bne IntelliNews – Uproar in Mongolia as Development Bank Reveals Extent of Subprime Loans and PNPs
Many Mongolians have expressed outrage over figures that show that around half of the loan portfolio of the state-owned Mongolian Development Bank (DBM) is composed of risky or non-performing loans (NPLs). The biggest outcry comes from the fact that many borrowers in the risky category are well-known Mongolian business leaders with ties to, or having served in, the government or parliament.
DBM was founded in 2011. Current legislation stipulates that the development bank must grant at least 60% of its loans to beneficiaries who stimulate Mongolian exports. The lender was incorporated with the goal support the country’s growth through export gains and the financing of import replacement projects and programs. However, according to the release of data dated January 31, 55% of its loans were deemed risky or as NPL.
DBM’s total loan portfolio amounts to 3.1 trillion Mongolian tughriks (MNT) ($1.1 billion). About a trillion tughrik in loans, awarded to 28 borrowers, were subject to ongoing legal action, records show. In addition, 14 borrowers were under investigation by law enforcement.
DBM representatives said lawsuits usually take a long time to resolve. Some disputes have been pending before the courts for 69 months.
Twenty loans worth 520 billion MNT were misused, with law enforcement investigating the cases, DBM said.
A regular Cabinet meeting was held on February 9 and DBM’s finances were on the agenda. Deputy Prime Minister Solongoo Bayarsaikhan said in a subsequent press briefing: “The Prime Minister has issued instructions to resolve the issues facing the bank. Step by step action should be taken regarding non-performing loans. The measures achieved certain results.
“DBM is an institution that supports export projects and programs necessary for the development of Mongolia. Therefore, the government will continue to support DBM. The government plans to cooperate with law enforcement and charge irresponsible borrowers. In this regard, the Prime Minister has ordered that all possible support be given to law enforcement agencies.
On February 11, policymakers, activists and ordinary citizens concerned about DBM’s NPLs came together for a discussion moderated by local media reporters.
A concern expressed at the meeting was that the majority of the bank’s funding came from foreign issuers and was lent to MNT; if refunds are unsuccessful, the Mongolian taxpayer is required to cover the exchange rate difference.
Also at the meeting, Solongoo said the government should accept repayment of an $800 million samurai bond, which is to be paid through DBM: “The $800 million bond is to be repaid by the end of next year,” he noted. Since the Samurai Bond is backed by a government guarantee, DBM is obligated to repay the bond through contractual commitments. Failure to meet the development bank’s loan schedule may make it impossible for it to repay the bond from its own resources. If the situation does not improve by 2023, the government could be held responsible for repaying the debts. »
After the announcement of the subprime loans, DBM issued a statement on February 11 stating that “from January 20 to February 11, the bank received repayments of up to 39.8 billion MNT.”