INTERVIEW-Central Bank says Mongolian banking system stable

Oct 30 • Economy, Finance, Government, Interview, News, Politics • 1546 Views • 2 Comments on INTERVIEW-Central Bank says Mongolian banking system stable

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By Lucy Hornby

ULAN BATOR (Reuters) – Mongolia’s banks are adequately capitalised, with no need for a big financial injection, a senior central banker said on Wednesday.

B Enhhuyag, first deputy governor of the Bank of Mongolia, said a former central bank chief “exaggerated” on Tuesday when he said the banking system would need a capital injection of $500 million.

“We are officially stating: the banking system does not need any bailout. The fundamentals are safe and sound,” Enhhuyag told Reuters.
“Our banks are adequately capitalised,” he said.

Because they have an extensive domestic deposit base, Mongolia’s banks depend on foreign borrowing for only about 8 percent of their funding, thus largely shielding them from global financial strains, Enhhuyag said.

The Bank of Mongolia has tightened monetary policy, by raising interest rates four times in a year and steadily raising reserve requirements, to rein in inflation of over 30 percent.

However, because real interest rates remain negative, loan growth has sharply outpaced deposit growth. At the end of September loans were 42 percent higher than a year earlier, although the pace of new lending has since slowed.

Former central banker O Chuluunbat said on Tuesday that a sharp deterioration in the banking system’s loan portfolio had led the government to consider a capital injection. [nPEK144077]

But Enhhuyag said non-performing loans on the books of Mongolia’s 16 commercial banks were about 3.1 percent of total loans at the end of September.

FALLING MINERAL PRICES

Mortgage loans are a particular concern to some Mongolia-watchers, but Enhhuyag said most home loans had been extended to higher-income families who pay on time.

Finance Minister S Bayartsogt said on Tuesday that Mongolia’s cabinet had authorised him to take action if needed, but the central bank’s indicators showed that a capital injection was not needed now.

Enhhuyag confirmed that the government was considering pumping in liquidity, but he said a bailout was not in the cards.

“If the central bank decides to go through with a liquidity injection it would be very limited, about 50 billion to 70 billion tugrug,” he said. That comes to $43 million-$61 million.

The bank was closely observing the interbank market, as well as inflation indicators for October, he said.

Prices of copper and other minerals of which Mongolia is a big producer have plunged this month and could force the government to pare spending plans to match an expected drop in revenue. Mining generates 40 percent of government revenue. [nPEK150568]

The government would consider providing funds to banks for lending on to the construction sector, especially for projects close to completion, Enhhuyag said.

The building sector has been hurt by the rising cost of raw materials and by a sharp slowdown in mortgage lending, following bank efforts to curb credit and prevent overheating.

“The assets of the banking system are real and it is well supervised by the central bank,” Enhhuyag said.

(Reporting by Lucy Hornby; Editing by Ken Wills)

source from: www.reuters.com

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2 Responses to INTERVIEW-Central Bank says Mongolian banking system stable

  1. Jesse W. says:

    VERY interesting stuff from issues outside my country.

    Jesse W.
    http://www.subprimeblogger.com

  2. Roy Dongen says:

    Despite a lot of critical comments from many concerning Mongolia, its governments and economic outlook we can see here that Mongolia is not doing so bad. The decrease in the world price for minerals like copper and others is easily to absorb once Mongolia really allows the mining sector to start since most of its huge mineral resources still stay untouched.
    Besides to above, mineral resources are limited and will be needed always, this is confirmed by the strong expressed interest of India, Japan and Korea in cooperation to explore Mongolia’s mineral wealth.
    Another strong token of trust in Mongolia’s economic future is the 1.2 billion dollar investment to build a refinery in Mongolia by Japan in spring 2009.

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