STUDY ON THE COMPETITIVENESS OF THE BANKING SECTOR OF MONGOLIA

Mongolia’s economy has long been highly dependent on the mining sector’s activity cycles, the subsequent expansion of the banking sector, and the performance of the agricultural sector. These three sectors have borne the brunt of the economic burden over the years. Among them, the banking sector plays a crucial intermediary role by regulating the circulation of money in the economy, which also makes it susceptible to various challenges.

In recent years, technological advancements have driven rapid digital transformation in the financial sector—especially in banking—prompting institutions to adopt technological innovations across all operations. Nevertheless, Mongolia remains among the countries with relatively high interest rates. For example, over the past decade, Mongolia has consistently ranked among the top 15 countries globally in terms of average lending rates, deposit rates, and inflation levels.

In 2020, the Parliament of Mongolia adopted a strategy to reduce lending rates, which included legal and regulatory reforms and macroeconomic stabilization measures. However, due to the impact of the COVID-19 pandemic and other circumstances, the country was not able to sufficiently reduce interest rates. Moving forward, there is a growing need to reassess how to lower interest rates, enhance the competitiveness of the banking sector, and determine what is required for Mongolia to become a major regional financial hub.

To address these questions, it is important for Mongolia to benchmark its economy and banking sector against countries with similar mining-driven economies, regional peers, and those with comparable income levels, in order to derive well-informed and effective conclusions.

In the first section of the study, the ranking of countries selected in the sample based on the Banking Competitiveness Index is presented. From this section, one can view the list of countries based on the composite index and its sub-indices. Additionally, this chapter outlines the methodology used to calculate the Banking Competitiveness Index and the selection criteria for the component indicators.

According to the Banking Competitiveness Index , Mongolia ranked 28th out of 37 countries in 2019, but in the 2024 study, it advanced to 9th place, an improvement of 18 positions. Among the 5 regional countries, Mongolia ranked 1st, among the 21 mining-dependent countries it ranked 6th, and among the 14 upper-middle-income countries, it ranked 3rd. Compared to previous studies, the competitiveness of Mongolia’s banking sector has significantly improved.
However, when recalculating the Banking Competitiveness Index excluding macro-environmental factors (such as inflation and external debt indicators), the results became even more noteworthy. Specifically, Mongolia ranked 3rd out of 37 countries, 1st among the 5 regional countries, 2nd among the 22 mining-dependent countries, and 1st among the 14 upper-middle-income countries.

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