On December 18, Governor of Mongol Bank B.Lkhagvasuren provided a comprehensive update on the country’s banking sector, economic performance and the financial outlook for 2024. Despite challenges posed by global geopolitical tensions and slower-than-expected growth in key sectors, the governor highlighted a positive trajectory for the country’s economy, supported by strong performance in the banking sector.
Governor B.Lkhagvasuren noted that the easing of monetary policies in major economies such as the USA and Europe in 2024 has been a boon for Mongolia’s foreign economy. However, he cautioned that external risks remain high, with geopolitical tensions contributing to ongoing uncertainty in the global environment.
Additionally, the Chinese economy, a key trading partner for Mongolia, is showing signs of weakness, increasing concerns about a potential drop in external demand, particularly for coal exports. As a result, there is growing apprehension regarding the impact of falling coal prices on the Mongolian economy.
Inflation in Mongolia showed a slight uptick in recent months, rising to 8.1 percent in November, compared to seven percent in October. A significant driver of this increase was the rise in electricity prices, which is expected to account for nearly two percentage points of inflation in November, a sharp rise from just 0.1 percentage points in October.
In terms of economic growth, Mongolia’s economy expanded by 3.9 percent in the third quarter of 2024, falling short of expectations. The slowdown was attributed to weaker-than-expected performance in key industries such as copper and gold mining. Given this performance, Mongol Bank has revised its growth forecast for 2024 to 5.2 percent, down from earlier predictions.
Despite this, the medium-term outlook remains positive, with economic growth expected to pick up to seven to eight percent in 2025. Key drivers of this growth include the gradual recovery from this year’s severe winter conditions (dzud), increased production at the Oyu Tolgoi copper mine, and a weaker fiscal outlook.
The governor confirmed that the central bank would maintain its policy interest rate at 10 percent to avoid excessive tightening of credit conditions and ensure stable economic growth in the medium term. Despite inflation exceeding the target range for 2024, the bank expects it to stabilize within the target range by early 2026.
To further support financial stability, Mongol Bank has decided to raise the mandatory reserve ratio for commercial banks. Starting in 2024, banks will be required to hold 11 percent of their reserves in Mongolian tugrik and 16 percent in foreign currency, an increase of one percentage point for each. This measure aims to curb the accumulation of risks in the banking sector and ensure its long-term stability.
B.Lkhagvasuren emphasized the robust health of Mongolia’s 12 commercial banks, which are showing solid indicators in terms of capital, liquidity and lending capacity. These banks are playing a critical role in supporting the economy through increased credit availability, even as Mongol Bank continues to monitor inflation and economic developments closely.
In recent months, there has been a notable shift in the banking sector’s lending focus, with consumer loans now on par with business loans, accounting for a 50:50 ratio. Loans secured by salaries and pensions are also increasing, aligned with rising government expenditures in these areas.
Governor B.Lkhagvasuren concluded that the central bank will remain agile, adjusting its policies as needed based on changes in both the domestic and global economic environments.
