Mongol Bank announced that the minimum capital requirement for commercial banks will be raised to 100 billion MNT by 2021 by decree of Mongol Bank Governor N.Bayartsaikhan.
In accordance to the Law on the Central Bank and the Law on Banking, Mongol Bank has the ability to modify the minimum capital requirements for financial institutions including banks. The central bank takes into account the state of the economy, changes in the exchange rate of the national currency, the assets of commercial banks, and overall health of the banking sector when discussing any changes in the capital requirement.
When the Banking Law was first approved in 1991 shortly after the transition into a democracy, the minimum capital requirement was set at 50 million MNT. In 1995, it was increased to 400 million MNT. Starting in 1999, it was legislated that the Governor of Mongol Bank would have the authority to modify the minimum capital requirement. Subsequently, the requirement was increased to two billion MNT that year. Starting in 2001, the amount was increased to four billion MNT, and in 2006, it was doubled to eight billion MNT.
Continuing the trend of doubling the capital requirement, the amount was increased to 16 billion MNT in 2011. The latest and the most significant increase in the amount came in 2015 when it was decided by then Governor of Mongol Bank N.Zoljargal to set the requirement at 50 billon MNT, tripling the previous amount.
A capital requirement is the standardized requirement in place for banks and other depository institutions that determines how much liquidity is required to be held for a certain level of assets. This measure is intended to help prevent any major shocks to banks and to ensure that a bank has enough assets to pay back its customers in the event of a bankruptcy.
In Mongolia, the minimum capital requirement for commercial banks is set by the central bank and its governor. The capital requirement for non-banking financial institutions and on publically-listed companies is set by the Financial Regulatory Commission.
Mongol Bank made the announcement on November 24 that Governor N.Bayartsaikhan decreed that the capital requirement would be increased to 100 billion MNT on December 31, 2021.
The central bank explained that the decision to increase the capital requirement has no relevancy or any links to the ongoing asset quality review being conducted by PricewaterhouseCoopers as part of the extended fund facility.
“The main purpose of the asset quality review is to ensure that banks have enough assets to back all loans provided, to determine whether an adequate risk fund had been established, and to ensure that commercial banks have enough assets to cover any losses regarding loan risks,” stated Mongol Bank on their website.
Increasing the minimum capital requirement will help increase the operational capacity of commercial banks and improve their ability to manage risks, believes Mongol Bank. In addition, the central bank believes the move will help activate the operations of smaller commercial banks while also increasing competition in the financial sector and ultimately setting up the basis for lower interest rates.
“The decision to increase the minimum capital requirement to 100 billion MNT on December 31, 2021 was based on the forecast that Mongolia’s economy will revive from its crisis and grow further,” stated Mongol Bank.