PRESENTATION

1. The role of BOM: Sustainable growth
Zoljargal Naidansuren
Governor
BANK OF MONGOLIA (BOM)
October 30-31, 2012
Hong Kong

2. 2
Outline
• Macroeconomic overview
• Coordinated macro policy Strong middle class
• Financial infrastructure and institutional development

3. 3
Sustainable & balanced growth over 10%
Source: Bank of Mongolia, IMF, NSO
10.2%
-1.3%
17.5%
13.2%
16.8%
12.7%
8.0%
15.2%
8.3%
-5%
0%
5%
10%
15%
20%
0
2
4
6
8
10
12
2006 2007 2008 2009 2010 2011 2012* 2013** 2014** 2015** 2016** 2017**
BillionUSD
Real GDP
Growth, yoy, RHS
Linear (Growth, yoy, RHS)

4. 4
Growth prospects in Asian emerging economies
Source: WEO April 2012, IMF
17.5
8.0
6.9
6.1 6.3
13.2
8.2 8.1
7.0
7.5
15.2
-2
0
2
4
6
8
10
12
14
16
18
20
China India Indonesia Vietnam Mongolia
%
2011 2012* 2016*

5. 5
Trade and FX turnover
0
1
2
3
4
5
6
2009 2010 2011 2012
Billion $
Foreign trade turnover
1H of each year
Imports
Exports
0
2
4
6
8
10
12
14
2009 2010 2011 2012
Billion $
FX turnover
1H of each year
FX outflows
FX inflows
Source: Bank of Mongolia, Customs General Office, Mongolia

6. 6
Balance of payments and gross international reserves
-36
162
166
581
38
181
-13
-177
359
112
-1500
-1000
-500
0
500
1000
1500
Q1
'10
Q2
'10
Q3
'10
Q4
'10
Q1
'11
Q2
'11
Q3
'11
Q4
'11
Q1
'12
Q2
'12
Capital & financial account
Current account
Overall BOP 0
2
4
6
8
10
12
0
500
1,000
1,500
2,000
2,500
3,000
2007/01
05
09
2008/01
05
09
2009/01
05
09
2010/01
05
09
2011/01
05
09
2012/01
05
MillionUSD
Gross reserves
Import coverage, months
(RHS)
Source: Bank of Mongolia

7. 7
Exchange rate system
Annual Report on Exchange Arrangements and Exchange Restrictions
(AREAER) 2010
FLOATINGMONGOLIA
No exchange rate target at all BOM Intervention is only for
smoothing excessive volatility
No capital control Positive expectation on overall FX net flows

8. 8
FX net flows and reference exchange rate
Source: Bank of Mongolia
Stability since March 2009
Daily average volatility: only 0.08% in 2012

9. 9
Is MNT a volatile currency?
Currencies
(last 32 months)
Daily average
volatility
(%)
Maximum
depreciation
per day (%)
Maximum
appreciation
per day (%)
Australian dollar 0.62% 4.35% 3.00%
Canadian dollar 0.46% 3.36% 2.06%
New Zealand dollar 0.65% 5.03% 2.44%
Russian ruble 0.49% 3.18% 2.55%
Chilean peso 0.49% 4.78% 2.24%
South African rand 0.70% 5.03% 3.39%
Brazilian real 0.66% 5.05% 3.76%
Norwegian kroner 0.62% 3.31% 2.82%
Tanzanian schilling 0.36% 5.15% 9.34%
Papua New Guinea kina 0.18% 3.39% 3.20%
Mongolian togrog 0.20% 1.26% 1.69%
0.52% 4.26% 3.48%

10. 10
Money supply
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000 2008-01
2008-04
2008-07
2008-10
2009-01
2009-04
2009-07
2009-10
2010-01
2010-04
2010-07
2010-10
2011-01
2011-04
2011-07
2011-10
2012-01
2012-04
2012-07
Billiontogrog
M2 YoY change
Source: Bank of Mongolia

11. 11
Inflation dynamic
Source: Bank of Mongolia
Demand pull inflation: Monetary policy instruments
Cost push inflation: Price stabilization program with the Government

12. 12
Inflation target & projection
0
5
10
15
20
0
5
10
15
20
2011 I 2011 II 2011 III 2011 IV 2012 I 2012 II 2012 III 2012 IV 2013 I 2013 II 2013 III 2013 IV
%%
Source: Bank of Mongolia
Inflation target:
(end-2013): 8%
(2014-2015): 6%

13. 13
Banking sector: Assets and outstanding loans
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
2,000
4,000
6,000
8,000
10,000
12,000
2005-03
2005-11
2006-07
2007-03
2007-11
2008-07
2009-03
2009-11
2010-07
2011-03
2011-11
2012-07
Total Assets
YoY change
Since the crisis:
+260%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2006-01
2006-07
2007-01
2007-07
2008-01
2008-07
2009-01
2009-07
2010-01
2010-07
2011-01
2011-07
2012-01
2012-07
Billiontogrog
Loans outstanding
NPL to loan ratio
Source: Bank of Mongolia

14. 14
Mortgage market
Developed countries
45%
40%
38%
36%
13%
10%
6%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Герман
Япон
Хонгконг
Сингапур
Солонгос
БНХАУ
Монгол
Mortgage / GDP
2011
Japan
HongKong
Singapore
Korea
China
Mongolia
Source: European Mortgage Federation, www.economywatch.com
IMF, Financial Stability Board
Germany

15. 15
Coordinated macro policy Strong middle class!
• Fiscal policy Countercyclical
– Adhere to Fiscal Stability Law
– Fiscal anchors and Stabilization fund
– Public investments to abolish supply constraints and increase absorption
capacity
– Targeted social welfare program
– Reform of social insurance fund
• Monetary policy
– Low and stable inflation Macro stability and sustainable long-term growth
– Financial stability Macro and micro prudential measures
– Flexible exchange rate
– Financial infrastructure and institutional development
– Special programs with the Government to stabilize supply driven inflation

16. 16
Financial infrastructure and institutional development
• Reform on deposit insurance scheme frameworks
– Replacing blanket deposit guarantee (reducing risk to government)
– Enhancing discipline and responsibility of banking sector
• Reform on social security system
– Separating social security fund from budget
– Investing domestic capital market (development projects, mortgage market)
• Developing mortgage market
– MBS domestic offering
– MBS access to foreign investors
• Developing Government bond market
– New procedure introduced
– Secondary market development (benchmark yield curve)

17. 17
Government bond market development
• New procedure introduced on 24 October 2012
– Providing primary and secondary market development
– Strengthening fiscal and monetary policies’ coordination
– Using T-bills as a monetary policy tool
• Some important dedication on the New procedure
– MOF to issue Government securities at regular basis
– BOM to conduct treasury auction
– Commercial banks acting as primary dealers
Bond issued by Sep 2012: MNT 609.6 billion
Bond to issue by Dec 2012: MNT 270 billion

18. 18
Importance of Government Bond Market Development
Fiscal Policy
Monetary Policy
Market development
Investment Opportunity
• Financing the budget deficit
• Financing the public investments
• Using T-bills as a monetary policy tool
• Coordinating fiscal & monetary policy
• MNT benchmark yield curve
• Development of financial instruments
• Liquid asset
• Low risk investment
• Tax exemption on interest earnings
Ministry of Finance
Bank of Mongolia
Commercial banks
Institutional & Private
Investors
• Issuing government securities
• Conducting treasury auction
• Acting as primary dealers
Primarymarket
Secondarymarket

19. Bank of Mongolia (Central Bank)
Baga toiruu-3, 15160 Ulaanbaatar 46, Mongolia
Tel: +976-11-322169
Fax: +976-11-311471
http://www.mongolbank.mn
Thank you for your
kind attention
Perfect timing and right place to invest
in and cooperate with Mongolia