Discussion takes place on the role of science in sustainable development www.montsame.mn

Ulaanbaatar /MONTSAME/. The annual forum of the Mongolian Academy of Sciences (MAS) took place under the theme, ‘The role of science in sustainable development: New trends and opportunities’ on November 19.

Radiation protection to be improved through international projects and programs www.montsame.mn

Ulaanbaatar /MONTSAME/ The General Agency for Specialized Inspection plans to take part in international projects and programs to improve and strengthen radiation control and upskill its inspectors in the coming year. Therefore, authorities of the agency’s Nuclear and Radiation Control Department met with relevant officials of the United States Department of Energy and Korea International Cooperation Agency.

Plan for making Ulaanbaatar a “Green city” approved www.montsame.mn

Ulaanbaatar / MONTSAME /. “The Action Plan for Making Ulaanbaatar a Green City'' was discussed and approved during the Governor’s Office meeting yesterday, on December 19. The plan was introduced by D.Munkhjargal, the Deputy Governor of the Capital, and official in charge of air pollution projects of the capital city.

Parliament finalizes new bill on election www.zgm.mn

The Parliament on Friday approved the draft law on elections. According to the new draft law, a candidate must not participate in the parliamentary election if corrupted or received a criminal conviction before. The Constitutional Court of Mongolia issued a review about the provision in 2008, meaning that violating the human rights to choose and to be chosen is illegal. Therefore, the Constitutional Court may call MPP caucus regarding the decision, increasing the possibility of election law to cause controversy. Thus, women politicians demanded to increase women’s quota to 30 percent, but it retained 20 percent.

What To Expect From Mongolian Airlines’ First Boeing 787 www.news.mn

MIAT Mongolian Airlines is set to receive its first Boeing 787-9 aircraft. It will enable the Ulaanbaatar-based airline to fly to European and North American cities, opening up a whole raft of new possibilities for intrepid travellers. The aircraft will join MIAT Mongolian Airlines through a lease agreement with Los Angeles-based Air Lease Corporation. The plane is due for delivery in the spring of 2021.

Travellers can now bring more cash into Mongolia www.news.mn

When travelling, it makes sense to many people to carry some cash. Most countries have laws about how much cash you can cross their borders with. As for Mongolia, travellers may bring up to MNT 15 million in currency, coins and specific monetary instruments without having to make a customs declaration. According to the Mongolian Custom Agency, the limit of cash money to bring up country was MNT 5 million; it now has been raised by three times. Please note, today’s exchange rate is MNT 2730.91 to the dollar.

Mongolia leaves benchmark interest rate unchanged third time www.news.mn

Mongolia’s Central Bank decided on 20 December to leave the benchmark interest rate unchanged at 11 percent for the third time. The policy interest rate was increased to 11 percent in November 2018.

JPMorgan Chase gets regulatory nod for securities joint venture www.chinadaily.com.cn

US bank JPMorgan Chase & Co said on Wednesday that its securities joint venture in China had received the necessary regulatory approvals to start operations, a further indication of the increasing foreign investment in the rapidly opening-up Chinese financial sector, analysts said.

The bank said in a statement that its securities venture in China will provide a comprehensive set of financial products and services for its Chinese and international clients including securities brokerage, securities investment advisory, and securities underwriting and sponsorship.

JPMorgan became the first US bank to gain majority control of its securities entity in China after Japanese financial group Nomura obtained the regulatory permission to start business operation of its securities JV last month.

The expansion of foreign banks' investment in the onshore securities business highlighted the importance of the Chinese market in their global business strategy as China's regulators have accelerated the opening of the Chinese financial markets to draw more foreign capital, analysts said.

China will remove foreign ownership restriction in the securities, fund management and futures business next year, meaning that foreign financial institutions can have 100 percent control of their business entities in China.

Jamie Dimon, chairman and CEO of JPMorgan, said in a statement that the bank will continue to invest in and support its business in China, which has become a critical market for its domestic and global clients.

"The establishment of our new securities company further strengthens JPMorgan's domestic platform and our onshore capabilities at a time when China's financial markets continue to evolve and the requirements of our clients continue to develop," said Mark Leung, CEO of JPMorgan China.

Zhang Deli, chief macroeconomic analyst at Yuekai Securities in Guangdong province, said that foreign financial institutions could leverage their strength in the global network, professional expertise and strong capital position to gain a competitive edge in the Chinese market and their presence could lead to industry consolidation in the Chinese securities sector.

"Foreign firms tend to have extensive international experience and they are strong in business areas such as principal securities trading (where the securities firms use their own capital for capital market investments to realize higher profits), capital and fixed-income, foreign exchange and commodities markets. Their presence will bring more competition and force local securities firms to accelerate development, which will help energize the Chinese market, and boost the regulator's goal to further open the financial industry," Zhang said.

Analysts at GF Securities said that foreign securities firms in China have the advantage in areas including derivative trading, asset management and wealth management services over local players. But it is challenging for foreign firms to compete in the onshore securities brokerage and underwriting business in the short run given that they may face limited market channels and higher capital constraints.

China's securities sector will likely see a bigger wave of foreign investment next year as more global financial institutions will seek control of their joint ventures and their participation will bring more competition which is beneficial for the long-term development of China's securities industry, analysts said.

US banks Goldman Sachs and Morgan Stanley have submitted their applications to the Chinese regulator to acquire majority stake in their securities JVs in China. Swiss investment bank Credit Suisse is also in the process of raising the stake in its China securities JV to 51 percent.

Last year, Swiss bank UBS Group became the first foreign bank to gain majority control of its securities business in China.

Financial sector threatens Mongolia’s recovery www.euromoney.com

Ulaanbaatar had its worst day in years when the Paris-based Financial Action Task Force (FATF) added Mongolia to its so-called grey list of nations failing to police money laundering in October 2019. Being lumped together with Botswana, Pakistan and Syria was the last thing Mongolia wanted, raising the stakes considerably for 2020, a milestone year in two respects. First, Mongolia will exit the IMF programme that its 2017 bailout necessitated. Second, it’s an election year, when voters will render a verdict on president Battulga Khaltmaa’s populism. FATF’s verdict is, at the very least, a sobering blow to the popular spin that Mongolia’s financial system internalized the lessons from 2017 and sufficiently strengthened the foundations underpinning the $13 billion economy. “The banking sector continues to raise concerns for financial stability,” Lkhagvasuren Byadran, deputy governor of Bank of Mongolia, tells Asiamoney. Lkhagvasuren Byadran, Bank of Mongolia Given that the “banking system constitutes over 90% of the financial sector,” he adds, “it’s important to raise banks’ loss-absorption capabilities, particularly the strong capital base, as well as being adequately supervised.”

Clearly, FATF is unimpressed with progress on microeconomic reforms these last few years. That contrasts markedly with how things look at the macro level. Mongolia remains one of north Asia’s fastest-growing economies, set for expansion of at least 6% in 2019, while the Asian Development Bank forecasts Asia-leading growth of 6.1% in 2020. Commodity-reliant Mongolia pulled in more than $1.3 billion of foreign direct investment in the first eight months of 2019. Though down 4% from the same period in 2018, the tally compares favourably with other resource-reliant Asian economies. As the trade war erodes Chinese growth to its slowest rate since 1992, demand for copper, coal and iron ore is taking a sizeable hit. Still, FDI into ‘Minegolia’ was solid before FATF’s watch-list announcement on October 18. The national budget is returning to balance. Public debt as a percentage of GDP is near a relatively manageable 75%, versus 112% in Singapore. Foreign exchange reserves are $3.8 billion – a level the central bank sees as ample should market turmoil intensify. That cushion might come in handy if the US-China trade war drives global growth toward zero in the year ahead, or if US president Donald Trump’s fiscal laxity or impeachment troubles slam the dollar. But the troubles that brought the IMF’s fire brigade to Ulaanbaatar are smouldering under the surface. None more so than an under-capitalized financial sector holding back the nation’s transition from frontier market to developing one. Political commitment Mongolia’s last run-in with FATF was three years ago. The inter-government body was set up in 1989 by the G7 to combat money laundering, terror financing and other threats to global commerce. In October 2016, FATF gave Ulaanbaatar 18 months to curb money flows; 11 months later, the 41-nation Asia Pacific Group on Money Laundering raised its concerns about growing Mongolian trade with North Korea. FATF dropped the hammer on Ulaanbaatar and others on October 18. “Each jurisdiction has developed an action plan with the FATF to address the most serious deficiencies,” the agency says. “The FATF welcome their high-level political commitment to this action plan.” In Mongolia’s case, a “high-level political commitment” has been made to strengthen the effectiveness of anti-money laundering policies and curbing terror financing. Pivotal to the action plan is increased surveillance, investigations and prosecutions, more aggressive seizure and confiscation of illicit currency and cooperating with overseas authorities to reduce evasion opportunities. The symbolism of Ulaanbaatar’s placement on the grey list, though, casts a pall over everything – the economy, the banking system, the IMF relationship, the election in 2020. One particular concern is whether or not overseas institutions will sever ties with Mongolia’s commercial banks. Another: the ability of travelling Mongolians to use locally issued credit cards abroad. There is now a big question mark over correspondent relationships with US-based banks. “This is poor timing,” says analyst Daniel Evans, who publishes the online Frontier Mogul newsletter. Mongolia, he adds, has a lot of debt and needs foreign investment at a time when the government hopes to finally pull off an initial public offering of coal miner Erdenes Tavan Tolgoi. The banking system constitutes over 90% of the financial sector. It’s important to raise banks’ loss-absorption capabilities, particularly the strong capital base, as well as being adequately supervised - Lkhagvasuren Byadran, Bank of Mongolia The IPO is rapidly entering the realm of politics with the approach of the election in June 2020. Battulga, president since July 2017, rode the global populist wave into office. By dint of his blunt, outsider rhetoric, the former champion martial artist is often referred to as the ‘Donald Trump of the steppe’. Battulga even has a slogan – ‘Mongolia will win’ – along the lines of ‘Make America great again’. Like Trump, Battulga owes much of his support to poor voters enamoured with his bold talk of prosperity in a nation where per-capita income is just $4,000. Yet Battulga’s poll numbers are suffering, reflecting public frustration over Mongolia’s failure to translate vast mineral wealth into an economic boom that generates new jobs and increased wages. In 2018, state-owned Erdenes Tavan Tolgoi exported 13 million tonnes of coal. By some estimates, that could easily jump to 20 million tonnes a year. That’s easier said than done, of course. Back in 2011, an earlier IPO gambit imploded. In 2015, lawmakers sank some $4 billion into a second attempt to sell off the mine. While Ulaanbaatar hopes it is third time lucky, the Rio Tinto controversy continues to foment intense public anger. In 2009, Rio Tinto scored a 30-year monopoly to develop the vast Oyu Tolgoi copper and gold mine. The influx of cash and burst of building activity drove gross domestic product to 17% by 2011, by far the fastest growth anywhere. The boom ended almost as quickly as it started. The collapse of commodity prices in 2014 sent the currency, the tughrik, plunging. The imports that Mongolians had acquired a taste for, were suddenly beyond the reach of most. Infrastructure projects were cancelled. Construction jobs became scarce. Civil servants’ pay was cut sharply. The government went, hat in hand, to the IMF, receiving a $5.5 billion bailout. As a ratio to GDP, the package was the fourth-biggest in IMF history. And the crash resulted in a public fury that Battulga rode to the nation’s top office. At one campaign rally in 2016, Battulga thundered that “our wealth is shipped outside of the country! Where is that money going?” A similar question prompted FATF’s grey-list action. Economic health There’s no doubt this landlocked country between Russia and China is working to fix the cracks in the technical compliance of the task force’s standards. Yet in the wake of the IMF bailout, economic health is now very much in doubt. Since the end of 2018, IMF disbursements have been withheld, pending a game plan by the central bank to recapitalize commercial banks. Under the three-year arrangement, Ulaanbaatar pledged to stabilize an economy prone to boom-bust cycles, cut total public debt, rebuild currency reserves and diversify growth engines to achieve more inclusive growth. To this end, says Gan-Ochir Doojav, the central bank’s chief economist, policymakers have undertaken a sweeping asset-quality review (AQR) of commercial banks. Using European Central Bank guidelines, a unique approach for Asia, Gan-Ochir says, the Bank of Mongolia is working to “develop important regulations relating to risk-based supervision, capital adequacy and asset impairment. Running a follow-up to the AQR is the top near-term priority in the financial sector.” At the IMF, though, impatience is growing, and in September, officials there called for “a prompt response by the Bank of Mongolia in line with the commitments made under the programme.” The padlocks at the downtown headquarters of Capital Bank demonstrate the risks of inaction. The 29-year-old institution was dissolved in April, the first of seven banks found to have asset-quality shortfalls to be shuttered. The IMF reckons the closure led to public-sector losses equivalent to 1% of GDP. The rest of the big banks are racing to raise most of the capital required by the central bank’s AQR inquisition – amounting to roughly 2% of GDP. Yet, trust remains in deficit. As IMF officials caution, “there are significant concerns as to whether the transactions comply with local regulations and international best practice”. As a result, the IMF is demanding an additional forensic audit led by its own investigators. All this has many wondering if Mongolia’s IMF programme will be extended well into 2021 and beyond. “This is still a fairly fragile economy,” says Randolph Koppa, executive vice-chairman of Trade and Development Bank, the country’s leading corporate lender. “There’s a feeling that the minister of finance would like to continue with the programme because it helps with enforcement, making his job easier, which is fiscal discipline,” Koppa says. “On the other hand, positive elements of the IMF programme have been demonstrated. And to a certain extent [the government] would be feeling that now we can carry on and manage things our self.” Risks abound Yet risks still abound. Case in point: household loans. They account for half of total outstanding credit. Worse, such IOUs are concentrated among the most over-leveraged borrowers. Household debt going bad could dent bank profitability – and exacerbate any sharp slowdown in top-line economic growth. Already, such loans account for 16% of non-performing loans, up from 12.5% in 2018. Commercial banks appear to be dragging their feet on tightening lending standards. Loan origination, the IMF says, “lacks adequate due diligence as demonstrated by the recent surge in household lending”, and the loans are often to borrowers with debt-service-to-income ratios of about 90%. Banks’ standards for asset classification also need work. The IMF recommends changes to addressing NPLs and provisions. There has been limited progress on modernizing insolvency laws and industry best practises. The same goes for inefficiencies in how repayments of debt are enforced and the government’s debt restructuring mechanisms. A number of steps could be taken to strengthen the system. One is increased use of independent audits, including of how banks are getting the capital needed to improve solvency. Bank of Mongolia could police the process by deducting capital for any bank found to be raising it in unconventional ways. Finally, regulators may opt to tighten standards on loan origination, how collateral is valued and how assets are classified. Recently, the central bank imposed a debt-service-to-income limit of 60%. Yet a fast-increasing number of households simply shifted to non-bank financial companies charging extortionate rates. According to IMF figures, the average lending rate at such shops is 41%, versus about 17% at banks. This is increasing the urgency for Mongolia’s government to step up consumer-protection efforts to cap extortionate lending rates, devise a system to resolve consumer complaints and offer financial literacy training. When our SME customers succeed, that’s a very positive thing. It all helps diversify the economy. The stronger the SME segment is in Mongolia, the less dependent the country becomes on the commodity cycle - John Bell, Khan Bank When the IMF arrived in the middle of 2017, roughly 85% of all domestic bank assets were concentrated among five institutions, including Golomt Bank, Khan Bank, TDB and XacBank, and competition was muted. Almost three years later, this power dynamic remains largely unchanged. That leaves the rest of the industry to fight for the crumbs and Mongolia Inc. top-heavy with systemically important banks. Foreign access to the local market remains a non-starter. Many of the world’s biggest lenders, particularly from China, want a piece of the resource-rich economy. But players including Bank of China, the Industrial and Commercial Bank of China, ING Group, and Japanese giants Bank of Tokyo-Mitsubishi and Sumitomo Mitsui Banking Corporation are relegated to providing advisory services via their representative offices. This insularity has protected Mongolia’s banking sector from international scrutiny, leaving it to its own devices. “Structural reforms, particularly in the banking sector, remain important, and using this high-growth period to address these issues would make sense,” says Yolanda Fernandez Lommen, ADB’s country director for Mongolia. That, she adds, is a vital way to build up buffers to “help reduce Mongolia’s vulnerability to boom-bust cycles.” That means diversifying the economy away from mining in ways that also deepen the banking sector. John Bell, Khan Bank At Khan Bank, for example, chief executive John Bell’s team is redoubling efforts to lend to small and medium-sized enterprises. “When our SME customers succeed, that’s a very positive thing,” Bell explains. “It all helps diversify the economy. The stronger the SME segment is in Mongolia, the less dependent the country becomes on the commodity cycle.” The same goes for Arig Bank. “Any success that entrepreneurs we are lending to have in changing the underlying nature of Mongolia’s economy is good for our profits and the nation,” says Narantsetseg Jamiyan, Arig’s chief operating officer. Tackling corruption An equally important priority, and one that is highlighted by FATF’s grey-list decision, is reducing opacity and tackling graft. In Transparency International’s corruption perceptions index, Mongolia ranks 93rd, on a par with North Macedonia, Guyana and Gambia. It was 87th just a couple of months before the IMF arrived. There’s broad suspicion in financial circles about Battulga’s commitment to cleaning up Mongolia Inc, particularly given his desire to pivot toward Russia. Earlier this year, Battulga strong-armed legislators to pass a law giving him scope to fire judges and top law enforcement officials. Battulga said the steps were intended to remove corrupt officials stymieing reforms, but some experts worry that Mongolia, long a bastion of democracy in a region dominated by authoritarians, might be veering down the same path as Poland and Hungary. That raises questions about the government’s commitment to change, never mind that of the bankers. “Mongolia is portrayed as an oasis of democracy in a sea of illiberalism, but under Battulga it is becoming a hothouse for authoritarian creep,” says Jeff Kingston, head of Asia studies at Temple University’s Tokyo campus. “He is whittling down checks and balances, gathering powers and draws inspiration from Genghis Khan, who has become a convenient cloak justifying democratic backsliding.” Like Trump, Battulga “portrays all his opponents as co-conspirators working overtime to deny the real voice of the people,” Kingston adds. “And like Trump, he is a wealthy populist who has managed to convince people he will ‘drain the swamp’. Now, Battulga has signalled that the anti-corruption agency may be mothballed. The oasis is looking less alluring.” Year ahead Election year drama poses another risk: pump-priming that further elevates an already high inflation rate of 8%. “The coming year’s budget is already being discussed – expect lots of expenditures,” says one top bank CEO. “This is a very big area of uncertainty, one likely to increase the money supply, boost consumer prices and put downward pressure on the currency.” When Asiamoney ran this theory by Lkhagvasuren, the deputy Bank of Mongolia governor was unmoved. The central bank, he says, is at the moment running monetary policies that can be viewed as “a bit tight.” The benchmark rate is 11%. Money-supply growth, Lkhagvasuren explains, is averaging about 20%. But Bank of Mongolia is raising its macro-prudential policy game. Instead of jacking rates up and down with abandon, the central bank is experimenting with borrowing and lending caps to avoid the booms and busts of recent years. Nothing, though, would stabilize the economy more than a solid, well-capitalized and dynamic banking system. The year ahead will be crucial in deciding whether or not Mongolia finally gets one.

Book on ambassadors' contributions to China-Mongolia ties published www.xinhuanet.com

The launch ceremony of a book on current and former Chinese and Mongolian ambassadors posted to each other was held at the Mongolian Ministry of Foreign Affairs here on Thursday.