Interview: M. Bold
What drives growth in the banking sector?
M. BOLD: Retail banking is ahead of corporate banking at the moment. Due to a lack of qualified employees in the corporate banking segment, we are currently not able to provide the solutions those clients need, like low-cost loans and longer terms. Banks need to overcome this challenge by hiring skilled personnel and increasing their capital cushion. Partnering with international banks and financial institutions will be needed, as the market is missing local suppliers that are able to meet international standards. Without foreign capital, Mongolia cannot support the high growth linked to the mining boom because of the shortage of domestic capital. The previous government estimated a need between $40bn-50bn to invest in infrastructure and support growth. Currently total assets of Mongolian banks are $10bn, so we clearly need foreign capital.
To what extent will the nation’s capital markets be an important source of local funding?
BOLD: Local capital markets still cannot support large-scale investments, like Tavan Tolgoi (TT), for example. TT will have to go abroad to raise capital. However, for SMEs and smaller companies, like phone operators, the local capital market can be more efficient. The eventual success of the collaboration between the London Stock Exchange Group and the Mongolian Stock Exchange remains to be seen. The project itself created a good network between the exchanges, but people should remain cautious. It is not enough just to have software and friendly relations; it will be up to the companies to take advantage of the existing network.
What are the opportunities for mortgage growth?
BOLD: Demand for housing loans is relatively high. About 70% of the urban population is living in a traditional manner. However, nomads are increasingly interested in moving to the city, and officials recognise that providing sufficient housing for migrants will be problematic. Hundreds of thousands of herders will need housing, which creates an attractive opportunity for mortgage lending services, as long as the population can afford it. The 6% mortgage loans are still a dream; in order for that to happen without subsidies, the government needs to focus on a stable fiscal and monetary policy and bring inflation to below 6%. No one is gaining from high inflation; today’s 15-16% rates are not acceptable and have a negative impact on deposit growth. The central bank has to focus on monetary policy supportive of supply side of real economy and there needs to be stronger cooperation with parliament to improve, enforce and oversee monetary policy.
Simultaneously, parliament should approve, enforce and take responsibility for fiscal policies. The banking sector is currently suffering from Mongolia’s deficits in both hard and soft infrastructure.
Necessary hard infrastructure includes improved electricity, power, roads, transportation and logistics.
The soft infrastructure we need includes a stronger legal environment – to reduce risk in the financial services sector – a credit information bureau, and an adequate law enforcement and judicial system. We expect the banking sector to grow at double or triple the rate of the country’s GDP, a trend we have already seen in the past few years. We are now looking at growth rates ranging between 40% and 50%.
How much potential exists for leasing services?
BOLD: The potential for leasing services is enormous, even larger than the banking market, because almost all sectors need leasing solutions: mining, agriculture, health, manufacturing, education and construction.
The lack of property is a huge barrier to borrowing.
Companies have a unique opportunity if they approach leasing firms, where they can find better terms and conditions, because they will not need to pledge their property or collateral. Instead they pledge the equipment, which makes the situation easier. Provided there is enough funding and capital, the leasing market will have huge opportunities for several years.
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