Economists and researchers say that by opening the doors of investment banks in Mongolia, enterprises will be able to get low-cost and long-term financing from the public without taking high-interest, short-term loans from commercial banks. They believe that the capital market will develop only if investment or foreign banks actively operate in Mongolia. However, it is doubtful whether the bill on investment banking includes regulations that will create many positive consequences.

On December 28, 2016, 18 members of Parliament, including Minister of Finance B.Javkhlan, D.Khayankhyarvaa, B.Batzorig, Z.Narantuya and B.Undarmaa, initiated the bill on investment banking, which is now being discussed by Parliament.

The draft law has five chapters and 21 articles. Chapter 1 of the bill covers the general basis or legal objectives, scope of application of the law and definition of investment bank, while the second chapter stipulates the direction of operation of investment banks. Chapter 3 provides for the establishment of an investment bank, the requirements for its founder and documents to be prepared, as well as the granting, refusal, registration and cancellation of special licenses. Chapters 4 and 5 include restrictions on banking activities and provide for the system of responsibility.

The bill initiators previously reported that out of 14 operating banks, eight banks have foreign investments, and three of them have foreign bank shareholders, and explained, “Relations regarding the establishment of a foreign bank and the conduct of banking activities in Mongolia are regulated by the Banking Law, Law on Investment, Company Law and Mongol Bank’s license regulations. In accordance with the regulations of Mongol Bank, if financial institutions have been operating for at least one year, they have the right to apply to Mongol Bank and other authorized institutions for conducting banking activities. There are currently no detailed provisions on foreign banks, other than these regulations.”

Therefore, they highlighted the need to allow foreign banks to enter the domestic market for investment purposes only, grant loans necessary for the financing of large projects and programs to legal entities only, execute foreign and domestic settlements, issue loan guarantees, sell and buy securities, and create a legal regulation that prohibits other activities, especially taking deposits from citizens.

The approval of the bill is expected to have the following positive effects on society and economy:

• To introduce new technology. Increasing foreign investment in developing countries will bring human capital and new technologies to the market, and improve the knowledge and skills of personnel.

• To increase competition in the market. An increase in the number of foreign-invested banks will raise the competition in the banking system, thereby growing bank productivity and reducing interest rates.

• To increase the efficiency of loan distribution. When a foreign-invested bank enters the market, the amount of loans granted to related parties will decrease, and loans will be made in the domestic market in accordance with appropriate procedures.

• To promote the development of the domestic financial market. A foreign-invested bank has more experience than domestic banks in using financial derivative instruments and stocks, which will allow them to introduce new financial products to the market.

• To increase the stability of the domestic market. In the long run, as the risk management system of domestic and foreign banks reaches the same level, the amount of non-performing loans will decrease.

• To improve the infrastructure of the financial system. The good practices, know-how, registration, transparency, financial regulation and advisory capabilities of the banking system of developed countries will be localized in the domestic market.

• To increase access to financial products and services. Access to financial services will improve if foreign banks establish more branches and introduce modern online and mobile banking services.

• It has a positive effect in the short term by improving the flow of foreign exchange and increasing capital resources.

Some experts and economists note that if domestic banks only provide consumer loans, interest rates may decrease, and they warn that a country with a small economy like our country should be cautious when establishing an investment bank.

In accordance with the bill, investment banks can provide long-term loans for financing large projects and programs, make external and internal settlements related to borrowers’ current accounts, issue loan guarantees, sell and buy securities, and perform other investment works and services on behalf of clients.

The draft law states that banks that will operate in Mongolia for the purpose of investment cannot operate in the domestic market in any form other than in the direction of investment.

The bill also prohibits attracting financial resources through the savings of citizens and relations with domestic enterprises. It stipulates that “the minimum amount of the authorized capital of the investment bank should not be less than 500 billion MNT”, while “the amount of loans and guarantees provided by investment bank must be at least 100 billion MNT”. However, during the discussion of the bill, the relevant standing committee removed the provision. In particular, former Member of Parliament Z.Narantuya said, “The first proposed bill stipulates that the minimum capital of foreign banks must be at least 100 billion MNT. However, the lawmakers removed the minimum amount of equity capital from the bill. In other words, it eliminated the legal guarantee to bring cheap and large resources to the Mongolian market.”

At the time when the bill was first submitted or in 2016, there were five banks that expressed their desire to operate in Mongolia, despite economic difficulties and credit rating downgrades.

The Parliamentary Standing Committee on Economy discussed whether to postpone the IPO of “influential” domestic banks last May. During its meeting, some members of Parliament said that Mongolia’s banking environment will not improve without the entry of foreign banks. “Except for North Korea and Mongolia, there are hardly any countries without foreign banks. We should use every opportunity to bring in foreign banks,” they expressed.

Many people say that with the introduction of foreign banks into Mongolia, the interest rates will decrease and the competitiveness of domestic banks will raise. On the other hand, there are quite a few people who believe that the introduction of foreign banks will affect the Mongolian economy, finance and national security. Branches of well-capitalized foreign banks provide policy loans. In addition, some people are warning that there is a risk of increasing unemployment in the country and negatively affecting the exchange rate.

For instance, then-Deputy Minister of Finance Kh.Bulgantuya once expressed, “In accordance with the draft law on investment banking, foreign banks will start operating in our country. In this case, we do not rule out that large enterprises will take loans by pledging the licenses of their mining deposits. If they cannot pay the loan, there is a risk that Mongolia’s territory will be taken over by foreigners. It is necessary to calculate and consider all these issues and provide detailed regulations in the bill. Mongolia’s large deposits and land may be put as collateral, and the banking and financial sector may be put at risk. Fund raising through the stock exchange may decrease.”

Former lawmaker Z.Narantuya also commented, “Politicians make many ‘false promises’. An example of this is the investment banking bill. It creates the illusion that if a foreign bank operates in Mongolia, anyone can get a loan with a low interest rate. Six out of 12 commercial banks operating today have foreign investments. For example, Japanese investors own about 56 percent of Khan Bank shares. The average interest rate for consumer loans in the bank is about 22.8 percent. Banks do not provide loans with 35 percent annual interest rate that citizens want. This is because capital invested by individual owners constitutes only about 10 percent of the total capital circulating in banks. The other 90 percent of the financial source is money deposited by domestic depositors and customer institutions. In order to avoid losses, banks set interest rates by adding interest and operational costs, as well as the country’s and the borrower’s business risk. Therefore, the real possibility of providing low-interest loans to citizens has decreased, and domestic banks have a bad reputation.”

She added, “I do not believe that the adoption of the bill on investment banking, which is being discussed by Parliament, will directly reduce the cost of funds for domestic banks. The draft law stipulates that foreign-invested banks will finance projects with a duration of more than two years in the same market as domestic banks. However, the average loan period of banks for production loans is three to five years.”

Previously, our country granted operating licenses to the representative offices of six foreign banks that met legal requirements: Standard Chartered, ING, Bank of China, ICBC, MUFG and SMBC. As of today, the representative offices of Standard Chartered and ING Bank have reportedly ceased operations.

Some economists warn that there is insufficient preparation for foreign banks in Mongolia. Therefore, it is necessary to thoroughly revise the legal regulations based on experts’ opinions and research.

The Ministry of Food, Agriculture and Light Industry informed that twelve new cashmere dehairing plants were under construction. Thus, Mongolia will have 43 plants in total once they start operating.

Mongolia produces 48 percent of the total raw cashmere in the world. But only 10% of processed cashmere is dehaired and exported. Even though the capacity to produce 6,017 tons of dehaired cashmere is installed in 40 plants, only 25% is being used.

According to the Government’s adjustment that requires hair content in goat cashmere which is crossed the border for export and import must not exceed 0.3%, only dehaired cashmere is allowed to export. As a result of that, the export volume increased and Mongolian companies started to cooperate with global TOP brands. For instance, 90% of dehaired cashmere is exported to Italy and about 20 Mongolian enterprises launched cooperation with TOP brands, such as "Loro Piana", "Falconeri", "Chanel", and "Schneider".

As of November 2022, the export volume of dehaired cashmere has reached 809.1 tons, up 2.2 times compared with the same period of the previous year. In addition, the average price for dehaired cashmere was USD 91.1 per kg in 2021, while in 2022, it raised to USD 108.3.

Minister of Finance B. Javkhlan and the World Bank Country Manager Andrei Mikhnev signed the Financing Agreement for the Smart Government II Project today. The project is funded with a USD 40.7 million credit from the World Bank.

The project objectives include strengthening policies and regulations for digital transformation, upgrading the common infrastructure, and enhancing the usability and efficiency of digital public services.

The Smart Government I Project ensured the continuity and security of digital public services while digitalizing 112 services of 12 organizations and helping citizens and businesses save MNT 48.4 billion.

Smart Government I Project: https://www.smart.gov.mn/en/

“Mongolian Stock Exchange” JSC commenced secondary market trading of shares with the alphabet code of “MSE” yesterday.

The Financial Regulatory Commission (FRC) considered the primary market trading of “Mongolian Stock Exchange” shares successful following its official letter No. 1/61, dated January 5, 2023, and approved the commencement of secondary market trading of shares of the company on January 9. FRC informed allowing investors to receive the remaining balance for their unallocated orders through their brokerage firms starting today.

The “Mongolian Stock Exchange” JSC raised MNT 57.8 Billion through 7.417 orders, which exceeded its initial target of MNT 11.9 billion by 4.8 times during its primary market trading. FRC reviewed the subscriptions according to 7.13 of the Regulation on Security Registration and issued a final report.

Inner Mongolia, one of China's major energy bases, is expected to produce 1.2 billion tonnes of coal in 2022, according to an official with the local energy bureau.

The region is the second largest coal producing base in China only after neighboring Shanxi. National statistics showed that Inner Mongolia's coal output totaled 1.07 billion tonnes in the first 11 months, up 12.1% from the year earlier, accounting for 26% of the country's total over the period.

The region's full-year production is likely to account for one fourth of China's total, and more than 60% of production would be delivered outside to 25 provinces. Both production and outbound deliveries would maintain double-digit growths and hit new highs of all time, said Wang Jinbao, leader of the region's energy bureau.

In 2022, the region has undertaken to deliver 945 million tonnes of coal to power plants via medium- and long-term contracts, accounting for 36% of the national contract supplies, Wang said. The quantity topped the country and made Inner Mongolia as the key supporter for the country's energy security.

Meanwhile, Inner Mongolia is the key power producer in China. As of the end of 2022, the region had 173 GW of installed power generation capacity, including 107.84 GW of coal-based capacity and 65 GW of renewables.

After integrating 9.64 GW of capacity into the grid this year, Inner Mongolia has become the fourth in China to have coal-based capacity exceeding 100 GW, after Shandong, Guangdong and Jiangsu.

The region's power generation rose 7.8% on the year to 646.5 TWh in 2022. In the case of its own supply tension and surged fuel cost, it still managed to maintain a 7% rise in outbound transmissions to 264 TWh, which the highest in the country for 18 years in a row. The power is delivered to the north and east of China and as well as neighboring Mongolia.

The region also pays high attention to development of the renewable sector. It has poured 130 billion yuan to the sector in 2022, more than five times the size of 2021. Its renewable capacity, 65 GW, accounted for 38.3% of the region's power mix, with the proportion up by 3 percentage points from the year ago.

The region's wind capacity ranks second in the country and is on track to get the first place soon as the nation has planned to build four wind & solar bases in the region over the 14th Five-Year period.

(Writing by Alex Guo Editing by Tammy Yang)

Mongolians consume three times less milk and dairy products on a daily basis than it is recommended by the World Health Organization. Therefore, increasing the consumption of milk and dairy products and opening up the opportunity for people to get adequate nutrients through their daily food is the primary goal of “SUU” JSC, Mongolia's first dairy factory.

In 2022, “SUU” JSC purchased a total of 21.2 million liters of milk from its suppliers and provided a direct income of MNT 27.8 billion. Compared with the same period of the previous year, the amount has increased by 62.3 percent. Also, 60% of the total milk bonus is given to the producers and suppliers of the company. In addition, this year, 1,380 tons of bran worth more than MNT 800 million were distributed by the company to support herders.

The first cooperative in the country “Ar Gunt Martsad” was established in 2020 within the framework of the company’s goal of increasing milk production and enhancing the quality of raw milk. Today, the number of such cooperatives has increased to 12. With the help of the company’s equipment, the cooperatives have become able to supply 2.5 times more and better quality milk to the factory. The establishment of the cooperatives has been able to replace the older practices of milk production that used to be done manually with technological advancements, increasing productivity. For example, the conditions have been created for the suppliers to give their milk to the cooperative, and the cooperative will deliver the milk to the standard refrigerator of "SUU" JSC. In this way, it became an important practice to save time and money for the suppliers.

Taking into account many factors such as the weather, traditional methods of animal husbandry, and Mongolian people's mentality and behavior, cooperative activities were introduced. In addition, the good practices of Japan were studied and implemented in the rural aimags. An example of this is the recently established "Bayan Tolgoi" cooperative. "SUU" JSC in cooperation with "Makubetsu" agricultural cooperative of Japan introduced the most modern milk production practices in the cooperatives. Developed countries develop cooperative systems in areas with four seasons of the year. With the creation of a unified system of cooperatives, the amount and quality of milk will be improved, and the capacity to receive milk will be expanded even more.

The cooperative system has the advantages such as improving the quality of milk supplied to milk factories, ensuring the implementation of a quality-based pricing policy, introducing appropriate agricultural practices to dairy farmers, improving the equipment, increasing the number of intensive dairy farms, decreasing the dependence on the milk production season, and providing the opportunity to get discounted loans from domestic banks and financial institutions.

At the initiative of the President of Mongolia, U. Khurelsukh, the “Food Supply and Security” national campaign was launched in 2022. Moreover, the Government of Mongolia declared 2022 as the year to support the development of cooperatives. In accordance with this, the authorities of some aimags also announced 2022 as the year to support green development and wealth creators.

In addition to increasing the participation of private sector organizations in the implementation of government policies on food and agriculture and the Law on Animal Genetic Resources, the preparation and supply of raw materials for strategic food products in a sustainable and environmentally friendly manner has become an important issue for national producers to pay attention to.

About “SUU” JSC

"SUU" JSC, Mongolia's first milk factory, was established in 1958 with a capacity of producing 30 tons of milk to provide milk and dairy products to the population of the capital. Now the company has more than 500 employees and the capacity to produce 70 types of 130-180 tons of milk and dairy products per day. The factory collects milk from the doorsteps of more than 2,500 suppliers in over 30 areas around Ulaanbaatar and in Tuv, Darkhan, Selenge, Orkhon, and Khentii aimags during the four seasons. Since launching the program to establish cooperatives for milk suppliers in 2022, the company has established 12 cooperatives and is planning to increase it to 22-25 this year. Moreover, the company established “Max Agro”, an intensive animal husbandry farm, in 2015 and became the leader in this field.