Restructured Golomt prepares to face rocky time for Mongolia banking

By bne IntelliNews December 4, 2008

Clare Nuttall in Almaty -

Golomt Bank has long been known as a pioneer of innovative banking products in Mongolia. After a far-reaching restructuring in 2007 that led to rapid growth in profits, assets and deposits, it's seen as being in a relatively strong position to face what could become a rocky period for the Mongolian banking sector.

Its offices are just a stone's throw from the imposing State Palace on Ulaan Bataar's central Sukhbaatar Square, but Golomt has always been fiercely independent from the Mongolian government. This has paid off over the 13 years since its launch, as it has risen steadily up the ranks, to recently emerge as the country's largest banks. In October, the World Bank said that Golomt was responsible for 19.2% of new credit provided in the country, lying just behind the market leader Khan Bank with 21.9%.

According to Golomt's chief executive, John Finigan, 2007 was a record year for Golomt. It achieved record profits of $6.3m (an increase of 192% from the previous year) and a 65% increase in net interest income. Assets grew to $557m. These results followed a major restructuring at the bank, aimed at improving the service it offered to customers, improving risk controls, accountability and transparency, while strengthening corporate governance. Key steps included enhancing the management structure and investing in improving anti-money-laundering measures and compliance functions critical to its business. After an intensive recruitment process, employee numbers were up 33% to 728 by the end of the year. The bank opened a new training centre, and increased its spending on staff training by 142%.

Also in 2007, Golomt became one of a small number of Mongolian banks to be headed by an international banker; Finigan has 40 years' experience in the banking sector, starting out at Standard Chartered Bank in London, and later working in Europe, the Far East and the Gulf. In the decade before moving to Ulaan Bataar, he was CEO of Qatar National Bank from 1995 to June 2001, adviser to Qatari Minister of Finance Yousuf Hussain Kamal, and later CEO of the National Bank of Oman.

Mongolia has remained largely off the map for most international banks. However, in 2007 Golomt signed a five-year convertible loan agreement and strategic partnership with Credit Suisse. "Through this partnership, the bank will be able to draw upon the global resources of training, risk management, investment banking, asset management and IT supports; also this creates the international capital market access to our customers," Finigan says.

Tricky times

The 2007 restructuring programme was fortunate in its timing, as the Mongolian banking sector - like those elsewhere in the world - is entering a turbulent phase.

On October 28, the former governor of Mongolia's central bank, Ochirbat Chuluunbat, rang alarm bells by saying in a press interview that a $500m rescue package was urgently needed to bail out commercial banks. Later that day, the government authorised a capital injection for the sector.

However, Finance Minister Sangajav Bayartsogt was quick to announce that there was no immediate need to pump money into the country's banks. In an interview with Reuters on October 29, B Enhhuyag, first deputy governor of the Bank of Mongolia, said that Chuluunbat had been exaggerating and that his views did not reflect the policies of either the government or the central bank. "We are officially stating: the banking system does not need any bailout. The fundamentals are safe and sound. Our banks are adequately capitalised," Enhhuyag said. In particular, substantial deposit bases have helped ensure the stability of most Mongolian banks - including Golomt, which has the country's largest deposit base, accounting for 21% of total deposits.

This positive assessment was publicly corroborated by Bank of Mongolia Governor Alagiin Batsukh and the World Bank's chief economist, Justin Lin, at a recent policy conference convened jointly by Mongolia and the World Bank. Batsukh affirmed that there are no concerns about any Mongolian banks. Lin endorsed the central bank's restrictive monetary policy, and commented upon the robust fundamentals of the economy which, he said, is well placed to face the current global slowdown as exports increase while import prices are set to decline and bring down the overheated inflation rate.

The government is, however, considering providing money to the banks to lend to property developers, with the hope of reviving the frozen mortgage market. The previously booming construction sector has been hard hit by rising costs of materials and cutbacks in mortgage lending as banks rein in their credit activities. Among Mongolia's leading banks, both Golomt and Xac Bank have recently cut tightened conditions for granting mortgages, while Khan Bank has temporarily suspended mortgage lending, according to state news agency Montsame.

Stepping forward

Despite the difficulties in this market, Golomt still plans to push ahead development plans, including opening new branches and launching new products.

In October, Golomt launched Mongolia's first EMV chip card, and the bank has teams at work on the launch of a China UnionPay Card, a Gift card, an I-card and other new products including the world's leading premium card. Against intense competition, it was selected by the International Air Traffic Association as its exclusive business services provider in Mongolia. The bank currently has 52 branches and settlement centres - including its head office on Ulaan Bataar's central Sukhbaatar Square - and plans to open new branches in five aimags (provinces) in 2009.

In recent years, Golomt, which built its reputation primarily in the corporate banking sector, has made a push in the retail and small business markets. With spending power increasing in Mongolia, the consumer market has become important. "We introduced our first full self-service units and located experienced loan officers in some of the leading retail outlets in Ulaanbaatar in order to extend consumer loans for higher value household equipment," says Finigan.

Another important theme for the bank is trade with China. "During 2007, 52% of Mongolia's foreign trade was conducted with China, making the yuan a vitally important component of international payments into and out from Mongolia," says Fingian. "Golomt Bank is the leading bank in terms of yuan transfers, accounting for over 70% of total yuan outgoing and incoming transfers in Mongolia. In 2007 our yuan settlements increased by 51%."

This is set to continue, he adds, as Mongolia's economy becomes increasingly oriented towards its powerful southern neighbour.


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Restructured Golomt prepares to face rocky time for Mongolia banking

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