Mongolian banks face closer investor scrutiny

The failure of Mongolia’s Savings Bank last week is dividing opinion on the creditworthiness of the country’s banking industry.

Savings Bank was the fifth-biggest lender in Mongolia with a market share of about 8% before the Bank of Mongolia stepped in on July 22 and declared it insolvent, transferring all of its equity, liabilities and good assets to the much smaller State Bank of Mongolia, a government-owned lender. The central bank took over its bad loans.

This prompted Fitch to warn investors yesterday about “Mongolia's deteriorating business environment and weaknesses in corporate governance and regulation of the banking sector”.

The rating agency said that...