It is wrong for commercial banks to attract saving deposit with high interest rate.
MP O.Chuluunbat shares his views in this time of crisis and turbulence in the economy.
Q: Several years ago, saving and credit cooperatives offered so high interest for its saving deposits in order to attract its clients, but they went bankruptcy soon after. As for me, recently, commercial banks are repeating the same reaction and measures as the cooperatives did long ago before they had gone bankruptcy. What would you say?
O.Chuluunbat: Commercial banks have huge saving deposits from people. Therefore, the State shall monitor the commercial banks whether they are reliable or not, working good or not. Actually, the whole world is working like this. Also, people must be warned and updated with the situation. In other words, the Government organizations shall financially be transparent. The state and the financial organizations work for the interest well of people. I warned about it during the incident of saving and credit cooperatives that “It is suspicious to attract saving through unreasonably high interest and there is no business with such big profit”. Like them, it is wrong to attract savings through high interest rate. If they receive saving with such a high interest then the loan interest will be also high. If the loan interest is high, then price of everything will be increased. So basically, the source of the inflation is fueled again by higher financial cost. Therefore, since 2000, I told to the directors of the commercial banks that not to compete with each other by high interest rate, instead you should work on decreasing your financial cost. With lower interest rate nobody will take their money out of country. Mongolians will deposit their saving in Mongolia and Mongolians will get loan from Mongolia.
If banks cannot provide loan or if they can provide loan with high interest rate, then they have something wrong with their operation.
Q: Actually banks provide loan, based on loan, they make profit. Recently, they don’t give loan, but try to attract saving instead. How can they make profit from it?
O.Chuluunbat: Recently, I made statement regarding the commercial banks operation. Actually, I am not an official to make the statement, but I expressed my opinion, being as an expert for many years in this field.
Basically, there must not be any alarm in the banking and financial market. Especially, there must not be alarm regarding the people’s saving. If banks cannot provide loan or if they can provide loan with high interest rate, then they have something wrong with their operation. Therefore, they shall explain it to the people. Before the source of funding of commercial banks was increasing permanently, but as for today, this source for the commercial banks is closed or dried out. In other words they have less money flow than before. Or people withdrawing their saving deposits from commercial banks. They withdraw it and keep it under their mattress or in their safe. Foreign companies are withdrawing their money from banks and placing it in Hong Kong, Singapore or in their local banks, therefore, money source of commercial banks dried out. But these commercial banks will not go to bankruptcy.
Q: If the banks have no potential to provide loan, then is it the sign of bankruptcy?
O.Chuluunbat: People don’t need to be in panic the banks gone bankruptcy. Because, shareholders of a bank shall bear this risk. But the state or government needs to confiscate its foreign and domestic loans. Bank of Mongolia paid almost fully back the saving deposits of commercial banks when they went bankruptcy in 1996 and 1997. Therefore, people don’t need to worry about it.
When the world has problem, then Mongolia will have problem
Q: Banks said that they are not in risk if bankruptcy. There is a talk about that if they gone bankruptcy the state will bear their responsibility.
O.Chuluunbat: There is an experience in other countries to insure the savings in certain extent by the State. When I was working at the Bank of Mongolia, we drafted a law on this issue. But it is being discussed by the State Great Khural now. Unfortunately, it is late now; it might take more time to be approved. We shall adopt it immediately. Then people will become calm and will not withdraw their saving from banks.
Q: An alert within the society pushed people to withdraw their money from banks and banks have no money because of it, isn’t it?
O.Chuluunbat: Yes, there were dilemma on whether Mongolia would be affected by the world crisis or not. The Government and its related agencies or organizations should make a clear statement on it and calm people. This situation was formed because the related government organizations failed to make a clear statement like “There would be problem or difficulties, but we have full capacity of fixing it when necessary.”
Q: So, can people understand that the commercial banks will not go bankruptcy at the end?
O.Chuluunbat: Banks will not go bankruptcy. But people see that banks reserve is getting low and there is a delay in payments etc. Most of the construction in Ulaanbaatar stopped during the summer and autumn. No buildings completed. At least, everybody knows that it has been long since those buildings around the square started and still they are not completed. Everyone will understand about how is the situation like in Mongolia. Foreigners also see Mongolia has shortage of fund and money. When the world has money problem, then Mongolia will have this problem too. But if someone ignores it, then it is really pity for them and it is like cheating others.
Some people try to convince that the economy crisis is not affecting Mongolia
Q: Some experts say that world economy crisis will not affect Mongolia. But it affects us in reality, what is your opinion?
O.Chuluunbat: Its effect can be seen easily. I don’t want to go into detail, when it is too obvious.
Q: But it might be interesting for those who still don’t feel it.
O.Chuluunbat: At least, the State Great Khural started talking about placing fund at commercial banks. If no money, then progress will decelerate. It cannot be understood that only few people will not have their housing. But it will bring unemployment to many people who are working in this industry and many SMEs and factories that produce brick, armature, cement etc face difficulties in selling their product. When these people have less work and income, then their consumption will decrease and supermarkets and shops face decrease in their sales. Actually, Mongolians started to consume less food. You will see that nobody will get taxi or have car and all will stuff in buses. This is the economy crisis. When I meet with few owners of factories they say that their business is shrinking. Isn’t it the sign of crisis? I really don’t why some say that the crisis will not affect Mongolia. If they say that this crisis will not affect Mongolia even when the copper commodity price fell from 8000 US$ down to 3500 US$, then I think that they are trying to mislead us. I believe that the Government’s duty is to inform everything clearly and truly.
Money of banks will return, but money of budget will not.
Q: You said about placing 300 million US4 at commercial banks. Why the budget money is needed to be placed at commercial banks?
O.Chuluunbat: Budget money and commercial banks’ money have big difference. Commercial banks’ money will return with their interest and when they return, it creates something constructive. But most of the budget money just distributed. You see now that there is a big difference between these two. Therefore, is it better to distribute budget money under the name of children, family, flour, goat and petroleum money or place it at commercial banks and support something creative thing in the market with some interest rate return? The most important thing is that the budget money never return!
Q: The policy of shrinking budget money is under implementation. Therefore, the money that never return will be decreased?
O.Chuluunbat: Actually, a man who works hard and thinks harder can live. General public shall understand that it is not the time now to rely on budget money. But if we distribute money under the name of goat, children family etc and those who receive it idly, we are gradually going to our collapse.
Q: when this money will be placed at banks? Also I hope that the Government estimated its risk.
O.Chuluunbat: Bank of Mongolia started to provide money for commercial banks. I think that much more money can be given. Nothing is without risk. We must have courage to make risk. If the Government is afraid of risk, then it cannot achieve anything. Why need to be afraid of risking for the well being of the people? We should have political courage to take risk for the sake of people, country, creation and the nation.
Q: Ministry of Finance placed its 76 billion MNT at commercial banks. If it is withdrawn, how it will affect the commercial banks?
O.Chuluunbat: 76 billion MNT is small money for the commercial banks. It will not bring bankruptcy. But governments of other countries manage its money very well. Also they placed their money at banks that supports the Government policy. It is correct exercise. It must be implemented in Mongolia.
If we don’t react quickly, we will die in hunger
Q: In this time of copper price fall down to 3500 US$, it is suspicious to accelerate the investment agreement procedure with foreign companies. What do you think?
O.Chuluunbat: People should suspect that why we failed to attract investment when the situation was excellent. Mongolia has become a country that cannot build few good factories when the situation is promising.
As for me, I am not so much experienced politician. You know all that I am a new MP. It is pity for me that we choose such an idle, lagging and clumsy structure to make decision even we are so small country. Twenty big economies are summoning and making decision to get through this crisis, but we cannot make decision when our economy is so tiny like a children’s game. Therefore, we cannot make progress unless we change this clumsy structure. We waste so many years with bits and pieces, but we decide so important issue with rush within a week.
Basically, we should wrap these issues up and attract foreign investment. Thanks to the God, those super movements and demonstrations are disappeared recently. They made so many obstacles in the development of the state. Therefore, they have no word to say. We had chance to explore much more opportunities today, if we attracted so many investments when the copper price was 8000 US$.
Q: Isn’t it pity to move now when we lost that chance?
O.Chuluunbat: There is no other option. Otherwise, we are going die in hunger. We had had chance to make good alternative when needed but now we need to make decision before things go too late.
If China has demand, our products will be sold
Q: It is market rule in increase and fall of prices. But if rush to make agreement, but the market price will be increased in one or two years?
O.Chuluunbat: I have much optimistic point of view in this regard, because the Chinese economy develops. Mongolia works not in USA or European market, but it works in Chinese market instead. Therefore, If China has demand, our products will be sold. For example, the Chinese Government approved a plan of 560 billion US$ to develop its economy. With this plan, China will have fund to buy commodity, metal and raw materials. Mongolia should use this opportunity. If we sell our product to China, then our economy will surely grow. Basically, if Mongolia has factory then it is profitable for Mongolia. Many unemployed people will have work. These factories will consume all our production, such as electricity, road, water and even buses and pay tax. It is our revenue.
But Mongolians have strange behavior that those owners of these factories will become rich. We are losing in this sense. We don’t have sense or feeling that you will live wealthy if your neighbor will be wealthy. For example, if I were shoemaker, then if everyone is poor, who will buy my shoes? Therefore, if everyone is rich, then I can sell as many shoes as I can. We shold understand it to our heart.