tsahim net

Transcription

tsahim net

Our goals:
To render the best service
To build good relationships
To provide a risk-free environment
To be the most efficient
2,634,328
Customers
1500
Banking outlets
with card
service
INTERNET
BANKING
540
Branches
200
LOAN
3,800
ATMs
Employees
SAVINGS
STATE BANK
2013
ANNUAL REPORT
www.statebank.mn
CONTENTS
MANAGERIAL REPORT
About the Bank
Greetings from the Board of Directors
Greetings from the Chief Executive Officer
The Bank’s Organizational Chart
About our Managing Directors
OPERATIONAL REPORT
Financial Results,
Retail Banking
Corporate Banking
Business Development Products, Services /special offers/
Treasury
Lending Activities
Risk Management
Card-related Activities
Information Technology
Branch Activities
Human Resource Management
Foreign Relations
Social Responsibility
AUDIT REPORT
Statements by the Directors and Executives
Independent Auditor’s Report
Statement of Financial Position
Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flow Notes to the Financial Statements
OUR
GOALS
To render the
best service
To build good
relationships
To provide
a risk free
environment
To be the most
efficient
We offer sophisticated banking services, including
Internet-based banking services that consistently
meet the requirements of our customers. Other
ways we have addressed the need to improve
customer services recently include,
• The introduction of “welcoming service” activities
meant to frame and focuses the importance we
put on
customer service.
• The simplification of application and approval
processes in order to make our financial
products more competitive.
• The increased importance attached to customer
convenience all aspects of our business.
We are endeavoring to use feedback loops to
improve relations with consumers. By doing so, we
are able to provide information to our customers,
to listen to their comments and ideas, and, in turn,
to receive important information from them on how
to improve our service.
We are continually working to protect the Bank
from risks, especially risks that may be emerging
from changes to the business environment:
• With the input of our 3800 assiduous employees,
we have introduced a three-level risk-prevention
plan that evolves monthly. Each month we
identify the top-five risks that threaten the Bank
or its business.
• We continue to create a work environment that is conducive system where every employee.
We also continue to eliminate waste in the Bank’s
operations and to increase the effectiveness of its
activities, even as we encourage the cross-selling
of the Bank’s product and maintain focus on its
stability.
3 ANNUAL REPORT 2013
Overview
State Bank was established as a completely
state-owned bank in order to ensure Mongolia’s
banking and financial stability, and to protect
the rights and render risk-free services to its
customers. Since its establishment in 2009, the
Bank has been operating to win public credence
while ensuring the financial needs of the country’s
citizens and corporate entities. It takes pride in
its professional staff and advanced technology
and in the swift and reliable service it provides
its customers. In five years it already has made
significant contributions to the development of
Mongolia’s banking system and economy.
In accordance with State Bank Decree #41,
approved by the Board of Directors on August
16, 2013, the Bank’s Organizational Chart
was revised. In total, 16 departments with 33
corresponding subordinate units support 540
branches, about 200 ATMs and 1500 merchants
that offer the Bank’s services. The Bank has a
presence in almost all soums and settlement
areas of the country.
Over 540
branches
As of today, State Bank has MNT 1.8 trillion in
assets. It is maintaining constancy in its adherence
to prudential ratios set by the Bank of Mongolia,
such as capital adequacy ratio, liquidity ratio,
etc., Taking SME and retail banking services as
its targeted markets, it is endeavoring to build a
banking system that reaches every corner of the
country The Bank’s esteemed customers enjoy
all types of modern, efficient Internet-based
banking services. These include banking services
via smart phones and pervasive access to ATMs.
State Bank is trying to differentiate itself in
the banking and financial sector of Mongolia. It
is doing so by showing respect to its customers,
building good relationships in the communities
that it serves and by rendering the most advanced
banking services to the country’s citizens. It aims
to provide the best service, to build welcoming
relationships, to create minimum risk conditions
and to be efficient.
Over 200
ATMs
1500
merchants
with card
service
Our mission
To deliver complex financial services professionally
throughout the country, relying on our skills and mastery of
advanced technologies to build State Bank into the bank that
offers the most risk-free and reliable services and enjoys the
best relationships while making superior contributions to the
development of Mongolia.
Our values
To be professional and skillful
To be transparent and open
To be responsible
To inspire confidence
Greetings from the
BOARD OF DIRECTORS
Sincerely yours,
J.Ganbat, Director of the
BOARD OF DIRECTORS
I am delighted to extend my greetings to all of our customers, deposit holders, business partners,
employees and shareholders on behalf of the Board of Directors of State Bank. It is my responsibility and
honor to present the Bank’s Annual Report for 2013 and to wish you all good fortune and great progress in
your work in 2014.
In the previous year, the Bank earned a net profit of MNT7.0 billion. New and Improved products and
services to better meet the needs of our respected customers coupled with attention to cost-effectiveness and
risk-reduction are the reasons for this success. Needless to say, such a result could not have been achieved
without the mutual cooperation of stakeholders, customers and all trusted employees. Thank you for your
support.
State Bank will work to maintain the stability of the banking sector and of financial markets. It will
pursue policies that advance the goals of protecting the rights of customers and deposit holders. It also will
implement policies and pursue goals stipulated by the Government of Mongolia.
We hope the future will be filled
with success and prolific results.
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www.statebank.mn
THE BOARD OF DIRECTORS
1
2
3
4
5
6
7
1. Sainbileg Chuluunbat,
8
2. Tumurbaatar Jadamba,
Member of the Board of
Directors, Deputy Chairman of
Cabinet Secretariat
4. Altangerel Oyunsaikhan,
Directors, Director of Policy
Implementation Regulation,
Ministry of Justice
3. Nyamaa Buyantogtoh,
Directors, Deputy Chairman of
State Property Committee
Member of the Board of Directors,
Director of Financial Policy and Debt
Management Department, Ministry
of Finance
6. Boldbaatar Danzannorov,
5. Battsetseg Batsuuri,
Member of the Board of Directors,
Director of Fiscal Monitoring and
Risk Management Department,
Ministry of Finance
7. Batjargal Mishig,
Independent Member of the
Board of Directors
Director of Economic cooperation,
loan and assistance policy depratment
at Ministry of Economic Development
8. Ganzorig Ayush,
Independent Member of the
Board of Directors, Lecturer
at National University of
Mongolia, PhD
GREETINGS FROM
THE CHIEF EXECUTIVE OFFICER
Chief Executive Officer,
D.BATSAIKHAN
Warm greetings to all our esteemed customers!
I am delighted to extend greetings again to our honored customers in every corner of the country.
In 2013, State Bank effectively organized and implemented plans that both faced up to and quickly
addressed its shortcomings, and seized on and dramatically pursued its advantages.
Thanks to the strong support and cooperation we enjoy from you, our customers, the operational
benchmarks of our bank present a financial institution that is in good condition.
In 2013, we had MNT7.0 billion of profit. The ratio of NPLs to total loan portfolio was 0.9%, which was
much lower than the average level in the whole banking system. Also the liquidity ratio was 44% a figure
that over-performed by 70% the benchmark level set by the Bank of Mongolia. These indicators reflect the
Bank’s quality.
State Bank has given itself four goals: to render best service, to build good relationships, to provide a
minimum risk environment, and to be efficient. To improve our service and build better relationships, we have
introduced our “Welcoming and Farewell Service.” We also have introduced a set of new products and services
based on advanced technology – such as TV banking, Smart banking, Most Money, Tsahim togrog and onlinedeposit secured loans – to service our customers in the fastest and most efficient ways. Now our customers
now can obtain their financial services in 24 hours regardless of where they are. .
We know that our customers are concerned not only about how high a bank’s interest rate yield is, but
also about a bank’s credibility and security. Our goal is to be a risk-free bank. In keeping with this goal, we
pre-identify our top five risks monthly. Based on such forward-looking risk determinations, we take preventive
measures to insure that the Bank is fully protected.
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www.statebank.mn
With a view to building good relationships, we carefully listen to our customers. Based on their ideas and
comments, we improve our services and products, distribute information to customers, and create consumerfeedback working condition with our customers. In order to be the most efficient, we endeavor to streamline
processes and eliminate waste, but without sacrificing well-rationalized expenditures that ensure the bank’s
stability and effectiveness.
We place particular emphasis on protecting the rights of our honored customers who bestow their credence
on us. We accrue value to their monetary assets in the most reliable manner and with realistic savings interest
rates that are acceptable in the market. Moreover, with a view to rendering our services as swiftly as possible,
we have made changes to our loan policy that cut the number of required documents for a loan application
to half or less and thus shorten the loan approval process even more.
State Bank not only focuses on improving its commercial operations; it but also focuses on being
increasingly socially responsible In this context, we have initiated a set of measures that target protecting the
environment, and supporting the vulnerable in society, the elderly and children. You can read more about our
social responsibility activities elsewhere in this report.
During this reporting period, we succeeded in making progress towards our goals of rendering savings,
issuing loans and settling payment in the most flexible and the swiftest way, goals that our customers asked
us to take on and that are realistic given their financial possibilities. In addition to that, we have introduced
online deposit-secured loans for the first time in Mongolia. Customers are able to receive needed loans online
in five minutes and without the need to go to a bank. We were also pleased to introduce TV banking service
for the first time in Mongolia. This service fits within the realm of our 24-hour-banking services via mobile
and other Internet-connected devices that permit our customers to get mobile, Internet banking and Most
Money services.
We acknowledge that our success is the result of mutual cooperation with all our customers. Thus we
express our sincere gratitude to all of you who had faith in us, also to the Bank of Mongolia, State Property
Committee, Ministry of Finance, Deposit Insurance Corporation and members of the Board of Directors for
their close partnership and constant support.
We believe that success produces the next success, and are sure that 2014 will bring another year of
progress and rewards.
Thank you for lending your efforts to our success.
We wish the best to our honored customers, business partners, and investors.
We wish you success in your future endeavors!
1500
2,634,328
Customers
540
Branches
3800
200
ATMs
Employees
100%
we can reach out to every corner
of our vast country
online
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www.statebank.mn
The bank’s
Organization Chart
Committee in Charge
of Audit Issues
Committee in Charge
of Human Resource
Promotion Issues
Committee in Charge
of Risk Management
Issues
Management Committee
Shareholders’
meeting
Risk Management
Committee
Board of
Directors:
Business Development
and Strategic Committee
Human Resource
Committee
Operational Audit Unit
Information Technology,
Audit Planning Unit
Asset and Liability
Committee
Internal Audit
Department
Credit Committee
Chief
Executive
Officer
Committee
First Deputy CEO
Deputy CEO
Monitoring and
Surveillance
Department
Chief
Business
Officer
Chief Product
Development
Officer
Corporate
Banking
Department
Business
Development
Department
Ulaanbaatar
Branch
Management
Department
Credit Policy
and Regulation
Department
Local Branch
Management
Department
Internet Banking
Department
Information
Technology
Department
Risk
Management
Department
Legal
Department
Chief Financial
Officer
Chief Operations
Officer
Accounting
Department
Procurement
and Security
Department
Treasury
Department
Human Resource
Department
Financial
Department
MANAGERIAL TEAM
B.Ganbold,
First Deputy CEO
M.Erdenechimeg,
Director of Local
Branch Management
Department
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D.Erdenechimeg,
Director of
Information
Technology
Department
www.statebank.mn
L.Chinbat,
Director of
Treasury
Department
T.Dorjderem,
Deputy CEO
N.Anun,
Director of
Internal Audit
Department
O.Baasansuren,
Director of
Procurement and
Security Department
Kh.Gerelchuluun,
Director of Legal
Department
A.Ganbaatar,
Director of Business
Development
Department
T.Ichinkhorloo,
Director of Human
Resource Department
L.Idertsogt,
Chief Operations Officer
B.Amarjargal,
Director of
Accounting
Department
Sh.Altanchimeg,
Director of
Ulaanbaatar Branch
Management
Department
J.Bolormaa,
Chief Product Development Officer
S.Tserendash,
Director of
Corporate
Banking Director
G.Khash-Erdene,
Director of Financial
Department
B.Naranbat,
Chief Financial Officer
T.Enkhbayar,
Director of Risk
Management
Department
N.Amgalan,
Chief Business Officer
B.Bayarchimeg,
Director of
Monitoring and
Surveillance
Department
A.Mandakhnaran,
Director of Internet
Banking Department
Ts.Ganzorig,
Director of
Credit Policy
and Regulation
Department
FINANCIAL RESULTS, SPECIFIC BENCHMARKS
in bn MNT
Total
asset
2,000.00
1,800.00
1,600.00
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00
1,752.2
138.0
2009
180.0
2010
230.0
313.8
2011
2012
2013
in bn MNT
1000.00
941,9
900.00
700.00
Total
loan
500.00
300.00
184.3
102,1
100.00
51.2
62.7
2009
2010
2011
2012
2013
in bn MNT
1200.00
1,009.4
1000.00
Total current
account and
savings
800.00
600.00
400.00
200.00
87.0
2009
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www.statebank.mn
129.4
2010
160.4
2011
189.1
2012
2013
in bn MNT
132.2
140.00
120.00
120.00
Equity
100.00
80.00
60.00
40.00
20.00
27.4
2009
28.4
30.1
28.3
2010
2011
2012
2013
in bn MNT
8.00
7.0
7.00
6.00
Net
profit
5.00
4.00
3.00
2.6
2.00
1.00
-0.6
2009
1.2
1.4
2010
2011
2012
2013
Retail Banking Business,
Retail Oriented Activities
State Bank is dedicated to providing its customers the best service in a prompt manner with the
lowest risk. We strive to maintain a policy that ensures the operation of every unit with the highest
efficiency outcome at minimum risk by foreseeing future contingent risks. We provide retail banking
service through our more than 3800 employees’ assiduous work at 540 branches and settlement units
located within reach of every Mongolian in every corner of Mongolia.
Our 3.2 million account holders enhanced their MNT1.0 trillion of monetary assets by placing them at
State Bank with a competitive interest rate and at minimum risk. The Bank in turn issued MNT1.0 trillion
in loans to 595.5 thousand borrowers during the 2013 fiscal year. At the end of 2013, the outstanding
loan balance was MNT925.5 billion owed by 205.1 thousand borrowers – which means that the loan
quality for this year was 99.5%.
Through our banking services, we deliver 60% of social welfare services from Social Welfare Fund
of the Government of Mongolia and over 50% of all pensions and benefits for the elderly from Social
Insurance General Office. Over 60% of the salaries and wages of the Government’s affiliated offices,
agents and entities also are distributed to their employees without any delays.
We have successfully participated in sustainable economic and social development support programs
implemented by the Government of Mongolia. We have issued a MNT169.5 billion loan to support the
8% mortgage loans, a MNT33.9 billion loan to support SMEs and agricultural programs, a MNT5.5
billion loan to support the price stabilization program, a MNT3.4 billion loan to support the safety of
the coal reserves and energy tariffs stabilization program, and a MNT1.5 billion loan to support the
construction sector support program. In addition to the above, we have successfully distributed the
Government-initiated promotion (in the form of a bonus) to herders who supplied domestically their
leather and hides to local manufacturers. These disbursements were made through our branch and
settlement units in accordance with the National Producers Support Program from the Government of
Mongolia. We have been able to provide 20% of Mongolia’s total population with our electronic banking
services. We have made 4.2 thousand transactions with the amount of MNT289.1 billion via over 200
ATMs and have made 294.1 thousand transactions of MNT8.9 billion via more than 1500 POS machines.
Our billing service also has become extremely effective over time, saving our customers time and
money. We have implemented joint billing services with Ulaanbaatar Energy Distribution Network Co.,
and organizations affiliated with the Housing, Utility and Maintenance Offices in order to centralize
billing for utilities and housing fees.
In addition, in 2013 we started to provide 113,000 students with a discounted Smart Visa Card in
cooperation with the Mongolian Students Union. Students are able to receive all normal banking services
via this card as well as to use public transportation for free, to receive the monthly MNT 70,000 student
allowance from the Government of Mongolia and to get discounts on all kinds of entertainment
activities.
CORPORATE BANKING
BUSINESS
The Corporate Banking Department delivers comprehensive, fast, risk-free and reliable banking
services to local and foreign business entities, and to international organizations in both the public
and private sectors through its Corporate Relations Division, Corporate Loan Division and Business
Center of Corporate Banking. The Bank’s Corporate Banking Department achieved its planned results.
Importantly, the number of customer-corporates using its services soared by 50% and deposit base by
137% respectively.
The Bank’s Corporate Banking Department aims to provide the best corporate banking services of
all commercial banks, Through the Bank’s professional teams, branches and settlement units located in
every corner of Mongolia, we are able to offer best financial solutions to our customer-corporates, such
as opening current and deposit accounts, processing foreign and domestic payments and settlements,
and exchanging foreign currencies. Furthermore by issuing loans with flexible terms, providing trade
financing and bank guarantees, we satisfy and respond to all of our customers’ financial needs and
demands. In order to fulfill financing need of our customer-corporates, we strive to support them with
low-cost financing by helping them to avail projects and programs funded by local and international
organizations. In addition, when necessary, we collaborate with the Credit Guarantee Fund, a non-profit
legal entity, to obtain credit guarantees for customers with deficient collateral.
By understanding and working with our esteemed customers we become their close financial adviser.
Under the purpose of fulfilling financial needs of corporates, we specifically deliver the full range of
banking services required by our customer-corporates’ employees. Moreover, through our Business
Center, the Corporate Banking Department provides fast VIP financial services to small and medium
business entities and individuals. To better resolve customers’ real financial needs, the Corporate Banking
Department takes special care to introduce the Bank’s new products and services for corporates and
entities, and works closely with relevant divisions and departments of the Bank.
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BANKING PRODUCTS AND SERVICES
Current Account
State Bank’s current account service can process any payment and settlement, swiftly and reliably using
comprehensive electronic banking facilities based on advanced technologies that link our 540 branches
throughout the country. In 2013, the total outstanding amount on current account was MNT 349 billion, an
amount that represents a three-fold increase compared with the previous year.
Savings
Our bank also offers our customers savings products at competitive interest rates with the most flexible
and risk-free conditions. In 2013, the total amount of savings reached MNT660 billion, which is almost eight
times higher than that of the previous year. The Bank offers customers the opportunity to safely and reliably
place moneys beyond their daily needs in accounts that yield high returns.
Credit
We offer loan products for individuals and entities based on our customers’ needs and financial ability,
with the most flexible condition and in the swiftest way. The total loan portfolio of our bank reached to
MNT941 billion in 2013, an amount five times higher year-on-year than 2012. In order to save our customers’
time, we have introduced an online deposit-secured loan service that enables a customer to get a loan in five
minutes online.
Card Services
The following services are available to our esteemed customers with reasonable fees and interest rates via
State Bank’s payment card:
Interest accrues on the card balance;
Card can be serviced by about 200 ATMs at any time;
Card can serviced by contracted merchants;
Purchases can be made from foreign and domestic websites or e-commerce outlets;
Consumer payments can be made via e-billings and ATMs;
Cashback services, purchases and withdrawals can be transacted with participating merchants;
Customer can get sub or additional cards.
In 2013, the number of total card holders went up by 30%, of ATMs and POS outlets by 31%, of
merchants with card service by 64%, of E-commerce transactions by 55%, and of registered customers in
E-billing service by 26%..
Money Transfers
We process our customers’ payment and settlement using interbank or domestic and international money
transfers in the swiftest way, and also process international payment and transfers in the most reliable and
the quickest way with the help of internationally recognized correspondent banks using our SWIFT network.
In addition, we offer the cheapest service of international money transfer service by using Faster and Western
Union, which put worldwide networks at the disposal of our customers.
Electronic Banking Services
In 2013, State Bank focused on providing a stable and reliable electronic banking environment that satisfied
its customers. This involved creating new products and services as well as reducing the product and service risk
of Electronic Products and Card operation in 2013.
We launched a variety of electronic banking products and services into the market with the goal of
promoting fast banking and one-point service – such as, Internet Banking, Smart Banking, TV Banking,
Mobile Banking /GYALS/, Message Banking, Message news, Auto Billing, E-Billing, ATM-Billing, E-commerce,
Electronic Money, Most Money, Online loan as well as creating Online account etc.
In 2013, the number of customers, who registered for Internet banking reached 840,000, Mobile Banking
customers’ number increased by 47%, Internet and Smart Banking customers’ number by 27% and Message
Banking customers by 11%. Message News customers soared by 48%.
For holders of our current account card, we are:
• Bringing international standards to card products and services by cooperating with card issuing
companies and observing how we can expand our market.
• Delivering our cards in the shortest time possible to customers by paying special attention to the
uninterrupted card printing and distribution process;
• Organizing all kinds of operations to deliver our card products and services to customers without delay,
with minimal risk and in a manner comprehensible to them;
• Responding within 24 hours of receiving a request for customer support and otherwise doing our best
to maintain the continuity of banking cards.
We have expanded card services, introducing new products and new opportunities to our customers:
• We expanded our operations and broadened our approach to our customer base by installing POS
machines on the premises of 1500 merchants who serve our card while also cooperating with around
50 merchants who serve our card online.
• In order to support E-Billing payment operations, we introduced new products to the market such
as Electronic Money and ATM Billing. We also have co-branded a card for social insurance services
with Social Insurance General Office and a student smart card in cooperation with the Mongolian
Student Union. We also joined 35 new merchants who service our card online and accepts CUP, JCB
international payment cards.
• We became a member of UnionPay internatonal (UPI), which is world’s number one in the number of
card holders, worlds’ number two in terms of processing card transactions, and is a global brand as
a payment card organization. In the second quarter of 2014 we are planning to introduce UnionPay
cards in the market so that our customers can use their card for payment and settlement in over 140
countries around the world. I this context, we are working hard to provide customers the opportunity
to receive discounts at reputable international sales and service organizations. We also have started to
introduce Card Fraud Protection Software in order to minimize our cards’ operational risk.
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NEW PRODUCTS AND SERVICES
In 2013, we introduced a variety of new products and services based on advanced technology and mutual
cooperation to the financial market for the first time.
Insurance Intermediary Service
Having obtained a special permission to provide insurance intermediary services from Mongolia’s Financial
Regulatory Committee, State Bank is now able to offer the following products to our esteemed customers:
Vehicle insurance;
Mandatory liability insurance of driver;
Property insurance;
Mortgage insurance;
Child accident insurance.
Introduction of insurance intermediary services enables a customer to get access to both banking and
insurance services from one place, such as the Bank’s One Point Service station.
Online Deposit -secured Loans
In order to suit our customers’ immediate needs, we introduced a very innovative new financial service
in 2013 – Online deposit-secured loans. Customers now can access their Internet banking system and get an
online deposit-secured loan from anywhere in the world within a few seconds. One of the advantages and
new opportunities we offer to our deposit holders is the possibility of getting necessary financing services,
such as online loan service, regardless of time zone or its distance from home base
Advantage:
Without terminating a term savings account, a customer is able to connect to the Bank through the
Internet 24 hours a day and ensure that his or her financial needs are met in an instant.
Tsahim Togrog service
State Bank has introduced another new service that enables a customer to make a withdrawal transaction
from an ATM without using any card. A customer is able to transfer money using his or her phone number
from Internet Banking, Smart Banking, Mobile Banking, and Message Banking to an ATM. The confirmation
code that enables the customer to withdraw money directly from an ATM without using a card is sent straight
to his or her phone number.
Advantages:
You are able to withdraw money without your card.
You are able to transfer money to people who do not hold any account or card at State Bank.
The recipient does not need any document. The transfer code alone is enough.
Co-branded Cards
In association with Social Insurance General Office, State Bank has introduced a Social Insurance Service’s
co-branded card for the first time.
Advantages of Co-branded Card:
Discounted fees;
Interest will be calculated monthly and added to the account balance;
Card can be used free of charge service at State Bank’s 540 branches, more than 200 ATM and over
1500 merchant service partners located throughout the country;
The card earns a 3% discount at MONOS Pharmacy.
TV Banking Service
In 2013, State Bank introduced TV Banking into Mongolia’s banking and financial markets. The TV Banking
service is offered in collaboration with Univision LLC in very comprehensive ways.
Using this service, a customer is able to:
Check his or her account balance and review the account statement;
Make inter-account, inter-bank and intra-bank transactions;
Make inquiry about payment on apartment utility and Univision usage bills;
Check working schedule and location of Ulaanbaatar and local area’s branches and ATMs;
Check foreign exchange rates.
Telephone Banking Service (“1800-1881”)
Another new banking service from State Bank that saves time of our customers is Telephone Banking. With
the introduction of the Telephone Banking service, our customers are able to:
Open an account;
Register as a beneficiary with “Gyals” (gyals means easy service) or connect his or her mobile phone
to an account
Take advantage of new service opportunities, such as amending ones electronic banking service
registration.
Student’s Smart Card
State Bank is a leading bank in rendering electronic banking services to Mongolia and also has the largest
network in Mongolia. It made sense for the Bank to team up with the Mongolian Student Union to introduce
into the market for the first time a new smart card for students. Students now are able to process their
payments and settlements via the Student’s Smart Card. They also can take advantage of the following
opportunities:
Advantages:
Receive the Government’s MNT70,000 student monthly allowance;
Use the card as proof of student ID;
Ride free on public transport;
Use the card as a financial instrument for all types of banking payments;
Take advantage of discounts from affiliated enterprises and organizations.
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Brand products and service
Internet Banking
State Bank offers to our customers the most advanced instruments for Internet Banking, permitting the
customer to receive all types of banking products and services via a mobile phone connected to Internet in
a manner that meets with customers’ demands and requirements. A customer can use our Internet Banking
service to do various things:
Monitor and pay of all types of consumer bills;
Purchase calling cards from all mobile operators and pay phone bills;
Open accounts and accumulate savings;
Register and manage an Internet Banking account;
Benefit from new opportunities and initiatives like online deposit-secured loans.
Billing
Around 80% of Mongolia’s total household consumer invoice payments are being made through and
concentrated in State Bank using it outlets and electronic banking system. Our customers are thus well placed
to use our systems, solutions and services to do the same:
Via smart phones and our Smart Banking service;
Via mobile phones and our Mobile and Message Banking services;
By accessing ATMs or ATM billing services;
By using our TV Banking service;
In automatic mode, to pay any consumer payments in the easiest way, using a variety of instruments,
typically by automatic deduction from an account following the recipient of an invoice.
We strive to introduce new and updated products and services to the market that can save our customers
time and otherwise meet their needs and requirements.
“Gyals” Service
In Mongolia, State Bank pioneered the introduction of “Gyals”-styled services that make it possible to
easily transfer and receive money by phone number using Internet banking, Smart Banking, Mobile banking,
Message banking and TV Banking services.
To receive money via the Gyals service or mobile phone, you have to be “recipient of Gyals service”. To
become such a recipient, a customer must use one of the following procedures:
1. If you are registered with our Mobile Banking or Message Banking services, you are able to receive money
by already registered phone number at those services.
2. If you are not registered with our Mobile or Message Banking services, you may apply through our Call
Center at 1800-1881 to connect your phone number to your account.
Any transfer made via our Gyals service shall remit to the account connected to the phone number of the
money recipient, with notification about any transfer sent to the recipient of the money via a message from
the Bank.
Lending Activities
State Bank provides 33 types of loans, all of which may be promptly adapted to a customer’s needs. We
present our loan products to the market as packages, with the packages categorized by customer segments,
business objectives, and other indicators.
In order to satisfy our customers’ needs and to support them, we issued MNT 1,378,2 billion in loans to a
total of 606,762 customers, a figure that is double that of 2012.
We rely on customer feedback in developing and offering new loan opportunities, in renovating old
loan products and in creating new loan products and services. We believe that by being sensitive to market
sentiment we can best meet our customers’ demands.
The Bank’s loan portfolio went up five times in 2013, resulting in a positive change in our loan portfolio.
Loan quality improved dramatically at the end of 2013, producing a health indicator 2.4 times better than the
commercial bank average for the country.
We work based on customer feedback and will organize activities to truncate the number of required
documents and to diminish the loan approval time.
Furthermore, we focus on transferring the loan issuance process into online form, making advantage of
the most up-to-date techniques and technologies.
We have been able to prevent non-performing loans by establishing long-term relations with our borrowers
and by improving our systems for monitoring loan activities generally.
Ongoing Projects and Programs
One of State Bank’s target markets is SMEs. We issued MNT103.4 billion in loans with the lowest interest
rate and for relatively long terms to 2,600 borrowers in more than 10 types of projects to support SMEs and
to increase job opportunities in collaboration with the Government of Mongolia and international financial
organizations.
In addition to the implementation of projects that have a major impact on the country’s society and
economy, we are involved in the “Market and Pasture Management Development” project that issues loans to
support the creation of job opportunities for women in remote regions in order to boost household income.
We issued up to MNT10.0 million with an annual rate of 8% to local women’s groups.
We work with Government-affiliated organizations and the Bank of Mongolia to implement the following
four sub-programs under the “Joint implementation of the medium-term program to stabilize the price of key
commodities and products under the Memorandum of Understanding” that was signed in 2012 between the
Government of Mongolia and the Bank of Mongolia.
These include:
- “Key Construction Materials’ Price Stabilization Program “,
- “Create Long-term Stable Financing Sources to Housing”,
- “Flour Price Stabilization Program”
- “Build Reserves for Food Products and Intensive Farming Development Program”
State Bank established centers purposed only for mortgage loan. Dedicated specialists of the Bank oversaw
the granting of 8% mortgage loans to approximately 2,200 citizens, because we are honored to do meritorious
deeds that brings happiness in the families who buy apartments.
The big problem for borrowers seeking to get loans from banks is considered to be the lack of collateral.
In order to address this problem, State Bank initiated and made agreement with the Credit Guarantee Fund
and started working with the Credit Guarantee Fund by obtaining a guarantee for up to 60% of the total
loans of one borrower.
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RISK MANAGEMENT
Besides securely saving and accumulating customers’ and deposit holders’ funds, the Bank is also responsible
for its own risk protection. In this regard, State Bank perceives its responsibility to its customers as a serious
one – indeed so serious as to make one of its four goals a “risk-free bank.”
To anticipate, prevent and mitigate emerging risk, we work with the help of our 3800 qualified employees
to determine the Top five risks monthly and to evolve our risk-protection plan accordingly. By implementing the
plan in branches, settlement centers, departments, divisions and head office we create favorable conditions
to mitigate risk.
To further reduce market risk and to manage properly contingent risk we pay special attention to the
Bank’s good governance. We have established three levels of risk management committees: primary level
(branches’ and settlement units’ risk committees), middle level (head office risk committee) and top level
(risk committee of the Board of directors). Each committee determines its policy, thus creating a complex
and sophisticated risk-management system. In 2013, the Bank’s level of credit risk was the lowest among all
commercial banks in Mongolia. The percentage of past due loans in the loan portfolio was 0.9%.
State Bank provides loan through its more than 540 branches. Based on the loan portfolio of each
branch we update the Bank’s Risk Policy, Credit Policy, Credit Operations Procedures, Collateral Evaluation
Procedures and other related documents. Consequently, we have been able to generate an effective credit
risk management system in a relatively short period of time.
By managing credit risk prudentially, the percentage of non-performing loan to total loan portfolio slumped
significantly in 2013 and is approximately 25% of the average bad loan ratio for Mongolia’s commercial
banks, which for 2013 was 1.3%.
Non-performing loans to total loan portfolio:
Loan portfolio quality classification
Past due
0.89 %
Performing
97.82 %
Loan portfolio, provision fund indicator
Fund established
0.97 %
Non-performing
1.30 %
Net loan
99.06 %
Branch Activities
Recognized as having the largest number of branches in Mongolia, State bank is providing a full range of
banking services to its 2,7 million customers through more than 3000 experienced professional staff working
at more than 440 conveniently located branches (91 branches in Ulaanbaatar, and 440 branches in local areas).
Head office
Branch
Settlement Center
100%
Online
Our branches and settlement units are located in every corner of Mongolia, serving people residing
everywhere and offering comprehensive financial services regardless of time and place via 100 online networks.
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Human Resource Management
Human resource is considered the engine of any organization’s development. In Mongolia, State Bank
leads not only in banking and financial development but also in strengthening its staff’s skills and experiences,
and in mobilizing skilled human resources generally.
We are implementing human resource development policy in line with our medium-term strategic plan
for the Bank, as follows:
State Bank implements modern human resource management methodology, which focuses more on
employee-centered activities – this methodology is the root of our success, aligns with our business
goals, and is in keeping with our strategy to mobilize competitive human resources and develop their
skills.
Success achieved by the Bank is the result of improving skill levels and professionalism of its employees,
of identifying training curriculum based on surveys conducted among staff, and of developing demandbased training plans.
The purpose of human resource development in a commercial enterprise like the Bank is to increase per
employee profit by developing the skills of employees and improving productivity.
Human resource management involves developing and implementing training policy and programs that
aim to improve employees’ skills, capture their working experiences and ensure that creativity thrives in
the work place.
Organized successfully, activation measures for employees that are implemented step-by-step can
become policies that help solve employees’ social issues.
We have taken as a goal for ourselves to listen to our employees’ needs and ideas. Based on that idea, a
campaign named “Sharing thoughts with employees” has been organized and work on improving employeefeedback conditions has begun.
Foreign Relations
State Bank works with prestigious international banks. Well established relationships with foreign banks
permits us to offer the following products and services to our customers:
• Correspondent relationships: As the Mongolian economy grows, domestic and external sources
of funding become more crucial for further development and expansion of the economy. We open
correspondent relationships with foreign banks based on our customers’ needs. We currently work closely
with 22 correspondent banks in more than 10 countries.. We can execute remittances, payments and
transfers quickly and safely to any country through these banks. Last year, we established correspondent
relationships with Russia’s VTB and South Korea’s Woori Bank in response to market demand. In South
Korea, we are legally able to execute remittances, attract deposits and process settlement services from
Mongolians who live there.
• International payments and settlements: our bank has been introducing up-to-date settlement
systems and technologies in a timely manner. At this time, we reliably and credibly process international
money transfers using the worldwide-recognized SWIFT, Western Union and Faster systems. Customers
are able to use our international money transfer services at all branch and settlement units with the lowest
fees and at minimum risk.
• Foreign trade finance: To meet customer needs, the Bank has made issuance and delivery of trade
finance facilities such as letters of credit and other forms of trade finance credit a priority in its foreign
relations. We recently completed research and feasibility studies on the topic. The Bank already has
approved the internal procedures to be followed in providing such services.
• Our activity in South Korea: According to the official data from South Korea Immigration Office,
Mongolian expatriates who study, work or are in the country on special labor contracts organized with
the Ministry of Labor of Mongolia and the Mongolian Labor Exchange total 24,000. Also, the number of
tourists has risen to 50,000. In short, the total amount of remittances, deposits and savings are increasing
sharply because of the strong and continuous improvement in the economic and trade relations between
the two countries. In order to comply with Mongolian people’s needs, we have given priority to our foreign
relations with South Korea, sending our representatives to Korea with the emphasis on providing banking
and financial products and services in a timely manner to Mongolian citizens there. Because our bank has
a nationwide network of branches and settlement units, our online service completely complies with needs
of the Mongolians who live in Korea.
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Correspondent Banks
Industrial and Commercial
Bank of China, Huhehaote
International Bank for
Economic Cooperation,
Moscow
International
Investment Bank,
Moscow
Agricultural Bank
of China, Huhehaote
SBERBANK,
Moscow, Baikal
Russian
Agricultural Bank,
Moscow
Bank of Tokyo
Mitsubishi UF
HypoVereinsbank
Standard Chartered Bank of America, NY
Bank, NY,
Commerzbank AG,
Frankfurt Main
China Construction
Bank, Huhehaote
Bank of
China
Kookmin Bank
Sumitomo
Mitsui Banking
Corporation,
Tokyo
Credit Suisse
First Boston,
Zurich
Wooribank
Korea
Exchange
Bank, Seoul
GERMANY
UNITED STATES
RUSSIA
BELGUIM
KOREA
SWITZERLAND
MONGOLIA
KAZAKHSTAN
JAPAN
CHINA
SINGAPORE
Australia
BELGUIM, ING
Belgium NV/SA,
Brussels
BANKTURANALEM,
Almaty
DBS Bank Ltd,
Singapore
Commonwealth
bank of
Australia
State Bank is a member of the Asian Bankers Association, Mongolian Bankers Association,
VISA International and Mongolian National Chamber of Commerce and Industry.
The introduction of new technology and innovative operational solutions in a timely manner allows us to
fully meet our customers’ needs and to provide the most risk-free, reliable, fast and efficient service.
Within the scope of information technology, our bank ensures the internal and external network reliability,
continuity and security of software, hardware and databases used in the whole banking system, and we also
regularly update the system in accordance with international standards.
We keep in close touch with new advanced technologies for the purpose of improving the security and
privacy of our customers and to better organize our network infrastructure. To meet the growing needs
of our customers to save time, we have brought various types of electronic services to the market. For
example, by developing and introducing software that drives an online loan service within our Internet Banking
environment, we enabled our customers to get a deposit-secured loan within five minutes. The introduction
of Insurance intermediary software is another example of how new technology has become increasingly
compliant with satisfying customers’ needs.
In order to eliminate the risk of inputting customers’ account information incorrectly, and thus of making
an erroneous transaction to another account, we successfully set up and introduced the check digit module
on our core accounting system.
Treasury Management
Foreign exchange trading and position risk
We continually stay within the guidelines for foreign currency risk exposure set by the Bank of Mongolia
monthly and in general strive to prevent currency risk. During the past year, we actively engaged in foreign
exchange trading with the Bank’s business customers and organizations and had profitable operations both in
these deals and in rate revaluations.
Securities trading and money markets
The Bank’s Treasury Department has actively participated in the Central Bank’s securities trading. It has
contributed substantially to government bond sales, over fulfilling the interest income plan. The Bank has
participated successfully in Interbank money markets, contributing to the progress and development of the
national money market while increasing its own reputation in global markets.
Liquidity and required reserve
State Bank continuously meets the liquidity and required reserve ratios set for commercial banks by the
Bank of Mongolia every month and performs efficiently in making payments to is customers.
Okey club
The “Okey Club” was established in March 2013 with the aims of ensuring a healthy balance between life
and work in the lives of State Bank employees, of promoting youth initiatives, and of implementing new ideas
and initiatives, especially those that strengthen a culture of workplace innovation. The followings are some of
the campaigns that the club has successfully implemented:
A campaign to distribute transportation and food benefits to our employees has been in operation
since September 2013.
A campaign was initiated to give employees a day off in the month they were born.
Within the framework of a campaign to “Save Another’s Life”, every Thursday in the last week of each
month is promulgated as “Health Day.” An ongoing “Immunization-Prevention” program is pursued
with contracted health organizations. Also, State Bank staff volunteer in blood-donor activities that are
organized with the National Blood Transfusion Centre.
In order to promote the recycling of waste paper, recycling containers have been set up on every floor
of the Head Office, with the revenue earned from recycling donated to charitable causes. This initiative
has flourished and been expanded to some branches and settlement centers.
A campaign to “Support Healthy Life” was conducted in conjunction with World Tobacco-Free Day. It
got some employees to quit smoking in order to live in a healthier manner with their families, children
and co-workers.
With a view to inspiring employees and making them more active, “OKEY” Club has organized a series
of informative lectures. U.Ganzorig, President of the Financial Market Association; L.Purevbat, highly
respected lama; O.Altangerel, Director of the Policy Implementation and Regulation Department of the
Ministry of Justice, have delivered interesting and informative lectures.
Several sub-clubs have been organized under the OKEY club banner with the goal of helping employees
to better use their leisure time and pursue their interests. “Cutie”, “Cool Service”, ”JOE”, “Healthy Banker”,
“S-Dance” are examples of such sub-clubs formed to date.
SOCIAL RESPONSIBILITY
At State Bank we believe that every member of society should contribute to the well-being of society as
a whole. In 2013, State Bank’s social responsibility initiatives supported a variety of programs and projects
that covered all levels of society, with special attention paid to respect for the elderly, support for youth and
protection of the environment.
To support the education sector
With the introduction of the Student’s Smart Card to the market, students became able to travel
for free on public transportations and to process payments electronically. In collaboration with the
Mongolian Student Union, the Bank organized an “Oath Ceremony” that involved 3000 students. The
students agreed to put more attention on improving their general knowledge and financial literacy .The
Bank proposed to provide economic advice to students, to support good financial consumption. The
Bank agreed to sponsor the annual tuition fee for the best students.
A student’s chess Olympiad, the “National Championship on Rapid, Blitz and Problem-solving” was
organized successfully with the Bank’s help. It contributed to the preparation of future chess masters
who will represent the country in the international arena.
The Bank sponsored Z.Tsetsegzul in “World Championship of Mind Games.” She achieved unprecedented
results, setting new world records in this kind of competition.
To support culture and heritage
We have supported and sponsored nine performances by the famous singer B.Amarkhuu, including in
the most remote regions of the country. Customers and youngsters both have appreciated these events.
We are proud to have State Bank’s image associated with his miraculous music.
To contribute to the education and proper upbringing of our children, we have sponsored “White
Disobedient Foal,” a children’s musical play in cooperation with the National Theatre of Song and Dance.
State Bank’s image group “Uvertura” has worked closely with us. The group’s “Endless Beginning”
concert in a Mongolian pop-opera style was a significant contribution to the campaign “Bringing
Mongolian Arts to the World”.
We also sponsored a special CD, “Butterfly of Flowered Lawn,” that consists of the best songs of singer
L.Oyunchimeg, a former lead singer with “Bayan Mongol,” the legendary rock pop group.
To support environment and ecology
The Bank has contributed to the raising of general knowledge about our country’s largely unspoiled
natural environment by gathering and archiving photos and historical documents. It also has sponsored
a TV series called “Gardening” by the National Association of Protection of Nature and Wildlife and
collaborated with others to organize other informative TV series and competitions such as “Alongside
Legend’s Path,” which is about beautiful places and the history and culture of Mongolia.
A campaign “City Streets Are My Home,” organized jointly with the National University of Culture
for the first time, made a significant contribution about how one can spend free time usefully in
Ulaanbaatar City. This campaign had a salutary impact on young people in the city.
For the 374th Anniversary of the establishment of Ulaanbaatar City, our bank jointly sponsored a
welcomed campaign on “Ethical Driving Behavior” with the City’s Office for Culture.
State Bank worked together with TV 9 in the preparation of “Alongside Legend’s Path”. This television
documentary series introduces various Mongolian ethnic groups and races, their peculiarities and
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www.statebank.mn
differences, and particular myths and tales, all with the purpose of preserving and disseminating this
information for the benefit of Mongolians and others interested in Mongolia.
To support social protection
During the past year, the Bank worked with the National Social Insurance General Office on a cobranding project that targeted the elderly. The card offers concessional banking fees and commission
and permits the user to purchase medicines and vitamins at concessional prices. The card leverages
advanced information technology to provide social protection services quickly and efficiently
State Bank provides pension-distributing service to 160,000 elderly. In this connection, we organized a
campaign in every branch and unit of the Bank for pensioners called “Inauguration Day.” The campaign
was a big success.
Under the rubric of social responsibility, the Bank has made many breakthroughs. The Bank has won the
“Best Organization for implementing its Social Responsibility” award. Mongolians appreciate our achievements.
This inspires us to do more.
STATE BANK LLC
(Incorporated in Mongolia)
Audited Financial Statements
31 December 2013
34
www.statebank.mn
STATE BANK LLC
TABLE OF CONTENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
CONTENTSPAGE
GENERAL INFORMATION36
STATEMENT BY THE CHAIRMAN AND EXECUTIVES
37
INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF STATE BANK LLC
38-39
STATEMENT OF COMPREHENSIVE INCOME40
STATEMENT OF FINANCIAL POSITION41
STATEMENT OF CHANGES IN EQUITY42
STATEMENT OF CASH FLOWS43-44
NOTES TO THE FINANCIAL STATEMENTS45-98
STATE BANK LLC
GENERAL INFORMATION
BOARD OF DIRECTORS:
COMPANY SECRETARY:
REGISTERED OFFICE: Mr. Ganbat Jigjid
Ms. Battsetseg Batsuuri
Mr. Tumurbaatar Jadamba
Mr. Altangerel Oyunsaikhan
Mr. Boldbaatar Danzannorov
Mr. Sainbileg Chuluunbat
Mr. Nyamaa Buyantogtokh
Mr. Batjargal Mishir
Mr. Ganzorig Ayush
Ms. Odontuya Erdenebileg
State Bank Building
Baga Toiruu - 7/1, 1st Khoroo,
Chingeltei District,
Ulaanbaatar - 210644,
Mongolia
AUDITORS:
Ernst and Young Mongolia Audit LLC
Certified Public Accountants
36
www.statebank.mn
STATE BANK LLC
STATEMENT BY THE CHAIRMAN AND EXECUTIVES
We, Ganbat Jigjid, being the Chairman of State Bank LLC (the “Bank”), Batsaikhan Daimaa, being
the Chief Executive Officer, and Naranbat Battulga, being the Chief Financial Officer, primarily
responsible for the financial statements of the Bank, do hereby state that, in our opinion, the
accompanying financial statements set out on pages 40 to 98 present fairly, in all material respects
the financial position of the Bank as at 31 December 2013 and its financial performance and cash
flows for the year then ended in accordance with International Financial Reporting Standards.
GANBAT
JIGJID
BATSAIKHAN
DAIMAA
Chairman
Chief Executive Officer
NARANBAT
BATTULGA
Chief Financial Officer
Ulaanbaatar, Mongolia
Date: 31 March 2014
Ernst & Young Mongolia Audit LLC
Suite 200, 8 Zovkhis Building
Seoul Street 21
Ulaanbaatar 14251
Mongolia
Tel: +976 11 314032/+976 11 312005
Fax: +976 11 312042
ey.com
REPORT OF THE INDEPENDENT AUDITORS
To the shareholders of State Bank LLC
We have audited the accompanying financial statements of State Bank LLC (the “Bank”),
which comprise the statement of financial position as at 31 December 2013 and the statement of
comprehensive income, statement of changes in equity and statement of cash flows for the year
then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors’ judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
38
www.statebank.mn
REPORT OF THE INDEPENDENT AUDITORS
To the shareholders of State Bank LLC (cont’d.)
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Bank as at 31 December 2013, and its financial performance and cash flows for the
year then ended in accordance with International Financial Reporting Standards.
Restriction on use
This report is made solely to the shareholders of the Bank, as a body, in connection with the
audit requested by shareholders in accordance with Article 94 of Company Law of Mongolia and
for no other purpose. We do not assume responsibility towards or accept liability to any other
person for the contents of this report.
ERNST AND YOUNG MONGOLIA AUDIT LLC
Certified Public Accountants
PETER
Петр Марки
MARKEY
Executive
Захирал Director
Ulaanbaatar, Mongolia
31 March 2014
STATE BANK LLC
STATEMENT OF COMPREHENSIVE INCOME
Notes
2013
MNT’000
2012
MNT’000
(As restated)
Interest and similar income
4
96,719,248
29,948,420
Interest and similar expenses
5
(62,296,000)
(16,833,160)
34,423,248
13,115,260
Net interest income
Fees and commission income
6
8,760,511
759,135
Fees and commission expenses
6
(777,865)
(254,837)
7,982,646
504,298
Net fees and commission income
Net trading income
7
997,160
5,077
Other operating income
8
5,518,842
1,269,664
48,921,896
14,894,299
(5,751,457)
(1,917,184)
43,170,439
12,977,115
(36,491,739)
(11,708,775)
6,678,700
1,268,340
360,694
(29,728)
7,039,394
1,238,612
12,116,641
–
19,156,035
1,238,612
Total operating income
Credit loss expense
9
Net operating income
Operating expenses
10
Profit before tax
Income tax benefit/(expense)
11
Profit for the year
Other comprehensive income
Other comprehensive income not to be
reclassified to profit or loss in subsequent
periods:
Revaluation of buildings
Total comprehensive income for the year, net
of tax
26
The accompanying notes form an integral part of the financial statements
40
www.statebank.mn
STATE BANK LLC
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER
2013
Notes
MNT’000
2012
MNT’000
(As restated)
ASSETS
12
331,931,951
57,619,243
Due from banks
13
36,487,848
10,927,370
Derivative financial instruments
14
556,031
50,422
180,958,957
Cash and balances with Bank of Mongolia
Loans and advances to customers
15
942,183,302
Financial investments – available-for-sale
16
50,718,198
242,128
Financial investments – held-to-maturity
16
304,278,747
49,234,242
Other assets
17
23,457,938
2,226,578
Property and equipment
18
59,971,903
11,177,016
Intangible assets
19
2,122,639
1,250,963
Deferred tax asset – net
20
475,610
114,881
1,752,184,167
313,801,800
21
144,149,939
17,051,626
TOTAL ASSETS
LIABILITIES
Due to banks
Repurchase agreements
22
118,138,297
–
14
413,243
54,164
Due to customers
23
1,034,156,475
193,891,835
Borrowed funds
24
318,633,613
72,619,185
Other liabilities
25
TOTAL LIABILITIES
4,503,402
1,857,352
1,619,994,969
285,474,162
113,000,000
28,000,000
5,422,056
(783,583)
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE BANK
Ordinary shares
26
Retained earnings
Other reserves
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
26
13,767,142
1,111,221
132,189,198
28,327,638
1,752,184,167
313,801,800
The accompanying notes form an integral part of the financial statements. 41 ANNUAL REPORT 2013
STATE BANK LLC
STATEMENT OF CHANGES IN EQUITY
Ordinary shares Other reserves
MNT’000
At 1 January 2012, as restated
MNT’000
Total equity
MNT’000
MNT’000
28,000,000
217,041
1,849,047
30,066,088
Total comprehensive income
–
–
1,238,612
1,238,612
Dividends (Note 26)
–
–
(2,437,782)
(2,437,782)
Appropriation to social
development fund
–
739,791
(739,791)
Distribution of social development
fund
–
(539,280)
–
(539,280)
Appropriation to reserves
–
693,669
(693,669)
–
At 31 December 2012, as
restated
Total comprehensive income
Dividends (Note 26)
Recovery of social development
fund
Distribution of social development
fund
Issuance of shares (Note 26)
At 31 December 2013
28,000,000
1,111,221 (783,583)
www.statebank.mn
–
28,327,638
–
12,116,641
7,039,394
19,156,035
–
–
(833,755)
(833,755)
–
540,000
–
540,000
–
(720)
–
(720)
85,000,000
–
–
85,000,000
113,000,000
13,767,142
5,422,056
132,189,198
42
Retained
earnings
STATE BANK LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER2013
2013
Notes
MNT’000
2012
MNT’000
(As restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
6,678,700
1,268,340
3,742
–
Adjustments for:–
Changes in fair value of financial derivatives
Gain on disposal of property and equipment
8
(146,530)
(8,110)
Unrealised foreign exchange gain
8
(2,749,547)
(451,908)
Credit loss for loans and advances to customers
9
5,360,992
1,909,038
Credit loss for other assets
9
390,465
8,146
Depreciation of property and equipment
10
3,156,272
748,380
Amortisation of intangible assets
10
420,809
227,473
(2,545,557)
2,545,557
10,557,494
6,258,768
Statutory deposits with BoM
(98,933,024)
(6,182,490)
Due from banks
(10,922,863)
(1,392,100)
–
4,994,589
(204,349,693)
(82,039,260)
7,967,496
(4,284,831)
Due to banks
115,647,503
7,695,484
118,138,297
–
71,229,121
29,991,539
Other liabilities
(26,901,278)
(4,621,521)
Cashused in operations
(17,566,947)
(49,579,822)
(372,792)
(216,888)
(17,939,739)
(49,796,710)
(Recovery)/impairment loss on foreclosed
properties
Operating profit before working capital changes
8,10
Changes in operating assets:–
Reverse repurchase agreements
Other assets
Changes in operating liabilities:–
Due to customers
Income tax paid
Net cash flows used in operating activities
STATE BANK LLC
STATEMENT OF CASH FLOWS
Notes
2013
2012
MNT’000
MNT’000(As
restated)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial investments
Proceeds from disposal of financial investments
(3,163,760,080)
(488,089,987)
3,133,412,824
499,318,887
Purchase of property and equipment
18
(3,219,021)
(752,464)
Purchase of intangible assets
19
(339,253)
(508,936)
8,998
–
(33,896,532)
9,967,500
(450,403,506)
(6,272,471)
431,335,009
58,827,216
85,000,000
–
(833,755)
(2,437,782)
Proceeds on disposal of property and equipment
Net cash flows from/(used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowed funds
Drawdown of borrowed funds
Proceeds from issuance of ordinary shares
26
Dividends paid
Cash proceeds from Deposit Insurance Corporation
for the acquisition of Savings Bank and cash
transferred from Savings Bank
3
389,229,636
–
Recovery of social development fund
26
540,000
–
Distribution of social development fund
26
(720)
(539,280)
454,866,664
49,577,683
5,392,124
111,024
408,422,517
9,859,497
64,718,034
54,858,537
473,140,551
64,718,034
Net cash flows generated from financing
activities
Effect of exchange rate changes on cash and
cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents brought forward
Cash and cash equivalents carried forward
27
44
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STATE BANK LLC
NOTES TO THE FINANCIAL STATEMENTS – 31 DECEMBER 2013
1.
CORPORATE INFORMATION
The Bank is principally engaged in the business of providing banking and financial services pursuant
to License No. 26 issued by the Bank of Mongolia (“BoM”). Pursuant to BoM resolution dated 22
July 2013, the Board of Directors of BoM approved the acquisition of Savings Bank by the Bank and
the subsequent combination of its business with the Bank (see Note 3). Other than the acquisition
of Savings Bank, there were no significant changes in the nature of the Bank’s activities during
the year.
The Bank is a limited liability company incorporated and domiciled in Mongolia. Its registered office
is at StateBank Building, BagaToiruu- 7/1, 1st Khoroo, Chingeltei District, Ulaanbaatar -210644,
Mongolia.
The Bank is 24.779% owned by the Ministry of Finance of Mongolia and 75.221% owned by the
Deposit Insurance Corporation (DIC). DIC does not hold any voting rights.
The financial statements for the year ended 31 December 2013 were authorised for issue in
accordance with a resolution of the Directors on 31 March 2014.
2.
ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION
The financial statements have been prepared on a historical cost basis, except for availablefor-sale financial investments, derivative financial instruments and properties that have been
measured at fair value. The financial statements are presented in Mongolian Tugrug (MNT),
which is the functional currency of the Bank and all values are rounded to the nearest thousands,
except when otherwise indicated.
Statement of compliance
The financial statements of the Bank have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB).
Presentation of financial statements
The Bank presents its statement of financial position broadly in order of liquidity. An analysis
regarding recovery or settlement within 12 months after the reporting date (current) and more
than 12 months after the reporting date (non-current) is presented in Note 32.
Financial assets and financial liabilities are offset and the net amount is reported in the statement
of financial position only when there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis, or to realise the assets and settle the
liability simultaneously. Income and expense is not offset in the statement of comprehensive
income unless required or permitted by any accounting standard or interpretation and as
specifically disclosed in the accounting policies of the Bank.
2.2 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Bank’s financial statements requires management to make judgments,
estimates and assumptions that affect the reported amount of revenues, expenses, assets and
liabilities and the accompanying disclosures, as well as the disclosure of contingent liabilities.
STATE BANK LLC
Uncertainty about these assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimating uncertainty at
the reporting date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are described below. The Bank
based its assumptions and estimates on parameters available when the financial statements
were prepared. Existing circumstances and assumptions about future developments, however,
may change due to market changes or circumstances beyond the control of the Bank. Such
changes are reflected in the assumptions when they occur.
Going concern
The Bank’s management has made an assessment of its ability to continue as a going concern
and is satisfied that it has the resources to continue in business for the foreseeable future.
Furthermore, management is not aware of any material uncertainties that may cast significant
doubt upon the Bank’s ability to continue as a going concern. Therefore, the financial statements
continue to be prepared on the going concern basis.
Fair value of financial instruments
Where the fair values of financial assets and financial liabilities recorded in the statement of
financial positioncannot be derived from active markets, they are determined using a variety of
valuation techniques that includethe use of mathematical models. The inputs to these models
are derived from observable market data wherepossible, but if this is not available, judgment is
required to establish the fair values.The judgments includeconsiderations of liquidity and model
inputs such as volatility for longer-dated derivatives and discount rates,prepayment rates and
default rate assumptions for asset-backed securities. The valuation of financialinstruments is
described in more detail in Note 30.
Impairment losses on loans and advances
The Bank reviews its individually significant loans and advances at each statement of financial
position date to assess whether an impairment loss should be recorded in the statement of
comprehensive income. In particular, management’s judgment is required in the estimation of
the amount and timing of future cash flows when determining the impairment loss. These
estimates are based on assumptions about a number of factors and actual results may differ,
resulting in future changes to the allowance.
Loans and advances that have been assessed individually and found not to be impaired are
assessed together with all individually insignificant loans and advances in groups of assets
with similar risk characteristics. This is to determine whether provision should be made due to
incurred loss events for which there is objective evidence, but the effects of which are not yet
evident. The collective assessment takes account of data from the loan portfolio (such as levels
of arrears, credit utilisation, loan to collateral ratios, etc.) and judgements on the effect of
concentrations of risks and economic data (including levels of unemployment, real estate prices
indices, country risk and the performance of different individual groups).
46
The impairment loss on loans and advances is disclosed in more detail in Notes 9 and 15, and
further described in Note 29.
Revaluation of property
The Bank measures its buildings at revalued amounts with changes in fair value being recognised
in other comprehensive income (OCI). The Bank engaged an independent valuation specialist to
assess fair value of the buildings as at 31 December2013. Buildings were valued by reference to
market-based evidence, using comparable prices adjusted for specific market factors such as
nature, location and condition of the buildings.
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STATE BANK LLC
Deferred tax assets
Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that
taxable profit will be available against which the losses can be utilised. Judgment is required
to determine the amount of deferred tax assets that can be recognised, based upon the likely
timing and level of future taxable profits, together with future tax planning strategies.
Contingencies
The Bank is currently involved in various legal proceedings. The estimate of the probable costs
for the resolution of these claims has been developed in consultation with external counsel
handling the Bank’s defense in these matters and is based on an analysis of potential results.
The Bank currently does not believe that these proceedings will have a material adverse effect
on the financial statements. It is possible, however, that future results of operations could be
materially affected by changes in the estimates or in the effectiveness of the strategies relating
to these proceedings (see Note 28).
2.3CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
The accounting policies adopted are consistent with those of the previous financial year except
for the adoption of the following amended IFRS applicable to the Bank, which became effective
on 1 January 2013.
New and amended standards and interpretations
IFRS 1, First-time Adoption of International Financial Reporting Standards
(Amendment) - Government Loans - Amendments to IFRS 1
IFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial
Liabilities - Amendments to IFRS7
IFRS 10, Consolidated Financial Statements, IAS 27 Separate Financial Statements
IFRS 11, Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures
IFRS 12, Disclosure of Interests in Other Entities
IFRS 13, Fair Value Measurements
IAS 19, Employee Benefits (Revised 2011)
IAS 27, Separate Financial Statements (Revised 2011)
IAS 28, Investments in Associates and Joint Ventures (Revised 2011)
Except as discussed below, the adoption of the other standards and interpretations did have any
significant impact on the financial performance or position of the Bank.
IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not
change when an entity is required to use fair value, but rather provides guidance on how to
measure fair value under IFRS when fair value is required or permitted. The impact of IFRS 13 on
the Bank’s financial statements is not significant; however there will be new disclosures for the
inputs and valuation techniques to develop fair value measurement, which is defined as an exit
price. Please refer to Note 30 of this financial statement for the new disclosures under IFRS 13.
Standards issued but not yet effective
The Standards and Interpretations that are issued, but not yet effective, up to the date of issuance
STATE BANK LLC
of the Company’s financial statements are disclosed below. The Company intends to adopt these
standards, if applicable, when they become effective.
IFRS 9, Financial Instruments3
IFRS 9, IFRS 7 and IAS 39 Amendments, Hedge Accounting and amendments to
IFRS 9, IFRS 7 and IAS 393
IFRS 10, IFRS 12 and IAS 27 (2011), Amendments to IFRS 10, IFRS 12 and IAS 27 (2011)
- Investment Entities1
IAS 19 Amendments, Amendments to IAS 19 Employee Benefits - Defined Benefit
Plans: Employee Contributions2
IAS 32 Amendments, Amendments to IAS 32 Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities1
IAS 39 Amendments, Amendments to IAS 39 Financial Instruments: Recognition and
Measurement - Novation of Derivatives and Continuation of Hedge Accounting1
IFRIC 21, Levies1
Annual Improvements, 2010-2012 Cycle and 2011-2013 Cycle, Amendments to a
number of IFRSs issued in December 20134
3
4
1
2
Effective for annual periods beginning on or after 1 January 2014
Effective for annual periods beginning on or after 1 July 2014
No mandatory effective date yet determined but is available for adoption
These improvements are effective for annual periods beginning on or after 1 July 2014, but early
adoption is permitted.
The Bank is in the process of assessing if the adoption of these Standards and Interpretations in the
future periods will have material impact on its financial statements.
2.4SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Business combination and goodwill
Business combinations are accounted for using the acquisition method. The cost of an
acquisition is measured as the aggregate of the consideration transferred measured
at acquisition date fair value and the amount of any non-controlling interests in the
acquiree. For each business combination, the Bank elects whether to measure the noncontrolling interests in the acquiree at fair value or at the proportionate share of the
acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and
included in other operating expense.
When the Bank acquires a business, it assesses the financial assets and liabilities assumed
for appropriate classification and designation in accordance with the contractual terms,
economic circumstances and pertinent conditions as at the acquisition date. This includes
the separation of embedded derivatives in host contracts by the acquiree.
48
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If the business combination is achieved in stages, any previously held equity interest is
re-measured at its acquisition date fair value and any resulting gain or loss is recognized
in profit or loss. It is then considered in the determination of goodwill.
STATE BANK LLC
Any contingent consideration to be transferred by the acquirer will berecognized at fair
value at the acquisition date. Contingent consideration classified as an asset or liability
that is a financial instrument and within the scope of IAS 39 Financial Instruments:
Recognition and Measurement, is measured at fair value with changes in fair value
recognized either in profit or loss or as a change to OCI. If the contingent consideration
is not within the scope of IAS 39, it is measured in accordance with the appropriate IAS.
Contingent consideration that is classified as equity is not remeasured and subsequent
settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the
consideration transferred, the amount recognized for non-controlling interests and any
previous interest held over the net identifiable assets acquired and liabilities assumed.
If the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the Bank re-assesses whether it has correctly identified all of the assets
acquired and all of the liabilities assumed and reviews the procedures used to measure
the amounts to be recognised at the acquisition date. If the re-assessment still results
in an excess of the fair value of net assets acquired over the aggregate consideration
transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment
losses. For the purpose of impairment testing, goodwill acquired in a business combination
is, from the acquisition date, allocated to each of the Bank’s cash-generating units (CGU)
that are expected to benefit from the synergies of the combination, irrespective of
whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a CGU (or group of CGU) and part of the operation
within that unit is disposed of, the goodwill associated with the disposed operation is
included in the carrying amount of the operation when determining the gain or loss on
disposal. Goodwill disposed ofin these circumstances is measured based on the relative
values of the disposed operation and the portion of the CGU retained.
(2) Foreign currency translation
The functional currency of the Bank is the Mongolian Tugrug.Transactions denominated
in foreign currencies are initially recorded at their respective functional currency spot
rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the
functional currency spot rates of exchange at the statement of financial position date.
Differences arising on settlement or translation of monetary items are recognised in
profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency
are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. The gain or loss arising
on translation of non-monetary items measured at fair value is treated in line with the
recognition of gain or loss on change in fair value of the item.
USD/MNT exchange rate as at 31 December 2013 and 31 December 2012 were 1,654.10
and 1,392.10, respectively.
(3) Financial instruments - initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and
a financial liability or equity instrument of another entity.
STATE BANK LLC
(i) Date of recognition
Financial instruments are recognisedin the Bank’s statement of financial position when
the Bank becomes a party to the contractual provisions of the instrument. This includes
“regular way trades” described as purchases or sales of financial assets that require
delivery of assets within the time frame generally established by regulation or convention
in the market place.
(ii) Initial measurement of financial instruments
The classification of financial instruments at initial recognition depends on their purpose
and characteristics and the management’s intention in acquiring them. All financial
instruments are measured initially at their fair value plus transaction costs, except in the
case of financial assets and financial liabilities recorded at fair value through profit or
loss.
(iii) Derivatives recorded at fair value through profit or loss
The Bank uses derivatives such as currency forwards and swaps to manage its exposure
to market risks. Derivatives are recorded at fair value and carried as assets when their
fair value is positive and as liabilities when their fair value is negative. Changes in the fair
value of derivatives are included in ‘Net trading income’.
Derivatives embedded in other financial instruments are treated as separate derivatives
and recorded at fair value if their economic characteristics and risks are not closely
related to those of the host contract, and the host contract is not itself held-for-trading
or designated at fair value through profit or loss. The embedded derivatives separated
from the host are carried at fair value in the trading portfolio with changes in fair value
in the trading portfolio recognised in the statement of comprehensive income.
(iv) Financial assets or financial liabilities held-for-trading
Financial assets or financial liabilities held-for-trading are recorded in the statement
of financial position at fair value. Changes in fair value are recognised in ‘Net trading
income’. Interest and dividend income or expense is recorded in ‘Net trading income’
according to the terms of the contract, or when the right to the payment has been
established.
Included in this classification are debt securities, equities and securities that have been
acquired principally for the purpose of selling or repurchasing in the near term.
(v) Financial assets and financial liabilities designated at fair value through profit
or loss
Financial assets and financial liabilities classified in this category are those that have been
designated by management on initial recognition. Management may only designate an
instrument at fair value through profit or loss upon initial recognition when the following
criteria are met, and designation is determined on an instrument by instrument basis:
The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognising gains or losses on
them on a different basis.
The assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy.
The financial instrument contains one or more embedded derivatives which significantly
50
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STATE BANK LLC
modify the cash flows that otherwise would be required by the contract.
Financial assets and financial liabilities at fair value through profit or loss are recorded in
the statement of financial position at fair value. Changes in fair value are recorded in ‘Net
trading income’. Interest earned or incurred is accrued in ‘Interest and similar income’ or
‘Interest and similar expense’, respectively, using the effective interest rate (EIR), while
dividend income is recorded in ‘Other operating income’ when the right to the payment
has been established.
The Bank has no financial assets or liabilities designated at fair value through profit or loss
as of 31 December 2013 and 2012.
(vi) Available-for-sale financial investments
Available-for-sale investments include equity and debt securities.Equity investments
classified as available-for-sale are those which are neither classified as held-for-trading
nor designated at fair value through profit or loss. Debt securities in this category are
intended to be held for an indefinite period of time and may be sold in response to needs
for liquidity or in response to changes in the market conditions.
The Bank has not designated any loans or receivables as available-for-sale.
After initial measurement, available-for-sale financial investments are subsequently
measured at fair value.
Unrealised gains and losses are recognised directly in equity (other comprehensive income).
When the investment is disposed of, the cumulative gain or loss previously recognised in
equity is recognised in the statement of comprehensive income in ‘Other operating income’.
Where the Bank holds more than one investment in the same security, they are deemed to
be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale
financial investments is reported as interest income using the EIR. Dividends earned whilst
holding available-for-sale financial investments are recognised in profit or loss as ‘Other
operating income’ when the right of the payment has been established. The losses arising
from impairment of such investments are recognised in profit or loss and removed from
other comprehensive income.
(vii) Held-to-maturity financial investments
Held-to-maturity financial investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities, which the Bank has the intention and ability
to holdtomaturity. After initial measurement, held-to-maturity financial investments are
subsequently measured at amortised cost using the EIR less impairment. Amortised cost
is calculated by taking into account any discount or premium on acquisition and fees that
are an integral part of the EIR. The amortisation is included in ‘Interest and similar income’
in the statement of comprehensive income. The losses arising from impairment of such
investments are recognised in the ‘Credit loss expense’.
If the Bank were to sell or reclassify more than an insignificant amount of held-tomaturity investments before maturity (other than in certain specific circumstances), the
entire category would be tainted and would have to be reclassified as available-for-sale.
Furthermore, the Bank would be prohibited from classifying any financial asset as held to
maturity during the following two years.
(viii) Loans and advances
This account includes ‘Due from banks’ and ‘Loans and advances to customers’which are
non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market, other than:
STATE BANK LLC
Those that the Bank intends to sell immediately or in the near term and those that
the Bank, upon initial recognition, designates as at fair value through profit or loss
Those that the Bank, upon initial recognition, designates as available-for-sale
Those for which the Bank may not recover substantially all of its initial investment,
other than because of credit deterioration
After initial measurement, ‘Due from banks’ and ‘Loans and advances to customers’are
subsequently measured at amortised cost using EIR, less any allowance for impairment.
Amortised cost is calculated by taking into account any discount or premium on acquisition
and fees and costs that are an integral part of EIR. The amortisation is included in ‘Interest
and similar income’ in the statement of comprehensive income. The losses arising from
impairment are recognised in profit or lossunder ‘Credit loss expense’.
The Bank may enter into certain lending commitments where the loan, on drawdown, is
expected to be classified as held-for-trading because the intent is to sell the loans in the
short term. These commitments to lend are recorded as derivatives and measured at fair
value through profit or loss.
Where the loan, on drawdown, is expected to be retained by the Bank, and not sold in the
short term, the commitment is recorded only when it is an onerous contract that is likely to
give rise to a loss (e.g., due to a counterparty credit event).
(ix) Borrowed funds
Borrowed funds are contractual obligations to local and foreign financial institutions.
After initial measurement, borrowed funds are subsequently measured at amortised cost
using the EIR. The amortised cost of borrowed funds is calculated using EIR by taking into
account any transaction costs related to the transaction.
An analysis of the Bank’s‘Borrowed funds’is disclosed in Note 24.
(x) Due to banks
This includes deposits from other banks and financial institutions in foreign currency and
local currency accounts and time deposits placed by local and foreign commercial banks
and BoM (Note 21).
After initial measurement, due to banks are subsequently measured at amortised cost using
the EIR.
(xi) Due to customers
This includes current, savings, time deposits and bank guarantee fund from customers
(Note 23).
After initial measurement, due to customers are subsequently measured at amortised cost
using the EIR.
(xii) ‘Day 1’ profit or loss
When the transaction price is different to the fair value of other observable current market
transactions in the same instrument or based on a valuation technique whose variables
include only data from observable markets, the Bank immediately recognizes the difference
between the transaction price and fair value (a ‘Day 1’ profit or loss) in the statement of
comprehensive income. In cases where fair value is determined using data which is not
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STATE BANK LLC
observable, the difference between the transaction price and model value is only recognised
in the statement of comprehensive income when the inputs become observable or when
the instrument is derecognized.
(xiii) Reclassification of financial assets
For a financial asset reclassified out of the available-for-sale financial investments category,
any previous gain or loss on that asset that has been recognised in equity is amortised
to profit or loss over the remaining life of the investment using the EIR. Any difference
between the new amortised cost and the expected cash flows is also amortised over the
remaining life of the asset using the EIR. If the asset is subsequently determined to be
impaired, then the amount recorded in equity is recycled to the statement of comprehensive
income.
The Bank may reclassify a non-derivative trading asset out of the held-for-trading financial
investments category and into the loans and advances category if it meets the definition
of loans and advances and the Bank has the intention and ability to hold the financial
asset for the foreseeable future or until maturity. If a financial asset is reclassified, and
if the Bank subsequently increases its estimates of future cash receipts as a result of
increased recoverability of those cash receipts, the effect of that increase is recognised as
an adjustment to the EIR from the date of the change in estimate.
Reclassification is at the election of management, and is determined on an instrument by
instrument basis. The Bank does not reclassify any financial instrument into the fair value
through profit or loss category after initial recognition.
(4) Derecognition of financial assets and financial liabilities
(i) Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of
similar financial assets) is derecognised when:
• The rights to receive cash flows from the asset have expired; or
• The Bank has transferred its rights to receive cash flows from the asset or has
assumed an obligation to pay the received cash flows in full without material delay
to a third party under a ‘pass-through’ arrangement; and either:
The Bank has transferred substantially all the risks and rewards of the asset; or
The Bank has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset
When the Bank has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement, and has neither transferred nor retained substantially
all of the risks and rewards of the asset nor transferred control of the asset, the asset is
recognised to the extent of the Bank’s continuing involvement in the asset. In that case,
the Bank also recognises an associated liability. The transferred asset and the associated
liability are measured on a basis that reflects the rights and obligations that the Bank has
retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Bank could be required to repay.
(ii) Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged,
cancelled or has expired. Where an existing financial liability is replaced by another from
STATE BANK LLC
the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition
of the original liability and the recognition of a new liability. The difference between the
carrying value of the original financial liability and the consideration paid is recognised in
statement of comprehensive income.
(5) Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase at a specified future date are not
derecognised from the statement of financial position as the Bank retains substantially all
of the risks and rewards of ownership. The corresponding cash received isrecognised in
the statement of financial position as an asset with a corresponding obligation to return
it, including accrued interest as a liability within ‘Repurchase agreements’, reflecting the
transaction’s economic substance as a loan to the Bank. The difference between the
sale and repurchase prices is treated as interest expense and is accrued over the life of
agreement using the EIR. Securities lent to counterparties are also retained in theirrespective
statement of financial position categories.
Conversely, securities purchased under agreements to resell at a specified future date are
not recognised in the statement of financial position. The consideration paid, including
accrued interest, is recorded in the statement of financial position, within ‘Reverse
repurchase agreements’, reflecting the transaction’s economic substance as a loan by the
Bank. The difference between the purchase and resale prices is recorded in ‘Interest and
similar income’ and is accrued over the life of the agreement using the EIR.
If securities purchased under agreement to resell are subsequently sold to third parties, the
obligation to return the securities is recorded as a short sale within financial liabilitiesheldfor-trading and measured at fair value with any gains or losses included in ‘Net trading
income’.
(6) Determination of fair value
The Bank measures certain financial instruments such as derivatives, available-for-sale
investments and properties at fair value at each statement of financial position date. Also,
fair values of financial instruments carried at amortised cost are measured for disclosure
purposes.
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The fair
value measurement is based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset
or liability
The principal or the most advantageous market must be accessible to the Bank.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best use.
The Bank uses valuation techniques that are appropriate in the circumstances and for
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which sufficient data are available to measure fair value, maximising the use of relevant
observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described as follows, based on
the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognized in the financial statements on a recurring basis,
the Bank determines whether transfers have occurred between Levels in the hierarchy by
re-assessing categorization (based on the lowest level input that is significant to the fair
value measurement as a whole) at the end of each reporting period.
External appraisers are involved for valuation of properties. Selection criteria include market
knowledge, reputation, independence and whether professional standards are maintained.
An analysis of fair values of financial instruments and further details as to how they are
measured are provided in Note 30.
(7) Impairment of financial assets
The Bank assesses at each statement of financial position date, whether there is any
objective evidence that a financial asset or a group of financial assets is impaired. A
financial asset or a group of financial assets is deemed to be impaired if, and only if, there
is objective evidence of impairment as a result of one or more events that have occurred
after the initial recognition of the asset (an incurred loss event) and that loss event (or
events) has an impact on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the borrower or a group of borrowers
is experiencing significant financial difficulty, the probability that they will enter bankruptcy
or other financial reorganization, default or delinquency in interest or principal payments,
and where observable data indicates that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or economic conditions that correlate with
defaults.
(i) Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Bank first assesses individually whether
objective evidence of impairment exists for financial assets that are individually significant,
or collectively for financial assets that are not individually significant. If the Bank determines
that no objective evidence of impairment exists for an individually assessed financial asset,
it includes the asset in a group of financial assets with similar credit risk characteristics
and collectively assesses them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is, or continues to be, recognised are not
included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the
loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future expected credit losses that have
not yet been incurred). The carrying amount of the asset is reduced through the use
STATE BANK LLC
of an allowance account and the amount of the loss is recognised in the statement of
comprehensive income. Interest income continues to be accrued on the reduced carrying
amount and is accrued using the rate of interest used to discount the future cash flows for
the purpose of measuring the impairment loss. The interest income is recorded as part of
‘Interest and similar income’.
Loans together with the associated allowance are written off when there is no realistic
prospect of future recovery and all collateral has been realised or has been transferred to
the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases
or decreases because of an event occurring after the impairment was recognised, the
previously recognised impairment loss is increased or reduced by adjusting the allowance
account. If a future write-off is later recovered, the recovery is credited to the ’Credit loss
expense’.
The present value of the estimated future cash flows is discounted at the financial asset’s
original EIR. If a loan has a variable interest rate, the discount rate for measuring any
impairment loss is the current EIR. If the Bank has reclassified financial assets to loans and
advances, the discount rate for measuring any impairment loss is the new EIR determined
at the reclassification date. The calculation of the present value of the estimated future
cash flows of a collateralised financial asset reflects the cash flows that may result from
foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is
probable.
For the purpose of a collective evaluation of impairment, financial assets are grouped based
on the credit risk characteristics of the loans and advances such as asset type, industry,
geographical location, collateral type, past-due status and other relevant factors.
Future cash flows on a group of financial assets that are collectively evaluated for
impairment are estimated on the basis of historical loss experience for assets with credit
risk characteristics similar to those in the group.Historical loss experience is adjusted on the
basis of current observable data to reflect the effects of current conditions on which the
historical loss experience is based and to remove the effects of conditions in the historical
period that do not exist currently.
The Bank adopted the basic approach where the impairment allowances are computed
on weighted average of historical loss experience of each risk grouping over the
outstanding balance.Estimates of changes in future cash flows reflect, and are directionally
consistent with, changes in related observable data from year to year (such as changes in
unemployment rates, property prices, commodity prices, payment status, or other factors
that are indicative of incurred losses in the group and their magnitude). The methodology
and assumptions used for estimating future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience.
See Note 9 for details of impairment losses on financial assets carried at amortised cost
and Note 15 for an analysis of the impairment allowance on loans and advances by class.
(ii) Available-for-sale financial investments
For available-for-sale financial investments, the Bank assesses at each financial position
date whether there is objective evidence that an investment is impaired.
In the case of debt instruments classified as available-for-sale, the Bank assesses
individually whether there is objective evidence of impairment based on the same criteria as
financial assets carried at amortised cost. However, the amount recorded for impairment
is the cumulative loss measured as the difference between the amortised cost and the
current fair value, less any impairment loss on that investment previously recognised in
the statement of comprehensive income. Future interest income is based on the reduced
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carrying amount and is accrued using the rate of interest used to discount the future cash
flows for the purpose of measuring the impairment loss.The interest income is recorded
as part of ‘Interest and similar income’. If, in a subsequent period, the fair value of a debt
instrument increases and the increase can be objectively related to a credit event occurring
after the impairment loss was recognised in the statement of comprehensive income, the
impairment loss is reversed through the statement of comprehensive income.
In the case of equity investments classified as available-for-sale, objective evidence would
also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its
cost.Where there is evidence of impairment, the cumulative loss measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that
investment previously recognised in the statement of comprehensive income- is removed
from equity and recognised in the statement of comprehensive income.Impairment losses
on equity investments are not reversed through profit or loss; increases in the fair value
after impairment are recognised in other comprehensive income.
(iii) Renegotiated loans
Where possible, the Bank seeks to restructure loans rather than to take possession of
collateral. This may involve extending the payment arrangements and the agreement of
new loan conditions. Once the terms have been renegotiated, any impairment is measured
using the original EIR as calculated before the modification of terms and the loan is no
longer considered past due. Management continually reviews renegotiated loans to ensure
that all criteria are met and that future payments are likely to occur. The loans continue to
be subject to an individual or collective impairment assessment, calculated using the loan’s
original EIR.
(iv) Collateral repossessed
Repossessed assets are initially recognised at the lower of their fair values less costs to sell
and the amortised cost of the related outstanding loans on the date of the repossession,
and the related loans and advances together with the related impairment allowances are
derecognised from the statement of financial position. Subsequently, repossessed assets
are measured at the lower of their cost and fair value less costs to sell and are included
in ‘Other assets’.
(8) Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
statement of financial position if, and only if, there is a currently enforceable legal right
to offset the recognised amounts and there is an intention to settle on a net basis, or to
realise the asset and settle the liability simultaneously. This is not generally the case with
master netting agreements, therefore, the related assets and liabilities are presented gross
in the statement of financial position.
(9) Leasing
The determination of whether an arrangement is a lease, or contains a lease, is based on
the substance of the arrangement and requires an assessment of whether the fulfilment of
the arrangement is dependent on the use of a specific asset or assets and the arrangement
conveys a right to use the asset.
Bank as a lessee
Leases that do not transfer to the Bank substantially all the risks and benefits incidental
to ownership of the leased items are operating leases. Operating lease payments are
recognised as an expense in the statement of comprehensive income on a straight-line basis
STATE BANK LLC
over the lease term. Contingent rental payable is recognised as an expense in the period in
which they are incurred.
Bank as a lessor
Leases where the Bank does not transfer substantially all of the risk and benefits of
ownership of the asset are classified as operating leases. Initial direct costs incurred in
negotiating operating leases are added to the carrying amount of the leased asset and
recognised over the lease term on the same basis as rental income. Contingent rents are
recognised as revenue in the period in which they are earned.
(10) Recognition of income and expenses
Revenue is recognised to the extent that it is probable that the economic benefits will flow
to the Bank and the revenue can be reliably measured. The following specific recognition
criteria must also be met before revenue is recognised.
(i) Interest and similar income and expense
For all financial instruments measured at amortised cost, interest bearing financial assets
classified as available-for-sale and financial instruments designated at fair value through
profit or loss, interest income or expense isrecorded using EIRwhich is the rate that exactly
discounts estimated future cash payments or receiptsthrough the expected life of the
financial instrument or a shorter period, where appropriate, to the net carryingamount of
the financial asset or financial liability. The calculation takes into account all contractual
terms of thefinancial instrument (for example, prepayment options) and includes any fees
or incremental costs that aredirectly attributable to the instrument and are an integral part
of the EIR, but not future credit losses.
The carrying amount of the financial asset or financial liability is adjusted if the Bank revises
its estimates ofpayments or receipts. The adjusted carrying amount is calculated based on
the original EIR and the change incarrying amount is recorded as ‘Interest and similar income’
for financial assets and ‘Interest and similar expense’ for financial liabilities. However, for a
reclassified financial asset for which the Banksubsequently increases its estimates of future
cash receipts as a result of increased recoverability of those cashreceipts, the effect of that
increase is recognised as an adjustment to the EIR from the date of the change inestimate.
Once the recorded value of a financial asset or a group of similar financial assets has been
reduced due to an impairment loss, interest income continues to be recognised using the
rate of interest used to discount the future cash flows for the purpose of measuring the
impairment loss.
(ii) Fee and commission income
The Bank earns fee and commission income from a diverse range of services it provides to
its customers. Fee income can be divided into the following two categories:
Fee income earned from services that are provided over a certain period of time
Fees earned for the provision of services over a period of time are accrued over that
period. These fees include commission income and asset management, custody and other
management and advisory fees.
Loan commitment fees for loans that are likely to be drawn down and other credit related
fees are deferred (together with any incremental costs) and recognised as an adjustment
to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan
commitment fees are recognised over the commitment period on a straight-line basis.
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Fee income from providing transaction services
Fees arising from negotiating or participating in the negotiation of a transaction for a
third party, such as the arrangement of the acquisition of shares or other securities or the
purchase or sale of businesses, are recognised on completion of the underlying transaction.
Fees or components of fees that are linked to a certain performance are recognised after
fulfilling the corresponding criteria.
(iii) Net trading income
Results arising from trading activities include all gains and losses from changes in fair value
of financial assets and financial liabilities ‘held-for-trading’ including derivatives.
(11) Cash and cash equivalents
Cash and cash equivalents as referred to in the cash flow statement comprises cash on
hand, non-restricted current accounts with BoM and amounts due from banks on demand
or with an original maturity of three months or less.
(12) Property and equipment
Property and equipment are initially stated at cost excluding the costs of day-to-day
servicing, less accumulated depreciation and accumulated impairment in value. Changes in
the expected useful life are accounted for by changing the amortization period or method,
as appropriate, and treated as changes in accounting estimates. Depreciation is calculated
using the straight-line method to write down the cost of property and equipment to their
residual values over their estimated useful lives. Land is not depreciated. The estimated
useful lives of the assets are as follows:
Buildings
Computer hardware
40 years
3 years
Office furniture and equipment
10 years
Motor vehicles
10 years
Propertyand equipment transferred from customers is initially measured at fair value at
thedate on which control is obtained.
Property is subsequently measured at fair value less accumulated depreciation and
impairment losses recognized at the date of revaluation. Valuations are performed with
sufficient frequency to ensure that the fair value of a revalued asset does not differ
materially from its carryingamount.
A revaluation surplus is recorded in other comprehensive income and credited to the asset
revaluation reserve in equity.However, to the extent that it reverses a revaluation deficit of
the same asset previously recognisedin profit or loss, the increase is recognised in profit and
loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets
an existing surplus on the same assetrecognised in the asset revaluation reserve.
An item of property and equipment is de-recognisedupon disposal or when no future
economic benefits are expected from its use or disposal. Any gain or lossarising on derecognition of the asset (calculated as the difference between the net disposal proceedsand
the carrying amount of the asset) is included in the statement of comprehensive income.
The residual values, useful lives and methods of depreciation of property and equipment
arereviewed at each financial year end and adjusted prospectively, if appropriate.
STATE BANK LLC
(13) Intangible assets
The Bank’s intangible assets include the value of computer software and licenses.
An intangible asset is recognised only when its cost can be measured reliably and it is
probable that the expected future economic benefits that are attributable to it will flow to
the Bank.
Intangible assets acquired separately are measured on initial recognition at cost. The cost
of intangible assets acquired in a business combination is their fair value as at the date
of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation and any accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible
assets with finite lives are amortised over the useful economic life. The amortisation period
and the amortisation method for an intangible asset with a finite useful life are reviewed
at least at each financial yearend. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are accounted
for by changing the amortisation period or method, as appropriate, and they are treated as
changes in accounting estimates. The amortisation expense on intangible assets with finite
lives is presented as a separate line item in the statement of comprehensive income.
Amortisation is calculated using the straight-line method to write down the cost of intangible
assets to their residual values over their estimated useful lives as follows:
Computer software (core banking software)
2-10 years
Software licenses1-10years
(14) Impairment of non-financial assets
The Bank assesses at each statement of financial position date whether there is an indication
that an asset may be impaired. If any indication exists, or when annual impairment testing
for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and
its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. In determining fair value less costs to sell,
an appropriate valuation model is used. These calculations are corroborated by valuation
multiples, quoted share prices for publicly traded subsidiaries or other available fair value
indicators.
For assets excluding goodwill, an assessment is made at each statement of financial
position date as to whether there is any indication that previously recognised impairment
losses may no longer exist or may have decreased. If such indication exists, the Bank
estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss
is reversed only if there has been a change in the assumptions used to determine the asset’s
recoverable amount since the last impairment loss was recognised. The reversal is limited
so that the carrying amount of the asset does not exceed its recoverable amount, nor
exceeds the carrying amount that would have been determined, net of depreciation, had
no impairment loss been recognised for the asset in prior years. Such reversal is recognised
in the statement of comprehensive income.
Impairment losses relating to goodwill are not reversed in future periods.
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(15) Financial guarantees
In the ordinary course of business, the Bank gives financial guarantees, consisting of letters
of credit, guarantees and acceptances. Financial guarantees are initially recognised in the
financial statements (within‘Other liabilities’) at fair value, being the premium received.
Subsequent to initial recognition, the Bank’s liabilityunder each guarantee is measured at
the higher of the amount initially recognised less cumulative amortization recognised in
the statement of comprehensive income, and the best estimate of expenditure required to
settle any financialobligation arising as a result of the guarantee.
Any increase in the liability relating to financial guarantees is recorded in the statement of
comprehensive income in ‘Credit lossexpense’. The premium received is recognisedas‘Net
fees and commission income’ on astraight line basis over the life of the guarantee.
(16) Employee benefits
(i) Short term benefits
Wages, salaries and other salary related expenses are recognised as an expense in the
year in which the associated services are rendered by employees of the Bank. Short term
accumulating compensated absences such as paid annual leave are recognised when services
are rendered by employees that increase their entitlement to future compensated absences,
and short term non-accumulating compensated absences such as sick leave are recognised
when absences occur.
(ii)Defined contribution plans
As required by law, companies in Mongolia make contributions to the government pension
scheme, social and health fund. Such contributions are recognised as an expense in profit
or loss as incurred.
(17) Taxes
(i) Current tax
Current tax assets and liabilities for
expected to be recovered from or
laws used to compute the amount
the statement of financial position
the current and prior years are measured at the amount
paid to the taxation authorities. The tax rates and tax
are those that are enacted or substantively enacted by
date.
(ii) Deferred tax
Deferred tax is provided on temporary differences at the statement of financial position
date between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred tax liabilities are recognised for all taxable temporary
differences, except where the deferred tax liability arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business combination and at
the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, carry forward
of unused tax credits and unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences, and the carry
forward of unused tax credits and unused tax losses can be utilised except where the
deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and at
the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each statement of financial
STATE BANK LLC
position date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are reassessed at each statement of financial position
date and are recognised to the extent that it has become probable that future taxable profit
will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the year when the asset is realised or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted at the statement of financial
position date.
Current tax and deferred tax relating to items recognised directly in equity are also
recognised in equity and not in the statement of comprehensive income.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right
exists to set off current tax assets against current tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation authority.
(18) Dividends on ordinary shares
Dividends on ordinary shares are recognised as a liability and deducted from equity when
they are approved by the Bank’s shareholders. Interim dividends are deducted from equity
when they are declared and no longer at the discretion of the Bank.
(19) Other reserves
The other reserves recorded in equity on the Bank’s statement of financial position include:
Asset revaluation reserves
The revaluation surplus reserve is used to record the surplus arising from the revaluation of
the Bank’s buildings.
Reserves
The Bank maintains reserves in order to hedge itself against unforeseen risks. At the
discretion of the management, a portion of unappropriated retained earnings is transferred
to these reserves.
Social development fund
At the discretion of the management, a portion of retained earnings is contributed to the
fund which is used to address the Bank employees’ social and economic needs.
3.
BUSINESS COMBINATION
Acquisition in 2013
Acquisition of Savings Bank LLC
On 22 July 2013, the Board of Directors of BoM passed a resolution to officially abolish the
“Khadgalamj Bank” (Savings Bank) through a process whereby the Bank acquired certain
assets and assumed certain liabilities based on the Asset and Liability Transfer Agreement
executed on 23 July 2013 with Savings Bank’s receivership appointed by BoM. Savings Bank
was an unlisted company based in Ulaanbaatar and operated as a retail bank of 503 branches
and 3,268 employees as of 22 July 2013.
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Provisional fair values of the identifiable assets acquired and liabilities assumed at the date of
acquisition are as follows:
Carrying Value
Provisional Fair Values
MNT’000
MNT’000
36,616,385
36,616,385
953,232
953,232
269,329,636
269,329,636
272,439
272,439
62,377,622
62,377,622
550,452,999
550,452,999
12,084,015
12,084,015
932,086,328
932,086,328
769,035,518
769,035,518
11,450,810
11,450,810
Borrowed funds
250,657,704
250,657,704
Other liabilities
29,547,328
29,547,328
1,060,691,360
1,060,691,360
128,605,032
128,605,032
Assets
Intangible assets
Cash and balances with BoM
Loans and advances from customers
Other assets
Liabilities
Due to customers
Due to banks
Net liabilities assumed
No provisional goodwill or gain on bargain purchase was recognised in this transaction. During the
acquisition, the Bank recognised a receivable from DIC amounting to MNT 119,900 million and a
receivable from Savings Bank receivership amounting to MNT 8,705 million and which equates to the
net liabilities assumed by the Bank in its acquisition of Savings Bank. As of 31 December 2013, DIC
has fully paid the MNT 119,900 million while the receivable from Savings Bank receivership remains
outstanding (see Note 17).
The purchase price allocation for the acquisition of the Savings Bank has been prepared on a preliminary
basis due to unavailability of certain information to facilitate fair value computation, and reasonable
changes are expected as additional information becomes available.
Acquisition related costs of MNT 452 million have been charged to “other operating expense” in profit
or loss.
From date of acquisition, Savings Bank has contributed MNT 61,569 million of interest income and
MNT 1,951 million to the net profit before tax of the Bank. If the combination had taken place at the
beginning of the year, interest income from continuing operations would have been MNT 162,798
million and the profit from continuing operation for the Bank would have been MNT 8,224 million.
STATE BANK LLC
4.
INTEREST AND SIMILAR INCOME
2013
MNT’000
245,162
–
Reverse repurchase agreements
594,248
432,673
Due from banks
Net interest income on swaps
5.
Borrowed funds
6.
1,373,438
435,519
80,963,950
916,681
12,603,007
96,696,486
22,762
96,719,248
22,376,815
–
6,703,413
29,948,420
–
29,948,420
INTEREST AND SIMILAR EXPENSE
Due to banks
Due to customers
2013
2012
MNT’000
MNT’000
(As restated)
4,444,379
173,664
48,273,915
703,816
235,916
14,800,709
9,404,042
1,092,719
62,296,000
16,833,160
NET FEES AND COMMISION INCOME
Fees and commission income
Credit related fees and commissions
Remittance and other service fees
Card related fees and commissions
Account service fees and commissions
Fees and commission expenses
Bank service charges
Card transaction charges
Net fees and commission income
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2012
MNT’000
(As restated)
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2013
2012
MNT’000
MNT’000
(As restated)
4,436,493
1,498,959
1,458,071
1,366,988
245,856
226,488
125,434
161,357
8,760,511
759,135
434,590
343,275
214,266
40,571
777,865
254,837
7,982,646
504,298
STATE BANK LLC
7.
NET TRADING INCOME
Equities
Foreign exchange
2013
2012
MNT’000
MNT’000
(As restated)
4,058
993,102
997,160
–
5,077
5,077
Equities income includes the results of buying and selling, and changes in the fair value of
equity securities.
Foreign exchange income includes net gains and losses from trading in spot and forward
contracts and other currencyderivatives.
8.
OTHER OPERATING INCOME
2013
2012
MNT’000
MNT’000
(As restated)
Non-trading foreign exchange gain, net
Reversal on foreclosed properties (Note 17 )
2,808,603
2,545,557
1,269,619
–
Gain on disposal of property and equipment
8,110
–
156,572
45
5,518,842
1,269,664
2013
2012
MNT’000
MNT’000
(As restated)
Others
9.CREDIT LOSS EXPENSE
Loans and advances to customers (Note 15)
Other assets (Note 17)
10.
5,360,992
1,909,038
390,465
8,146
5,751,457
1,917,184
OTHER OPERATING EXPENSES
2013
MNT’000
Salaries and wages
Impairment loss on foreclosed properties (Note 17)
Depreciation expense(Note 18 )
Rental charges payable under operating lease
Deposit insurance
Amortisation expense(Note 19)
Others
2012
MNT’000
(As restated)
19,184,359
–
3,156,272
2,508,224
2,520,310
420,809
8,701,765
5,394,444
2,545,557
748,380
636,262
–
227,473
2,156,659
36,491,739
11,708,775
STATE BANK LLC
11.
INCOME TAX (BENEFIT)/EXPENSE
The components of income tax (benefit)/expense forthe years ended 31 December 2013 and
2012 are:
2013
2012
MNT’000
(As restated)
MNT’000
Current tax:
Current income tax
Deferred tax:
Relating to temporary differences
35
144,609
(360,729)
(360,694)
(114,881)
29,728
The Bank provides for income taxes on the basis of its income for financial reporting purposes,
adjusted for items which are not assessable or deductible for income tax purposes. The
income tax rate for profits of the Bank is 10% for the first MNT3 billion of taxable income
and 25% on the excess of taxable income over MNT 3 billion. Interest income on government
bonds is not subject to income tax. Impairment losses for loans and advances are deductible
for income tax purposes.
A reconciliation of income tax expense applicable to profit before tax at the statutory income
tax rate to income tax (benefit)/expense at the effective income tax rate of the Bank for the
years ended 31 December is as follows:
2013
MNT’000
Profit before taxation
Tax at statutory tax rate of 25% (2012: 10%)
Effect of loss carried forward
Effect of special tax rate
Effect of income subject to lower tax rate
Effect of income not subject to tax
Effect of expenses not deductible for tax purposes
Tax expense for the year
2012
MNT’000
(As restated)
6,678,700
1,268,340
1,669,675
–
(52)
(450,000)
(1,818,700)
238,383
126,834
(144,609)
–
–
(247,267)
294,770
(360,694)
29,728
The effective income tax rate for 2013 is (5.40%) (2012: 2.34%).
12.CASH AND BALANCES WITH BoM
2013
MNT’000
Cash on hand
Current account with BoM
2012
MNT’000
53,217,481
278,714,470
5,136,866
52,482,377
331,931,951
57,619,243
Current accounts with BoM are maintained in accordance with BoM regulations. The balances
maintained with BoM are determined at not less than 12.0% of customer deposits based on
average balance of two (2) weeks. As at 31 December 2013, the average reserves required by
BoM for that period of 2 weeks was MNT 113,279.649 million (2012: MNT 18,580.670 million)
for local currency and MNT 9,964.815 million (2012: MNT 5,730.770 million) for foreign
currency maintained on current accounts with BoM.
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STATE BANK LLC
13.DUE FROM BANKS
2013
2012
MNT’000
(As restated)
MNT’000
36,487,848
Placement with other banks and financial institutions
10,927,370
Due from banks represent local and foreign currency current accounts and deposits maintained
with foreign and local financial institutions.
14.DERIVATIVE FINANCIAL INSTRUMENTS
The table below shows the fair values of derivative financial instruments recorded as assets
or liabilities together with their notional amounts. The notional amount, recorded gross, is
the amount of a derivative’s underlying asset, reference rate or index and is the basis upon
which changes in the value of derivatives are measured. The notional amounts indicate the
volume of transactions outstanding at the year end and are indicative of neither the market
risk nor the credit risk.
Notional
Amount
2013
MNT’000
Forwards
Swaps
Fair Value
Assets
2013
MNT’000
Liabilities
2013
MNT’000
Fair Value
Notional
Amount
2012
MNT’000
Assets
Liabilities
2012
MNT’000
(As restated)
2012
MNT’000
(As restated)
13,317,929
11,088,600
362,676
193,355
384,396
28,847
2,001,542
–
50,422
–
54,164
–
24,406,529
556,031
413,243
2,001,542
50,422
54,164
At their inception, derivatives often involve only a mutual exchange of promises with little or
no transfer of consideration. However, these instruments frequently involve a high degree
of leverage and are very volatile. A relatively small movement in the value of the asset, rate
or index underlying a derivative contract may have a significant impact on the profit or loss
of the Bank.
The Bank’s exposure under derivative contracts is closely monitored as part of the overall
management of its market risk (see also Note 29.4).
15.
LOANS AND ADVANCES TO CUSTOMERS
Business loans
Mortgage loans
Consumer loans
Agricultural loans
Accrued interest receivables
Gross loans and advances to customers
Allowance for impairment losses
Net loans and advances to customers
2013
2012
MNT’000
MNT’000
(As restated)
208,786,359
195,221,884
489,062,425
46,809,938
82,151,352
93,346,570
8,131,305
–
939,880,606
183,629,227
11,766,455
1,416,099
951,647,061
(9,463,759)
185,045,326
(4,086,369)
942,183,302
180,958,957
STATE BANK LLC
Transferred financial assets that are not derecognised in their entirety
In October 2012, the Bank sold the rights to 100% of the cash flows arising on a portfolio
of fixed rate mortgage loans to Mongolian Mortgage Corporation LLC (“MIK”) but provided
guarantees of the performance of the loans. The Bank has determined that substantially
all the risks and rewards of the portfolio were retained and, consequently, the loans were
not derecognised. The Bank accounted for the transaction as a collateralised borrowing and
recorded the cash received as financial liability. The carrying amount of the transferred loan
portfolio as at 31 December 2012 was MNT 1,493 million and that of the liability was MNT
1,493 million. In April 2013, the Bank sold additional mortgage loans amounting to MNT 1,668
million. Subsequently, the Bank purchased back MNT 2,889 million of the loan. The carrying
amount of the remaining transferred loan portfolio as at 31 December 2013 was MNT 272
million and that of the liability was MNT 272 million.
Impairment allowance for loans and advances to customers
A reconciliation of the allowance for impairment losses for loans and advances to customers,
by class, is as follows:
Business
Consumer
Mortgage
Agricultural
Total
MNT’000
MNT’000
MNT’000
MNT’000
MNT’000
At 31 December 2013
At 1 January 2013
Charge for the year
Recoveries
Foreign exchange
difference
At 31 December 2013
Individual impairment
Collective impairment
Gross amount of loans,
individually determined
to be impaired, before
deducting any individually
assessed impairment
allowance
3,804,100
8,109,365
(3,153,052)
15,241
388,175
(9,175)
267,028
220,672
(224,785)
–
29,792
–
4,086,369
8,748,004
(3,387,012)
15,265
45
1,088
–
16,398
8,775,678
394,286
264,003
29,792
9,463,759
4,349,970
4,425,708
–
394,286
–
264,003
–
29,792
4,349,970
5,113,789
8,775,678
394,286
264,003
29,792
9,463,759
11,725,761
–
–
–
11,725,761
Consumer
MNT’000
Mortgage
MNT’000
Agricultural
MNT’000
Business
MNT’000
Total
MNT’000
At 31 December 2012
(As restated)
At 1 January 2012
Charge for the year
Recoveries
Foreign exchange
difference
At 31 December 2012
1,883,516
2,019,355
(102,196)
3,425
16,119
4,172
(5,047)
(3)
274,320
7,638
(14,884)
(46)
–
–
–
–
2,173,955
2,031,165
(122,127)
3,376
3,804,100
15,241
267,028
–
4,086,369
Individual impairment
Collective impairment
2,236,426
1,567,674
3,804,100
–
15,241
15,241
–
267,028
267,028
–
–
–
2,236,426
1,849,943
4,086,369
–
–
–
4,694,872
Gross amount of loans,
individually determined
to be impaired, before
deducting any individually
assessed impairment
allowance
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4,694,872
STATE BANK LLC
The fair value of the collateral that the Bank holds relating to loans individually determined to
be impaired at 31 December 2013 amounts to MNT 30,118 million (2012: MNT 8,157 million).
These values are estimated by management based on the latest available information. For
a more detailed description, see ‘Collateral and other credit enhancement’ under Note 29.2.
16.FINANCIAL INVESTMENTS
Available-for-sale:
Quoted equities at fair value
Unquoted equities at cost
Government bonds
2013
2012
MNT’000
MNT’000
(As restated)
27,600
515,411
50,175,187
50,718,198
Held-to-maturity:
BoM treasury bills
Government bonds
–
242,128
–
242,128
209,565,656
94,713,091
36,016,169
13,218,073
304,278,747
49,234,242
Unquoted equities represent investment made in unquoted companies. Investments in unquoted
equities are recorded at cost as the fair value cannot be measured reliably. The variability in the
range of reasonable fair value estimates derived from valuation techniques is expected to be
significant. There is no market for these investments and the Bank does not intend to dispose of
these investments in the foreseeable future.
BoM treasury bills (“BoM bills”) are short term investments acquired at a discount.
Government bonds are interest bearing long term bonds acquired either at a discount or premium.
17.
OTHER ASSETS
2013
MNT’000
Due from Savings Bank receivership
Promissory note
Consumables and other office supplies
Prepaid expenses
Foreclosed properties
Others
Less: Allowance for impairment losses on other receivables
Allowance for impairment losses on foreclosed properties
Impairment allowance on other assets
At 1 January
Charge for the year (Note 9)
Foreign exchange difference
At 31 December
Impairment allowance on foreclosed properties
At 1 January
Reversal ( Note 8)
At 31 December
2012
MNT’000
(As restated)
11,953,154
7,244,958
1,304,893
1,203,153
–
2,151,788
23,857,946
(400,008)
–
–
–
147,524
188,773
3,937,657
507,773
4,781,727
(9,592)
(2,545,557)
23,457,938
2,226,578
9,592
390,465
(49)
400,008
1,418
8,146
28
9,592
2,545,557
–
(2,545,557)
–
–
2,545,557
–
2,545,557
STATE BANK LLC
18.PROPERTY AND EQUIPMENT
MNT’000
Office
Computer
furniture and
hardware
equipment
MNT’000
MNT’000
MNT’000
MNT’000
MNT’000
10,532,116
2,008,170
2,133,231
1,194,194
–
15,867,711
511,178
Land and
buildings
Motor Constructionvehicles
in-progress
Total
At 31 December 2013
At cost
At 1 January 2013
Additions
309,066
1,087,622
6,161
1,304,994
3,219,021
Write-off
Disposals
Acquisition of Savings
Bank
Revaluations
Reclassification
–
–
(201,704)
–
(17,097)
–
–
(16,828)
–
–
(218,801)
(16,828)
20,474,850
9,735,734
9,807,368
4,048,963
4,096,059
48,162,974
14,029,848
690,195
–
(38,253)
–
38,253
–
–
–
(690,195)
14,029,848
–
At 31 December 2013
46,238,187
11,813,013
13,049,377
5,232,490
4,710,858
81,043,925
1,444,922
1,611,224
1,191,199
443,350
–
4,690,695
830,494
1,430,928
610,168
284,682
–
3,156,272
–
–
(201,704)
–
(17,097)
–
–
(15,940)
–
–
(218,801)
(15,940)
1,118,758
6,174,931
3,373,669
879,231
–
11,546,589
Accumulated
depreciation
At 1 January 2013
Charge for the year
(Note 10)
Write-off
Disposals
Acquisition of Savings
Bank
Revaluations
1,913,207
–
–
–
–
1,913,207
–
(6,375)
6,375
–
–
–
At 31 December 2013
5,307,381
9,009,004
5,164,314
1,591,323
–
21,072,022
Net carrying amount
40,930,806
2,804,009
7,885,063
3,641,167
4,710,858
59,971,903
Motor Constructionvehicles
in-progress
Total
Reclassification
Land and
buildings
Office
Computer
furniture and
hardware
equipment
MNT’000
MNT’000
MNT’000
MNT’000
MNT’000
MNT’000
At cost
At 1 January 2012
Additions
Write-off
At 31 December 2012
10,508,780
23,336
–
10,532,116
1,796,248
279,960
(68,038)
2,008,170
2,116,359
16,872
2,133,231
761,898
432,296
–
1,194,194
–
–
–
–
15,183,285
752,464
(68,038)
15,867,711
Accumulated
depreciation
At 1 January 2012
Charge for the year
(Note 10)
Write-off
At 31 December 2012
1,181,674
263,248
1,461,907
217,355
1,005,213
185,986
361,559
81,791
–
–
4,010,353
748,380
–
1,444,922
(68,038)
1,611,224
–
1,191,199
–
443,350
–
–
(68,038)
4,690,695
Net carrying amount
9,087,194
396,946
942,032
750,844
–
11,177,016
At 31 December 2012
(As restated)
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STATE BANK LLC
Included within land and buildings are buildings that are carried at fair value. Had these
buildings been recognised under the cost model as at 31 December 2013, the carrying amount
of the land and buildings would have been MNT 28,814 million (2012: MNT 9,087 million).
As at 31 December 2013 the Bank had contractual commitments to acquire property and
equipment of MNT 667 million (2012: 114 million) (Refer to Note 28).
19.
INTANGIBLE ASSETS
Computer
software
Software
licenses
Total
MNT’000
MNT’000
MNT’000
1,469,126
245,750
1,714,876
257,964
81,289
339,253
At 31 December 2013
At cost
At 1 January 2013
Additions
Acquisition of Savings Bank
1,615,330
237,747
1,853,077
At 31 December 2013
3,342,420
564,786
3,907,206
359,667
369,840
803,218
104,246
50,969
96,627
463,913
420,809
899,845
At 31 December 2013
1,532,725
251,842
1,784,567
Net carrying amount
1,809,695
312,944
2,122,639
Computer
software
Software
licenses
Total
MNT’000
MNT’000
MNT’000
1,063,084
142,856
1,205,940
406,042
102,894
508,936
1,469,126
245,750
1,714,876
At 1 January 2012
167,318
69,122
236,440
192,349
35,124
227,473
At 31 December 2012
359,667
104,246
463,913
Net carrying amount
1,109,459
141,504
1,250,963
Amortisation
At 1 January 2013
Acquisition of Savings Bank
At 31 December 2012
At cost
At 1 January 2012
Additions
At 31 December 2012
Amortisation
STATE BANK LLC
20.DEFERRED TAX ASSET - NET
2013
2012
MNT’000
(As restated)
MNT’000
At 1 January
Recognised in statement of comprehensive income
(Note 11)
At 31 December
114,881
360,729
475,610
–
114,881
114,881
Deferred tax
liability
Deferred tax
asset
Net deferred
asset
MNT’000
MNT’000
MNT’000
(172,351)
–
(172,351)
- Deferral of loan origination fees
–
434,275
434,275
Loss carried forward
- Loss carried forward
–
213,686
213,686
(172,351)
647,961
475,610
Deferred tax
liability
Deferred tax
asset
Net deferred
asset
MNT’000
MNT’000
MNT’000
(4,663)
–
(4,663)
–
(4,663)
119,544
119,544
119,544
114,881
As at 31 December 2013
- Interest income on impaired loans
- Interest income on impaired loans
- Deferral of loan origination fees
21.DUE TO BANKS
2013
MNT’000
Deposits from other banks and financial institutions
22.
2012
MNT’000
(As restated)
144,149,939
17,051,626
2013
2012
MNT’000
MNT’000
REPURCHASE AGREEMENTS
118,138,297
-
The Bank sold BoM bills with an agreement to repurchase them in the future. The repurchase
agreement duration was 2 days. The fair value of the bills approximates its carrying amount
at 31 December 2013.
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STATE BANK LLC
23.DUE TO CUSTOMERS
2013
MNT’000
Government deposits
- Current accounts
- Demand deposits
- Time deposits
- Bank guarantee fund
Private sector deposits
- Current accounts
- Demand deposits
- Time deposits
Individual deposits
- Current accounts
- Demand deposits
- Time deposits
24.
2012
MNT’000
(As restated)
172,570,403
21,636
56,736,823
1,012
26,859,394
116,215
1,610,150
–
106,403,588
1,019,301
38,014,314
2,890,353
69,869,532
553,690
15,814,148
1,319,961
71,019,518
154,434,655
430,818,253
226,619
1,034,156,475
5,713,314
22,229,412
49,699,704
106,315
193,891,835
BORROWED FUNDS
2013
MNT’000
Deposit Insurance Corporation Fund
2012
MNT’000
(As restated)
36,965,327
–
Borrowed funds from foreign financial institutions
Export Import Bank of China
Russian Agricultural Bank
253,798
427,712
28,470,369
–
28,724,167
427,712
Borrowed funds from government organisations
Bank of Mongolia
Ministry of Finance
Ministry of Finance - Asian Development Bank
Ministry of Finance - Micro-finance Development Fund
Labor Service Center/Center for Employment Service
SME Development Fund
Ministry of Finance/Japan Bank for International Cooperation
HFC LLC/OSSK LLC/Mortgage Financing Corporation
Mercy Corps
Market and Pasture Management Development Project
MMC LLC/Mongolian Ipotek Corporation
Total borrowed funds
131,594,226
–
82,912,655
51,135,178
684,808
770,538
543,803
1,260,000
3,429,713
23,592,953
–
14,524,232
2,831,957
2,997,845
6,428,622
14,452
–
–
625,000
285,930
–
1,503,680
252,944,119
72,191,473
318,633,613
72,619,185
STATE BANK LLC
Borrowings are all unsecured.
Most of the borrowing agreements require compliance with certain debt covenants, which can
be grouped into the following categories:
capital related ratios (such as risk weighted capital adequacy ratio, ratio between tier 1
capital and total capital);
financial risks related ratios (such as aggregate foreign currency open position, single
currency foreign exchange risk ratio, liquidity ratio);
credit related ratios (such as single largest borrowers to the equity ratio, related party
lending ratio and aggregate large exposures ratio);
other ratios (non-current assets to total assets, non-performing loans to total loan ratio,
etc.).
In the case of non-compliance with covenants eg., if the Bank defaults, the borrowing becomes
immediately payable on demand. For this reason, the Bank monitors its compliance with BoM
prudential ratios and other debt covenants on a monthly basis through the Planning and Analysis
Department. The Financial Department prepares the Bank’s performance results against ratio
requirements and presents the result to the Asset and Liability Committee (ALCO).
As of 31 December 2013 and 2012, the Bank has complied with all covenants.
25.
OTHER LIABILITIES
2013
2012
MNT’000
MNT’000
(As restated)
Payables and accrued expenses
1,933,641
1,414,455
Delay on clearing settlement
2,533,991
442,897
35,770
–
4,503,402
1,857,352
Others
26.
SHARE CAPITAL, OTHER RESERVES AND DIVIDENDS
Share Capital
Number of shares authorized,
issued and fully paid
of MNT 1,000,000 each
2013
At 31 December
113,000
2012
28,000
Amount
2013
2012
MNT’000
MNT’000
113,000,000
28,000,000
On 28 August 2013, through the approval of the Board of Directors, the Bank issued an
additional 85 thousand shares at par value to Deposit Insurance Corporation, for cash of
MNT 85,000 million.
74
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STATE BANK LLC
Other reserves
At 31 December 2013
Social
development
fund
MNT’000
Asset
revaluation
reserve
MNT’000
Reserves
MNT’000
Total other
reserves
MNT’000
At 1 January
417,552
693,669
Recovery
540,000
–
–
540,000
–
–
12,116,641
12,116,641
(720)
–
–
(720)
956,832
693,669
12,116,641
13,767,142
217,041
–
–
217,041
Revaluation surplus
Distributions
At 31 December 2013
–
1,111,221
At 31 December 2012
At 1 January
Appropriations
Distributions
At 31 December 2012
739,791
693,669
–
1,433,460
(539,280)
–
–
(539,280)
417,552
693,669
–
1,111,221
Dividends
The Bank has declared and paid dividends during 2013 and 2012 amounting to MNT 833 million
and MNT 2,437 million, respectively.
27.
ADDITIONAL CASH FLOW INFORMATION
2013
2012
MNT’000
MNT’000 (As
restated)
Due from banks
BoM treasury bills
331,931,951
36,487,848
209,565,656
57,619,243
10,927,370
36,016,169
Government bonds
144,888,278
13,218,073
722,873,733
117,780,855
(123,244,464)
(24,311,440)
(12,364,963)
(1,442,100)
–
(14,091,208)
(114,123,755)
(13,218,073)
473,140,551
64,718,034
Less: Minimum reserve with Bank ofMongolia
not available to finance the Bank’s day to day operations (refer
Note 12)
Less: Placement with other banks with original maturities of
more than three months
Less: BoM bills with original maturities of more than three
months
Less: Government bonds with original maturities of more than
three months
Total cash and cash equivalents
STATE BANK LLC
28.CONTINGENT LIABILITIES AND COMMITMENTS
To meet the financial needs of customers, the Bank enters into various irrevocable commitments
and contingent liabilities. Even though these obligations may not be recognised on the statement
of financial position, they do contain credit risk and are therefore part of the overall risk of the
Bank (see Note 29.2).
2013
2012
MNT’000
MNT’000
Contingent liabilities
Uncovered performance guarantee
Commitments
Undrawn commitments to lend
Total
785,066
–
785,066
–
16,392,428
5,423,052
667,350
114,277
17,059,778
5,537,329
17,844,844
5,537,329
Guarantees commit the Bank to make payments on behalf of customers in the event of a
specific act, generally related to tender and bid auction. They generally carry the same risk as
loans even though they are of a contingent nature. No material losses are anticipated as a result
of these transactions.
Commitments
Commitments to extend credit represent contractual commitments to make loans and revolving
credit. Commitments have fixed expiry dates or other termination clauses. Since commitments
may expire without being drawn upon and require the customer to meet specific requirements,
the total contract amounts do not necessarily represent future cash requirements.
Legal claims
Litigation is a common
undertaken. The Bank
professional advice has
makes adjustments to
financial standing.
76
occurrence in the Banking industry due to the nature of the business
has formal controls and policies for managing legal claims. Once
been obtained and the amount of loss reasonably estimated, the Bank
account for any adverse effects which the claims may have on its
Operating lease commitments – Bank as lessee
The Bank as lessee has entered into operating leases of various buildings under cancellable
operating lease agreements. The Bank is required to give a month’s notice for the termination
of those agreements. The leases have no renewal option, purchase option or escalation clauses
included in the agreements. There are no restrictions placed upon the Bank by entering these
leases.
www.statebank.mn
STATE BANK LLC
29.
RISK MANAGEMENT
29.1 Introduction
The main risks inherent in the Bank’s operations are credit risk, liquidity risk, interest rate
risk, foreign exchange risk and operational risk, all of which are controlled by the Bank’s Risk
Management Division, an independent unit reporting directly to the Chief Executive Officer. The
primary goal of risk management is to allocate capital to business segments commensurate with
their risk/reward profiles and to maximize the Bank’s risk-adjusted return on capital through
a process of ongoing identification, measurement and monitoring, subject to risk limits and
other controls. This process of risk management is critical to the Bank’s continuing profitability
and each individual within the Bank is accountable for the risk exposures relating to his or her
responsibilities.
The independent risk control process does not include business risks such as changes in the
environment, technology and industry. They are monitored through the Bank’s strategic planning
process.
The Bank has a clearly defined risk management framework which is not designed to eliminate
the risk but to optimize the risk and return trade off. The risk management framework in place
is to ensure that:
(i) Individuals who manage the risks clearly understand the requirement and measurement
system;
(ii) The Bank’s risk exposure is within the limits established by the Board of Directors
(“BOD”);
(iii) The risk measured is in line with the business strategy as approved by the BOD;
(iv) The capital allocation is consistent with the risk of exposures; and
(v) The Bank’s performance objectives are aligned with the risk appetite and tolerance.
Risk management structure
The Board of Directors is responsible for the overall risk management approach and for
approving the risk policy and credit policy which specify risk appetite and tolerances.
Board Risk Management Committee (“BRMC”)
The Board Risk Management Committee assists the Board of Directors in monitoring and
controlling the risk exposures of the Bank. The BRMC sets the comprehensive risk management
approach and approves the risk strategies and principles that establish the objectives guiding all
the Bank’s activities and implement the necessary policies and procedures.
Risk Management Committee (“RMC”)
RMC is responsible for anticipating and managing new and ongoing financial risk across business
departments and maintaining appropriate limits on risk taking, adequate systems and standards
for measuring operational risk, credit risk and performance, comprehensive risk reporting and
management review process. Two levels of risk management committees operate at the bank:
the central RMC and the branch level risk management committees.
Internal Audit
Risk management processes throughout the Bank are audited annually by the internal audit
function, which examines both the adequacy of the procedures and the Bank’s compliance with
the procedures. Internal audit discusses the results of all assessments with management, and
reports its findings and recommendations to the BOD and BRMC.
STATE BANK LLC
Asset and Liability Committee (“ALCO”)
ALCO has the overall responsibility for the development of the risk strategy, making
recommendation to the BOD and BRMC. Once approved, ALCO implements the principles,
frameworks, policies and limits relating to interest rate, liquidity and market risks.
Credit Committees
It is the credit decision making body of the Bank and operates within clearly defined parameters
authorised by an internal policy. The committees have the following main functions:
Review of the quality, composition and risk profile of the entire credit portfolio on an
ongoing basis;
Approval of limits of credit exposures to each sectors and geographical regions;
Approval of credit procedures;
Approval of credit classification and provisioning;
Approval of credit applications.
Risk Management Division (“RMD”)
The RMD is responsible for ensuring the management and implementation of the Bank’s risk
policy in all level through its three departments with specific responsibilities defined below:
Operational Risk Management Department
The operational risk management department is responsible for implementing and maintaining
risk related policies and procedures to ensure an independent control processes.
The department is responsible for monitoring compliance with operational risk principles,
identifying, measuring operational risk exposures and ensuring that contingent commitments
are within risk management and reporting system.
Special Assets Department
Main function of special asset department is to compensate the bank’s non-performing assets
and save Bank’s capital.
Credit Risk Management Department
The main responsibilities of credit risk management department are as follows:
(i) To conduct credit risk analysis and research;
(ii) To perform independent risk assessments for credit applications to determine the degree
of credit risk involved;
(iii) To monitor loan portfolio and make recommendations to diversify loan portfolio by
sectors and geographical regions;
(iv) Mitigate risk exposures of the Bank’s loan portfolio using various tools.
78
Risk measurement and reporting system
The Bank’s risks are measured using a method which reflects both the expected loss likely to
arise in normal circumstances and unexpected losses, which are an estimate of the ultimate
actual loss based on statistical models. The models make use of probabilities derived from
historical experience, adjusted to reflect the economic environment.
www.statebank.mn
STATE BANK LLC
Monitoring and controlling risks are primarily performed based on limits established by the
Bank. These limits reflect the business strategy and market environment of the Bank as well
as the level of risk that the Bank is willing to accept, with additional emphasis on selected
industries. In addition, the Bank monitors and measures the overall risk bearing capacity in
relation to the aggregate risk exposure across all risk types and activities.
Information compiled from all the businesses is examined and processed in order to analyse,
control and identify early risks. This information is presented and explained to the BOD, ALCO,
Risk Management and Credit Committees, and the head of each business division. The reports
include the aggregate credit exposure, credit metric forecasts, VaR, liquidity ratios and risk
profile changes.
Both ALCO and Risk Management Committee receive a comprehensive risk report every quarter
which is designed to provide all the necessary information to assess and conclude on the risk
exposure of the Bank. Bi-weekly briefing is presented to the ALCO on the utilisation of market
limits, analysis of VaR and liquidity, and any other risk developments.
Risk mitigation
As part of its overall risk management, the Bank uses VaR and basis sensitivity analysis to
measure and analyze exposures resulting from changes in interest rates, foreign currencies,
credit risks, and exposures arising from forecast transactions.
The Bank actively utilizes collaterals and personal guarantees to reduce its credit risks.
Excessive Risk Concentration
Concentrations arise when a number of counterparties are engaged in similar business activities,
or activities in the same geographic region or have similar economic features that would cause
their ability to meet contractual obligations to be similarly affected by changes in economic,
political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s
performance to developments affecting a particular industry or geographical location.
In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include
specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of
credit risks are controlled and managed accordingly.
At the individual basis, Bank of Mongolia sets the standards of limitation as follows:
(i) The maximum amount of the overall credit exposures issued and other credit-equivalent
assets to an individual creditor and his/her related persons shall not exceed 20% of the
capital of the Bank.
(ii) The maximum amount of the credit exposures issued and other credit-equivalent assets
shall not exceed 5% of the capital for one related person to the Bank, and the aggregation
of overall lending to the related persons shall not exceed 20% of the capital of the Bank.
The Bank’s policy requires it to maintain sufficient liquidity corresponding to the level of deposit
concentration.
29.2Credit risk
Credit risk is the risk that the Bank could incur a loss because its customers, clients or
counterparties fail to fulfill their contractual obligations. The Bank manages and controls credit
risk by carefully screening credit applications, setting interest rate adjusted for risk level, and
setting limits on credit exposures for individual counterparties, geographical area, and industry,
and monitoring exposures in relation to such limits.
The Bank has established a credit quality review process to provide early identification of
possible changes in the creditworthiness of counterparties, including regular collateral revisions.
The credit quality review process allows the Bank to identify potential losses and take early
corrective actions.
STATE BANK LLC
The Bank regularly examines and improves credit policies and procedures to keep its lending
activities in line with the best practice.
Credit-related Commitments Risks
The Bank makes available to its customers, guarantees and standby letters of credit, which
may require the Bank to make payments on their behalf. Such payments, if made, are collected
from customers based on the terms of the particular letters of guarantee. These commitments
expose the Bank to similar risks as loans; therefore the related risks are managed by the same
procedures and policies.
Maximum exposure to credit risk without taking account of any collateral and other
credit enhancements
The table below shows the maximum exposure to credit risk for the components of the
statement of financial position. The maximum exposure is shown gross, before the effect of
mitigation through the use of collateral agreements.
Gross
maximum
exposure
2013
MNT’000
Gross
maximum
exposure
2012
MNT’000
(excluding cash on hand)
278,714,470
52,482,377
36,487,848
10,927,370
556,031
50,422
951,647,061
185,045,326
50,718,198
242,128
304,278,747
49,234,242
21,129,865
354,792
1,643,532,220
298,336,657
Commitments
785,066
17,059,778
–
5,537,329
Total
17,844,844
5,537,329
1,661,377,064
303,873,986
Due from banks
Other assets
Total
Total credit risk exposure
Where financial instruments are recorded at fair value the amounts shown above represent the
current credit risk exposure but not the maximum risk exposure that could arise in the future
as a result of changes in values
80
Analysis of risk concentration
The distribution of financial assets by industry sector of the Bank, before taking into account
collateral held or other credit enhancements (maximum exposure) follows (amounts in
thousands):
www.statebank.mn
STATE BANK LLC
2013
Loans and
advances
Agriculture
Construction
Consumers
Education
Electricity and oil
Financial services
Healthcare
International organisations
Manufacturing
Mining and exploration
Public service
Real estate
Social services
Tourism
Transportation and
communications
Wholesale and retail
Others
*
**
***
Loans and
Financial
advances to
investments*
banks**
Others***
Total
55,445,178
46,348,462
744,929,398
3,483,928
8,512,099
7,575,015
3,810,903
441
24,079,122
2,641,403
2,356,018
10,174,596
53,790
3,893,929
–
–
–
–
–
354,996,945
–
–
–
–
–
–
–
–
–
–
–
–
–
315,202,318
–
–
–
–
–
–
–
–
–
–
–
–
–
21,685,896
–
–
–
–
–
–
–
–
55,445,178
46,348,462
744,929,398
3,483,928
8,512,099
699,460,174
3,810,903
441
24,079,122
2,641,403
2,356,018
10,174,596
53,790
3,893,929
13,175,756
–
–
–
13,175,756
22,384,534
2,782,489
951,647,061
–
–
354,996,945
–
–
315,202,318
–
22,384,534
–
2,782,489
21,685,896 1,643,532,220
Consists of held-to-maturity investments and available-for-sale investments
Consists of cash at BoM and due from banks
Consists of derivative and other receivables (included as part of ‘Other assets’)
2012
Agriculture
Construction
Consumers
Education
Electricity and oil
Financial services
Healthcare
International organisations
Manufacturing
Mining and exploration
Public service
Real estate
Social services
Tourism
Transportation and
communications
Wholesale and retail
Others
*
**
***
Loans and
advances
Financial
investments*
Loans and
advances to
banks**
5,892,932
22,182,496
105,864,914
1,355,737
2,964,393
636,966
2,362,252
936
10,826,387
6,692,284
627,313
7,266,854
596,187
152,410
–
–
–
–
–
49,476,370
–
–
–
–
–
–
–
–
–
–
–
–
–
63,409,747
–
–
–
–
–
–
–
–
1,534,172
–
–
–
1,534,172
15,864,359
224,734
–
–
–
–
–
–
15,864,359
224,734
185,045,326
49,476,370
63,409,747
405,214
Others***
Total
–
5,892,932
– 22,182,496
– 105,864,914
–
1,355,737
–
2,964,393
405,214 113,928,297
–
2,362,252
–
936
– 10,826,387
–
6,692,284
–
627,313
–
7,266,854
–
596,187
–
152,410
298,336,657
Consists of held-to-maturity investments and available-for-sale investments
Consists of cash at BoM and due from banks
Consists of derivative and other receivables (included as part of ‘Other assets’)
For details of the composition of the loans and advances to customers portfolio, refer to Note 15.
STATE BANK LLC
Collateral and other credit enhancements
The amount and type of collateral required depends on the assessment of the credit risk of the
borrower or counterparty and the type of loan granted. The main types of collateral obtained
are as follows:
(i) corporate lending: charges over real-estate properties, inventories, plants and equipment,
machineries and vehicles;
(ii) small business lending: charges over real estate properties and inventories;
(iii) consumer lending: charges over automobiles and assignment of income; and charges
over real estate properties;
(iv) residential mortgages: mortgages over residential properties.
The Bank also obtains guarantees from parent companies for loans to their subsidiaries and
personal guarantees from the main shareholders for the limited liability entities but the potential
benefits are not included in the above.
The Bank regularly monitors the market value of collateral and requests additional collateral
when necessary in accordance with the underlying agreement.
It is the Bank’s policy to dispose of repossessed properties in an orderly fashion. The proceeds
are used to reduce or repay the outstanding claim. The Bank does not occupy repossessed
properties for business use.
Credit quality per class of financial assets
The credit quality of financial assets is managed by the Bank using internal credit ratings. The
table below shows the credit quality by class of asset based on the Bank’s credit rating system.
The credit quality of loans and advances to customers is managed by the Bank using internal
credit rating.
The following table shows the description of credit risk grading system of the Bank:
Credit Rating
Grade Description
AExcellent
BGood
CSatisfactory
DSubstandard
82
It is the Bank’s policy to maintain accurate and consistent risk grades across the credit portfolio.
This facilitates the management of the applicable risks and the comparison of credit exposures
across all lines of loan products. The grading system is supported by a variety of financial and
statistical analytics, combined with processed portfolio and market information to provide the
main inputs for the measurement of counterparty risk. All risk grades are tailored to the various
loans exposures and are derived in accordance with the Bank’s grading policy across all risk
groupings reflecting varying degrees of risk of default and the availability of collateral or other
credit risk mitigation.
www.statebank.mn
15
Business loans
Consumer loans
Mortgage loans
Agriculture loans
17
16
Financial investments –
Quoted available-for-sale equities at fair value
Unquoted available-for-sale equities at cost
Government bonds
Held-to-maturity treasury bills
Other assets
Total
6,657,266
556,031
13
14
Due from banks
2,413,445
1,626,250,873
192,504,091
493,601,934
195,039,629
49,064,992
930,210,646
27,600
–
144,888,278
209,565,656
354,481,534
331,931,951
12
Notes
Excellent
MNT’000
–
8,229,805
5,937,294
663,586
593,002
48,034
7,241,916
–
–
–
–
–
987,889
–
–
Good
MNT’000
–
–
–
–
–
–
–
–
–
187,027
77,938
82,658
26,431
–
187,027
Satisfactory
MNT’000
Neither Past Due nor Impaired
12,026,587
41,116,427
9,236
55,539
182,372
–
247,147
–
–
–
–
–
28,842,693
–
–
Substandard
MNT’000
2013
–
–
–
–
515,411
–
–
–
–
–
–
515,411
–
–
515,411
Not rated
MNT’000
211,676,315
494,885,443
195,959,265
49,126,038
951,647,061
27,600
515,411
144,888,278
209,565,656
354,996,945
36,487,848
556,031
331,931,951
Total
MNT’000
6,689,833
21,129,865
20,450,158 1,696,749,701
13,147,756
481,726
117,831
13,012
13,760,325
–
–
–
–
–
–
–
–
individually
impaired
MNT’000
Past due or
The table below shows that credit quality by class of asset for all financial assets exposed to credit risk, based on the Bank’s internal credit rating
system. The amounts presented are gross of impairment allowances.
STATE BANK LLC
84
www.statebank.mn
17
Other assets
Total
15
Business loans
Consumer loans
Mortgage loans
280,065,672
2,711,616
–
66
170,703,584
345,200
–
66
–
69,256,377
7,984,013
93,463,194
49,234,242 –
–
–
16
Unquoted available-for-sale
equities
Government bonds
Held-to-maturity treasury bills
–
13,218,073
36,016,169
50,422
14
2,711,550
–
2,112,981
13
Due from banks
–
MNT’000
Good
–
57,619,243
12
MNT’000
Notes
Excellent
–
–
–
–
–
–
–
5,559
–
5,559
5,559
–
–
MNT’000
Satisfactory
Neither Past Due nor Impaired
STATE BANK LLC
–
–
6,115,174
–
12,335
11,739
–
596
–
–
–
–
6,102,839
MNT’000
Substandard
2012
242,128
–
–
–
–
–
242,128
–
–
242,128
–
–
–
MNT’000
Not rated
14,333,374
9,592
14,323,782
13,690,193
285,219
348,370
–
–
–
–
–
–
–
individually
impaired
MNT’000
Past due or
303,473,523
354,792
185,045,326
82,963,868
8,269,298
93,812,160
49,476,370
13,218,073
36,016,169
242,128
50,422
10,927,370
57,619,243
MNT’000
Total
STATE BANK LLC
Past due loans and advances to customers include those that are only past due by a few days.
An analysis of past due but not impaired loans, by age, is provided below.
Aging analysis of past due but not impaired loans by class of financial assets
2013
Less than More than 31 to
61 to 90 days
30 days
60 days
MNT’000
MNT’000
MNT’000
Business loans
Mortgage loans
Consumer loans
Agricultural loans
Total
More than 91
days
MNT’000
Total
MNT’000
819,543
68,351
102,986
108,989
26,976
–
203,670
21,192
–
289,793
365,207
14,845
1,421,995
481,726
117,831
4,400
7,486
1,126
–
13,012
995,280
143,451
225,988
669,845
2,034,564
More than 91
days
MNT’000
Total
MNT’000
2012
Less than More than 31 to
61 to 90 days
30 days
60 days
MNT’000
MNT’000
MNT’000
Business loans
Mortgage loans
Consumer loans
Total
8,364,920
373,600
35,217
221,584
8,995,321
76,074
321,496
–
–
202,383
3,063
6,762
23,811
285,219
348,370
8,762,490
373,600
240,663
252,157
9,628,910
Of the total aggregate amount of gross past due but not impaired loans and advances to
customers, the fair value of collaterals that the Bank held as at 31 December 2013 was MNT
6,745 million (2012: MNT 24,411 million). Please refer to Note 15 for additional information with
respect to allowance for impairment losses on loans and advances to customers.
Carrying amount per class of financial assets whose terms have been renegotiated
The table below shows the carrying amount for renegotiated financial assets, by class.
2013
MNT’000
Loans and advances to customers:
Business loans
Mortgage loans
Consumer loans
Agricultural loans
6,715,208
3,565,984
4,427,215
27,693
14,736,100
2012
MNT’000
3,780,000
50,000
61,938
–
3,891,938
Impairment assessment
The main considerations for the loan impairment assessment include whether any payments of
principal or interest are overdue by more than 90 days or there are any known difficulties in the
cash flows of counterparties, credit rating downgrades, or infringement of the original terms
of the contract. The Bank addresses impairment assessment in two areas: individually assessed
allowances and collectively assessed allowances.
Individually assessed allowances
The Bank determines the allowances appropriate for each individually significant loan or
advance on an individual basis. Items considered when determining allowance amounts include
the sustainability of the counterparty’s business plan, its ability to improve performance once
a financial difficulty has arisen, projected receipts and the expected dividend payout should
STATE BANK LLC
bankruptcy ensue, the availability of the other financial support and the realizable value of
collateral, and the timing of the expected cash flows. The impairment losses are evaluated at
each reporting date, unless unforeseen circumstances require more careful attention.
Collectively assessed allowances
Allowances are assessed collectively for losses on loans and advances that are not individually
significant and for individually significant loans and advances where there is not yet objective
evidence of individual impairment. Allowances are evaluated annually with each portfolio
receiving a separate review by the management.
The collective assessment takes account of impairment that is likely to be present in the portfolio
even though there is not yet objective evidence of impairment in an individual assessment.
Impairment losses are estimated by taking into consideration of the following information:
historical losses on the portfolio, current economic conditions, the approximate delay between
the time a loss is likely to have been incurred and the time it will be identified as requiring an
individually assessed impairment allowance, and expected receipts and recoveries once impaired.
Financial guarantees and letters of credit are assessed and provisions are made in a similar
manner as for loans and advances.
29.3 Liquidity risk
Liquidity risk is the risk that the Bank will be unable to meet its payment obligations when they
fall due under normal and stressed circumstances. To limit this risk, management has arranged
diversified funding sources in addition to its core deposit base, manages assets with liquidity
in mind, and monitors future cash flows and liquidity on a daily basis. This incorporates an
assessment of expected cash flows and the availability of high grade collateral which could be
used to secure additional funding if required.
The Bank always holds sufficient amount of liquid assets which is much higher than the level
required by the BoM. In addition, the Bank complies with the reserve requirement of 12 percent
of customer deposits based on average period of two weeks.
Analysis of financial liabilities by remaining contractual maturities
86
The table below summarizes the maturity profile of the Bank’s financial liabilities at 31 December
2013 and 31 December 2012 based on contractual undiscounted repayment obligations. However,
the Bank expects that many customers will not request repayment on the earliest date the Bank
could be required to pay and the table does not reflect the expected cash flows indicated by
the Bank’s deposit retention history.
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1,857,352
Other liabilities
135,961,018
179,735
125,286,164
–
–
–
–
12,974,619
16,375,651
33,788,79029,350,270
–
728,376
24,588,671
54,164
8,417,579
3 to 6
months
MNT’000
On demand
Less than
MNT’000 3months MNT’000
8,637,767
219,023,178
475,478,869
530,188,906
3,794,362
–
–
156,661,170
58,567,646
–
126,645,373
118,138,297
510,316
178,827,664
51,357,219
–
3 to 6
months
MNT’000
14,581,744
–
–
504,389,697
6,714,063
4,503,402
Borrowed funds
Due to customers
Due to banks
Due to banks
Due to customers
Borrowed funds
Other liabilities
On demand
Less than
MNT’000 3months MNT’000
STATE BANK LLC
6 months
to 1 year
MNT’000
–
–
6 months
to 1 year
MNT’000
22,439,897
–
687
22,439,210
2012
157,356,053
–
–
–
153,725,004
3,631,049
–
2013
–
86,921,013
748,450
–
–
Over 5
years
MNT’000
179,674,709
–
–
–
42,745,185
136,929,524
–
Over 5
years
MNT’000
11,178,64387,669,463
–
5,532,419
5,646,224
–
–
1 to 5
years
MNT’000
123,897,419
–
–
–
39,289,089
84,608,330
–
1 to 5
years
MNT’000
320,388,081
1,857,352
106,336,849
195,084,370
54,164
17,055,346
Total
MNT’000
1,685,619,134
145,021,479
118,138,297
510,316
1,075,637,809
341,807,831
4,503,402
Total
MNT’000
STATE BANK LLC
29.4 Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will
fluctuate due to changes in market variables such as interest rates or foreign exchange rates.
The Bank manages and monitors this risk element using VaR and sensitivity analyses. Except
for the concentrations within foreign currencies, the Bank has no significant concentration of
market risk.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect bank’s
profitability, future cash flows or the fair values of financial instruments. The Bank’s lending,
funding and investment activities give rise to interest rate risk. The immediate impact of variation
in interest rate is on Bank’s net interest income, while a long term impact is on the Bank’s net
worth since the economic value of the Bank’s assets, liabilities and off-balance sheet exposures
will be affected. The management has established limits on the interest rate gaps for stipulated
periods. Positions are monitored on a daily basis and hedging strategies are used to ensure
positions are maintained with the established limits.
The following table demonstrates the sensitivity to a reasonable possible change in interest
rates, with all other variables held constant, of the Bank’s profit or loss. The sensitivity of the
profit or loss is the effect of the assumed changes in interest rates on the net interest income
for one year, based on the floating rate financial assets and financial liabilities held at 31
December 2013 and 31 December 2012.
Change in
Currency
basis points
Sensitivity of net interest income
2013
2012
MNT’000
MNT’000
EUR
USD
MNT
+120
+120
+120
(4,297)
(154,086)
(2,933,162)
(636)
(159,244)
(292,851)
EUR
USD
MNT
–120
–120
–120
4,297
154,086
2,933,162
636
159,244
292,851
Currency risk
88
Currency risk is the possibility of financial loss to the Bank arising from adverse movements
in foreign exchange rates. The Bank’s management sets limits on the level of exposure by
currencies, which are monitored on a frequent basis. Apart from using foreign exchange
exposure mismatch, the Bank applies Value-at-Risk (“VaR”) simulation model to manage and
measure foreign exchange risk since June 2011. VaR is a method used in measuring financial
risk by estimating the potential negative change in the market value of a portfolio at a given
confidence level and over specified time horizon.
Objectives and limitations of the VaR Methodology
The VaR model is designed to measure market risk in a normal market environment. The
models assume that any changes occurring in the risk factors affecting the normal market
environment will follow a normal distribution. The Bank uses two VaR methods which are the
Monte Carlo Simulation and the Historical Simulation models to assess possible changes in
the foreign currency portfolio based on historical data from the past one day. The Bank uses
Variance/Covariance model to assess possible changes in foreign currency portfolio based on
historical data from the past one day. The VaR methodology employed by the Bank uses a
one-day period, using 99% confidence level, of the potential loss that is not expected to be
exceeded if the current market risk positions were to be held unchanged for one day, and are
determined by observing market data movements over a 250-day period. The use of a 99%
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STATE BANK LLC
confidence level means that, within one day horizon, losses exceeding the VaR figure should
occur, on average, not more than once every hundred days.
The use of VaR has limitations because it is based on historical correlations and volatilities in
market prices and assumes that future price movements will follow a statistical distribution.
Due to the fact that VaR relies heavily on historical data to provide information and may not
clearly predict the future changes and modifications of the risk factors, the probability of large
market moves may be underestimated if changes in risk factors fail to align with the normal
distribution assumption. VaR may also be under or over-estimated due to the assumptions
placed on risk factors and the relationship between such factors for specific instruments. Even
though positions may change throughout the day, the VaR only represents the risk of the
portfolios at the close of each business day, and it does not account for any losses that may
occur beyond the 99% confidence level.
VaR limits have been established for all foreign currency open positions and exposures are
reviewed daily against the limits by management. The estimated potential one-day losses on its
foreign currency denominated financial instruments, as calculated in the VAR models are the
following:
Historical
Simulation
MNT’000
Monte Carlo
Simulation
MNT’000
2013 - 31 December
72,539
73,809
2013 - Average Daily
63,455
62,671
2013 – Highest
170,790
162,261
2013 – Lowest
1,789
1,786
2012 - 31 December
10,692
10,238
2012 - Average Daily
26,326
26,008
2012 – Highest
51,448
50,970
2012 – Lowest
6,533
6,589
The table below summarizes the Bank’s exposure to foreign exchange risk as 31 December 2013
and 31 December 2012. Included in the table are the Bank’s financial assets and liabilities at
carrying amounts, categorized by currencies.
Concentrations of
financial assets
and financial
liabilities
as at 31 December
2013
Assets
Cash and balances
with BoM
Due from banks
Derivative financial
instruments
Loans and advances
to customers
MNT
USD
Euro
Others
Total
MNT’000
MNT’000
MNT’000
MNT’000
MNT’000
280,634,432
40,580,135
972,779
9,744,605
331,931,951
9,217,836
20,387,549
574,925
6,307,538
36,487,848
556,031
–
–
–
556,031
905,675,629
36,506,590
1,083
–
942,183,302
50,712,645
304,278,747
13,801,587
1,564,876,907
–
–
6,912,570
104,386,844
5,553
–
–
1,554,340
–
–
15,700
16,067,843
50,718,198
304,278,747
20,729,857
1,686,885,934
Financial investments
– available-for-sale
– held-to-maturity
Other assets
STATE BANK LLC
Concentrations of
financial assets
and financial
liabilities
as at 31 December
2013
Liabilities
Due to banks
Repurchase
agreements
instruments
Due to customers
Borrowed funds
Other liabilities
MNT
USD
Euro
Others
Total
MNT’000
MNT’000
MNT’00
MNT’000
MNT’000
143,994,110
155,669
92
68
144,149,939
118,138,297
–
–
–
118,138,297
413,243
–
–
–
413,243
960,634,292
288,475,026
4,136,013
1,515,790,981
65,386,197
30,158,587
133,695
95,834,148
2,366,993
–
25,602
2,392,687
5,768,993
–
208,092
5,977,153
1,034,156,475
318,633,613
4,503,402
1,619,994,969
49,085,926
8,552,696
(838,347)
10,090,690
66,890,965
USD
Euro
Others
Total
MNT’000
MNT’000
MNT’000
MNT’000
Net position
Concentrations of
financial assets
and financial
liabilities
MNT
MNT’000
as at 31 December
2012
Assets
Cash and balances
with BoM
Due from banks
instruments
Loans and advances
to customers
Other assets
Liabilities
Due to banks
instruments
Due to customers
Borrowed funds
Other liabilities
Net position
27,365,639
29,164,480
460,588
628,536
57,619,243
498,379
9,723,361
160,613
545,017
10,927,370
50,422
–
–
–
50,422
170,077,008
10,881,949
–
–
180,958,957
242,128
49,234,242
342,032
247,820,850
–
–
3,168
49,772,958
–
–
–
621,201
–
–
–
1,173,553
242,128
49,234,242
345,200
299,377,562
8,649,758
8,401,757
55
56
17,051,626
54,164
–
–
–
54,164
154,455,354
71,420,436
1,815,517
236,395,229
39,153,861
1,198,749
41,835
48,796,202
172,919
–
–
172,974
109,701
–
–
109,757
193,891,835
72,619,185
1,857,352
285,474,162
11,425,621
976,756
448,227
1,063,796
13,903,400
Prepayment risk
Prepayment risk is the risk that the Bank will incur a financial loss because its customers and
counterparties repay or request repayment earlier or later than expected.
90
The Bank uses the simplified approach to project the impact of varying levels of prepayment on
its net interest income.
www.statebank.mn
STATE BANK LLC
If 20% of repayable financial instruments were prepaid at the beginning of the year, with all
other variables held constant, the profit before tax for the year would be reduced by MNT
16,193 million (2012: MNT 4,475 million).
Operational risk
Operational risk is the probability of loss arising from system failure, human errors, fraud or
external events. When controls fail to perform, operational disabilities can cause damage to
reputation, have legal or regulatory implications, and lead to financial loss. The Bank cannot
eliminate all operational risk, but through a dual control framework, segregation of duties
between front-office and back office functions, controlled access to systems, authorization
and reconciliation procedures, staff education and assessment processes, including the use of
internal audit, the Bank seeks to manage operational risk and reduce it. 30.FAIR VALUE DISCLOSURES
Determination of fair value and fair value hierarchy
Fair value is the amount at which a financial instrument or other asset could be exchanged in
a current transaction between willing parties, other than in a forced sale or liquidation, and is
best evidenced by an active quoted market price. Where quoted market prices are not available,
the Bank used valuation techniques.
The Bank uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly
Level 3: techniques which use inputs that have a significant effect on the recorded fair value
that are not based on observable market data
The following table shows an analysis of financial instruments and other assets recorded at fair
value by level of the fair value hierarchy:
At 31 December 2013
Financial assets
Level 1
Level 2
Level 3
Total
MNT’000
MNT’000
MNT’000
MNT’000
–
556,031
–
556,031
27,600
–
–
27,600
–
–
515,411
515,411
Government bonds
–
50,175,187
–
50,175,187
Revalued properties
–
–
40,930,806
40,930,806
27,600
50,731,218
41,446,217
92,205,035
–
413,243
–
413,243
Total
–
413,243
–
413,243
Quoted equities
Unquoted equities
Total
Financial liability
STATE BANK LLC
Level 1
Level 2
Level 3
Total
MNT’000
MNT’000
MNT’000
MNT’000
At 31 December 2012
Financial assets
Unquoted equities
Total
Financial liability
Total
–
50,422
–
50,422
–
–
–
50,422
242,128
242,128
242,128
292,550
–
–
54,164
54,164
–
–
54,164
54,164
Transfers between level 1, 2 and 3
There were no transfers between level 1, 2 and 3 of the fair value hierarchy for the assets and
liabilities which are recorded at fair value.
Impact on fair value of level 3 assets and liabilities measured at fair value of changes to
key assumptions
Unquoted available-for-sale equities
The impact of the reasonably possible change in the fair value assumptions for level 3 financial
instruments is not quantified as the investment is recorded at cost since the fair value cannot
be reliably measured.
Revaluation of properties
Fair value of the buildings was determined by using market value approach. This means that
valuations performed by the valuer are based on the estimated selling price of similar buildings
in the market. The properties’ fair values are based on valuations performed by a consortium of
companies who are all accredited independent valuers.
Significant unobservable valuation input:
Price per square metre (Central Office Building): MNT 3.85 million
Price per square metre (Sukhbaatar District, branch): MNT 2.30 million
Price per square metre (Darkhan City, branch): MNT 0.58 million
Price per square metre (Erdenet City, branch): MNT 1.40 million
Price per square metre (Rural area, branches): MNT 0.72 million (average)
Significant increases (decreases) in estimated price per square metre for each type of building
in isolation would result in a significantly higher (lower) fair value.
Fair value of financial assets and liabilities not carried at fair value
The following describes the methodologies and assumptions used to determine fair values
for those financial instruments which are not already recorded at fair value in the financial
statements:
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid or having short term maturity (less
92
www.statebank.mn
STATE BANK LLC
than one year), it is assumed that the carrying amounts approximate to their fair value. This
assumption is also applied to demand deposits, time deposits and variable rate financial
instruments. Based on fair value assessments performed by the management, the estimated
fair values of due from banks of more than one year approximate their carrying amounts as
shown in the statement of financial position. This is due principally to the fact that the current
market rates offered for similar deposit products do not differ significantly from market rates
at inception.
Fixed rate financial instruments
The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated
by comparing market interest rates when they were first recognised with current market rates
offered for similar financial instruments available in Mongolia.
Set out below is a comparison of the carrying amounts and fair values of the Bank’s financial
instruments in the financial statements. This table does not include the fair values of nonfinancial assets and non-financial liabilities.
Financial assets
Due from banks
Carrying amount
Fair value
MNT’000
MNT’000
331,931,951
36,487,848
331,931,951
36,487,848
556,031
556,031
942,183,302
923,316,379
50,718,198
50,718,198
304,278,747
304,278,747
20,729,857
20,729,857
1,686,885,934
1,668,019,011
Due to banks
144,149,939
144,149,939
118,138,297
118,138,297
413,243
413,243
1,034,156,475
1,034,156,475
318,633,613
307,748,631
4,503,402
4,503,402
1,619,994,969
1,609,109,987
-
available-for-sale
-
held-to-maturity
Other assets
Financial liabilities
Due to customers
Borrowed funds
Other liabilities
STATE BANK LLC
Carrying amount
MNT’000
Fair value
MNT’000
57,619,243
10,927,370
57,619,243
10,927,370
50,422
50,422
180,958,957
180,890,608
242,128
242,128
49,234,242
49,234,242
Financial assets
Due from banks
- available-for-sale
- held-to-maturity
Other assets
345,200
345,200
299,377,562
299,309,213
17,051,626
17,051,626
54,164
54,164
193,891,835
193,891,835
72,619,185
69,196,316
Due to banks
Due to customers
Borrowed funds
Other liabilities
1,857,352
1,857,352
285,474,162
282,051,293
31.
RELATED PARTY DISCLOSURES
Transactions with key management personnel of the Bank
The aggregate remuneration of directors and members of the Board of Directors during the
year, paid by the Bank, was as follows:
2013
MNT’000
2012
MNT’000
Short-term benefits:
Salaries
1,162,897
717,198
Contribution to social and health fund
Bonus
34,714
216,265
1,413,876
28,505
129,496
875,199
Transactions with directors and key management
2013
MNT’000
Loans and advances to key management
Deposits from key management
94
www.statebank.mn
1,392,741
54,198
2012
MNT’000
1,757,278
39,429
STATE BANK LLC
Key management have banking relationships with the Bank which are entered into in the
normal course of business and on substantially the same terms, including interest rates and
security, as for comparable transactions with other persons of a similar standing or, where
applicable, with other employees. These transactions did not involve more than the normal risk
of repayment or present other unfavourable features.
The loans and advances to key management were secured, bore interest rates from 6.0% to
21.6% (2012: 8.8% to 18.0%) per annum and are repayable within 2 to 15 years. The interest
income received from such loans during the financial year amounted to MNT 28.76 million
(2012: MNT 98.64 million).
The deposits from the key management bore interest rates from 2.0% to 15.0% per annum.
The interest expenses paid to the deposits from key management during the financial year
amounted to MNT 9.11 million (2012: MNT 10.07 million).
Transactions with shareholders
The Bank enters into transactions with shareholders on an arm’s length basis. The principal
transactions during 2013 and 2012 were as follows:
2013
MNT’000
Deposits
Borrowed funds
731,881
121,106,593
2012
MNT’000
31,470
53,165,716
The deposits bore interest rates from 0.0% to 8.0% per annum. The interest expenses paid to
the deposits during the financial year amounted to MNT 1,235.74 million (2012: MNT nil).
The borrowed funds bore interest rates from 0.0% to 8.8% per annum. The interest expenses
paid to such funds during the financial year amounted to MNT 2,315.68 million (2012: MNT
739.08 million).
Transactions with Bank of Mongolia
Current account with BoM
Derivative assets
Derivative liabilities
2013
2012
MNT’000
MNT’000
278,714,470
52,482,377
193,355
–
413,243
54,164
BoM treasury bills
209,565,656
36,016,169
118,138,297
131,594,226
–
Borrowed funds
–
Other assets
58,531
–
Other liabilities
35,770
–
The interest income and expense recognized in the transactions with Bank of Mongolia during
the financial year amounted to MNT 8,982.04 million and MNT 4,874.21 million, respectively
(2012: MNT 5,439.17 million and MNT 63.43 million).
Moreover, through the Asset and Liability Transfer Agreement executed on 23 July 2013 between
the Bank and Savings Bank’s receivership appointed by BoM, the Bank acquired certain assets
and assumed certain liabilities of Savings Bank (Note 3).
STATE BANK LLC
Terms and conditions of transactions with related parties
The above mentioned outstanding balances arose from the ordinary course of business. The
interests charged to and by related parties are at normal commercial rates. Outstanding balances
except for loans and advances to related parties at the year-end are unsecured. There have
been no guarantees provided or received for any related party receivables or payables. For the
years ended 31 December 2013 and 2012, the Bank has not made any provision for doubtful
debts relating to amounts owed by related parties.
The Bank utilised the amendment in IAS 24 on ‘partial exemption from the disclosure requirement
for government-related entities’. Thus, individually immaterial transactions with governmentrelated entities are not disclosed in these financial statements.
32.
MATURITY ANALYSIS OF ASSETS AND LIABILITIES
The table shows an analysis of assets and liabilities analyzed according to when they are
expected to be recovered or settled. See Note 29.3 ‘Liquidity risk and funding management’ for
the Bank’s contractual undiscounted repayment obligations.
Less than
12 months
More than
12 months
Total
MNT’000
MNT’000
MNT’000
Financial assets
Due from banks
331,931,951
35,637,848
556,031
–
850,000
–
331,931,951
36,487,848
556,031
505,285,063
436,898,239
942,183,302
–
265,198,282
20,729,857
1,159,339,032
50,718,198
39,080,465
–
527,546,902
50,718,198
304,278,747
20,729,857
1,686,885,934
2,728,081
–
–
–
2,728,081
–
59,971,903
2,122,639
475,610
62,570,152
2,728,081
59,971,903
2,122,639
475,610
65,298,233
1,162,067,113
590,117,054
1,752,184,167
144,149,939
118,138,297
413,243
988,383,360
162,026,580
4,503,402
1,417,614,821
–
–
–
45,773,115
156,607,033
–
202,380,148
144,149,939
118,138,297
413,243
1,034,156,475
318,633,613
4,503,402
1,619,994,969
Total
1,417,614,821
202,380,148
1,619,994,969
Net
(255,547,708)
387,736,906
132,189,198
At 31 December 2013
Other assets
Non-financial assets
Other assets
Intangible assets
Deferred tax assets
Total
Due to banks
Due to customer
Borrowed funds
Other liabilities
96
www.statebank.mn
STATE BANK LLC
Less than
12 months
MNT’000
More than
12 months
MNT’000
Total
MNT’000
57,619,243
–
57,619,243
Due from banks
10,927,370
–
10,927,370
50,422
–
50,422
21,548,905
159,410,052
180,958,957
–
242,128
242,128
46,948,232
2,286,010
49,234,242
At 31 December 2012
Financial assets
Other assets
345,200
–
345,200
137,439,372
161,938,190
299,377,562
Non-financial assets
Other assets
1,881,378
–
1,881,378
–
11,177,016
11,177,016
Intangible assets
–
1,250,963
1,250,963
Deferred tax assets
–
114,881
114,881
1,881,378
12,542,860
14,424,238
139,320,750
174,481,050
313,801,800
17,051,626
–
17,051,626
54,164
–
54,164
Due to customer
188,722,300
5,169,535
193,891,835
Borrowed funds
13,810,630
58,808,555
72,619,185
Other liabilities
1,857,352
–
1,857,352
221,496,072
63,978,090
285,474,162
Total
221,496,072
63,978,090
285,474,162
Net
(82,175,322)
110,502,960
28,327,638
Total
Due to banks
33.CAPITAL ADEQUACY
The adequacy of the Bank’s capital is monitored using the rules and ratios established by
BoM. During the past year, the Bank complied in full with the capital requirements set by the
regulatory body.
Capital management
The primary objectives of the Bank’s capital management are to ensure that the Bank complies
with externally imposed capital requirements and that the Bank maintains healthy capital ratios
to be able to absorb negative shocks.
STATE BANK LLC
The Bank manages its capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of its activities.
Regulatory capital
BoM requires commercial banks to maintain a minimum core capital adequacy ratio of 9%
(2012: 8%) and risk weighted capital ratio of at least 14% (2012: 12%) compiled on the basis
of total capital and total assets as adjusted for their intrinsic risk characteristics. The capital
adequacy ratios of the Bank as at 31 December were as follows:
2013
2012
Core capital adequacy ratio
12.87%
15.36%
Risk-weighted capital ratio
14.28%
15.59%
Tier I capital
Ordinary shares
2013
2012
MNT’000
MNT’000
113,000,000
28,000,000
Other reserves
693,669
693,669
Retained profit
5,422,056
(783,583)
119,115,725
27,910,086
12,116,641
–
Total Tier I Capital
Tier II capital
Revaluation surplus
Social development fund
Total Tier II Capital
Total capital /capital base
956,832
417,552
13,073,473
417,552
132,189,198
28,327,638
The breakdown of risk weighted assets into the various categories of risk weights as at 31
December was as follows:
2013
%
0
688,503,546
–
106,205,947
–
20
16,020,981
3,204,196
3,474,660
694,932
50
247,142,547
123,571,273
71,308,618
35,654,309
70
108,650,374
76,055,261
–
–
100
691,126,727
691,126,727
144,476,991
144,476,991
150
21,198,818
31,798,228
556,697
835,045
1,772,642,993
925,755,685
326,022,913
181,661,277
Total
98
2012
Risk
Assets
MNT’000
Risk
Assets
MNT’000
Weighted
MNT’000
Weighted
MNT’000
34.
MONGOLIAN TRANSLATION
These financial statements are also prepared in the Mongolian language. In the event of
discrepancies or contradictions between the English version and the Mongolian version, the
English version will prevail.
www.statebank.mn
1800-1881
www.facebook.com/StatebankMN

tsahim net

Transcription

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