Fitch Ratings has determined that Mongolia’s banking system remained weak with a high reported ratio of non-performing loans (NPLs) of 8.2% at end-May. The ratings agency thus moved on July 13 to list Mongolian banks among Asian lenders that are likely to see their growth constrained within the next two years.
Fitch maintains that the credibility of Mongolia’s reform process, which the country is partially undergoing due to an IMF-led $5.5bn agreement, will be tested by the transparency of a potential recapitalisation process and NPL resolution. The sector’s NPL accounts remained unresolved for some time prior to the Central Asian nation entering the bailout agreement.
“Mongolia has completed an asset-quality review, followed by a stress test, as part its IMF arrangement, which should raise the comparability of banks' financial profiles after adjustments are formally booked into their end-June 2018 statements,” the ratings agency said.
“New laws could further strengthen the authority of the regulator if consistently enforced. Moreover, the operating environment has become more supportive as economic growth has accelerated and government refinancing risks have declined,” it added. “Fitch upgraded its two rated Mongolian banks - Khan Bank and XacBank - in July 2018 to reflect these improvements.”
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