include Just Oil LLC, a fuel importer. The takeover is the first by the government since 2009.
Khadgalamj Bank is one of the five largest commercial banks in Mongolia with 503 branches, one in each soum and province of Mongolia. Khadgalamj Bank has 1.7 million customers and over three thousand employees, and accounts for about eight percent of the nation’s active banking assets and 55 percent of government financial services, such as disbursement of pensions and payment of utility bills.
According to the Central Bank of Mongolia, Khadgalamj Bank’s major stake holder, Sh.Batkhuu (major shareholder and director of Just Group), used his 12 companies to acquire a loan from the South African bank, Standard, and paid it using loans from Khadgalamj Bank, which he then defaulted on. The bank said their losses began in 2011. According to Khadgalamj Bank, Sh.Batkhuu took out 162 billion MNT in loans.
Spokespersons for the bank said that Sh.Batkhuu transferred all his loans to Khadgalamj Bank alone and intended to pay them back by implementing the Olon Ovoot gold mining project. But the mining project failed and caused the bank to suffer severe losses.
The legal issues surrounding the losses and bad loans issued by the bank, will be handled by the Central Bank of Mongolia. Some sources claim that Sh.Batkhuu may be investigated by legal authorities.
Other lenders are healthier, D.Jargalsaikhan, an economist and commentator on the television show De Facto, told Bloomberg .
“The central bank now has things in control,” Jargalsaikhan said. “I don’t think all the banks are like this, but we should draw certain lessons. There was too much risk on one individual and there was a problem with poor corporate governance and conflicts of interest.”
“The merging of two banks will ensure that the savings of 1.7 account holders remain risk-free. Furthermore, the 3,268 employees of Khadgalamj Bank will continue working in their current position and salary,” said the CEO of State Bank, D.Batsaikhan.
Khadgalamj Bank is the third bank to be taken over by the government, following Anod Bank JSC in 2008, and Zoos Bank JSC in 2009. The lender has losses of 180 billion MNT and its working capital is 94 billion MNT lower than its assets, the central bank told Bloomberg.
All Khadgalamj Bank branches were closed on Sunday as its assets were moved to State Bank, said Ganbat of Mongol Bank.
The State Bank was formed by the government in 2009 to hold Anod Bank and Zoos Bank, and functions like a commercial lender. Mongol Bank is the nation’s central bank.
When asked why the Central Bank didn’t intervene when the bank issued a loan that they could not afford, the Central Bank told local news, “This issue started two years ago. Although the state provided all the support it could, the issue still remained.”
Some local media reported that the State Bank was chosen to take over Khadgalamj, as it had been doing well in the past three years, and that the state would provide 100 billion MNT for the merger. Officials have said that since the State Bank has been doing so well, it is expected to be privatized in two to three years’ time.
The Central Bank said that the Khadgalamj Bank issue is different from Zoos and Anod Banks, as there were accounting issues when they were declared bankrupt, but there will be no risk to Khadgalamj Bank account holders.
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