Foreign Investors Flock to Mongolian Banking Sector

Mongolia’s banking sector: attractive opportunity for international investors. The Mongolian banking sector has been one of the most attractive sectors for foreign investors in the recent years. The financial sector is considered as one of the most geared to Mongolia’s rapid economic growth, which is being fueled by development of its world class mineral resources. The Mongolian banks have already attracted considerable interest from foreign investors. Investors from Japan, the US, Russia and the UAE are already present in the industry (see p.2). In our estimate, international investors represent around one third of the Mongolian banking sector.

Goldman Sachs buys 4.8% stake in Trade and Development Bank of Mongolia. Trade and Development Bank of Mongolia (TDB) today announced that Goldman Sachs has taken a 4.8% stake in the Bank. We estimate the equity stake to be worth appr. US$25-30mn, significant premium to TDB’s book value. This capital injection provides much needed liquidity to one of the Top Three Mongolian banks at the time of mining driven economic growth and high loan demand. The investment also indicates growing maturity of the Mongolian banking sector and its increasing attractiveness to major international investors.

Rapidly growing banking. The Mongolian banking sector expanded at a record 50.1% rate in 2011. The sector-wide net earnings exceeded US$130mn. ROA and ROE reached 2% and 27.2% respectfully. Assets surged to US$6.7bn and bank assets to GDP ratio reached the new height of 86.5%. Current accounts and deposits grew robustly to US$4.1bn on increasing disposable income and corporate profits. Combined they account for 61% in total assets and contributed to half of the sector growth. Expanding businesses fuelled lending growth with total loans outstanding increasing 73.4% to US$4bn, which was 59.7% of total assets at the end of 2011. We expect the banking sector will expand about 30% y-o-y in 2012.

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Dosbergen Musaev
Chief Economist
dosbergen.musaev@eurasiac.com

Rentsendorj Yondon
Research Associate
rentsendorj.yondon@eurasiac.com