The Savings Bank of Mongolia, which had over 1.7 million customers and 503 branches, declared bankruptcy on July 22, 2013 after an audit revealed its assets were 94 billion MNT short of what was reported. The bankruptcy was largely caused by loans the Savings Bank had made to its parent company, Just Group, and other subsidiaries of Just Group, which left the bank unable to make up the deficit in its assets. In particular, large loans from foreign banks to Just Group's subsidiary Olon Ovoot Gold LLC contributed to financial issues at the Savings Bank beginning in 2011. Mongolia's deteriorating business environment and weaknesses in its banking sector regulation also highlighted the fragile state of the country's financial system at the time.

1. S
THE BANKRUPTCY
OF MONGOLIA’S
SAVINGS BANK
MA3N0226 Turtemuulen
The Southern Taiwan University of Science and Technology
Managerial Finance – Chapter 17

2. OUTLINE

3. THE SAVINGS BANK
-1.7 million customers
-503 branches in Mongolia,
- providing over 55 percent of the government financial
services, such as disbursement of pensions and payment of
utility bills
- has 3,268 employees
- makes up 8 percent of the total banking assets and
- is one of the 5 systematically significant banks

4. S ON JULY 22, 2013, MONGOLIA’S SAVINGS BANK DECLARES
BANKRUPTCY AND JOINS THE STATE BANK
S the Board of Directors of the Central Bank of Mongolia announced to
abolish the Savings Bank which has been insolvent and made the
decision to unite it with the The State Bank.

5. WHY DID THE BANK
DECLARE THE
BANKRUPTCY?
S During the audit made by the Supervision Department of
the Bank of Mongolia, the Savings Bank faced an
accumulative deficiency of 184 billion MNT and had 94
billion MNT less floating assets than its own assets.
S Since there was imbalance in the bank report, the Bank
of Mongolia started monitoring the Savings Bank in 2011,
but in accordance with the Law of Mongolia on Bank,
the Bank’s total assets is short of 94 billion MNT,
resulting in the decision to announce the Bank as
bankrupt.

6. The reason of the bankruptcy
S On April, 2009, “Just Group” of Mongolia started discussions
to purchase the Savings Bank from the Russian “COALCA”
Group and finalized the discussions , becoming 100% stock
holder of the Savings Bank.
S The loans made on the account of the Savings Bank of Just
Group and its other subsidiary companies caused the bank’s
inability to make up its assets.
S Owner of Just Group Sh.Batkhuu’s large amount of loans
from foreign banks on the account of “Olon Ovoot Gold” LLC
caused deficiency in the bank sector beginning in 2011. Just
Group faces a debt up to 162 billion MNT.

7. The reason of the bankruptcy
- “Just Group”
S Savings Bank's failure was caused mainly by its
association with the insolvent Just Group, its ultimate
parent. The bank's non-performing loans exceeded its
capital by more than two times, which would be a striking
breach of the 20% limit if all were to related parties.

9. Mongolia's Savings Bank
Failure Highlights Fragile
System
S Mongolia's deteriorating business environment
S weaknesses in corporate governance and regulation of
the banking sector
S weaknesses in the construction and mining sectors
S brisk loan growth on the back of the government's
subsidised loan scheme
S currency depreciation

10. STHANK YOU FOR
YOUR
ATTENTION