Loan interest of non-bank financial institutions to be lowered

2017-01-07 16:04:53

Ulaanbaatar /MONTSAME/ The Financial Regulatory Commission (FRC) has announced its policy task to lower loan interest rate of non-bank financial institutions twice in upcoming four years. In October, the committee released a resolution to raise minimum amount of share capital of non-bank financial institutions to MNT2.5 billion. Regarding non-bank financial institutions, which run credit service the amount should be MNT800 million, two times higher than previous level.

 “- Mid-term strategy of our committee is to develop financial sectors through making policy regulations in financial market. We have a principal to make policy decisions and keep the flexible regulations stable for a long term, aiming to improve capacity and risk bearing capability of institutions and companies and to protect interest of customers. Within this policy, the first decision was to increase share capital. We released this resolution after conducting various studies, calculations and analyses, carefully considering all aspects. According to our estimation, 20 non-banking institutions will be newly established annually” said FRC chair S.Davaasuren.

She also underlined that, some 490 non-bank financial institutions out of all 520 have increased their share capital, meeting the criteria. Some of them even merged to accomplish the regulation increase the share capital.

Increased capital is important to ensure stability in financial market when economy faces difficulties, to improve capacity and accessibility of nonbank-financial institutions and to protect rights of customers as well as it will give actual influence to decrease loan interest rate. Study shows that there is direct relation between stock capital growth and loan interest rate decrease.

Non-bank financial institutions with capital less than MNT800 million have loans with interest rate of 4.5 per cent while those with capital more than MNT2.5 billion have loans with interest rate of 3.3 per cent. Average loan interest rate of non-bank financial institutions is 4.3 per cent monthly or 51.6 per cent annually as non-financial organizations with low capital dominate in the sector.

As a result of complete implementation of the policy to increase capital gradually, total balance asset is expected to grow up by 3.3 times reaching to MNT2.6 trillion and stock capital to reach MNT1.4 trillion by the end of 2020.

Financial regulatory commission noted that capable non-bank financial institutions will be supported giving possibility to re-lend loans to SMEs and other soft loans. It is estimated that after four years’ efforts total loan amount by non- bank financial institutions could reach to MNT1.7 trillion, making more than 10 per cent of total loans by commercial banks. 

Non-bank financial institutions market share has increased in 2016.  In September, total capital of non-bank financial institutions were MNT676.5 billion, increased 22 percent compared with the same period of previous year, and the total income increased by 9.1 percent.