Banking Law Amendments to Boost Mongolian Banks' Governance www.fitchratings.com
Fitch Ratings-Hong Kong/Seoul-01 March 2021: Mongolia's new requirements for its systemically important banks to be listed and to cap a bank shareholder's rights at 20% will improve transparency and strengthen the banking system's corporate governance in the medium-to-longer term, ultimately contributing to the system's stability, says Fitch Ratings.
We expect a listed bank to provide more timely and detailed disclosure, not only in its financials but also its banking operations, allowing more public participants' oversight. Undue influence by a dominant shareholder is likely to be checked by the other shareholders under the new ownership and board structures.
However, we see significant challenges that can derail the implementation schedules, especially the public offering requirement in light of the mounting pressure on the banks' financial performance from the coronavirus pandemic. Moreover, we think tight liquidity in the local market would make it hard to accommodate the banks' IPOs within a short period as the current market capitalisation of the Mongolian Stock Exchange is small compared with the banks' total equity.
The amendments to the Banking Law require five domestic systemically important banks (D-SIB) in Mongolia to become public companies through IPOs in the stock market by June 2022. A D-SIB is also required to have at least nine members on its board, with no less than one-third of the directors to be independent. In addition, all commercial banks are required to reduce shareholder concentration by end-2023 with a maximum of 20% of the bank's total shares for a shareholder and its related parties.
More details can be found in the report, "Mongolian Banks Dashboard: March 2021", available at www.fitchratings.com
or by clicking on the link in this release.
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