Lending interest rates down 2.3 percentage points

Average annual lending interest rates on turgug loans as of September are 17.7 percent, signifying a decrease of 2.3 percentage points compared to last year, reported Mongol Bank.

The central bank also noted that the average annual savings interest rate decreasing by 1.3 percentage points to become 11.4 percent played a part in driving lending interest rates down.

Breaking down interest rates by category, business loans had the lowest average interest rates with 17.1 percent. In the last three months, consumer loans have exceeded business loans by a significant margin. The central bank now expects demand for both commercial and business loans to increase incrementally in the next three months. Winter months usually represent a slowdown in economic activity for Mongolia as many sectors such as certain types of mining and construction come to a halt due to extreme weather conditions.

Currently, business loans debt obligations account for half of the outstanding loans. Business loans in the first nine months of 2018 increased by 19 percent, while consumer loans have grown by 24 percent.

Starting on January 1, 2019, consumer loans will have a maximum period limit of 30-months due to a new measure enacted by the Monetary Policy Commission (MPC) of Mongol Bank. In addition, the MPC approved a DTI limit in July set to come into effect at the same time as the maximum term limit. The DTI limit is a significant step towards ensuring that consumers are borrowing within their limits. DTI is calculated by adding up all of an individual’s monthly debt payments and dividing them up by their gross monthly income. The lower the percentage, the better the financial position of the individual.

Based on the parameters set by the MPC, the central bank expects to see a decline in consumer loans and an increase in business loans starting in 2019.

Meanwhile, overdue loans in the first nine months decreased by three percent or 27 billion MNT, while non-performing loans (NPL) fell by one percent or eight billion MNT. Despite the decrease, NPL accounting for 8.3 percent of all outstanding debt is well above the intended target range, according to Mongol Bank. Processing manufacturing, mining, and construction make up more than 50 percent of all NPLs, the central bank underlined.

As such, the central bank has prioritized decreasing non-performing assets in the banking sector in its 2019 Monetary Policy Guideline.