Can Ulaanbaatar Become The Financial Centre?

Can the Capital City become the
financial centre at least of a region by following enormous mining
business? Today New York and London Exchanges demonstrate their power in
the world arena. They are followed by Paris and Frankfurt in the Europe
and Tokyo, Hong Kong and Singapore in Asia. Most of these centres are
run their operation in English and legislatively they are based on
Anglo-Saxon model. Their government regulations and support are good,
and in addition, their central bank independence is protected, their
monitory and currency policies have clear rules, transparent and clear.
Their banks provide services of many types from private bank service for
rich people to small investment advice to a pensioner. Of course, they
are provided with good equipment such as e-technology and their
employees’ skills are good too. Behind these achievements and
advantages, there is a government policy on increasing competitiveness
of the particular city. For example, regulatory committees of cities
such as Frankfurt and Hong Kong pay special attention to conduct
training and developing new standards in addition to control and inspect
banking and financial organizations.

But how is the situation in Mongolia?
Market in our country is considered of bank-dominant form. Not
considering the 1999-2000 resolute reform, the government did not take
substantial policy of this sector. Several private banks a few numbers
are growing with the power of market demand on their own by being said
good and bad. Its proof is that the banking sector has become
intensively enlarged in the recent years. For example, in 2000, there
was balance of approximately 60 billion togrogs of only 1200
loan-holders. But at present, there are about 600 thousand loan-holders
who obtained loan of 4.3 trillion togrogs from banking sector. However,
it is unclear that this giddy growth is based on real skills and
productivity. Mongolian market is being expanded. Like all boats are
raised as water in a lake is increased banks become larger as a result
of great demand.

Too high interest rate of loan in
Mongolia impacts negatively on customers’ satisfaction. The reason is
general risk of loan is high and source expense or savings interest rate
is high too. When there is dispute during general banking operation and
loan repayment, banks can not be protected by laws and courts. It is
can be considered that also it was because of unsuccessful actions of
the government. Court verdict is issued slowly, its fulfillment is weak,
is double registration is for one pledged property, managers of the
registration organizations look always for bribes and etc. They increase
loan risk and in return become as burden on the back of the business
people as high rate of interest. Another reason for high rate of loan
interest is connected with high rate of savings interest. Exceeding
budget expansion without control causes inflation to increase and
because of the high rate of inflation, citizens search automatically for
high rate of savings interest to protect themselves. Monetary and
currency policy makers are also guilty for the inflation increase.

Bank of Mongolia makes its policy in the
too monopoly manner. The parliament approves it too general way only
with a resolution. This is not differentiated from granting officially a
right to the bank to act too on its own. It is unclear that whether the
Bank of Mongolia’s Governor, who is appointed by political way, meets a
simple criterion of understanding correctly modern macro economy
connection. The main capital of the Bank of Mongolia is its reputation
and it must promote correctly its policy by the way of managing
correctly business people expectation. It seems that MongolBank governor
must be under one’s nose like a conductor of orchestra. Unfortunately,
but he becomes known to the public only by being said sometimes that as
he involved in a crime.

What should be done in the future?

At present, when politicians who breathe
with votes make policy, it is doubtful that the capital city can become
the strong financial centre. The only thing in which we have to believe
is that the Banks Association must be strong. But its lawful right is
limited and so it seems that it does not need to expect much at present.
In this time that Mongolian economy is growing and there is high
interest rate variance or margin between loan and savings, the banks
should use the time correctly by making much investment in their people,
standards and ethics. Today, this sector is growing to the extent that a
loan economist of a large bank must control of a package of several
billions. But what do customers have to do? They should be able to
understand variance between interest income and expense, variance
between comparison indicators between savings and loan by reading bank
statements. Two medium-sized banks that were bankrupt several years ago
could not manage interest rate and total size of savings and loan in
fact. It was seen from simple analysis made on their statements that
they had source exceeding and paid high interest to savings.

Therefore, if citizens will be educated
financially well, they will learn to “punish” banks before they have bad
operation. The banks that have educated customers with high demand will
try to develop themselves.I would like to have the question again that
can Ulaanbaatar become a large banking centre that will be considered as
large in the region? It can. It can when citizens become educated to
demand the government and the government has mind to support not to
pressure down the banks.