Source: Standard & Poor’s

The credit rater Standard & Poor’s (S&P) assigned Mongolia a “9” for its Banking Industry Country Risk Assessment (BICRA), indicating high risk for its banking sector. For individual criteria, Mongolia received a “9” for economic risk and an “8” for industry risk.

S&P assigned the score of “9”, reporting a “very high risk” for Mongolia's “economic resilience;” a “high risk” for “economic imbalances;” and an “extremely high” for “credit risk in the economy.”

“Mongolia is a narrowly based, small economy with high reliance on the mining sector, and low income levels, in our view,” said the report. “These factors make the economy vulnerable to the commodity cycle. There are also economic risks associated with the high inflation in Mongolia.”

The report said it found short growth in private credit and property prices, despite gains in equity. It also listed aggressive lending and underwriting standards, volatility in agriculture and mining, unreliable habits for paying debts, and a shaky rule of law as demonstrated by delays in foreclosures as weaknesses that reflected poorly on its score.

For industry, it found banking standards falling short of international standards and weakness in enforcing regulations. It also found problems with transparency in the banking sector. Although banks seem to be focused on growth, there is not enough innovation for it to amount to anything. The report shines particular attention on banks' low reliance on funding from outside sources and insufficient “access to alternative funding sources.”

However, the report acknowledged promising growth opportunities and signs of stabilization in the economy, making up for some weaknesses. It also described the government as highly supportive towards the banking sector and commended it for its efforts for maintaining stability.

[For complete report, see BCM website’s Mongolian Reports section].