17.04.2013 the development of the mongolian economy and banking industry what opportunities are...

MONGOLIA INVESTMENT SUMMIT

April 17, 2013 London

Norihiko Kato CEO

2

Mongolia GDP Performance

7.0%

10.6%

7.3% 8.6%

10.2% 8.9%

-1.3%

6.4%

17.5%

12.3%

-5%

0%

5%

10%

15%

20%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mongolia East Asia Pacific - Developing Nations

Source: WorldBank

3

4.6

6.2

8.7

10

12.9

16

18.9

23.7

0

5

10

15

20

25

2009 2010 2011 2012 2013E 2014E 2015E 2016E

Mongolia GDP Forecast GDP Mid Term Outlook

USD in billions

Source: IMF

1,688$

2,266$

3,125$ 3,508$

4,477$

5,515$

6,384$

7,904$

0$

1,000$

2,000$

3,000$

4,000$

5,000$

6,000$

7,000$

8,000$

9,000$

2009 2010 2011 2012 2013E 2014E 2015E 2016E

GDP Per Capita

4

Mongolia GDP Composition

Mining

19%

Agriculture

15%

Net taxes on products

13% Wholesale & Retail

9%

Transportation

7%

Real Estate

6%

Manufacturing

6%

Education

5%

Public Administration

4%

Financial & Insurance

4%

Others

12%

Real GDP growth in 2012 - 12.3% (Nominal GDP – USD10 billion)

Agriculture – 21.3% growth

Transportation – 11.4% growth

Wholesale and retail – 9.2% growth

Mining and quarrying – 8.9% growth

Source: Bank of Mongolia, NSO

5

Source: Central Bank of Mongolia

844 623

1,691

4,714

3,907

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2008 2009 2010 2011 2012

FDI into Mongolia (USD millions)

6

69%

655%

200%

103%

424%

218% 184%

60%

-16% -27%

3%

-36% -100%

0%

100%

200%

300%

400%

500%

600%

700%

0

200

400

600

800

1,000

1,200

1,400

1,600

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

2010 2011 2012

Quarterly FDI Growth y-o-y (RHS)


Quarterly FDI and y-o-y growth

US

D m

illi

on

s

7


Exports: coal, copper, iron ore, and cashmere/leather.

Imports: machinery, heavy equipments, fuel, auto parts, and foods.

More than 90 percent of the exports go to China.

65 percent of imports come from China, Russia, and the USA.

Trade Balance (USD in millions)

2,534 1,885

2,908

4,817 4,384

3244

2137

3200

6598 6738

-710 -252

-292

-1781 -2354

-4000

-2000

0

2000

4000

6000

8000

2008 2009 2010 2011 2012

Export Import Trade Balance

8

“Fiscal Stability Law” (FSL) , effective in 2013, limits the structural deficit within 2 percent of the GDP.

Source: Bank of Mongolia, World Bank

Government Budget (MNT billion)

2156 1992

3122

4400

4968

2462 2321

3080

4792

6043

-306 -329

42

-392

-1075

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

2008 2009 2010 2011 2012

Revenue Expenditure Balance

9

17.8%

22.1%

4.2%

13.0% 10.2%

14.0%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012

Core Inflation National CPI

1,000₮

1,100₮

1,200₮

1,300₮

1,400₮

1,500₮

1,600₮

2008

Mar

Jun

Sep

Dec

2009

Mar

Jun

Sep

Dec

2010

Mar

Jun

Sep

Dec

2011

Mar

Jun

Sep

Dec

2012

Mar

Jun

Sep

Dec

MNT Rates against USD

Consumer Price Index (y-o-y)


CPI & FX Rates

10 10

Financial Sector 14 commercial banks, 1 development bank, 195 small NBFIs,162 savings & credit cooperatives,

and 17 insurance companies.

3 foreign banks have representative offices; ING, Standard Chartered Bank, and Bank of China

90-95% percent of financial sector assets are held by commercial banks.

56%

68%

75%

87% 86%

35%

-1%

16%

80%

24%

-25%

0%

25%

50%

75%

100%

0₮

4,000₮

8,000₮

12,000₮

2008 2009 2010 2011 2012

Banking Sector Assets Loans Banking Sector Assets to GDP Loan Growth

Source: Bank of Mongolia, FRC, Banks’ website

MN

T b

illi

on

s

11

105%

84%

66%

77% 79%

0%

20%

40%

60%

80%

100%

120%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012

Loans Deposits LDR (RHS)

Loans & Deposits growth, L-to-D Ratio (MNT billion)

Source: Bank of Mongolia

12

3.3%

7.1%

17.4%

11.5%

6.1%

4.2%

1.5%

2.8%

8.0%

4.5%

2.3%

1.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

1000

2000

3000

4000

5000

6000

2007 2008 2009 2010 2011 2012

Banking Sector Gross Loans Banking Sector NPL

Banking Sector NPL Ratios Khan Bank NPL Ratios

Banking Sector Asset Quality

Non-performing Loans (USD millions)

Source: Bank of Mongolia

13

Banks’ Credits to GDP ratio

20% 27% 27%

20%

28% 32%

30% 30%

40%

133% 125% 120%

118% 115% 110%

132% 132%

133%

0%

30%

60%

90%

120%

150%

180%

210%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Mongolia East Asia & Pacific (developing only)

Domestic credit provided by banking sector (% of GDP)

Total assets as of Dec 31, 2012 - USD 8,6 billion.

Top 3 banks (Khan, TDB, Golomt) make up 70% of total assets.

Banking sector grew rapidly, but Mongolia is still under banked.

Source: WorldBank

14

Regulatory Requirements Key prudential ratios set by Bank of Mongolia

Liquidity Ratio > 25% Liquid Assets / Total Deposit

Capital Adequacy Ratio >13% (Tier 1 + Tier 2 ) / Risk Weighted Asset

Tier 1 Ratio > 8% Tier 1 / Risk Weighted Asset

Reserve Requirement >12% of total deposits (MNT and FC)

Credit Concentration

Total Related Parties Lending < 20% of total capital

Single Related Party Lending < 5% of total capital

Single Borrower Lending < 20% of total capital

Foreign Exchange Risk

Open Position on Single Currency < 15% of total capital

Total Open Position < 40% of total capital

15

Extensive Branch

Network

Low Cost Deposit

Franchise

Khan Bank Overview

1

2

3

4

3

5

6

7

Attractive Business Mix

Rigorous Asset Quality and

Growth

Low Cost Deposit

Franchise

Well Diversified

Funding Base

Low Cost Deposit

Franchise

Consistent Track Record of

Superior Profitability

Low Cost Deposit

Franchise

Supportive Shareholding

Structure

Low Cost Deposit

Franchise

Strong & Experienced Management

Team

16

Khan Bank with Extensive Branch Network

8

► 512 branches in every parts of Mongolia; 85 are in Ulaanbaatar area and 427 are in rural areas

► Provide banking services to estimated

80% of all households in Mongolia

► 1.8 million customers all over the country of 2.8 million population

► 286,091 borrowers of which 80 % are retail consumer borrowers

► 303 ATM – 37% of all ATMs in Mongolia

► 1,361,886 debit card holders

Nationwide Network Number of Branches

Number of ATMs

512 489

97 88 45

0

100

200

300

400

500

600

Khan Savings Xac Golomt TDB

303

171

48

163

125

0

50

100

150

200

250

300

350

Khan Savings Xac Golomt TDB* Source: Bank of Mongolia and banks’ website

Funding Sources

Corporate

28%

Retail

54%

Other

12%

Borrowings

6%

Business

48%

Retail

52%

Loan Composition (2012 YE)

Khan Bank Business Portfolio

17

Business Loans (2012 YE) Retail Loans (2012 YE)

Salary

48%

Mortgage

18%

Pension

9%

Herders

7%

Others

18% Wholesale and

retail

37%

Construction

18%

Processing

production

9%

Services

6%

Mining

6%

Transporation

6%

Agriculture

3%

Other

15%

18

Khan Bank’s Key Financials

Total Assets and ROA (USD* millions)

Total Loans (USD millions) Total Deposits (USD millions)

Total Capital & CAR (USD millions)

432 603

782

1125

1608

2013 3.9%

2.9%

1.1%

2.3%

3.1% 3.0%

0%

1%

2%

3%

4%

5%

0

500

1000

1500

2000

2500

2007 2008 2009 2010 2011 2012

Total Assets ROA

43 60

91 107

177

244

11.4% 12.4%

19.3% 16.6% 15.4%

16.9%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012

Total Capital CAR

368 490

626

955

1352

1598

0

500

1000

1500

2000

2007 2008 2009 2010 2011 2012

347 437 429

568

1001

1263

0

400

800

1200

1600

2007 2008 2009 2010 2011 2012

*Translated into USD using 2012/12/31 official rate, MNT 1392.10

19

Market Shares of Banks (2012 YE)

Total Capital

Total Asset Market Share

(MNT billions)

Total Loan Market Share

Total Deposit Market Share

Khan

24%

Golomt*

23%

TDB

24%

Xac

7%

Savings

9%

Others

13%

Khan

24%

TDB

24% Golomt*

22%

Xac

9%

Savings

9%

Others

12% Khan

25%

TDB

22% Golomt*

21%

Xac

9%

Savings

8%

Others

15%

Source: Bank of Mongolia & banks’ websites

*Preliminary estimate

335 295

147

78

Khan TDB Xac Savings

20

Market Shares of Banks (2012 YE) Net Profit (MNT billions)

147

75 60

21 36 28

5 22

183

103

65 43

-

50

100

150

200


Net Interest Income Other Income Operating Income

Income Composition (MNT billions)

2.6% 2.3%

1.4%

-0.5% Khan TDB Xac Savings

ROA

Source: Bank of Mongolia & banks’ websites

21.4% 21.4%

10.4%

-5.9%


ROE

*Golomt Bank’s information is not available as of April 11, 2013

71 63

15

-4


Mongolia Banking Sector Challenges

Small capital of the banks Underdeveloped interbank market, custody service, capital markets, Lack of long term MNT funding source, maturity gap mismatch Underdeveloped derivative market and FX hedging instruments Legal and regulatory framework e.g. movable assets pledge, non-banking finance business Consistency of banks interest with government development policies Risk Management and System Investment Compliance, Governance and Transparency

21

22

Mongolia

Sovereign Khan Bank XacBank Golomt TDB

B1/ stable

B1/ stable

B1/ stable

B1/ stable

B1/ stable

B+/stable

B/stable

B/stable

-

-

BB-/stable

-

-

B+/stable

-

Credit Ratings

23

Thank you for your attention.

24

Disclaimer

This presentation has been prepared solely for informational purposes and its not to be construed as a solicitation 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 information derived from public sources that have not been independently verified. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation. Khan Bank accepts no responsibility in relation to this presentation, and shall not be liable for any loss or damage whatsoever suffered by any party arising from, relating to, resulting from or based upon the use of this presentation and any errors or omissions therefrom.

This material must not be copied, reproduced, distributed or passed to others at any time, in whole or in part, without the prior written consent of Khan Bank.