The Regulation on Setting Prudential Ratios to Commercial Banks

This document comprises an unofficial translation of the Bank of Mongolia’s (BOM) regulation on setting prudential ratios to commercial banks.

The document makes the following points:

• The aim of the regulation is to assess the prudential ratios of commercial banks with precision and get the BOM to control its optimal level;
• Banks will estimate possible risk events according to standardized ratios that take into account capital adequacy, liquidity, credit concentration risk and foreign exchange risk;
• The BOM will evaluate capital adequacy of the banks on the basis of the capital to risk-weighted assets ratio (CAR);
• The BOM will divide banks into categories, such as "banks with moderate amounts of capital," "undercapitalized banks";
• Banks shall estimate the liquidity ratio indicators to assess the ability of the bank to disburse money in deposits on the first demand of the customers;
• The BOM will estimate the credit concentration risk of banks in order to prevent increase in non-performing loans, overdue installments, etc;
• Banks shall calculate the foreign exchange (forex) risk ratios in order to assess forex revaluation loss that the bank may face, and its negative impacts on the bank’s solvency;
• The BOM will set limitations on fixed assets, in order to promote the use of liabilities taken from depositors to extend loans of the bank.

The document concludes with miscellaneous provisions regarding supervisory measures, reports and statements, etc.