Randolph Koppa, President, Trade and Development Bank of Mongolia

1. Mongolian Financial Services IndustryMongolian Financial Services Industry
Mr O. Orkhon
First Deputy CEO
August, 2011
Hong Kong
Mongolian Financial Services IndustryMongolian Financial Services Industry
What Will It Take To Get There?What Will It Take To Get There?
Addressing Mongolia’s Investment Needs and Opportunities
Mr. Randolph S. Koppa
President
Mongolia Investment Summit, London, December 8, 2011

2. MONGOLIAN SIGNIFICANT EVENTS
• 209 B.C. formation of the Hunnu Empire
A lot of other things happen….
• 1206 A.D. Chinggis Khan forms the modern Mongolian state
A lot of other things happen….
• 1921 A.D. Mongolia a sovereign state• 1921 A.D. Mongolia a sovereign state
• 1990 A.D. Mongolia a democratic republic
• 2005 A.D. Mongolia exports coking coal to China
• 2009 A.D. Mongolia signs the Oyu Tolgoi investment agreement
with Ivanhoe Mines and Rio Tinto. (Oct. 9)

3. WHAT IS THE SIGNIFICANCE OF THE LATEST EVENTS?
Let's answer that with a METAPHOR.
Imagine that these events are as if the world had granted
to Mongolia and placed in the middle of the Gobi
Desert…..

4. AN A380 FILLED WITH US 100 DOLLAR BILLS

5. HOW MUCH WOULD THAT BE?
$10,000, $1 million, $ 1 billion

6. ONE BILLION DOLLARS LOOKS LIKE THIS

7. HOW MUCH CAN AN A380 HOLD?
• In the passenger luggage hold, USD 2 billion
• As a cargo plane, USD 15 billion, which weighs
almost 150 tons which represents the plane’s
maximum payload.maximum payload.

8. THERE IS ONE CONDITION
You have to get the plane to fly!
Then the money can be showered down for theThen the money can be showered down for the
Mongolian people to collect.

9. LEARN TO FLY AND BUILD THE RUNWAY!
• At present the plane is taxing and has turned onto the
runway for take off. It is picking up speed.
• The runway is being built.
• 2.8 million Mongolians are watching.
• Will the runway be completed in time?

10. WHAT HAPPENS NEXT?

11. WILL IT BE THIS?

12. OR WILL THIS FOIL THE TAKEOFF?

13. EXPLAINING THE METAPHOR
• Mining investment and development and
increasing mining operations in coal and iron
ore, in particular, are advancing at a faster pace
than the underlying infrastructures necessary to
handle the growth.

14. MINING INVESTMENT LEADS MONGOLIA’S ECONOMIC GROWTH
• OT has spent over USD 3 billion in building the copper mine
to over 60% completion.
• Coal mining operators have raised USD1.5 to 2 billion on
foreign exchanges to fund mine developments in coking
coal.coal.
• Erdenes TT is planning a large IPO to finance developing its
East Tsenkhi field
• The West Tsenkhi tender will result in further substantial
investments by an international consortium.

15. CHINA DEMAND DRIVES EXPORT BOOM
Even though the mega projects of OT and TT
have not yet gone into production, for the past
three years Chinese demand for coal, iron ore,
petroleum and other minerals have propelled thepetroleum and other minerals have propelled the
operational development of mines throughout
Mongolia and have put Mongolia on the map.

16. NOW TOP EXPORTER OF COKING COAL TO CHINA
• Chinese Coking Coal Import volumes by country of origin
June 10 June 11 Change %
Mongolia 5.8 7.9 +36%
Australia 9.7 4.2 -57%
USA 1.6 2.7 +66%
• In million tones
USA 1.6 2.7 +66%
Canada 1.6 1.5 -9%
Russia 2.2 1.4 -37%
Indonesia 1.1 1.2 +12%
Total 22.3 19.2 -14%
Source: China Coal Resource

17. 26
30
35
40
45
16.6
20.5
20
30
40
50
Mongolian Coking Coal Exports to China
Actual
Forecast
AND VOLUME WILL CONTINUE TO GROW
13.8
3.7 4.2
7.1
16.6
0
10
20
2007 2008 2009 2010 2011 2012 2013 2013 2014 2015
Forecast
• Average price in 2011 $100 per ton
• Average price in 2010 $50 per ton
Source: Frontier Securities, TDB

18. IRON ORE, ALSO
300
400
600
300
400
500
600
700
Forecast
USD mln
87 81
250
300
0
100
200
300
2008 2009 2010 2011 2012
Actual

19. EXPORTS BOOM DESPITE LAGGING INFRASTRUCTURE
• Exports increased 53% in 2010 to USD 2.9 bn
• Exports increasing at 65% rate in 2011 ( USD 3.5 bn
9 mos)
• Coking coal export value up 178%• Coking coal export value up 178%
• Iron ore export value up 86%
• Copper concentrate export value up 32%
• Crude oil value up 56%

20. MINERAL EXPORT VALUES BOOM
Source: NSO

21. SO FAR MOST COAL AND IRON HAS GONE TO MARKET IN THIS MANNER
This method clearly is not sustainable

22. TRUCKS AND MORE TRUCKS
Source: NSO

23. TRANSPORT
• Today 1000 trucks daily travel on dirt roads
delivering coal and iron to the Chinese border
• Supplies from UB and elsewhere to the mines
go by road
Yes, the word today in Mongolia is TRUCKSYes, the word today in Mongolia is TRUCKS
• UB Railway capacity is strained
• Border crossings are jammed
The word tomorrow will be TRAINS

24. THERE IS A LOT TO DO!
The mines and the people need:
• Power
• Transport
• Housing
• Public services
• Educational services

25. POWER – NEW PLANTS DELAY
Source: World Bank

26. MEANING MORE POWER IMPORTS

27. • Need to double capacity in next four years
• USD 2 to 3 billion investment needed
• Tariffs need to increase 30%-60%
POWER
• Mine site plants can be project financed
• Chandgana another option
• Financing of UB plants

28. DIESEL: CRITICAL FOR POWER
• Diesel powers mine operations
• 464,000 tons this year, up 36%
• Almost all comes from Russia
• Supplies were threatened early summer• Supplies were threatened early summer
• Alternative suppliers being sought
• More storage capacity being built
• Strategic solution is a an in country refinery

29. PRESENT TRANSPORTATION NETWORK
Source: MRTCUD

30. ULAANBAATARULAANBAATAR
MRTCUD HIGHWAY PLAN
Size 5,571.9km
Investment US$ 2.1 bn
Time frame 2010-2016

31. PLUS, A REAL MOTORWAY!
Size 990.4 km
Investment US$ 1.9 bn
Time frame 2010-2014

32. RAILROAD STRATEGIC PLAN
Size 1,040 km
Investment US$ 3.0 bn
Time frame 2010-2014

33. RAILROAD CONNECTION TO THE PACIFIC

34. URBAN DEVELOPMENT
• Ulaanbaatar has 1.25 million inhabitants, 45% of
Mongolia’s population
• 60% live in substandard housing
• Heat by coal and wood stoves
• Existing district heating also highly polluting
• Ulaanbaatar is world’s most polluted city in winter

35. MRTCUD 5 YEAR HOUSING PLAN
УЛААНБАÀТА
Р
ДАРХАН
ТӨ
В
DUNDGOB
МАНДАЛГО
ВЬ
SUKHBAATA
R
DORNOD
KHOVD
ӨЛГИ
Й
ZAVKH
AN
GOBI-ALTAI
ЧОЙР
МӨРӨ
Н
БАЯНХОНГО
Р
UVURKHANG
AI
ЭРДЭНЭ
Т
ЦЭЦЭРЛЭ
Г
АРВАЙХЭ
ЭР
ARKHANG
AI
KHUVSGU
L
BAYAN-
ULGII
ULAANGOM
УЛИАСТА
Й
ХОВ
Д
UVS
САЙНШАНД
GOBISUMBER
ЧОЙБАЛСАН
БАРУУН-УРТ
ӨНДӨРХАА
Н
ЗУУНМО
Д
KHENTII
SELENG
E
АЛТА
Й
75 000 household
housing in Ulaanbaatar
city
ДАЛАНЗАДГАД
DORNOGOB
I
DUNDGOB
I
UMNUGOB
I
AI
BAYANKHONGO
R
САЙНШАНД
10 000 household housing
in the Central region
5 000 household
housing in the Eastern
region
5 000 household
housing in the
western region
5 000 household
housing in the
Khangai region
Size •75,000 in Ulaanbaatar
•25,000 in Provinces
Investment US$ 6.2 bn
Time frame 2010-2016

36. 3536
3165
4579
3725
5416 6338
9899
6040
4000
6000
8000
10000
MONGOLIAN HOUSING MARKET GROWTH
680 1010 1045 1478
3536 3725
108 119 123 287 267 278 477 447
445 512 722
363
0
2000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-III
Source: MRTCUD
Housing supply, by thousand sq mHousing supply, by units

37. WATER
• THE key scarce resource in Mongolia
• UB under strain
• Desert mining areas have fossil aquifers
• Estimates vary, but aquifer supplies are finite• Estimates vary, but aquifer supplies are finite
and may not sustain total mining and urban
development expected in next several years
• Water recycling is essential
The word for the future may indeed be WATER

38. • Water resources for Gobi: $300 million for
ground resources
• Piping water from northern rivers: $400
million
WATER
million
• Solving Ulaanbaatar’s needs: $300 million?
• Total: $1 billion
Source: World Bank study

39. PUBLIC AND SOCIAL SERVICES
• Hospitals and medical services
• Education
- education in engineering and technical areas
- better teachers properly paid- better teachers properly paid
- better facilities
Total needs USD 1 to 2 billion

40. THREATS TO THE LAND OF BLUE SKY
• Air pollution in UB and other cities
• Rivers and lakes pollution
• Land degradation from mining
• Desertification• Desertification
• Deforestation
• Wildlife endangerment
Easily USD 1 to 2 billion in next five years

41. OTHER INFRASTRUCTURES
• Agricultural
• Industrial and commercial• Industrial and commercial
• Financial

42. AGRICULTURAL
• Cashmere: 25% of world’s production but need to move
up the value added chain
• Grains: almost self sufficient but need more for animal
feeds; better quality for humans
• Vegetables: plenty of potatoes but more vegetables• Vegetables: plenty of potatoes but more vegetables
needed
• Meat: potential for further processed products for export
• Organic farming potential
Opportunities for USD 1 to 2 billion investment

43. INDUSTRIAL AND COMMERCIAL PRESENT A USD 20 BILLION
POTENTIAL
• Building materials such as cement
• Clean energy building materials
• Petroleum refining
• Coke plant
• Coal gasification
• Smelting
• Steel
• Steel fabrication such as coal cars
• Consumer goods

44. FINANCIAL SECTOR INFRASTRUCTURE
• Government and municipal debt market
• Banking sector
• Stock exchange• Stock exchange

45. GOVERNMENT DEBT

46. MONGOLIAN SOVEREIGN DEBT
• Current foreign debt to GDP less than 50% and at
favorable rates
• Development Bank of Mongolia designated to Raise up
to USD 600 million for infrastructure with Ministry of
Finance GuaranteeFinance Guarantee
• With growing GDP Mongolia can raise USD 3 to 5 billion
in sovereign debt, including bilateral debt, the next few
years and maintain a sound debt to GDP ratio.

47. DOMESTIC PUBLIC DEBT
• MoF raised over USD 150 million in local currency bonds
in past three months
• Purposes: to support cashmere and wool industry, SME
and civil servant housing
• Investors still mainly local banks
• Domestic institutional investor base still small
• Limited interest among foreign investors
• Need to expand to USD 1 to 2 billion

48. TAXES AND DIVIDENDS TO SPEND
• Strong budget surplus in 2011
• Heavy spending plans for next two years
• Eventually USD 2 to 4 billion surplus over next
few years to spend on infrastructure, publicfew years to spend on infrastructure, public
services and environment

49. BANKING SECTORBANKING SECTOR

50. THE STRONG GROWTH OF BANKS BEGUN IN 2004 HAS RESUMED
Sources: Bank of Mongolia; TDB;
Amounts converted from MNT at constant rate of 1,250.
* Percentages in annualized rate.
Sources: Bank of Mongolia; TDB;

51. BUT BANK LENDING TO GDP IS STILL LOW
Source: World Bank;

52. LENDING MUST INCREASE DRAMATICALLY
Sources: IMF; TDB;

53. THIS WILL REQUIRE ADDITIONAL CAPITAL
Assumes ROAA ranging from 2% down to 1.5%
30% dividend payout
10% capital to total liabilities
Sources: TDB;

54. MORTGAGE LENDING WILL GROW
Sources: BoM; MIK; IMF; TDB;

55. PROVIDING HOME OWNERSHIP TO MORE AND MORE
MONGOLIAN FAMILIES
Potential development of
the Mongolian mortgage market
Sources: TDB; MIK;

56. WHICH WILL PUT PRESSURE ON BANK FUNDING PROFILES
• Fixed rate mortgages preferred
• Maturity gap mismatches
Interest rate risks• Interest rate risks
• Fixed rate funding required

57. REQUIRING DEVELOPMENT OF A SECONDARY MARKET
• Domestic investors needed. Issues:
- Yield curve
- Depth of investors base
• International investors needed. Issues:
- Credit rating- Credit rating
+ Good yield
+ Currency appreciation
• Potentially, MNT 1.5 trillion to MNT 2 trillion of covered bonds
or mortgage backed securities

58. INTERNATIONAL DEBT CAPITAL MARKET FUNDING WILL EXPAND
Sources: TDB;
Assumes: Maximum 20% of total foreign currency funding.
Maximum 10% of domestic currency funding.
Foreign currency loans decline to 20% of total loans.

59. STOCK EXCHANGE

60. MSE MARKET CAP HAS GROWN DRAMATICALLY IN 2010,
BUT IT IS STILL RELATIVELY LOW COMPARED TO PEERS
Source: World Bank;

61. THE REAL IMPACT IN TRADING AND CAPITAL GENERATION IS
STILL VERY SMALL
Source: World Bank;

62. THE MONGOLIAN STOCK EXCHANGE MUST DEVELOP
INTO A REAL SOURCE OF FUNDING FOR CORPORATE GROWTH
• Local (non-mining) corporations will look to raise USD 3 to 5
billion.
• Locally owned mining companies will look to raise USD 10 to 20
billion
State owned entities must list locally• State owned entities must list locally
• Dual listings will be needed to attract international investors
LSE is reforming the MSE with new systems and rules to be ready
end 2011!

63. MONGOLIA WILL ALSO NEED TO ACCESS FOREIGN COMMERCIAL DEBT
• Structured and project finance
• Private placements• Private placements
• Public debt markets

64. TO COMPLEMENT GROWING FOREIGN INVESTMENT
2.5
3
2.2
2.8
3.65
4.6
2
2.5
3
3.5
4
4.5
5
0.5
0.7 0.8
1.5
0
0.5
1
1.5
2
2007 2008 2009 2010 2011 2012 2013 2014 2015
Actual Projected based on 30%annual CGR

65. STORM CLOUDS GATHERING?

66. ECONOMY OVERHEATING?
• GDP growth 20% p.a. in Q3 2011
• Core inflation rate now over 12% p.a.
• Transfer payments continue
• Money supply growing• Money supply growing
• Construction up dramatically
• Bank of Mongolia taking action
• But government still wants to spend
Source: World bank

67. MINE SPENDING AND TRANSFER PAYMENTS DRIVE INFLATION.
Source: World bank

68. CONSTRUCTION ACTIVITY BACK UP
Source: World bank

69. WAGES UP, ESPECIALLY FOR MINERS
600
569
715
788
894
500.00
600.00
700.00
800.00
900.00
1,000.00
Mongolia Average Wages by Sector (MNT '000)
2009 Jan-Oct
2010 Jan-Oct
2011 Jan-Oct
297
392
279
258
219 231
324333 348
267
229
264
324
423
395
371
275
308
346
-
100.00
200.00
300.00
400.00
500.00
Agriculture Mining &
Quarring
Manufacturing Construction Wholesale &
Retail Trade
Hotels &
Restaurants
Financial
Intermediation
Public
Administration
Source: NSO

70. TOTAL FINANCING AND INVESTMENT NEEDS AND
OPPORTUNITIES 2011 TO 2015
• Mine Development $ 12 bn. to $ 20 bn.
• Infrastructure $ 8 bn. to $ 12 bn.
• Urban development $ 6 bn. to $ 8 bn.
• Agriculture $ 1 bn. to $ 2 bn.
• Industry and Commerce $ 15 bn. to $ 20 bn.
• Environment $ 1 bn. to $ 2 bn.
• Social $ 1 bn. to $ 2 bn.
• Financial Sector $ 1 bn. to $ 2 bn.
Totals: $ 45 bn. to $ 68 bn.

71. COULD BE MET LIKE THIS
• FDI $ 11 bn. to $ 14 bn.
• Domestic sources $ 12 bn. to $ 18 bn.
• Sovereign Borrowing $ 3 bn. to $ 6 bn.
• Foreign Capital Markets $ 11 bn. to $ 16 bn.
• IFI & Foreign bank Loans $ 7 bn. to $ 12 bn.
• Donors and NGOs $ 1 bn. to $ 2 bn.
Total $ 45 bn. to $ 68 bn.

72. OR, JUST 3 OR 4 OF THESE, FULLY LOADED

73. Better yet, simply wire the funds through TDBBETTER YET, SIMPLY
WIRE THE FUNDSWIRE THE FUNDS
THROUGH TDB

74. BANK HIGHLIGHTS
Financial Results (mln.USD)*■ Mongolia’s #1 corporate bank
■ Rapid growth and improving asset
quality
■ Dominant market share in the corporate
and SME client segments, FX, money and
bullion markets
■ Leading international trade facilitator of
Mongolia
■ The country’s first and still only the
2008 2009 2010 2011.09
Total Asset 520.3 564.6 1065.0 1336.3
Total Loans 347.4 281.2 369.5 726.9
Total Deposits 404.6 435.1 912.2 1199.3
Total Equity 54.0 47.1 78.2 120.5
Net Profit 12.9 10.5 16.5 21.8
Capital Adequacy 14.7% 13.0% 15.9 % 11.4%
ROA 2.8% 2.1% 1.5 % 2.2%
ROE 24.9% 19.5% 22.9 % 32.1%
Bank Ratings by Moody’s
■ The country’s first and still only the
second time bond issuer on the
international debt markets
■ Continuously strong credit
fundamentals:
Very high profitability with well-
managed cost/expenses
Diversified loan base and good
quality assets
Prudent risk management and
corporate governance
Senior Unsecured EMTN (foreign currency) Ba3
LT/ST Bank Deposits (foreign currency) B2/NP
LT/ST Bank Deposits (domestic currency) Ba3/NP
LT/ST Issuer Rating Ba3
Subordinated foreign currency issue B1
Local currency bank deposit Ba3
Outlook Stable
ROE 24.9% 19.5% 22.9 % 32.1%
MNT/USD = 1280.83

75. MONGOLIA’S MARKET LEADER

76. HIGHLIGHTS OF INTERNATIONAL BUSINESS
• Mongolia’s #1 leading corporate bank
• Top international expertise derived from State Bank of
Mongolia origins
• 60% market share of foreign remittances
• 57% of Mongolia’s trade finance related transactions
• $175 million in trade finance credit facilities from
international banks
• 26 correspondent accounts in all major currencies

77. BEST TRADE FINANCE BANK IN MONGOLIA 2011
• TDB has proven itself to be
the premier trade finance
facilitator taking the majority
of votes from world’s major
financial institutions to winfinancial institutions to win
“The Best Trade Finance
Bank of Mongolia 2011”
award, by the journal GTR.

78. STRONG PROFITABILITY AND EFFICIENCY

79. TDB Capital - Overview
TDB Capital, TDB’s wholly owned subsidiary, acts as its
investment banking arm. It is the first investment bank of
Mongolia, which provides corporate finance, research and
advisory, securities brokerage, underwriting IPO and debt notes
and asset management services. TDB Capital provides access
to the world’s capital markets for its institutional, corporate and
high net worth individual clients.

80. Thank you for your attention!
Juulchin Street - 7
Baga Toiruu - 12
Ulaanbaatar, Mongolia
Tel: 976-11-31 99 43
Fax: 976-11-31 24 18
Email: corrbanking@tdbm.mn
http://www.tdbm.mn
http://www.bankcard.mn
http://www.mongolianbusinessguide.com