Ulaanbaatar, May 19, 2023 /MONTSAME/. Domestic systemically important banks (DSIBs) of Mongolia commenced their initial public offering (IPO) successively, leading to their transformation into public companies. The Trade and Development Bank (TDB), the first bank of Mongolia, has announced its IPO, having attained authorization from the Bank of Mongolia, the Stock Exchange of Mongolia, and the Financial Regulatory Commission. O. Orkhon, the TDB Executive Director was interviewed pertaining to this matter.

-Greetings. Firstly, I would like to congratulate to your esteemed colleagues who are on the verge of launching the bank’s IPO, transforming into a publicly traded company subsequent to obtaining official approval. It has become a prevailing practice internationally for businesses to function as public company. In this context, I am interested to inquire whether the transition of prominent domestic commercial banks into publicly traded entities signifies a notable advancement towards aligning Mongolian banks and financial institutions with internationally recognized standards?

 -Indeed, DSIBs are actively engaging in the issuance of shares, thereby undertaking the transformative process of assuming the status of public companies, which launches a new era in the banking and financial market. Moreover, it represents a crucial stride in the advancement of the stock market. TDB holds a venerable position in banking system of Mongolia, boasting a distinguished history and extensive expertise. Upon ref­lection, it is evident that our bank has made substantial contributions and played a pivotal role in propelling the growth of Mongolia's economy, nurturing its private sector, and fostering a conducive business environment. Looking ahead, we will achieve DEVELOPMENT TOGETHER.

One of the noticeable attestations of it is that our bank has secured the distinction of being the foremost international bank and the largest institutional bank in Mongolia's banking sector. To illustrate, I would like to cite a specific example – in the year of 2022, our bank solely accounted for a considerable 43% of all corporate loans extended in the banking sector. We have fostered strategic partnerships with leading largest enterprises across various sectors since their inception. Notably, 94 out of the TOP 100 enterprises affiliated with the Mongolian National Chamber of Commerce and Industry (MNCCI) have chosen our bank as their financial partner. The realization that such a substantial institution operates as a public company confers numerous advantages and opportunities.

 -The entities holding the most significant stakes in Mongolia's economy are the TOP100 enterprises as identified by MNCCI. It is noteworthy that over 90 percent of these organizations are clients of TDB. Does this substantial level of concentration, from a statistical standpoint, evoke a sense of gravity or significance?

                -It is important to clarify that our bank's support is not limited exclusively to large enterprises or organizations. Rather, we are committed to fostering the growth and development of small and medium-sized businesses. In the year of 2022, a total of 494 clients classified as small and medium sized enterprises became valued customers of the organization segment. Through this partnership, these enterprises will have the opportunity to expand their operations and capabilities. It is a common understanding that today's small and medium-sized businesses have the potential to become large organization of tomorrow, and their rise will have a significant impact on the economic prospects of Mongolia.

Our institution is committed to facilitating the growth and development of businesses, while also serving as a financial conduit to international markets. By providing support and resources for the expansion of businesses, we are working towards the shared goal of achieving DEVELOPMENT TOGETHER. Our dedication to this mission has earned us recognition from both our valued customers and esteemed international partner organizations, distinguishing us as the premier institutional bank in Mongolia, as well as the foremost international bank in the country. This recognition is a testament to the tangible results of our endeavors, and represents a significant competitive edge for TDB.

 -In the context of a comparatively modest stock market such as ours, is there a possibility that the issuance of shares by major banks may lead to a depletion of the already limited capital in the stock market, thereby causing risks in raising capital from public during the IPO process?

 -As you rightly mentioned, the topic of banks transitioning into joint-stock companies has been under discussion for several years, and it has been over two years since the amendment of the Banking Law. Since the approval of these amendments, both domestic and foreign customers and investors have expressed keen interest in investing in our bank. Notably, investors from South Korea have expressed their intent to explore opportunities within our shares. Therefore, I am confident that the fundraising aspect of the IPO will not be a cause for concern.

 Furthermore, it is crucial to highlight that TDB has a commendable track record of successfully issuing bonds in the international market and possesses substantial experience in operating within the international capital market. Building upon this foundation, our intention is to conduct the IPO in accordance with recognized international norms and standards.

 -I comprehend that there exists a notable interest from both foreign and domestic investors, many of whom possess extensive international experience, regarding the forthco­ming IPO of TDB. Given that we have touched upon the subject of bonds, I suggest we delve further into this matter.

 -As you are undoubtedly aware, TDB holds the distinction of being the pioneer and sole commercial bank to have conducted bond issuances in the international market. To date, we have successfully issued five bonds, raising medium and long-term funding with total amount of USD 1.14 billion, which was utilized to support the business activities of our valued clientele. Notably, we have diligently honored our financial obligations, including the complete repayment of the most recent USD 500 million bond in 2020. By leveraging both internal and external funding sources, we are committed to providing essential financing to the prominent enterprises that constitute a driving force within Mongolia's economy. Through fulfilling this crucial responsibility, we continue to play an instrumental role in fueling economic growth and development.

-Can we conclude that TDB's accomplishments have significantly enhanced Mongolia's standing in the global capital and banking financial markets? Furthermore, you mentioned that your bank is regarded as the best international bank by your esteemed customers. Could you elaborate on this?

-Undoubtedly, our intention is to foster extensive relations and collaboration with international organizations operating within Mongolia.

 Our primary objective is to provide unwavering support to businesses. Noteworthy examples of this commitment include our partnerships with prestigious entities such as the American and Australian Chambers of Commerce and Industry. Strengthening these high-level mutual relationships serves to enhance the business environment between the respective countries, ultimately benefiting both the business community and Mongolia's overall economy.

 In addition, we engage in cooperation with over 300 inter­ nationally acclaimed banking and financial institutions. Our collaborations encompass various areas, including foreign settlement, trade finance, and numerous other domains. Remarkably, by the conclusion of 2022, our bank alone accounted for 32 percent of Mongolia's foreign payments and 27 percent of trade financing, underscoring the substantial impact of our operations within the international landscape.

-In light of the comprehensive overview of TDB's past and current achievements, should we also address any challenges encountered by the bank? Media reports have highlighted the significant level of non-performing loans at TDB. Could you shed light on the reasons behind this occurrence and the measures being implemented to address it?

-Undoubtedly, the past few years have witnessed weak economic activity and growth, attributable to various factors such as the global impact of the Covid-19 pandemic, logistical challenges in transportation, and ongoing conflicts. The resultant disruptions have adversely affected Mongolia's economy and businesses, leading to a decreased demand for business loans and difficulties in loan repayment. Naturally, these circumstances have impacted a bank of our stature, responsible for 43 percent of corporate loans. However, we have intensified our focus on ensuring loan repayment quality and have taken appropriate measures to address the situation.

 The banking sector holds a distinctive position as it serves as a reflection of a country's macroeconomic conditions. The global economy is currently fraught with uncertainty, characterized by factors such as conflicts and inf­lation stemming from the repercussions of the Covid-19 pandemic. Banks in the United States and Europe are beginning to face challenges as a result. Nonetheless, the economic recovery and expansion of China present a notable advantage for Mongolia and, in turn, TDB. China has not only relaxed its "Zero Covid" policy but also plans to make substantial investments in infrastructure to drive economic growth. This development is expected to significantly boost mining and commodity exports, thereby positively impacting commodity prices. We perceive this as a significant growth opportunity for our bank, which actively supports major projects, programs, and industries in Mongolia.

 -To make investment decisions, investors often consider the future growth prospects of a company. Could you elaborate on the projected future growth for TDB?

-Currently, the prices of key raw materials, which constitute a significant portion of our country's GDP and export earnings, are at highly favorable levels. For instance, the price of coking coal has reached USD 160-170 per ton this year, with Erdenes Tawan Tolgoi Company reporting record production and export levels at the end of last year and the first quarter of this year. Additionally, the price of copper has surged beyond USD 8,000 per ton, while the price of gold stands at USD 2,000 per ounce. These circumstances indicate favorable conditions for a potential commodity super cycle, providing an opportune environment for high economic growth in our country.

During periods of robust economic growth, the income of companies and individuals tends to rise, leading to an increase in bank resources. This, in turn, fuels a higher demand for investment and credit financing, including business credit. Consequently, the quality of loans and repayment improves, significantly impacting the profitability of our institution-based bank. A noteworthy example is the period of 20102014 when Mongolia experienced rapid economic growth. During this time, TDB witnessed the highest growth in the sector across indicators such as assets, equity, and net profit. In essence, the growth of a bank is intricately linked to various macro factors, both on a global scale and within Mongolia.

-Is it possible for investing in bank stocks to completely mitigate risks, given the fact that all major banks are included in the TOP-100 list of Mongolian companies based on their commendable financial efficiency?

 -Investors should be aware that investing involves certain risks. Perhaps if you have deposited your money in a large bank with a good financial record, the returns you will receive are clear.

 However, the shares listed on the stock exchange are freely traded on that exchange market, and anyone can buy and sell them.

 The price of a stock at any given time depends on many factors. It is impossible to predict with certainty what the price will be. In addition to the knowledge, experience and skills of the investors, emotional factors can also move the market in the short term. Therefore, there is always risk for investors.

 -If I recall correctly, the idea that investing in commercial bank stocks is a risk-free endeavor has persisted for a considerable period. What are your thoughts on this?

 -As you may recall, there was an instance last year when oil prices plummeted to negative, which appeared illogical since buyers were being paid to accept the oil. However, this was a result of various factors that influenced the commodity market. Although this is a mere example, commodities can be freely bought, sold, and traded, similar to the stock market. As a result, individuals who partake in this market are reminded to collaborate with professional organizations and teams, as well as undertake risks that align with their risk tolerance levels.

Conversely, while there are risks associated with investing in the stock market, there are also potential rewards. Investors who purchase shares may receive returns in two ways: firstly, through the appreciation of the stock price and secondly, through the payment of dividends. Therefore, it is critical to conduct thorough research on companies with real assets, legitimate business models, and strong returns on investment. Selecting such investments can result in substantial returns in the long run.

 -What opportunities and advantages does TDB offer to investors?

 -TDB is dedicated to preserving its traditional advantages while concurrently pursuing a strategy to expand its presence in the retail banking market and the small and medium-sized banking market. With this approach, we possess the potential to achieve long-term growth and generate favorable returns for investors. To realize these mid-term strategic goals, we have identified and implemented several initiatives. Since 2020, our focus has been on becoming a

• customer-centric bank,   
•  a platform bank,   
• an international bank.

 We are diligently executing various tasks in a step-by-step manner to progress towards these objectives. As a testament to our efforts, we have witnessed tangible outcomes. For instance, the introduction of the Britto card has led to a notable increase in our market share of Visa cards, rising from 14 percent to 25 percent in 2022. Moreover, through the “Mongolia with Savings” campaign, more than 43,000 individuals have opened new savings accounts in 2022, marking a five-fold increase compared to previous years.

Furthermore, we have developed and implemented a new business strategy, structure, and model. Substantial investments have been allocated to enhance our e-migration capabilities and technology infrastructure. By integrating world-leading systems that streamline internal processes, reduce costs, and leverage artificial intelligence for informed decision-making, we aim to further elevate our operational efficiency and deliver superior customer experiences.

 -What will the funds raised through the IPO be utilized for?

-One of our bank's key medium-term strategic objectives is to establish ourselves as a Green Bank. The funds obtained through the IPO will serve as a valuable source of green and sustainable financing. We will focus on supporting both large enterprises and small and medium-sized businesses, with particular emphasis on empowering women entrepreneurs. These funds will be directed towards financing energy-efficient products and services, promoting low-carbon transportation, facilitating the development of green buildings, and enabling the construction of affordable housing for citizens.

TDB has been a pioneer in introducing the concept of sustainable financing within Mongolia's financial system since 2012. We established the Mongolian Sustainable Financing Association and have made significant progress in this domain, setting industry standards. Additionally, we have obtained accreditation as an organization of the Green Climate Fund, an initiative under the United Nations. This accreditation provides us with opportunities to implement various projects and programs. In collaboration with the government and private sector clients, we are currently developing proposals for projects and programs financed by the fund. These initiatives encompass large-scale national projects focused on energy conservation, renewable energy, food security, agriculture, and regional green development. The funds raised from the IPO will serve as substantial support for the expansion and intensification of these activities, allowing us to make a significant contribution to sustainable development in Mongolia.

 -That sounds highly promising, particularly considering the global shift towards sustainability. With that in mind, I would like to leave the final question open for you.

 -As TDB transforms into a joint-stock company, we anticipate enhanced governance and control mechanisms. Simultaneously, our equity will increase, enabling us to expand our operations further. As a result, we will continue to DEVELOP TOGETHER with each of our valued customers, fostering mutual development.

 -Thank you for dedicating your time to this conversation. We have engaged in a fruitful discussion encompassing topics such as the Mongolian and global economy, banking, and capital markets. I extend my best wishes for the successful endeavors in making TDB a publicly traded institution.