ADB to Help Foster Growth of Mongolia's Larger Companies to Diversify Economy

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is helping foster the growth of larger companies in Mongolia by providing them a source of affordable and ready credit as part of efforts to diversify the economy.

ADB on Monday signed a loan agreement with Mongolia’s Khan Bank for up to $10 million, which it will use for U.S. dollar lending activities, particularly to its corporate clients. Khan Bank is the main provider of financial services in the rural areas of Mongolia. The loan will contribute to Khan Bank’s expansion of its U.S. dollar lending activities.

“The growth of larger companies is essential to the sustainable diversification of the economy. However, the growth of these companies depends on the availability of corporate lending and financial services that meet the specific needs of larger companies,” said Johanna Klein, Investment Specialist for Capital Markets of ADB’s Private Sector Operations Department.

Banks in Mongolia have traditionally focused on the financial requirements of individuals and small- and medium-scale enterprises. Few commercial banks in the East Asian nation have corporate banking divisions and fewer have concentrated on developing corporate banking products suited to the needs of larger companies. As a result, larger companies in Mongolia meet long-term funding needs using short-term collateral-based loans carrying high interest rates, and they often find it difficult to meet working capital requirements.

“With the economy expected to grow substantially over the medium term, Mongolian enterprises are expected to face rapidly increasing demand, raising the need for long-term financing to support their growth,” said Ms. Klein.

Mongolia has been experiencing rapid economic expansion, with gross domestic product rising by an average 7.9% from 2003 to 2005 and by 8.4% in 2006. The growth has been fueled by sharp increases in copper and gold prices and a recovery in the livestock sector after three severe winters. As incomes have grown, the expansion has spilled over to other sectors including construction, financial services and the retail sector.

The medium-term economic outlook for Mongolia is positive, assuming stable commodity prices, continued foreign direct investment inflows, good macroeconomic management, and political stability.

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