11.16-17.2015, presentation, where does the banking sector fit it, norihiko kato

November 2015

NORIHIKO KATO, CEO

2

Where Does the Banking Sector Fit in?

3

Mongolia’s Macroeconomic Backdrop

� Mongolian economy growth slowed in recent years. GDP grew by 7.8% in 2014 and

slowed to 2.5% in Q3 2015.

� Domestic demand is under pressure from high interest rates in the market and

continued currency depreciation.

� The tightening of monetary policy since 2H2014 and unwinding of PSP resulted

slower money supply in the economy and moderating local currency depreciation

in recent months.

� Fiscal Stability Law, became effective in 2013, limits fiscal deficit to 2% of GDP and

government debt to 40% of GDP in 2014. The debt ceiling was increased to 58.3%

in Jan 2015 by the Parliament.

� Overall banking sector NPLs increased due to economic downturn caused mainly

by weak commodity prices and FX rate.

� Oyu Tolgoi (OT) underground mining development is expected to resume in 2H

2016.

Growth mainly driven by credit driven policies

Growth mainly driven by FDI inflow

4

GDP, M2, FDI GROWTH OF MONGOLIA

Source: National Statistical Office, Bank of Mongolia

19%

24%

36%

26%

19%

12%

424%

285%242%

179%

-200.0%

-100.0%

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

-2.0%

8.0%

18.0%

28.0%

38.0%

48.0%

58.0%

68.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2011 2012 2013 2014 2015

Nominal GDP growth, yoy (LHS) M2 Money growth, yoy (LHS) FDI growth, yoy, (RHS)

-1.3%

4.2%

16.0%

4.9%

-1.0%

5.0%

11.0%

17.0%

23.0%

-20%

0%

20%

40%

60%

80%

2009 2010 2011 2012 2013 2014 2015

M2 money yoy % (LHS) CPI yoy % (RHS)

5

June 2013

8% mortgage program

Dec 2012

Price Stabil ization Program

Jul 2014 - Monetary policy tightening

Unwinding PSP

Source: National Statistical Office

INFLATION VS. M2 MONEY GROWTH

6

FOREIGN DIRECT INVESTMENT

Source: Bank of Mongolia

$1,691

$4,715$4,452

$2,140

$382 $157

424.3%

-5.6%

-51.9%

-82.2% -71.2%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2010 2011 2012 2013 2014 2015

YTD FDI inflow into Mongolia (mil USD) FDI yoy growth

FDI inflow to GDP (%)

2010 2011 2012 2013 2014 Q3 2015

23.6% 45.3% 36.3% 17.0% 3.2% 1.8%

7

FOREIGN RESERVES

$2,908

$4,126

$3,108

$1,318 $1,413

1,374.2₮

1,662.5₮

1,824.6₮1,903.3₮

1,993.8₮

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2011 2012 2013 2014 2015

BOM Reserve /mil USD/ (LHS) Monthly avg. USD/MNT rate (RHS)

Chinggis Bond Issuance (1.5b US$)

Source: National Statistical Office, Bank of Mongolia

8

BANK OF MONGOLIA POLICY RATE, M2 MONEY GROWTH AND MNT SAVINGS RATE

Source: Bank of Mongolia, National Statistical Office

13.00%

12.3%12.0%

12.2%

-10%

5%

20%

35%

50%

65%

80%

9%

10%

11%

12%

13%

14%

15%

2009 2010 2011 2012 2013 2014 2015

M2 money growth yoy % (RHS) Policy Rate (LHS) MNT Savings Rate (LHS)

9

Source: Bloomberg

13.9%14.3%

15.0%

15.8%

16.8%

17.5%

12%

13%

14%

15%

16%

17%

18%

19%

20%

84 days 196 days 365 days 3 year 5 year 10 year

GOVERNMENT MNT DENOMINATED BOND YIELD (as of Nov 2015)

10

Mongolian Banking Sector Highlights

�Banking sector has grown rapidly in both loans and deposits

since 2010.

�Top three largest banks account for 64-73% of total assets, total

loans, total deposits and total equity

�Banking sector’s high loan and deposit growth has stopped,

compared to high growth rates of the last few years.

�Banking sector non-performing loan ratio reached 7.0 % as of

Q3 2015.

13.3 15.9 18.2 20.9 20.7 21.4 20.9 22.6 20.8 21.9 21.3

42.1%

60.4%

71.0%74.1%

55.9%

34.4%

15.3%

2.1% 2.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2013 2014 2015

Banking Sector Total Assets (tril MNT)

Total Asset growth

11

BANKING SECTOR TOTAL ASSET AND ANNUALIZED GROWTH


Bank

Reserve

10%

BoM bills

3%

Gov.

Bonds

10%

Foreign

assets

5%

Other

securities

3%

Total loan

55%

Other

assets

14%

12

2.3

5.1

12.611.9

28.2%

0.7%

23.0%

72.8%

21.7%

56.7%

16.1%

-5.3%

-

3

6

8

11

14

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3

2008 2009 2010 2011 2012 2013 2014 2015

Tri

llio

n M

NT

Total loan oustanding Annual change (%)

TOTAL LOAN OUTSTANDING AND YOY GROWTH CHANGES


13

NON-PERFORMING LOAN

836.8

7.2%

17.4%

11.5%

5.8%

4.3%5.3% 5.0%

7.0%

-

200

400

600

800

1,000

Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3Q4Q1 Q2Q3

2008 2009 2010 2011 2012 2013 2014 2015

Bil

lio

n M

NT

Amount of NPL NPL % (excl. bankrupt banks)


14

8% MORTGAGE LOAN AND ANNUAL GROWTH

0.3

0.9

1.21.5

1.71.8

2.02.2

2.42.5

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2013 2014 2015

8% mortgage loan outstanding (tril MNT)


15

BANKING SECTOR SAVINGS AND CURRENCY COMPOSITION


73

%

75

%

71

%

77

%

71

%

27

%

25

%

29

%

23

% 29

%

12.3%13.1%

7.0%

5.8%6.5%

3%

5%

7%

9%

11%

13%

15%

0

1

2

3

4

5

6

7

8

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2010 2011 2012 2013 2014 2015

USD Savings (tril MNT), LHS MNT Savings (tril MNT), LHS

MNT Savings Rate (%), RHS USD Savings Rate (%), RHS

Khan

26.8%

TDB

23.9%Golomt

16.6%

Xac

10.8%

State

8.4%

Others

13.5%Khan

23.8%

TDB

25.7%

Golomt

16.0%

Xac

9.1%

State

8.1%

Others

17.3%

Total Capital (bil MNT)

Total Assets Total Loans

Core Deposits*

Source: Bank of Mongolia & banks’ websites as of Q3 2015

16

* not included: "Liabilities to Banking Sector, IFI and TDB bond”

Khan

24.2%

TDB

20.5%Golomt

19.9%

Xac

7.9%

State

10.1%

Others

17.4%

766.4716.2

413.6

251.3162.6

-

140

280

420

560

700

840

Khan TDB Golomt Xac State

MARKET SHARES OF BANKS: 3Q 2015

Market Shares of Banks Market Shares of Banks (as of Q3 2015)

Net Profit After Taxes (bil MNT)

Liquidity Capital Adequacy Ratio

ROE, ROA

17

Source: Bank of Mongolia & banks’ websites

40.0% 41.6%

30.4%

37.4% 35.7%

0%

10%

20%

30%

40%

50%

Khan TDB Golomt* Xac State

20.9%

16.4% 16.3%18.6%

15.3%

0%

5%

10%

15%

20%

25%


2.7% 1.8%0.6% 1.1% 0.8%

26.8%

15.5%

6.1%

14.9%

9.3%

0%

5%

10%

15%

20%

25%

30%


ROA ROE

99.1

74.3

15.5 16.111.1

-

24

48

72

96

120


MongoliaKhan Bank

Xac Bank Golomt

BankTDB DBM

State Bank

Ownership Gov. Private Private Private Private Gov. Gov.

B2 negative

B2negative

B3negative

B3negative

B3negative

B2negative

B2negative

Counterparty Risk

AssessmentB1/NP B2/NP - B2/NP B2/NP

B+negative

Bnegative

Bnegative

- - -B

negative

Bstable

- -B-

stableB-

stableB

stable-

18

Source: Rating agency websites as of Nov 2015

GLOBAL CREDIT RATINGS

19

Mongolia Financial Sector Latest Initiatives

� Minimum share capital requirement of the commercial banks is raised to 50

bil MNT.

� Stronger corporate governance regulation by BoM.

� 1% loan loss provision for new loan issuances after Aug 2014.

� Since Mar 2014, long term swap transaction with BoM has been available

for commercial banks.

� In July 2015, the Parliament enacted the Law of Mongolia on Movable and

Intangible Property Pledges (MIPP) and the Law of Mongolia on the

Implementation of the MIPP Law, which will be fully effective starting from

Sep 1st, 2016.

� Investments into government bonds became available for retail investors

through Mongolian Stock Exchange.

� 3 commercial banks have obtained “Custodian Banking License” in 2015.

20

THANK YOU

FOR YOUR ATTENTION

Disclaimer

This presentation has been prepared solely for informational purposes and its not to be construed as asolicitation or any offer to buy or sell securities, commodities, or related financial instruments.

The Bank has prepared this presentation based on information available to it, including informationderived from public sources that have not been independently verified. No investment, divestment orother financial decisions or actions should be based solely on the information in this presentation. KhanBank accepts no responsibility in relation to this presentation, and shall not be liable for any loss ordamage whatsoever suffered by any party arising from, relating to, resulting from or based upon the useof this presentation and any errors or omissions there from.

This presentation has been prepared on a confidential basis solely for the use of the intended recipient.This material must not be copied, reproduced, distributed or passed to others at any time, in whole or inpart, without the prior written consent of Khan Bank.

21

11.16-17.2015, presentation, where does the banking sector fit it, norihiko kato

Business