Banking sector reports its first deficit

tdb orkhon

The Mongolian banking sector recorded a net loss in January 2016, for the first deficit in its history.

The President of the Mongolian Banking Association, O.Orkhon, gave an interview about current banking sector conditions.

Can it be said that the banking sector is facing difficult conditions?

Active quality and loan issuance at banks has decreased and non performing loans have increased to 7.6 percent. These factors are bad compared to recent years. In general, the situation is quite bad. But in terms of the whole system, it is not a serious problem, and it is not like we are facing bankruptcy. Although housing loans have stopped being issued, it has not shown adverse effects.
Since the eight percent interest housing loans began, the construction sector – which has been operating actively – is now facing difficulties, which is effecting banks now. Although the legal environment for housing loans has improved, it is proving more difficult than before. There are two main reasons for this.
First, an operation that has already been stopped is difficult to restart. All contracts have to be changed. The legal clauses will be changed. Internal policy and rules will be changed. After this, we will start accepting applications from citizens, and contracts and negotiations will take around two months.
Second, the legal environment has changed and approval for the collateralization of property at multiple places is no longer necessary. But property inquiries for loans record collateralization one way, decision makers record it differently, and when loans are granted it is recorded yet another way. Such difficulties have arisen for banks.
Third, people who were preparing materials to apply for the eight percent interest mortgage loan will not want the loan now that they’ve heard about the possibility of applying for a five percent interest loan. They are waiting to get their mortgages after interest is five percent. Last October, when apartment sales usually increase, the government announced that down payments for housing loans would be set at 10 percent, and that the government would provide guarantees for 20 percent of a property’s value. This news caused people to wait. And when the 10 percent down payment issue became difficult to resolve, they announced that mortgage interest rates would be decreased. Due to these reasons, housing sales have decreased.

But Parliament put an end to people selling their properties without bank approval. Hasn’t this decreased loan risk?

Of course. This issue does not pertain to only the eight percent interest housing loan. This relates to all loan types. If a property is collateralized by banks but is sold off, it will bring about endless disputes. This arrangement not only undermined the law, but also the whole loan system. But Parliament made a swift decision and made relevant changes.

It was decided that the interest rates of loans for herders would be decreased. Will banks be able to reduce interest rates in accordance with this decision?

There is no opportunity for banks to reduce interest rates for any type of loan. If the state believes that it is possible to decrease loan interest rates for herders, they need to find the capital resources necessary to fund these low interest loans, or at least pay the interest rate gap somehow. Loans for herders were initiated by banks, but this issue has become a very popular topic among politicians lately.

Source: UB Post