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Best domestic bank: Khan Bank
Khan Bank is an outlier in Mongolia in many ways. It has a diversified and international – by local standards – investor base that includes Japan-based Sawada Holdings and the IFC, the private-sector arm of the World Bank. And it is both big and small.
Big, in that it has more assets ($2.9 billion) than any of its domestic commercial banking rivals, an impressive digital banking presence, a solid priority banking service that it extends to mass-affluent customers and a growing army of corporate customers, ranging from mining giants to small and medium-sized firms.
It reported returns on its equity and assets of, respectively, 17.5% and 1.99% in the third quarter of 2017, handily beating all of its top-tier peers. It is also regularly more profitable than them, and made a net profit of Tug101 billion ($41.4 million) through the first nine months of 2017, a year-on-year rise of 43%.
But Khan Bank is also proud to be small, in that it focuses on the little guy and does it well. Khan has more retail customers – 2.4 million in a country of barely 3 million people – than any of its main rivals. It reaches them via a growing network of 537 branches and more than 1,000 ATMs.
Khan Bank’s customers range from camel herders working alone in some of the harshest terrain on Earth to some of Mongolia’s largest companies. And it strives to treat them all equally.
Best corporate and investment bank: Trade and Development Bank of Mongolia
It can be hard work being a corporate-focused lender in Mongolia. The last few years have been a slog for many banks as they confront a sluggish economy that often teeters on the edge of insolvency and that offers precious few new lending opportunities.
But through it all, one lender has remained as unflustered and unflappable as ever, extending credit to and managing the various needs of Mongolia’s largest companies. Trade and Development Bank of Mongolia (TDB) is by far the best and biggest corporate banking player in the country, serving 400 big domestic firms, as well as 45% of all trade finance transactions.
At the end of September 2017, it accounted for 46% of all outstanding domestic corporate loans, according to data from the Bank of Mongolia. It also accounted for more than a third of money market trades in the third quarter of 2017, and a little under 30% of foreign exchange trading.
It is Mongolia’s most active lender internationally, thanks to direct correspondent relationships with more than 150 foreign lenders and financial institutions.
TDB has worked hard in recent years to diversify its corporate lending portfolio, which is skewed toward big domestic industries, notably mining, construction, real estate and commodities.
While the last few years have been hard going, growth is finally ticking again up in the wake of a recent IMF bailout and a renewed push to get the giant gold-and-copper Oyu Tolgoi mine up and running.
Mongolia’s economy seems ready to shine again. No bank is likely to benefit more than TDB.
Best bank for SMEs: XacBank
Mongolia’s push to develop a banking sector fit for the 21st century – a process that is being accelerated by a slew of financial reforms – is likely to benefit lenders with a diverse group of shareholders and better transparency and corporate governance.
XacBank, whose chief investors include the IFC and the EBRD, is firmly on this list.
With 1,300 staff working in 86 branches across the country, it is one of Mongolia’s largest and best-run lenders, with a burgeoning digital presence and an expanding priority-banking business.
But it is in the small and medium-sized enterprise space that XacBank really comes into its own. It has spent the last few years searching for new ways to identify and target owners of SMEs, the lifeblood of the frontier economy.
In June 2017, it signed a loan agreement with the IFC and the Overseas Private Investment Corporation, the development finance arm of the US government, to boost lending to SMEs owned by women and to offer female entrepreneurs better financial and business advisory services.
The Bank of Mongolia estimates that two thirds of all SMEs in the country are owned by women.
XacBank is also working with the Japan International Cooperation Agency to channel small business-development loans of between $10,000 and $40,000 to locally controlled SMEs that aim to turn a healthy profit while also striving to alleviate poverty, promote sustainable development and protect the environment.
Best bank for CSR: Arig Bank
It’s hard to miss Arig Bank’s commitment to corporate and social responsibility and to sustainability in general.
Mongolia’s second-oldest commercial lender may not dominate the banking scene, and its headquarters on Chinggis Avenue, squeezed between a police station and a power plant, may be more humble and homespun than those of many of its peers, but it makes its mark in so many other ways.
Arig is deeply involved in CSR-related projects, both big and small.
At one end of the scale, it helps to recycle plastic – a scourge of the capital Ulan Bataar – by donating to a charity that crafts surprisingly comfortable sofas out of old drinks bottles.
Every Saturday, it holds seminars at its headquarters that teach students as young as 12 important lessons about financial matters, ranging from basic household budgeting to how to start a pension fund.
Every October it hosts a national financial literacy day; chief support officer Tumurkhuu Davaakhuu reckons the most recent event co-organised with the Mongolian Bankers Association was attended by 1,000 people of all ages.
The bank is deeply involved in tackling the capital’s dreadful air quality, reducing litter and waste, and bringing clean drinking water to every part of the country.
But two of its campaigns really stand out.
First up, its work with New York-based Achilles International, which helps to instil in disabled people a sense of confidence by promoting sporting activities, notably an annual mass run that has drawn 39,000 participants over the last three years. And second, by donating, along with ING Group, wash blocks and locker rooms to new kindergartens based in local-style Ger tents.
“We have 140,000 children who are not in pre-school education because of the lack of kindergartens,” says Davaakhuu. “Without these pre-schools, many working parents would leave their kids at home with the door locked, so for many of them, this programme is a genuine life saver.”
Best private bank: Trade and Development Bank of Mongolia
Private banking is a minority pursuit in a frontier market lacking a deep seam of wealthy customers. But it’s growing, with banks preferring in the main to focus on priority banking services that target the reasonably prosperous.
Popular services include platinum and gold credit cards, asset protection and insurance, safe-deposit box services, gold trading and investment advice.
But this award goes to Trade and Development Bank of Mongolia. The country’s largest and best corporate lender also has the largest and best onshore priority banking service, controlling around 20% of the market.
TDB was the first onshore lender to offer such services, way back in 2004. Its client roster has grown slowly but surely ever since, to around 300 people, each with personal assets of at least $200,000.
TDB’s executive vice-chairman and president Randolph Koppa says it will remain focused on providing priority banking services to wealthy customers in just one city, the capital Ulaan Bataar, via two dedicated private banking offices.
Mongolia is a small economy where wealth remains highly concentrated in the hands of a few individuals. But as its economy grows, the market’s population of mass-affluent customers will too – and that is when the competition will really heat up.
Best digital bank: Khan Bank
Mongolia is a fascinating case study in digital banking. A handful of years back, barely anyone in this frontier market went online to track and pay bills, transfer cash to friends, or pay for goods and services.
All that has changed – and fast.
Khan Bank chief executive John Bell reckons the share of total retail transactions carried out in-branch at the counter fell to 6% in December 2017, from 60% three years before.
Lenders are falling over themselves to market their digital dynamism to customers; some, such as Trade and Development Bank of Mongolia, Arig Bank, and XacBank, offer a wealth of impressive online services.
But Khan Bank’s vast retail network – no other lender reaches more people, from shepherds to office workers, in more nooks and crannies of this vast country – gives it a healthy head start over the competition.
Khan Bank has grabbed its opportunity with both hands.
It was the first onshore lender to roll out phone banking, an around-the-clock call centre and drive-through ATMs.
It has more digital banking customers than anyone else. Its Qpay service allows customers to pay utility bills and taxes, make customs payments, open a new account and apply for a host of financial services, all via their smartphones.
Fingerprint identification technology, now widespread across the country, allows customers to log in to their accounts instantly and more securely. And in 2017, the bank rolled out its Khan Pay service, which allows customers to send money to their friends online, via Facebook.