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Publish Date : 26-Sep-2014

IFC, a member of the World Bank Group, FMO (the Netherlands Development Finance Company), the Bank of Mongolia, and the Mongolian Bankers Association are working together to improve corporate-governance practices in Mongolian banks, which will help attract investors and contribute to the country’s economic growth in the long run. Related-party lending is a potential threat to Mongolia’s banking sector and can result in bad governance and regulatory oversight, which pose risks for the sustainable development of banks. At a conference held today, regulators, commercial banks, and international banking and corporate-governance experts discussed possible solutions for conflicts of interest arising from related-party lending among banks and ways to benefit from international best practices.

“This conference is a timely effort to raise local banks’ awareness and understanding of risk management especially when Mongolia is facing balance-of-payments difficulties,” said Batshugar Enkhbayar, Deputy Governor of the Bank of Mongolia. “Lessons shared by experts from FMO and IFC on conflicts of interest and related-party lending will help our bank improve our policies and operation and increase transparency, which will ultimately help create a fair and competitive business environment.” “The main objective of banks is to create long-term value for shareholders,” said Bold Magvan, President of the Mongolian Bankers Association. “Good corporate governance, including transparent policies on related-party lending and the mitigation of conflicts of interest, can serve this primary purpose and also attract human and financial capital.”

Studies have shown that investors have greater confidence in companies with good corporate governance and markets that are backed by a sound legal and regulatory regime. IFC and FMO will collaborate with the central and commercial banks to develop a set of standards for related-party lending in the next 12 months and help them adopt international practices. This is expected to facilitate an open discussion between the public and the private sectors and lead to improvements on existing regulations.

“Related lending and other conflicts of interest pose a huge threat to the development of a banking sector – not only in Mongolia but also in other countries FMO is operating in,” said Linda Broekhuizen, Chief Investment Officer and member of the Management Board of FMO. “Yet, there is relatively little guidance on how best to identify and mitigate an existing conflict. FMO and its partners want to step into this void and have thus initiated a project that will ultimately provide banking professionals with concrete guidance on conflict situations.”

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