Mongolia is preparing a $500-600 million bailout of the nation’s banks, which have largely frozen mortgage lending for several months, its former central bank governor told Reuters on Tuesday.
“We are now considering -- the government and the parliament -- whether it is the right time for us to take action to rescue the commercial banks,” said O Chuluunbat, who is now a member of parliament. The rescue could happen as early as next week, he said on the sidelines of a conference in the Mongolian capital. “The commercial banks as well as the government are under pressure,” he said.
Mongolia’s central bank froze most mortgage lending by commercial banks in May, due to concerns about a rapid deterioration in their loan portfolios. Governments worldwide have committed more that $4 trillion to prop up banks whose capital has been depleted by the year-old credit crisis as part of efforts to stave off a potentially deep global economic recession.
Kazakhstan on Tuesday became the latest country to spring into action, offering to inject $5 billion into its four largest banks.
Mongolia’s bailout would target “not all banks, maybe three or four large banks where the most of these mortgage loan packages are placed,” Chuluunbat said. He would not name specific banks facing difficulties. Some banks had been lending against the collateral of mining licenses, but prolonged uncertainty over Mongolia’s minerals law has led some mining investors to exit the industry, Chuluunbat said. “Because of market circumstances, the assets significantly and suddenly declined.”
Minister of Finance S. Bayartsogt told Reuters that all the country’s commercial banks had fulfilled unspecified requirements set out by the central bank, but that the government was concerned it might need to act to prevent the spread of rumors about their soundness. He said the country’s 16 commercial banks had about 204 billion togrog ($178 million) in mortgage loans on their books.
The Mongolian banking industry’s loan-to-deposit ratio is about 120%, with most credit concentrated in a few large banks, said Arshad Sayed, the World Bank’s representative in Mongolia. He declined to speculate on the health of the banking sector. Mongolia’s central bank has been battling inflation above 30% for much of the year, driven by record crude oil prices in the H1 of 2008. Domestic consumption has also increased, as windfall revenues from mining allowed the government to raise wages and social spending. (Reuters)