Mongol Bank details more about upcoming asset quality review
As part of the extended fund facility program that Mongolia entered into with the International Monetary Fund (IMF), state officials reported that a comprehensive diagnosis of the banking system would be undertaken. Mongol Bank has announced that it has chosen the PricewaterhouseCoopers (PWC) branch in the Czech Republic to conduct an asset quality review.
The asset quality review is part of a larger effort to assess the financial soundness and resilience of the country. This will be followed by recapitalization and restructuring as needed. Officials believe that the regulatory and supervisory framework of the banking system will be strengthened as a result of the review.
B.Tumentsengel, a senior economist at Mongol Bank, gave an interview to discuss in more detail about the upcoming asset quality review.
Can you please give us a concise explanation into as to why the asset quality review is necessary and why it is being conducted by a foreign firm?
In order to get out of the current economic crisis and to stabilize the economy, the government reached an agreement with IMF to implement the extended fund facility program. An integral part of the program is to ensure the health of the banking sector and maintain a model of sustainability. In order to accomplish this, an asset quality review was needed to determine the risk capacity of the banking system and as an extension the financial system.
IMF required us to contract an international firm that has experience in conducting asset quality review that is up to the standards of the fund.
What factors were taken into account when selecting a firm to conduct the asset quality review?
When selecting a firm to conduct the review, we took into account the standard procedures used in OECD (Organization for Economic Co-operation and Development) countries and wanted to select a reputable firm that had extensive experience conducting such reviews.
Can you give us more information about PWC?
The selection process was done in compliance with all the relevant Mongolian laws regarding auditing. In the end, the PricewaterhouseCoopers branch in the Czech Republic was selected to conduct the review. PWC is one of the Big Four auditors, along with Deloitte, EY and KPMG. During the selection process, PWC proved to us that it had the technical and financial capacity to conduct such a review.
Are the current standards in the Mongolian banking sector up to par with the standards that the asset quality review requires?
Mongol Bank will implement the Basel Standards approve by the Bank for International Settlements (BIS) when conducting reviews on the banking sector. When conducting the asset quality review, we will adhere to international standards and common practice approved by the European Central Bank.
There has been some skepticism that the results of the review might decrease trust in commercial banks. Did Mongol Bank and IMF discuss the possibility of this and if so how will this be addressed?
The asset quality review will reveal what steps and actions are needed in the future in order to stabilize and make the flow of financing and loans sustainable. Mongol Bank believes that the results of the review will increase the trust of investors and customers in banks.
At what stage is the process of the asset quality review in now?
The process of the asset quality review is on schedule and is in progress.
How many stages will the review have and exactly which documents and reports will be examined as part of the review?
The review will take into account all of the relevant financial statements and reports of banks.
In the event that a bank receives an unsatisfactory grading, will they have the opportunity to improve on their shortcomings?
The asset quality review will reveal corrective actions needed in the banking sector, and the review will take into account any nuances in the Mongolian banking sector and problems that may arise during the process.