Ulaanbaatar /MONTSAME/. On September 8, Mongolian Bankers Association (MBA) organized a press briefing to give an update on the current state of the country’s banking industry and macroeconomic situation amid the ongoing COVID-19 pandemic. 

At the press event, L.Amar, Executive Director of the MBA highlighted that the coronavirus has had a significant impact on the Mongolian economy, causing it to decline and restricting demand and supply of commercial bank loans, as of the first half of 2020. 

Following the economic expansion, commercial banks’ loan issuance volume had been experiencing growth in the past two years, however, bank loan issuance has reduced to MNT 17.3 trillion in the first half of 2020, showing a decrease of 4.6 percent. Consumer loan volume also dropped by 17 percent. In terms of loan categories, all types of consumer loans, except from savings-secured loans, diminished. In addition to the impacts by the pandemic, the bank lending decline is mostly caused by measures taken by the central bank to limit the consumer loans taken since 2019. 

The volume of overdue consumer loans increased by 40 percent in the first quarter of 2020. However, thanks to the government measure to allow deferral of up to six months on the consumer loan repayment to alleviate the negative impact of the COVID-19 on individuals and business entities, the overdue loan growth has started to slow down to 21 percent, beginning from April 2020. Overdue loans now make up around 5.8 percent of total loans while nonperforming loans equaled to MNT 1.9 trillion, accounting for 11 percent of total loans. Accompanying the lending decline, imports of auto vehicle and electronic appliances reduced by 33 percent and 8 percent respectively. 

As presented by L.Amar, the negative impacts, posed on the mining, transportation and tourism sectors by the COVID-19-related lockdown measures, commodity price falling and setback in the coal and copper exports were main causes of the country’s economy to decline by 9.7 percent. On the other hand, the country’s economy is expected to revive gradually thanks to the current volume of continuing coal exports and zero locally-transmitted COVID-19 cases in Mongolia, and business loan issuance are to grow back toward the end of this year. 

Another adverse effect of the COVID-19 on Mongolia’s banking sector is an increase of foreign currency savings in total savings. In the first 6 months of this year, foreign currency savings rose by 48 percent and are now constituting 29 percent of total savings.  This was also mainly due to gradual increase of Mongolian Tugrug to US Dollar exchange rate since last October. 

During the press briefing, L.Amar also touched upon the recently-approved government’s strategy to reduce loan interest rates, which contain 47 measures. “38 measures or some 80 percent of the measures in the document are aimed at macroeconomic stabilization, stabilizing currency exchange rate and increasing foreign exchange reserves. With the help of these measures, the MBA will be further cooperating with commercial banks to reduce their own operational expenses. As a result, the loan interest rates are possible to be cut by 4 percentage points within four years” said L.Amar.