Mongolia’s most profitable bank is considering accessing the capital markets later this year, according to its chief executive, Peter Morrow.
Khan Bank is weighing up the possibility of issuing debt via an MTN programme denominated in dollars or tughrik, the local currency, and undertaking a public equity offering that would include a local and international listing, says Peter Morrow. "We have deep-pocketed shareholders so we don’t need to do anything in the short term, though in the long term we will need to raise debt and equity."
Any share offering would include a listing in Ulan Bator and one in London, with the bank hoping to raise about $100 million in total. On the debt side, Morrow says Khan Bank is considering arranging a $200 million to $300 million MTN shelf programme. He says he is hopeful the bank will issue the first tranche some time this year. The debt could be denominated in the tughrik, which according to Morrow has found favour with Asian and European investors.
Khan Bank is Mongolia’s biggest in terms of branch network and loan portfolio. Last year its loan portfolio doubled to Tug483.5 billion ($413.2 million) from Tug239 billion. "Demand for loans is outstripping capital formation," says Morrow.
The bank’s other financial indicators were equally strong. It achieved a 62% growth in after tax earnings to Tug19.4 billion. Its return on assets hit 3.94%, and its return on equity was 45.93%.
The bank is expanding quickly across several products, including ATMs, leasing and mortgage portfolios, internet banking, SME lending and corporate and investment banking. Its performance is in stark contrast to the situation when Morrow arrived in 2000. Then, the bank, which was traditionally a state-owned agricultural policy institution, was in receivership. In 2003, Khan Bank was privatized and sold to strategic investors, including the International Finance Corporation, the private-sector arm of the World Bank.
Over the past eight years the bank has doubled its branch network nationally. In the capital city of Ulan Bator, Khan Bank has gone from having no branches to 65. A year ago it had no ATMs, now it has 70. The bank’s growth is not just in the retail sector. Two years ago it entered the corporate market and it is now seeking to build a substantial business, especially one servicing mining companies. Last year the bank raised $47 million from international sources, including development banks, to fund its SME and corporate banking activities. It also became the first Mongolian bank to borrow money from international banks, when it raised $12.5 million-equivalent in local-currency term deposits.
Morrow says Khan Bank is now well positioned to take advantage of the fast-developing economy. Mongolia’s GDP growth rate hit 10% in 2007 and is expected to do as well this year, especially if commodity prices remain high. Mining accounts for about 30% of economic activity, although that percentage could increase, as 15 large projects have been identified as strategic deposits. "There is considerable discussion taking place about what to do with mining proceeds, how to ensure that they don’t line the pockets of a few, the role of foreign investors and so on," says Morrow.