After a series of discussions in the past few months, the Parliament approved the 2017 State Budget with total revenue of Tgs 6.6160 trillion and expenditures of Tgs 8.568 trillion. Now a few cuts in spending of government ministries and agencies have reflected in the next year’s budget as the country’s is making efforts to reduce its budget deficit and increase economic growth. The newly-approved State budget lays out a financial plan to grow its revenue through privatization of six state-run organizations including State Bank of Mongolia.
The State Bank of Mongolia was founded in 2009 as a fully state-owned bank in order to maintain the stability of the banking and financial market, ensure its consumer’s interests and provide risk-free financial banking service. Later in 2013, State Bank has been merged with privately-owned “Saving’s bank” to be become one of the largest banks of importance to the financial system.
On November 21, the Parliamentary Standing Committee heard a report on the activities of State Bank and preparatory work progress concerning its privatization. State Secretary of Ministry of Finance B.Nyamaa delivered a report to session informing that “The State Bank has a total equity fund of Tgs 113 billion, of which 25 percent is owned by the Ministry of Finance and 75 percent is of the Corporation of Savings Insurance. The State Bank has around 2.7 million customers and the number of owners of its saving accounts is around 585 thousand has 3738 employers. As of the end of the third quarter of 2016, the total net worth of State Bank reached Tgs 7.57 billion, showing an increase by Tgs 9.5 compared to the beginning of this year. The total amount of loans issued by State Bank is around Tgs 140 billion and the total outstanding loans account for 2.7 percent of the banks’ total loan portfolio.
The law on the State Budget for 2017 states regulates that minimum price for the privatization of 100 percent of State Bank will be Tgs 300 billion and it is expected that Tgs 75 percent of the proceeds will be allocated to the State Budget. State Secretary B.Nyamaa also introduced that there are several methods to conduct the privatization in consideration. He then concluded his report by saying that “Preparations are ongoing to sell the entire organization to a single investor through bidding. In the future, the privatization will be regularly audited. The debt rating of the State Bankis planned to be renewed and if necessary, the international consulting organizations would be hired”.
In the last three years, Ernest&Young company as audited State Bank, which would enhance trusts of domestic and international investors, as government hopes. Moody’s views the credit rating of State Bank same as the government’s credit rating.
S.Javkhlan, MP put forward a suggestion that the State Bank should not be entirely privatized and the government should still own some 25 percent of its shares. “This state-owned banking organization should be sold to at least 2 or 3 strategic investors or have its shares listed on the domestic stock exchange. Sale to sole buyer would have a possible risk of creating a monopoly in the market”
Concerning the increasing risk imposed on the banking sector, the government is now focusing on reducing the bank’s spending and improving its organizational structure and management until it goes to the public sector. The main activities of banking service are concentrated on business or consumer loans without competing with other commercial banks. A maximum loan amount per lender has been set at Tgs 5 billion for the State bank.
On privatization of his bank, D.Bayarsaikhan, CEO of the State Bank of Mongolia said that “It is up to the government and the central Bank if privatization is needed or who should buy the bank. Our team is paying attention out objectives to maintain the profitable operations of the bank and minimize negative effects risks as well as to increase the value of state-owned entity”.
The article is included in the Mongol Messenger's issue No.47 for November 25.