At 10°C in June in Ulaanbaatar, it was an unusually cold summer for me, arriving from Hong Kong for a research trip. But the chill in the Mongolian capital was quickly offset by the warm welcome from government officials, banks and companies alike.

A common theme emerged across my meetings: Mongolia is actively seeking to expand its access to international capital markets.

Mongolia is classified as a frontier market, also known as a ‘pre-emerging’ economy, reflecting its high growth potential, along the elevated risks that makes primary research essential.

The country has enjoyed robust economic development over the past three years, underpinned by strong commodity-led export growth. This has been accompanied by rising US dollar bond issuance from Mongolian issuers.

Against this backdrop, it was an opportune time to be in the ‘Land of the Eternal Blue Sky’, speaking with bond issuers face-to-face, observing first-hand how the economy is changing and understanding where companies are prioritising their future growth.

We met with six commercial banks for a pulse check on the country’s financial system. Bank lending has grown significantly over the past two years, fuelled by economic expansion; we expect the growth rate to remain strong in the mid-teens in 2026, albeit slower than before.

Lending focus has shifted towards small and medium-sized enterprises, which have historically faced a disproportionate lack of access to bank financing despite their importance to the economy and now face rising funding needs to meet growing domestic demand.

We were encouraged to see major Mongolian banks partnering with international financial institutions to help close the financing gap, particularly in sustainable lending.

Digitalisation was a recurring theme, cited by the banks as a common area of development spanning all channels — branches, mobile banking and online transactions. We believe this digital transformation will help Mongolian banks lower their operating costs while improving productivity and customer experience.

Most of the non-performing loans appear to have remained relatively well controlled. It was reassuring to hear that most commercial banks have taken active measures to manage the high-risk segments of their loan books, alongside regulatory tightening on excessive retail lending.

Mongolia’s growth ambitions cannot be realised without infrastructure development. As one local company puts it: “In Mongolia, almost every project proposal begins with an energy project.” A fitting reminder that this is a country with a vast territory and a sparse population.

The Mongolian government has identified energy security as one of its critical challenges and is determined to address it.

A highlight of the trip was a site visit to a power plant project located a couple of hours’ drive from Ulaanbaatar, which operates under a long-term power purchase agreement with the government.

Mongolia faces a critical energy shortfall, driven by surging consumption and ageing Soviet-era infrastructure. Nothing illustrated this more than the two power outages we experienced at our hotel during our stay in June, well before the surging power demand in winter.

We toured Phase 1 of the project to observe its operations firsthand. We saw the turbine hall and control room, the heart and brain of the plant, where power is generated. We also examined the chemical water treatment systems and the surrounding infrastructure, the arms and legs that keep the plant running.

The plant was built through bilateral cooperation between Mongolia and China with key Chinese stakeholders involved in the construction work and daily operations.

We then visited Phase 2, which is still under construction. Our discussions with the local construction team confirmed that the project is on track for delivery between 2027 and 2028.

Phase 1 was commissioned in 2025 but cannot fully cover the rising energy needs of Ulaanbaatar. Once fully completed, the project is expected to supply over a third of energy demand in the capital, a vital step towards bridging Mongolia’s energy supply gap.

We remain optimistic about Mongolia’s commodity-driven growth outlook in the near term. As local companies of varying sizes across a range of sectors look to improve their access to international capital markets, we expect Mongolian issuers to remain active in dollar bond issuance and to form a larger share of the Asian credit market.

From an allocation perspective, we favour issuers in strategically important sectors with meaningful exposure to Mongolia’s growth story.

Being on the ground is key to investing in emerging and frontier markets, providing first-hand insights and granular data points that no phone call or video meeting can give. On this trip, we could see and experience Mongolia’s growth potential first-hand. Just like its rapidly developing rail network, Mongolia is a frontier market on the fast track.

*Colette Zhou is investment manager of fixed income – Asia, at Aberdeen Investment.

Published Date:2026-08-31