Khan Bank

In 2015, Mongolia’s GDP growth slowed to 2.3% with continued low commodity prices, minimal foreign direct investment, and continued depreciation of the currency (MNT). The government’s budget deficit continued.

Though the trade balance was positive with smaller turnover, the current account deficit continued, and foreign currency reserves stayed low.

In January 2015, with inflation at 11% at year end 2014, the Central Bank of Mongolia (BoM) increased the policy rate from 12.0% to 13.0%. Most of BoM’s policy credit programs were terminated, and money supply decreased. The inflation rate came down to a mere 1.9% at the end of 2015. In this difficult business environment, Khan Bank reported net profit after tax (NPAT) of MNT 121.0 billion, an 12.1% increase over 2014. Return on assets (ROA) rose from 2.3% to 2.4%. Return on equity (ROE) decreased from 28.3% to 23.7%.

Khan Bank’s loan portfolio totaled MNT 3.0 trillion at year end, unchanged from the prior year. The lack of growth in loans reflects the economic downturn and risk averse lending policy of the Bank. Asset quality continued to be a challenge for the banking sector. Non performing loans (NPLs) as a percentage of the loan portfolio increased from 2.5% to 4.6% at year end 2015, versus 7.1% for the sector overall. The Bank takes a conservative approach to maintain its loan loss reserves at adequate level. We added MNT 52.2 billion to the loan loss reserves in 2015, with NPL coverage ratio remaining at a strong 82.0%.

Total funding declined slightly from MNT 4.4 trillion to MNT 4.3 trillion due to a small decline in deposits. The Bank successfully raised USD 210.0 million from international financial institutions while repaying USD 96.7 million in 2015. The combination of IFI borrowing in USD and long term currency swaps with BoM contributed to maintaining our MNT liquidity ratio at a level of about 25% throughout the year.

Capital adequacy remains strong. With good profitability and less loan growth, total capital adequacy ratio (CAR) increased from 17. 2% to 22.6%. The Bank’s Tier 1 ratio increased from 11.1% to 15.6%. We increased statutory capital from MNT 33.0 billion to MNT 52.8 billion in December 2015 under BoM’s new regulations.

With Moody’s credit rating B2, Khan Bank is Mongolia’s only privately owned financial institution with a credit rating matching the sovereign.

The Bank completed several important strategic steps in 2015. The Bank implemented a new card processing system which extends the functionality of card products into new areas. Additionally, we introduced 285 cash recycling ATMs to the market (200 more cash recycling ATMs in 2016), which now account for 44% of our network of total 652 ATMs. These ATMs have been well received by our customers, and they are part of the Bank’s strategy to expand its product delivery channels through technology and to improve customer service across the entire Bank.

The Bank continued its contribution to Mongolia’s social development by supporting many programs in health, education, the environment and culture through the Khan Bank Foundation. For the fifth year, the Foundation supported the National Campaign against Cancer. The medical team of the National Cancer Center visited communities in many provinces to diagnose and treat cancer, and Khan Bank employees volunteered to promote cancer awareness and good health practices.

In April 2016, I succeeded Norihiko Kato as CEO of the Bank. Mr. Kato departs having guided the Bank over the past five years of record performance. I am personally grateful to him for his support during the transition.

I would also like to thank Khan Bank’s customers, employees, and all other stakeholders for their continued confidence in the Bank.

John Bell
Chief Executive Officer