Director of Supervision Department at Mongol Bank discusses prospect of stronger central bank
The new amendments proposed to be made to the Banking Law are being discussed in Parliament. Reform in the law is set to transform Mongol Bank’s regulation and supervision of the banking sector to one that is risk-based.
In light of this information, some have criticized the move as making Mongol Bank too powerful and likely to intervene in the internal operations of commercial banks. Central bank officials have noted that banks are different from any other type of business and require more regulation.
Director of Mongol Bank’s Supervision Department N.Batsaikhan gave clarifications about the current regulation and supervision of commercial banks and if it was necessary to reform the system currently in place.
According to N.Batsaikhan, in accordance to the current legislature, Mongol Bank implements its regulation and supervision based on execution. In other words, the central bank is only able to correct and eliminate risks that have already been made. The new amendments to the law will allow the central bank to intervene and take certain measures if any potentials for risk are observed, even if the bank’s operations are stable at the time. Mongol Bank will work to determine and alleviate risks that could potentially arise within the operations of banks.
Regarding the belief that the central bank will become too strong and begin to interfere with the operations of commercial banks, N.Batsaikhan said that Mongol Bank will not have to intervene if banks are able to resolve their issues internally. If there is a bank with high risk and inadequate risk management, the central bank will have to intervene and take certain measures, said N.Batsaikhan.
The new Banking Law will introduce a new concept of a stabilization plan. In simple terms, it is a plan outlining how a bank will overcome risks in the event of potential risks to their operations. If a bank is able to control and overcome risks that might arise in line with its stabilization plan, there is no need to enforce requirements to banks. If the plan is inadequate and will not be able to realistically manage risks, the central bank will intervene.
The current legislature only requires that such a plan be drafted in the event that a risk arises. If the assets of a bank begin to be depleted, a plan to increase assets is required from a bank. A stabilization plan will take into account the business plan of a bank and must take into account the variables of a bank’s operations. This ultimately gives banks a chance to manage risks internally and protect the bank’s operations without involvement from the central bank, concluded N.Batsaikhan.