Coal Mongolia 2013Ulaanbaatar, Mongolia

Norihiko KatoCEO

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Mongolia

Real GDP growth in 2011 - 17.5%( Nominal GDP - USD8 billion)

Wholesale and retail – 42.5% growth Repair of motor vehicle – 16.0% growth Construction – 14.3% growth Mining and quarrying – 8.7% growth

Real GDP growth in 2012 - 12.3% (Nominal GDP – USD10 billion)

Agriculture – 21.3% growth Transportation – 11.4% growth Wholesale and retail – 9.2% growth Mining and quarrying – 8.9% growth

We see Supply Chain Effect and Economic Ripple Effect

Source: National Statistical Office (NSO)

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GDP structureGDP Historical numbers

Source: National Statistical Office

22% 19% 20% 19% 20% 16% 14% 15%

31% 32% 31% 28% 28%28% 26% 25%

36% 37% 38% 40% 41%43%

42% 43%

11% 12% 11% 12% 10% 14% 18% 17%

2005 2006 2007 2008 2009 2010 2011 2012

Бүтээгдэхүүний Цэвэр Татвар Үйлчилгээ Үйлдвэрлэл & Барилга ХАА

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7,0%

10,6%

7,3%8,6%

10,2%8,9%

-1,3%

6,4%

17,5%

12,3%

-5%

0%

5%

10%

15%

20%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mongolia East Asia Pacific - Developing Nations

GDP Growth Annual

Source: World Bank

Strong growth compare to other emerging countries

Mongolia has been one of the fastest growing economies in the world.

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Inflation Challenges to reduce inflation

17,8%

22,1%

4,2%

13,0%

10,2%14,0%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012

Core Inflation National CPI

Source: Bank of Mongolia, NSO

In 2012, inflation reached 14.0%. Central Bank of Mongolia introduced “Price Stabilization Program” in December 2012.

Currency Exchange Rate

Source: Central Bank of Mongolia

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Central Bank of Mongolia’s currency intervention

Central Bank of Mongolia has been making interventions to smooth market fluctuation.

-2%

0%

2%

4%

6%

8%

10%

1 100₮

1 150₮

1 200₮

1 250₮

1 300₮

1 350₮

1 400₮

1 450₮

01.2011 07.2011 01.2012 07.2012 01.2013

BoM bought USD BoM sold USD Official Rate Daily changes

Trade Balance Trade Deficit

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Source: Bank of Mongolia, NSO

Exports: coal, copper, iron ore, and cashmere/leather. Imports: machinery, heavy equipments, fuel, auto parts, and foods. More than 90 percent of the exports go to China. 65 percent of imports come from China, Russia, and the USA.

0

7,27%

-1,58%

15,80%

34,28%18,68%

32,83%34,68%

44,14%

-30,38%

51,84%

86,88%

-2,56%-40%

0%

40%

80%

120%

-$4 000

$0

$4 000

$8 000

$12 000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Balance Import Export Turnover Growth

USD

mill

ions

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Foreign Direct Investment Initial phase of mining projects increased FDI

Source: Bank of Mongolia, NSO

69%

655%

200%

103%

424%

218%184%

60%

-16%-27%

3%-36%

-100%

0%

100%

200%

300%

400%

500%

600%

700%

0

200

400

600

800

1 000

1 200

1 400

1 600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012

FDI Growth y-o-y

USD

mill

ions

Strategic Entities Foreign Investment Law (SEFIL) was introduced in May 2012. FDI decreased in 2012 Q4. Is it because of shift from construction to operation or the latest

legal and political discussions and uncertainty?

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Budget

4,24%

2,06%3,23% 3,32%

2,44%

4,84%5,44%

0,58%

7,58% 7,71%

2,05%

0%

2%

4%

6%

8%

10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

Budged Deficit

“Fiscal Stability Law” (FSL) , effective in 2013, limits the structural deficit at 2 percent of the GDP.

The World Bank noted that although FSL is an important step towards sound fiscal policy, following factors need to be taken into consideration: The 2013 budget assumes the Government will reach agreement with OT over

revision of investment agreement USD 1.5 billion bond proceeds is not included in the budget Global economic outlook and commodity price

Source: Bank of Mongolia, World Bank

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Ease of Doing Business

In terms of ease of doing business, Mongolia’s ranking improved from 88th place to 76th

place out of 185 countries in 2013.

Mongolia’s Rank

Ease of Doing Business 2013 2012 Change in Rank

Starting a Business 39 95 56Dealing with Construction Permits 121 121 0Getting Electricity 169 168 -1Registering Property 22 24 2Getting Credit 53 67 14Protecting Investors 25 29 4Paying Taxes 70 65 -5Trading Across Borders 175 174 -1Enforcing Contracts 29 29 0Resolving Insolvency 127 130 3

Source: IFC, World Bank

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Financial Sector 14 commercial banks, 1 development bank, 195 small NBFIs,162 savings & credit cooperatives,

and 17 insurance companies. 3 foreign banks have representative offices; ING, Standard Chartered Bank, and Bank of China 90-95% percent of financial sector assets are held by commercial banks.

56%

68%75%

87% 86%

35%

-1%

16%

80%

24%

-25%

0%

25%

50%

75%

100%

0₮

4 000₮

8 000₮

12 000₮

2008 2009 2010 2011 2012

Banking Sector Assets Loans Banking Sector Assets to GDP Loan Growth

Source: Bank of Mongolia, FRC, Banks’ website

MN

T m

illio

ns

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Banking Sector Sector

20%27% 27%

20%28% 32% 30% 30%

40%

133% 125% 120%118% 115% 110%

132% 132%133%

0%

30%

60%

90%

120%

150%

180%

210%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Mongolia East Asia & Pacific (developing only)

Domestic credit provided by banking sector (% of GDP)

Source: World Bank

Total assets as of Dec 31, 2012 - USD 8,6 billion. Top 3 banks (Khan, TDB, Golomt) make up 70% of total assets. Banking sector grew rapidly, but Mongolia is still under banked.

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Banking Sector activeЧанаргүй Зээл

3,3%

7,1%

17,4%

11,5%

6,1%

4,2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012

Banking Sector Gross Loans Banking Sector NPL Banking Sector NPL Ratios

Source: Bank of Mongolia

USD

тэр

бум

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Banking Sector Challenges

Small size of bank’s capital limits bank’s capacity

Underdeveloped capital markets and interbank market

Lack of long term MNT funding source, bank’s maturity gap

Underdeveloped derivative markets and hedging instruments

Legal and regulatory framework e.g. movable assets pledge, non-banking financial services

Risk management and system investment

Compliance, AML, KYC

Governance and transparency

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70%16%

-4%-34%

74%99%

400%

45%11%

138%

47%

-18%-100%-50%

0%50%

100%150%200%250%300%350%400%450%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Financial SectorMongolian Stock Exchange ( TOP 20 index annual return)

MSE Top 20 index consists of 20 listed major companies on MSE.

TOP20 is one of the best performing equity indices in the past decade.

“Millennium IT” trading system was introduced in cooperation with London Stock Exchange.

Disciplines and transparency in reporting is the key for development

Source: Bloomberg, MSE

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Political Environment Latest issues that attracted world wide attention

USD 1,5 billion sovereign bond.

Strategic Entities Foreign Investment Law

Draft of new Mineral Law

OT discussion

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Market Reaction “Chinggis Bond” performance

Source: Bloomberg

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10

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60

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12.01.30 12.02.29 12.03.31 12.04.30 12.05.31 12.06.30 12.07.31 12.08.31 12.09.30 12.10.31 12.11.30 12.12.31 13.01.31

MMC SouthGobi TRQ

Market Reaction Selected companies stock performances

Source: Bloomberg

HK

D U

SD

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Commodity MarketЗарим түүхий эдийн үнийн индекс

Source: Bloomberg

60$

65$

70$

75$

80$

85$

90$

95$

100$

105$

7 000$

7 500$

8 000$

8 500$

9 000$

9 500$

10 000$

12.02.15 12.03.15 12.04.15 12.05.15 12.06.15 12.07.15 12.08.15 12.09.15 12.10.15 12.11.15 12.12.15 13.01.15 13.02.15

Зэс Нүүрс

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Rating Agency Review on Mongolia Rating Agency Country Rating on Mongolia

“B1”/Stable “B+”/Stable “BB-”/Stable

Rating agencies’ concerns: Heavily dependent on mineral exports Pro-cyclical fiscal policy may lead to overheating in Mongolia Fiscal discipline and external borrowing

Factors that could change the rating down: High inflation Weak fiscal policy framework Uncertainty in Mongolia’s investment regime Excess external borrowings

Source: Rating Agencies’ websites

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Thank you for your attention.