BANKING SECTOR REVIEW: 3rd quarter of year 2024

A double-edged sword

The banking sector’s performance remained relatively stable and continued to grow. Compared to the same period last year, the banking sector’s total assets increased by 27 percent. Consumer loans extended to individuals were higher, while business loans grew in all sectors except manufacturing. Non-performing loans decreased, reaching the lowest level in the past ten years. Due to stable inflation and a steady exchange rate of the MNT, the return on MNT deposits remains higher than that of foreign currency deposits.

Meanwhile, increased activity in the mining, transportation, trade, and services sectors positively impacted economic growth, playing a significant role in achieving a 5 percent increase in the economy. Due to weather conditions, the agricultural industry experienced a downturn, and growth in other sectors was relatively weak.

Since the beginning of the year, the export of mineral products has been growing, while imports of automobiles and goods intended for investment have also shown high growth. The current account deficit contributed to the increase in the balance of payments deficit, while higher foreign direct investment played an important role in reducing the balance of payments deficit. The primary balance of the budget has shown a surplus, easing pressure on the budget.

Looking ahead to 2025, the budget has been expanded based on optimistic forecasts for the prices and volumes of mining-based mineral products. This will be important for supporting economic growth in the coming years; however, by spurring imports, it could also pose a high risk of putting pressure on inflation, the balance of payments, and the MNT exchange rate. Therefore, excessive fiscal expansion may backfire like a double-edged sword, potentially undermining opportunities for economic growth.

Key Changes in the Banking Sector and Future Trends in the 3rd quarter of 2024

• The growth of bank loans continues.
• The quality of bank loans is improving.
• Banks’ return on equity is at 20 percent.
• The financial performance of the systemically important banks is strong.
• The stock prices of banks are relatively low compared to other sectors.
• The returns on MNT deposits are higher than those on foreign currency deposits.

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