There was strong demand for business loans at lower rates when entrepreneurs met with Mongol Bank officials last Friday. Mongol Bank Governor L.Purevdorj started the discussion by saying that while the economy will likely grow by 7-8% in 2010, inflation could be 10-11% because of the social welfare payments. The bigger budget will affect macroeconomic factors and he wanted to hear the private sector’s opinions.

The business representatives complained that the Central Bank tight monetary policy, meant to keep inflation under control, had also posed problems for them. Today, 95% of the capital for business comes as loan from commercial banks, but the central bank’s high policy interest rate meant bank loans were limited and also too expensive.

Interests on bank loans depended not only on policy interest rates but also on the volume of savings in banks, Government and Mongol Bank bond interests, inflation rates, and a bank’s own liquidity. Banks also charge high rates as the financial infrastructure has not developed in Mongolia. The private sector representatives said they would be helped by access to measures reducing financial risks, like loan insurance. They also wanted their views and needs to be heard before the budget and the monetary policy are prepared, and suggested another meeting in April or May, 2011 before work on both begins for 2012. 

Kh.Ganbaatar, Executive Director and Deputy President of the Mongolian Employers’ Federation, referred to a report from the National Trade and Industry Hall which warns of double-digit inflation, calls for competition between commercial banks, urges the central bank to use its increasing foreign exchange reserves to stimulate domestic economic growth. The report feels loan interests can be reduced by 50-60%, and loan risks by 70-80%.

B.Jargalsaikhan, Director of Gobi LLC, said his company has to buy 7,000 tons of cashmere for MNT 50,000 per kilo but did not know where to get the MNT350 trillion this needs. The Buyan LLC representative said the state should support exporters more than importers and the Mongol Bank and the Ministry of Finance should establish a Loan Fund.

Ya.Battsetseg, Director of Atimos LLC, said as representative of the construction step that lowering  savings and loan interest rates would be a bold step but one that had to be taken. There are 600 buildings in Ulaanbaatar where work has stopped and 3000 finished apartments remain unsold. Only easier access to credit can revive the construction sector.