Mongol Bank says it has contingency for COVID-19 local transmission

Mongol Bank will continue to resume the government mortgage program with 6 percent interest rate until a dedicated state institution is established to take over the matter, says the central bank’s President B.Lkhagvasuren.

“Even though Mongol Bank is prohibited to engage in fiscal activities, it has no choice but to finance the mortgage program as there are no existing government institutions in charge of the matter. Since 2013, the central bank has injected 2.8 trillion MNT into the mortgage program. As this program is socially and economically beneficial, Mongol Bank must resume it until it can be transferred to an appropriate institution,” he stressed.

The mortgage program has lowered its interest rate from 8 percent to 6 percent, effective since October 1. As of November 9, the central bank and commercial bank financed 54 billion MNT to provide mortgages to 767 individuals, according to central bank officials. While Mongol Bank issued 61 percent of this financing, the rest was provided by commercial banks. From the principal payment proceeds of a mortgage-backed bond, the central bank plans to continue to issue mortgages until the end of the year.

A taskforce has been assigned to create a national program aimed to ensure a stable financial source for the mortgage program.

Mongol Bank’s President B.Lkhagvasuren answered questions related to the mortgage program and removal from the Financial Action Task Force’s enhanced monitoring, commonly referred to as the “grey list”.

How has exiting the grey list affected the Mongolian economy and external climate?

When Mongolia was put on the grey list, and corresponding foreign organizations placed certain requirements and conditions for us. But when we were removed from the list, these requirements and conditions were lifted. Of course, some more time is needed for everything to go back to normal. We can still meet their requirements while ensuring that we don’t re-enter the list.

We must first provide a proper legal environment for it. It’s said to be a mortgage program but it doesn’t have any regulations. Mongol Bank and the Ministry of Finance only provided conditions and requirements on who can get mortgage financing. Therefore, we must first create a legal environment for the program. Within this scope, a state-owned company needs to be established. As for the two housing corporations, their current operations don’t allow them to manage mortgage financing like Mongolian Mortgage Corporation and their objectives aren’t consistent with the program either. Rather than financing housing, State Housing Corporation even becomes a contractor and builds buildings itself. Such a system is used to finance a mortgage program like Mongolian Mortgage Corporation, which collects mortgage loans as collateral and returns them to issue securities.

Do you think property prices will spike now that the mortgage interest rate has been cut down to 6 percent?

Mortgages will no longer be issued with 8 percent interest rate in the future. New mortgage holders will have to pay 6 percent interest. Mongol Bank is providing 60 percent of mortgage financing and banks 40 percent. Property prices will not increase from what I see.

We’re conducting housing pricing survey on a monthly basis. The study in October shows that out of 42,000 people who got mortgages, 25,000 bought property in the capital and 7,000 bought property outside the capital. Sales of properties under 60 square meters in size were highest, with 20 percent growth rate. Therefore, I doubt housing prices will rise. The central bank doesn’t support the decline in housing price because it would negatively impact the construction sector.

The government is involved in the operations of Ulaanbaatar Housing Corporation and State Housing Corporation. Is it necessary to establish a new institution to manage the mortgage program?

Does Mongol Bank have any reserves prepared to cope with the COVID-19 pandemic?

We have a reserve plan. The government has taken certain measures since January 27. In line with these measures, Mongol Bank renewed its reserve plan and tested it. In particular, the trial was intensified in February and March. As it went successfully, we’re well-prepared (for COVID-19 local transmission).