Investors would be wise to pay special attention to banks' prudential ratio, said Frontier Securities Chief Investment Strategist Dale Choi.

“At this stage in the business cycle, it is especially important to proactively manage risks and pay attention to how strictly banks are adhering to prudential regulations in order to prevent the buildup of future credit quality problems in the banking system (as it became painfully clear in 2009),” said Choi.

Interest income from Trade and Development bank is up 61 percent compared with the same period a year ago, while other income is up 104; or increases of MNT 143 billion and MNT 33 billion respectively. Assets increased 56 percent compared with the same period a year ago to MNT 2 trillion, in additions to a 53 percent increase in liabilities to MNT 1.91 trillion, and a 102 percent increase in capital to MNT 178.34 billion. The World Bank reported in October 2011 that the banking sector remains under-regulated, while expanding rapidly. Data from the International Monetary Fund (IMF) found that rapid acceleration is making banks more vulnerable and adding more stress to banking systems. Total loans have increased 73 percent compared with the same period a year ago to 5.64 trillion in December.

Choi said indicators for “healthy pace of credit growth” include adequacy requirements, provisions on new lending, reserve requirements and liquidity ratios. He added that non-performing loans and loans in arrears were the most important indicators. Investors should also pay mind to how banks maintain “buffer capital” that would be used to handle any losses.