‘New strategy will cut interest rate to 1% by end-2023’

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A Parliamentary task force led by MP D.Battumur submitted draft strategy to cut loan interest rate and loan source costs to Speaker of Parliament G.Zandanshatar on August 20.

The strategy aims to cut the loan interest rate through four directions, which are:

  1. Reduce interest rate of financial source for loans, which accounts for 60 percent of loan interest rate.
  2. Reduce banking costs, which account for 17 percent of loan interest rate.
  3. Reduce credit risk costs, which account for 11 percent of loan interest rate.
  4. Develop the Mongolian financial market and intensify trading activities through the stock exchange.

Lawmaker D.Battumur said that through the strategy, the Banking Law will be revised to make banks into stock companies. It will also impose a 20 percent stake cap for shareholders and their affiliates, and trade the remaining 80 percent through the stock exchange. D.Battumur says this will help banks raise their capital and create a blic supervisory system.

He continued that the draft strategy includes arrangements targeted at cutting the weighted average interest rate of bank loans to 1 percent by the end of 2023. The strategy is scheduled for Parliament review this week.

“This strategy to reduce loan interest rate is significant as it was developed with the eration of Mongol Bank and Mongolian Bankers’ Association. Over the last three years, the weighted average loan interest rate decreased by around 3.8 percent,” said Parliament member Kh.Bulgantuya. “The loan interest rate was able to go down like so because we managed to keep macroeconomic indicators good. It will be important for us to recover the health of the banking sector in the future regardless of whether we have the International Monetary Fund’s program or not.”

Lawmaker G.Amartuvshin says it’s possible to cut down banking costs using the latest breakthroughs in information technology before sharing plans to integrate banking infrastructure.

“As soon as a resolution for operational costs is approved, Mongol Bank will cut down its relevant costs and fees. Accordingly, commercial banks will need to lower their costs. We plan to merge infrastructure of commercial banks in the medium- term. Every bank has its own POS machines and ATMs. By merging their infrastructure, banks will share costs and this cost reduction will enable them to lower loan costs and thus benefit customers,” he noted.

In connecting with the strategy, several bills are being developed for the fall session, according to the task force. To cut down credit risk costs, a legal proposal will be made to shorten the time it takes to repay loans with collateral, which currently averages 4.5 years. The task force believes that it can recover the health of the banking sector by reducing costs linked to the financial source of loans and hastening lawsuits for nonperforming loans.

Dulguun Bayarsaikhan