Moody’s: Mongolian banking sector modernizing

Moody’s Investors Service said the Mongolian banking sector has over the last ten years or so developed towards a modern basis.

“Moreover, after the occurrence of several banking crises in the 1990s, the regulatory environment has improved and the system has been crisis-free since then,” said Cherry Huang, a Moody’s VP/Senior Analyst in a new report issued in Hong Kong.

The report is Moody’s first banking system outlook for Mongolia and covers a wide variety of topics, including privatization, the regulatory framework, the operating environment and financial fundamentals.

“Currently, the rating outlook for the sector is stable, with bank financial strength ratings averaging D, foreign currency deposits B2, and local currency deposits Ba1,” said Huang. Moody’s rates three Mongolian banks.

“The credit outlook is stable as the economy continues its upward trend, driven by the global commodities boom and overall development, but risks could build up as corporate lending rises quickly and the real estate market booms,” Huang added.

“Asset quality has, at the same time, improved because of important advances, including increased disclosure and transparency as well as the adoption of international standards,” Huang said.

“Over the last five years, bank profitability has also risen as more demand for banking services as well as the recovery of public confidence in the banks has helped fuel the growth in assets and deposits”.

“On the other hand, competition is intensifying, while Mongolia‘s banking market is small and crowded,” said Huang, adding, “Competition could exert great pressure on bank margins, particularly in the intermediate and long term.”

The report also said that by global standards, the banking system is weak and vulnerable to changes in Mongolia‘s volatile economic and complicated operating environment.

The authorities need to boost regulation and supervision, particularly to strengthen risk management and corporate governance, it says.