MONGOLIAN FINANCIAL SYSTEM

AND

INVESTMENT ENVIRONMENT

John P. Finigan, CEO

NAMBC 6th October

MINING AND MINERALS

2

- 82 of the total 111 elements of the Periodic Table i.e. 73% of all elements are found in Mongolian commercially exploitable

volumes.

- 25 or 62.5% of the 40 heavy elements are found in Mongolia.

Overview of the Mongolian Economy

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Sustained Real GDP Growth

Mongolia has witnessed steady economic growth driven by an influx of foreign investment and

abundant natural resources

- Nominal GDP 2010 = MNT8.4 trillion = USD 6.7 billion

(up by +27.7% yoy in nominal terms)

Nominal GDP 2011H1 = MNT4.8 trillion = USD 3.8

billion (up by +29.1% yoy in nominal terms)

- Real GDP 2011 H1 growth = +14.3%

- Agrilculture +6.0%

- Industry & Construction: +10.1%

- Services: +16.2%

- Budget revenue: +27.1%

- Industrial Production: +8.9% yoy, Mining +8.2% yoy,

Manufacturing 12.1% yoy, Energy 4.2% yoy

- 2011 August Inflation = 9.0%

- 2011 August Exports = $2,889.0 mln (up 61.1% yoy)

- 2011 August Imports = $4,191.1 mln (up 113.3% yoy)

- 2011 August Deficit = $1,302.1 mln (up ×7.6)

Recent Fiscal and Monetary Policy Reform in Mongolia

4

Recent Government Policy Reform Total Public External Debt

Source: IMF Mongolia Country Report (Mar 2011)

Mongolia remains committed to sound macroeconomic policies and structural reforms to

further strengthen macroeconomic stability and sustain high growth with low inflation

Expected economic growth of 15% in

2011, following an expansionary 2011 budget

(Q1 9.9; Q2 17.3, H1 14.3)

Exchange rate policy: flexible exchange rate

regime

Range: Dec ‘10 – 1,257

Low YTD 1,292 – Oct ‘11

High YTD 1,195 – Feb’11

Volatility Range – 8.12%

Official reserves as of August ‘11: US$2.6bn

External debt <40% - effectively all long term at

concessionary ratio

■ 2012 GDP >25%

■ Long term focus • Industrial expansion to fund investment in

health, education, infrastructure:

communications, electricity and water, agricultural job

creation, poverty reduction and improvement in overall

welfare of citizens

31

4743

39 37

2724

2015

2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

0.71.3

2.3

3.64.1

4.5 4.6

5.46.1

2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Gross Official Reserves

(US$ mm)

(US$ bn)

Source: IMF Mongolia Country Report (Mar 2011)

Key Regulations - Investment Environment

•

•

• A foreign investor may invest in the following:

•

• 1) freely convertible currencies and MNT

• 2) moveable and immovable property and property rights

• 3) intellectual and industrial property rights

• 4) in any sector not predicted by law.

• 1) Guaranteed by the Constitution and by international treaties

• 2) Shall not be unlawfully expropriated

• 3) May be expropriated only for public purposes or interests

• 4) Unless provided otherwise by international treaties to compensation determined by value

of expropriated assets at the time of expropriation or public notice of expropriation. Such

compensation shall be paid without delay.

• 5) Losses suffered by foreign investors due to a state of emergency or war in Mongolia

shall be treated equally with losses suffered by Mongolian investors.

5

Mongolia accords to foreign investors no less favorable treatment in respect of the

possession, use, and disposal of their investments than that accorded to Mongolian investors.

Foreign Investment Law of Mongolia (1993)

Legal guarantees for foreign investment

6

Key Banking Regulatory Milestones

Law of Mongolia on

Deposits, Loans and

Transaction came

into force

The Foreign Exchange

Settlement was passed

Bank’s Deposit Guarantee

was enacted and later

amended in 2010

Amendments on all the

key laws in this period

Major amendments to

Banking Law in 2010

Banking Law came into

force on March 9, 1996

Law of Mongolia on

Central Bank established

the role of the regulator

Amendments to Law of Mongolia on

Central Bank

– Quarterly public reporting required

– Independent audit firm required

– Minimum equity required

Introduced prudential regulatory in

capital adequacy, reserve and liquidity

management and exposure limits

Post recent crisis the Banking

Law increased the supervisory

powers of the

regulator, tightened

provisioning requirements and

key definitions, increased

capital adequacy and reserve

requirements, and etc

Several amendments made to

strengthen Law on

Deposits, Loan, Transactions and

Law on Central Bank

Enacted law on Anti-Money

Laundrering and Terrorism financing

Established Financial Stability

Committee

Regulation of the financial sector has evolved rapidly towards international standards through

a relatively short history

Evolution Of Regulatory Framework

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Key Regulations – Banking Law

Banking supervision

Empowers BOM to set requirements such as compulsory reserves, capital adequacy and other prudential requirements

Recent amendments significantly increased BOM’s power to deal with troubled banks

Policy rate 11.75%

Exposure Limits (Article 17 of Banking Law)

Guarantees – shall not exceed total value of equity

Single party – less than 20% of capital

Related party exposure less than 5% of capital

Securities purchase less than 20% of capital

Asset-backed securities – less than 50% of capital

A bank can only own up to 10% of another company

Selected Elements of the Banking Law

Source: Banking Law of Mongolia

The Banking Law 2010 empowers BOM to regulate commercial banks in Mongolia

Current BoM Prudential Regulations

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Capital Adequacy Ratio > 12% Capital

Forex Exposure - Single Currency < 15% Aggregate < 40% Capital

Liquidity Ratio >18%

Single Borrower / Group < 20% Capital

Related Party Exposure < 5%

Policy Rate - 11.75%

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Rapid Growth of Banking Sector with

Strong Underlying Fundamentals

Source: IMF and BOM

* - Annualized (Bank internal estimation)

Mongolia‟s banking sector has significantly outperformed the economy and has grown faster

than the economy in the last three years

Ongoing Financial Stability is EncouragingSignificant Growth in Banking Assets

(MNT bn, %) Banking sector is currently enjoying a

robust growth

2010: 41.2%

2011 H1 55.7%

Strengthening of the overall

regulatory framework

Establishment of the Mongolian

Development Bank

- Government approved the bank’s capital

on 10th July 2010 during its Cabinet

Meeting

- To extend medium to long term financing to

strategically important sectors

- Expansion of cooperation with international

development banks and organizations to

mobilize resources

4,956.6

6,555.6 6,590.6

8,414.5

10,863.0*

3,384.0 3,650.0

4,421.8

6,245.6

7,691.6

2007 2008 2009 2010 2011H1

Nominal GDP Banking Assets

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The Overall Banking System is Well Capitalised

Gross Loans and Deposits(1)

(MNT trn)

(CAR, %)

Mongolia‟s banking sector is well-capitalized with improving asset quality to support the

growing demand for credit

2.7 2.73.2

4.5

2.33.0

4.6 5.2

2008 2009 2010 1H 2011

Gross loans Deposits

14.3%

11.1

13.315.1

2008 2009 2010 2011 Aug

Rapid Growth of Banking Sector with

Strong Underlying Fundamentals

Golomt has the highest capital in the system:

Tier 1 11.9%

Total CAR 16.1%

Golomt has the lowest LTD 61.8%

GB net loans reached to MNT 955.2 bln in

2011H1 up by highest CAGR of 35.4%

between 2008 and 2011H1

Loans to Deposit Ratio(2)

(%)

Industry.

119.0%

Industry. 86.8%

Industry. 69.8%

Industry. 89.4%

GB. 90.8%

GB. 64.7% GB. 59.4% GB. 61.8%

2008 2009 2010 1H 2011

Net Loans (MNT billion)

2008 2009 2010 2011H1 CAGR

System 2,568.8 2,395.0 2,994.0 4,244.0 22.2%

GB 447.8 505.3 784.6 955.2 35.4%

Khan 608.7 580.7 776.7 1,094.4 26.5%

TDB 440.3 406.2 464.5 881.8 32.0%

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Loans and Deposit Breakdown of Banking Industry

Real estate

13.2

Mining and

quarrying 12.1

Manufacturing

11.5Construction

10.5

Agriculture

3.2

Others

30.5Wholesale and

retail trade 19.0

Deposits by Customer Type (1H 2011) Deposits by Type (1H 2011)

Loans by Industry Sector (1H 2011)Loans by Customer Type (1H 2011)

Source: BOM Monthly Statistical Bulletin

Private sector

56.0

Individuals

41.6

Public and

others

2.4

Private sector

32.1

Individuals

55.6

Public and

others

4.6

Govt

7.7

Current deposits

33.2

Demand deposits

18.4

Time and savings

deposits

40.7

Government deposits

7.7

Rapid Growth with Strong Underlying Fundamentals

(%)

(%) (%)

(%)

Banking System

• 13 commercial and 1 state owned (former Zoos Bank)

• TOP 3 banks market share: 70.3%

• TOP 5 banks market share: 85.7%

Assume Top 5 banks committed full legal lending limit to

Oyu Tolgoi at 2011capex of USD 2.3bln would cover less

than 20 days expenditure.

• But still small by any conventional means as witnessed by:

GB23.9%

Khan25.2%TDB

21.2%

Xac8.0%

Savings7.4%

Others14.3%

Banks Market Share H1 „11

Systematically Important Bankg Legal Lending Limit

Assets (MNT bln)

Khan 1,936.0 38.2

Golomt 1,836.8 33.3

TDB 1,634.1 29.4

TOTAL TOP 3 5,406.9 100.9

Xas 617.3 11

Savings 569.3 10.8

TOTAL TOP 5 6,593.5 122.7

Lender Borrower Amount

(US$mm)

Standard Bank Mongolian Mining 400

Standard Chartered Erdenes TT 200

EBRD Mongolian Mining 180

Standard Bank MCS 150

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Key Developments

of Mongolia Related Mining Companies

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Mongolian Mining Coporation (MMC; SEHK, Stock code 975)

• Largest privately-held domestic producer and exporter of coking coal

• Ukhaa Khudag is an open pit mine with 497 mln tonnes of proven reserves

• Raised US$650 mil from its Hong Kong IPO

Southgobi Energy Resources (HK:1878)

• Largest coal producer in Mongolia in terms of export sales

• Set new coal shipment record of 441,665 tonnes of coal in a single month (Aug 2011)

• Raised US$436.3 mil from its Hong Kong IPO

Hunnu Coal Limited (ASX: HUN)

• Raised US$20 mil from its Australian IPO

• Key projects: Tsant Uul/ Altai Nuurs/ Unst Khudag

Prophecy Resources Corp. (TSX-V: PCY, OTC-QX: PRPCF, Frankfurt: 1P2)

• Controls over 1.4 billion tonnes of open-pit thermal coal in Mongolia

• Raised CAD$550 mil in Canada on TSX

Introduction to Golomt Bank

Founded in 1995 as one of the first private banks in Mongolia

• Owned by 89% Bodi International L.L.C, a leading conglomerate established in 1993 and 11% by

Swiss-MO

• Only Bank to enjoy equity related investment from leading global commercial entities

– Credit Suisse

– Abu Dhabi Investment Council

– Swiss- MO

• Largest bank in Mongolia per latest audited financial account

• Strongest Financials:

– Highest Tier 1 Capital: 11.9% and highest Aggregate Capital 16.1%

– Lowest Loans to Deposit Ratio: 61.8%

– Lowest NPL Ratio: 2.7%

– Gearing Ratio: 9.9

• Recipient of “Bank of the Year” award for Mongolia by “The Banker” and Euromoney Award for

Excellence

• 74 branches; including 39 in Ulaanbaatar city

• 1068 employees

• First Mongolian bank to have its financial results audited by external international audit firm,

Ernst & Young

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Golomt Bank Overview

Customer Deposits (MNT billion)

Gross Loans (MNT billion)Post-tax Profit (MNT billion)

Total Assets (MNT billion)

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 Jun'11

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2007 2008 2009 2010 Jun'11

100

200

300

400

500

600

700

800

900

1,000

2007 2008 2009 2010 Jun'11

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Products and Services for Corporate Customers

Deposits and Current Account

Products

• Corporate current accounts

• Corporate deposits

• Overdrafts

• Gold Deposits

• Escrow accounts

Loan Products

• Corporate loans

• Project loans

• Leasing

Trade Finance Products

• Letter of Credit

• Documentary collections

• Bill discounting

Bank Guarantee Products

• Bid guarantee

• Advance payment guarantee

• Performance and Retention bonds

Card Products

• Corporate Master/ Visa cards

• Cards for employees of corporate clients

• AMEX acquiring services

• Card merchant services

E-Banking services

• Internet Banking

• Mobile Banking

• E-Commerce

• Call center

Payment Services

• Western Union

• International money transfer

• Domestic money transfer

Investment Banking

• Business Consultancy Services

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Most recent international transactions

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US $ 10,000,000

Trade and Finance Facility

Relating to Oil, Gas and

Renewables, Mining and

Metals, Power and Infrastructure,

Telecoms and Media sectors.

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Golomt Bank, and all our admired

competitor and collaborative banks are

at your service to meet all your banking

and financial requirements in Mongolia.

We all hope that this interest could lead to

a long and fruitful partnership.

We thank you for your kind attention

Sukhbaatar Square

Ulaanbaatar 210260A, Mongolia

Phone: +976-11-311971, 311530

Fax: +976-11-310895

Email: mail@golomtbank.com

Website: www.golomtbank.com

Corporate Banking Division: (976) 11 311 971 ext 321

Investment Banking Division: (976) 11 311 971 ext 818

Treasury Division: (976) 11 311 971 ext 412

Retail Banking Division: (976) 11 311 971 ext 410

Private Banking Division: (976) 11 311 971 ext 504

Golomt Bank Contact:

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