INVEST MONGOLIA September 3, 2012 Frontier 6th Annual Conference

Norihiko Kato Acting CEO, Khan Bank

Banking Industry in Mongolia

Mongolia Macroeconomic Overview Overview GDP per capita (U$)

Robust GDP growth (U$ in trillion) GDP composition by sector

Since 2010, Mongolia has made strong economic recovery.

Real GDP grew by 17.5% in 2011, making Mongolia one of the fastest growing countries .

Growth rates were 42.5% in wholesale and retail, 16% in manufacturing, 14% in construction, and 8.7% in mining and quarrying

In the Banking system, loans grew by 72% and deposits grew by 46% in 2011.

2.6 2.8 2.8 3.0 3.5 3.7 4.4

5.1 5.6 6.4

0

2

4

6

8

10

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

2015

E

2016

E

US$

1.491 1.980 1.600

2.300 3.288

4.321 5.226

6.156 6.516

7.684

0.0001.0002.0003.0004.0005.0006.0007.0008.0009.000

2007

2008

2009

2010

2011

2012

E

2013

E

2014

E

2015

E

2016

E

20.2%

13.0%

9.7% 7.2% 7.1%

6.6%

3.5%

32.8%

Mining & quarrying

Agriculture

Wholesale and retail trade

Transportation andstorageManufacturing

Real estate

Government

Others

Mongolia Macroeconomic Overview

Export destination

Trade Balance

Export composition

Foreign Direct Investment (in U$m)

1889 2534

1885 2908

4780

2262 2117 3244

2137

3200

6526

3313

-4000

-2000

0

2000

4000

6000

8000

2007 2008 2009 2010 2011 2012 2Q

Export Import Trade Balance

81%

8%

6% 5%

Mineral products

Textiles

Precious metal & jewlery

Others86%

5%

3% 2% 4%

China

Canada

Russia

UK

Others

185 191 360 839

570

1630

3808

0

1000

2000

3000

4000

2005 2006 2007 2008 2009 2010 2011

Mongolia Macroeconomic Overview

Inflation

Budget Balance Foreign reserves

MNT rate against USD

1880 2156 1992

3122

4400

1747

2462 2321 3080

4792

-1000

0

1000

2000

3000

4000

5000

6000

2007 2008 2009 2010 2011

Revenue Expenditure Balance

1000

1100

1200

1300

1400

1500

1600

2008

Mar Jun

Sep

Dec

2009

Mar Jun

Sep

Dec

2010

Mar Jun

Sep

Dec

2011

Jan

Mar Jun

Sep

Dec

2012

Jan

Feb

Mar

Apr

May Ju

n

975

637

1122 1155

2457

0

500

1000

1500

2000

2500

3000

2007 2008 2009 2010 2011

0%

5%

10%

15%

20%

25%

Core Inflation National CPI

Banking Sector Development

Total Asset Market Share (2012 2Q) Total Loan Market Share (2012 2Q)

Khan Bank 23%

Golomt 22%

TDB 23%

XacBank 9%

Savings 8%

Others 15%

Khan Bank 25%

Golomt 23%

TDB 23%

XacBank 10%

Savings 8%

Others 11%

14 commercial banks, 195 small NBFIs,162 savings & credit cooperatives, and 17 insurance companies.

The largest three banks (Khan, TDB, & Golomt) make up the 70% of the total assets and 68% of the total loans in the system.

The largest 5 banks (Top 3, Xac, & Savings) make up the 87% of the total assets and 85% of the total loans in the system.

Banking Sector Development

11%

21%

41%

50%

0%

10%

20%

30%

40%

50%

60%

0

2000

4000

6000

8000

10000

2008 2009 2010 2011

Assets Growth

Banking Sector Asset Banking Sector Loan

25.31%

-6.64%

25.97%

71,16%

-20%

0%

20%

40%

60%

80%

100%

0

1000

2000

3000

4000

5000

6000

2008 2009 2010 2011

Loan /net/ Growth

Banking Sector Deposit Banking sector Equity

-9.57%

-32.35%

66.09%

76.96%

-40%-20%0%20%40%60%80%100%

0

200

400

600

800

2008 2009 2010 2011

Equity Growth

23.33% 24.52%

54.64%

42.18%

0%

10%

20%

30%

40%

50%

60%

70%

0

2000

4000

6000

8000

2008 2009 2010 2011

Deposit Growth

3.0%

7.1%

17.4%

11.5%

5.8%

4.8%

1.5% 2.8%

8.0%

4.5%

2.3% 2.0%

0%2%4%6%8%10%12%14%16%18%20%

0

1000

2000

3000

4000

5000

6000

7000

2007 2008 2009 2010 2011 2012 2Q

Banking Sector Gross Loan Banking Sector NPL Banking Sector NPL Ratio Khan Bank NPL Ratio

Banking sector Non-performing Loans (MNT billions)

Banking Sector Development

0

400

800

1200

1600

2000

0 500 1000 1500 2000 2500

Deposit (MNT in billions)

Loan

(MN

T in

bill

ions

)

Khan

Golomt

TDB

XAC

Savings

Source: TDB & Golomt & Xac & Savings Website, audited report

503 497

92 88 42

0

100

200

300

400

500

600

Khan Savings XacBank Golomt TDB

Total Asset Market Share (2012 2Q) Number of Branches (YE2011)

Fee Income (case of KB)

-100%

0%

100%

200%

300%

400%

2007 2008 2009 2010 2011

Transfer Fee Card Service Fee SMS Banking

Banking Sector Development

58,379 51,122

29,914

12,192

Khan TDB Golomt XacBank

37.7%

21.6% 20.5% 19.2% 16.3%

12.4% 11.2% 11.2% 11.1%

Khan Indo China India MY Thai SG HK Korea

3.08% 2.83%

1.89% 1.61%

Khan TDB XacBank Golomt

Consistent Profitability (Khan bank) Superior Profitability (TOP 4) (in MNT billion)

One of the Highest ROE in the Region Strong ROA

45.9%

31.2%

12.0%

29.6%

39.3%

4.0% 2.8% 1.5% 2.3% 3.1%

2007 2008 2009 2010 2011

ROAE ROAA

Banking Sector Development

11.4% 12.4%

19.3% 16.6%

15.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2007 2008 2009 2010 2011

98%

84%

68% 59%

76%

0%

20%

40%

60%

80%

100%

120%

2007 2008 2009 2010 2011

20.8%

15.4% 13.3% 12.6%

XacBank Khan Golomt TDB

116%

62.4% 74% 68.1%

XacBank TDB Khan Golomt

CAR-Khan Bank

Source: TDB & Golomt & XacBank Website, audited report

Adequately Capitalized – CAR Khan Bank Loan Deposit Ratio – Khan Bank

CAR of TOP 4 banks (YE 2011) Loan Deposit Ratio of TOP 4 banks (YE2011)

Banking Sector Development

72%

26.8% 22.5% 16.5% 15.2% 14.4% 13.5% 13.1% 13.0%

0%10%20%30%40%50%60%70%80%90%

100% 46,0%

25.2%

14.5% 14.3% 11.3% 11.0% 9.0% 7.2% 6.0%

0%5%

10%15%20%25%30%35%40%45%

Source: Bank of Mongolia, Deutsche bank

2011 Regional Loan Growth

Capacity for Further Growth (Banking system) (in billion MNT)

Total Banking Sector Loan to GDP

2011 Regional Deposit Growth

0%

10%

20%

30%

40%

50%

60%

0

2000

4000

6000

8000

10000

2007 2008 2009 2010 2011

Banking sector assets Banking sector loans /net/

Loan to GDP ratio

79%

105%

84%

66%

79%

0%

20%

40%

60%

80%

100%

120%

0

1000

2000

3000

4000

5000

6000

7000

8000

2007 2008 2009 2010 2011

Deposit Loan LDR

Challenges the Banking Sector is facing

- Immediate: overheated economy(?) impact of global economic turbulence - Underdeveloped interbank market - Long term funding in MNT - Legal and regulatory framework e.g. movable assets pledge, non-banking finance business financial holding company - Capital needs - Risk management and system investment - Compliance, AML, KYC - Governance and transparency

Mongolia’s banking sector has attractive opportunity

Corporate 23%

SME 27%

Retail 33%

Mortgage 13%

Other 4%

Khan Bank Loan Composition Khan Bank Income Composition

Case of Khan Bank Diversified Business Portfolio

0.44 1.37 2.91 3.85 6.31

19.92

4.9 4.7 8.5 10.3 13.1

14.9

34

53

79 70

88

124

0

20

40

60

80

100

120

140

2006 2007 2008 2009 2010 2011

FX Income Fees & Other Income Net Interest Income

KHAN BANK-NATIONWIDE NETWORK

8

► 500 Branches in every part of Mongolia of

which 80 are in urban areas and 420 are in rural areas

► Estimated that 80% of all Mongolian

households utilize Khan Bank’s services

► 1.6 million customers all over the country

► 500 Branches in every part of Mongolia of

which 80 are in urban areas and 420 are in rural areas

► Estimated that 80% of all Mongolian

households utilize Khan Bank’s services

► 1.6 million customers all over the country

► 299,000 borrowers of which 82% is retail

consumer borrower.

► 260 ATMs –63% of national market penetration

► 1 million debit card holders

► 299,000 borrowers of which 82% is retail

consumer borrower.

► 260 ATMs –63% of national market penetration

► 1 million debit card holders

Bulgan Branch, Bulgan Aimag Mongolia

Thank you for your attention.