MONGOL BANK’S DIRECTOR OF SUPERVISION DELVES INTO THE DOMESTIC OPERATIONS OF FOREIGN BANKS
Recently, the Board of Directors at Mongol Bank granted the Industrial and Commercial Bank of China (ICBC) a permit to open a representative office in UB. The Director of the Supervision Department at Mongol Bank, N.Batsaikhan, spoke to Gogo.mn regarding the operation of foreign banks in the country.
ICBC being granted a permit to open a representative office in UB has garnered much attention. ICBC is, without a doubt, a large bank in terms of their operations, reach, and reputation. In your opinion, what are the effects of a large bank, such as ICBC, entering Mongolia?
The Industrial and Commercial Bank of China, or ICBC, has an international rating of A1. According to a ranking released by the magazine The Banker, they rank number one in terms of assets amongst international banks. In my opinion, ICBC entering Mongolia is a positive for the international reputation of Mongolia. Our hope is that this move will have a positive effect on the ability of the Government of Mongolia and private companies to raise capital and receive loans. There is also an opportunity for domestic banks to go through ICBC channels to establish correspondent relations with other countries and to use the expansive channels of the ICBC.
Will ICBC expanding their operations to Mongolia send a positive message to investors?
This will probably send a positive message to other investors. Even though the credit ratings of the country have slumped and the prices of commodities have decreased, the largest bank in the world starting operations in our country will show that Mongolia still has a future.
Sumitomo Mitsui Banking Corporation opened a representative office in 2013. Since then, no new representative offices have been established until ICBC. Why was there such a
large gap between 2013 and now?
The reason why there was such low demand to open a repsentative office since 2013 can first be attributed to the financial crisis of 2008 to 2009. Due to the crisis, most large international banks began operations to lower their risks. In other words, they were rolling back on their operations. On the other hand, due to low commodity prices for the last two to three years, banks might have been more cautious about beginning operations here. Therefore, ICBC entering Mongolia showcases that global cooperation has begun to improve.
There has been speculation about when ICBC will begin their operations in the country. In terms of time, when will ICBC begin operating?
The permit for a representative office is regulated by the Banking Law, Mongol Bank's procedure for granting permits, and the Banking Entity Law. A representative office is not legally allowed to conduct banking operations. They only serve as a legal representative of their bank. It is too early to tell if ICBC will receive a permit to begin banking operations and start their operations. This is up to ICBC itself. But, as most of you know, China is implementing a large project called the One Belt, One Road initiative. In the framework of that initiave, the Bank of China and ICBC are expanding their operations worldwide. They are opening up a representative office in our country as a part of that expansion. This also opens up the ICBC to financing many of the projects that the Mongolian and Chinese governments have agreed upon.
Are there any estimates or forecasts on how much commercial investment and financing ICBC will bring?
It is difficult to say for sure right now. It all depends on the prices of our raw material exports. Second, it will depend on how fast our projects will move forward. Third, it will depend on how fast our government is able to negotiate with other governments. ICBC will probably look at all of this and make the decision about when to open their representative office and start their operations.
ICBC has been granted a permit at a time when the issue of foreign banks is being discussed in Parliament. I assume you are familiar with the new Investment Banking Law that is being presented to Parliament. What are your thoughts on this draft?
Government authorities have reported that foreign banks will be regulated by the Investment Banking Law that was recently presented to Parliament. There is one thing to clarify regarding this. There is an international standard that investment banks also act as commercial banks. This law can be interpreted as only regulating investment banks in the Mongolian market. Banks that are likely to begin operations in Mongolia are interested in commercial banking in the country. They believe they will be regulated by the Mongolian Banking Law. However, our politicians are of the mindset that foreign banks will be regulated by the Investment Banking Law. Therefore, there needs to be a clear definition of which law foreign banks will be regulated by.