01.25.2010, presentation, the development bank of mongolia today tomorrow and the development bank...
TRANSCRIPT
The Development Bank of Mongolia:
Today - Tomorrow
KHASHCHULUUN Chuluundorj
Chairman, National Development and Innovation
Committee of Mongolia
Ulaanbaatar, 25 January 2010
Development Bank
Development Bank is a national or regional financial institution
with intention of providing mid and long term capital for the
creative investment /economic development.
If we focus on the development banks as national development
institutions:
National Development Bank is a financial institution primarily
concerned with offering long-term capital finance to projects
generating positive externalities and hence underfinanced by
private creditors.
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Development Banks’ yesterday
At the time of industrial revolution, the banks in England,
French, Italy were performing some of the functions of modern-
day development banks for their growing industries.
Medici Bank, Rothschild and the House of Morgan etc.
After World War II, the lack of long-term funding for
investment projects encouraged many countries to make
decisions of establishing Development Banks.
Korea Development Bank, Development Bank of Japan, KFW Banking
Group of German etc.
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Development Finance in the market economy
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HIGH
HIGH
LOW
LOW
Profitability
of operation
Public nature
of operation
B. Mixed public and
private sector
A. Public sector
C. Private sector
Operating Scope of the Development
Bank of Mongolia(DBM)
To make mid and long term
loans and do other financial
activities with the intentions
to support development of the
sectors referred in Mongolia’s
development policy, produce
more value added goods and
improve the economical
competitiveness.
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Development Bank and Economic Growth
The Roles of a Development Bank, a development finance
institution, are vital for a nation’s economic growth,
particularly during the crisis.
International Conference on Financing for Development (Monterrey,
Mexico,2002), Doha Declaration on Financing for Development(2008)
The establishment of the Development Bank of Mongolia takes
a critical place for Mongolia’s development.
Exploit the strategically important mining deposits
Accelerate economic growth through implementation of large
industrialization projects
Develop processing industry
Re-structure economy
Promote competitiveness of Mongolia in a global arena
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The scope of financing options is limited to implement large
volume infrastructure and industrial projects referred in the
government action plan.
Domestic financial sector remains scarce and lending rates of commercial
banks are high.
The DBM needs to be established to expand more investment
for the implementation of government action plan, to create a
new source of the official development assistance and to develop
national financial market.
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The Government Action Plan and
the Development Bank of Mongolia
Development Bank Partnership with Commercial Banks
The DBM will not compete with commercial banks in their
funding activities, it will provide conditions for
harmonious and mutually beneficial cooperation with
commercial banks.
The DBM will provide long term funding for large, technology intensive
industrial projects that CBs can’t provide.
The DBM partnership with CBs will create new banking
activities.
Funding large projects through loan syndication
Assisting in raising funds in international markets
Providing guarantees to private sector
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The DBM and International Bond Market
The current credit rating for Mongolia that evaluates her abilityto repay her debt on time is lower to issue sovereign bond ininternational bond market.
Standard & Poor’s –BB/, Moody’s Investors Service В1
To issue its bond in international market, the one’s credit ratingmust be BBB at least.
Credit rating for the DBM can be higher than Mongolia’s.
Downgraded credit rating for the government doesn’t have to mean thather total industrial output declined.
A legal entity whose investors are well known in global arena andmanaged to build strong competitive advantages in international marketcan upgrade its credit rating while the government credit ratingdowngrades.
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Common reasons for success of Development Banks:
The DBs only make loans to bankable projects.
Interest rates of the DBs must be determined to be sufficient to cover its expenses.
The independence of loan decision process must be ensured.
The management team of DB should be independent
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Corporate Governance of Development Bank
Good corporate governance of the DBM is a key factor for not
repeating the state owned commercial banks’ failures in the
past.
Therefore, on one hand the DBM needs to secure equity
participation from international organization and on the other
hand the DBM’s Board of Directors should include
representatives from the government and domestic investors.
Finding and attracting the best experienced specialists with the
required skills set are vital to the DBM, while their
compensation should be competitive with the compensation
offered by commercial banks.
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JICA Experts’ advice on establishment of the DBM
Lend in accordance with the government development
programs
Lend only bankable projects with interest rates that cover
funding costs and other expenses.
Have a mechanism to receive subsidy or equivalent in case the
DBM has to lend not bankable projects, but priority to the
GOM projects.
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JICA Experts’ advice on establishment of the DBM
Have an able management team with determination to
lend based on objective credit analysis
Cooperate with Mongolia’s commercial banks
Carry out ample training with an emphasis on
management of development bank and credit analysis
Number of expected employees are 45.
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