S

THE BANKRUPTCY

OF MONGOLIA’S

SAVINGS BANK

MA3N0226 Turtemuulen

The Southern Taiwan University of Science and Technology

Managerial Finance – Chapter 17

OUTLINE

THE SAVINGS BANK

-1.7 million customers

-503 branches in Mongolia,

- providing over 55 percent of the government financial

services, such as disbursement of pensions and payment of

utility bills

- has 3,268 employees

- makes up 8 percent of the total banking assets and

- is one of the 5 systematically significant banks

S ON JULY 22, 2013, MONGOLIA’S SAVINGS BANK DECLARES

BANKRUPTCY AND JOINS THE STATE BANK

S the Board of Directors of the Central Bank of Mongolia announced to

abolish the Savings Bank which has been insolvent and made the

decision to unite it with the The State Bank.

WHY DID THE BANK

DECLARE THE

BANKRUPTCY?

S During the audit made by the Supervision Department of the Bank of Mongolia, the Savings Bank faced an accumulative deficiency of 184 billion MNT and had 94 billion MNT less floating assets than its own assets.

S Since there was imbalance in the bank report, the Bank of Mongolia started monitoring the Savings Bank in 2011, but in accordance with the Law of Mongolia on Bank, the Bank’s total assets is short of 94 billion MNT, resulting in the decision to announce the Bank as bankrupt.

The reason of the bankruptcy

S On April, 2009, “Just Group” of Mongolia started discussions to purchase the Savings Bank from the Russian “COALCA” Group and finalized the discussions , becoming 100% stock holder of the Savings Bank.

S The loans made on the account of the Savings Bank of Just Group and its other subsidiary companies caused the bank’s inability to make up its assets.

S Owner of Just Group Sh.Batkhuu’s large amount of loans from foreign banks on the account of “Olon Ovoot Gold” LLC caused deficiency in the bank sector beginning in 2011. Just Group faces a debt up to 162 billion MNT.

The reason of the bankruptcy

- “Just Group”

S Savings Bank's failure was caused mainly by its

association with the insolvent Just Group, its ultimate

parent. The bank's non-performing loans exceeded its

capital by more than two times, which would be a striking

breach of the 20% limit if all were to related parties.

Mongolia's Savings Bank

Failure Highlights Fragile

System

S Mongolia's deteriorating business environment

S weaknesses in corporate governance and regulation of the banking sector

S weaknesses in the construction and mining sectors

S brisk loan growth on the back of the government's subsidised loan scheme

S currency depreciation

STHANK YOU FOR

YOUR

ATTENTION