Mongolia launches plan to stabilize banks

Dec 15 • Finance • 437 Views • No Comments on Mongolia launches plan to stabilize banks

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Mongolia launched an effort Friday to stabilize its banks with injections of government money after jittery depositors staged a series of small bank runs and regulators seized one troubled institution.

Parliament enacted a law Thursday authorizing the central bank to inject 455.1 billion tugrik ($362 million) into banks. It took effect Friday and regulators were reviewing which of the country’s 16 commercial banks need money.

This vast, sparsely populated North Asian nation of about 3 million people has been battered by plunging prices for copper, its main export. Depositors pulled money out of banks for fear they might collapse.

“Banks with poor liquidity and that lack cash will be getting the money,” said Finance Minister Bayartsogt Sangajav. He said the government is “seeking funding sources abroad” but gave no details.

On Wednesday, regulators seized Anod Bank, Mongolia’s fifth-largest lender, after it ran out of cash to pay depositors.

Three Anod board members were detained Friday for questioning about possible improper lending in excess of regulatory limits.

A central bank vice president, Enkhjargal Danzanbaljir, said Anod hid loans and regulators were trying to figure out how much it was owed on top of its reported total of 180 billion tugrik ($145 million).

The global commodities boom propelled Mongolia’s economic growth rate to 9 percent in 2007. But copper prices have plunged by 60 percent this year to $3,180 per ton as global demand weakened.

Also Friday, Moody’s (nyse: MCO – news – people ) Investors Service said it was reviewing the credit rating of another lender, Xac Bank, for possible downgrade due to the deterioration in Mongolia’s trade.

“Whether the bank’s relatively small capital base can weather the consequent strains is an area of concern,” the rating agency said.

The fall in copper prices has cut tax revenues, prompting parliament to pass a resolution calling for the government to reopen negotiations with foreign companies that are developing copper and coal mines.

“Mining projects will help the government bring in much-needed tax revenue,” said Prime Minister Bayar Sanjaa.

Source: AP

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