DBM Annual Report 2013 VEng Compressedagain

THE DEVELOPMENT
BANK OF MONGOLIA
ANNUAL REPORT
2013
The Development Bank of Mongolia - Annual Report 2013
THE DEVELOPMENt BANK OF MONGOLIA
TABLE OF CONTENTS
MISSION
VISION
Message FROM THE CHAIRMAN OF THE BOARD OF Directors
message from the chief executive officer
economic OVERVIEW
Banking and Finance sector overview
INTERNATIONAL DEVELOPMENT BANKS
THE INSTITUTIONS DEVELOPMENT
CORPORATE GOVERNANCE

BOARD OF Directors
Organisation STRUCTURE
CHRONOLOGY
FINANCIAL INDICATORS
Business OPERATION
credit and financing OPERATIONS

FUNDING OPERATIONS
BUSINESS COOPERATION
RISK MANAGEMENT
INDEPENDENT AUDITORS REPORT
Mission
To be a leading institution investigating financial solutions

which ensure and diversify sustainable economic
development in multiple sectors, support manufacturing of
value added products, and consolidate and implement the
countrys development policies.
Vision
To make Mongolia a developed country

ranking high in competitiveness and
economic strength.
Message FROM THE CHAIRMAN

OF THE BOARD OF Directors
By successfully raising low-cost funds from the international
markets and by financing projects which accelerate
the countrys development, the Development Bank of
Mongolia has expanded its operations and succeeded in
strengthening its position for future stability and success.
This is a result of the efforts of the Banks employees,
customers and cooperating entities.
During the reporting period, the Bank financed MNT2,179.6
billion for major projects and programmes, and placed
MNT652.3 billion with commercial banks. As a result, the
Banks total assets reached MNT3,230.9 billion. In order
to enhance the Banks lending capacity, we increased
the shareholder equity by MNT50.0 billion during the
reporting period, thereby resulting in a shareholder equity
of MNT123.3 billion and a total equity of MNT143.9 billion.
The Development Bank of Mongolia operates to increase
its economic strength by further enhancing its financial
capacity through conducting operations in accordance
with the law. This includes the financing of strategicallysignificant projects, issuance of securities in its own name,
fund raising, and financial consultancy services.
The operations of the Development Bank of Mongolia will
be fair, transparent and always open to the public.
Thanks and best wishes to our colleagues and customers
who share our aim to promote Mongolias continuing
development and prosperity!
THE DEVELOPMENT BANK OF MONGOLIA IS A NATIONWIDE FINANCIAL INSTITUTION WHOSE AIM IS TO PROVIDE
MEDIUM- AND LONG-TERM FINANCING TO MAJOR
PROJECTS WHICH SUPPORT ECONOMIC DEVELOPMENT.
SHINEBAATAR B.
CHAIRMAN OF THE
BOARD OF DIRECTORS
6
message from the chief

executive officer
Dear customers and cooperating entities,
It is my pleasure to present the report of the Development
Bank of Mongolia for 2013.
In the past year (2013) there was a 32.8% decrease in the sale
price of our countrys export coal and a 54% decrease in
foreign direct investment. These factors slowed economic
growth. However, in 2013, economic growth was 11.7% as
a result of a 20.7% increase in mining production, a 66.5%
increase in construction and a 17% increase in commerce.
During the reporting period, there was an increase in
the Development Banks loan portfolio of MNT1,686.6
billion, a figure which is greater than investments by the
states general budget funds. The Development Banks
lending to strategically-significant sectors, including roads,
railway, mining, processing, power plants, infrastructure,
housing and transport, will continue to serve as leverage
for the countrys accelerating development in the near
and ongoing future. At the end of the reporting period,
the Development Banks total assets were MNT3,230.9
billion, which equals 18.4% of our countrys gross domestic
product. Our Banks pre-tax profit was MNT35.1 billion and
we paid the state MNT17.7 billion in income tax.
The Development Banks foreign cooperation expanded
in 2013 we signed memorandum of understanding with
the Japan Bank for International Cooperation and the China
Development Bank. We issued Samurai bonds in Japanese
financial market, and reached an agreement to obtain
financing from the China Development Bank.
Here at the Development Bank, we have sincere and
genuine aspirations for the development of Mongolia,
and work with determination and tenacity to ensure our
countrys brighter future.
Sincere regards and great success to our customers and
organisations, both foreign and domestic, who cooperate
with the Development Bank of Mongolia!
MUNKHBAT N.
chief executive officer
ECONOMIC OVERVIEW
ECONOMIC GROWTH
Real GDP growth (%)

17.5%
12.4%
11.7%
The 2013 preliminary performance estimations are that Mongolias

nominal gross domestic product (GDP) reached MNT17,600.0 billion.
GDP consisted of revenues from the agricultural (14.4%), industrial
(26.6%), construction (2.6%) and service (44%) sectors as well as
taxation income (12.4%).
6.4%
2010
2011
2012
Although real GDP growth reached 11.7%, slightly slower compared to

the previous year, the two-digit number increase was mainly achieved
thanks to the growth in the agricultural, mining, construction and
trade sectors.
2013
Source: The National Statistical Office
The state budget balance

The amount of revenue and aid
Expenditure and repayable net loans
Balance
6,178
5,994
5,928
4,958
Whereas copper concentrate production associated with the

Oyutolgoi pits commissioning into operation and mining activities
was 517.9 thousand tons in 2012, it reached 803.0 thousand tons in 2013.
In addition, oil and petroleum production grew from 3.6 million barrels
to 5.1 million barrels, this also had a positive impact on our industrial
sector growth. In 2013, the construction sectors actual value rose by
66.5% as a result of MNT477.0 billion of road work and MNT399.5 billion
of housing construction work.
4,997
4,468
3,122
3,081
THE STATE BUDGET
In billion
MNT
529
2010
2011
250
1,036
2012
2013
Total revenue and aid of Mongolias general budget reached MNT5,927.6

billion, rising by 19.6%, and total expenditure and repayable net loans
reached MNT6,178.0 billion, rising by 3.1%, whereby the states general
budget deficit was MNT250.4 billion, a 4.1-fold decrease compared to
the previous year.
Money supply
MONEY SUPPLY
Money supply volume

Annual growth
9,461
At the end of 2013, 2 money supply reached MNT9,461.0 billion,

growing by 24.2% compared to the beginning of the year.
62.5%
Although the price of our countrys main export mineral products

decreased and foreign direct investment reduced, the domestic
economy was restored thanks to the expansion policies implemented
by the Government and the Mongolbank as well as the funds raised in
the international financial markets. Accordingly, money supply growth
accelerated compared to the previous year.
7,617
6,412
37.0%
24.2%
4,682
18.8%
In billion
MNT
2010
2011
2012
2013
Source: Mongolbank
INFLATION
Inflation measured by the CPI
The level of inflation measured by the consumer price index (CPI) was
12.5% in 2013, a slight decrease nationwide compared to the previous
year. Price increases of flour and flour products (16.2%), milk and dairy
products (20%), fruits (16.2%), non-alcoholic drinks (16.3%), the clothing,
textile and shoe category (17.6%) and education services (27.2%) were
the main factors affecting inflation. As the vast majority of Mongolias
total consumption is composed of imports, the weakening of the MNT
exchange rate against foreign currencies in the second-half of 2013
exerted substantial pressure on our country.
14.0%
13.0%
12.5%
10.2%
2010
2011
The year of 2013 was rather specific one in terms of budgetary and
monetary policies. The Government of Mongolia and the Mongolbank are
jointly implementing a Price stabilisation programme comprised of five
sub-programmes in order to reduce the supply-caused inflation pressure.
2012
2013
Foreign trade balance

Export
Import
Balance
FOREIGN TRADE
Mongolias foreign trade turnover totaled USD10,627.4 million in 2013,
falling by 4.5% compared to the previous year. Total exports were
USD4,272.7 million, a decrease of 2.6%, and total imports were USD6,354.7
million, a decrease of 5.7%. This resulted in a foreign trade deficit which
dropped to USD2,082.0 million.
In 2013, the sale price of our countrys coal fell by 32.8% resulting in
coal exports of USD1,100.0 million, a 41% decrease compared to the
previous year. Copper concentrate exports rose by 13.2%, iron ore
exports by 22.9%, crude oil and petroleum exports by 53.4% and gold
exports increased by 2.5 times. There was a 15.6% fall in machinery and
mechanical equipment imports and a 21.3% decrease in vehicle imports.
These strongly affected the overall decline in imports.
4,818
4,385
4,273
2,909
6,738
6,598
6,355
3,200
In million
USD
292
2010
1,781
2011
2,082
2,354
2012
2013
Foreign direct investment

4,715
FOREIGN DIRECT INVESTMENT

The foreign direct investment flowing into Mongolia in 2013 was
USD2,047.0 million, decreasing by 54% compared to the previous year.
The decline of the main performance indicators, which included export
coal and foreign direct investment led to a scarcity of foreign currencies
in Mongolia. As a result, the MNT rate weakened against other foreign
currencies. For example, the official rate of the American dollar (which
is the main foreign currency for payment clearing and settlement) was
MNT1,392 at the beginning of the year, but by the year-end this had
increased by 19.2% to MNT1,659.
4,452
2,047
1,691
In million
USD
2010
2011
2012
2013
Source: Mongolbank
BANKING AND FINANCIAL

SECTOR OVERVIEW
BANKING SECTOR
Commercial banks total assets

total assets
total assets / GDP
119.0%
20,884
74.2%
85.6%
84.5%
11,992
9,372
6,246
In billion
MNT
2010
2011
2012
2013
Source: Mongolbank
Real assets
Trade
Construction
Mining
Processing
Agriculture
Other
16.5%
29.0%
16.3%
2.1%
18% of total loans granted to the mining sector, 12.9% of total loans
granted to the manufacturing, 1% of loans granted to real assets
businesses and 3% of loans granted to the construction sector were
classified as nonperforming loans, meaning that 5.3% of the entire loan
portfolio was classified as nonperforming loans.
At the end of the reporting period, the banks equity reached
MNT1,323.8 billion rising by 34.3% (MNT338.0 billion) compared to the
previous year.
13.6%
12.4%
During the reporting period, the total balance in the banks current
and savings accounts reached MNT10,026.6 billion, rising by 26.8%
compared to the previous year. Funding sources of the commercial
banks increased via the Price stabilisation programme and the
Development Banks financing. Thereby, their loan balance reached
MNT10,764.2 billion rising by 54% (MNT3,773.6 billion) compared to
the previous year. This led to a 107.4% increase in the banks loan to
funding sources ratio in 2013 whereas it was 88.4% in 2012.
As per economic sector classification, the commercial banks loan

portfolios consist of 16.5% real assets, 16.3% trade, 13.6% construction
and 12.4% mining.
Commercial banks loan balance per

economic sector
10.1%
At the end of the reporting period, total assets of the commercial

banks had reached MNT20,883.7 billion, growing by 74.1% (MNT8,891.5
billion) compared to the previous year. This led to a 119% growth in the
total assets to GDP ratio in 2013 compared to the 85.6% growth in 2012.
Source: Mongolbank
stock market
The stock market capitalization
1,671
During the reporting period, annual turn over was MNT97.6 billion
of 65.8 million shares in 134 companies via a total of 254 daily trades.
10,000 bonds were traded for MNT1.0 billion via transactions in the
secondary market for Government bonds, totalling MNT98.6 billion
of securities. Compared to the previous year, the total trade value
decreased by 32.6%, i.e., MNT47.1 billion.
2013
At the end of the reporting period, the stock market capitalization in

total was MNT1,670.5 billion, falling by 7.2% compared to the previous
year. The TOP 20 index, the parameter indicating stock market
development, was 16,301.8 falling by 8% compared to the figure of
17,714.5 at the end of last year.
2,169
1,800
1,374
In billion
MNT
2010
2011
2012
Source: The Mongolian Stock Exchange
10
INSURANCE MARKET
The total asset of insurance companies
During the reporting period, the total asset of seventeen companies

operating in the insurance market reached MNT126,.4 billion, rising by
17.5% (MNT18.8 billion) compared to the previous year.
126
108
At the end of 2013, total income from insurance premiums reached

MNT93.9 billion, rising by 18.9% compared to the previous year. However,
net profit was MNT5.3 billion, falling by 35.4% (MNT2.9 billion) compared
to the previous year.
81
57
In billion
MNT
2010
NON-BANK FINANCIAL INSTITUTIONS
2011
2012
2013
Source: The Financial Regulatory Commission
263 licensed non-bank financial institutions operated with a total asset

of MNT381.1 billion as of the end of 2013 this represents a growth of
In 2013, net profit after tax reached MNT29.8 billion, which is a rise of
The total asset of non-bank

financial institutions
381
252
205
CREDIT UNIONS
129
During the reporting period, a total of 141 credit unions licensed by

the Financial Regulatory Commission conducted savings and credit
operations.
In billion
MNT
2010
2011
2012
2013
The total asset of credit unions reached MNT73.8 billion during the
reporting period, rising by 9% (MNT6.1 billion).
The total asset of credit unions
62
68
74
49
In billion
MNT
2010
2011
2012
2013
11
THE DEVELOPMENT
BANK OF MONGOLIA
12
INTERNATIONAL
DEVELOPMENT BANKS
WHAT IS A DEVELOPMENT BANK?
A development bank is a financial institution responsible for developing
socio-economic development objectives of a given country, and its
role is to grant loans to government related programs.
TYPES OF DEVELOPMENT
Policy bank government owned financial institution which supports economic development
policy and planing.
Special-purpose financial institution an entity that has a specific organisational structure
and duties such as: small and medium-enterprise development, agricultural intensification,
infrastructure development, environmental protection, housing etc.
Universal bank a type of bank that concurrently grants multiple types of financing in
addition to development policy financing.
Commercial development bank a bank that operates under commercial principles and
supports government based economic development programs.
THE DEVELOPMENT BANK OF MONGOLIA
In Mongolia, domestic commercial banks have a relatively high cost and impose limits on the
maximum amount of loans being granted. Thus, financing opportunities for major projects which
support economic development have been limited. Recently, as the foreign trade balance of
Mongolia has been in deficit, and infrastructure development has been relatively weak, it was
necessary to establish a Development Bank.
On 20 July 2010, the Government of Mongolia issued resolution to establish the Development
Bank of Mongolia. Following that, on 10 February 2011, the Parliament of Mongolia enacted the
Law on the Development Bank of Mongolia, stipulating that the Development Bank will be a
state-owned for-profit legal entity with the specific functions of conducting activities aimed at
financing major projects and programmes for thelomg term development of Mongolia.
13
THE INSTITUTIONS
DEVELOPMENT
CORPORATE GOVERNANCE
As stipulated in the Law on the Development Bank of Mongolia, the highest management
authority of the Development Bank is its Shareholders Meeting or, during its out-of-session
periods, the Board of Directors (the BoD); the Government of Mongolia will be the Development
Banks shareholder and exercise its full powers at Shareholders meetings.
The Development Banks BoD, consisting of eight members appointed by the Government of
Mongolia, exercises its full powers. The BoDs three independent members are nominated by the
Mongolbank, the Mongolian National Chamber of Commerce and Industry and the Mongolian
Bankers Association, and are appointed by the Government. The BoD will have internal audit,
nomination and remuneration subcommittees. The independent members act as members of
the subcommittees.
On 30 August 2011, a triple management contract was entered into by and between the
Development Bank of Mongolia, the Korea Development Bank and the Management Team. In
accordance with the contract, a joint management team from the development banks performed
the executive management duties. Based on Government Resolution No.192 dated 25 May 2013
and in connection with the stabilisation of the Development Banks operations, the management
contract was terminated by BoD Resolution No.44 dated 16 July 2013 thereby the Mongolian party
was vested with the full executive management powers of the Development Bank of Mongolia
on a 100%basis. This BoD decision transferred full powers to Munkhbat Nanjid from Kim Jung Jin,
the former Executive Director.
The executive management team of the Development Bank of Mongolia manages and organises
the Banks day-to-day activities within the scope of the powers set forth in the Banks Charter and
by a contract entered into with the BoD. The team reports to the BOM.
The executive management team determines the structure and organisation of the Banks
committees. The Executive Management Committee, the Credit Committee and the Assets and
Liabilities Management Committee work efficiently, overseeing the Banks business operations
and ensuring the corporate governance norms.
14
15
THE BOARD OF Directors
Shinebaatar Begzsuren
State Secretary to
Ministry of Economic
Development
Boldbaatar Danzannorov
Head of the Economic
Cooperation, Loan
and Assistance Policy
Department of the
Ministry of Economic
Development
Lkhagvasuren Byadran
Executive Director of the
Mongolian Deposit
Insurance Corporation
Batzaya Baasandorj
State Secretary to
Ministry of Road and
Transportation
Bayanmunkh Myagmarsuren
Head of the Heavy Industry
Policy Implementation
Department of the Ministry
of Industry and Agriculture
Otgochuluu Chuluuntseren
Head of the Strategic
Policy and Planning
Department of the
Ministry of Mining
Naidalaa Badrakh
General Secretary
and Executive Director
of the Mongolian
Bankers Association
Nergui Chuluunbat
Head of the Consolidated
Policy, Planning and
Coordination Department
of the Mongolian National
Chamber of Commerce
and Industry
16
ORGANIzATIONal STRUCTURE
THE SHAREHOLDERS MEETING
(The Government Of Mongolia)
Nomination Subcommittee
Board of Directors
Secretary to the BoD
Remuneration Subcommittee
Chief Executive Officer
Executive Management Committee
Internal Audit Subcommittee
Assets and Liabilities

Management Committee
Credit Committee
Chief Deputy Director
Experts Counsel
Research Unit
Legal Division
Administration Unit
Human Resources and Development Unit
Information Technology Division
Monitoring and
Administrative Department
Accounting and Reporting Division
Operational Risks Division
Financial Risk Division
Risk Management
Department
Co-Finance Division
Public & Private Partnership Division
Social-Benefit Project Financing and

Analysis Division
Credit Department
Corporate Finance Division
Strategy and Planning Division
Correspondent Banking Division
Funding Division
Treasury Management Division
Assets and Liabilities

Management Department
Public Relations Unit
The Development Bank approved its corporate and organizational structure based on its fundamental objectives and
in conformity with the daily-expanding scope of its business operations, and economic and market demands via BoD
Resolution No.54 dated 24 December 2012.
At the end of the reporting year, the Development Bank operated with four departments, thirteen divisions, five offices and
a total of 74 employees.
17
CHRONOLOGY
12 May 2011
The official opening of
the Development Bank of
Mongolia took place and its
operations commenced.
21 March 2012
The Development Bank of
Mongolia successfully issued
USD580 million-bonds. The
Bank organised meetings with
investors in Hong Kong, Singapore
and London, the world financial
market centres, and for the first
time via open subscription, traded
5-year bonds of USD580 million in
value at an interest rate of 5.75%
in the international markets.
30 August 2011
Mongolia and the Korea
Development Bank entered into a
Management contract. An open
international bid was announced
by the State Property Committee
for competitive selection of an
experienced team to implement
the executive management of the
Development Bank of Mongolia
resulting in the selection of
the Korea Development Bank.
It was decided that the Banks
executive management would be
implemented by a joint team from
the Development Bank of Mongolia
and the Korea Development
Bank that had been selected
through the international bid.
18
6 August 2012
Mongolia granted its first financing
to road projects. In accordance
with Government Resolutions
Nos.47, 110, 106, 336, 124 and 105
dated 2012, the Development
Bank granted MNT202.5 billion
in total to road projects in 2012,
enabling the commencement of
construction of 1,280 km of roads.
15 June 2012
Mongolia granted financing to
the housing-purpose soft loan
project. Under Government
Resolution No.55 dated 2012
and for the programme Project
for granting housing-purpose
soft loans to citizens at an
interest rate of up to 6% per
annum, the Development Bank
of Mongolia granted MNT50.0
billion to the State Bank in 2012.
5 October 2012
Under Government
Resolution No.148 dated
2012, USD100.0 million
financing was granted to
Erdenes Tavantolgoi JSC.
The projects activities will
lead to the development
of the mining, energy and
other economic sectors.
31 December 2012
Mongolia received an award
from the Bloomberg Television
Mongolia. During the closing
ceremony of the economic
forum of Mongolia 2012, the
Bloomberg Television granted its
Best Debut Bond award to the
Development Bank team that had
successfully issued the bonds,
guaranteed by the Government
of Mongolia, in the international
markets for the first time.
18 May 2013
Government Resolution No.180
dated 18 May 2013 approved the
finance of a togrog equivalent of
up to USD14.0 million required for
implementation of the project
Housing construction industrial
complex1 within the scope of the
medium-term target programme
New Development and the work
to provide citizens with housing
by way of entering into a direct
loan contract in 2013 and financing
through the Development
Bank from the capital raised via
Government securities trading.
7 May 2013
With the intensive economic growth of
Mongolia, the number of air passengers
recently rose sharply. In connection with
this, and looking to reduce its operational
costs and improve its service terms, MIAT
JSC (Mongolian Civil Aviation Corporation)
purchased an aircraft of 767300R model
in May 2013. This purchase is of significant
importance in supporting Mongolias aviation
industry development by increasing MIAT
JSCs operational effectiveness. With the
aircraft purchase, MIAT JSC is planning to
expand its future flight routes, including
additional flights to two USA coasts and some
European cities. Considering the significance
of this purchase, the Development Bank
of Mongolia lent in total USD83.9 million
including USD5.3 million toward the aircrafts
advance payment on 20 June 2012 and a
bridge loan of USD78.5 million on 7 May 2013
toward the principal payment, in accordance
with Government Resolution No.137.
18 November 2013
From 18 November 2013 to 1 February
2014, jointly with the Bloomberg
Television Singapore, the Development
Bank of Mongolia organised an
advertising campaign Inside Mongolia.
This aimed at raising Mongolias
international reputation, introducing to
the investment environment and creating
a positive impression with investors.
Within the scope of this work, 90-second
short editorial broadcasts for investors
covering five topics and 30-second
commercials were cast. These resulted in
over 2,887,500 comments being received
via the www.bloomberg.com website.
9 September 2013
During the official visit of
Altankhuyag N., Prime Minister
of Mongolia, in Japan on 912
September 2013, the Bank
signed a Memorandum of
Understanding with the Japan
Bank for International Cooperation
(JBIC), which led to Mongolias
successful launch of fund raising
in yen in Japans capital market.
19
FINANCIAL INDICATORS
On 31 December 2013, the total asset of the Development Bank was MNT3,230.9 billion growing by 3.6 times (MNT2,342.7
billion), compared to the end of the previous year. This was mainly due to the growth in net loans and advances by
MNT1,686.0 billion.
The Development Bank issued and traded USD580.0 million-bonds at an interest rate of 5.75% and 5 yearterm in 2012,
whereas it borrowed MNT1,987.2 billion from the Government in 2013. The Government financed this loan with funds
from the issue of Chinggis bonds which are repayable in 2018 and 2022. These led to a sharp increase in the Development
Banks creditworthiness, resulting in net loans and advances of MNT2,179.6 billion as of the end of the reporting period.
Total asset
Loans and advances
3,230.9
2,179.6
493.6
888.1
76.9
In billion
MNT
In billion
MNT
2011
2012
2013
2011
Total equity
Net profit after tax
143.9
26.9
67.0
-0.6
49.1
-5.7
2012
2013
2012
2013
In billion
MNT
In billion
MNT
2011
2012
2013
2011
Looking to expand the Development Banks operations, the Government (the shareholder) increased the statutory fund
by MNT50.0 billion during the reporting period. This resulted in a total equity of MNT143.9 billion, which is a 2.1fold
increase compared to the previous year. During the reporting period, the Development Bank operated with net interest
income of MNT42.0 billion, and expenses of MNT6.2 billion in impairment, MNT4.6 billion in operating costs.
The Development Banks capital adequacy ratio was 12.8% at the end of 2013, which is 5.5 points lower compared to the
previous year and a two-fold increase compared to the performance indicators related to the year of 2011. At the end of
the reporting period, total assets consisted of net loans and advances (67.5%) and funds deposited with commercial banks
(20.2%). The total liabilities consisted of borrowing (funds from the issue of Chinggis bonds) provided by the Government
(64.4%), bond (31.5%) and other sources (4.1%).
20
Composition of the total asset

Loans and advances
Banking deposits
Cash and cash
equivalents
Others
Composition of the total fund sources
11.7%
Funds from the issue

of Chinggis bonds
The Development
Banks bond
Others
0.6%
4.1%
31.5%
20.2%
IN TOTAL 3,087.0
Billion MNT
IN TOTAL 3,320.9
Billion MNT
64.4%
67.5%
Within the scope of the resolution enacted by the Government of Mongolia regarding the financing through the
Development Bank, loans have been granted to the road, railway, manufacturing, mining, power plant, aviation and
infrastructure investment sectors as well as housing finance and small- and medium-enterprise development funds, on
terms whereby they are repayable from the states budget, and also from proceeds of the projects. Such financing was
granted to projects in implementation within the scope of the economic development policies, including export increase
and import substitution.
Loan portfolio, per sector
Roads
Mining
Railway
Agriculture and
light industry
Construction
materials
Power plants
Infrastructure
Housing finance
Housing
construction
Other sectors
Loan portfolio, per policy category

3.1%
4.2%
4.4%
4.4%
30.7%
5.6%
5.7%
IN TOTAL 2,179.6
Billion MNT
12.4%
16.0%
13.5%
Within the scope

of the export
increase and import
substitution policies
Financing aimed
at the capital citys
socio-economic
development
Within the scope
of the rural
socio-economic
development
policies
Other policy
categories
5.3%
24.5%
37.1%
IN TOTAL 2,179.6
Billion MNT
33.1%
CERTAIN FINANCIAL RATIOS

By investing in economically beneficial projects, the Development Banks profitability is continuously enhanced. The Banks
operations have been normal while maintaining its capital adequacy ratio at an appropriate level.
Return on equity (ROE)
Return on assets (ROA)
Net interest margin (NIM)
Capital adequacy ratio (CAR)
18.7%
18.3%
12.8%
8.9%
0.8%
-1.2%
2011
-8.5%
2012
2013
-0.8%
-0.6%
2011
2012
3.0%
2.4%
-0.2%
2013
2011
2012
2013
2011
2012
2013
21
THREEYEAR FINANCIAL INDICATORS

Statement of financial position (in billion MNT)
2013
2012
2011
3,230.9
379.5
652.3
2,179.6
6.0
3.8
0.6
0.8
8.2
3,087.0
16.3
0.4
0.0
111.0
972.1
1,987.2
143.9
123.3
20.6
3,230.9
888.1
216.5
168.9
493.6
2.3
0.0
0.2
0.7
5.9
821.1
0.0
0.5
3.3
0.0
817.3
0.0
67.0
73.3
(6.3)
888.1
76.9
75.8
0.0
0.0
0.0
0.0
0.2
0.8
0.0
27.8
0.0
1.1
0.0
0.0
26.6
0.0
49.1
49.7
(0.6)
76.9
Interest income
2013
131.1
2012
12.9
2011
0.3
Interest expenses
Net interest income/(expenses)
Provision for loan impairment
Net interest income after provision for loan impairment
Gains less losses from trading in foreign currencies
Foreign exchange rate translation gains less losses
Administrative and other operating expenses
Profit/(loss) before tax
Income tax (expenses)/benefit
Profit/(loss) for the year
(89.1)
42.0
(6.2)
35.8
2.0
1.9
(4.6)
35.1
(8.2)
26.9
(13.7)
(0.8)
(0.8)
0.0
(5.8)
(1.7)
(8.3)
2.6
(5.7)
(0.1)
0.1
0.1
0.0
(0.7)
(0.6)
(0.6)
2013
18.7%
0.8%
2.4%
12.8%
2012
-8.5%
-0.6%
-0.2%
18.3%
2011
-1.2%
-0.8%
3.0%
8.9%
Total Asset
Cash and cash equivalents
Bank deposits
Loans and advances
Other asset
Current income tax prepayment
Property and equipment
Intangible assets
Deferred tax assets
Liabilities
Customer accounts
Other liabilities
Current income tax payable
Due to other banks
Bonds
Borrowings
Equity
Contributed capital
Retained earnings
Total liabilities and equity
Statement of profit or loss and other comprehensive income (in billion MNT)
Certain financial ratios

Return on equity (R)
Return on assets (A)
Net interest margin (NI)
Capital adequacy ratio (R)
22
23
BUSINESS OPERATION
cREDIT AND FINANCING OPERATIONS
The Development Bank grants loans to strategically-significant projects including roads, railway, manufacturing, mining,
power plants, aviation, infrastructure, housing finance and small and medium enterprises in accordance with Mongolias
economic development policies.
At the end of 2012, the Banks total loan portfolio was MNT489.7 billion, whereas by the end of 2013 it was MNT2,184.0
billion, a rise of MNT1,694.3 billion, i.e., 4.4 times compared to the end of the previous year. 37% of the total loan portfolio,
i.e., MNT814.0 billion loans are repayable from the states budget and 63%, i.e., MNT1,370.0 billion loans are repayable from
proceeds of the projects.
According to the economic sector category, 32.0% of the loan portfolio was granted to the road sector, 16.0% to mining
production, 12.0% to manufacturing equipment financing, 12.0% to railway, 6.0% to construction materials, 6.0% to power
plants, 4.0% to the infrastructure sector, 4.0% to housing loans, 3.1% to housing construction and 4.9% to other sectors.
24
The Development Banks total loans and advances, in billion MNT

(as of 31 December 2013)
Repayable from the states budget revenues

Roads
The Street project
Infrastructure
Repayable from proceeds of the projects
Power plants
Railway
Housing finance
Sainshand industrial complex
SME Development Fund
Aviation
Mining
Housing construction
Agriculture and light industry
Construction materials
Total
Funds from the issue

of Chinggis bonds
The Development
Banks resources
Total financing
491.8
350.1
47.9
93.7
620.9
4.0
258.3
4.7
60.0
270.7
23.2
1,112.6
322.1
319.4
2.7
749.2
119.2
37.2
96.6
3.3
36.2
348.6
6.7
101.3
1,071.3
813.8
669.5
47.9
96.4
1,370.1
123.1
295.5
96.6
3.3
36.2
4.7
348.6
66.7
270.7
124.5
2,184.0
As per the fund source category and loans granted by the Development Bank with its own resources, 30.9% of the loan
portfolio went to Erdenes Tavantolgoi JSC, 29.8% to road projects, 11.1% to power plant projects, 9.5% to manufacturing
of construction materials, 9.0% to housing loans and 3.5% to railway projects. The loans from the funds from the issue of
Chinggis bonds financed road projects (35.8%), agriculture and light industry (24.3%), railway projects (23.2%), infrastructure
projects (8.4%) and housing construction projects (5.4%).
Projects financed with the Development
Banks own resources
Erdenes Tavantolgoi
Roads
Power plants
Manufacturing of construction materials
Housing loan finance
Railway
Others
Projects financed with loan sources from the Government (funds from the issue of Chinggis bonds)
Roads
Agriculture and light industry
Railway
Infrastructure
Housing construction
Others
6.2%
3.5%
5.4%
9.0%
9.5%
30.9%
7.2%
31.5%
8.4%
IN TOTAL 1,071.3
billion MNT
IN TOTAL 1,112.6
billion MNT
23.2%
11.1%
29.8%
24.3%
37.1% of the total loan portfolio was granted in accordance with the Government policies to support export and substitute
import, 33.1% pursuant to the capital citys socio-economic development policies, 24.5% under the policies in relation to
the socio-economic development in rural areas and 5.3% for other purposes.
25
FINANCED PROJECTS AND PROGRAMMES

(IN THREE MAIN LINES OF BUSINESS)
CHINGGIS BONDS: 266.6

Projects and programmes financed in
accordance with the export promotion
and import substitution policies
Increase the coal export from the

Tavantolgoi deposit
Increase the export of

wet iron ore concentrate
IN TOTAL
690.6
BILLION MNT
Approved
892.1
Granted
Approved
556.4
44.6

Financing aimed at the capital citys
socio-economic development
Create new power and heat

sources in the capital city
Increase the housing supply
IN TOTAL
757.5
BILLION MNT
Approved
Granted
Approved
258.9 181.5
Granted
234.5 110.7

Financing aimed at the
socio-economic
development in rural areas
Support stable employment

in rural areas
Connect the rural areas to

domestic and foreign markets
IN TOTAL
578.4
BILLION MNT
26
Approved
Granted
45.3 43.9
Approved
Granted
846.9 534.0
(As of 31 December 2013)
The Development Bank: 424.0

Increase the export of
non-mineral resources
Approved
Substitute the import of

construction materials
Granted
Approved
33.0 26.6
Substitute the import of processed

and industrial products
Granted
143.9 106.8
Approved
56.2
Granted
0.8

Improve housing ownership capability
of medium-income individuals
Approved
Support stable employment

in the capital city
Granted
90.0 80.0
Approved
275.4
Granted
263.3
Prioritise road traffic jam, air pollution

and smoke-related problems
Approved
417.8
Granted
122.0

Support urbanisation
in rural areas
Approved
82.2
Granted
0.5
THE DEVELOPMENT BANK OF MONGOLIA

GRANTS FINANCING TO PROJECTS AND
PROGRAMMES BASED ON THEIR
ACTUAL WORK PROGRESS.
27
ROADS
Depending on Mongolias specifics such as its geographical location, sparse population settlement and landlocked
situation, it is necessary to expand good-quality road networks in order to meet its long-term development objectives, and
support the regional socio-economic development.
A medium-term programme New Development was approved by Parliament Resolution No.36 dated 25 June 2010. In
accordance with the programmes objectives to bring the urban planning, energy, engineering infrastructure and road
networks to an international standard, a goal was set to build 5,572 km of new roads by 2016, thereby increasing the road
networks. Within the framework of the activities to achieve the aforementioned objectives, the Government of Mongolia
implemented road projects aiming to connect the centres of Bayankhongor, Khuvsgul, Dornod, Umnugovi, Dundgovi
and Dornogovi provinces to the capital city in 2013. It approved the finance for five province-projects (except Dornogovi)
through the Development Bank with a total of MNT570.0 billion, using fundings from the Chinggis bonds. In 2013, the
centres of Bayankhongor and Dundgovi provinces were fully connected to the capital city via hard-paved roads. At the end
of the reporting period, Khuvsgul provinces road construction work completion was at 75%, Dornod provinces was at 61%
and DundgoviUmnugovi road constructions was at 73%. The plan is to commission the roads into operation within the
third quarter of 2014.
The Development Banks concurrent financing for a monitoring consultancy company as for each road project it financed
has had significant impact on the quality control improvement in addition to increasing the effectiveness of the investment
and financing.
27 rural road construction projects were financed through the Development Bank, using funds from the issue of Chinggis
bonds, i.e., the capital raised through Government securities trading. As of 31 December 2013, MNT339.4 billion was granted
to rural road construction projects and in total MNT10.7 billion to fourteen monitoring consultancy service projects. In
accordance with the approval to grant in total MNT570.0 billion to rural road projects, 61.0% of the total financing, i.e.,
MNT350.1 billion was granted as of the end of the reporting period. The table below demonstrates the approved budgets,
granted financing and work completion for each project or programme in implementation:
Detailed list of the rural road projects
ROUTE
ArvaikheerBayankhongor
ZamiinUud
UlaangomKhyargas Lake
UlaanbaatarMandalgovi
MankhanDarvi
BayankhongorAltai
MurunTarialan
KhujirtTuvkhun TempleUlaan Tsutgalan
MandalgoviDalanzadgad
NaranbulagUlaangom
TosontsengelUliastai
UndurkhaanChoibalsan
UndurkhaanBaruunUrt
TsakhirTosontsengel
KhalzanburgedeiSolongotin Davaa
Total
km Government Contract value

Resolution
(in billion
MNT)
107
45.5
45.5
11
31.7
31.5
100
37.4
37.4
204
72.4
72.4
100
21.5
21.5
128
35.7
35.7
165
82.6
82.6
90
3.2
3.2
296
137.3
137.3
90
49.5
49.5
67
38.5
38.3
238
133.5
133.5
178
87.8
87.8
127
62.9
62.9
100
46.4
46.0
2,001
885.7
885.0
Granted
(in billion
MNT)
Granting %
44.3
26.4
32.9
56.8
17.1
30.2
59.3
3.1
96.7
33.6
17.3
42.5
43.4
17.9
13.9
535.4
97%
84%
88%
78%
80%
85%
72%
97%
70%
68%
45%
32%
49%
28%
30%
60%
Road-work
completion
(%)
100%
100%
97%
100%
95%
100%
75%
5%
73%
70%
57.5%
61%
42%
15%
0%
68%
The Development Bank financed the road construction work totalled of 1,800 km in 2013, which is, in terms of the
construction work volume, a figure 4.8% higher than the total of 1,712 km of hard-paved roads that were constructed
Mongolia-wide in the eight-year period between 20052012.
The Development Bank of Mongolia financed by own resources for four rural road construction projects and during the
reporting period MNT41.3 billion was lent. In total of MNT3.2 billion was granted to monitoring consultancy and drawing
and design projects, which equals to 8% of the loans granted to construction projects.
28
Rural road
The Development Bank financed total of MNT44.6 billion to rural road projects with its own resources and the funds from
the issue of medium-term Euro bonds.
Within the scope of financing for Ulaanbaatar road projects, MNT34.9 billion was granted to seventeen road construction
and refurbishment projects, MNT2.4 billion to four monitoring consultancy service projects and MNT300 million to drawing
and design projects.
Detailed list of the capital city road projects

ROUTE
Sukhbaatar Avenue
DariEkh road
Railway StationRailway Depot Junction
Extension of the Constitution Street road
Refurbishment of Selbe Rivers pair bridge
Bayanzurkh BureauYarmag Bridge
Zuun Durvun Zams junction
Chuluun-Ovoo
Construction of a multilevel crossing
at the Zuun Durvun Zams junction
Sapporo RoundTavan Shar
Petrol StationEnd of
the Doloon Buudal
Olympics Committees southern junction
The Agriculture University junction
Khasbaatar Street road
Trade Union StreetBayankhoshuu
Narantuul Markets southern front
junctionChuluun-Ovoot
Gandhi Street Ajilchdin Street
Refurbishment of Ajilchdin Street and
Dund Rivers lower bridge
Ard Ayush AvenueTolgoit
Total
km Government Contract value

Resolution
(in billion
MNT)
2
3.3
3.3
1.1
1.1
1.1
1
0.3
116
17.6
4.5
Granted
(in billion
MNT)
3.1
0.9
Granting %
Road-work
completion
(%)
94%
100%
82%
100%
1.7
1.5
2.0
26.0
12.5
1.7
1.5
2.0
24.4
12.5
1.5
1.4
1.9
15.2
11.6
87%
94%
95%
62%
92%
100%
100%
100%
60%
100%
30.8
30.8
6.2
20%
5%
3.2
1.9
7.2
3.5
7.2
3.5
6.8
3.3
95%
95%
100%
100%
1.3
1.5
1.5
1.4
96%
100%
2.3
3.4
2
3.5
4.5
3.4
3.5
4.5
3.0
3.3
3.7
2.8
95%
83%
94%
100%
100%
100%
4
35
6.6
1.2
5.7
1.2
7.6
0.5
135%
45%
100%
70%
6
50.6
6.7
117.0
107.6
71.3
0%
66%
0%
90%
29
RURAL ROAD PROJECTS IN IMPLEMENTATION WITH

THE DEVELOPMENT BANKS FINANCING IN 2013
(in billion MNT)
90 km Ulaangom
Naranbulag road
Budgeted costs: 49.5
67 km Tosontsengel
Uliastai road
Khankh
Khandgait
Ulaanbaishint
Ulaangom
Tsagaannuur
Naranbulag
Ulgii
Durgun
Tolbo
Dayan
Artssuuri
Durvuljin
Mankhan
Darvi
Tosontsengel
Tariat
Uliastai
Tsakhir
Er
Bulgan
Undur-Ulaan
Delger
Altai
Buutsagaan
Buregkhang
Batsengel
Tsagaankhairkhan
Gurvanbulag
Tugrug
Teshig
Tarialan
Telmen
Khovd
Bulgan
Uyench
Murun
Bayantes Tsagaan-Uul
Songgino
Numrug
Myangad
Baga-Ilenkh
Khatgal
Tsetserleg Kharkhorin
Galuut
Bayankhongor
Bugat
Arvaikheer
Nariinteel
Bogd
Burgastai
Bayanleg
Gurvantes
Shiveekhuren
100 km Mankhan
Darvi road
30
100 km Ulaangom
Khyargas road
Budget costs: 45.0
128 km Altai
Bayankhongor road
107 km Arvaikheer
Bayankhongor road
Tso
Dalanza
100 km Khanzanburgedei
Solongot road
Zelter
127.1 km Tsakhir
Tosontsengel road
238.4 km Undurkhaan
Choibalsan road
Ereentsav
Altanbulag
Tushig
Sukhbaatar
Chuluunkhoroo
Ulikhan
Darkhan
Khavirga
Bayan-Uul
rdenet
gai
165.3 km Murun
Tarialan road
Norovlin
Ulaanbaatar
Lun
Nalaikh
Zuunmod
Rashaant
Baganuur
Bayan-Ovoo
Arshaan
Choibalsan
Undurkhaan
Munkhkhaan
Bagakhangai
Baruun-Urt
Choir
Airag
Mandalgovi
Sainshand
ogt-Ovoo
Erdene
Projects in implementation
Tsogtsetsii
Zamiin-Uud
adgad
Projects completed as end of 2013
Gashuun-Sukhait
104 km Ulaanbaatar
Mandalgovi road
296 km Mandalgovi
Dalanzadgad road
177.9 km Undurkhaan
Munkhkhaan
Baruun urt road
31
A junction that was refurbished within the scope of the Street project
THE STREET PROJECT
Government Resolution No.81 dated 7 March 2013 approved the implementation of projects to repair and refurbish
road junctions, build new roads and streets, and increase the accessibility of the road networks within the scope of the
Street project.
During the reporting period, a total of MNT47.9 billion was granted through the Development Bank to the road and junction
design and drawing, monitoring consultancy services and construction projects in implementation within this project,
using funds from the issue of Chinggis bonds.
The construction of eighteen junctions and two roads were completed in 2013 amongst the work to refurbish 33 junctions
in total within the Street project. Technoeconomic feasibility studies of two highway roads to be constructed in
Ulaanbaatar are complete; first financing was granted for the work of detailed engineering design and drawing of the
highway road to be constructed along the Tuul river dam.
The Street project has multiple socio-economic benefits. It saves individuals time and money, reduces air pollution and
soil contamination, improves land usage and management, creates new job opportunities. It also increases the sufficiency of
social services through increasing the accessibility of the road networks, creating new street-road networks, and resolving ger
districts engineering infrastructure as a whole. The indirect socio-economic benefits of the eighteen junctions and two roads
that were expanded and refurbished within the scope of the project in 2013 are MNT20.0 billion per annum.
32
A part of the infrastructure of Ulaanbaatar

INFRASTRUCTURE
Within the scope of the mediumterm target programme New Development, Government Resolution No.118 dated 2013 approved
the implementation of 92 projects for engineering infrastructure buildings and facilities as well as line and pipeline networks of
residential towns to be constructed in Ulaanbaatar and rural areas. Financing of up to MNT200.0 billion for these projects involving
MNT416.8 billion-costs in total has been funded by the capital raised through Government securities trading.
In June 2013, the Ministry of Economic Development entered into a Contract regarding the financing of projects with funds
from the issue of Government bonds, and arrangement of repayments with a value of MNT198.7 billion with the projects
client the Construction and Urban Development Ministry, and the Ministry of Energy. Upon conducting relevant studies
regarding the project and the contractor selected by the Project Management Committee, the Bank resolved financing for
38 projects involving MNT224.7 billion. It entered into work performance contracts for 34 projects involving MNT210.6 billion
costs, and granted MNT95.0 billion financing for conducting work and project units operating costs, resulting in a loan balance
of MNT93.8 billion at the end of the year.
Out of thirty-eight projects, for which contracts for conducting work were entered into, thirty-one projects are being
implemented in eleven locations, with 67.5% progress at the end of the reporting period. As of now, five projects are complete
and about to be accepted by the State Commissioning Authority. As for six of the projects, their completion is above 90%.
Implementation of the engineering infrastructure, lines and pipelines network projects will enable the creation of
residential towns and micro-districts for 78,304 households, schools with a capacity for 70,920 students, kindergartens
with a capacity for 18,225 children, hospitals with a capacity for conducting medical examinations of 10,480 people and
16,450 jobs in 1,210.4 haareas in seven locations in the capital city. In addition, it will enable the construction of housing
for 5,142 households, schools for 2,880 students and kindergartens for 4,400 children in 459.02 ha areas, and so on, in eight
re-planned locations in the ger district zones.
33
New Railway
NEW RAILWAY
As approved by Government Resolutions Nos.121, 93 and 161 dated 2012 and Resolutions Nos.28, 82 and 55 dated 2013
to grant the togrog equivalents of USD200.0 million required for financing the first phase of the New Railway project,
the Development Bank granted USD156.1 million in 2013 for the project to construct 267 km of the UkhaaKhudag
Gashuunsukhait railroad. With this projects implementation, it is possible to reduce transportation expenses by 50%
compared to road transport. It will increase our competitiveness in coal and provide for the development of stations and
villages along with the railways. Also, as tasked to grant togrog equivalent of USD55.0 million, which constitute the financing
for costs of the projects preparation operations, the Development Bank granted USD22.5 million in 2013 for 267 km of the
UkhaaKhudagGashuunsukhait railroad.
With the commissioning of the TavantolgoiGashuunsukhait railroad in 2016, it will be possible to transport a total of 30.0
million tons of coal to be exported from the Tavantolgoi mine at a lower cost. Also, it will be connected to the railway
towns of Sainshand and Choibalsan through railways to be constructed to the east of Tavantolgoi, and to the border
points on the east.
This projects implementation will increase the competitiveness in coal by reducing transport expenses by 50% compared
to road transport, developing stations and villages along the railway and connecting to the border points via railway.
34
A pit of Erdenes Tavantolgoi JSC

ERDENES TAVANTOLGOI JSC
As approved by Government Resolutions Nos.148 dated 2012 to grant USD200.0 million financing to Erdenes Tavantolgoi
JSC for the purpose of supporting the activities of the strategically-significant mining sector project, USD100.0 million was
granted in 2012 and once more in 2013.
With the projects implementation, the mining production capacity will increase and product costs will decrease, thereby
improving the mines operation and enabling it to operate profitably. Financing granted by the Development Bank of
Mongolia to Erdenes Tavantolgoi JSC twice reduced the companys interest expenses.
35
THE TAVANTOLGOI POWER PLANT

Government Resolutions Nos.80 and 261 dated 2013 approved the granting of USD50.0 million for preparation work to
enable the commencement of the Tavantolgoi power plant project. USD1.9 million was granted in 2013 for the project units
operating costs, research and analysis work, and consultants fees through the Development Bank, using the funds raised
via Government securities trading.
The Tavantolgoi power plant will have a 450 megawattcapacity and its main consumer will be the Oyutolgoi project. The
Tavantolgoi power plant project team is working with plans to select project investors through competitive selection in
2014, raise the funds necessary for the projects implementation, commence construction work in 2015, and commission
the power plant into operation in 2017.
With the Tavantolgoi power plants commissioning, value-added products will be manufactured using thermal coal
from the Erdenes Tavantolgoi and Ukhaa Khudag mines. This will meet energy demands of the development projects in
implementation as well as those planned to be implemented in the southern zone with domestic sources. Also, domestic
energy supply for the Oyutolgoi project in lieu of the current import purchase will be enabled. The connecting of the
power plant to the central grid will support a reduction in the nationwide energy shortage, instigate new environment
friendly technology, enhance the ability of domestic personnel and create new job opportunities.
THE EG RIVER HYDROELECTRIC PLANT
Government Resolution No.375 dated 2013 allowed the granting of the finance required for implementing the Eg river
hydroelectric plant project in the first phase from the balance of the funds allocated to the Tavantolgoi power plant project,
and accordingly, the Development Bank granted USD491.7 thousand in 2013 for the project units operating costs.
The project team is working to complete the projects preparation work within 2014, commence the projects construction
and assembly work in 2015 and commission the hydroelectric plant into operation in 20192020.
The Eg river hydroelectric plants commissioning will improve the composition of energy sources, enabling Mongolia to
have a regime adjustment and emergency backup capacity, thereby achieving diversification in terms of the power regime.
In addition, Mongolia will be free from energy dependency and reduce electricity import. Furthermore, it will be able to
retain USD10,000,000-cash flow in Mongolia, which is paid annually to the power grid of the Federation of Russia.
36
Extension of the Thermal Power Plant III

EXPANSION OF THE THERMAL POWER PLANT III
As tasked by Government Resolution No.142 to grant USD 35.0 million financing for expanding the capacity of the Thermal
Power Plant III by 50 megawatts, the Development Bank granted a total of USD28.0 million in 2013 based on the projects
work progress.
Hu Nan, an industrial equipment assembly company of the PRC was selected as the projects contractor to conduct
work including the manufacturing and assembly of a 50 megawattturbine, newly constructing a cooling tower, power
connection, installing boilers electric fittings, renovating water pumps, replacing water transmission pipelines, and
undertaking associated works.
The extension to the Thermal Power Plant III will be commissioned into operation in May 2014 whereby the power plants
electricity generation will reach 186 megawatts, heat production will reach 585 Gcal/h, and 1 kWh-electricity generation
costs will reduce from MNT74.7 to MNT36, which will be significant in contributing to the supply for Mongolias central
power grid and the ever-increasing electricity and heat demands in Ulaanbaatar.
EXPANSION OF THE Thermal Power Plant IV
As tasked by Government Resolutions Nos.99 and 119 dated 2012 to grant USD70.0 million financing for expanding the
capacity of the Thermal Power Plant IV by 100 megawatts, the Development Bank granted USD1,9 million in 2012 and
USD42.1 million in 2013 based on the projects work progress.
The capacity of the Thermal Power Plant IV will be increased by installing a 120 megawattcapacity turbine of -120/130
1308O model of the Urals Turbine Factory of the Federation of Russia.
The Thermal Power Plant IV expansion project will be completed in November 2014 thereby increasing the power generation
by over 500,000,000 kW.h and heat generation by 400,000 Gcal/h, which are volumes sufficient enough to cover over 10%
of the current consumption, i.e., the growth of consumption in the next two years.
THE AMGALAN THERMAL POWER PLANT
As approved by Government Resolution No.155 dated 2013 to issue a guarantee for a USD75,9 million-payment on behalf
of the Ministry of Economic Development and the Ministry of Finance for implementing the project to construct a heating
plant with a 300 Gcal/Hcapacity in Amgalan, the Development Bank issued the guarantee. The Amgalan Thermal Power
Plant will have a 348 megawattcapacity and provide the east zone of Ulaanbaatar with heat energy.
The Amgalan Thermal Power Plant will be commissioned into operation in December 2014, and connected to the reliable heat
source of the east zone of Ulaanbaatar thereby improving the operation of the capital citys heat supply system. In addition,
the connecting of the east zone of Ulaanbaatar to the heat sources will open possibilities to build residences in the zone.
37
THE STATE HOUSING CORPORATIONS RESIDENTIAL MICRO-DISTRICT BUYANTUKHAA I

The Development Bank resolved the granting of MNT72.0 billion loan to State Housing Corporation, a
state-owned enterprise, for its project to construct 1,764household residences, i.e., BuyantUkhaa I residential microdistrict for the purpose of providing individuals with affordable housing within the framework of Government Resolution
No.263 dated 2013, and granted MNT60.0 billion loans during the reporting period.
A partnership of major national construction companies is carrying out the construction work; in the first phase, nine
buildings for 567 households have been commissioned into operation, and sales have started.
THE 189HOUSEHOLD RESIDENTIAL BUILDING
IN THE HOUSING FINANCE CORPORATIONS (HFC) MICRO-DISTRICT BUYANTUKHAA
Although the HFC submitted a loan application satisfying the prerequisites under a loan contract entered into in 2012, the
Government resolution which served as a basis for the contract had become ineffective. However, upon re-conducting
studies regarding the project, the Bank deemed it possible to grant loans from its own capital and lent MNT1.5 billion. The
State Housing Corporation borrowed MNT60.0 billion from the Development Bank, implemented the work to construct
the BuyantUkhaa residential complex micro-district, and commissioned nine buildings for 567 households into operation
in the first phase.
With the land and engineering infrastructure being resolved by the state, the contractor companies were able to construct
buildings at low costs thereby enabling individuals of target groups to purchase at a price 40% cheaper than the market
price, i.e., MNT1.28 million per square metre.
38
The residential micro-district BuyantUkhaa I

THE 1,152HOUSEHOLD RESIDENTIAL MICRO-DISTRICT ADJACENT TO THE YARMAG BRIDGE
MNT6.8 billion financing was granted for the construction of five residential buildings for 576 households in the first phase
out of a total of ten buildings of the project 1,152household residential micro-district in 10 haareas located adjacent to
the Yarmag Bridge, i.e., Viva City town within the scope of the medium-term programme New Development.
he projects implementation will create comfortable and pleasant living environments, and furthermore will be significant
in reducing soil contamination and air pollution in Ulaanbaatar.
THE NEW YARMAG RESIDENTIAL MICRO-DISTRICT AND INFRASTRUCTURE
The Development Bank was allowed by Government Resolution No.246 dated 2011 to issue a guarantee to the Export
Import Bank of the PRC for the purpose of raising funds required for the construction of the 3,955household residential
complex micro-district New Yarmag within the scope of the programmes New Development and 100,000-household
residences. Within the framework of the Resolution, the Development Bank issued a guarantee for USD83.9 million in
2012 for phase one of the loans to be granted by the ExportImport Bank. New Yarmag Housing Project LLC, the project
implementer, entered into a contract to borrow from the ExportImport Bank.
This project is of paramount importance in implementing the medium-term target programme New Development and
the Government Action Plan as well as in providing individuals with housing, enabling soft loans for housing purposes and
decelerating the population density in central areas of the capital city.
HOUSING LOANS TO BE GRANTED TO LOW- OR MEDIUM-INCOME INDIVIDUALS
AT AN INTEREST RATE OF 6% PER ANNUM
The loans were granted based on a MNT50.0 billionfinancing contract entered into with the Ministry of Finance and the
State Bank in 2012 for financing the programme to grant housing loans to low or middle-income households at an interest
rate of 6% per annum, within the framework of the medium-term target programme New Development, Parliament
Resolution No.36 dated 2010 and Government Resolutions Nos.138 and 341 dated 2011; additional MNT30.0 billionloans
were granted in 2013.
his financing is significant in creating comfortable and pleasant living environments for low- or medium-income
households and enabling them to purchase housing. Within the scope of the project, soft loans for housing purposes were
granted to in total 1,868 families.
39
Extension of the plant of Khutul CementLime SOJSC
THE KHUTUL CEMENT AND LIME PLANT

A USD61.3 million loan was granted to Basement LLC in 2012 for its plant expansion project to update the cement
manufacturing capacity to 1,000,000 tons per year. This is achieved by changing line two of the clinker manufacturing
technology for cement production at the plant of Khutul CementLime SOJSC to a dry method of production. This loan
is within the scope of the medium-term target programme New Development.
The plants assembly and equipment installation work were completed and a trial production was successful in 2013. As per
the plan, the plant will be commissioned into operation in April 2014.
In the last four years, Mongolia imported 5886% of its total cement consumption resulting in outflow in the amount of
approximately USD400.0 million only for cement purchases. As a result of this projects implementation, Mongolia will
manufacture 1,000,000 tons of cement per year and supply 40% of the increasing domestic cement demands, which makes
it a project of high strategic significance.
40
The Housing construction industrial complex1
THE PROJECT HOUSING CONSTRUCTION INDUSTRIAL COMPLEX1

Within the framework of the mediumterm target programme New Development and the work to provide households
with housing, it was decided by Government Resolution No.180 dated 2013 to grant USD14.0 million to Erel LLC for the
Housing construction industrial complex1 project that conforms to European standards. The funds were raised through
Government securities trading. The Development Bank conducted studies regarding the project and granted USD14.0
million loans in accordance with the applicable regulations and procedures.
Studies were conducted regarding obtaining the remaining finances via export loans and/or financing the project, of which
total costs are USD43.2 million, jointly with foreign banks and/or financial institutions. A financing scheme was determined
jointly with the mmerzbank, UniCredit and Standard Chartered banks, resulting in a solution to cooperate with
the mmerzbank of the Federal Republic of Germany. We reviewed Basic Loan Agreement and Individual Loan
Agreement drafts delivered by the bank and sent our comments thereon. We are working toward borrowing a total of
EUR13.2 million from the mmerzbank as an export loan and sub-lend it to Erel LLC.
With implementation of the project Housing production plant1, Erel LLC will conduct its activities throughout four
quarters a year and supply concrete components at low costs, which take a high percentage in construction costs thereby
impacting the property price stabilisation. With the project it is possible to manufacture and supply 150.0 thousand m3
of precast products per annum, i.e., building blocks which would be sufficient for 5,000-household residences, or schools,
kindergartens, hospitals and cultural and public buildings and facilities equal thereto.
41
The Baganuur Mine

PROJECT TO EXPAND BAGANUUR JSCS CAPACITY
As approved by Government Resolutions Nos.10 and 283 dated 2013 to grant in total MNT18.6 billion financing for
implementation of the project to purchase equipment and expand the coal crushing and loading facility for the purpose
of increasing the Baganuur mines capacity, MNT18.3 billion was granted in 2013.
Using the Development Banks loan sources, Baganuur JSC purchased eight machines for coal and soil transport and a
bulldozer; implementation of the project to expand its coal crushing and loading facility has been underway since
September 2013. The coal crushing and loading facility extension will be commissioned into operation in January 2014.
The Baganuur mine was unable to operate at its full capacity due to its outdated equipment, lagging behind in terms of soil
stripping of 13.0 million cubic metres in total. With the purchase of the coal and soil transport machinery, coal production
rose by 10% and soil stripping by 11%.
With the coal crushing and loading facilitys commissioning, coal crushing and loading capacity will reach 4.5 million tons per year
and a continuous coal supply to heating plants and ger district households will be enabled. In addition, it will become possible to
implement projects to construct a coal liquefaction plant as well as a power plant in reliance of the Baganuur mine.
sainshand industrial complex
Government Resolution No.76 dated 2013 approved the finance of MNT14.1 billion required in 2013 for legal consultancy
and general project consultancy services, environmental and social impact assessment and the work to prepare a new
settled zones partial plan. These are necessary preparation works for commencing the industrial complex Sainshands
construction, the Development Bank granted MNT3.3 billion in 2013 based on the projects work progress.
The construction of the projects entire infrastructure includes the roads, railway, a cargo transfer-loading facility, a 450
megawatt-capacity power plant, a water supply and wastewater treatment facility, an air purification facility, communication
and heat lines and pipelines.
Construction of the projects entire infrastructure will serve as a basis for creating a new settled zone and building plants in
Bagh 1 of Sainshand soum. Locating the plants in the same area will create an industrial zone and jobs for 2,700 individuals,
enabling business entities to work as suppliers or subcontractors, thereby increasing employment and export products.
42
Aircraft of Boeing 767300R model

FINANCING FOR MIAT JSCS AIRCRAFT PURCHASE
The Development Bank was approved by Government Resolutions Nos.137 and 383 dated 2013 to grant financing of up to
USD115.0 million to MIAT JSC for its purchase of an aircraft of Boeing 737300R model.
Considering the significance of this purchase, the Development Bank granted from its own resources USD5.3 million for
the aircrafts advance payment in 2012, and a bridge loan of USD84.2 million for the principal payment in 2013 using funds
from the issue of Chinggis bonds in accordance with Government Resolution No.137. The bridge loan has been transferred
as low-cost long-term financing sources of the Ex-Im Bank of the USA, resulting in a USD2.9 million balance of the amount
financed with the Chinggis bond funds.
Upon the updating of its aircraft fleet, MIAT JSC has conducted studies looking to run direct flights to destinations including
Bangkok (in winter), Singapore, Ereen, Shanghai and Almaty in the near future. The Company is also planning to run direct
flights to the USA if a contract is entered into with the Government of the USA.
This purchase is of vital importance in supporting Mongolias aviation sector development in that it will increase MIAT JSCs
operational efficiency, enhance its service terms and update the aircraft fleet with additions.
43
Greenhouse farming
PROJECTS FOR FIVE AGRICULTURE AND LIGHT INDUSTRY SECTORS

The Development Bank was approved to lend in total USD172.0 million for a period of 4.5 years as an advance payment
equal to one third of the equipment financing under Government Resolutions Nos.126 and 141 dated 2013.
Jointly with the Ministry of Industry and Agriculture, and Golomt Bank, a five-sector sub-financing contract was entered
into for the purpose of supporting the domestic manufacturing, increasing job opportunities, manufacturing value-added
export products and increasing Mongolias foreign currency reserves, and accordingly MNT269.0 billion was granted to
Golomt Bank. During the reporting period, Golomt Bank received applications from 189 companies in total and decided
to grant MNT91.6 billion loans to 51 borrowers. Out of 51 approved loans, MNT44.5 billion in total was sub-lent to 36
companies.
Financing for equipment updating is significant in the further processing of wool, cashmere and sewn products. It enables
the domestic manufacturing of final products thereby meeting domestic demands and allowing export. As for dairy
production, it helps increase milk production and reduce the import of dried milk. The utilisation of greenhouse farming
will enhance the supply of food for the population and reduce vegetable import.
THE SMALL AND MEDIUM ENTERPRISE DEVELOPMENT PROJECT
Jointly with the Small and Medium Enterprise Development Fund of the Labour Ministry and through nine commercial banks,
the Development Bank granted MNT36.5 billion project loans to 62 small- and medium-enterprise-borrowers engaged in
business in the sectors including livestock husbandry, agriculture, light industry and foodstuff industry, construction, trade
and services.
The soft loan granting to small and medium enterprises for expanding their farms and factories is significant in increasing
job opportunities, securing the level of the populations livelihood, diversifying income sources, and increasing the
contribution from small and medium enterprises to the countrys economy.
THE CENTRAL GEOLOGICAL LABORATORY
It has been decided to grant MNT980.0 million -loans to the Central Geological Laboratory for its purchase of the key
equipment thereby increasing its capacity. A bid for the equipment purchase has been announced; financing will be
granted upon entering into loan and pledge contracts after a contractor is selected.
The update to the Central Geological Laboratorys equipment will enable increasing the capacity of the national professional
entity accredited internationally, and conducting tests and analyses domestically at an internationally recognised highquality level.
44
FUNDING OPERATIONS
The Development Bank is under duty to raise funds, to a certain extent, for financing major projects and programmes for
the development of Mongolia. Through cooperation with financial institutions of international repute, the Bank successfully
raised the required funds in 2013.
INDUSTRIAL BONDS (SAMURAI BONDS):
In 2013 the Development Bank of Mongolia launched the successful trading of JPY30.0 billion -bonds termed for 10 years
guaranteed by the Government of Mongolia and the Japan Bank for International Cooperation (JBIC) to Japanese investors,
further strengthening its success with the 2011 medium-term Euro bonds. The guarantee issuance by the Japan Bank for
International Cooperation (Rating: S&P/Moodys AA-/Aa3) for 95% of the principal and interest payments for the industrial
bonds of the Development Bank of Mongolia enabled fixing the coupon interest of the Development Bank bonds at 1.52%
per annum, i.e., at a relatively lower rate than the interest rate of other country bonds.
The Development
Banks JPY30.0 billion
industrial bonds
Underwriter
Bond issuer
The Development Bank of Mongolia
Bond issuance date
25 December 2013
Guarantor
The Ministry of Finance on behalf of the Government of

Mongolia, and the Japan Bank for International Cooperation
JPY30.0 billion
10 years
1.52% per annum (fixed)
Support the industrial sector
Daiwa Securities Co. Ltd.
Nomura Securities Co. Ltd.
International law firm Shimazaki
Total amount
Maturity
Coupon interest
Bond issuance purposes
Investment banks
Legal consultant entity
FINANCING BY US-EXIM:
The Development Bank granted in total USD83.9 million, which is bridge financing and an advance
required for the payment of an aircraft of Boeing767 300R model to be purchased by MIAT SOJSC
from Boeing company of the USA, in the first phase, within the scope of the Mongolian Governments
Action Plan for 20122016 and the state policies in relation to the civil aviation sector for the period until
2020. Also, the Bank jointly organised the re-financing using long-term funds guaranteed by the Ex-Im
bank of the USA.
FINANCING BY COMMERZBANK:
Financing equal up to EUR13.1 million was granted to Erel LLC in 2013, which was required
for implementing the project Housing construction industrial complex1 within the scope
of the mediumterm target programme New Development and the work to provide
individuals with housing. Erel LLC entered into a contract for purchasing EUR17.3 million
equipment for the housing construction industrial complex from bawe company of
Germany. The Development Bank granted 30% of the equipment financing, and it was decided to obtain the remaining
70% financing from the Commerzbank of Germany for a 5yearterm with an export loan guarantee from uler Hermes,
and sub-lend it to Erel LLC through the Development Bank.
Amount of the financing
EUR13.1 million
Financing term
60 months
Loan interest
6month EURIBOR+1.90%
45
BUSINESS COOPERATION
INTERNATIONAL COOPERATION
The Development Bank, in accordance with its functions and duties, works proactively operating in a close link with
international financial institutions and development financing organisations, establishing partner relationships, executing
cooperation memoranda as well as joining relevant associations.
Since its incorporation in 2011, the Development Bank has established relationships with several organisations from the
continents of Africa, America, Asia and Europe, and signed cooperation memoranda. It has also joined three associations
that conduct similar activities. Going forward, the Development Bank is working toward strengthening and expanding
these relationships and links.
THE BLOOMBERG TELEVISION
We organised an advertising campaign
Inside Mongolia for a short period jointly
with the Bloomberg Television Singapore
aimed at raising Mongolias reputation,
introducing the investment environment and improving investors
attitude towards Mongolia.
Within the scope of this work, professional commercials and short
documentaries were prepared for investors covering the subjects:
growth of Mongolias economy, the political stability of the country,
investment environment, international relations and mineral resources
policies; and broadcasted them about 4,900 times worldwide through
the Bloomberg Television channels in Asia, Australia, Europe and
North America.
Questionnaire responses from participants

who saw the advertisement broadcasts:
Interest in
investing
in Mongolia
increased
Gained more
information
regarding
Mongolia
79%
Liked the
advertisement
80%
81%
As a result of these activities, over 2,887,500 comments were received through the website www.blmberg.com. In
addition, advertisement work was organised through websites of international repute including www.blmberg.com and
www.businessweek.com.
Participants who saw the advertisement broadcasts were of opinion that the most important factor for Mongolia to attract
international investors is its political stability, and they expressed interest in getting to know more about Mongolia.
46
MEMORANDA OF UNDERSTANDING
24 August 2011:
THE CHINA EXIM BANK
The Development Bank of Mongolia signed a Memorandum of Understanding with the China EXIM
bank, agreeing to support the development of diplomatic relationships between the two countries,
and the finance for major projects that will have strong positive impact on Mongolias economy.
GAUFF ENGINEERING COMPANY OF THE FEDERAL REPUBLIC OF GERMANY
The Development Bank of Mongolia signed a Memorandum of Understanding with Gauff
engineering company of the Federal Republic of Germany (GAUFF Engineering) agreeing upon to
jointly organise training sessions and seminars covering topics such as Technical matters of road
projects and Infrastructure financing.
6 December 2011:
THE KUWAIT INVESTMENT AUTHORITY
The Development Bank of Mongolia signed a Memorandum of Understanding with the uwait
Investment Authority agreeing upon to cooperate in investing in Mongolia in strategically-significant
projects such as mineral resources, banking and financial services, railway and so on.
THE KUWAIT FUND FOR ARAB ECONOMIC DEVELOPMENT
The Development Bank of Mongolia signed a Memorandum of Understanding with the Kuwait Fund
for Arab Economic Development agreeing upon to grant soft loans to projects which play a leading
role in Mongolias development and whose techno-economic feasibility studies are completed.
12 March 2012:
Sumitomo Mitsui Banking Corporation
A Memorandum of Understanding has been signed between the Development Bank of Mongolia
and Sumitomo Mitsui Banking Corporation (S) of Japan agreeing upon to cooperate in financing
major infrastructure, mining and development projects that will accelerate Mongolias economic
development.
21 March 2012:
INA DEVELOPMENT BANK
The Development Bank of Mongolia and China Development Bank entered into a cooperation
contract agreeing upon to jointly grant loans to road, construction and housing projects to be
implemented in rural areas as well as the capital city in Mongolia, and implement other projects
under consensus by both parties.
47
1 May 2012:
EXPORT-IMPORT BANK OF THE UNITED STATES
The Development Bank of Mongolia signed a Memorandum of Understanding with the U.S. Ex-Im bank,
resulting in the opening of opportunities to get the USAs advanced techniques and technology via
low-interest long-term financing, and fund strategically-significant major projects and programmes.
The Ex-Im Bank expressed cooperation interest in supporting the mining and infrastructure sectors
that are the basis of expedient development of Mongolias economy, inter alia, the railway and road
transport, aviation, energy, housing and processing industries.
10 October 2012:
THE GREATER TUMEN INITIATIVE
The Development Bank of Mongolia signed a Memorandum of Understanding with the Ex-Im
Banks Association of Northeast Asia (Greater Tumen Initiative) to cooperate in intensifying Northeast
Asias economic policies, enhancing economic bases and foundations, and expanding technical
cooperation.
12 September 2013:
JAPAN BANK FOR INTERNATIONAL COOPERATION (JBIC)
The Development Bank of Mongolia signed a Memorandum of Understanding with the Japan Bank
for International Cooperation. The parties agreed upon, within the scope of the Memorandum, to
share information regarding projects that can make considerable contribution to expanding foreign
trade and businesses between Mongolia and Japan, exchange opinions regarding the Development
Banks foreign financing operations such as industrial bonds, foreign borrowing and bond issuance
in international markets, based on reciprocal understanding between the Governments of Mongolia
and Japan.
25 December 2013:
CHINA DEVELOPMENT BANK
The Development Bank of Mongolia signed a Cooperation Memorandum with the China Development
Bank looking to finance the expansion of the Combined heat and power plant III, expansion of the
ZaminUud border points road and x-ray control area and the Amgalan heating plant as well as
other projects in accordance with consensus by both parties.
THE BANKS AND SECURITIES COMPANIES COOPERATED IN THE
ISSUANCE OF THE INDUSTRIAL BOND SAMURAI:
When trading the bonds in Japans capital market, with the guarantee from the Government of
Mongolia and the Japan Bank for International Cooperation, and raising JPY30,000,000,000-funds,
the Development Bank of Mongolia cooperated with Daiwa Securities and Nomura Securities
as underwriters, with the international law firm Shimazaki as an international legal consultant, and
with Mizuho bank as an issuing agent, a paying agent and an administrative agent as well as a
commissioned company for bondholders.

48
BRIEF INTRODUCTION TO THE DEVELOPMENT BANKS MEMBERSHIP ORGANISATIONS

In 2013, the Development Bank joined the following institutions, looking to establish relationships with organisations that
conduct similar activities, expand cooperation, exchange data, information and opinions, and strengthen its capacity, as
well as cooperated and actively participated in organising pertinent events.
GREATER TUMEN INITIATIVE (GTI)
The Bank signed a Cooperation Memorandum with the intergovernmental cooperation programme
Greater Tumen Initiative. The programmes purpose is to render support to its member countries in
their active participation in world trade and financial markets. Within the scope of the programme,
the PRC, Mongolia, the Republic of Korea and the Federation of Russia jointly organise meetings on an
annual basis under the auspices of the United Nations Development Programme (UNDP).
The Development Bank organised the 14th forum meeting of the programme Greater Tumen Initiative in Ulaanbaatar on
2931 October 2013 inviting and with attendances of over 100 representatives from international organisations including
the UN, World Bank and Asian Development Bank, in addition to the member countries. At the consultancy meeting, legal
status of the programme Greater Tumen initiative was agreed upon, the project implementation was evaluated, and
budgets and plans for 2014 as well as projects and programmes to be implemented going forward were discussed and
approved.
ASSOCIATION OF DEVELOPMENT FINANCING INSTITUTIONS IN ASIA AND THE PACIFIC (ADFIAP)
The Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) of international
repute is a joint association of development banks and other financial institutions in Asian and the Pacific
countries, and currently operates with 121 member organisations from 45 countries in total. Although
incorporated only recently, the Development Bank joined the ADFIAP and participated in organising the
Associations 36thmeeting, which successfully took place under the name Development Institution, and
Trade and Industry Chamber in Ulaanbaatar, the capital city of Mongolia, in 2013, in which the meeting
participants made presentations and held discussions covering the topics: supporting small and medium businesses and
the level of their development, financing and governance; green investment in the infrastructure and energy sectors.
MONGOLIAN BANKERS ASSOCIATION
As an institution operating in the banking and financial sector and making substantial contribution,
the Development Bank joined the Mongolian Bankers Association as a member, exchanged opinions
regarding how to expand cooperation with national commercial banks as well as representative offices
of international banks operating in Mongolia, and actively participated in pertinent activities.
49
RISK MANAGEMENT
In 2013 the Development Bank improved its risk management framework in accordance with the Law on the Development
Bank of Mongolia, the risk management policies,regulations and within approved risk limits and criteria parameters. . With close
cooperation with the Board of Directors (BoD), the Executive Management Committee, the Credit Committee, the Asset and
Liability Committee, the Risk Management Committee and the Risk Management Department together implemented sound risk
management strategies consistent with the internal and external factors.
The BoD, responsible for approving the Banks risk management policies and strategies, oversees whether the Bank operates
within the accepted risk limits and criteria. The Executive Management Committee and other management-level committees
exercise bank-wide monitoring of the credit risk, impacts from internal and external factors, an adequacy of the loan loss reserve
and the implementation of the relevant policies and regulations.
In order to ensure the stability of the Bank, the Risk Management Department developed necessary regulations, guidelines,
information system required for sound risk management framework based on best international risk management practices
with close cooperation of the other departments. In addition, the Risk Management Department established risk management
culture within the Bank by introducing daily risk management processes including credit risk reviewing, risk reporting, and risk
monitoring. The Risk Management Department also provided professional advice and guidance regarding dealing with uncertain
or stressed conditions, overcoming financial depression, financial discipline and protection against potential risks to its costumers.
The Development Bank of Mongolia considers credit risk, market risk, liquidity risk and operational risk as main potential risks it
would face, and established sound risk management framework to identify, measure, review, report and control these risks.
LOAN RISKS
As of end of 2013, the total loan outstanding and advances of the Development Bank of Mongolia are MNT2,185.8 a 4.4-fold rise
compared to the previous year. Of which 60.4 percent are to be repaid from the state budget, thus, considered as risk-free. Neither
past due or impaired loans cover 94 percent of the total loans, past due but not impaired loans take 0.2 percent and impaired
loans take 5.8 percent thereof during the reporting period, an amount of MNT6,2 billion is reserved as loan loss reserve fund. As of
end of 2013, the total amount of loans granted to five largest borrowers of the Bank was MNT1,078.7 billion which takes 49 percent
of the total loans and advances.
The positive results of 2013 including high performance of the Banks loan operation, increased profitability, and good loan
portfolio quality, directly derived from feasible loan terms to borrowers, and the Executive management teams successful
implementation of credit risk management strategies.
According to the credit policy approved by the BoD, the Credit Committee has the authority to approve transactions with a total
amount of up to MNT 5.0 billion. Any requests with higher amounts need to be approved by the BoD. In accordance with the
Law on Development Bank of Mongolia, credit risk review report is prepared by the Risk Management Department for each loan
proposal to be discussed by the Credit Committee.
As stipulated in the Law on Development Bank of Mongolia, the total value of loans, and loan equivalent assets provided by the
Bank shall not exceed the amount equal to 50 times of the Banks equity capital. The Credit Policy also states that the amount of
total loan outstanding must not exceed 80 percent of the total asset. In 2013, the Development Bank of Mongolia operated within
these restrictions. Also, the Bank established provision for impaired loans as of end of 2013, in accordance with IFRS.
50
MARKET RISKS
In order to manage interest risk and exchange rate risk, the Development Bank of Mongolia implements prudential ratios
and limits based on the macroeconomic conditions, and operates within these limits.
In the reporting year, during which deceleration of the foreign currency inflow into the economy and increased payment
balance pressure caused circumstances for the Mongolian togrog rate weakening against the American dollar.
Increased decline in foreign currency inflow and pressure on the balance of payment resulted in the depreciation of
domestic currency MNT. Therefore, in order to prevent foreign exchange loss the Bank made a special agreement with the
Government of Mongolia that the government bears foreign exchange loss from MNT loans.
LIQUIDITY RISKS
In order to manage interest risk and exchange rate risk, the Development Bank of Mongolia implements prudential ratios
and limits based on the macroeconomic conditions, and operates within these limits.
In the reporting year, during which deceleration of the foreign currency inflow into the economy and increased payment
balance pressure caused circumstances for the Mongolian togrog rate weakening against the American dollar.
Increased decline in foreign currency inflow and pressure on the balance of payment resulted in the depreciation of
domestic currency MNT. Therefore, in order to prevent foreign exchange loss the Bank made a special agreement with the
Government of Mongolia that the government bears foreign exchange loss from MNT loans.
OPERATIONAL RISKS
Since its establishment in 2011, the Banks operational scope has continuously expanded. To ensure operational stability of
the Bank, in 2013, the Risk Management Department developed relevant policies, regulations, procedures, and guidelines
which are necessary for identifying, monitoring, preventing operational risk, analyzing circumstances, and implementing a
reporting system.
In 2013, the Development Bank of Mongolia specifically focused on improving its risk management framework through
giving the following areas high priority based on operational characteristics, structure and scope of the Bank.
Ensure the Banks operations consistent with the Law on the Development Bank of Mongolia, as well as other legislative
acts, and conduct risk assessment;
Human resources risk assessment, general assessment of operational risks, and primary and re-training of personnel;
Identifying risks in procurement activities, as well as supplier risks; and assessment of legal risks in agreements and
contracts;
Improve internal audit function, develop user access matrix to enhance monitoring function in the Banks core system
Improve information technology structure to develop sound management information system
Information confidentiality, workplace safety
51
Since 2014 ...
twice
2013.12.31
audited twice
2012.12.31
2011.12.31
2011.05.12
Launched its operations
52
The Development Banks

financial statements and
reports are verified by auditing
each year and it is found
that the Bank committed
no violation or breach,
and its loan financing is
ensured with collateral and
guarantees, in excess of the
applicable requirements.
THE DEVELOPMENT
BANK OF MONGOLIA
International Financial
Reporting Standards
Financial Statements and
Independent Auditors
Report
31 December 2013
53
Contents
FINANCIAL STATEMENTS
Statement of Financial Position
Statement of Profit or Loss and Other Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
NOTES TO THE FINANCIAL STATEMENTS
1. Corporate Information And Operating Environment
2. Financial Reporting Framework And Basis For Preparation And Presentation
3. Significant Accounting Policies
4. Critical Accounting Judgements And Key Sources Of Estimation Uncertainty
5. Application Of New And Revised International Financial Reporting Standards
6. Cash And Cash Equivalents
7. Bank Deposits
8. Loans And Advances
9. Other Assets
10. Property And Equipment
11. Intangibles Assets
12. Customer Accounts And Other Liabilities
13. Due To Other Banks
14. Bonds
15. Borrowings
16. Related Party Transactions
17. Contributed Capital
18. Interest Income
19. Interest Expense
20. Foreign Exchange Gains Less Losses
21. Administrative And Other Expenses
22. Income Taxes
23. Financial Risk Management
24. Presentation Of Financial Instruments By Measurement Category
25. Fair Values Of Financial Assets And Liabilities
26. Commitments And Contingencies
27. Segment Reporting
28. Post Balance Sheet Events
55

To the Shareholders and Board of Directors of Development Bank of Mongolia.
We have audited the accompanying financial statements of Development Bank of Mongolia (the Bank), which comprise
the statement of financial position as at 31 December 2013 and the statements of profit or loss and other comprehensive
income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and
other explanatory notes.
Managements responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from financial misstatenent, whether due to fraud or error.
Auditors responsibility
Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance over whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinions
on the effectiveness of the entitys internal control. An audit also inlcudes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying financial statement present fairly, in all material respects, the financial position of the
Banks as at 31 December 2013, and its financial performance and its cash flows for the year then ended in accordance
with International Financial Reporting Standards.
Signed by
Bayarmaa Davaa
Executive Director
PricewaterhouseCoopers Audit LLC
Approved by
Matthew Pottle
Managing partner
14 March 2014
Ulaanbaatar, Mongolia
PricewaterhouseCoopers Audit LLC, Central Tower Office Building, Suite 601, Floor 6, Great Chinggis Khaans
Square 2, SBD-8, Ulaanbaatar 14200, Mongolia
T: +976 70009089, F: +976 (11) 322068, www. pwc.com/mn
56

Statement of Financial Position
As at 31 December 2013
In thousands of MNT
Note
31 December 2013
Assets
Bank deposits
6
7
Loans and advances

Other assets
Current income tax prepayment
Intangible assets
Deferred tax assets
Total assets
Liabilities
Customer accounts
Other liabilities
Due to other banks
Bonds
Borrowings
Total liabilities
Equity
Contributed capital
Retained earnings
Total equity
379,461,233
652,338,027
31 December
2012 (Restated)
216,468,206
168,924,490
1 January 2012
(Restated)
75,817,745
-
8
9
2,179,590,302
6,036,490
493,555,967
2,285,515
3,667
10
11
22
12
12
13
14
15
17
3,846,446
583,037
777,485
8,236,534
3,230,869,554
16,278,742
373,841
111,041,307
972,107,029
1,987,189,199
3,086,990,118
123,300,000
20,579,436
143,879,436
3,230,869,554
234,558
726,688
5,940,360
888,135,784
6,960
505,689
3,313,560
817,317,727
821,143,936
73,300,000
(6,308,152)
66,991,848
888,135,784
182,563
811,286
44,933
76,860,194
1,139,593
26,622,791
27,762,384
49,700,000
(602,190)
49,097,810
76,860,194
Approved for issue and signed on behalf of the Executive management on 14 March 2014

Munkhbat Nanjid
Chief Executive Officer
Tuyachimeg Sevjid
Acting Head of Accounting Division
The accompanying notes are an integral part of these financial statements.
57

Notes to the Financial Statements 31 December 2013
(Expressed in thousands of Mongolian tugriks unless otherwise stated)
Statement of Profit or Loss and Other Comprehensive Income

Year ended 31 December 2013
In thousands of MNT
Note
Interest income
Interest expense
Net interest income/(expense)
Net interest income/(expense) after
provision for loan impairment
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses
Administrative and other operating expenses
Income tax (expenses)/benefit
Profit/(loss) for the year
Total comprehensive income/(loss) for the year
18
19
Year ended 31
December 2013
131,059,558
(89,057,610)
42,001,948
(6,224,792)
35,777,156
Year ended 31 December

2012 (Restated)
12,878,274
(13,695,488)
(817,214)
(817,214)
20
21
22
2,000,002
1,913,578
(4,593,890)
35,096,846
(8,209,258)
26,887,588
26,887,588
4,060
(5,771,355)
(1,703,320)
(8,287,829)
2,581,867
(5,705,962)
(5,705,962)
Statement of Changes in Equity

In thousands of MNT
Note
Balance at 1 January 2012

Loss for the year
Total comprehensive loss
Contributed capital for the year
Balance at 31 December 2012
Profit for the year
Total comprehensive income
Contributed capital for the year
Balance at 31 December 2013
17
17
17
17
17
58
Contributed
capital
49,700,000
23,600,000
73,300,000
50,000,000
123,300,000
Retained earnings
(602,190)
(5,705,962)
(5,705,962)
(6,308,152)
26,887,588
26,887,588
20,579,436
Total equity
49,097,810
(5,705,962)
(5,705,962)
23,600,000
66,991,848
26,887,588
26,887,588
50,000,000
143,879,436


In thousands of MNT
Cash flows from operating activities
Adjustments to:
Depreciation, amortization
FX translation (gain)/loss -Unrealized
Property and equipment written off
Interest income
Interest expense
Realised FX loss from financing activities
Cash flows from operating activities before
changes in operating assets and liabilities
Net increase in bank deposits
Net increase in loans and advances to customers
Net increase in other assets
Net increase in customer accounts
Net increase in due to other banks
Net increase/(decrease) in other liabilities
Net cash used in operating activities before tax and interest
Income taxes paid
Interest received
Interest paid
Net cash used in operating activities
Year ended 31
December 2013
35,096,846
203,986
6,224,792
372,892
2,087
(131,059,558)
89,057,610
23,325,423
23,224,078

2012 (Restated)
(8,287,829)
149,868
34,913,681
(12,878,274)
13,695,488
27,592,934
(475,005,213)
(1,496,584,570)
(821,833)
16,270,435
113,686,530
(131,848)
(1,819,362,422)
(17,665,438)
95,391,193
(85,571,417)
(1,827,208,084)
(160,282,560)
(492,228,742)
(2,281,848)
7,013
(633,905)
(627,827,108)
28,062,104
(24,846,075)
(624,611,079)
59


In thousands of MNT
Cash flows used in investing activities
Purchase of property and equipment
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Increase of contributed capital
Proceeds from borrowings
Proceeds from bonds
Repayment of bonds
Net cash from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
60
Year ended 31
December 2013
(1,827,208,084)
(457,310)
(148,038)
(605,348)
50,000,000
1,964,069,754
112,613,993
(135,939,416)
1,990,744,332
62,127
162,993,027
216,468,206
379,461,233

2012 (Restated)
(624,611,079)
(117,265)
(117,265)
23,600,000
769,717,076
(28,019,600)
765,297,476
81,328
140,650,461
75,817,745
216,468,206

1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT

The Development Bank of Mongolia (the Bank) is a Government-owned, policy-oriented statutory financial institution
established on 25 March 2011 pursuant to the Resolution No. 195 dated 20 July 2010 issued by the Government of
Mongolia and under the Law on Development Bank of Mongolia passed by the Parliament on 10 February 2011. The
Bank was registered with the Legal Entity Registration Office of the General Authority for State Registration and is the only
policy bank in Mongolia. The Bank conducts its business under the direct supervision of the Cabinet, which is the highest
institution of Government administration in Mongolia, and is regulated, principally, by the Law on Development Bank of
Mongolia. The Bank commenced its operations in May 2011.
The Government of Mongolia is the Banks sole shareholder. In May and December 2011, the Government contributed
MNT 16.7 billion and MNT 33.0 billion, respectively, in cash to the Banks capital. In 2012, the Government contributed
a further MNT 23.6 billion and as at 31 December 2012, the Banks share capital was MNT 73.3 billion. The Government
has contributed a further MNT 10.0 billion, MNT 5.0 billion and MNT 35.0 billion in July, August and September 2013,
respectively, to the Banks capital and as at 31 December 2013, the Banks share capital was MNT 123.3 billion.
In accordance with Article 21.1 of the Law on Development Bank of Mongolia, Parliament determines the source of equity
financing that the Government can provide to the Bank and determines the limits of loan guarantees to be provided
by the Government. The Bank is not subject to the rules and regulations issued by the Bank of Mongolia in relation to
commercial banks. The Banks policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business.
Until July 2013, the executive management of the Bank had been carried out by a joint team from the Bank and the
Korean Development Bank. In July 2013, the Management Agreement with the Korean Development Bank was changed
to the Advisory Agreement, and the Bank is managed solely by Mongolian nationals appointed by its Board of Directors.
The Bank had an average of 74 employees during the year ended 31 December 2013 (2012: 43). The Banks principal place
of business is: Max Tower Building 2-3rd floor, Juulchin Street 4/4 Ulaanbaatar 15170, Mongolia.
These financial statements are presented in Mongolian Tugriks (MNT), unless otherwise stated.
These financial statements were approved for issue by the Executive management of the Bank on 14 March 2014.
Operating Environment of the Bank
Mongolia displays many characteristics of an emerging market including relatively high inflation and interest rates. After
recording steady growth in 2010 and 2011, the Mongolian economy has shown signs of a slowdown in 2012 and 2013
due to declining global commodities prices, concerns over slowing growth in China and changes to the Mongolian
Foreign Investment Law in 2012 which have slowed inbound foreign investment into the country.
On 3 October 2013, the Mongolian parliament passed the Law on Investment and the Law on Implementation of the
Law on Investment (effective from 1 November 2013). Following the issuance of the new laws, the Law of Mongolia on
Foreign Investment and the Strategic Entities Foreign Investment Law (SEFIL) were cancelled. The purpose of the Law
on Investment is to protect the legitimate rights and interests of the investors in the territory of Mongolia, establish the
common legal guarantee for investment, support investment, stabilise tax environment, determine the powers of the
state organisations, and rights and obligations of the investor and regulate other relations concerning investments.
The tax and customs legislation in Mongolia is subject to varying interpretations and frequent changes (refer to Note 26).
The future economic performance of Mongolia is tied to the continuing demand from China and continuing high global
prices for commodities as well as dependent upon the effectiveness of economic, financial and monetary measures
undertaken by the Government together with tax, legal regulatory and political developments.
The international sovereign debt crisis, stock market volatility and other risks could have a negative effect on the
Mongolian financial and corporate sector. Management determined impairment provisions by considering the economic
situation and outlook at the end of the reporting period. Provisions for loans are determined using the incurred loss
61

model required by the applicable accounting standards. These standards require recognition of impairment losses for
receivables that arose from past events and prohibit recognition of impairment losses that could arise from future events,
no matter how likely those future events are.
Management is unable to predict all developments, which could have an impact on the Mongolian economy, and
consequently what effect, if any, they could have on the future financial position of the Bank. Management believes it is
taking all the necessary measures to support the sustainability and development of the Banks business.
2. FINANCIAL REPORTING FRAMEWORK AND BASIS

FOR PREPARATION AND PRESENTATION
Basis of Preparation and Presentation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS),
under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies
have been consistently applied to all the periods presented, unless otherwise stated.
Functional Currency
These financial statements are presented in Mongolian tugriks (MNT) the currency of the primary economic environment
in which the Bank operates and the Banks functional currency.
Amendments of the financial statements after issue
The Banks management has the power to amend the financial statements after issue.
Restatements
The following retrospective restatements have been made in these financial statements:
Accrued Interest Receivable and Accrued Interest Payable. Accrued Interest Receivable and Accrued Interest Payable
were previously reported as separate line items in the Statement of Financial Position for the year ended 31 December
2012, while they are integral to measurement of the related assets and liabilities at amortized cost according to the
Banks accounting policies. They have therefore been reclassified within Loans and advances, Bank Deposits, Cash and
cash equivalents and Bonds in these financial statements. Accrued Interest receivables on bank deposits of MNT 2,350
million as at 31 December 2012 has been restated to Bank Deposits in the amount of MNT 1,872 million and to Cash
and cash equivalents in the amount of MNT 478 million. Accrued Interest receivables on loans and advances of MNT
6,771 million as at 31 December 2012 has been restated to Loans and advances.
Accrued Interest receivables on bank deposits of MNT 108 million as at 1 January 2012 has been restated to Cash and
cash equivalents. Accrued Interest payables on bonds of MNT 12,896 million as at 31 December 2012 has been restated
to Bonds. Accrued Interest payables on bonds of MNT 102 million as at 1 January 2012 has been restated to Bonds.
This restatement has no impact on the Statement of Profit or Loss and Other Comprehensive Income while its impact
on the Statement of Financial Position as of 31 December 2012 is presented below on pages 13-14.
62

Unearned Income and Non-Interest income. Management has reconsidered the accounting for Unearned Income
previously reported within Accounts and Other Liabilities and Non-interest income which represented loan origination
fees. These two items were presented as separate line items in the Statement of Financial Position and the Statement
of Profit or Loss and Other Comprehensive Income, respectively, for the year ended 31 December 2012. They are
reported within Loans and advances and Interest Income in these financial statements. Other liabilities and Loans
and advances have been reduced by MNT 590 million. This restatements impact on the Statement of Profit or Loss and
Other Comprehensive Income and on the Statement of Financial Position as of 31 December 2012 is presented below
on pages 13-14.
Deposits from Borrowers. Management has reconsidered the accounting for Deposits from Borrowers previously
shown within Accounts and Other Liabilities. These amounts represented conditional loan commitments. This was
presented as a separate line in the Statement of Financial Position for the year ended 31 December 2012. Following the
reassessment of the nature of this deposit amounting to MNT 2,330 million, has now been presented off balance sheet
as undrawn commitments with the corresponding amount removed from Loans and Advances. This restatement has
no impact on the Statement of Profit or Loss and Other Comprehensive Income while its impact on the Statement of
Financial Position as of 31 December 2012 is presented below on pages 13-14.
Previously recorded Interest Income: In 2013, the management performed a detailed analysis of the nature of certain
transactions with the Government and their accounting treatment in accordance with IFRS. As a result of this analysis,
management concluded that cash contributions received from the Government in the amount of MNT 23,957 million
in 2012 represented Government support with regard to the guarantee issued by the Ministry of Finance and the
Banks repayment of notes issued under Euro Medium Term Notes Programme, and therefore meet the definition of
a government grant under IAS 20. As a result, the related amount is recognised as a reduction in the related Interest
Expense in these financial statements. Related amounts were recognised as interest income in IFRS financial statements
for the year ended 31 December 2012. This restatement has no impact on the Statement of Financial Position as of
31 December 2012, while its impact on the Statement of Profit or Loss and Other Comprehensive Income as of 31
December 2012 is presented below on pages 13-14.
Change in Deferred Tax Rate: In 2013, the management performed a detailed analysis of its deferred tax calculation
and its future tax rate. As a result of this analysis and on the basis of forecasts management concluded that the Bank
will incur tax at a rate of 25%. The Bank had previously used 10% to calculate deferred tax. The related deferred tax
asset and income tax expense for 2012 have been restated in these financial statements. Related amount of MNT 2,475
million was recognised in Deferred tax assets on the Statement of Financial Position as of 31 December 2012 and in
Income tax expense on the Statement of Profit or Loss and Other Comprehensive Income as of 31 December 2012.
This restatements impact on the Statement of Profit or Loss and Other Comprehensive Income and on the Statement
of Financial Position as of 31 December 2012 is presented below on pages 13-14.
Recognition of income tax charge: In 2013, the management performed a detailed analysis of its current income tax
return for 2012. As a result of this analysis management concluded that the Bank will incur a current tax charge of
MNT 3,314 million for the year ending 31 December 2012. This amount has been recognised within Current income
tax payable and Income tax expenses. This restatements impact on the Statement of Profit or Loss and Other
Comprehensive Income and on the Statement of Financial Position as of 31 December 2012 is presented below on
pages 13-14.
Bank Deposits. Management has reconsidered the presentation of Bank Deposits amounting to MNT 9,000 million as
at 1 January 2012 which represented cash. As a result of this analysis management concluded that this amount should
be restated to Cash and cash equivalents. This restatement has been reflected in the 1 January 2012 Statement of
Financial Position comparatives shown on page 3.
Reclassifications
Operating expenses. In 2013, the management performed a detailed analysis of its presentation of operating expenses.
As a result of this analysis management concluded that Operating Expenses should be split to show Foreign exchange
translation gains less losses and Gains less losses from trading in foreign currencies separately on the Statement of
63

Profit or Loss and Other Comprehensive Income. Of MNT 5,771 million reclassified from Operating Expenses MNT 5,767
million was reclassified to Foreign exchange translation gains less losses and MNT 4 million was reclassified to Gains
less losses from trading in foreign currencies. This reclassification has no impact on the Statement of Financial Position
as of 31 December 2012, while its impact on the Statement of Profit or Loss and Other Comprehensive Income as of 31
December 2012 is shown below on pages 13-14.
Other Assets and Foreign exchange translation gains less losses. In 2013, the management performed a detailed
analysis of nature of certain transactions with the Government and their accounting treatment in accordance with IFRS.
As a result of this analysis, management concluded that receivables due from the Ministry of Finance, presented within
Other Assets, in the amount of MNT 2,168 million meets the definition of a government grant under IAS 20. The grant
amount is recognised in the related expense to which the grant relates to namely the Foreign exchange translation
gains less losses in these financial statements. This was previously treated as an embedded derivative and recorded
within Operating Expenses in the 31 December 2012 financial statements. This reclassification has no impact on the
Statement of Financial Position as of 31 December 2012, and no impact on the Statement of Profit or Loss and Other
Comprehensive Income as of 31 December 2012.
Net investment in time deposits. In 2013, the management performed a detailed analysis of nature certain transactions
and their accounting presentation in accordance with IFRS. As a result of this analysis, management concluded that
Net investment in time deposits amounting to MNT 158,410 million and its related interest amounting to MNT 3,275
million, presented within the investing activities section of the Statement of Cash Flows should be presented within
the operating activities section of the Statement of Cash Flows. This reclassification has no impact on the Statement of
Financial Position as of 31 December 2012, and no impact on the Statement of Profit or Loss and Other Comprehensive
Income as of 31 December 2012.
The reclassifications have no impact on the Statement of Financial Position.
64

The impact of the above restatements on the Statement of Financial

Position as of 31 December 2012 is presented below.
In thousands of MNT
Assets
Bank deposits
Loans and advances
Accrued interest receivables
Other assets
Intangible assets
Deferred tax assets
Total assets
Liabilities
Customer accounts
Other liabilities
Accrued interest payables
Bonds
Total liabilities
Equity
Share capital
Retained earnings
Total equity
Year ended
31 December 2012
(as previously reported)
215,990,270
167,052,000
489,704,568
9,121,272
2,285,515
234,558
726,688
3,465,282
888,580,153
6,960
3,425,136
12,896,260
804,421,467
820,749,823
73,300,000
(5,469,670)
67,830,330
888,580,153
Restatements
Note
477,936
1,872,490
3,851,399
(9,121,272)
2,475,078
(444,369)
(2,919,447)
3,313,560
(12,896,260)
12,896,260
394,113
(838,482)
(838,482)
(444,369)
6
7
8
8
9
10
11
22
12
12
22
14
14
17
Year ended
31 December
2012 (restated)
216,468,206
168,924,490
493,555,967
2,285,515
234,558
726,688
5,940,360
888,135,784
6,960
505,689
3,313,560
817,317,727
821,143,936
73,300,000
(6,308,152)
66,991,848
888,135,784
65

The impact of the above reclassification and restatements on the Statement of Profit or Loss
and Other Comprehensive Income as of 31 December 2012 is presented below.
In thousands of MNT
Interest income
Interest expense
Net interest expense
Non-interest income
Gains less losses from trading
in foreign currencies
Foreign exchange translation
gains less losses
Administrative and other
operating expenses
Loss before tax
Income tax benefit
Loss for the year
Total comprehensive loss for the year
66
Year ended
31 December 2012
(as previously
reported)
36,787,338
(37,652,609)
(865,271)
48,057
-
Restatements
Year ended
31 December
2012 (adjusted)
4,060
18
19
12,878,274
(13,695,488)
(817,214)
4,060
- (5,771,355)
20
(5,771,355)
(7,470,614)
5,767,295
21
(1,703,320)
(8,287,829)
3,420,349
(4,867,480)
(4,867,480)
(838,482)
(838,482)
(838,482)
22
(8,287,829)
2,581,867
(5,705,962)
(5,705,962)
(23,909,064)
23,957,121
48,057
(48,057)
-
Reclassi- Note
fication

The impact of the above reclassification and restatements on the Statement

of Cash Flows as of 31 December 2012 is presented below.
In thousands of MNT
Cash flows from

operating activities
Adjustments to:
Income tax expense
Depreciation, amortization
FX translation (gain)/
loss -Unrealized
Interest income
Interest expense
Cash flows from operating
activities before changes in
operating assets and liabilities
Net increase in bank deposits
Net increase in loans and
advances to customers
Net increase in other assets
Net increase in customer accounts
Net increase/(decrease)
in other liabilities
Net cash used in operating
activities before tax and interest
Interest received
Interest paid
Net cash used in
operating activities
Year ended
31 December 2012
(as previously
reported)
Restatements Reclassi-fication
Note
Year ended
31 December
2012 (Restated)
(4,867,480)
(3,420,349)
149,868
34,913,681
(3,420,349)
3,420,349
-
20
(8,287,829)
149,868
34,913,681
(36,787,338)
37,652,609
27,640,991
23,909,064
(23,957,121)
(48,057)
18
19
(12,878,274)
13,695,488
27,592,934
(488,377,343)
(3,851,399)
(160,282,560)
-
6
8
(160,282,560)
(492,228,742)
(2,281,848)
2,292,555
(2,919,447)
7,013
(7,013)
9
12
12
(2,281,848)
7,013
(633,905)
(460,725,645)
(6,818,903)
(160,282,560)
(627,827,108)
24,786,520
(24,846,075)
(460,785,200)
(6,818,903)
3,275,584
(157,006,976)
28,062,104
(24,846,075)
(624,611,079)
67

In thousands of MNT
Year ended
31 December 2012
(as previously
reported)
(460,785,200)
Cash flows used in
investing activities
Purchase of property and equipment
(117,265)
Net investment in time deposit
(158,410,070)
Interest received
3,275,584
Net cash used in investing activities
(155,251,751)
Cash flows from financing activities
Increase of contributed capital

23,600,000
Proceeds from bonds
769,717,076
Repayment of bonds
(28,019,600)
Net cash from financing activities
765,297,476
Effect of exchange rate changes
20,232
on cash and cash equivalents
Net increase in cash and
149,280,758
cash equivalents
Cash and cash equivalents at
66,709,512
the beginning of the year
215,990,270
at the end of the year
68
Restatements Reclassi-fication Note
(6,818,903)
(157,006,976)
Year ended
31 December
2012
(Restated)
(624,611,079)
(1,872,490)
(1,872,490)
61,096
160,282,560
(3,275,584)
157,006,976
10
7
18
17
14
14
(117,265)
(117,265)
23,600,000
769,717,076
(28,019,600)
765,297,476
81,328
(8,630,297)
140,650,461
9,108,233
75,817,745
477,936
216,468,206

3. SIGNIFICANT ACCOUNTING POLICIES

Financial instruments - key measurement terms. Depending on their classification financial instruments are carried at
fair value or amortised cost as described below.
Fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The best evidence of fair value is price in an active market. An
active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to
provide pricing information on an ongoing basis. Fair value of financial instruments traded in an active market is measured
as the product of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case
even if a markets normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the
position in a single transaction might affect the quoted price.
Valuation techniques such as discounted cash flow models or models based on recent arms length transactions or
consideration of financial data of the investees are used to measure fair value of certain financial instruments for which
external market pricing information is not available. Fair value measurements are analysed by level in the fair value
hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or
liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations
not based on solely observable market data (that is, the measurement requires significant unobservable inputs). Transfers
between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.
Transaction costs. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal
of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken
place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents),
advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties.
Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost. Amortised cost is the amount at which the financial instrument was recognised at initial recognition
less any principal repayments, plus accrued interest, and for financial assets less any write-down for incurred impairment
losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or
discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense,
including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are
not presented separately and are included in the carrying values of related items in the statement of financial position.
The effective interest method. The effective interest method is a method of allocating interest income or interest expense
over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying
amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding
future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net
carrying amount of the financial instrument.
The effective interest rate discounts cash flows of variable interest instruments to the next interest reprising date, except
for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other
variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the
instrument. The present value calculation includes all fees paid or received between parties to the contract that are an
integral part of the effective interest rate.
Initial recognition of financial instruments. Trading securities, derivatives and other financial instruments at fair value
through profit or loss are initially recorded at fair value. All other financial instruments are initially recorded at fair value
plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial
recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by
other observable current market transactions in the same instrument or by a valuation technique whose inputs include
only data from observable markets.
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All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention
(regular way purchases and sales) are recorded at trade date, which is the date on which the Bank commits to deliver a financial
asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.
Derecognition of financial assets. The Bank derecognises financial assets when (a) the assets are redeemed or the rights
to cash flows from the assets otherwise expired or (b) the Bank has transferred the rights to the cash flows from the
financial assets or entered into a qualifying pass-through arrangement while (i) also transferring substantially all risks and
rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership,
but not retaining control. Control is retained if the counterparty does not have the practical ability to sell the asset in its
entirety to an unrelated third party without needing to impose restrictions on the sale.
Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of
cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents include all interbank
placements with original maturities of less than 90 days. Funds restricted for a period of more than 90 days on origination
are excluded from cash and cash equivalents. Cash and cash equivalents are carried at amortised cost.
Bank Deposits. Bank deposit are recorded when the Bank advances money to counterparty banks with no intention of
trading the resulting unquoted non-derivative receivable due on fixed or determinable dates. Amounts due from other
banks are carried at amortised cost.
Loans and advances to customers. Loans and advances to customers are recorded when the Bank advances money to
purchase or originate an unquoted non-derivative receivable from a customer due on fixed or determinable dates, and
has no intention of trading the receivable. Loans and advances to customers are carried at amortised cost.
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit or loss for the year
when incurred as a result of one or more events (loss events) that occurred after the initial recognition of the financial
asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group
of financial assets that can be reliably estimated.
The following other principal criteria are also used to determine whether there is objective evidence that an impairment
loss has occurred:
any instalment is overdue and the late payment cannot be attributed to a delay caused by the settlement systems;
the borrower experiences a significant financial difficulty as evidenced by the borrowers financial information that the
Bank obtains;
the borrower considers bankruptcy or a financial reorganisation;
there is an adverse change in the payment status of the borrower as a result of changes in the national or local
economic conditions that impact the borrower; or
the value of collateral significantly decreases as a result of deteriorating market conditions.
Future cash flows in a group of financial assets that are collectively evaluated for impairment, are estimated on the basis
of the contractual cash flows of the assets and the experience of management in respect of the extent to which amounts
will become overdue as a result of past loss events and the success of recovery of overdue amounts. Past experience
is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect past
periods, and to remove the effects of past conditions that do not exist currently.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of
financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the
modification of terms. The renegotiated asset is then derecognized and a new asset is recognized at its fair value only if
the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between
the present values of the original cash flows and the new expected cash flows.
Impairment losses are always recognised through an allowance account to write down the assets carrying amount to
the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at
the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of
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a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling
the collateral, whether or not foreclosure is probable. Allowances are made against the carrying amount of loans and
advances that are identified as being impaired, based on regular reviews of outstanding balances, in accordance with
International Financial Reporting Standards and provisioning approved by the Chief executive director of the Bank.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised (such as an improvement in the debtors credit rating), the
previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year.
Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to
recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of
amounts previously written off are credited to impairment loss account in profit or loss for the year.
Prepayments. Prepayments represent expenses not yet incurred but already paid in cash. Prepayments are initially
recorded as assets and measured at the amount of cash paid. Subsequently, these are charged to profit or loss as they are
consumed in operations or expire with the passage of time.
Property and Equipment. Property and equipment are initially measured at cost. At the end of each reporting period,
property and equipment are measured at cost less any subsequent accumulated depreciation, amortization and
impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets as follows:
IT Equipment - 3 years
Furniture and fixture - 10 years
Vehicles - 10 years
Derecognition of property and equipment. An item of property and equipment is derecognized upon disposal or when
no future economic benefits are expected to arise from the continued use of the asset. Gain or loss arising on the disposal
or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset
and is recognized in profit or loss.
Intangible Assets. Intangible assets that are acquired by the Bank with finite useful lives are initially measured at cost. At
the end of each reporting period items of intangible assets acquired are measured at cost less accumulated amortization
and accumulated impairment losses. Cost includes purchase price, including import duties and non-refundable purchase
taxes, after deducting trade discounts and rebates and any directly attributable cost of preparing the intangible asset for
its intended use.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset
to which it relates. All other expenditure is recognized in profit or loss as incurred.
Amortization for intangible asset with finite useful life is calculated over the cost of the asset, or other amount substituted
for cost, less its residual value.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from
the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future
economic benefits embodied in the asset. The estimated useful lives are as follows:
Software - 10 years
Licence - 1 years
Derecognition of intangible assets. An intangible asset is derecognized on disposal, or when no future economic
benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or
loss when the asset is derecognized.
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Impairment of Tangible and Intangible Assets. At the end of each reporting period management assesses whether there
is any indication of impairment of premises and equipment or intangible assets. If any such indication exists, management
estimates the recoverable amount, which is determined as the higher of an assets fair value less costs to sell and its value
in use. The carrying amount is reduced to the recoverable amount and the impairment loss is recognised in profit or
loss for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a change in the
estimates used to determine the assets value in use or fair value less costs to sell.
Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate customers and are
carried at amortised cost.
Bonds and Borrowings. Debt securities representing bonds issued and borrowings are stated at amortised cost. If the Bank
purchases its own debt securities in issue, they are removed from the statement of financial position and the difference
between the carrying amount of the liability and the consideration paid is included in gains arising from retirement of debt.
Ordinary shares. As at 31 December 2013, the Government of Mongolia had paid in capital contributions to the Bank, but
no share certificates had been issued.
Income tax. Income tax has been provided for in the financial statements in accordance with legislation enacted or
substantively enacted by the end of the reporting period. The income tax charge comprises current tax and deferred
tax and is recognised in profit or loss for the year, except if it is recognised in other comprehensive income or directly in
equity because it relates to transactions that are also recognised, in the same or a different period, in other comprehensive
income or directly in equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities
in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if
the financial statements are authorised prior to filing relevant tax returns. Taxes other than on income are recorded within
administrative and other operating expenses.
Deferred income tax. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards
and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary
differences on initial recognition of an asset or a liability in a transaction other than a business combination if the
transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at
tax rates enacted or substantively enacted at the end of the reporting period, which are expected to apply to the period
when the temporary differences will reverse or the tax loss carry forwards will be utilised.
Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it
is probable that future taxable profit will be available against which the deductions can be utilised.
Provisions, Contingent Liabilities and Contingent Assets
Provisions. Provisions are recognized when the Bank has a present obligation, either legal or constructive, as a result
of a past event, it is probable that the Bank will be required to settle the obligation through an outflow of resources
embodying economic benefits, and the amount of the obligation can be estimated reliably.
The amount of the provision recognized is the best estimate of the consideration required to settle the present obligation
at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. A provision
is measured using the cash flows estimated to settle the present obligation; its carrying amount is the present value of
those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate.
If it is no longer probable that a transfer of economic benefits will be required to settle the obligation, the provision is
reversed.
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Contingent Liabilities and Assets. Contingent liabilities and assets are not recognized because their existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the
control of the entity.
Contingent liabilities are disclosed, unless the possibility of an outflow of resources embodying economic benefits is
remote.
Contingent assets are disclosed only an inflow of economic benefits is probable.
Credit related commitments. From time to time, the Bank enters into credit related commitments, including letters of
credit and financial guarantees. Financial guarantees represent irrevocable assurances to make payments in the event that
a customer cannot meet its obligations to third parties and carry the same credit risk as loans.
Financial guarantees and commitments to provide a loan are initially recognized at their fair value, which is normally
evidenced by the amount of fees received. This amount is amortized on a straight line basis over the life of the commitment,
except for commitments to originate loans if it is probable that the Bank will enter into a specific lending arrangement
and does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and
included in the carrying value of the loan on initial recognition. At the end of each reporting period, the commitments
are measured at the higher of (i) the remaining unamortized balance of the amount at initial recognition and (ii) the best
estimate of expenditure required to settle the commitment at the end of each reporting period. In cases where the fees
are charged periodically in respect of an outstanding commitment, they are recognized as revenue on a time proportion
basis over the respective commitment period.
Employee Benefits
Short-term benefits. The Bank recognizes a liability net of amounts already paid and an expense for services rendered by
employees during the reporting period. A liability is also recognized for the amount expected to be paid under short-term
cash bonus or profit sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result
of past service provided by the employee, and the obligation can be estimated reliably.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided.
Long-term benefits. The Bank has provided funding to 3rd party banks in order for them to provide its Employees with
cheaper mortgage and salary loans. The cost of this scheme has been booked as a prepayment and will be expensed
through the Statement of Profit or Loss and Other Comprehensive Income over the life-time of the loan scheme.
Post-employment benefits. The Bank does not have any pension arrangements separate from the defined contributions
state pension system of Mongolia, which requires current contributions by the employer calculated as a percentage of
current gross salary payments; such expense is charged to the Statement of Profit or Loss and Other Comprehensive
Incomes in the period the related salaries and wages are payable.
Offsetting. Financial assets and liabilities are offset and the net amount reported in the statement of financial position
only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle
on a net basis, or to realise the asset and settle the liability simultaneously.
Income and expense recognition. Interest income and expense are recorded for all debt instruments on an accrual basis
using the effective interest method. This method defers, as part of interest income or expense, all fees paid or received
between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other
premiums or discounts.
Fees integral to the effective interest rate include origination fees received or paid by the entity relating to the creation
or acquisition of a financial asset or issuance of a financial liability, for example fees for evaluating creditworthiness,
evaluating and recording guarantees or collateral, negotiating the terms of the instrument and for processing transaction
documents. Commitment fees received by the Bank to originate loans at market interest rates are integral to the effective
interest rate if it is probable that the Bank will enter into a specific lending arrangement and does not expect to sell the
73

resulting loan shortly after origination. The Bank does not designate loan commitments as financial liabilities at fair value
through profit or loss.
When loans and other debt instruments become doubtful of collection, they are written down to the present value of
expected cash inflows and interest income is thereafter recorded for the unwinding of the present value discount based
on the assets effective interest rate which was used to measure the impairment loss. All other fees, commissions and
other income and expense items are generally recorded on an accrual basis by reference to completion of the specific
transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such
as the acquisition of loans, shares or other securities or the purchase or sale of businesses, and which are earned on
execution of the underlying transaction, are recorded on its completion.
Government grants. Grants from the government are recognised at their fair value, where there is reasonable assurance
that the grant will be received, and that the Bank will comply with all attached conditions. Government grants are
deferred, and recognised in the Statement of Profit or Loss and Other Comprehensive Income over the period necessary
to match them with the costs they are intended to compensate. The Bank has opted to recognise its government grants
as a reduction of the related expense. If part, or all, of a grant becomes repayable to the government, the repayment is
first matched against any remaining deferred income set up for that grant. If this is insufficient, the remainder is expensed
immediately.
Foreign Currency
Foreign currency transactions. Transactions in currencies other than the MNT are recorded at the foreign exchange rates
prevailing on the date of the transactions. At the end of each reporting period, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the foreign exchange rates prevailing at the end of the reporting
period. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at
the foreign exchange rates prevailing at the date the fair value was determined. Gains and losses arising on retranslation
are included in profit or loss for the year. Non-monetary assets and liabilities that are measured at historical cost in a
foreign currency are not retranslated.
Related Party Transactions
A related party transaction is a transfer of resources, services or obligations between the Bank and a related party,
regardless of whether a price is charged.
A person or a close member of that persons family is related to the Bank if that person:
has control or joint control over the Bank or
has significant influence over the Bank or
is a member of the key management personnel of the Bank or of a parent of the Bank
An entity is related to the Bank if any of the following conditions apply:
the entity and the Bank are members of the same group which means that each parent, subsidiary and fellow subsidiary
is related to the others;
one entity is an associate or joint venture of the other entity or an associate or joint venture of a member of a group of
which the other entity is a member;
both entities are joint ventures of the same third party;
one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
the entity is a post-employment benefit plan for the benefit of employees of either the Bank or an entity related to the Bank;
74

the entity is controlled or jointly controlled by a person who is a related party as identified above; and
A person that has control or joint control over the reporting entity has significant influence over the entity or is a
member of the key management personnel of the entity or of a parent of the entity.
Due to the nature of the Bank and its role as a policy bank almost all loans and transactions are with related parties. The
Bank applies the exemption from the disclosure of individually insignificant transactions with government related parties
as allowed under IAS 24, paragraph 25.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY

SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Banks accounting policies, management is required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on the historical experience and other factors that are considered to
be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision and future periods if the revision affects both current and
future periods.
Key Sources of Estimation Uncertainty. The following are the key assumptions concerning the future and other key
sources of estimation uncertainty at the end of each reporting period that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year.
Determining the carrying value of employee prepayments. Management has concluded that the interest rate for the
deposit to State bank of MNT 850 million and to Golomt bank of MNT 150 million is at below market interest rates. Based
on available information on comparable transactions, management made judgement that the policy rate of the Bank of
Mongolia of 10.5% p.a. represents reasonable approximation of market interest rate on MNT funding. As a result, related
prepayment was recognized at its fair value at initial recognition of MNT 776,352 thousand. The loss on initial recognition
(i.e. the difference between nominal value of this deposit and its fair value) represents salary prepayments in accordance
with IFRS requirements. Management has concluded that it is appropriate to recognize the cost of the scheme over the
lifetime of the deposit. Refer to Note 9 for further details.
Determining the level of loan loss provisioning. The purpose of the Bank is to provide financing to development projects
in the Mongolia. As a result, the projects are often of a social infrastructure nature and may not have a clearly defined standalone profit-oriented cash flow sufficient to demonstrate a long-term ability to repay the development loan. However, for
substantially all loans a guarantee is provided by the Government, and this is considered when assessing whether there is a
risk of loss on any particular loan. Management does not believe any loan impairment assessment is required on loans where
guarantees have been received from the Government. No collective loan loss provision calculation is performed by the Bank
as management assess that given the structure of the loan portfolio and the guarantees received from Government any loss
given default LGD on the guaranteed loans would be zero. Given the close involvement of the Government, the Bank and
the underlying projects the Bank finances, management assess that there are no losses incurred but not reported in respect
of the guaranteed loans affecting the Bank. The level of Government guarantees and other collateral is disclosed in Note 8.
Any changes in the assessment of recoverability of guarantees would impact the profit or loss of the Bank.
The Bank regularly reviews its loan portfolios to assess impairment. In determining whether an impairment loss should be
recorded in profit or loss for the year, the Bank makes judgements as to whether there is any observable data indicating
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that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can
be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there
has been an adverse change in the payment status of borrowers in the Bank, or national or local economic conditions
that correlate with defaults on assets of the Bank. Management uses estimates based on credit risk characteristics and
objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology
and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss experience.
A 10% increase or decrease in actual loss experience compared to the loss estimates used would result in an increase
or decrease in loan impairment losses of MNT 663 million (2012: MNT 0 million), respectively. Impairment losses for
individually significant loans are based on estimates of discounted future cash flows of the individual loans, taking into
account repayments and realisation of any assets held as collateral against the loans.
Determining the treatment of Government Grant Schemes. Management has concluded that it is a recipient of two grant
schemes described in Note 18, Note 19 and Note 20 in the year ended 31 December 2012 and year ended 31 December
2013 amounting to MNT 24 billion and MNT 4 billion respectively. Determining whether the transaction falls within the
scope of IAS 20 requires judgement. The definition of government grants includes transfers to an entity, subject to certain
conditions placed on the operating activities of the entity. However, it excludes government assistance which cannot be
distinguished from normal trading transactions of the entity and transactions which constitute government participation in
the ownership of the entity. Management has concluded that the two schemes fall within the scope of IAS 20. Management
has also concluded that the receivable due from Government at each reporting date was reasonably assured to be received.
Determining the treatment of Ministry MNT to USD loan conversion. On the 27 December 2013 the bank signed an
amendment to its loan agreements with different Ministries and the Ministry of Finance to convert its MNT loans to the
Ministries into USD loans on the 30 December 2013. Previously these loans were denominated in Mongolian tugriks and
as part of the original agreement the Ministry of Finance agreed to cover any movement in the MNT loans compared
to a theoretical USD loan as described in Note 20. A total of MNT 356 billion was converted into USD 252 million using
the original FX rates at origination date of each loan. The conversion has no impact on retained earnings and results
in a decrease in the receivable from the Ministry of Finance of MNT 61 billion and corresponding increase in Loans
and receivables. Determining whether the transaction meets the de-recognition criteria in IAS 39 requires judgement.
Management has concluded that the conversion of its MNT loans and corresponding receivable from the Ministry of
Finance does not represent substantial modification in terms but a clarification of the original intention of the loan
contract and hence the derecognition criteria under IAS 39 are not met.
Initial recognition of borrowings and loans at below market rates. During 2013, the Bank has obtained financing directly
from the Government of Mongolia. These funds are denominated in MNT and obtained at an interest rate of 4.7917%,
which is lower than rates at which the Bank could source the funds from other lenders at Mongolian market. Based on
available information on comparable transactions, management made judgment that the policy rate of the Bank of
Mongolia represents the best approximation of market interest rate on MNT funding for banks (10.5%). As a result of such
financing, the Bank is able to advance funds to target customers as determined by the Government, at advantageous rates
of approximately 8% p.a. The Bank has little or no discretionary rights in determining interest rates on issued loans should
it continue to wish receiving cheap financing from the Government. Management has considered whether gains or losses
should arise on initial recognition of such instruments. Managements judgement is that these funds and the related
lending are at market rates and no initial recognition gains or losses should arise. In making this judgement management
considers that these instruments are a separate market segment (i.e. the Bank operates in a separate principal market) and
that they fall in level 2 of the fair value measurement hierarchy.
Deferred income tax asset recognition. The recognised deferred tax asset represents income taxes recoverable through
future deductions from taxable profits, and is recorded in the statement of financial position. Deferred income tax assets
are recorded to the extent that realisation of the related tax benefit is probable. The future taxable profits and the amount
of tax benefits that are probable in the future are based on a medium term business plan prepared by management and
extrapolated results thereafter. The business plan is based on management expectations that are believed to be reasonable
under the circumstances taking into account the Banks actual profitability during 2013. Management has concluded that it
will be able to recover its deferred tax asset including tax losses and is likely to incur tax at the rate of 25%.
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5. APPLICATION OF NEW AND REVISED INTERNATIONAL

FINANCIAL REPORTING STANDARDS
The following new standards and interpretations became effective for the Bank from 1 January 2013:
IFRS 10 Consolidated Financial Statements (issued in May 2011 and effective for annual periods beginning on or
after 1 January 2013) replaces all of the guidance on control and consolidation in IAS 27 Consolidated and separate
financial statements and SIC-12 Consolidation - special purpose entities. IFRS 10 changes the definition of control so
that the same criteria are applied to all entities to determine control. This definition is supported by extensive application
guidance. The Standard did not have any material impact on the Banks financial statements.
IFRS 11 Joint Arrangements (issued in May 2011 and effective for annual periods beginning on or after 1 January
2013) replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled EntitiesNon-Monetary Contributions by
Ventures. Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and
joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated.
Equity accounting is mandatory for participants in joint ventures. The Standard did not have any material impact on the
Banks financial statements.
IFRS 12 Disclosure of Interests in Other Entities (issued in May 2011 and effective for annual periods beginning
on or after 1 January 2013) applies to entities that have an interest in a subsidiary, a joint arrangement, an associate
or an unconsolidated structured entity. It replaces the disclosure requirements previously found in IAS 28 Investments
in associates. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the
nature, risks and financial effects associated with the entitys interests in subsidiaries, associates, joint arrangements and
unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas,
including significant judgments and assumptions made in determining whether an entity controls, jointly controls, or
significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group
activities and cash flows, summarized financial information of subsidiaries with material non-controlling interests, and
detailed disclosures of interests in unconsolidated structured entities. The Standard did not have any material impact on
the Banks financial statements.
IFRS 13 Fair Value Measurement (issued in May 2011 and effective for annual periods beginning on or after 1 January
2013) improved consistency and reduced complexity by providing a revised definition of fair value, and a single source of
fair value measurement and disclosure requirements for use across IFRSs The Standard did not have any material impact
on the Banks financial statements, except for additional disclosures.
IAS 27 Separate Financial Statements (revised in May 2011 and effective for annual periods beginning on or after
1 January 2013) was changed and its objective is now to prescribe the accounting and disclosure requirements for
investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The
guidance on control and consolidated financial statements was replaced by IFRS 10 Consolidated Financial Statements.
The Standard did not have any material impact on the Banks financial statements.
IAS 28 Investments in Associates and Joint Ventures (revised in May 2011 and effective for annual periods beginning
on or after 1 January 2013). The amendment of IAS 28 resulted from the Boards project on joint ventures. When
discussing that project, the Board decided to incorporate the accounting for joint ventures using the equity method
into IAS 28 because this method is applicable to both joint ventures and associates. With this exception, other guidance
remained unchanged. The Standard did not have any material impact on the Banks financial statements.
Amendments to IAS 1 Presentation of Financial Statements (issued in June 2011, effective for annual periods
beginning on or after 1 July 2013) changed the disclosure of items presented in other comprehensive income. The
amendments require entities to separate items presented in other comprehensive income into two groups, based on
whether or not they may be reclassified to profit or loss in the future.
The suggested title used by IAS 1 has changed to statement of profit or loss and other comprehensive income. The
amended standard but did not have any impact on the financial statements.
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Amended IAS 19 Employee Benefits (issued in June 2011, effective for periods beginning on or after 1 January 2013)
makes significant changes to the recognition and measurement of defined benefit pension expense and termination
benefits, and to the disclosures for all employee benefits. The standard requires recognition of all changes in the net
defined benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii)
remeasurements in other comprehensive income. The Standard did not have any material impact on the Banks financial
statements.
Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (issued in December
2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures
that enable users of an entitys financial statements to evaluate the effect or potential effect of netting arrangements,
including rights of set-off. The Standard did not have any material impact on the Banks financial statements.
Improvements to International Financial Reporting Standards (issued in May 2012 and effective for annual periods
beginning 1 January 2013). The improvements consist of changes to five standards. IFRS 1 was amended to (i) clarify
that an entity that resumes preparing its IFRS financial statements may either repeatedly apply IFRS 1 or apply all IFRSs
retrospectively as if it had never stopped applying them, and (ii) to add an exemption from applying IAS 23 Borrowing
costs, retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory notes are not required to
support the third balance sheet presented at the beginning of the preceding period when it is provided because it was
materially impacted by a retrospective restatement, changes in accounting policies or reclassifications for presentation
purposes, while explanatory notes will be required when an entity voluntarily decides to provide additional comparative
statements. IAS 16 was amended to clarify that servicing equipment that is used for more than one period is classified
as property, plant and equipment rather than inventory. IAS 32 was amended to clarify that certain tax consequences of
distributions to owners should be accounted for in the income statement as was always required by IAS 12. IAS 34 was
amended to bring its requirements in line with IFRS 8. IAS 34 now requires disclosure of a measure of total assets and
liabilities for an operating segment only if such information is regularly provided to chief operating decision maker and
there has been a material change in those measures since the last annual financial statements. The Standard did not have
any material impact on the Banks financial statements.
Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued in June 2012 and effective for annual
periods beginning 1 January 2013). The amendments clarify the transition guidance in IFRS 10 Consolidated Financial
Statements. Entities adopting IFRS 10 should assess control at the first day of the annual period in which IFRS 10 is adopted,
and if the consolidation conclusion under IFRS 10 differs from IAS 27 and SIC 12, the immediately preceding comparative
period (that is, year 2012) is restated, unless impracticable. The amendments also provide additional transition relief in
IFRS 10, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, by limiting the requirement
to provide adjusted comparative information only for the immediately preceding comparative period. Further, the
amendments remove the requirement to present comparative information for disclosures related to unconsolidated
structured entities for periods before IFRS 12 is first applied. The Standard did not have any material impact on the Banks
financial statements.
Other revised standards and interpretations: IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine,
considers when and how to account for the benefits arising from the stripping activity in mining industry. The
interpretation did not have an impact on the Banks financial statements. Amendments to IFRS 1 First-time adoption
of International Financial Reporting Standards - Government Loans, which were issued in March 2012 and are effective
for annual periods beginning 1January 2013, give first-time adopters of IFRSs relief from full retrospective application of
accounting requirements for loans from government at below market rates. The amendment is not relevant to the Bank.
New Accounting Pronouncements
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or
after 1January 2014 or later, and which the Bank has not early adopted.
IFRS 9 Financial Instruments: Classification and Measurement. Key features of the standard issued in November 2009
and amended in October 2010, December 2011 and November 2013 are:
78

Financial assets are required to be classified into two measurement categories: those to be measured subsequently at
fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition.
The classification depends on the entitys business model for managing its financial instruments and the contractual
cash flow characteristics of the instrument.
An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective
of the entitys business model is to hold the asset to collect the contractual cash flows, and (ii) the assets contractual
cash flows represent payments of principal and interest only (that is, it has only basic loan features). All other debt
instruments are to be measured at fair value through profit or loss.
All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will
be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made
at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive
income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election
may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they
represent a return on investment.
Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward
unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit
risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.
Hedge accounting requirements were amended to align accounting more closely with risk management. The standard
provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9
and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro
hedging.
The amendments made to IFRS 9 in November 2013 removed its mandatory effective date, thus making application of the
standard voluntary. The Bank does not intend to adopt the existing version of IFRS 9.
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in December 2011 and effective
for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to
address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of
currently has a legally enforceable right of set-off and that some gross settlement systems may be considered equivalent
to net settlement. The Bank is considering the implications of the standard, the impact on the Bank and the timing of its
adoption by the Bank.
Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment entities (issued on 31 October 2012 and effective for
annual periods beginning 1 January 2014). The amendment introduced a definition of an investment entity as an
entity that (i) obtains funds from investors for the purpose of providing them with investment management services, (ii)
commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income
and (iii) measures and evaluates its investments on a fair value basis. An investment entity will be required to account for
its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries that provide services that are
related to the entitys investment activities.
IFRS 12 was amended to introduce new disclosures, including any significant judgements made in determining whether
an entity is an investment entity and information about financial or other support to an unconsolidated subsidiary,
whether intended or already provided to the subsidiary. The Bank does not expect the amendment to have any impact on
its financial statements.
IFRIC 21 Levies (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014). The
interpretation clarifies the accounting for an obligation to pay a levy that is not income tax. The obligating event that
gives rise to a liability is the event identified by the legislation that triggers the obligation to pay the levy. The fact that
an entity is economically compelled to continue operating in a future period, or prepares its financial statements under
the going concern assumption, does not create an obligation. The same recognition principles apply in annual financial
statements. The application of the interpretation to liabilities arising from emissions trading schemes is optional. The Bank
does not expect the amendment to have any impact on its financial statements.
79

Amendments to IAS 36 Recoverable amount disclosures for non-financial assets (issued in May 2013 and effective
for annual periods beginning 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same
accounting and comparative period). The amendments remove the requirement to disclose the recoverable amount
when a CGU contains goodwill or indefinite lived intangible assets but there has been no impairment. The Bank is currently
assessing the impact of the amendments on the disclosures in its financial statements.
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting issued in June 2013 and
effective for annual periods beginning 1 January 2014). The amendments will allow hedge accounting to continue in
a situation where a derivative, which has been designated as a hedging instrument, is novated (i.e parties have agreed
to replace their original counterparty with a new one) to effect clearing with a central counterparty as a result of laws or
regulation, if specific conditions are met. The Bank does not expect the amendment to have any impact on its financial
statements.
Amendments to IAS 19 Defined benefit plans: Employee contributions (issued in November 2013 and effective
for annual periods beginning 1 July 2014). The amendment allows entities to recognise employee contributions as a
reduction in the service cost in the period in which the related employee service is rendered, instead of attributing the
contributions to the periods of service, if the amount of the employee contributions is independent of the number of
years of service. The amendment is not expected to have any material impact on the Banks financial statements.
Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual periods beginning on or after
1 July 2014, unless otherwise stated below). The improvements consist of changes to seven standards.
IFRS 2 was amended to clarify the definition of a vesting condition and to define separately performance condition and
service condition; The amendment is effective for share-based payment transactions for which the grant date is on or
after 1 July 2014.
IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a
financial instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all nonequity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with
changes in fair value recognised in profit and loss. Amendments to IFRS 3 are effective for business combinations where
the acquisition date is on or after 1 July 2014.
IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating
segments, including a description of the segments which have been aggregated and the economic indicators which
have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a
reconciliation of segment assets to the entitys assets when segment assets are reported.
The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing
of IFRS 13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice
amount where the impact of discounting is immaterial.
IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated
where an entity uses the revaluation model.
IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the
reporting entity or to the parent of the reporting entity (the management entity), and to require to disclose the amounts
charged to the reporting entity by the management entity for services provided.
The Bank is currently assessing the impact of the amendments on its financial statements.
Annual Improvements to IFRSs 2013 (issued in December 2013 and effective for annual periods beginning on or after
1 July 2014). The improvements consist of changes to four standards.
The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is not yet mandatory but
is available for early adoption; a first-time adopter can use either the old or the new version, provided the same standard
is applied in all periods presented.
IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under
80

IFRS 11. The amendment also clarifies that the scope exemption only applies in the financial statements of the joint
arrangement itself.
The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value
of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or
sell non-financial items) that are within the scope of IAS 39 or IFRS 9.
IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to
distinguish between investment property and owner-occupied property. Preparers also need to refer to the guidance in
IFRS 3 to determine whether the acquisition of an investment property is a business combination.
The Bank is currently assessing the impact of the amendments on its financial statements.
IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods beginning on or
after 1 January 2016). IFRS 14 permits first-time adopters to continue to recognise amounts related to rate regulation
in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with
entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation
must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to
apply the standard. The amendment is not expected to have any material impact on the Banks financial statements.
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the
Banks financial statements.
6. CASH AND CASH EQUIVALENTS

In thousands of MNT
Cash on hand
Cash at Bank of Mongolia
Cash at other banks
Short term deposits with local banks
Total cash and cash equivalents
31 December 2013
6,589
418,732
21,293,060
357,742,852
379,461,233
31 December 2012 (Restated)

6,132
31,672,320
31,358,100
153,431,654
216,468,206
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
Cash and cash equivalents are not collateralised. All amounts are classified as neither past due nor impaired. The interest
on the short term deposit ranges from 8%-10.5% p.a. for MNT and 3.0% p.a. for USD deposits for the year ended 31
December 2013 (in 2012: from 8.0%-11.5% p.a. for MNT and 4.5%-6.5% p.a. for USD).
Cash at Bank of Mongolia and other banks and short term deposits with local banks with original maturities of less than
three months represent balances with Mongolian banks and the Bank of Mongolia.
The credit quality of cash and cash equivalents balances may be summarised based on StandardandPoors ratings or
equivalents of Moodys and/or Fitch ratings. The credit quality at 31 December 2013 and 31 December 2012 was as follows.
81

In thousands of MNT
Neither past due nor impaired
Central Bank of Mongolia - B1 Rated
B1 rated
Unrated
Total cash and cash equivalents,
excluding cash on hand
31 December 2013
418,732
208,905,738
170,130,174
379,454,644
31,672,320
80,940,815
103,848,939
216,462,074
The unrated balance relates to commercial banks in Mongolia, which have not been rated by any rating agency. Financial
condition of these commercial banks is regularly monitored by the Bank. Based on the reputation of these banks on
the Mongolian market and other available information (including financial information), management believes that
counterparty risk is low and related amounts are fully recoverable.
7. BANK DEPOSITS
The Bank deposits consist of term deposits at the local banks with different maturities (over three months but less than a
year) and interest rate ranges between 8.5%-12.0% p.a. for MNT deposits and 5.0%-5.4% p.a. for USD deposits.
The credit quality of term deposits may be summarised based on StandardandPoors ratings or equivalents of Moodys
and/or Fitch ratings. The credit quality at 31December 2013 and 31 December 2012 was as follows:
In thousands of MNT
B1 rated
Unrated
Total bank deposits
31 December 2013
-

140,712,501
28,211,989
168,924,490
The unrated balance relates to commercial banks in Mongolia, which have not been rated by any rating agency. Financial
condition of these commercial banks is regularly monitored by the Bank. Based on the reputation of these banks on
the Mongolian market and other available information (including financial information), management believes that
counterparty risk is low and related amounts are fully recoverable.
82

8. LOANS AND ADVANCES

Loans and advances as of 31 December 2013 and 31 December 2012 consist of the following:
In thousands of MNT
Loans and advances to be repaid by the State budget
Loans and advances to be repaid by the Corporates
Total gross loans and advances
Less: Provision for loan impairment
Total net amount of loans and advances
31 December 2013
1,357,341,398
828,473,696
2,185,815,094
(6,224,792)
2,179,590,302
31 December 2012
(Restated)
256,159,934
237,396,033
493,555,967
493,555,967
At 31 December 2013, MNT 1,937,970 million of loans and advances are expected to be recovered more than 12 months
after the period end (2012: MNT 418,202 million).
Loans and advances given to projects to be repaid from the State budget refers to socially beneficial projects that do
not create cash flows of their own which covers areas such as, improvement of rural and city roads, civil engineering
construction, extension and improvement of power and heat plant, building of a new railways and mortgage financing
through commercial banks for middle income families and individuals.
Interest and principal repayment as well as any resulting foreign exchange rate gain/loss is guaranteed and repaid by the
Government of Mongolia in line with the State budget every year.
Loans and advances given to corporate projects are to be repaid from the projects or borrowers future cash flow
generation and the bank also holds collateral. The Bank provides lending to corporate projects which the Government
considers priority commercial activities (air transport development, support of mining industry, railway, infrastructure,
Small and Medium Enterprises (SME), housing and manufacturing projects).
The Government of Mongolia issued a resolution No.319 dated on the 10 September 2013 to improve operations of
state owned companies. In line with this resolution, necessary work has been organized to convert the Banks loan issued
to Erdenes Tavan Tolgoi LLC to the equity of the borrower. The structure and conversion are in development and the
transaction has not yet been finalized.
On the 27 December 2013 the bank signed an amendment to its loan agreements with different Ministries and the Ministry
of Finance to convert its MNT denominated loans to the Ministries into USD denominated loans on the 30 December
2013. Previously these loans were denominated in Mongolian tugriks and as part of the original agreement the Ministry
of Finance agreed to cover any movement in the MNT loans compared to a theoretical USD loan issued on the same day.
This foreign exchange movement receivable from the Ministry of Finance was previously recorded as a Government Grant
(refer to Note 9). A total of MNT 356 billion Ministry loans were converted into USD 252 million using the original FX rates
at origination date of each loan. The conversion has no impact on Statement of Profit or Loss and Other Comprehensive
Income and results in a decrease in the receivable from the Ministry of Finance of MNT 61.3 billion and corresponding
increase in Loans and receivables. Please refer to Note 20.
The analysis by credit quality of loans outstanding at 31 December 2013 is as follows:
83

In thousands of MNT
Neither past due nor impaired:

- Performing loan
Total neither past due nor impaired
Past due but not impaired:
- less than 30 days overdue
Total past due but not impaired loans
Individually determined to be Impaired
loans but not past due
Total impaired loans
Loans and advances

to be repaid by the
State budget
1,321,250,545
1,321,250,545
Loans and advances

to be repaid by
the Corporates
733,423,880
733,423,880
4,778,921
4,778,921
126,361,748
Total
2,054,674,425
2,054,674,425
4,778,921
4,778,921
126,361,748
1,321,250,545
126,361,748
(6,224,792)
858,339,757
126,361,748
(6,224,792)
2,179,590,302
All loans repaid by the State budget have the same credit rating as the Government of Mongolia, B1. All corporate entities
are unrated. The Management believes that all neither past due nor impaired loans are performing loans.
As at 31 December 2013 the aggregated amount of the top 5 largest borrowers is MNT 1,078,746 million (31 December
2012: MNT 394,898 million) or 49% of total loans and advances (31 December 2012: 80%).
Analysis by credit quality of loans outstanding at 31 December 2012 (restated) is as follows:
In thousands of MNT
- Performing loan
Total loans and advances
Loans and advances to be

repaid by the State budget
256,215,623
256,215,623

repaid by the Corporates
237,340,344
237,340,344
Total
493,555,967
493,555,967
The primary factors that the Bank considers in determining whether a loan in the collective category is impaired are its
overdue status and realisability of related collateral, if any. The Bank considers specific impairment triggering events, future
cash flows and realisability of related collateral to assess the loan impairment. As a result, the Bank presents above analysis
of the loans to be impaired.
Past due, but not impaired loans primarily include collateralised loans where the fair value of collateral covers the overdue
interest and principal repayments. The amount reported as past due but not impaired is the whole balance of such loans,
not only the individual instalments that are past due.
Movements in the provision for loan impairment during 2013 (during 2012 is nil) are as follows:
In thousands of MNT
at 1 January 2013
Additional provision during the year
84

-

-
Total
6,224,792
6,224,792


at 31 December 2013
6,224,792
6,224,792
The financial effect of collateral is presented by disclosing collateral values separately for (i) those assets where collateral and
other credit enhancements are equal to or exceed carrying value of the asset (over-collateralised assets) and (ii) those assets
where collateral and other credit enhancements are less than the carrying value of the asset (under-collateralised assets).
Information about collateral as at 31 December 2013 is as follows:
In thousands of MNT
Loans and advances

to be repaid by the
State budget
1,321,250,545
1,321,250,545
Loans collateralized by:

- Government guarantees
- Commercial bank guarantees
- Plant, property and equipment
Total Loans and Advances (before impairment)
Loans and advances

to be repaid by
the Corporates
339,160,662
308,836,172
216,567,715
864,564,549
Total
1,660,411,207
308,836,172
216,567,715
2,185,815,094
Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or collateral taken.
Information about collateral as at 31 December 2012 is as follows:
In thousands of MNT
Loans and advances

to be repaid by the
State budget
256,215,623
256,215,623
Loans collateralized by:

Total Loans and Advances
Loans and advances

to be repaid by
the Corporates
141,512,394
1,923,000
93,904,950
237,340,344
Total
397,728,017
1,923,000
93,904,950
493,555,967
The financial effect of collateral at 31 December 2013:
In thousands of MNT
Over-collateralised assets as
at 31 December 2013
Carrying value
of the assets
loans and advances collateralized by:

Total value
1,660,411,207
308,836,172
210,342,923
2,179,590,302
Value of
collateral
1,660,411,207
308,836,172
217,677,467
2,186,924,846
Over-collateralised assets as
at 31 December 2012
Carrying value
of the assets
397,728,017
1,923,000
93,904,950
493,555,967
Value of
collateral
397,728,017
1,923,000
132,485,968
532,136,985
Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or collateral taken.
Economic sector risk concentrations within the loan portfolio are as follows:
85

In thousands of MNT
- Power plant
- Manufacturing
- Railway
- Road
- Utility
- Construction
- Mortgage
- Mining
- Transportation
Total Loans and Advances (before impairment)
31 December 2013
Amount
%
127,700,433
6%
440,446,405
20%
301,953,037
14%
690,416,375
32%
94,614,203
4%
67,364,832
3%
101,318,012
5%
357,222,876
16%
4,778,921
0%
2,185,815,094
100%
Amount
%
2,774,321
1%
88,440,238
18%
202,183,795
41%
427,860
0%
50,773,958
10%
141,512,394
29%
7,443,401
2%
493,555,967
100%
9. OTHER ASSETS
In thousands of MNT
Receivable from Ministry of Finance
Other receivables
Prepaid employee benefit
Other prepayments
Supply materials
Total other assets
31 December 2013
5,097,610
530
746,160
182,832
9,358
6,036,490
31 December 2012
2,168,468
251
114,283
2,513
2,285,515
The receivables from the Ministry of Finance are due to the SME loan agreement between the Ministry of Food and
Agriculture, the Ministry of Finance and the Bank in the form of a Government Grant. In August 2012, the SME loan
agreement between the Ministry of Food and Agriculture, the Ministry of Finance and the Bank made in MNT. As part of the
agreement the Ministry of Finance has agreed to cover any movement in the MNT loans compared to a USD loan. The loan
is therefore converted into USD at the date of disbursement and settlement. Any resulting foreign exchange loss will be
reimbursed by the Ministry of Finance in the form of a Government Grant. As of 31 December 2013, this amounted to MNT
5,098 million. Up until the 27 December 2013 there were a number of other loans under this Government Grant Scheme.
Following an amendment to convert the loans in USD they are no longer included. Please refer to Note 4 for details.
The amount of receivables from Ministry of Finance on the above loan is variable depending on MNT/USD exchange rate
movements. Should the MNT appreciate in value against USD the receivable from Ministry of Finance would decrease
with the movement being expensed in the profit and loss. MNT 4,740 million of the MNT 5,098 million is non-current.
Please refer to note 8 for more details.
In line with other banks in Mongolia, the Bank offers its employees reduced rates on Mortgage loans. The Bank has
arranged this benefit by providing to State bank 0% interest funding of MNT 850 million for a period of 15 years and by
86

providing a deposit to Golomt bank at 2% p.a. for period of 20 years who in turn issue loans to the banks employees at
reduced rates. This scheme began in June 2013 with a MNT 1 billion deposit with State bank but later minor changes have
made in December 2013 to share this scheme across State Bank and Golomt Bank. The initial cost of this employee benefit
of MNT 776 million is amortised over the duration of the scheme. MNT 694 million of the MNT 746 million is non-current.
All Other receivables, prepayments and supply materials are current assets.
10. PROPERTY AND EQUIPMENT

Movements in the carrying amounts of the Banks property and equipment are as follows:
In thousands of MNT
Cost at 1 January 2012
Accumulated depreciation
Carrying amount at 1January 2012
Additions
Depreciation charge
Carrying amount at 31 December 2012
Cost at 31 December 2012
Additions
Depreciation charge
Write-off at cost
Write-off accumulated depreciation
Note
21
21
Equipment
at cost
140,609
(25,607)
115,002
7,240
(47,070)
75,172
147,849
(72,677)
75,172
149,131
(74,931)
(5,964)
3,877
147,285
291,016
(143,731)
147,285
Furniture and
fixtures at cost
71,970
(4,409)
67,561
(7,197)
60,364
71,970
(11,606)
60,364
71,679
(10,881)
121,162
143,649
(22,487)
121,162
Vehicle at cost
110,025
(11,003)
99,022
110,025
(11,003)
99,022
236,500
(20,932)
314,590
346,525
(31,935)
314,590
Total property
and equipment
212,579
(30,016)
182,563
117,265
(65,270)
234,558
329,844
(95,286)
234,558
457,310
(106,744)
(5,964)
3,877
583,037
781,190
(198,153)
583,037
87

11. INTANGIBLES ASSETS

Intangible assets relate to purchased banking software systems. The carrying
amounts of the Banks intangible assets are as follows:
In thousands of MNT
Cost at 1 January 2012
Accumulated amortization
Carrying amount at 1 January 2012
Additions
Amortization charge
Additions
Amortization charge
Disposal at cost
Disposal of accumulated amortization
Note
21
21
Software
838,487
(27,950)
810,537
(83,849)
726,688
838,487
(111,799)
726,688
23,191
(85,270)
664,610
861,678
(197,068)
664,610
License
2,246
(1,497)
749
(749)
2,246
(2,246)
124,847
(11,972)
(2,246)
2,246
112,875
124,847
(11,972)
112,875
Total
840,733
(29,447)
811,286
(84,598)
726,688
840,733
(114,045)
726,688
148,038
(97,242)
(2,246)
2,246
777,485
986,525
(209,040)
777,485
The Bank amortises the intangible assets over 3 years for the tax purposes.
There was disposal MNT 2.25 million of intangible assets during the period ended of 2013 which was a fully amortized
license. Management believes that there is no indication of an impairment loss.
88

12. CUSTOMER ACCOUNTS AND OTHER LIABILITIES

In thousands of MNT
31 December 2013
Customer accounts
Total customer accounts
Payable to the Government
Other liabilities
Total other liabilities
Total other liabilities and customer accounts
16,278,742
16,278,742
373,841
373,841
16,652,583
31 December 2012
(Restated)
6,960
6,960
344,012
161,677
505,689
512,649
No interest is paid on these customer current accounts. As at 31 December 2013

customer current accounts consist of 11 accounts (2012: 1).
Economic sector risk concentrations within the customer accounts are as follows:
In thousands of MNT
Customer accounts
Total customer accounts
Payable to the Government
Other liabilities
Total other liabilities
Total other liabilities and customer accounts
31 December 2013
16,278,742
16,278,742
373,841
373,841
16,652,583
31 December 2012
(Restated)
6,960
6,960
344,012
161,677
505,689
512,649
13. DUE TO OTHER BANKS

The local banks deposits consist of term deposits at the Bank with under three months maturities at interest rates of 8.5%
p.a. for MNT deposits and 6.0% p.a. for USD deposits.
89

14. BONDS
This account is composed of:
In thousands of MNT
Bond issued to international market
Total issued bond
31 December 2013
972,107,029
972,107,029
31 December 2012
(Restated)
817,317,727
817,317,727
The Bank has established a USD 600 million Euro Medium Term Notes Programme in November 2011 that allows it to issue
notes denominated in any currency agreed between the Bank and the dealer.
The Ministry of Finance irrevocably and unconditionally guarantees the interest and principal payment of all amounts in
respect of the notes.
On 9 December 2011, an initial series of notes was issued amounting to USD 20 million with a fixed interest rate of 6.0%
and 1 year maturity. The Bank fully repaid these notes in December 2012. The Bank issued a second series of notes in
March 2012 amounting to USD 580 million with fixed interest rate 5.75% and a 5 year maturity.
In May 2013, the Bank issued a USD 78.55 million bond with a fixed interest rate of 7.5% for the duration of 232 days to a
local commercial bank. The Bank fully repaid these notes in December 2013.
Bond issuance costs are amortised over the period of the notes. Please refer to Note 23 liquidity disclosures for a
breakdown of the Bond into current and non-current amounts.
15. BORROWINGS
The Bank has received a loan from the Government of Mongolia in order to further fund projects and programs. The
Government has provided this funding from proceeds of the Chinggis Bond. Interest is charged at 4.7917% p.a. on this
loan. One third of this funding has a 5 year maturity ending January 2018 and two thirds of this funding have a 10 year
maturity ending December 2022.
16. RELATED PARTY TRANSACTIONS

Related parties and transactions with related parties are assessed in accordance with IAS 24 Related Party Disclosures. As
discussed in Note 1, the Bank is 100% owned by the Government of Mongolia and its operations include the financing of
projects within Mongolia, which include projects undertaken by governmental entities. Accordingly, the Bank enters into
90

numerous transactions with related parties as a result of its ownership by the Government. According to IAS 24 Related
Party Disclosures other related parties of the Bank comprise national companies and other organisations controlled,
jointly controlled or under significant influence of the Government.
Assets and Transactions with Related Parties
An analysis of the Banks assets (excluding loans) held by related parties and
transactions with related parties is disclosed as follows:
In thousands of MNT
Receivables from Ministry of Finance

Current account with Bank of Mongolia
Current account with State bank
Time deposits with State bank
Current account with Saving bank
Time deposits with Saving bank
Deposit with State bank for
employee benefit:
- Prepaid employee benefit
Borrowings
Amount of transaction with related
parties (excluding loans)
31 December 2013
Statement of
Financial
Position
5,097,610
418,732
12,862,872
110,000,000
850,000
Statement of
Comprehensive
Income
68,330,733
11,234
2,059,027
4,935
2,439,236
-
Statement of
Financial
Position
2,168,468
31,672,320
21,761,643
34,853,753
-
Statement of
Comprehensive
Income
2,168,468
50,637
61,957
-
(634,236)
1,987,189,199
2,115,784,177
(25,663)
(31,168,154)
41,651,348
90,456,184
2,281,062
Current accounts with the Bank of Mongolia and State Bank on the same terms and basis as the Banks other current
accounts and deposits. Bank of Mongolia current accounts earn 0% interest and 5.6% p.a. interest is earned on the State
Bank current accounts.
The interest on the State Bank short term deposit (under three months) ranges from 9.2%-10.4% p.a. for MNT and is 3.0%
p.a. for USD deposits. The interest on time deposits which are over three months but less than a year ranges from 9.7%9.9% p.a. for MNT deposits.
As discussed in Note 9 the receivable from the Ministry of Finance is due to the Project Financing Agreements between
the Ministry of Finance and Government Project implementation bodies (Ministry of Roads Transport Construction and
Urban Development and State Governor Administration, Ministry of Foods and Agriculture of Mongolia) and the Bank in
the form of a Government Grant.
The Development Bank of Mongolia offers its employees reduced rates on Mortgage loans as referred to in Note 9. The
Bank has arranged this benefit by providing 0% interest funding to the State Bank of MNT 850 million for a period of 15
years who in turn issue loans to the Banks employees at reduced rates. The initial cost of this employee benefit was MNT
660 million of which MNT 634 million remains on the Statement of Financial Position as a prepayment. The deposit was
therefore recorded at initiation of the scheme within the Statement of Financial Position at a value of MNT 202 million by
discounting the deposit by 10.5%. Please refer to Note 4.
For borrowings please refer to Note 15.
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Loans to Related Parties

An analysis of the Bank loans to related parties is disclosed as follows:
In thousands of MNT
To be repaid by the State budget:

- The Ministries
- State Bank
- 4th Power Station SOSC
- Tavan tolgoi power plant
- Egiin gol power plant
- Mongolian Railway SOSC
- SME Development Fund
- Sainshand industrial park
To be repaid by the Corporates :
- MIAT Airlines SC
- Erdenes Tavan Tolgoi SC
- Baganuur SOSC
- State Housing Corporation SOC
- SME Development Fund
Total loans to related parties
31 December 2013
Statement of
Financial
Position
1,321,250,545
831,822,771
101,318,012
76,187,348
3,268,982
3,177,633
301,953,037
156,337
3,366,426
458,752,906
4,778,921
339,160,662
18,062,214
60,660,257
36,090,853
1,780,003,452
Statement of
Comprehensive
Income
46,793,594
28,804,927
4,730,430
3,138,873
121,182
18,145
8,458,556
1,493,230
28,251
32,712,609
8,269,672
22,461,325
1,128,390
853,222
79,506,204

Statement of
Financial
Position
256,215,623
202,611,655
50,773,958
2,774,321
55,689
150,878,795
7,443,401
141,512,394
1,923,000
407,094,418
Statement of
Comprehensive
Income
1,257,554
1,198,125
3,740
55,689
2,799,924
297,523
2,502,401
4,057,478
Loans provided to the above related parties are provided on the same terms and basis as loans provided to non-related
entities with interest rates between 6.75% - 9.6% p.a. for MNT and 5.125% - 9.5% p.a. for USD loans and advances with
maturities of between one and five years.
The remuneration and employee benefit paid to the executive officers, directors and members of Board for the period
ended 31 December 2013 and 31 December 2012 amounted to MNT 468 million and MNT 231 million respectively.
Guarantees Received
The Bank is the recipient of a number of guarantees from the Government of Mongolia. On the lending side most loans are
guaranteed by the Ministry of Finance. Please refer to Note 8 for further details on the borrowing side the Bank has a Bond
issued on the Singapore stock exchange on which the Ministry of Finance irrevocably and unconditionally guarantees the
interest and principal payment of all amounts in respect of the bond notes. Please refer to Note 14.
Guarantees Given
The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag Housing Projects LLC
amounting to USD 84 million (equivalent to MNT 138.7 billion) on the 13th September 2012. To date the Export-Import
Bank of China has not yet provided any funding to the New Yarmag Housing Project. The bank will earn a 2% fee when
funds are provided to New Yarmag.
92

17. CONTRIBUTED CAPITAL

In accordance with the Law on Development Bank of Mongolia, the Banks contributed capital consists of a contribution
from the Government of Mongolia and other sources as specified in the Law on Development Bank of Mongolia. No
shares have been issued.
In May and December 2011, the Government contributed MNT 16.7 billion and MNT 33.0 billion, respectively in cash
to the Banks capital. An additional contribution amounting to MNT 23.6 billion was received in December 2012. The
Government of Mongolia has contributed a further MNT 10.0 billion, MNT 5.0 billion and MNT 35.0 billion in July, August
and September 2013, respectively, to the Banks capital.
In thousands of MNT
Authorized:
Contributed capital
Paid:
at 1 January ,
Contribution during the year
Total contributed capital
Year ended 31
December 2013
123,300,000
73,300,000
50,000,000
123,300,000
Year ended 31
December 2012
73,300,000
49,700,000
23,600,000
73,300,000
Year ended 31
December 2013
37,036,192
94,023,366
131,059,558
Year ended 31
December 2012
5,335,614
7,542,660
12,878,274
18. INTEREST INCOME

In thousands of MNT
Deposits and placements at banks
Loans and advances
Total interest income
Interest Income on loans determined to be impaired but not past due amounted to MNT 138,479 thousand (2012: nil)
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19. INTEREST EXPENSE

In thousands of MNT
Due to other banks
Bond issued to local commercial bank
Borrowings
Total interest expense
Year ended 31
December 2013
569,775
51,823,121
5,496,561
31,168,154
89,057,610
Year ended 31
December 2012
13,695,488
13,695,488
Under the Government Grant scheme the Ministry of Finance agreed to provide funding to pay the interest on the Euro
Medium Term Notes Programme until such time as the Bank is in an operational position to fund the interest payments
from its own sources. This amounted to MNT 23,957 million for 2012. This payment has been netted off against Interest
Expense (bond issued to international market) in accordance with IAS 20.
From October 2012 the Bank was considered to be in operational position to fund the interest itself and no further
payments from Government are expected.
20. FOREIGN EXCHANGE GAINS LESS LOSSES

Included with the Foreign exchange gain less losses is an amount of MNT 5,098 million due from the Ministry of Finance
under the Government Grant scheme in relation to the SME loan disclosed in Note 9 (2012: MNT 2,168 million).
On the 27 December 2013 the bank signed an amendment to its loan agreements with different Ministries and the Ministry
of Finance to convert its MNT loans to the Ministries into USD loans on the 30 December 2013. Previously these loans had
been part of the same Government Scheme described above. The conversion results in a decrease in the receivable from
Ministry of Finance of MNT 61.3 billion and corresponding increase in Loans and advances. As both the unrealised gains
on USD loans and the Government Grant scheme receivable disclosed in Note 9 are recorded within Foreign exchange
translation gains less losses there is no impact of this amendment on Foreign exchange translation gains less losses.
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21. ADMINISTRATIVE AND OTHER EXPENSES

Included in employee cost and benefit account is the contribution to the state pension fund of MNT
151.4 million for the period ended 31 December 2013 (31 December 2012: MNT 57.5 million).
In thousands of MNT
Employee cost and benefit
Advertising
Rental costs
Audit and other professional services
Depreciation and amortization
IT and software
Business travel and event
Communication and Stationeries
Training cost
Others
Utilities, security and maintenance
Fuel and Transportation expense
Insurance cost
Loss from fixed assets writte off
Total operating expenses
Note
Year ended 31
December 2013
2,383,736
793,073
251,744
231,958
203,986
169,093
158,894
122,050
102,230
100,573
35,814
34,983
3,669
2,087
4,593,890
10, 11
Year ended 31
December 2012
1,010,328
7,889
217
243,522
149,868
39,702
48,769
69,771
29,518
42,858
45,042
13,701
2,135
1,703,320
22. INCOME TAXES

Components of income tax expense charged to profit or loss are as follows:
In thousands of MNT
Current income tax charge
Deferred tax (benefit)
Income tax expense/ (benefit) for the period
Year ended 31
December 2013
10,505,432
(2,296,174)
8,209,258

2012 (restated)
3,313,560
(5,895,427)
(2,581,867)
The Bank provides for income taxes on the basis of income for financial reporting purposes, adjusted for items which are
not assessable or deductible for income tax purposes. The income tax rate for profits of the Bank is 10% for the first MNT
3.0 billion of taxable income, and 25% on the excess of taxable income over MNT 3.0 billion in accordance with Mongolian
tax legislation.
95

A reconciliation between the expected and the actual taxation charge is provided below.
In thousands of MNT
Year ended 31
December 2013

2012 (restated)
35,096,846
8,774,212
(8,287,829)
(2,071,957)
(450,000)
42,775
(157,729)
8,209,258
(450,000)
7,490
(67,400)
(2,581,867)

Theoretical tax charge at statutory
rate (2013: 25%; 2012: 25%)
Tax effect of items which are not deductible
or assessable for taxation purposes:
- Profit subject to lower tax rate
- Expenses not deductible for tax purposes
Estimation difference of deferred tax
Utilisation of unrecognised tax loss carry forward
Income tax expense/ (benefit) for the period
Differences between IFRS and statutory taxation regulations in Mongolia give rise to temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and their tax bases.
There are no further unrecognized tax losses.
Tax losses can be carried forward for the next two years and are deductible up to 50% of the taxable income of that year
in accordance with Mongolian legislation. In order to utilise tax losses the Bank must subject itself to a voluntary tax audit.
Please refer to Note 26.
Deferred tax asset (liability) was recognized for deductible or taxable timing differences resulting from the revaluation of
foreign currency denominated monetary assets and liabilities and differing amortisation rates between the tax authorities
and the Bank.
1 January 2013 to 31 December 2013
In thousands of MNT
Deferred tax (liabilities)/assets in relation to:
Deposits
Loans and advances
Other Assets
Intangibles
Customer accounts
Due to other banks
Bond
Borrowings
Deferred tax asset
96
Opening
balance
(2,091,211)
(408,815)
(542,117)
(65,215)
(13)
9,047,731
5,940,360
Recognised in
profit or loss
1,320,091
(42,457,514)
542,117
(48,912)
350
(745,383)
37,905,564
5,779,861
2,296,174
Closing
balance
(771,120)
(42,866,329)
(114,127)
337
(745,383)
46,953,295
5,779,861
8,236,534

1 January 2013 to 31 December 2013
In thousands of Mongolian Tugriks

Deferred tax (liabilities)/assets in relation to:
Deposits
Loans and advances
Other Assets
Intangibles
Customer accounts
Bond
Deferred tax asset
Opening
balance
(6,522)
51,455
44,933
Recognised in
profit or loss
(2,091,211)
(408,815)
(542,117)
(58,693)
(13)
8,996,276
5,895,427
Closing
balance
(2,091,211)
(408,815)
(542,117)
(65,215)
(13)
9,047,731
5,940,360
23. FINANCIAL RISK MANAGEMENT

Introduction and overview
The Bank has exposure to the following risks:
credit risk
market risk
liquidity risks
This note presents information about the Banks exposure to each of the above risks, its objectives, policies and processes
for measuring and managing risk.
Risk management policies and procedures
The Banks risk management policies aim to identify, analyze and manage the risks it faces, to set appropriate risk limits
and controls, and to continuously monitor risk levels and adherence to limits. Risk management policies and procedures
are reviewed regularly to reflect changes in market conditions, products and services offered and emerging best practice.
The Board of Directors of the Bank has overall responsibility for the oversight of the risk management framework for the
Bank, overseeing the management of key risks and reviewing its risk management policies and procedures as well as
approving significantly large exposures.
The Board of Directors of the Bank is responsible for monitoring and implementation of risk mitigation measures and
making sure that the Bank operates within the established risk parameters.
The Head of the Risk Department of the Bank is responsible for the overall risk management and compliance functions,
ensuring the implementation of common principles and methods for identifying, measuring, managing and reporting
both financial and non-financial risks.
Credit, market and liquidity risks both at portfolio and transactional levels are managed and controlled through Credit
Committee, Asset and Liability Management Committee, and Risk Management Committee.
97

Board of Directors
The Board of Directors is responsible for the overall risk management approach and for approving the risk strategies and
principles that establish the objectives guiding the Banks activities and implement the necessary policies and procedures.
The risk strategy, including all significant risk policies, is approved and periodically reviewed by the Board of Directors.
Executive Committee is responsible for conducting the Banks daily operations consistent with the Development Bank
Law of Mongolia, Company Law and other related laws and regulations.
Credit Committee
The Credit Committee is responsible directly to the Board of Directors. It is the credit decision making body of the Bank and
operates within clearly defined parameters authorised by the Board of Director. The Committee has the following main functions:
approval of clearly defined Credit Policies and Procedures and amendments and updates;
approval of risk classification and provisioning levels;
review of the quality, composition and risk profile of the entire credit portfolio on an ongoing basis; and approval of credit
limits applicable in exposures to industrial sectors and geographical regions
Assets and Liabilities Committee (ALCO)
The ALCO is responsible for providing centralized asset and liability management of the funding, liquidity, foreign currency,
maturity and interest rate risks to which the Bank is exposed. The purpose of the ALCO is to set up the asset and liability
structure of the Banks balance sheet conducive for sustainable growth of the Bank, its profitability and liquidity through
comprehensive management of the Banks assets and liabilities and monitoring of the liquidity, foreign currency, interest
rate and other market risks. The ALCO Committee is chaired by the Chief Executive Officer.
Risk Management Committee
The Bank established the Risk Management Committee in October 2013. The Risk Management Committee is an executive
management level committee and is not a formally constituted committee of the board of the directors of the Bank. The
main duties of the committee are:
Assessment of the Companys risk profile and key areas of risk in particular;
Recommending to the management and adopting risk assessment and rating procedures;
Examining and determining the sufficiency of the Companys internal processes for reporting on and managing key
risk areas;
Assessing and recommending to the Board acceptable levels of risk;
Development and implementation of a risk management framework and internal control system.
Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Banks loans and advances, and deposits in commercial banks.
The Bank has developed policies and procedures for the management of credit exposures, including guidelines to limit
portfolio concentration and the establishment of a Credit Committee, which actively monitors the Banks credit risk. The
Banks credit policy is reviewed and approved by the Board of Directors. The Banks credit policies establish:
Procedures for review and approval of loan/credit applications;
Methodology for the credit assessment of borrowers;
98

Methodology for the evaluation of collateral;

Credit documentation requirements;
Procedures for the ongoing monitoring of loans and other credit exposures.
According to the credit policy approved, the Credit Committee has the authority to approve transactions with a total
amount of up to MNT 5.0 billion. Any requests with higher amounts need to be approved by the Board of Directors.
Credit applications are originated by the Credit Department. Reports produced by the departments credit analysts are
based on a structured analysis focusing on the customers business and financial performance. The Risk Management
Department then independently reviews the credit application and the report and a second opinion is given accompanied
by a check that credit policy requirements have been met. The Credit Committee reviews the credit application on the
basis of submissions by the Credit Department and the Risk Management Department. Individual transactions are also
reviewed by the Banks Legal and Accounting Division depending on the specific risks and pending final approval of the
Credit Committee.
The Bank operates in a very specific environment and bears minimal credit risk given the guarantees it receives from the
Mongolian Government and over-collateralization of its loan portfolio.
The Banks maximum exposure to credit risk is set out below. The impact of possible netting of assets and liabilities to
reduce potential credit exposure is not significant.
Analysis of credit risk by sector of loans and advances outstanding at 31 December 2013 is as follows:
In thousands of MNT

- Power plant
- Manufacturing
- Railway
- Road
- Utility
- Construction
- Mortgage
- Mining
Total neither past due nor impaired
Past due but not impaired:
- Less than 30 days overdue:
- Transportation
Total past due but not impaired
Individually determined to be
Impaired loans but not past due:
- Manufacturing
Total impaired loans
Loans and advances

to be repaid by the
State budget
127,700,434
5,248,484
301,953,037
690,416,375
94,614,203
101,318,012
1,321,250,545
Loans and advances

to be repaid by
the Corporates
308,836,172
67,364,832
357,222,876
733,423,880
4,778,921
4,778,921
Total
127,700,434
314,084,656
301,953,037
690,416,375
94,614,203
67,364,832
101,318,012
357,222,876
2,054,674,425
4,778,921
4,778,921
-
1,321,250,545
126,361,748
126,361,748
(6,224,792)
858,339,757
126,361,748
126,361,748
(6,224,792)
2,179,590,302
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Analysis of credit risk by sector of loans and advances outstanding at 31 December 2012 is as follows:
In thousands of MNT
Loans and advances

to be repaid by the
State budget
Loans and advances

to be repaid by
the Corporates
Total
2,774,321
202,183,795
427,860
50,773,958
55,689
256,215,623
141,512,394
7,443,401
88,384,549
237,340,344
2,774,321
202,183,795
427,860
50,773,958
141,512,394
7,443,401
88,440,238
493,555,967

- Power plant
- Road
- Utility
- Mortgage
- Mining
- Transportation
- Manufacturing
Total loans and advances
The Bank monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk at the reporting date
is shown on page 35.
Credit-related Commitments Risks
The Bank offers guarantees and letters of credit, which represent irrevocable assurances that the Bank will make payments
in the event that a customer cannot meet its obligations to third parties. The Bank regards guarantees and letters of credit
that they carry same credit risk exposures as loans. In other words, when issuing guarantees or letters of credit, the Bank
follows the same originating, analyzing, collateral evaluation, reviewing, monitoring, and approval processes as loans.
As stipulated in the Law on Development Bank of Mongolia, the total value of loans, and loan equivalent assets provided
by the Bank shall not exceed the amount equal to 50 times of the Banks equity capital. Total amount of letters of credit,
guarantees and securities shall not exceed the amount equal to 50 times of the equity. Above criteria as at 31 December
2013 are as follows:
In thousands of MNT
Total amount of the loan and

assets equivalents to loan
Total amount of the loan
guarantee and securities
Suitable ratio
As at 31
December 2013
As at 31 December
2012 (restated)
< EQ 50 times
Restriction
limit
7,193,971,780
Actual
amount
2,831,928,329
Restriction
limit
3,349,592,380
Actual
amount
662,480,457
< EQ 50 times
7,193,971,780
264,294,013
3,349,592,380
116,771,542
Collateral and other credit enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Guidelines
are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateral
obtained are as follows:
Fixed asset: Land, Building, factory etc;
100

Movable properties: Vehicles and equipment etc;

Special property rights: Mineral licenses, Project execution right etc.,
Time deposits, Securities/Bond and Stocks
Guarantees issued from Government, reputable insurance companies, Development banks and investment bank and
commercial banks with overall rating of Stable or above.
Assets and revenues generated as a result of performance by borrower and project contractors.
Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement,
and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment losses.
Loan amount collection through sale of the collateral can take place by the Bank when a borrower notifies their inability
to repay the loan and requests to make repayment through its value of the collateral, or the borrower has not made
repayment for substantial period after the delivery of Notice and Demand Notice, or has not taken any initiatives to
make loan repayment. The proceeds will be used to reduce or repay the outstanding claim. The Bank does not occupy
repossessed properties for business use and has no such properties as at 31 December 2013.
Impairment Assessment
The main considerations for the loan impairment assessment include whether any payments of principal or interest
are overdue by more than 30 days or there are any known difficulties in the cash flows of counterparties, credit rating
downgrades, or infringement of the original terms of the contract.
The Bank monitors the credit quality of loans primarily based on classification of loans according to the Regulation on
Asset Classification which is used for impairment provision calculation. In accordance with this regulation, the Bank is
required to determine the quality of loans and advances based on their qualitative factors and time characteristics (i.e.
delays in repayment).
Loans are classified into the following five groups: performing, past due, substandard, doubtful, and loss.
For credit risk for off-balance sheet financial instruments, the Bank uses the same credit policies in assuming conditional
obligations as it does for on balance sheet financial instruments, through established credit approvals, risk control limits
and monitoring procedures.
Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities. The
Banks approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage
to the Banks reputation.
The Bank manages each currency liquidity and aggregated liquidity as well.
ALCO is responsible for monitoring and controlling liquidity risk to which potential liquidity risks and liquidity analysis
reports are submitted on regular basis.
The Bank invests the funds in portfolios of liquid assets, in order to be able to respond quickly and efficiently to unforeseen
liquidity requirements. Since the Bank does not accept deposits, it does not have any legal obligations to maintain a
statutory deposit with the Central Bank of Mongolia.
The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors
relating to both the market in general and specifically to the Bank.
The liquidity plan and maturity gap report is made by the Bank for each major currency (Over USD 1 million equivalents)
as well as an aggregated amount using the cash flow approach.
101

Exposure to liquidity risk

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers/
banks. For this purpose net liquid assets are considered as including cash and cash equivalents, central bank bills, current
accounts and deposits placed with Bank of Mongolia and other domestic and foreign banks less clearing delay. Details of
the reported ratio of net liquid assets to deposits from customers/banks at the reporting date were as follows:
Net Liquid Assets
31 December 2013
8
31 December 2012 (restated)

101
The table below shows the financial assets and liabilities at 31 December 2013 by their remaining contractual maturity. The
amounts of liabilities and assets disclosed in the maturity table are the contractual undiscounted cash flows, gross loan
commitments and financial guarantees. Such undiscounted cash flows differ from the amount included in the statement
of financial position because the amount in the statement of financial position is based on discounted cash flows.
The Bank places short term deposits in commercial banks and deposits are flexible to call back which has comparatively
less liquidity risk.
With regards to the market risk management, stronger emphasis has been put on managing the liquidity risk and
interest rate volatility. Liquidity stress testing has been conducted on a regular basis and presented to Asset and Liability
Committee (ALCO). Movements of the interest rate spread have been discussed and analyzed during ALCO meetings.
These analyses are performed across all business units and all loans and deposit products
102
383,873,413
304,560,321
104,529,808
792,963,542
(373,841)
(16,278,742)
(138,747,823)
(249,922,973)
(111,171,976)
(27,582,118)
(544,077,473)
248,886,070
248,886,070
Financial assets

Bank deposits
Loans and advances
Total financial assets
Financial liabilities
Other liabilities
Customer accounts
Guarantees given to the Entities
Loan commitments not yet paid
Due to other banks
Borrowings
Bonds
Total financial liabilities
Net financial assets/(liabilities)
Total cumulative amount
445,442,560
37,390,772
482,833,332
(451,254,924)
(40,733,062)
(491,987,986)
(9,154,654)
239,731,416
Three to six
months
95,445,385
95,445,385
(522,761,941)
(47,610,072)
(27,582,118)
(597,954,131)
(502,508,746)
(262,777,330)
Six months to
one year
1,829,334,351
1,829,334,351
(1,169,104,575)
(1,097,288,588)
(2,266,393,162)
(437,058,811)
(699,836,142)
One year to
five years
971,009,513
971,009,513
(1,378,693,198)
(1,378,693,198)
(407,683,685)
(1,107,519,826)
Over five
years
383,873,413
750,002,881
3,037,709,829
4,171,586,123
(373,841)
(16,278,742)
(138,747,823)
(1,223,939,838)
(111,171,976)
(2,636,140,907)
(1,152,452,823)
(5,279,105,950)
(1,107,519,826)
(1,107,519,826)
Total
The Bank entered in to a tri-party Financial Intermediary Agreement with the Ministry of Finance and the Ministry of Economic Development on 30 April 2013.
In accordance with the agreement the Bank submits its project and programs financial disbursement plan to the Ministry of Economic Development, and any
funding gap will be transferred from the Chinggis Bond proceeds to the Bank.
Less than
three months
In thousands of MNT

103
104
Financial assets
Bank deposits
Loans and advances
Other liabilities
Customer accounts
Bonds
In thousands of MNT
Less than
three months
218,612,876
141,697,025
9,089,157
369,399,058
(161,676)
(6,960)
(116,770,960)
(66,102,689)
(183,042,284)
186,356,774
186,356,774
Three to six
months
28,573,935
9,117,466
37,691,401
(33,684,711)
(23,213,268)
(56,897,979)
(19,206,578)
167,150,196
Six months to
one year
25,944,125
25,944,125
(97,895,693)
(23,213,268)
(121,108,961)
(95,164,836)
71,985,361
The following table provides an analysis of the financial assets and liabilities of the Bank into
relevant maturity groupings based on the remaining periods to maturity:
One year to
five years
587,069,683
587,069,683
(116,780,537)
(969,910,873)
(1,086,691,410)
(499,621,727)
(427,636,366)
Over five
years
(427,636,366)
218,612,876
170,270,960
631,220,431
1,020,104,267
(161,676)
(6,960)
(116,770,960)
(314,463,630)
(1,016,337,408)
(1,447,740,633)
(427,636,366)
(427,636,366)
Total

Financial assets
Bank deposits
Loans and advances
Other liabilities
Customer accounts
Due to other banks
Borrowings
Bonds
In thousands of MNT
Non-interest Less than three

sensitive
months
3,533,902
375,927,331
7,195,227
37,116,475
231,102,407
47,845,604
607,029,738
(373,841)
(16,278,742)
(138,747,823)
(249,922,973)
(336,307)
(110,705,000)
(15,323,399)
(32,312,289) (499,375,796)
15,533,315
107,653,942
15,533,315
123,187,257
Three to six
months
645,142,800
645,142,800
(451,254,924)
(451,254,924)
193,887,876
317,075,133
Six months
One to
Over five
Total
to one year
five years
years
379,461,233
652,338,027
1,692,850
1,101,656,133
808,022,437
2,179,590,302
1,692,850 1,101,656,133
808,022,437 3,211,389,562
(373,841)
(16,278,742)
(138,747,823)
(522,761,941)
- (1,223,939,838)
(111,041,307)
(827,050,000) (1,160,139,199) (1,987,189,199)
(956,783,630)
(972,107,029)
(522,761,941) (1,783,833,630) (1,160,139,199) (4,449,677,779)
(521,069,091)
(682,177,497)
(352,116,762) (1,238,288,217)
(203,993,958) (886,171,455) (1,238,288,217) (1,238,288,217)
Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rates will affect the Banks income or the value of its holdings of
financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing
the return on risk.
Management of market risks: Interest rate risk is measured by the extent to which changes in market interest rates impact margins and net income. To the
extent the term structure of interest bearing assets differs from that of liabilities, net of interest income will increase or decrease as a result of movements in
interest rates. The Bank principally manages interest rate risk through monitoring interest rate gaps. A summary of the Banks interest rate gap position on its
financial assets and liabilities are as follows:

105
106
Financial assets
Bank deposits
Loans and advances
Other liabilities
Customer accounts
Bonds
In thousands of MNT
Non-interest
sensitive
63,514,488
1,872,490
6,770,844
72,157,822
(161,676)
(6,960)
(9,899,727)
(10,068,363)
62,089,460
62,089,460
Less than
three months
152,953,719
139,210,000
50,000,000
342,163,719
(116,770,960)
(66,102,689)
(182,873,649)
159,290,070
221,379,530
Three to six
months
27,842,000
15,794,964
43,636,964
(33,684,711)
(33,684,711)
9,952,253
231,331,783
Six months
to one year
8,502,053
8,502,053
(97,895,693)
(97,895,693)
(89,393,640)
141,938,143
One to f
ive years
412,488,106
412,488,106
(116,780,537)
(807,418,000)
(924,198,537)
(511,710,431)
(369,772,288)
Over
Total
five years
216,468,206
168,924,490
493,555,967
878,948,663
(161,676)
(6,960)
(116,770,960)
(314,463,630)
(817,317,727)
- (1,248,720,952)
(369,772,289)
(369,772,288)
(369,772,288)


The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the
Banks financial assets and liabilities to various standard and non-standard interest rate scenarios. If interest rates had been
100 bps higher or lower and all other variables were held constant, the Banks net income would have resultedas follows:
100 bp parallel
Increase
(12,538,215)
(4,318,617)
Sensitivity of projected net interest income 2013

At 31 December 2013
At 31 December 2012
100 bp parallel
Decrease
12,538,215
4,318,617
The Bank is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position
and cash flows. The Asset and Liability Management Department (ALMD) is responsible for monitoring the Banks
exchange risk and minimising its exposure. ALMD does this by setting limits on the level of exposure by currency, which
are monitored on a frequent basis. The Bank manages its currency risk primarily through assessing the impact of foreign
currency exchange rate movements on the Banks liquidity and profitability.
The table below summarizes the Banks exposure to foreign currency exchange rate risk at 31 December 2013:
In thousands of
MNT
Assets
Bank deposits
Loans and advances
Liabilities
Other liabilities
Customer accounts
Due to other banks
Borrowings
Bonds
Net financial assets /(liabilities)
MNT
374,591,094
473,572,082
857,930,377
1,706,093,553
373,841
10,818,483
28,033,056
1,540,765,736
1,579,991,116
126,102,437
USD
4,850,309
178,765,945
1,321,659,925
1,505,276,179
5,460,259
83,008,251
446,423,463
972,107,029
1,506,999,002
(1,722,823)
EUR
19,830
19,830
19,830
Total
379,461,233
652,338,027
2,179,590,302
3,211,389,562
373,841
16,278,742
111,041,307
1,987,189,199
972,107,029
3,086,990,118
124,399,444
107

The table below summarizes the Banks exposure to foreign currency exchange rate risk at 31 December 2012:
In thousands of
MNT
Assets
Bank deposits
Loans and advances
MNT
196,470,142
255,364,302
USD
19,998,064
168,924,490
238,191,665
Total
216,468,206
168,924,490
493,555,967

Liabilities
Other liabilities
Customer accounts
Due to other banks
Borrowings
Bonds
451,834,444
161,677
-
427,114,219
6,960
817,317,727
878,948,663
161,677
6,960
817,317,727
161,677
817,324,687
817,486,364
451,672,767
(390,210,468)
61,462,299

Net financial assets /(liabilities)
The following table presents sensitivities of profit or loss to reasonably possible changes in currency exchange rates
applied at the end of the reporting period to the functional currency of the Bank, with all other variables held constant.
In thousands of MNT
USD strengthening by 10%
USD weakening by 10%
Euro strengthening by 10%
Euro weakening by 10%
Total
At 31 December 2013
(172,282)
172,282
1,983
(1,983)
-
At 31 December 2012
(39,021,047)
39,021,047
-
Capital Management
The Bank sets and monitors capital requirements for the Bank as a whole.
The Bank adopted the standardised approach which is a set of risk measurement techniques proposed under Basel II
capital adequacy rules.
Credit risk exposure is calculated by risk weighting on and off-balance sheet exposures to credit risk according to broad
categories of relative credit risk. Risk-weights are determined according to specified requirements that seek to reflect the
varying levels of risk attached to assets and off-balance sheet exposures.
Foreign currency exchange risk exposure in a single foreign currency is derived by subtracting the aggregate value of
financial liabilities in that foreign currency from the aggregate value of the financial assets in that foreign currency.
The Banks policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The impact of the level of capital on shareholders return is also recognized
and the Bank recognizes the need to maintain a balance between the higher returns that might be possible with greater
gearing and the advantages and security afforded by a sound capital position.
108

The Government of Mongolia increased the Banks capital by further MNT 10.0 billion, MNT 5.0 billion and MNT 35.0 billion
in July, August and September 2013, respectively, as at 31 December 2013, the Banks capital was MNT 123.3 billion.
The ratios of the Banks capital adequacy as at 31 December 2013 and 31 December 2012, respectively, were as following:
In thousands of MNT
31 December 2013
Tier I capital:
Share capital
Retained earnings
Total tier I capital
Total regulatory capital/capital base
Risk weighted capital ratio
123,300,000
20,579,436
143,879,436
143,879,436
12.78%
31 December 2012
(Restated)
73,300,000
(6,308,152)
66,991,848
66,991,848
18.31%
The Bank weights all assets where the Government of Mongolia is the counterparty at 0%. The Bank does not have any
externally imposed capital requirements.
24. PRESENTATION OF FINANCIAL INSTRUMENTS

BY MEASUREMENT CATEGORY
The following table provides a reconciliation of financial assets with measurement categories at 31 December 2013.
In thousands of MNT
Assets:
Bank deposits:
- Short-term placements with other banks with
original maturities of more than three months
Loans and advances to customers:
- Loans to the Ministries
- Loans to the Corporate entities
Loans and receivables
379,461,233
652,338,027
652,338,027
Total
379,461,233
652,338,027
652,338,027
2,179,590,302
1,321,250,545
858,339,757
3,211,389,562
2,179,590,302
1,321,250,545
858,339,757
3,211,389,562
109

The following table provides a reconciliation of financial assets with

measurement categories at 31 December 2012 (restated).
In thousands of MNT
Assets:
Bank deposits:
- Short-term placements with other banks with
Loans and advances to customers
- Loans to the Ministries
- Loans to the Corporate entities
Loans and receivables
216,468,206
168,924,490
168,924,490
Total
216,468,206
168,924,490
168,924,490
493,555,967
256,215,623
237,340,344
878,948,663
493,555,967
256,215,623
237,340,344
878,948,663
As of 31 December 2013 and 31 December 2012 all of the Banks financial liabilities were carried at amortised cost.
25. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Determination of fair value and fair value hierarchy

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at
quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations
techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices), and (iii) level three measurements are valuations not based on observable market data (that is,
unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy.
If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3
measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety.
The Banks principal financial instruments comprise of cash on hand and in bank, deposits, loans and advances, other
current assets, accounts and other payables and borrowings. The management considers that the carrying amounts of
financial assets and liabilities recognized in the financial statements approximate their fair value except for the Banks
bond.
Fair Values of Financial Assets and Liabilities
The Bank has no financial assets or liabilities carried at fair value i.e. all of the Banks financial assets and liabilities are carried
at amortised cost. The Bank determines fair values for those financial instruments as follows:
(i) Financial assets and liabilities for which fair value approximates carrying amount
For financial assets and financial liabilities that are liquid or have short term maturity of
less than one year, carrying amounts approximate their respective fair value.
110

(ii) Fixed rate financial instruments

The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash flows expected
to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity.
Thus, market interest rates when they were first recognized are compared to the current market rates offered for the
comparable financial instruments available in Mongolia. In case there were no significant changes in market rates, carrying
amounts approximate fair value of the instrument.
The Bank does not operate in a normal market environment. On the asset side loans are provided to socially and
economically important entities or sectors at well below normal commercial market rates. The rate of the Bank has issued
loans to both Ministries and Corporates has not significantly changed since inception and thus, carrying value of lending
approximates its fair value.
The Bank has only one long term fixed rate debt instrument Bond issued to international market which was fully
guaranteed by Mongolia and issued back in March 2012 at a rate of 5.75%. This bond is listed on the Singapore Stock
Exchange and its fair value has been calculated using its quoted price as at 31 December 2013.
Discount rates, used below, depend on currency, maturity of the instrument and credit risk of the counterparty. The
increase in range in 2013 is due to new one off specific loan agreements and do reflect a general increase in the interest
rates being charged by the bank in this specific market. The discount rates were as follows:
The rates used in determining fair values.
Bank deposits
Short-term placements with other banks with
Loans and advances funded by:
- The Banks equity and Bond:
- Loans given to the Ministries
- Loans given to the Corporates
- Borrowing:
- Loans given to the Ministries
- Loans given to the Corporates
Customer accounts
Due to other banks
Bond
Borrowing
MNT
31 December 2013
8.50% to 12.00% p.a.
31 December 2012
USD
MNT
USD
MNT
USD
MNT
USD
MNT
USD
MNT
USD
USD
MNT
USD
5.00% to 5.40% p.a.
7.38% p.a.
6.75% to 7.38% p.a.
7.38% to 12.0% p.a.
7.35% to 8.10% p.a.
6.00% to 6.125% p.a.

5.125% to 6.125% p.a.
5.70% to 7.00% p.a.
8.00% to 9.50% p.a.
8.50% p.a.
6.00% p.a.
7.64% p.a.
4.7917% p.a.
4.7917% p.a.
3.80% to 5.50% p.a.
7.34% p.a.
6.75% to 7.38% p.a.
7.35% to 8.10% p.a.
4.66% p.a.
111

Fair values of financial instruments as at 31 December 2013 carried at amortised cost are as follows:
In thousands of
MNT
Assets
Cash on hand
Cash at other banks
Bank deposits
Loans and advances
loans and avdances to be
loans and advances to be
Total financial assets carried
at amortised cost
Liabilities
Other liabilities
Customer accounts
Due to other banks
Borrowings
Bonds
carried at amortised cost
112
31 December 2013
Carrying Amount
379,461,233
6,589
418,732
21,293,060
357,742,852
652,338,027
2,179,590,302
1,321,250,545
Level 1
6,589
6,589
-
Level 2
379,454,644
418,732
21,293,060
357,742,852
652,338,027
-
Level 3
2,179,590,302
1,321,250,545
858,339,757
858,339,757
3,211,389,562
6,589
1,031,792,671
2,179,590,302
373,841
16,278,742
111,041,307
1,987,189,199
972,107,029
972,107,029
3,086,990,118
920,565,915
920,565,915
920,565,915
373,841
16,278,742
111,041,307
1,987,189,199
2,114,883,089

Fair values of financial instruments as at 31 December 2012 carried at amortised cost are as follows:
In thousands of MNT
Assets
Cash on hand
Cash at other banks
Bank deposits
Loans and advances
loans and avdances to be repaid by the State budget
loans and advances to be repaid by the Corporates
Total financial assets carried at amortised cost
Liabilities
Other liabilities
Customer accounts
Due to other banks
Borrowings
Bonds
Total financial liabilities carried at amortised cost

Carrying
Amount
216,468,206
6,132
31,672,320
31,358,100
153,431,654
168,924,490
493,555,967
256,215,623
237,340,344
878,948,663
161,677
6,960
817,317,727
817,317,727
817,486,364
Level 1
Level 2
Level 3
6,132
6,132
6,132
807,101,255
807,101,255
807,101,255
216,462,074
31,672,320
31,358,100
153,431,654
168,924,490
385,386,564
161,677
6,960
168,637
493,555,967
256,215,623
237,340,344
493,555,967
26. COMMITMENTS AND CONTINGENCIES

Guarantees provided
Within a year
31 December 2013
138,747,823
31 December 2012
116,770,960
The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag Housing Projects LLC
amounting to USD 84 million on the 13th September 2012. To date the Export-Import Bank of China has not yet provided
any funding to the New Yarmag Housing Project.
The Bank has MNT 1,223,940 million of loan commitments (2012: MNT 314,464 million).
Tax legislation. Mongolian tax, currency and customs legislation is subject to varying interpretations, and changes, which
can occur frequently. Managements interpretation of such legislation as applied to the transactions and activity of the
Bank may be challenged by the relevant authorities.
113

The Mongolian tax authorities may be taking a more assertive position in their interpretation of the legislation and
assessments, and it is possible that transactions and activities that have not been challenged in the past may be
challenged by tax authorities. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods
remain open to review by the authorities in respect of taxes for five calendar years preceding the year of review. Under
certain circumstances reviews may cover longer periods.
The Mongolian tax legislation does not provide definitive guidance in certain areas, specifically in areas such as VAT,
withholding tax, corporate income tax, personal income tax, transfer pricing and other areas. From time to time, the Bank
adopts interpretations of such uncertain areas that reduce the overall tax rate of the Bank. As noted above, such tax
positions may come under heightened scrutiny as a result of recent developments in administrative and court practices.
The impact of any challenge by the tax authorities cannot be reliably estimated; however, it may be significant to the
financial position and/or the overall operations of the entity.
Management believes that its interpretation of the relevant legislation is appropriate and the Banks positions related
to tax and other legislation will be sustained. Management believes that tax and legal risks are remote at present. The
management performs regular re-assessment of tax risk and its position may change in the future as a result of the change
in conditions that cannot be anticipated with sufficient certainty at present. As of 31 December 2013, management has
assessed that recognition of a provision for uncertain tax position is not necessary.
27. SEGMENT REPORTING

Operating segments are components that engage in business activities that may earn revenues or incur expenses,
whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete
financial information is available. The CODM is the person - or group of persons - who allocates resources and assesses the
performance for the entity. The functions of the CODM are performed by the Management Board of the Bank.
The Bank is a development finance institution dedicated to the economic and social progress of Mongolia. The Banks
products and services are similar and are structured and distributed in a fairly uniform manner across borrowers.
Based on the evaluation of the Banks operations, management has determined that the Bank has only one reportable
segment since the Bank does not manage its operations by allocating resources based on a determination of the contribution
to net income from individual borrowers. Management receives and reviews financial information in IFRS format.
The Banks revenue is received solely from entities with Mongolia. All non-current assets of the Bank are located within
Mongolia.
114

A spilt of the Banks revenue streams from sources is shown below.
In thousands of MNT
Interest income for loan paid by:
- The State budget
- The Corporates
Interest income from Commercial banks:
- Deposit
- Current account
Gain from foreign currency trading:
- With the Government
- With the Corporates
Total income
Year ended 31
December 2013
94,023,422
45,984,927
48,038,495
37,036,136
35,814,458
1,221,678
2,000,002
121
1,999,881
133,059,560

2012 (restated)
7,542,660
3,255,895
4,286,765
5,335,613
5,225,708
109,905
4,060
4,060
12,882,333
28. POST BALANCE SHEET EVENTS

In January 2014, Japan Bank of International Cooperation (JBIC) and the Ministry of Finance has signed set of agreements
to provide guarantee for yen-denominated foreign bonds issued by the Bank in the Japanese bond market (Samurai
bonds). This was a privately placed issue amounting to 30 billion yen. JBICs guarantee covers the principal and part of the
interest of this issue. The joint lead arrangers were Nomura Securities Co., Ltd. and Daiwa Securities Co., Ltd. with Mizuho
Bank Ltd. participated as the bond administrator. This was the first guarantee for issue of Samurai bonds by a Mongolian
institution.
The Government of Mongolia issued a resolution No.299 dated on the 16 August 2013 pertaining to enhancement of coal
exports of Mongolia. The Resolution states the road built by Gobi Road LLC connecting Tavan tolgoi and Gashuunsukhait
and basic infrastructure built by Energy Resources LLC to enhance Gashuunsukhait port capacity are to be purchased and
ownership of the assets transferred to Erdenes MGL LLC. Pursuant to this Resolution, on February 2014 the Bank has lent to
Erdenes MGL LLC amount of MNT 170.6 billion for the purchase of road and infrastructure.
The Bank has issued a two year guarantee in the name of Erdenes Tavan Tolgoi LLC to a local commercial bank in the
amount of USD 35 million in January 2014.
115

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THE DEVELOPMENT

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

The Development Bank of Mongolia - Annual Report 2013

To be a leading institution investigating financial solutions

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

To make Mongolia a developed country

The Development Bank of Mongolia - Annual Report 2013

Message FROM THE CHAIRMAN

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

message from the chief

The Development Bank of Mongolia - Annual Report 2013

Real GDP growth (%)

The 2013 preliminary performance estimations are that Mongolias

Although real GDP growth reached 11.7%, slightly slower compared to

Source: The National Statistical Office

The state budget balance

Whereas copper concentrate production associated with the

THE STATE BUDGET

Total revenue and aid of Mongolias general budget reached MNT5,927.6

Source: The National Statistical Office

Money supply volume

At the end of 2013, 2 money supply reached MNT9,461.0 billion,

Although the price of our countrys main export mineral products

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

Inflation measured by the CPI

Source: The National Statistical Office

Foreign trade balance

Source: The National Statistical Office

Foreign direct investment

FOREIGN DIRECT INVESTMENT

The Development Bank of Mongolia - Annual Report 2013

BANKING AND FINANCIAL

Commercial banks total assets

As per economic sector classification, the commercial banks loan

Commercial banks loan balance per

At the end of the reporting period, total assets of the commercial

At the end of the reporting period, the stock market capitalization in

Source: The Mongolian Stock Exchange

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

The total asset of insurance companies

During the reporting period, the total asset of seventeen companies

At the end of 2013, total income from insurance premiums reached

NON-BANK FINANCIAL INSTITUTIONS

Source: The Financial Regulatory Commission

263 licensed non-bank financial institutions operated with a total asset

The total asset of non-bank

During the reporting period, a total of 141 credit unions licensed by

Source: The Financial Regulatory Commission

Source: The Financial Regulatory Commission

The Development Bank of Mongolia - Annual Report 2013

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

The Development Bank of Mongolia - Annual Report 2013

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA

The Development Bank of Mongolia - Annual Report 2013

THE BOARD OF Directors

The Development Bank of Mongolia - Annual Report 2013

THE DEVELOPMENt BANK OF MONGOLIA