Fitch reports that the volume of coronavirus-related restructured loans is likely to delay further the resolution of asset-quality issues of Mongolia’s banks. As of September 2020, an estimated 22% of the system’s total loans– or MNT 3.8 trillion in loans – have been restructured without any change in loan classification as of September 2020, according to the Bank of Mongolia. This figure could rise to 30% of total loans by the end-2020, given the continued availability of relief measures until the end of this year, and adds to the significant amount of problem loans (i.e. non-performing loans plus past due loans) of 18% of total loans at end-3Q20.
Fitch believes that a considerable portion of the borrowers benefiting from payment deferrals would eventually become non-performing when the support measures are withdrawn. The combined effect is that weaker banks with significant exposure to business loans may see net losses in 2021 or in 2022, given that most of the restructured loans are business loans. That said, we expect the intrinsic credit qualities of Fitch-rated commercial banks to be sustained under our base-case scenario.
Fitch forecasts economic growth at around 8% in 2021, and the banks’ sound capital buffers should broadly offset the negative impact of the pandemic on their asset quality and profitability.