ID :
93517
Mon, 12/07/2009 - 09:03
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Shortlink :
http://m.oananews.org//node/93517
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KHAN BANK CEO GIVES INTERVIEW
Ulaanbaatar, /MONTSAME/ CEO of the Khan Bank Mr J.Peter Morrow has gave an interview to the "Onoodor" daily on a situation of the bank. The interview was posted last Friday in the banks's website.
Q: The banks, the lifeblood of the economy, are in bad shape. What's your opinion on this as a banker?
A: You can't generalize. The situation is different from bank to bank, so you have to look at them individually. We're all impacted by the events, the economic events that have come from the outside the country and within.
Q: During this period, Khan Bank's asset is growing while its loan interest rate is decreasing. Can this be construed as a rebounding sign from the crisis? How did you manage to successfully weather through the crisis?
A: Nothing special. We've always operated completely transparently. We've always maintained high capital and liquidity, which is cushion against downturns. And we have very diversified operation with service delivery throughout the country and this allows us to diversify risks.
Half of our loan are to consumers and the rest is for businesses. For example: our liquidity at the beginning of this year was MNT 180 billion. . And at the end of Oct.31st it was MNT 382billion, which means we have added MNT 200.0 billion liquidity, i.e. the money available for lending. We also grew our total assets by MNT 200.0 billion in the first 10 months. . Capital which was 82.0 billion which is now 97.0 billion. We have been able to achieve improvement in the important numbers of capital and liquidity through this difficult period of time thanks to the strength of our management team and the continuing commitment of our shareholders towards maintaining financial strength of the bank.
And I'm very proud of staff and our management team. We have 3,800 employees and 3 of them are expats; all of the rest are Mongolians.
Q: The bank has decreased its investment and business loan interest rates. What effect do you expect the lowering rate will have on the economy?
A: We have continued to lower our loan rates for the past 9 years. We reduced the rates of herder, pension, salary and mortgage loan during the past months. The business loan rate was lowered last week. Rate reduction won't cause a big economic growth by itself, but it will help restore some activity in the economy and will eventually benefit the economy. If the economy improves, the businesses will have more opportunities for growth, and it will in turn bolster loan demand. We see the rate reduction as an important first step. We had enough liquidity and capital to lower the rates, both deposit and loan, and we hope that other banks will join us, so that we can begin the interest rates more generally and much larger scope.
Everyone says interest rate is too high in Mongolia. But there is a lack of understanding as to what are the prerequisites for lowering rate. Khan Bank has enough liquidity and capital, and that allowed us to lower both deposit and loan rate.
Q: Due to banks' restriction of large loans, investment flow into manufacturing industry and the general economy stopped for some time. This also hurt the construction industry. Khan Bank must have also restricted its lending, right?
We never stopped lending but we did have to restrict it. You have to think about this problem period as three distinct periods.
First, the system was growing very rapidly, unlimited new loans. Early last year, the inflation got to 32%, the tugrug (MNT) began to devalue. Mongolbank adopted very tight monetary policy. So the banking system had no more money to lend, the banking system stopped lending because of lack of liquidity. We used to get an average of MNT 50.0 billion in repayments every month, it's usually we loaned back more than that but we started loaning back somewhat less than that. So that means Khan Bank never stopped lending. The second phase: in the 1st quarter of 2009 we began to get liquidity back, the money was also flowing back into KHAN BANK. But there were speculations about wide spread depression and bank failures and it was difficult to gauge the risks in Mongolian financial market. So banks didn't want to lend because the risks were so high. 3rd phase was by June 2009 we could see that we have overcome the economic crisis and came out OK and we continued to have lots of liquidity, so KHAN BANK started lending, we opened up all our loan products to everyone.
Q: According to some analysts, the whole problem was caused by banks lending to both property developers and buyers alike. Because of the recession in construction industry, investment into the industry stopped.
A: KHAN BANK was never a very large lender of construction sector. We have a diverse customer base and it has benefited us. We have nothing to hide. That's the reason 80% of all households trust us and bank with us.
Q: Excessive borrowing rate is a big burden for businesses. They say, no business has 24% profit a year.
A: Everyone says the rates are too high. But there is little understanding of what needs to be done in order to lower rates. Like I said earlier, it is essential to fully understand what is causing high rates and take the necessary steps for the rate to go down.
Q: Banks require collateral. It's hard for SME's because they don't have assets to offer as collateral. Is it possible to make unsecured loans?
A: In this environment, we have to do collateral-based lending. The local commercial banking industry has 10 year history, on the other hand, the SME's are only starting to produce financial statements in compliance with accounting standards.
Q: Khan Bank's loan portfolio is primarily made of small loans. Herder loan, for instance. They say, because herders are unable to pay back their loan, most of Mongolian livestock is under the KHAN BANK's lien. What should be done to address this issue?
A: It is unfortunate that there is misleading information about herder loans and KHAN BANK's role in the lives of the herders. Loan to herders only make up 10% of our total loan. Over 90% of herder loans are being paid on time. That said, I'm not denying certain problems caused by cashmere price that continued to fall through the past two years.
Q: Then can we assume that the herder loan problem has been resolved?
A: Our past due herder loan is less than 10% by amount 6,000 by number of borrowers. There are even more loans that have been re-structured. The situation varies from borrower to borrower, so our approach towards individual loans is different. So we can't say all herder loans are now ok. Average herder loan size is 1,000,000. Besides, our aimag, soum branch managers know the local herders very well, so they work with the borrowers closely.
Q: The bank's focus on small loan serves mitigates risks?
A: The bank has 488 offices. We have a diverse customer base that includes individuals, pensioners, salary loan borrowers, small business owners, changers, traders herders etc. A large number of retail loans diversify our risk. The costs associated with processing large number of small loans are relatively lower than that with few large loans. However, the cost of supporting 488 online offices and 3,800 employees is very substantial.
Q: It is not clear who is behind foreign-invested banks. What about KHAN BANK?
A: We have been transparent about our ownership since the privatization. The information is available on our web site. Our shareholders have never taken out dividend but re-invested the earnings into the bank. That's the reason the bank has been able to continue to grow its business, open many offices and serve most of the public.
Q: What should be done to improve the lending environment?
A: Well there are several loan infrastructure needs that we need to work on in Mongolia. We don't have a satisfactorily functioning credit bureau, so it's difficult to ascertain objectively the credit history of the borrowers. We're working on that. Group of banks, donors and Mongol bank is working on that. Second we have no procedure for registering security interest at immovable property. Third, the judicial system has improved over the last several years, but still is not completely able to deal with many commercial disputes and matters involving loans and collateral. For example: it often takes more than 1 year to foreclose real estate collateral. It may seem like it's good for borrowers, but in fact the debt and the penalty continue to build up over time due to the period of delinquency and other related costs, so early litigation is best for borrowers.
Q: When do you think the lending environment will improve? In particular, when can we expect the credit information bureau to be up and running?
A: The CIB will start operating next year, perhaps. KHAN BANK has its own credit information database. But we need to know the borrower's credit history at other banks so having an integrated database is critical.
Q: Non-performing loan continues to increase. What is the situation at KHAN BANK?
A: Our non-performing loan increased over the previous year. But it is low compared to the overall banking system /22.6%/. Our NPL at the last month end was 5.6%.This should be seen as the result of the economic problems. Because of the weak economy, individuals and businesses have less capacity to service their loans.
Q: The bank has recently made its 5 millionth loan. What is the reason behind attaching importance to such statistics?
A: We have made a significant number of loans both in rural and urban areas to a diverse range of customers to date. The rising number of loans shows that our lending benefits the general public and helps them grow the business and improve their lives, as opposed to serving a particular group or a small number of customers.
Q: Mongolbank lowered the policy rate three times. But it doesn't seem to have any notable influence on borrowing rates. What do you think?
A: I think Mongolbank made the right decision. The lowering policy rate will not necessarily bring an immediate effect on commercial banks' rates, but I think it will guide into the direction. A year ago, bringing down inflation rate was the priority.
B.Khuder
Q: The banks, the lifeblood of the economy, are in bad shape. What's your opinion on this as a banker?
A: You can't generalize. The situation is different from bank to bank, so you have to look at them individually. We're all impacted by the events, the economic events that have come from the outside the country and within.
Q: During this period, Khan Bank's asset is growing while its loan interest rate is decreasing. Can this be construed as a rebounding sign from the crisis? How did you manage to successfully weather through the crisis?
A: Nothing special. We've always operated completely transparently. We've always maintained high capital and liquidity, which is cushion against downturns. And we have very diversified operation with service delivery throughout the country and this allows us to diversify risks.
Half of our loan are to consumers and the rest is for businesses. For example: our liquidity at the beginning of this year was MNT 180 billion. . And at the end of Oct.31st it was MNT 382billion, which means we have added MNT 200.0 billion liquidity, i.e. the money available for lending. We also grew our total assets by MNT 200.0 billion in the first 10 months. . Capital which was 82.0 billion which is now 97.0 billion. We have been able to achieve improvement in the important numbers of capital and liquidity through this difficult period of time thanks to the strength of our management team and the continuing commitment of our shareholders towards maintaining financial strength of the bank.
And I'm very proud of staff and our management team. We have 3,800 employees and 3 of them are expats; all of the rest are Mongolians.
Q: The bank has decreased its investment and business loan interest rates. What effect do you expect the lowering rate will have on the economy?
A: We have continued to lower our loan rates for the past 9 years. We reduced the rates of herder, pension, salary and mortgage loan during the past months. The business loan rate was lowered last week. Rate reduction won't cause a big economic growth by itself, but it will help restore some activity in the economy and will eventually benefit the economy. If the economy improves, the businesses will have more opportunities for growth, and it will in turn bolster loan demand. We see the rate reduction as an important first step. We had enough liquidity and capital to lower the rates, both deposit and loan, and we hope that other banks will join us, so that we can begin the interest rates more generally and much larger scope.
Everyone says interest rate is too high in Mongolia. But there is a lack of understanding as to what are the prerequisites for lowering rate. Khan Bank has enough liquidity and capital, and that allowed us to lower both deposit and loan rate.
Q: Due to banks' restriction of large loans, investment flow into manufacturing industry and the general economy stopped for some time. This also hurt the construction industry. Khan Bank must have also restricted its lending, right?
We never stopped lending but we did have to restrict it. You have to think about this problem period as three distinct periods.
First, the system was growing very rapidly, unlimited new loans. Early last year, the inflation got to 32%, the tugrug (MNT) began to devalue. Mongolbank adopted very tight monetary policy. So the banking system had no more money to lend, the banking system stopped lending because of lack of liquidity. We used to get an average of MNT 50.0 billion in repayments every month, it's usually we loaned back more than that but we started loaning back somewhat less than that. So that means Khan Bank never stopped lending. The second phase: in the 1st quarter of 2009 we began to get liquidity back, the money was also flowing back into KHAN BANK. But there were speculations about wide spread depression and bank failures and it was difficult to gauge the risks in Mongolian financial market. So banks didn't want to lend because the risks were so high. 3rd phase was by June 2009 we could see that we have overcome the economic crisis and came out OK and we continued to have lots of liquidity, so KHAN BANK started lending, we opened up all our loan products to everyone.
Q: According to some analysts, the whole problem was caused by banks lending to both property developers and buyers alike. Because of the recession in construction industry, investment into the industry stopped.
A: KHAN BANK was never a very large lender of construction sector. We have a diverse customer base and it has benefited us. We have nothing to hide. That's the reason 80% of all households trust us and bank with us.
Q: Excessive borrowing rate is a big burden for businesses. They say, no business has 24% profit a year.
A: Everyone says the rates are too high. But there is little understanding of what needs to be done in order to lower rates. Like I said earlier, it is essential to fully understand what is causing high rates and take the necessary steps for the rate to go down.
Q: Banks require collateral. It's hard for SME's because they don't have assets to offer as collateral. Is it possible to make unsecured loans?
A: In this environment, we have to do collateral-based lending. The local commercial banking industry has 10 year history, on the other hand, the SME's are only starting to produce financial statements in compliance with accounting standards.
Q: Khan Bank's loan portfolio is primarily made of small loans. Herder loan, for instance. They say, because herders are unable to pay back their loan, most of Mongolian livestock is under the KHAN BANK's lien. What should be done to address this issue?
A: It is unfortunate that there is misleading information about herder loans and KHAN BANK's role in the lives of the herders. Loan to herders only make up 10% of our total loan. Over 90% of herder loans are being paid on time. That said, I'm not denying certain problems caused by cashmere price that continued to fall through the past two years.
Q: Then can we assume that the herder loan problem has been resolved?
A: Our past due herder loan is less than 10% by amount 6,000 by number of borrowers. There are even more loans that have been re-structured. The situation varies from borrower to borrower, so our approach towards individual loans is different. So we can't say all herder loans are now ok. Average herder loan size is 1,000,000. Besides, our aimag, soum branch managers know the local herders very well, so they work with the borrowers closely.
Q: The bank's focus on small loan serves mitigates risks?
A: The bank has 488 offices. We have a diverse customer base that includes individuals, pensioners, salary loan borrowers, small business owners, changers, traders herders etc. A large number of retail loans diversify our risk. The costs associated with processing large number of small loans are relatively lower than that with few large loans. However, the cost of supporting 488 online offices and 3,800 employees is very substantial.
Q: It is not clear who is behind foreign-invested banks. What about KHAN BANK?
A: We have been transparent about our ownership since the privatization. The information is available on our web site. Our shareholders have never taken out dividend but re-invested the earnings into the bank. That's the reason the bank has been able to continue to grow its business, open many offices and serve most of the public.
Q: What should be done to improve the lending environment?
A: Well there are several loan infrastructure needs that we need to work on in Mongolia. We don't have a satisfactorily functioning credit bureau, so it's difficult to ascertain objectively the credit history of the borrowers. We're working on that. Group of banks, donors and Mongol bank is working on that. Second we have no procedure for registering security interest at immovable property. Third, the judicial system has improved over the last several years, but still is not completely able to deal with many commercial disputes and matters involving loans and collateral. For example: it often takes more than 1 year to foreclose real estate collateral. It may seem like it's good for borrowers, but in fact the debt and the penalty continue to build up over time due to the period of delinquency and other related costs, so early litigation is best for borrowers.
Q: When do you think the lending environment will improve? In particular, when can we expect the credit information bureau to be up and running?
A: The CIB will start operating next year, perhaps. KHAN BANK has its own credit information database. But we need to know the borrower's credit history at other banks so having an integrated database is critical.
Q: Non-performing loan continues to increase. What is the situation at KHAN BANK?
A: Our non-performing loan increased over the previous year. But it is low compared to the overall banking system /22.6%/. Our NPL at the last month end was 5.6%.This should be seen as the result of the economic problems. Because of the weak economy, individuals and businesses have less capacity to service their loans.
Q: The bank has recently made its 5 millionth loan. What is the reason behind attaching importance to such statistics?
A: We have made a significant number of loans both in rural and urban areas to a diverse range of customers to date. The rising number of loans shows that our lending benefits the general public and helps them grow the business and improve their lives, as opposed to serving a particular group or a small number of customers.
Q: Mongolbank lowered the policy rate three times. But it doesn't seem to have any notable influence on borrowing rates. What do you think?
A: I think Mongolbank made the right decision. The lowering policy rate will not necessarily bring an immediate effect on commercial banks' rates, but I think it will guide into the direction. A year ago, bringing down inflation rate was the priority.
B.Khuder
