MP Z.Enkhbold shares his opinion on recently occurring banking turbulence and he says “Bank bankruptcy is nothing serious, almost every day banks go bankruptcy”
Q: “Zoos” bank was overtaken by the Government and Government bond is about to be offered. Was it because of the Government guarantee on saving accounts? Shall the Government bear the responsibility of bank’s loss?
MP Z.Enkhbold: Many banks were bankrupted in last 20 years and the state paid their losses. Every time, when such action was occurred, the officials explained that its loss would be paid back by people who borrowed from banks.
Unfortunately, no bank fully received its loan from its borrowers. Only fools repeat their mistake. But Mongolia looks like fool, because it tries to pay ₮250 billion on behalf of two bankrupted banks, ignoring its mistake in the past. Everybody has same right, according to the Constitution of Mongolia. But banking sector has privilege. Therefore, bankers’ action is irresponsible with expectation of Government’s involvement. The recent cases of Anod Bank and Zoos Bank justify it.
Tales of Credit and Saving Cooperatives ended up looting many people’s money and savings and as the result of Government’s involvement, it received loss of over ₮30 billion.
Q: Where the money for Saving and Credit Cooperatives had gone?
MP Z.Enkhbold: During adopting procedure of “Law on Compensating victims of Saving and Credit Cooperatives”, law initiators said that its loss will be paid in a year or two. But that money, secured by the state budget, was washed by the hands of state officials. Now, whole procedure is under investigation. Bankruptcy of banks is the same. There are many evidences that major saving account holders transferred their money to commercial banks before the bankruptcy of Saving and Credit Cooperatives. A man who had saving of ₮20-30 billion, transferred his money to “Zoos” Bank and enjoyed higher rate and took his money out of bank again right before its bankruptcy. There is a group of people who see banking and financial sector as its prey. State Great Khural adopts law, but it is looted in the lower middle level.
Q: Banking sector is in bankruptcy because of poor legal regulation? What is the main reason of worsening situation?
MP Z.Enkhbold: In 1996, when Democrats took the power, it received a collapsing banking sector. Law and plocy were tightened in order to clean all those mess, such as no loan can be granted without security and minimum required fund etc. Mongolbank took measure according to the law and banking sector had become clean.
But now, Mongolbank says that because of poor law, it failed to control bank’s operation. Now, bankruptcy will be compensated by budget money. It was not because of poor law, but poor operation and law enforcement.
Banking business is simple, he or she shall deposit his or her ₮8 billion at Mongolbank and receives license. Then, announce its interest rate and collect savings. Grant loan to companies and individuals. If loan is under controllable balance, it is good to go, if not, its credit will become “toxic”. Mongolbank will stop its operation and bankrupt it. This is the only responsibility of Mongolbank.
Because of Mongolbank “Anod”, then “Zoos” went bankruptcy and now the Government iss about to pay ₮100 billion from taxpayers.
If individual takes loan and fails to pay on time, he will lose his deposited security. But why bank owners went bankrupt, the Government pays its security. An ordinary citizen can live with loan of 5 or 10 million MNT from bank and pays back, but why riches who manage 50 – 60 billion MNT is backed by the Government. Banks never rely on Government. Since law and regulation is tightened in 1997, no such failure should be seen. But due to poor performance of state officials, SGK is about to pay a bank’s debt. If bank gone bankrupt, then let it go to, why the Government needs to worry about it? In States, many small and medium banks went bankrupt every day.
Q: Is it correct that Mongolbank hasn’t announced “Anod” bank’s bankruptcy?
MP Z.Enkhbold: Wrong. It is a plot. Because of failure completing their job, senior management of Mongolbank and Financial Regulatory Committee, appointed by the State Great Khural, shall be dismissed. Because it will show example for their next officials in setting tighter control. If we do not follow our principle and law, Mongolbank and FRC has become ……. when the state pays its failure.
Q: Bank owners shall receive responsibility?
MP Z.Enkhbold: I don’t think that bank owners suffer with their deposited security. Because returned saving depositors’ ₮20-30 billion just before its bankruptcy. So the saving depositors moved to the healthier banks.
Q: Do you have evidence?
MP Z.Enkhbold: L.Purevdorj, President of Mongolbank, says so during the meeting of the party group. According to his speech, a saving depositor of Zoos bank had taken his or her money exactly a week before Zoos announced its difficulty. Therefore, if you are connected with the bank owners’ you will never bankrupt. Law on saving insurance must be developed for such people. Now this law is pending. I wonder where the justice?
Q: So, in your opinion, where is the justice?
MP Z.Enkhbold: Justice must be set by the State Great Khural, but it has poor performance. At least it fails to issue its law.
Q: Three billion MNT of Development Fund was placed at “Zoos” Bank.
MP Z.Enkhbold: It is good if that money is still there. Without immediate change of senior management of Mongolbank and FRC, nothing will be changed. Next banks are in the line to be bankrupted under such management. Few people gain benefit from it.
Q: If the Government shall not be responsible for the savings of people, banking sector will be in trouble?
MP Z.Enkhbold: Savings are divided into two. Most countries has law to protect small savings, such as savings under ₮10 million. In States, small saving size is under $100,000. Such savings are guaranteed by the insurance companies. If the bank goes bankruptcy, insurance company will compensate. In other words, if anyone has saving account at a bank, the bank shall pay its insurance fee. Not all savings and banks go bankruptcy; therefore its routine is like social welfare fund. About a year ago, SGK adopted the Law on Securing Savings at bank, due to the financial and banking crisis, upon the request of FRC and Mongolbank.
SGK adopted the law in order not to ruin banking system. At that time, I ordered them to develop and bring “Law on Saving Insurance”. According to this law, savings up to 10 million MNT or almost all saving depositors can be protected. Saving depositor of 30 billion MNT is not included in the law. The law is still pending. I think the Government and Mongolbank influenced by the major saving depositors, therefore, they don’t want to propose this law to the State Great Khural. Now, we are planning to propose it by ourselves.
Q: Why Saving Insurance Law is important?
MP Z.Enkhbold: It will protect 98% of saving depositors. If this law is adopted, the state will not be responsible for the saving depositors, but insurance companies. There are many insurance companies that can be grounding of the law.
Q: Will banks insure savings at these insurance companies?
MP Z.Enkhbold: Few banks such as Ulaanbaatar, Trade and Development Banks insure its savings voluntarily. Now, banks have to insure its savings. Insurance companies will be responsible for the savings on behalf of the state. It is mutually beneficial business.
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