Mongol Bank decides the faith of the construction industry of Mongolia

Nov 6 • Economy, Finance, Government, News, Real Estate • 929 Views • 3 Comments on Mongol Bank decides the faith of the construction industry of Mongolia

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Mongol Bank pursues strict monetary policy to harness the inflation. But it is harming some businesses and private sector. It increased its principal interest rate twice since the beginning of 2008 and it was the warning for the commercial banks to limit or stop their loan granting. Housing loan was limited and apartment and housing price fell by 30-40%. Also construction companies have no fund to complete their projects. Commercial banks stopped their loan, even they wish to they have limited source. Therefore, the construction companies are at the brink of collapse and bankruptcy. Moreover, there is hearsay that the Government would buy real estate package with 200 billion MNT to fund the commercial banks. Mr. Boldbaatar, Director of the Monetary policy and research division of Mongol Bank and Mr. M.Batbaatar, the President of the Builder’s Association of Mongolia has their view regarding the current challenges in the construction sector.

M.Batbaatar: If no loan, the Mongolian construction companies will bankrupt within a year.

Q: Is it true that construction companies are stopped their operation due to the shortage of funding?
M.Batbaatar: Commercial banks stopped their housing loan, moreover, they stopped loan for the construction companies also. But quite many number of construction companies took loan from banks placing their project as the loan security. But their interest rate calculation is not stopped. Construction companies have to stop their operation due to the lack of funding. If this continues one more year, the construction companies will go bankrupt. Therefore, it is essential to grant them loan or stop loan interest that is already given at least for 1 year.

Q: Construction companies and your Association approached to the Mongol Bank. What was the result?
M.Batbaatar: Commercial banks need to determine their loan to construction companies and people in the past and categorize them. Also they need to evaluate construction companies and grant loan to those with high quality performance. Because people and construction companies both took part in most construction projects. If the construction work stop like this, people who ordered their housing will suffer. Therefore in order to avoid any failure in the construction sector, it must be solved at the level of Government.

Q: Did you make any progress in this direction?
M.Batbaatar: Law on Mortgage and real estate secured loan is not adopted by the State Great Khural. In Mongolia, it has future to develop secondary market of real estate. People take loan with high interest rate and pay to the construction companies. But if the secondary market is introduced, people can have 20-30 years long loan with interest rate of 4-5% per annum. In this case, housing projects can be sold easily and effectively.
It is also profitable for the commercial banks. There is hearsay that Government would buy real estate package with 200 billion MNT to fund the commercial banks. If the government implement this operation, it is also profitable for the Government, because it can issue stock or share at the foreign stock exchanges when the price stabilizes.

Boldbaatar: Construction companies were too greedy to lead them loss of sales.

Q: Construction companies approached the Mongol Bank to solve the current issue. What is the position of the Mongol Bank in this issue?
Boldbaatar: This issue was discussed through the Cabinet Meeting. The Government advised Mongol Bank to present the real situation regarding this issue and to take measure to prevent the commercial banks, which are granting housing loan, from possible risks. Last week, a working group was established to evaluate the construction sector, until the legal environment settled.
The representatives from Mongol Bank, Ministry of Construction and Urban Development, Mongolian Chamber of Commerce and Industry, Association of Traders, Housing Funding Corporation and construction companies are included in this group. I am also included in this working group. Most of all, we will register the incomplete construction projects. While we are doing this job, it was cleared that the construction sector statistics is so poor. We will study the impact of construction sector on banking sector and find out whether the condition of risk is imposed by the construction sector on banking sector or not. We will also find out exactly how much fund is needed to complete average housing project per square meter or in general. Public has notion that construction companies are selling their apartments with relatively higher than their built it. Housing price will not be increased further. The working group’s task is relatively wider and it will cover funding structure and system of the construction sector.

Q: It said that due to the lack of funding for the construction companies, construction progress is stopped.
Boldbaatar: Actually, now this time of year is the full stop for construction work. Also it is true that the loan is not sufficient enough to complete the construction work. In other words, their projected expense is increased due to the inflation and construction material price. In this case, if the commercial bank is granting additional loan resource for the construction project, then Mongol Bank is supporting it. If commercial banks can provide construction loan, then Mongol Bank will assist it to accelerate its normal procedure. It is about the companies with over 80% of total construction work. For other projects, it will stop anyway, so no loan is scheduled for them. Also according to the criteria by the Ministry of Construction and Urban Development, no concrete work can be done in winter.

Q: If it continues this way, construction companies will go bankruptcy. Will it affect the commercial banks? Also commercial banks have no capacity to provide loan.
Boldbaatar: If borrowers of construction sector do wrong with their financial resource management and business projects, then it is risky at any time. So, it will bring loss in banking sector also. People disseminate such information without proof of their information. Banking sector has its own legal environment and standard. Without it will be in risk. Why do banks need to give loan to construction companies when the loan agreement implementation is not in an appropriate level? Also, the construction companies can sell their apartments in last summer after getting loan and advancing in their construction work. They lost their chance.
They were so greedy to increase their profit margin. It is the truth. I think that construction sector shall bear its own risk when they failed to complete their project and failed to pay back the loan. Otherwise, banks are not running around because they have no money to lend.

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3 Responses to Mongol Bank decides the faith of the construction industry of Mongolia

  1. […] hERERA wrote an interesting post today onMongol Bank decides the faith of the construction industry of MongoliaHere’s a quick excerptCommercial banks stopped their loan, even they wish to they have limited source. Therefore, the construction companies are at the brink of collapse and bankruptcy. Moreover, there is hearsay that the Government would buy real estate … […]

  2. Ulsaa says:

    i think that main source is to have foreign investment into our construction companies with flexible taxing system.The problem is that when foreign investment comes through,the taxing policy is badly run and the society or the people in Mongolia couldn’t benefit.

  3. question says:

    No future and no more high profit for Mongolian construction business.

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