Cover Mongolia: [BREAKING: BoM nationalizes insolvent Savings Bank, Mongolia's 5th largest lender, as owner Just Group defaults]

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Mogi: buy a bank, lend yourself money, then declare bankrupt. This is more of a case of Just Group’s utter incompetence, rather than a sign of anything in the sector.

Mongolia to Take Over Savings Bank as Fifth-Largest Lender Fails

By Michael Kohn

July 22 (Bloomberg) Savings Bank, Mongolia’s fifth-largest lender, has been declared insolvent after affiliated companies defaulted on loans, and will be taken over by a state-owned competitor, the central bank said.

State Bank will take over Savings Bank’s 503 branches starting today, Danjilaa Ganbat, director of the banking supervision department at Mongol Bank, said at a press conference in Ulaanbaatar yesterday. Savings Bank was owned by Just Group, a holding company based in the capital, whose other assets include Just Oil LLC. The takeover is the first by the government since 2009.

With 1.7 million customers in a nation of 2.9 million, Savings Bank accounts for about 8 percent of active banking assets and 55 percent of government financial services, such as disbursement of pensions and payment of utility bills, according to the central bank. Other lenders are healthier, said Dambadarjaa Jargalsaikhan, an economist and commentator on television show De Facto.

“The central bank now has things in control,” Jargalsaikhan said. “I don’t think all the banks are like this but we should draw certain lessons. There was too much risk on one individual and there was a problem with poor corporate governance and conflicts of interest.”

Sharavlamdan Batkhuu, Just Group’s controlling shareholder, and other companies in the group have defaulted on loans since 2011, Ganbat said.

Batkhuu didn’t reply to an e-mail seeking comment. Savings Bank didn’t answer a phone call or comment when a reporter visited the lender’s office yesterday.

Coal Exports

Mongolia’s resource-based economy has been hit by a decline in coal exports, which plunged to $542.4 million in the first six month of the year from $1 billion a year earlier. Total first-half exports fell 10 percent from a year earlier.

The World Bank in April cut its forecast for Mongolia’s 2013 economic growth to 13 percent from 16 percent, citing declines in exports and foreign investment. FDI in the first five months of the year reached $1.21 billion, down from 1.47 billion during the same period last year.

Savings Bank is the third lender to be taken over by the government, following Anod Bank JSC in 2008 and Zoos Bank JSC in 2009. The lender has losses of 180 billion tugrik ($122 million) and its working capital is 94 billion tugrik lower than its assets, the central bank said.

All 503 Savings Bank branches of Savings Bank were closed yesterday as the assets moved to State Bank, Ganbat said. While the process should be complete by 9 a.m. today, there may be some delays, he said.

State Bank was formed by the government in 2009 to hold Anod Bank and Zoos Bank and functions like a commercial lender. Mongol Bank is the nation’s central bank.

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Mogi Munkhdul Badral Bontoi

Founder & CEO