The large and comprehensive economic stimulus launched by the Mongolian government from February 2021 has eased pressure on asset quality for the banking sector amid the economic disruptions caused by measures to contain Covid-19.

Fitch Ratings expects the stimulus to be the key driver of the performance and growth of the banking system’s loans in the short to medium term.

Mongolia launched a MNT10 trillion programme to provide low-interest loans to corporates and individuals to support the restarting of their business activities.

The amount is equivalent to about 60% of the system’s total loans at end-2020 and comes on top of other relief measures that are being deployed after the onset of the pandemic.

One such measure, which is effective from 1 July 2021, will remove the negative credit history of certain eligible borrowers and aims to reduce the social and economic impact from the pandemic on the banking sector.

There has been a visible build-up of Pandemic-related bad loans The problem loans (non-performing and past-due loans) of the sector’s active banks reached a peak of 18% at end-February 2021 from 14.7% at end-February 2020, before the pandemic caused widespread global disruptions.