Golomt bank report - 2003 english

Contents Golomt Bank today

Letter from the Chairman of the Board of DirectorsLetter from the President and CEOGolomt Bank Vision, Mission, Goals, Strategy and Credo

Mongolian macroeconomyReal sectorMoney supplyForeign tradeBanking and financial marketUnemployment

Golomt Bank awards in 2003

Golomt Bank organizational structureRetail Banking DivisionFinancial Control DivisionTreasury DivisionSupports Division

Human Resource ReportInformation & Technology Report

Major Projects/AchievementsBodi TowerGolomt Bank for social development and wellbeing of children"Golden Key" children savings deposit Mongolian students discount card"Golden Ear" RMB card service

Golomt Bank business operationsLendingCard serviceExternal relationsDirect marketingConsulting serviceInternet banking serviceElectronic banking serviceOnline banking service

Financial reportAsset managementDepositsOwn equityFinancial performanceFinancial performance ratios

Risk management reportCredit riskLiquidity riskMarket riskOperational risk

Independent Auditor's Report

Total assetsLoansForeign assetsCurrent account depositsSavings account depositsOwn equityNet profit (after tax) Shareholder companyNumber of branchesNumber of employeesNumber of borrowersNumber of cardholdersNumber of customers Return on equity Cost/income ratio Fee income/total income ratio Liquidity ratio Own equity to total assets ratio Foreign currency risk ratio

200279 304.832 337.422 885,120 980,244 093,2

5 701,6819,9

110

2132 3444 388

33 347

14.38%83.80%25.79%

58.53%14.18%12.77%

2003114 059,146 788,839 797,226 280,866 939,79 792,81 089,4

110

2714 294

28 33441 900

11.12%85.2%

29.65%

57.79%15.36%27.51%

469

141516181819

20

21222323232425

262728293031

323335363637383939

404141414242

4344454546

It is my pleasure to report to our esteemed business partners, clients and customers the performance of Golomt Bank in 2003. On behalf of the Board of Directors and shareholders of the Golomt Bank I would like to express our full satisfaction with regard to the Golomt Bank operations over the past year. While we assessed highly the results of our work produced last year, we have developed a very optimistic plan for the year 2004. We consider that Golomt Bank has achieved its objectives by way of expanding operations in the Mongolian banking and financial market and introducing many new products and services. As a result the total assets of Golomt Bank grew by 44 percent and reached 15 percent of the total assets of the banking system by the end of 2003. We can proudly state that the Bank impressive results in growth and expansion of operations were due to our successful cooperation with customers, clients and business partners. Based on our achievements Golomt Bank was awarded in 2003 with awards for "Outstanding Business Development" by the Visa International, for "Best Partner in Mongolia Market" by the Mastercard International, "The Best Banking and Financial Brand of Mongolia" by Chamber of Trade and Industry of Mongolia and PR Association, "The Best Student Representative" by the Union of Mongolian Students. We can assure you that we will be further carrying out successfully our activities and introducing many innovations relying on the full confidence of our customers.

Taking this opportunity I would like to express once again our gratitude for your confidence and cooperation and our best wishes for success in your business and activities. We extend our best wishes for expansion and development of our continued cooperation and mutual benefit.

BOLD LuvsanvandanChairman of the Governing Board

BOLD LuvsanvandanChairman of the Governing Board

4

The overall economic prospects and legal and political environment were relatively stable and there were no significant changes related to the banking sector in 2003. It should be mentioned that the Government and the Central Bank played a significant role in ensuring further sustainable development of the Mongolian banking and financial sector and creating favourable conditions for the banking sector operations, including Golomt Bank.

In 2003 Golomt Bank total assets increased by 44 percent and reached MNT 114.1 billion, thus advancing our position in the banking and financial market.

The competition at the Mongolian banking and financial market has significantly intensified from year to year and last year the banking and financial institutions continued to compete mainly in terms of product pricing. Due to severe price competition banks were not able to reduce the cost of borrowed funds. On the other hand, the trend in the decline in lending rates continued throughout 2003. In the conditions of mounting competition Golomt Bank though proposed to clients and customers favourable and competitive prices. Though it did not pursue a policy to compete by pricing, its primary objective was to gain the confidence of its clients and customers in order to become the most credible bank. As a result, the total number of customers increased by approximately 86%. In 2003 Golomt Bank has made significant steps towards reducing substantially the Bank risk and advancing its competitive position by increasing its capital by 3 billion tugrugs. In the last year, our bank's net income after tax increased to MNT 1.1 billion and the bank paid income tax of MNT 767 million to the state budget.

Golomt Bank since its establishment has aimed to introduce new and modern products and services in the Mongolian banking and financial market in order to meet the demands of clients and customers. In the course of the past year several new products have been initiated and introduced by Golomt Bank to the market.

In 2003 new products and services, like childrens' "Golden Key" savings account, "the Golden Ear" RMB card service in cooperation with the Agricultural Bank of the People's Republic of China , "Mongolian students discount card" have been introduced. Also the cooperation with Visa International, Mastercard International has been expanded and Visa International Visa Electronic and Mastercard International Maestro cards have been newly introduced, thus making more diversified the choices of our products and services.

BAYASGALAN DanzandorjPresident and CEO

6

Esteemed business partners and customers,

I am proud to state that Golomt Bank has achieved its goals planned for 2003 and produced even better results beyond our expectations. We are fully conscious that we are at the intial stage of our productive activitity and we have to advance further and create more. Therefore, we plan 2004 to be the year of business success and new productivity. We consider that cooperation with our customers, borrowers, cardholders is of great significance. We extend to our business partners, customers, foreign and domestic clients, organizations and individuals and to all Mongolian people our best wishes for success in their activities and well-being. We wish you all this year to be the most successful year.

BAYASGALAN DanzandorjPresident and CEO

8

In order to advertise and familiarize the clients with bank products and services and provide them with in-depth knowledge about the banking services the advanced method of direct marketing was initiated and this has given us very positive results. With the objective to save the time of the clients as well as to provide the different types of the bank services from a single point and in order to provide with business advice, Premier Banking service was expanded and Consultancy Unit for business and other issues was established.

Last year we paid special attention to providing high quality services rather than expanding our services in quantitative terms. The mortgage loans to the individuals were initiated using the funding under the Asian Development Bank project and from our own resources. Small credits have been increased and credit card services have been activated through the Branch offices and centers. While we expanded the scope of our products and services, we also faced a growing demand to expanding our external relations and ensuring a more flexibility to our services. In 2003 we concluded the agreements on cooperation with the Agricultural Bank of China, with CIC of France, and Rabobank of Holland as well as renewing our agreements with some correspondent banks to manage efficiently our funds. In order to promote foreign investment and businesses to Mongolia from foreign countries new credit opportunities were created by concluding agreements with the Export and Import Bank and the Land Bank of Taiwan and the Samsung Corporation of Korea.

We also streamlined and activated our products and services, internet and electronic banking, on-line banking, which were introduced by Golomt Bank in the previous years. We paid special attention to the reliability of bank information technology and developed and started to utilize new accounting, credit, saving management information software programs.

"One of our main objectives is to contribute to the development of Mongolia and to invest for the future so that the future generations will be able to inherit from us the most valuable things". Last year the Bodi Tower, a combination of modern and classic construction design, was commissioned and occupied. Within the framework of the "Investment and Productivity Year" we have donated 101 million tugrugs to the city of Ulaanbaatar. We also initiated our activities aimed to the benefit of our children who determine the future of the country and we selected the World Vision organization amongst other international and non-governmental organizations in this area and we are actively cooperating with this organization.

7

10

Golomt Bank Vision, Mission, Goals, Strategy and Credo

9

Vision

To be the market leader in Mongolia, a reputable and credible bank with sound international standard banking practices

Mission

To be the market leader in innovation and the supplier of the best customer oriented banking and financial services and the most efficient bank with talented employees contributing to the social and economic development of the country

Goals

To restructure and reorganize the Bank as a public company, the shares of which are freely traded on the stock exchange.

To gain the leading position in the market and sustain it for long- term.

To introduce and develop advanced technologies in all the activities of the bank.

To develop actively all types of credit facilities and to minimize loan losses.

To maximize balance on the current accounts as a percentage of the total deposits and to increase long-term customer deposits.

To streamline the payment card market, to strengthen the bank's leading position and increase the number of the cardholders and volume of card transactions.

To introduce new types of financial services.

Strategy

To introduce new technologies

to introduce the latest achievements in information technology in its activities on a continuous basis and to make constant upgrading.

To provide the market with a high quality and premium service

to introduce successfully traditional and new types of financial services to the targeted market based on customer demand. to streamline and to sustain the new types of customer services.

To attract new customers and to build customer loyalty

to analyze demands of different segments of customers and to operate efficiently in respond to those demands.to provide customers with efficient, friendly and high quality services. to care about customers and to create an atmosphere of trust and confidence.

To create a team of capable and professional staff.

to strengthen the Bank human resources and to create favourable conditions for the personal development of every employee.to improve efficiency by increasing each employee's productivity.to make an annual assessment of each employee's merit and contribution and to create incentives to work effectively and increase their responsibility.to ensure that the Bank and the employee both develop and advance.

To contribute to the social and economic development of the country.

to make a major contribution to the social and economic development of the country in a comprehensive way.to carry out activities directed to protecting the environment and making better the lives of children who are the country's future.

Strategic planning and marketing.

to introduce the new types of customer services on the basis of actual assessment of the business environment by ensuring flexible price policy, providing accurate and timely information and advertising, prioritizing and activating marketing. to create an image of a bank which highly values customers.to establish Bank branches and units first in our neighbouring countries and later in other foreign countries

BOLD Canbat Director of MarketingDepartment

SUGAR Dashbazar Director of Back Office

ENKHTUVSHINSodnomtseren Director ofCard Center

OYUN-ERDENE LamjavDirector of Investment &Project Finance Department

GANBOLD Galsan Vice President & Directorof Supports Division

GANKHUYAG Gombosuren Vice President & Directorof Treasury Division

CHIMEGMUNKH Munkhuu Vice President & Directorof Financial Control Division

MUNKHTUR Dagva Vice President & Directorof Corporate Banking Division

GANBAT Jamiyan Director of InternalAudit Department

NATSAGDORJ Namkhai Director of BranchManagement

TSERENDAVAA Namuu Director of InformationTechnology Department

Management Team

16

Macroeconomy

The overall economic situation of Mongolia was characterized by positive trends in recent years and the economic growth has been stable. The preliminary budget performance for 2003 indicates that the total revenues and grants of Mongolia's consolidated budget total to MNT535.8 billion and total expenditure and net lending amount to MNT 616.5 billion by widening the budget deficit to MNT 80.8 billion, which is by MNT 9.1 billion higher compared to the previous year. The budget current revenue has amounted to MNT 526.4 billion and current expenditure has totalled to MNT 446.3 billion, which made the current balance with surplus of MNT 80.1 billion. Real SectorThe real growth of GDP reached 1% in 2001, picked up to 4% in 2002 and preliminary performance for 2003 has indicated the growth rate of 5.3 % in 2003 by increasing the nominal GDP to MNT 1,359.7 billion. The positive growth of GDP in recent years indicate the improvement of overall economic situation and creation of favourable conditions for business environment, thus deepening confidence of banking institutions, clients and customers.

The preliminary performance for 2003 show that per capita GDP income has reached USD 476.4, growing by 4.8% compared with the previous year and by 24.1% compared to 1999.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1999 2000 2001 2002 2003

GDP growth (in 1995 relative prices)

Source: Statistical bulletin

GDP Real Growth by Sectors

GDP

Industry

Agriculture, hunting and forestry

Construction

Transport and communication

Trade

All types of services

3.4

0.6

5.0

-3.0

10.9

7.8

3.2

1.1

2.7

-15.3

-14.6

25.2

26.1

2.7

1.0

16.5

-19.2

10.8

14.9

9.8

-0.2

4.0

4.7

-11.1

18.5

16.2

13.3

6.0

5.5

0.5

4.5

12.6

16.5

9.6

-2.0


3.5

7.0

-9.1

14.0

15.9

10.9

1.2

1996-1999annual averagegrowth rate(%)

2000 2002 2003 2004 2000-2003annual averagegrowth rate (%)

15

In 2003 the overall industrial output grew to MNT 276.6 billion (in 1995 relative prices) with increase of 2% or MNT 5.5 billion compared to the previous year. The reason for this performance of the industrial sector was due to increases in the oil and gas exploration, in cigarette production, in publishing and recording, in wood processing and manufacturing, in metal processing and production, in clothing and sewing and fur processing. The industrial output growth also was due to a 1% increase in electricity, energy and water supply, a 6.7% increase in manufacturing and processing, despite a 1% decline in the minerals and mining sector.

According to the preliminary estimates the total number of livestock has reached 25.8 million heads in 2003, including the 7.9 million newlyborns and 1.3 million heads were lost, which was 1.6 million less than in the previuos year. In 2003 the output of the three staple crops was 165 thousand tons of cereals, 78.7 thousand tons of potatoes and 59.6 thousand tons of vegetables, which are by 39.2 thousand tons of cereals, 19.9 thousand tons of potatoes, 26.8 thousand tons of vegetables higher than in the previous year.

Growth in construction and maintenance was 23.7% in 2003. In the housing sector under Housing sector financing project funded by ADB concessional loan 500 individuals have borrowed 5.6 billion tugrugs out of which 88% were allocated for purchase of condominiums, 8,9% were for completion of construction of private houses and 2% was allocated to Condominium Associations for maintenance and repair works.

In 2003 all types of transport have carried 17.6 million tons of goods and by counting 167.9 million passengers, which are higher by 4.1 million tons of load and increase by 58.8% or 62.2 million people compared with the previous year. In the communication sector a new advanced technology has been introduced and foreign investment and technical and economic cooperation has been actively underway. In 2003 all aimags and cities have been covered by the mobile phone network with increase of 8.8 thousand mobile phone centers as well as increase of 62.6 thousand mobile phone users.

The marcoenomic stability and the creation of the favourable banking and financial environment has influenced the growth of the wholesale and retail trade and other services. Money supplyWithin the framework of the stabilization policy in the banking sector the main objectives of the State monetary policy were directed to restoring the confidence of the individuals, companies, foreign and domestic investors in the banking sector, to protecting their rights, and to deepening the scope of the financial intermediation. Money supply growth has accelerated in average by 27.5% during 2000-2003 years reaching MNT 703.3 billion at the end of 2003. The stable sources of the increase in money supply come mainly from increases in tugrug and foreign currency savings deposits.

Financial Intermediation Factors

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2000 2001 2002 2003

Money supply/GDP, (%) Savings/GDP, (%)

1817

The money supply to GDP ratio has accelerated to 51.6% in 2003 from 24.8% in 2000 and the savings deposits to GDP ratio has increased to 26.7% in 2003 from 8.9% in 2000, thus indicating the growth of the domestic savings and showing the evidence of restoring confidence in the financial sector.

In 2003 interbank loans and repo deals of the central bank bills totalled MNT 347 billion and the annual average weighted interest rate of the deals was around 10%. Banks in average daily holding of central bank bills amounted to MNT 42.4 billion and by the end of the year the total amount of the central bank bills sold to the banks amounted to MNT 76 billion. The annual average weighted interest rate was raised to 11.5%, which is by 1.5 unit higher than in the previous year.

In order to meet the demands of the free market and remove the exchange rate distortions at the market the Bank of Mongolia has started to announce daily the exchange rates of major currencies. The exchange rate fluctuations show that the value of tugrug against US dollar and euro have weakened by 3.8% and by 24.9%. The tugrug has also depreciated against Japanese yen by 16.4% , against Chinese yuan by 3.8% and against Russian rouble by 12.7%. The development in the banking sector has been stable and the public confidence has been restored and favourable conditions for foreign investment have been created. Though those developments led to the increase of foreign currency supply, the dollarization affects the national currency tugrug by weakening its value. A major indicator of the dollarization process is the increase of ratio of foreign currency savings to money supply totalling to 35.6% or a growth by 7 points.

In the last three years inflation has declined by 3.5% compared to 1996-1999. Inflation is estimated to 4.7% in 2003.

In the past year the increase in the price level by 3.1 points is due to increase of 7.7 % in food basket price in the consumer price index compared with the previous year. However, the quarterly price fluctuations have substantially declined and stabilized, which now enables forecast price changes in the economy to be more effective.

2000

2001

2002

2003

Foreign currency savings deposits (1)

69,063.1

87,318.6

135,186.1

250,218.9

Money M2 (2)

258,842.6

331,064.3

470,125.6

703,332.4

Ratio 1 to 2

26.7%

26.4%

28.8%

35.6%


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1999 2000 2001 2002 2003

8.1% 8.0%

1.6%

4.7%

Inflation


10.0%

Foreign tradeIn 2003 the preliminary performance of foreign trade indicated that the total turnover of foreign trade has reached USD1,387.5 million with exports amounting to USD600.2 million and imports totalling to USD787.3 million. Total foreign trade turnover has grown by 14.2% with increase in exports by 14.5% and with rise in imports by 14%. As a result the foreign trade deficit reached USD187.1 million at the end of 2003. Economic growth, ratio of the average price growth rate of exported to imported goods, foreign investment growth and increase of private transfers from individuals working abroad have accounted for most of the growth in recent years.

The world market price fluctuations of the main export goods directly affect our export revenue. The average prices of the major export products at the world market are the following:

Banking and financial market In 2003 the Agricultural Bank and the Trade and Development Bank was privatized to the foreign investors. Also the Savings Bank has started to operate on commercial terms and the Chinggis Khaan Bank was newly established. At the end of 2003 the number of commercial banks remained at 17 and the number of non-banking financial institutions has reached 88, thus intensifying competition. The banking sector total assets have reached MNT 766.8 billion or 56.4% of GDP, thus indicating the significance of the banking and financial sector in the country's economic development.

The total loans lent from the banking sector to companies and individuals has reached MNT 442.1 billion or 32.5% of GDP with increase of MNT 210.7 billion or 91% in comparison with 2002. A major part or 84.2% of total loans was lent in Ulaanbaatar and the remaining part was disbursed in rural areas. The loan portfolio of performing loans could be divided by types ownership, as 3.5% to the public sector and 96% to the private and other sectors. The total non-performing loans from banks have increased by 1.1% in comparison with the previous year and have risen by 0.2% in comparison to 2001, though it has declined by 15.6% compared to 2000. Total non-performing loans from banks have accelerated to MNT 36.7 billion with increase of MNT 21.1 billion, representing 8.3% of total loan portfolio. The weighted average interest rate on loans in tugrugs has declined by 1.9 points and reached 31.5% and on loans in foreign currency has decreased by 0.2 points and reached 19.6%.

1996-1999 average

2000

2001

2002

2003

2000-2001 average

Unprocessed cashmere (1kg)

19.5

30.5

18.1

16.5

35.7

25.2

Processed cash-mere (1 kg)

50.8

70.1

55.0

48.3

45.6

54.7

Copper concen-trates (1 ton)

344.2

323.1

273.4

255.6

287.2

284.8

Gold (1 ounce)

317.5

276.6

276.4

296.8

351.8

300.4

Source: Customs foreign trade statistical bulletin

2019

The Golomt Bank Awards in 2003 In the reporting period the total amount of the current accounts has increased by 80% and the savings accounts have accelerated by 72%, thus showing the increase of the public confidence in the banking sector as well as the significant progress in the development of the banking and financial sector. At the end of 2003 the size of the own capital of the banking sector has increased by 80% and has reached MNT 110.4 billion indicating the growing economic capacity of the banks.

UnemploymentIn 2003 the number of unemployed people registered at the Employment Agency has reached 33.3 thousand or 3.5%, which is by 8% or 2.5 thousand higher than in the previous year.

Visa International Outstanding Business Development

MasterCard

International

Best Partner in Mongolia Market

The Mongolian Chamber

of Trade and Commerce

and PR Association

The best brand of banking

and financial sector

Union of Mongolian

Students

Special award "To the benefit

of students, youth"

2221

Structure of The Golomt Bank Retail Banking DivisionThe Retail Banking Division is in charge of implementing the marketing policy aimed at advancing the Golomt Bank and its competitive position in the banking and financial market, creating and introducing new products and services to the market, accelerating and improving the quality of services, providing high quality and efficient services and managing the operations of the branch offices of the Bank.

The Golomt Bank has 2 branches offices and 9 sub-branches. Through its branches the Golomt Bank operates and provides the customers with efficient service seven days a week and 24 hours a day.

In order to provide the customers with efficient services the installation of the most advanced bank software program and computer internal network was considered essential. Therefore, special attention has been given to the improvement of the banking software program and to the introduction of the latest computer technology. During the last five years the software program has been completely renewed 2 times and total investment has amounted to hundreds of thousand. As the Bank scope and size and the number of customers have been constantly increasing the number of transactions are gone up significantly. For instance, the number of interbank settlement transactions has reached 200 thousand, which was 30% higher than in the previous year. Therefore, in order to overcome this challenge a new main objective has been put forward to establish on-line banking based on the latest technology.

In 2003 the Bank branch offices have attracted 18,727 new customers who have opened current and savings accounts. Also through branch offices the domestic Master cards have been distributed. The loans made by the Bank branches are closely supervised and monitored and around 13% of total loans have been disbursed through the branch offices in the past year. In future the Bank will pay a special attention to making the interest rate on the loans lent through the branch offices more flexible.

The automatization and installation of the accounting software system of the Bank branch offices has been fully completed and a 24-hour branch offices have been connected to the on-line network within Ulaanbaatar. As a result the customers, savings deposit holders and borrowers were provided with a 24-hour service 7 days a week.

In order to improve the Bank branch office management the project titled "the Best Management Team" has been organized on a competitive basis amongst all workers and the results have been announced. The Bank workers have actively participated in this event and have established their teams and in order to advance and accelerate the operations of some branch offices have decided to implement their projects in 2004.

Also several professional training programs and seminars have been organized for the Bank divisions and branch offices staff. All the staff have participated in the training seminar titled "Smiling banker" organized to improve the ability and capability to provide high quality service to customers, to change the ways of handling the customers and smiling at them which has resulted in a positive outcome and gained the appreciation of customers.

Shareholders

Governing Board

President & CEO

Board of Executive Directors

Asset & LiabilityCommittee

Credit Committee

Supervisory Boardof Shareholders

Internal Audit Department

TreasuryDivision

SupportsDivision

FinancialControlDivision

Card centerRetail BankingDivision

CorporateBankingDivision

Corporate &SME lending

Marketing &New productdevelopment

Riskmanagement

Treasurydepartment

Back office Accounting& Financialcontrol (MIS)

Investmentand ProjectFinance

Premierbanking

CustomerService

InternationalDept.

InformationTechnology

Strategy& Planning

Microlending Branchmanagement

Branches

Back office Trading in FX& Moneymarkets

Legal servicefor the bank

Humanresources

Premises &Administration

Securityservice

Riskmanagement

2423

to supply the Bank with capable personnel, to train and carry out on-job training, to manage internal staff movements and to develop and implement the Bank's human resources management policy.

Human Resource Management ReportIn 2003 58 employees were recruited, out of which a majority or 38 persons were employed at the Bank account centers, 16 persons were recruited at the Head Office staff and 4 persons were employed as the support staff.

The year 2003 has been announced as the "Training Year" and the Bank staff has been actively involved in the domestic training programs organized by the Banking Training Centre and other organizations as well as in overseas training programs. For staff training and development over 70 million tugrugs was invested by the Bank. Over 100 of the bank staff have participated in the training programs in the areas of legal framework, marcoeconomic analysis, bank management, standardization of the banking and financial sector, payment and settlement, accounting, banking marketing, banking supervision organized by the Banking Training Centre, the Ministry of Finance and Economy and other domestic institutions. Around 20 of the managing staff have been actively involved in training at the joint MBA Program of the Institute of Finance and Economics and the Handong University of Korea, training programs in financial management, international housing financial system, management training, banking management and marketing in Sweden, Malaysia, Luxembourg, USA and Taiwan. In addition in-house training was organized for the Bank staff in English language training, bank products and services, corporate culture and skills, introduction to new procedures and instructions. Also the student scientific conferences were organized with the support of the Golomt Bank and students were assisted with provision of background materials and preparation of scientific works and reports.

The system of transferring knowledge and skills by the staff participated in training programs to the other staff and using on-job training methods have been very fruitful and useful for daily work.

The Bank strives to keep the employees healthy and to develop a corporate culture. In 2003 the Bank organized many sporting events, in which approximately 900 employees have actively participated and over 10 thousand tugrugs was spent.

Financial Control DivisionFinancial Control Division is in charge of the Golomt Bank policy on assets and liabilities management, accounting policy, determination of the principal guidelines of the banking and financial operations, assessment and evaluation of the performance, preparation of the consolidated balance sheet, supervision and monitoring of reporting, carrying out research and analyses and reporting on the outcome. The division is also responsible for risk management, evaluation and assessment, preparation of a long- and a short-term strategic plan, budget preparation, monitoring of implementation, determination of bank service fees, tariffs, interest rates and charges, provision of necessary financial information to the management, divisions, departments and units.

Treasury DivisionThe Treasury Division is in charge of implementing the assets and liabilities policy approved by the Bank Assets and Liabilities Committee, ensuring and making efficient the Bank payment processing capacity and positioning optimally the funds to increase its profitability. Within the scope of the basic responsibilities the division is also in charge of developing the optimal structure of foreign currency reserve, establishing a proper risk management system, participating in the bills trading, carrying out foreign exchange at the request of customers, and taking part within the set limits in the foreign currency trading. The Treasury Division is also responsible for establishing the correspondent banking relations with other banks, promoting and expanding the Bank external relations, providing services related to foreign trade such as letter of credit, guarantee and money order as well as cooperating with other international banking and financial institutions and other organizations in the area of funding and liquidity management.

Supports DivisionSupports Division within the scope of its basic activities is in charge of efficient execution and settlement of all types of bank payments according to the related procedures and instructions, compilation and preparation of the supporting documents and information for the accounting. The division is also in charge of the following activities:

to introduce information technology in the banking operations, to coordinate the information flow between different divisions and units, to provide information related to the daily and strategic planning activities, to create conditions for proper operation of information technology, software system and their further updating and renewal.to ensure and create conditions for the Bank units to carry out activities within the legal framework, to develop legal procedures, instructions and agreements, to monitor and supervise, to represent the Bank in the legally related matters. to ensure security of the Bank operations, to organize the registry, the correspondence flow of documents, filing and archiving, to create necessary working conditions for bank units, to provide them with necessary transport, material and technical facilities.

25

Information Technology ReportIn 2003 Information Technology Division has implemented successfully several projects, including renewal and updating the bank software program, coordination and management of the information flow between the Bank's different divisions and units.

1. "The Glaxy" banking accounting integrated system"The Glaxy" banking accounting integrated system has enabled the full automatization of the Bank accounting, settlement and internal operations and has been developed by "ECM" company in the internet environment. Currently all branch office and units use the software system. "The Glaxy" system has been developed in the Windows environment and this is the only integrated banking system entirely developed by the Mongolian software developers. The software system consists of the following programs:

Banking accounting softwareMIS management and analysis softwareSavings software programLoans and loans information data base software programPhone banking software programInternet banking software programElectronic banking software program

"Internet banking", "Electronic banking" software programs have been initiated and introduced by the Golomt Bank, as a new service to the customers, current and savings deposit holders, individuals and organizations.

2. "Core banking system" card payment and settlement systemThe system connects the banking accounting, payment and settlement with the card system. The card "Core banking system" connects all the card payments, discounts and promotions with the internal accounting system and enables it to execute payments efficiently by the card holding organizations, card issuing or financing banks.

3. "Online banking" serviceThe Bank Head Office and Branch offices have been connected with high speed fibre optical on line network. As a result the Bank Head Office, 1st Account center and all 24-hour Branch offices were able to operate on-line and the customers and deposit holders could come and do banking at any branch of the Bank.

4. The Bank internal information exchange-intranet information systemBy introducing the Bank internal information network software program the Bank employees were able to receive information related to the work and other issues in real time, to express their views and opinions, exchange knowledge, to send text files in Mongolian, photos and to use time more efficiently and improve the work productivity.

Golomt Bank works to the benefit of social development and the wellbeing of children We have actively participated in the development of Ulaanbaatar and have contributed 101 million tugrugs to the city investment and productivity.

We support the cultural and sporting activities directed to the benefit and wellbeing of children, cooperating actively and donating to the development activities of different organizations as well as universities and institutes. The organizations with which we have been actively cooperating include the Mongolian Handball Union, the Art Council of Mongolia and the World Vision. Within the framework of the Ulaanbaatar year of investment and productive work we have started the operation of "the Bodi Tower" complex as well as we contributing to the Ulaanbaatar city development fund by donating 101 million tugrugs.

Golomt Bank for the benefit and wellbeing of children. We have paid special attention to the benefit and the future wellbeing of children, which is a main indicator of social development. In the past year the Golomt Bank has concluded an agreement with the World Vision, an organization which carries out actitivities to the benefit of children in Mongolia. The World Vision was chosen amongst other non-governmental organizations in Mongolia and it has been agreed to cooperate and to support the activities aimed to the benefit and well-being of children. Within the scope of this cooperation on the Mother and Children Day we have opened the savings accounts for 75 orphans and poor children. Also the Golomt Bank has sponsored "the Smiling child" national assembly organized by the World Vision under the "Children in difficult circumstances" program. The Golomt Bank has given also presents to the participants of the assembly.

Children were very happy and we still continue to receive the letters of gratitude from participants. In addition in order to make contribution to the benefit and wellbeing of the Mongolian children on a continuing basis we have created a new type of savings account titled "the Golden key", in which a certain amount of the accrued interest rate on the savings will be contributed and donated to the childrens fund.

28

The Bodi Tower"The Bodi Tower" complex is our major real estate investment in the Mongolia economy and the construction sector. The complex has a unique and creative construction design and system, which enables it to provide finest conditions for the inhabitants.

In 2003 "The Bodi Tower" complex, a combination of the modern and classic design has been commissioned and officially opened. The complex has started a new page not only in the history of the Golomt Bank but also in the productive activity of Ulaanbaatar. It should be especially mentioned here that the complex, of which construction work had started in February 2001 and completed in October 2003, has become a symbol of the Bank's future stable operations and growth as well as the biggest investment. It is the result of joint collaboration between the Bank shareholders and the management team. The complex was built with the most modern facilities, communication and information systems are provided with high speed channels, heating, airconditioning, electricity, water supply are programmed and fully automated, security and alarm systems are remote and distance sensitive, and there is a smoke control system. The professionals made assessment of the building, as "an intelligent construction system".

The construction design and work has been executed jointly by the Korean "AUM&Lee architectic associates", "Uniworks" and the Mongolian and Russian joint "Incon" company. Also architect U. Ganbold, awarded by the prize of the Mongolian Union of Architects, engineers-consultants B. Baasanjav, A.Tsogt, A,Tsogtjav, E.Battzorig have contributed their outstanding knowledge and skills to the construction of the building. One part of the complex is the building of the Golomt Bank Head Office. The building has a very convenient and necessary facilities for customers and the working conditions for the bank staff meets all the modern banking construction standards. The Bank Head Office building provides with all faciltities for meeting with customers and clients with 5 meeting and conference rooms, which ensures the confidentiality and convenience for customers and clients.

27

"Mongolian Students Card"The Golomt Bank has introduced for the first time in Mongolia a card payment instrument for Mongolian students enabling them to use the latest technologies in the financial market and to be in line with the world class standard.

The first Visa Electronic and Maestro "Mongolian students discount cards" were handed over to students on September 1, 2003. By owning those cards students not only learn to manage own finances but the cards enable students to purchase with discounts goods and servcies. As of today over 120 merchants are covered by the discount network and this is considered the biggest discount network in the history of Mongolia's financial and service sectors. We have aimed to include in the network those organizations and companies which are in demand by students. As a result the library, public transport, recreational centers, educational centers, internet cafes and catering services were included into the network. Since the issuance of the first discount card 11 thousand students became owners of the Visa Electronic and Maestro "Mongolian students cards".

30

"The Golden Key" children savings deposit"If you help a child today from the bottom of your heart the child life might change forever". In 2003 we have initiated and introduced a new long-term savings deposit account titled "the Golden key". The savings deposit account has an interest rate of 1.25% per month and 0.05 points will be donated to the "The Golomt Bank Children Fund" for funding the non-formal education project aimed at improving the education environment for children of vulnerable groups of the society. The fund will also finance the following activities:

at the initiation of Golomt Bank in order to develop children's abilities and talent to organize different types of cultural, sport, scientific competitions.

for purpose of spending children leisure in a useful and correct way to establish sport and game centers.

to assist in the development of children with outstanding ability by way of financing education expenses etc.

The Golomt Bank has given presents to children, "the Golden key" new savings deposit holders as well as to children savings deposit owners whose deposit amount reached a certain threshold. The children were greatly pleased.

29

"The Golden Ear" RMB card serviceThe Golomt Bank Card service center in cooperation with the Agricultural Bank of China started to distribute the"Golden Ear" Maestro debit cards in November 2003. The RMB cards can be used only in China and when you travel to China cash or non-cash payments can be easily and efficiently executed without any risk.

"The Golden Ear" card advantages:

to protect from cash loss, theft or purchasing fake banknotes.

to pass through the Mongolian and Chinese customs and border points without any limitations and obstacles.

to make cash and non-cash payments from the card in China.

to transfer funds from and to the card as well as to transfer the funds from Mongolia to the owner of the card who travels in China.

the card is not expensive and provides you with the facility to make cash and non-cash payments with less cost as well as enables to manage and control your funds.

the card expiry period is not given, thus it is not necessary to renew the card.

only with assistance of your confidential PIN code number it is possible to make payments, thus security and protection is fully ensured.

31

Business Operation

As a result during the last year total loans amounting to 6.6 billion tugrugs were disbursed through the Bank Branch Offices.

The Golomt Bank has been selected to participate in the ADB funded Housing development project. Under the project individuals were lent the funds for the period of 10 years with annual 12% interest rate starting from May 2003. Also the Bank has started to disburse loans for housing from its own sources to individuals and companies. These loans were disbursed also in Orkhon aimag through the Bank Branch Offices. The loans amounting to 546 million tugrugs were disbursed to 50 borrowers for purchase of condominiums, building of houses or improvement of housing conditions last year.

Guided with the objective "to enable each person with permanent income the right to borrow" the Bank has issued international credit cards to 92 individuals and over 1000 people were issued domestic credit cards amounting to 499.5 million tugrugs. In order to finance the short-tem financial needs of the cardholders the installment credit (with permanent charges) has been introduced and credits were allotted to 130 customers amounting to 33.5 million tugrugs. Also within the scope of the card service agreements with different business entities the disbursement of business loans has been initiated.

34

Lending In the reporting period the Bank paid special attention to the quality of loan products. The Bank has initiated the loans for housing, financed from its own and project sources, small size credits have been increased and credit services via card have been activated.

In 2003 the Golomt Bank disbursed loans amounting to 90.8 billion tugrugs and received loan repayment of 78.5 billion tugrugs. The total amount of loan portfolio reached 46.8 billion tugrugs by year-end. In comparison with the last year loan disbursement increased 11.3 %, loan portfolio growth was 44,7%, thus rising the market share of the Golomt Bank to 12%. Out of total loans disbursed 97.3% was financed from its own resources and 2.7% was financed from project resources. The percentage of total loans disbursed to the industrial sector was 44%.

In addition to disbursing loans from our own sources we have implemented "The Private Sector Development Project" in cooperation with the World Bank and the Government of Mongolia, the ADB "Employment Generation Project" and "Housing Development Project" and we have paid special attention to introducing to the market the cost reduction of our loan products. During the past period we have also introduced to the market our several new products and we have pursuing a policy of increasing the share of some products in the total loan portfolio.

In order to support the financial sector development and to promote small businesses loans were made to the non-banking financial institutions and the savings and credit cooperatives. Under "the Private Sector Development" project 4 subproject were selected and over 642 million tugrugs loans were disbursed as well as employment generating projects loans amounting to 1 billion tugrugs were lent to 150 borrowers with the creation of 700 new jobs.

Guided by objective to increase loans disbursement and make credits approachable to small businesses the Bank Branch Offices authority to disburse loans has been increased and loans disbursement through Branch Offices has been intensified.

33

Loans, by sectors

16%, Manufacturing

6%, Infrastructure

3%, Health & Education

4%, Financial service Construction & Agriculture, 7%

Retail, 16%

Other, 8%

15%, Micro loan

Manufacturing of food products, 15%

3%, Mortgage

Mining, 7%

External Relations We paid a special attention to expansion of our external relations and concluded new agreements with major foreign banks and renewed agreements with banks, with which we had previously cooperated, on more beneficial terms.

Golomt Bank has a leading postion in foreign exchange settlement and its share of foreign assets in the banking sector reached 30%. In 2003, we established correspondent banking relations with 3 new banks and our total balances of our accounts with foreign banks amounted to MNT 37 billion, a 76.2% increase over the previous year. In 2003 in order to promote our external relations the following activities have been implemented:

In 2003 we newly concluded agreements on cooperation with the Agricultural Bank of China, CIC of France and Rabobank of Holland. Thanks to the agreements, the bank started to do yuan business and now we have access to major foreign equity and bond markets. Agreements were renewed with HSBC and Union Bank of California to manage foreign reserves more efficiently and to increase international business profitability. In order to promote foreign investment the new credit opportunities have been created by concluding agreements with the Export and Import Bank and the Land Bank of Taiwan and the Samsung Corporation of Korea.The Bloomberg international financial market information and trading system was installed and experimental activities for investing in foreign financial market were carried out.

Direct MarketingWe have moved beyond the traditional methods of marketing in Mongolia and have introduced the latest and advanced Direct Marketing into our card business. The main objective of "Direct Marketing" team was to increase the profitability of the card business, attract more customers, increase the number of current and savings accounts and advertise and make publicity about Bank's other activities

"Direct Marketing" team's first task was to increase the number of organizations and individuals, which receive salaries and wages by use of cards. This type of direct marketing method was never used in Mongolia in the past, thus this type of direct marketing towards customers, advertising and new methods of introduction were very successful and useful. The Direct Marketing has influenced the operations of the Bank Card Center in the following way:

36

Total number of organizations receiving wages and salaries

with use of cards

Total number of cash card holders

Number

Over 120

Appr. 7300

Growth

182%

150%

Card Service In the reporting period the Bank Card Center pursued an objective of increasing its market share and to be leading company in the card business. In order to fulfill the objective the planned activities were implemented and the necessary action was taken to coordinate the work between different divisions and departments. As a result the Golomt Bank Card Center has become the most capable, creative and experienced team in the Mongolian card business and we will be working to ensure that this position will be further advanced and strengthened.

Golomt Bank is the only bank in Mongolia, which issues both Visa and MasterCard cards. In 2003 the Bank successfully implemented several new projects in the card payment market.

New affiliate membersGolomt Bank as a principal member of Visa International and MasterCard International has sponsored Zoos and Capitron banks to become MasterCard International affiliate members, thus increasing the number of participants in the Mongolian card payment system. The new entrant banks have been assisted by Golomt Bank and have been successfuly operating and obtaining the benefits from the card business. The Bank is continuing its efforts to recruit more sub-members and actively cooperated with Visa International and MasterCard International in this area.

Visa Electronic and Maestro CardsThe Bank has managed to increase the number of products and services and to issue to customers for the first time in Mongolia Visa Electronic from Visa International and Maestro card from MasterCard International. Thus new services, as a Visa Electronic and Maestro cards have become available and foreign organizations started to use the services which was not available in Mongolia in the past.

The Golomt Bank Card Center newly developed its business plan at the second half of 2003 and set the specific goals in its activities, which resulted in making 153000 transactions of 28.300 cardholders amounting to 13.9 billion tugrugs.

35

Internet bankingSeveral years have passed since banks and financial institutions in many countries started to use internet banking service. This modern and the most efficient delivery channel was introduced to the Mongolian banking and financial market a year ago. We consider that we were able to bring to our customers the most comprehensive and integrated service to our customers.

The statistical figures indicate that today there are 80 thousand internet users in Mongolia, out of which over 13 thousand people are authorized internet users. It means that for many people the use of internet banking service will save time, will enable them not to encounter difficulties, such as the bank working hours, location or transport issues, as well will provide many services from one point.

Golomt Bank internet banking is protected by Cisco and Thawte security systems and it provides high confidentiality and, prevents from any unauthorized access.

Golomt Bank invested substantially in internet banking. In 2003 the number transactions amounting to MNT 2.2 billion were executed via internet.

38

Consulting serviceWe introduced a new service - Premier Banking to the Mongolian banking and financial market. Last year this service was expanded and consulting service was introduced.

Premier Banking since its establishment in March 2001 has been expanding and successfully operating for three years. Until 2003 this service was mostly directed to attracting the deposits of individuals with higher income and the larger corporations and to provide them with efficient services. Since last year the scope of this service has been expanded and Premier Banking activities was reorganized into two main directions:

Private banking service unit - high quality and efficient bank services are rendered to bigger customers from a single unit in the bank.Consulting service unit - advice and consulting on business and other issues will be provided to individual and corporate customers at their request.

The Consulting service unit carries out the following activities:

Business consulting: to provide consultancy on developing the customer business plan for a new or established business, making analysis and preparing the related documents.

Financial advice: to improve the customer financial management, to advise on optimal allocation of funds.

Credit advice: to provide advice on business credit, housing credit, project credit and all information related to credit.

Consulting to non-banking financial institutions and credit and savings cooperatives: to provide advice to the customers of the new non-banking financial institutions and credit and savings cooperatives as well as to the customers of the established non-banking financial institutions and credit and savings cooperatives on ways of improvement of these institutions.

Training: Training in business management, strategic management, marketing, financial management, management accounting.

37

Financial Report

Electronic bankingElectronic banking was designed in such a way that it suits more the needs of larger sized companies and organizations in which transactions are made with a limited number of authorized signatures as well as it meets efficiently daily demands to settle payments. Organizations are able to make payments without going to the bank and using a special program software, which saves time, resources as well as ensuring security. Currently over 100 companies use electronic banking software and apply electronic payment system automatically without going to the bank.

Moreover the phone line and electronic signature of the organization are checked each 6 months by the Bank as well as payments requested by e-mail are also monitored on a daily basis and provide high security protection.

Online banking serviceThe integrated banking software program developed by Mongolian software programmers and engineers suitable to the Mongolian banking and financial market conditions was connected to the highly integrated and structured online computer network covering 75% of Branch offices and account centers. Those branches covered by the network handle over 98% of total assets of the Bank. Using the computer network Golomt Bank is able to carry out its activities on-line 24 hours a day and 7 days a week.

It should be mentioned here that on-line banking is one of our products and services. This service is important that it provides a facility to make transactions and payments through any Branch office or execute your payment or transaction within a short period of time. For instance, the interbank payment and interbranch payment is executed within 10 minutes.

It is also efficient to use on-line mode for banking services :

To produce the Bank reporting to different levels of management within a short period of time, thus creating the opportunity to develop correctly and efficiently the bank policies and activities.To create the Bank information databases, such as the credit information internal database and to use it for the bank activities. To improve the supervison system of the activities of the bank internal units, branch offices, account centers and contribute to the production of the effective and efficient cost saving system.

39

Financial performanceIn 2003 Golomt bank total income reached MNT 12.4 billion, total expenses amounted to MNT 9.2 billion and income tax of MNT 767 million has been paid to the state. The Bank's net profit after tax amounted to MNT 1.1 billion. In addition Golomt Bank established additional loan provisions of MNT 1.4 billion.

Also interest income increased by 48.9%, non-interest income increased by 14% and interest expense accelerated to 43.5% and operating expense increased by 60.6%.

Operating expense was composed of 18% salaries and bonuses, 19% rental of premises, 7% communication costs, a total of 44% of total operational expenses.

Performance ratios Golomt Bank fulfilled the prudential requirements by the Bank of Mongolia and it demonstrated the following performance ratios. The return on assets declined to 0.96% or by 0.07 points, compared with the previous year. Cost to income ratio increased to 85.2% or by 1.4 points. It can be explained by the factor that during the course of the year the bank decreased its lending rates whereas the the bank borrowing rates remained unchanged. Return on equity decreased to 11.13% - a decrease by 3.25 points over the previous year due to the increase in equity at the end of the year. Net income on fees and commissions to operating income ratio increased to 29.65%, which shows the trend of decreasing weight of the interest income on the total income.

42

Asset management In 2003 the Golomt Bank total assets reached MNT 114.1 billion increasing by MNT 34.8 billion or 43.8% over the previous year.

At the end of the year MNT 9.3 billion or 8.1% of total assets was composed of Central Bank bills and the Bank has periodically engaged in the Central Bank's bills trading, which amounted to MNT 85 billion. Also MNT 46.8 billion or 41% of total assets consisted of loans to companies and individuals. Last year in order to ensure asset risk management, the Bank pursued an objective to keep loan portfolio less than 50% of the total assets. The Bank weighted average annual interest rate for MNT was 28.91% and for foreign currency was 19.73% with regard to loans.

DepositsIn 2003 the Golomt Bank customer deposits reached MNT 104.3 billion, an increase of MNT 30,7 billion or 41.7% over the previous year. By the end of the year 25.2% of the total liabilities was current deposits, 64.2% - savings deposits and 10.6% - banking and non-banking institutions deposits. Although there was strong competition in the market, the Bank interest rates for current and savings deposits were not changed.

However, as a result of several measures taken to meet customers' needs and to offer high quality, efficient and convenient services, the current account deposits increased by MNT 5.3 billion or 25.3% and the savings account deposits increased by MNT 22.8 billion or 51.8%.

Own equityIn 2003 Golomt Bank increased its paid-up capital by MNT 3 billion, accrued profit by MNT 1.1 billion and and its own equity reached MNT 9.8 billion, which is up by 71.8% over the previous year.

41

Current accounts

Savings accounts

Other sources

2002

20,980.2

44,093.2

8,529.8

2003

26,280.8

66,939.7

11,045.8

(in million tugrugs)

0% 10% 20% 30% 40% 50%

Other assets

Investment in securities

Loans and advances

Deposits and placements with other banks

Bank Reserve and placements with the Central Bank 13%

32%

41%

8%

6%


Interest incomeInterest expenseNet interest incomeNon-interest incomeOperating expenseNet operating profit

200210,1575,4664,6912,2503,7043,237

20036,8213,8083,0131,9732,3062,680

Return on assetsReturn on equityCost/Income ratioNet income on fees and commissions to operating income ratio

20020.96%

11.13%85.20%29.65%

20031.03%

14,38%83,80%25.79%

Golomt Bank principal risk indicators /2003-12-31/

1. Credit riskIn an environment of intense price competition between banks and non-bank financial institutions the Bank focused on ensuring high quality of loan products and pursued an objective to create an effective credit system to meet its customers' needs. In 2003 the loans to total assets ratio reached 40%. While in the previous year the ratio of non-performing loans to total loans was 9.7%, it reduced to 9.5% a decrease of 0.2 points in 2003.

The Bank had constantly fulfilled and met the prudential requirement from the Bank of Mongolia that loans and guarantees to individual Bank shareholders, chairman of the Board of Directors, members, executive directors, employees and their related parties' should not exceed 5% of the equity of the bank and that the accumulated total amount should be less than 20% of the equity.

The Bank pursued a policy of expansion and diversification of loans into different sectors of the economy on the basis of analysis of general trends of sectoral development and economic outlook. According to the National Statistical Office preliminary estimates of economic performance for 2003 GDP reached MNT 1359.7 billion and economic growth rate was estimated at 3.5% in real terms due to 3.8% increase in construction, trade, transport and communication sectors, 1.1% increase in agriculture and 0.4% increase in industry. Although the industrial production had developed highly intensively in the previous years, it stabilized and grew by 1.4% in 2003 due to a 0.2% increase in mining sector, 2.6% increase in manufacturing and processing sector and 2.3% increase in energy and electricity. The growth of the real sector of the economy created a favourable environment for further economic develoment. However, indepth analysis and assessment of the current situation of economic sectors and its future prospects are greatly needed.

44

Risk Management Report

Bank operations compared to other businesses is a high risk and dynamic business and its stable operations and growth are greatly dependent on ensuring the establishment and maintenance of successful risk management system. Within the framework of Golomt Bank organizational restructuring in 2001, special efforts were made towards improving the risk management and early warning system and creating a control environment in order to meet the current banking operations requirements. Golomt Bank has the following risk management structure:

Financial Control Divison is in charge of supervision over the Bank operations, in-depth analysis of the bank risk, development and introduction of risk management methods and practices as well as submission of report and information to the management. The Bank Credit Division is in charge of credit risk management and control, Treasury Division is in charge of foreign exchange risk management issues and Supports Division is in charge of operating activities risk control issues.

The Bank Internal Audit Department is responsible for implementing its activities independently from the management, any other division and unit and is in charge of supervising the Bank Head office, Branch offices, divisions and units' activities in accordance with legal and regulatory requirements as well as ensuring on-site superivison for identifying, reducing and controlling risk.

43

CEO

Assets and LiabilitiesCommittee

Financial ControlDivision

Corporate BankingDivision

Treasury Division Card Center Supports Division

Internal AuditDepartment

Indices

Tier I risk weighted capital ratio

Required level (in percentage)

Above the required ratio

Risk weighted capital ratio



Total assets last 6 months average /in thousand tugrugs /

Tier I core capital ratio



Results

15.61%

5.00%

-10.61%

15.61%

10.00%

-5.61%

103,972,761.2

9.66%

5.00%

-4.66%

Currency risk indicators /2003-12-31/

4. Operational riskThe Bank internal supervision department activities aimed at controlling and preventing all types of risks related to Bank operations, as accounting, cash management, trading, property, security, legal and regulatory framework, documentation, personnel and information technology. In the process of controlling the aforementioned risks a special attention was paid to market relations, employment, health and social protection and security issues.

In order to prevent any risks related to the legal and regulatory framework the Bank legal advisor reviews and imposes control on the agreements and documentations from the legal point of view.

Taking into consideration full automatization of the banking operations, online accounting and transaction processess, internet banking and increasing information technology risk, special measures were taken to ensure the full utilization of the information system at the high professional level, protection of the computer network from outside interference, provision of security and confidentiality for the customers and the Bank, prevention of professional types of crime and improvement of internal security system.

46

2. Liquidity risk Within the scope of primary reponsibilities of the Bank to have the ability to pay the customer on first demand the Bank made special effort towards developing and sustaining an optimal level between liquidity funds and financial return. Last year, as before the Bank fulfilled constantly the reserve and liquidity requirements of the Bank of Mongolia.

Liquidity indicators /2003-12-31/

Other liquidity ratios internally monitored were as follows at the year end:

3. Market riskIn 2003 the competition in the banking and financial market was intensive. In the conditions of mounted competition banks, non-banking financial institutions and credit and savings cooperatives continued to reduce the interest rates on loans and increased interest rates on deposits in the course of 2003. These trends have affected significantly the level of market average interest rate. The Bank closely monitored the interest rate developments at the market and periodically adjusted the interest rates on long-term time deposits and pursued a policy of controlling interest rate risk by sustaining optimal ratios between interest bearing assets and liabilities.

In the second half of 2003 the world economic situation improved and US trade deficit and budget deficit widened. These developments led to US Dollar depreciation against other currencies. The fall of US dollar did not have a significant impact due to limited exposure to other major currencies as well as hedging and protection policy. We received on a timely basis the market information and made forecasts of exchange rates to manage and control risk. The Bank's exposure to foreign currency exchange risk by major currencies are as follows by year-end:

45

IndicatorsLiquidity ratio Required levelAbove required ratio

200258%18%

- 40%

2003.12. 31Foreign currency

70%18%

- 52%

MNT35%18%

-17%

Indicators

Liquid assets/Total liabilities

Cash(Current+Savings deposits)

Short-term assets/Short-term liabilities

Short term assets/total assets

Loans /total assets

Loans /total liabilities

Percent

63.49%

77.29%

113.04%

90.44%

41.02%

49.30%

Indicators

A. Foreign assets

B. Foreign liabilities

C. Off-balance accounts

D. Foreign currency open position

E. Own equity /in million tugrugs/

F. Risk ratio

Required level

Unfulfilled percentage

Exchange rate of the BOM

USD

66,143

57,950

(5,826)

2,366

10,046

27.5%

±40.0%

-12.5%

1,168

In thousandtugrugs

77,254,698

67,685,740

(6,804,939)

2,764,019

10,046

27.5%

±40.0%

-12.5%

CHF

83

1

-

83

10,046

0.8%

±15.0%

-14.2%

935.70

Othercurrencies

1,345

231

(604)

510

10,046

5.9%

15.0%

-9.1%

1,168

JPY

672,387

2,811

(550,000)

119,576

10,046

13.0%

±15.0%

-2.0%

10.92

GBP

63

187

-

(124)

10,046

-2.6%

±15.0%

-17.6%

2,073

USD

55,770

54,513

(98)

1,159

10,046

13.5%

±15.0%

-1.5%

1,168

EUR

2,051

2,278

14

(213)

10,046

-3.1%

±15.0%

-18.1%

1,460

Total currencyMain currencies

Balance Sheet

Income Statement

48

Locations and addresses of Golomt Bank Head Office and Branch Offices

Assets

Cash and placement with BOM

Deposits with other financial institutions

Securities

Loans /net

Fixed Assets

Other assets

Total assets

2003

14,910.8

37,009.9

9,276.4

46,788.8

2,390.9

3,682.4

114,059.1

2002

10,364.5

22,650.3

10,695.7

32,337.4

2,245.3

1,011.7

79,304.8

2001

6,712.9

8,300.2

6,494.3

22,780.7

1,945.1

1,029.4

47,262.5

Liabilities

Customers' deposits

Deposits from other financial institutions

Loans from other financial institutions

Other liabilities

Total liabilities

Paid-up capital

Retained earnings

Own equity

Total liabilities and capital funds

2003

93,220.5

1,683.5

7,892.2

1,470.2

104,266.3

7,085.0

2,707.8

9,792.8

114,059.1

2002

65,073.4

893.8

6,915.4

720.6

73,603.2

4,083.2

1,618.4

5,701.6

79,304.8

2001

39,556.0

92.8

4,242.0

501.9

44,392.4

2,071.7

798.4

2,870.1

47,262.5

Interest income

Interest expenses

Net interest income

Non interest income

Operating expenses

Profit before provisions

Provisions

Profit before taxation

Taxation

Profit after taxation

2003

10,156.8

5,466.2

4,690.6

2,249.6

3,704.0

3,236.2

1,399.9

1,836.3

746.9

1,089.4

2002

6,820.5

3,807.5

3,013.0

1,973.3

2,306.3

2,680.0

1,255.4

1,424.5

604.5

820.0

2001

4,613.1

2,289.7

2,323.3

1,439.1

2,060.2

1,702.2

1,050.1

652.1

267.0

385.1


GOLOMT BANK HEAD OFFICE Ulaanbaatar 210620ASukhbaatar Square 3E-mail: [email protected] Web: http://www.golomtbank.comPhone: (976-11) 311530, 311971Fax: (976-11) 312307, 311958

BRANCH OFFICE Orkhon aimag 1st BranchBayan-Undur soum Amar StreetPhone: (01 352)-25100, 25200

Darkhan-Uul aimag 2nd BranchDarkhan soum 13th bagaPhone: (01 372)-27136

Sub-Branch No.1Chingeltei duureg, Ulaanbaatar 46Khuldaldaany Street 6/2Phone: 326231, 311530

Sub-branch No.2Bayanzurkh duureg 15 microdistrictBayantseel company premisesPhone: 456829

Sub-branch No.3Khan-Uul duureg Airport Phone: 983205

Sub-branch No.4Sukhbaatar duuregState Center for CitizensRegistration and Information Phone:350267

Sub-branch No.6 Sukhbaatar duureg SolongoService CenterPhone: 320814, 318479

Sub-branch No.7Songino Khairkhan duureg Tsambagarav service centerPhone: 681267, 680347

Sub-branch No. 8Bayangol duureg 3 microdistrict Phone: 368602, 305419

Cashier Office 1Sukhbaatar duureg Ulaanbaatar hotel Phone: 313942

Independent Auditor's Report

3

Golomt Bank of Mongolia LLC Income statement for the year ended 31 december, 2003

Interest income

Interest expense Net interest income Non-interest income Operating profit Operating expenses Profit before provisions Provisions Profit before taxation Taxation Profit after taxation

The accompanying notes form an integral part of the financial statements.

2002 MNT '000

6,820,549

(3,807,522)

3,013,027

1,973,259

4,986,286

(2,306,321)

2,679,965

(1,255,440)

1,424,525

(604,549)

819,976

2003 MNT '000

10,156,803

(5,466,216)

4,690,587

2,249,632

6,940,219

(3,703,999)

3,236,220

(1,399,917)

1,836,303

(746,922)

1,089,381

Note

4

5

6

7

8

9

Report of the Auditors

To the Board of Directors of Golomt Bank of Mongolia LLC

We have audited the accompanying financial statements of Golomt Bank of Mongolia LLC as at 31 December 2003 set out on pages 3 to 36. These financial statements are the responsibility of the Bank's directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with applicable International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements have been properly drawn up in accordance with applicable International Financial Reporting Standards and the Regulations issued by Bank of Mongolia so as to give a true and fair view of the financial position of the Bank as of 31 December 2003 and of the results and the cash flows for the year then ended.

Ulaanbaatar18 March 2004

5

Golomt Bank of Mongolia LLC Statement of changes in equity for the year ended31 december 2003

Golomt Bank of Mongolia LLC Balance sheet as at 31 december 2003

At 1 January 2002 Profit for the year

Issue of shares At 31 December 2002 Profit for the year

Issue of shares At 31 December 2003


Total

MNT '000

2,870,104

819,976

2,011,530

5,701,610

1,089,381

3,001,760

9,792,751

Retained earnings MNT '000

798,404

819,976

-

1,618,380

1,089,381

-

2,707,761

Statutory fund

MNT '000

2,071,700

-

2,011,530

4,083,230

-

3,001,760

7,084,990

Assets Cash and short term funds Deposits and placements with other banksand financial institutions Investment in securities Loans and advances Other assets Tax recoverable Property, plant and equipment Total assets Liabilities Deposits from customers Deposits and placements of other banksand financial institutions Loans from Bank of Mongolia Government loan Loans from foreign financial institutions Other liabilities Provision for taxation Total liabilities Equity Statutory fund Retained earnings Total equity

Total equity and liabilities Commitments and off balance sheet items


2002 MNT '000

3,814,560

29,200,216 10,695,667 32,337,372

1,011,673 -

2,245,312 79,304,800

65,073,394

893,795 1,024,000

170,000 5,721,374

683,379 37,248

73,603,190

4,083,230 1,618,380 5,701,610

79,304,800

5,632,157

2003 MNT '000

5,252,245

46,668,373 9,276,445

46,788,774 3,662,109

20,261 2,390,869

114,059,076

93,220,499

1,683,465 1,074,000

320,000 6,498,162 1,470,199

-104,266,325

7,084,990 2,707,761 9,792,751

114,059,076

14,522,277

Note

10

111213141516

17

1819202122

23

27

4

7

Golomt Bank of Mongolia LLC Cash flow statement (contd.) for the year ended 31 december 2003

Golomt Bank of Mongolia LLC Cash flow statementfor the year ended 31 december 2003

Net increase in cash and cash equivalents Cash and cash equivalents brought forward Cash and cash equivalents carried forward Cash and cash equivalents comprises: Cash and short term funds Deposits and placement with other banks and financial institutions


2002MNT '000

18,001,735

15,013,041

33,014,776

3,814,560

29,200,216 33,014,776

2003MNT '000

18,905,842

33,014,776

51,920,618

5,252,245

46,668,373 51,920,618

Cash flows from operating activities Profit before taxation Adjustments for :- Depreciation of property, plant and equipment Property, plant and equipment written off Net provisions for loan losses Provision for other assets Provision for investment securities Gain on disposal of property, plant equipment Interest accrued on government securities

Operating profit before working capital changes

Increase in operating assets:- Loans and advances Other assets Increase in operating liabilities Deposits from customers Deposits and placements of other banks and financial institutions Other liabilities

Cash generated from operations

Income tax paid Net cash flow from operating activities Cash flow from investing activities

Net decrease / (increase) in investment securities Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment

Net cash flow from investing activities Cash flows from financing activities

Increase in statutory fund Increase in Loan from Bank of Mongolia Net increase in loans from government and foreign financial institutions

Net cash flow from financing activities


2002 MNT '000

1,424,525

282,008 18,523

1,255,440 - -

(21,351) (6,825)

2,952,320

(10,682,248) (119,163)

25,517,440 801,225 260,126

18,729,700

(645,906) 18,083,794

(4,194,582) 59,196

(631,541) (4,766,927)

2,011,530 238,200

2,435,138 4,684,868

2003 MNT '000

1,836,303

409,775 2,010

1,374,489 19,588 5,840

(2,652) -

3,645,353

(15,825,891) (2,651,925)

28,147,105

789,670 786,820

14,891,132

(804,431) 14,086,701

1,413,382 5,304

(578,093) 840,593

3,001,760 50,000

926,788 3,978,548

6

9

Foreign Currencies Transactions in foreign currencies are initially recorded in Togrog at rates of exchange ruling at the date of the transaction. At each balance sheet date, foreign currency monetary items are translated into Togrog at exchange rates ruling at that date, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Non-monetary items initially denominated in foreign currencies, which are carried at historical cost are translated using the historical rate as of the date of acquisition and non-monetary items which are carried at fair value are translated using the exchange rate that existed when the values were determined. All exchange rate differences are taken to the income statement.

The principal exchange rates used for every unit of foreign currency ruling at the balance sheet date used are as follows:

Loans and Advances and Provision for Loan Loss Loans originated by the Bank by providing money directly to the borrower at draw down are categorised as loans and advances. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of the transaction.

All loans and advances are recognised when cash is advanced to borrowers.

Provisions for loan loss are made as considered necessary having regard to both specific and general factors. In determining the need for provisions, management considers, among other things, the financial position of the borrowers, the value of any collateral and guarantees received, industry performance, current economic conditions and past experiences. Provisions made during the year are charged against the income statement.

The maturity of the loan portfolio is presented in Note 13 which shows the remaining period of loans from the balance sheet date to the contractual maturity. Long-term credits are generally not available in Mongolia except for programs set up by international financial institutions and under government financing arrangements. However, in the Mongolian marketplace, short-term credits are granted with the expectation of renewing the loans at maturity.

TaxationThe Bank provides for income tax based on its income for financial reporting purposes, adjusted for items which are not assessable or deductible for income tax purpose, in accordance with the regulations of the Mongolian Government and is measured using the tax rates that have been enacted at the balance sheet date.

c.

d.

e.

Golomt Bank of Mongolia LLC Notes to the financial statements - 31 december 2003

Corporate information The Bank is principally engaged in the business of provision of banking and financial services pursuant to License No. 8 issued by Bank of Mongolia. There have been no significant changes in the nature of these activities during the year.

The Bank is a limited liability company, incorporated and domiciled in Mongolia. The registered address and the principal place of business of the Bank is Sukhbaatar Square 3, Ulaanbaatar 210620A, Mongolia.

The holding company of the Bank is Bodi International Limited, a company incorporated in Mongolia.

These financial statements of the Bank for the year ended 31 December 2003 were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 18 March 2004. Basis of preparation These financial statements have been prepared in accordance with applicable International Financial Reporting Standards and the Regulations issued by Bank of Mongolia.

The financial statements have been prepared under the historical cost convention. The reporting currency used in the financial statements is the Mongolian Togrog, which is denoted by the symbol MNT, shown rounded to the nearest thousand. Significant accounting policies

Interest Income and Expense Interest income and expense are recognised in the income statement for all interest bearing instruments on an accrual basis using the effective yield method based on the actual purchase price. The recognition of interest income is suspended when loans are outstanding for more than ninety days, in accordance with the requirements of Bank of Mongolia. On commencement of suspension, previously accrued interest not received is clawed-back. Recognition of interest subsequent to suspension is on a cash basis. Interest recognition will resume on an accruals basis when the uncertainties surrounding the recoverability are removed and the loan is reclassified as performing.

Fee and Commission Income Fee and commission income are generally recognised on an accrual basis when the service has been provided. Types of fees and commission income derived by the Bank relate mainly to deposit box fees, loan processing fees, current account withdrawal fees, and money transfer commissions.

1.

2.

3.

a.

b.

8

United States Dollar Great Britain Pound European Euro Japanese Yen Swiss Francs

2002 1,125.00 1,804.00 1,169.40

9.38 804.00

2003 1,168.00

2,073.40 1,460.20

10.92 935.70

11

Deposits From Customers Deposits from customers are stated at cost which is the fair value of the consideration to be paid in the future for deposits received.

Impairment of Assets The Bank reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, impairment is measured by comparing the carrying values of the assets with their recoverable amounts. Recoverable amount is the higher of net selling price and value in use, which is measured by reference to discounted future cash flows.

An impairment loss is charged to the income statement immediately, unless the asset is carried at revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of any available previously recognised revaluation surplus for the same asset. Reversal of impairment losses recognised in prior years is recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased.

Sale and Repurchase Agreements Securities sold subject to a linked repurchase agreements ('repos') are retained in the financial statements as trading or investments securities and the counterparty liability is included in amounts due to other financial instituitions or as appropriate. Securities purchased under agreement to resell ('reverse repos') are recorded as amount due from other financial instituitions or as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the repo agreements using the effective yield method.

Employee Benefits

Short Term Benefits Wages, salaries and other salary related expenses are recognised as an expense in the year in which the associated services are rendered by employees of the Bank. Short term accumulating compensated absences such as paid annual leave are recognised when services rendered by employees that increase their entitlement to future compensated absences, and short term non-accumulating compensated absences such as sick leave are recognised when absences occur.

Defined Contribution Plans As required by the law, companies in Mongolia make contributions to the government pension scheme, Social Security and Health Fund. Such contributions are recognised as an expense in the income statement as incurred.

Operating Leases Lease payments for operating leases, where substantially all risk and benefits remain with the lessor, are charged as an expense in the income statement on a straight-line basis over the term of the relevant lease.

i.

j.

k.

l.

(I)

(II)

m.

Significant accounting policies (contd.)

Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents consist of cash and short term funds, deposits and placements with other banks and financial institutions that are readily convertible to cash with insignificant risk of changes in value.

Investment Securities Investment securities are securities that are acquired and held for yield or capital growth and are usually held to maturity.

Government bonds and Securities and Bank of Mongolia Treasury Bills are stated at cost adjusted for amortisation of premiums or accretion of discounts, where applicable, to maturity dates.

Quoted investments are stated at the lower of cost and market value.

Unquoted investments are stated at cost and where applicable, adjusted for amortisation of premiums or accretion of discounts to maturity dates. Provision is made for diminution in value which is other than temporary.

On disposal of the investment securities, the differences between the net disposal proceeds and their carrying amounts are charged or credited to the income statement.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The policy for the recognition and measurement of impairment losses is in accordance with Note 3 (j).

The estimated useful lives used by the Bank are as follows :-

Assets under construction are not depreciated. Depreciation of these assets begins when the related assets are placed in service.

Upon disposal of an item of property, plant or equipment, the difference between the net disposal proceeds and the net carrying amount is recognised in the income statement.

With effect from the current year, the Bank changed the annual depreciation rate for furniture, fixtures and vehicles from 2 - 10 years to 10 years and computers from 4 - 10 years to 5 years to better reflect their useful lives. The effect on the financial statements of this change in accounting estimate is not material.

3.

f.

g.

h.

Buildings Office equipment and vehicles Computers

2002 40 years

2 - 10 years4 - 10 years

2003 40 years 10 years 5 years

10

13

Interest expense

Non Interest income

5.

6.

Significant accounting policies (contd.)

Financial Instruments Financial instruments are recognised in the balance sheet when the Bank has become a party to the contractual provisions of the instrument. The accounting policies on recognition and measurement of these items are disclosed in their respective accounting policies.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends and gains and losses relating to a financial instrument classified as a liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Bank has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.

Equity Instruments Statutory fund is classified as equity and dividends are recognised in equity in the period in which they are declared.

Derivative Financial InstrumentsDerivative financial instruments are not recognised in the financial statements on inception.

Forward Foreign Exchange ContractsThe underlying foreign currency assets or liabilities are translated at their respective hedged exchange rate and all exchange gains or losses are recognised as income or expense in the income statement in the same period as the exchange differences on the underlying hedged items. Exchange gains and losses arising on contracts entered into as hedges of anticipated future transactions are deferred until the date of such transaction, at which time they are included in the measurement of such transaction.

Interest income

3.

n.

(I)

(II)

4.

2002MNT '000

6,091,956

218,157 477,622

32,814 6,820,549

Loans and advances Deposits and placements with other banks and financial institutions Bank of Mongolia Treasury Bills Government bonds and Securities

2003 MNT '000

9,326,074

247,726 520,546 62,457

10,156,803

2002MNT '000

163,072 3,305,140

338,612 698

3,807,522

Current account deposits Time and demand account deposits Loans from foreign financial instituition Placements by other financial instituitions

2003 MNT '000 365,292 4,641,602

416,297 43,025

5,466,216

2002MNT '000

663,057

500,792 314,727

1,478,576

162,227 215,980

21,351 95,125

494,683

1,973,259

Fees and commision income: Service charges and fees Credit cards advance fees Other fee income

Other income: Realised foreign currency gain Unrealised foreign currency gain Gain on disposal of property, plant and equipment Other operating income

Total non-interest income

2003 MNT '000

603,972

543,296 642,901

1,790,169

141,008 212,734

2,652 103,069 459,463

2,249,632

12

15

Operating expenses

Personnel costs - Salaries and related expenses Depreciation of property, plant and equipment Travelling Rental of premises Entertainment Advertisement Communications Safety expenses Service charges Stationery Other operating expenses Write-off of property, plant & equipments

The average number of persons employed by the Bank during the year was made up as follows:

Directors and head of departments Officers Clerks Of which: - Head office - Branches

Provisions

Provision for loan losses less writebacks Provision for investment securities Provision for other assets

2002MNT '000

550,998 282,008 178,722 227,024 12,982 64,829

172,218 24,466

350,724 79,661

344,166 18,523

2,306,321

200222

164 27

213

110 103 213

2003MNT '000

1,255,440 - -

1,255,440

2003MNT '000

667,183 409,775 193,682 688,669

10,671 133,132 254,459 49,805

692,983 117,101

484,529 2,010

3,703,999

200322

218 31

271

130 141 271

2003MNT '000

1,374,489 5,840

19,588 1,399,917

7.

8.

Taxation

Mongolian taxation based on results for the year - Current - (Over)/underprovision in prior years

Mongolian legal entities must individually report taxable income and remit income taxes thereon to the appropriate authorities. The income tax rate for banks profits is 15% for the first MNT100 million of taxable income, and 40% on the excess of taxable income over MNT100 million. Interest income on government bonds is not subject to income tax. The provision for probable loan losses is deductible for income tax purposes.

A reconciliation of income tax expense applicable to profit before taxation at the statutory income tax rate to income tax expense at the effective income tax rate of the Bank is as follows:

Income tax at statutory rates based on profit before taxation Tax exempt income Non-deductible expenses (Over)/underprovision in prior year Tax expense for the year

Management believes that the Bank is in substantial compliance with the tax laws affecting its operations. Cash and short term funds

Cash and bank balances denominated in local currencies Cash and bank balances denominated in foreign currencies

2002MNT '000

583,579

20,970 604,549

2002MNT '000 544,810 (13,126)

51,895 20,970

604,549

2002MNT '000

1,890,3791,924,181

3,814,560

2003MNT '000

747,186

(264) 746,922

2003MNT '000 709,521 (24,982)

62,647 (264)

746,922

2003MNT '0002,379,2092,873,036

5,252,245

9.

10.

14

17

Deposits and placements with other banks and financial institutions

Current accounts with Bank of Mongolia Placements with other banks and financial institutions

Balances with Bank of Mongolia are maintained in accordance with Bank of Mongolia requirements and bear no interest. The balances maintained with Bank of Mongolia are determined at set percentages based on 15 days average cash balances.

Placements with other banks and financial institutions represent foreign currency current accounts maintained with foreign and local financial institutions, which are generally denominated in United States Dollar ("USD") and EURO and bear interest at annual rates ranging from 0.53% to 1.02% (2002: 0.25% to 6.40%) per annum.

Investment in securities

Bank of Mongolia treasury bills Government bonds Promissory notes Accretion of discounts Provision for impairment losses

Bank of Mongolia treasury bills are interest bearing short term bills with maturities of less than three months, and are issued at a discount. The effective annual interest rates of these bills range from 0.97% to 17.00% (2002 : 7.99% to 11.98%) per annum.

Government bonds are issued by the Ministry of Finance and Economy with maturities ranging from 60 days to 720 days. Annual interest rates are in the range of 5.04% to 14.18% (2002: 4.55% to 11.95%) per annum.

Promissory notes are issued by a private corporation with a 150 days maturity period. The annual interest rate is 21.6% (2002: nil) per annum.

2002MNT '000

6,549,949 22,650,267 29,200,216

2002MNT '000

10,538,842 156,825

- 10,695,667

- -

10,695,667

2003MNT '000

9,658,508 37,009,865 46,668,373

2003MNT '000

8,568,085 -

538,098 9,106,183

176,102 (5,840)

9,276,445

11.

12.

Loans and advances

Short term loans Term loans Credit cards Staff loans Accrued interest Gross loans and advances Provision for loan losses - specific - general Net loans and advances

Maturity structure Maturing within one year One to five years After five years

Loans and advances analysed by their economic purpose are as follows:

Trading Processing related industries Mining Construction Transportation Power, gas and water supply Hospitality Small medium enterprises Leasing Health and Education Agriculture Others

2002MNT '000

29,873,407 4,830,210

855,137 194,515 499,431

36,252,700

(3,624,774) (290,554)

32,337,372

2002MNT '000

23,739,932

8,488,761 108,679

32,337,372

2002MNT '000

10,665,530 11,592,740 4,838,150 3,099,570

139,236 549,389

1,417,736 1,320,677

324,778 262,830 623,831

1,418,233 36,252,700

2003MNT '000

42,926,216 7,877,251

281,504 288,311 710,313

52,083,595

(4,825,717) (469,104)

46,788,774

2003MNT '000

38,256,068 7,280,489 1,252,217

46,788,774

2003MNT '000

19,421,270 16,699,633

3,798,901 2,860,658 1,622,492 1,470,870 1,137,902

607,365 587,295 572,795 344,724

2,959,690 52,083,595

13.

16

19

Loans and advances (contd.)

Movements in the non-performing loans ("NPL") are as follows:

Balance at beginning of year NPL during the year - gross Recoveries/regularised during the year Amount written off Exchange difference Gross balance at end of year Less: Specific provision Net balance at year end Gross NPL ratio as a percentage of gross total loans Net NPL ratio as a percentage of net total loans

Movements in the provision for loan losses are as follows:

Specific Provision Balance at beginning of year Provision made during the year Amount written back in respect of recoveries Amount written off Exchange difference Balance at end of year

General Provision Balance at beginning of year Provision made during the year Exchange difference Balance at end of year

2002MNT '000

5,054,748 8,017,423

(6,582,056) (395,519)

5,354 6,099,950

(3,624,774)

2,475,176

16.8%

7.7%

2002MNT '000

2,857,463

1,162,240 -

(395,519) 590

3,624,774

2002MNT '000

193,280 93,200 4,074

290,554

2003MNT '000

6,099,950 4,016,439

(5,073,776) -

117,374 5,159,987

(4,825,717)

334,270

9.9%

0.7%

2003MNT '000

3,624,774 1,395,974 (200,008)

- 4,977

4,825,717

2003MNT '000

290,554

178,523 27

469,104

13. Loans and advances (contd.)

At 31 December 2003, all loans and advances to borrowers are denominated in Togrog except for USD loans amounting to MNT25,720 million. Interest rate ranges from 6% to 42% per annum (2002 : 6% to 42% per annum).

Loans and advances amounting to approximately MNT46,924 million at 31 December 2003 (2002 : MNT30,153 million) were classified as normal and provided with a 1% loss reserve. Further, loans amounting MNT5,160 million as at 31 December 2003 (2002 : MNT6,100 million) were classified as NPLs and provisions of MNT4,826 million (2002 : MNT3,625 million) have been allocated against these NPLs.

The provision for possible loan losses is considered adequate by the management based upon their formal review and analysis of existing credits using their knowledge of prevailing and anticipated economic conditions.

Other assets

Prepaid expenses Consumables and other inventory Land held for sale Other receivables Less: Provision for other assets Net balance of other assets

Tax recoverable

Tax recoverable

Tax recoverable represents the excess of tax paid compared to the taxation payable and is subject to the approval from the Mongolian Tax Authority ("MTA").

2002MNT '000 479,918 124,037 239,797 219,386

1,063,138 (51,465)

1,011,673

2002MNT '000

-

2003MNT '000

3,217,942 232,911

280,784

3,731,637 (69,528)

3,662,109

2003MNT '000

20,261

13.

14.

15.

18

21

Property, plant and equipment

At cost Balance at beginning of year Additions Disposals Transfers Adjustment Write-offs Balance at end of year

Accumulated depreciation Balance at beginning of year Charge for the year Disposals Write-offs Balance at end of year Net Book Value At 31 December 2003 At 31 December 2002 Depreciation charge for 2002

Deposits from customers

Current account deposits Demand account deposits Time deposits Government deposits Other deposits

Leasehold improvements

MNT '000

30,538 - - -

-30,538

9,8403,054

- -

12,894

17,644

20,698

3,054

Officeequipment

and vehicles MNT '000

1,638,021 396,683 (6,789)

335,405

(16,232) 2,347,088

593,734352,100 (4,137)

(14,222) 927,475

1,419,613

1,044,287

263,410

Construction in progress

MNT'000

269,751 181,410

- (335,405) (18,099)

- 97,657

- - - - -

97,657

269,751

-

Total

MNT '000

2,945,804 578,093 (6,789)

- (18,099) (16,232)

3,482,777

700,492 409,775 (4,137)

(14,222)1,091,908

2,390,869

2,245,312

282,008

Buildings

MNT '000

1,007,494 - - -

-1,007,494

96,91854,621

- -

151,539

855,955

910,576

15,544

16.

17.

Deposits from customers (contd.)

The maturity structure of time deposits from customers is as follows:

Due within six months Six months to one year One year to three years

The deposits are sourced from the following customers:

Business enterprises Individuals Government

Current account and other deposits generally bear no interest, however for depositors maintaining current account balance above a precribed limit,interest is provided at annual rates of approximately 1.2% (2002: 1.2%) per annum and between 3.0% to 3.6% (2002: 3.0% to 3.6%) per annum for foreign currency and local currency accounts respectively.

Foreign currency demand deposits bear interest at an annual rate of approximately 3.6% (2002: 3.6%) per annum, while local currency demand deposits at approximately 7.2% (2002: 7.2%) per annum.

Interest rates for time deposits vary for different types of accounts. Foreign currency time deposits bear interest at an annual rate of approximately 0.7% to 7.2% (2002: 0.7% to 7.2%) per annum, while for local currency time deposits, at a range of approximately 1.3% to 14.4% (2002: 1.2% to 14.4%) per annum.

Foreign currency government deposits bear interest at an annual interest at 6.0% to 7.2% (2002: 6.0% to 7.2%) per annum, while local currency government deposits, at a range of 12.0% to 14.4% (2002: 12.0% to 14.4%) per annum.

2002MNT '000

25,668,573 865,917

1,711,388 28,245,878

2002MNT '000

1,447,076 62,745,421

880,897 65,073,394

2003MNT '000

31,512,785 6,734,583 6,669,997

44,917,365

2003MNT '000

20,045,851 71,282,111 1,892,537

93,220,499

17.

(i)

(ii)

2002MNT '000

20,980,163 14,285,001 28,245,878

880,897 681,455

65,073,394

2003MNT '000

26,280,795 19,291,117 44,917,365 1,892,537

838,685 93,220,499

20

23

Deposits and placements of other banks and financial institutions

Foreign currency current account deposits Local currency current account deposits Obligation on securities sold under repurchase agreements

Foreign currency and local currency current deposits are placed by local commercial banks and generally bear no interest.

Loans from Bank of Mongolia

Loans from the bank

These borrowings bear an interest rate of 10% (2002: 10%) per annum. The final repayment of these borrowings is due in July 2005 in accordance to the repayment schedule.

Government loan

Loan from government

The interest rate of the loan is fixed at 6% (2002: 6%) per annum. The loan is repayable within a year in accordance to the repayment schedule.

Loans from foreign financial institutions

Foreign funded loans: World Bank Loan I World Bank Loan II World Bank Loan III Berliner Bank Loan Asian Development Bank

18.

19.

20.

21.

Loans from foreign financial institutions (contd.)

World Bank Loan IThe World Bank USD loan amounts to USD2.6 million or MNT3.0 billion (2002: USD2.7 million or MNT3.2 billion). The World Bank loan is channeled to various borrowers under the Private Sector Development Credit Programme. The interest rate of the World Bank loan is variable and calculated on the LIBOR 6 months USD rate +3% (2002: LIBOR 6 months USD rate +3%). The repayment of the loan is in accordance with the repayment schedule with the final payment due in March 2010.

World Bank Loan IIThe World Bank MNT loan balance stands at MNT2.2 billion (2002: MNT1.9 billion) respectively. The World Bank loan is channeled to various borrowers under the Private Sector Development Credit Programme. The interest rate of the World Bank loan is variable and calculated on the LIBOR 6 months USD rate +3% (2002: LIBOR 6 months USD rate +3%). The final repayment of the loan is in accordance with the repayment schedule with the final repayment due in June 2009.

World Bank Loan IIIThe loan is utilised for staff training purposes. The interest rate of the loan is fixed at 2% (2002 : 2%) per annum with principal repayment commencing on November 2004 and final repayment due in May 2019 in accordance with the repayment schedule.

Berliner Bank LoanThe Berliner Bank loan is used to finance the purchase of a building in Germany. The interest rate of the loan is 7.45% (2002: 7.45%) per annum. The Bank commenced principal repayments in June 1996 and the final repayment is due in September 2025 in accordance with the repayment schedule.

Asian Development BankThe loan from the Asian Development Bank was obtained during the year. The loan were subsequently disbursed to housing loan borrowers. The interest rate on the loans is between 8% to 8.2% (2002: nil) per annum. Terms of repayment of the loan are in accordance with the respective repayment schedule.

Other liabilities

Payables Foreign remittance under request Delay on clearing settlement Other payables

21.

22.

2002MNT '000 153,383

40,412 700,000 893,795

2002MNT '000

1,024,000

2002MNT '000 170,000

2002MNT '000

3,153,086 1,913,221

259,164 395,903

- 5,721,374

2003MNT '000

1,379,194 304,271

- 1,683,465

2003MNT '000

1,074,000

2003MNT '000 320,000

2003MNT '000

3,075,422

2,177,796 327,825 488,446 428,673

6,498,162

2002MNT '000 149,311

59,205 435,898 38,965

683,379

2003MNT '000 244,089 627,757 230,390 367,963

1,470,199

22

25

Risk management policies (contd.)

The Bank's concentration of assets and liabilities are as follows:

AssetsCash and short term funds Deposits and placements with other banks and financial institutions Investment in securities Loans and advances Other assets Tax recoverable Property, plant and equipment Liabilities Deposits from customers Deposits and placements of other banks and financial institutions Loans from Bank of Mongolia Government loan Loans from foreign financial institutions Other liabilities Provision for taxation Net position Commitments and other off balance sheet items

24.

Total

5,252,245

46,668,373 9,276,445

46,788,774 3,662,109

20,261 2,390,869

114,059,076

93,220,499

1,683,465 1,074,000

320,000 6,498,162 1,470,199

- 104,266,325

9,792,751

12,718,843

2003 (MNT'000)Foreign

currencies

2,873,036

44,941,083 541,718

27,869,292 404,703

- 507,262

77,137,094

61,006,744

1,379,194 - -

3,895,950 1,464,273

- 67,746,161

9,390,933

12,160,267

MNT

2,379,209

1,727,2908,734,727

18,919,4823,257,406

20,2611,883,607

36,921,982

32,213,755

304,2711,074,000

320,0002,602,212

5,926-

36,520,164

401,818

558,576

Statutory fund

At the beginning of the year Issued during the year At the end of the year

At 31 December 2003 the statutory fund was wholly owned by Bodi International Limited.

Risk management policies

Management of risk is fundamental to the banking business and is an essential element of the Bank's operations. The main risks inherent to the Bank's operations are those related to credit exposures, liquidity and market movements in interest rates and foreign exchange rates. A description of the Bank's risk management policies in relation to those risks are as follows:

Credit riskThe Bank is exposed to credit risk which is the risk that a counter party will be unable to pay amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and to industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. Limits on the level of credit risk by borrower and product are approved regularly by the Bank's management team.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collaterals.

Apart from deposits and placements with other bank financial instituitions amounting to MNT36.1 billion (2002: MNT21.0 billion) and property, plant and equipment amounting to MNT507 million (2002: MNT523 million), all banking assets and liabilities were geographically concentrated in Mongolia.

Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guanrantees and standby 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, carry the same credit risk as loans.

Currency riskThe Bank is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Bank's management sets limits on the level of exposure by currencies (primarily USD) and in total.

23.

24.

2002MNT '000

2,071,700 2,011,530 4,083,230

2003MNT '000

4,083,230 3,001,760 7,084,990

24

27


The contractual maturities of banking assets and liabilities for the year ended 31 December 2003 are as follows (MNT '000):

AssetsCash and short term fundsDeposits and placementswith other banks andfinancial institutionsInvestment in securitiesLoans and advancesOther assetsTax recoverable Property, plant andequipment

LiabilitiesDeposits from customersDeposits and placementsof other banks andfinancial institutionsLoan from Bankof MongoliaGovernment loanLoans from foreignfinancial instituitionsOther liabilities

Net liquidity gap

Accumulated gap

24.

Total

5,252,245

46,668,373 9,276,445

46,788,774 3,662,109

20,261

2,390,869114,059,076

93,220,499

1,683,465

1,074,000 320,000

6,498,162 1,470,199

104,266,325

9,792,751

Over5 years

-

- -

1,252,217 --

1,467,0502,719,267

-

-

- -

1,411,833 -

1,411,833

1,307,434

9,792,751

1 to5 years

-

7,008

- 7,280,489

--

902,256 8,189,753

6,669,997

584,000

301,200 -

4,047,687 -

11,602,884

(3,413,131)

8,485,317

6 monthsto 1 year

-

314,304

-14,447,244

- 20,261

21,238

14,803,047

6,734,583

-

772,800 -

386,312 -

7,893,695

6,909,352

11,898,448

3 to 6 months

-

6,552,000541,718

7,839,286 --

8514,933,089

30,358,898

-

- 320,000

335,220 -

31,014,118

(16,081,029)

4,989,096

Less than 3 months

5,252,245

39,795,061 8,734,727

15,969,538 3,662,109

-

24073,413,920

49,457,021

1,099,465

- -

317,110 1,470,19952,343,795

21,070,125

21,070,125


Assets Cash and short term funds Deposits and placements with other banks and financial institutions Investment in securities Loans and advances Other assets Property, plant and equipment

Liabilities Deposits from customers Deposits and placements of other banks and financial institutions Loans from Bank of Mongolia Government loan Loans from foreign financial institutions Other liabilities Provision for taxation Net position Commitments and other off balance sheet items

Liquidity riskThe Bank is exposed to frequent calls on its available cash resources from demand deposits, maturing deposits and loan drawdowns. The Bank maintains liquidity management with the objective of ensuring that funds will be available at all times to honor all cash flow obligations as they become due. The Reserve department sets limits on the minimum proportion of maturing funds available to cover such cash outflows and on the minimum level of interbank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

24.

Total

3,814,560

29,200,216 10,695,667 32,337,372

1,011,673 2,245,312

79,304,800

65,073,394

893,795 1,024,000

170,000 5,721,374

683,379 37,248

73,603,190

5,701,610

5,632,157

2002 (MNT'000)Foreign

currencies

1,924,181

27,116,451 -

17,780,453 99,378

522,751 47,443,214

40,245,737

153,383 1,024,000

- 1,882,655

626,559 -

43,932,334

3,510,880

4,349,955

MNT

1,890,379

2,083,76510,695,66714,556,919

912,2951,722,561

31,861,586

24,827,657

740,412 -

170,000 3,838,719

56,82037,248

29,670,856

2,190,730

1,282,202

26

29


Interest rate riskThe Bank is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. 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's expected repricing and maturity dates do not differ significantly from the contract dates, which are disclosed in the liquidity risk table above.

Interest rate risk is managed by increasing or decreasing positions within limits specified by the Bank's management. These limits restrict the potential effect of movements in interest rates on interest margin and on the value of interest sensitive assets and liabilities.

The Bank's interest rate policy is reviewed and approved by the Reserve department. The Bank's average effective interest rates per annum in 2003 and 2002 for monetary financial instruments are as follows:

2003 2002

Interest earning assets Placement with other banks Bank of Mongolia treasury bills Government bonds Promissory Notes Loans and advances Interest bearing liabilities Demand deposits from customers Time deposits from customers Current account deposits from customers Government deposits Government loan Loans from Bank of Mongolia Loans from foreign financial instituitions

24.

USD

0.25%-6.40%---

18%-36%

3.6%0.7%-7.2%

1.2% 6.0%-7.2%

-10%

2.00%-7.45%

MNT

- 7.99%-11.98%4.55%-11.95%

- 6%-42%

7.2% 1.2%-14.4%

3.0%-3.6% 12.0%-14.4%

6%-

7.5%-12.3%

USD

0.53%-1.02% - -

21.6% 18%-30%

3.6%0.7%-7.2%

1.2%6.0%-7.2%

-10%

2.00%-7.45%

MNT

-0.97%-17.00%5.04%-14.18%

-6%-42%

7.2%1.3%-14.4%

3.0%-3.6%12.0%-14.4%

6%-

10.0%-14.4%


The contractual maturities of banking assets and liabilities for the year ended 31 December 2002 are as follows (MNT '000):

AssetsCash and short term fundsDeposits and placementswith other banks andfinancial institutionsInvestment in securitiesLoans and advancesOther assetsProperty, plant andequipment

LiabilitiesDeposits from customersDeposits and placementsof other banks andfinancial institutionsLoan from the Bankof MongoliaGovernment loanLoans from foreignfinancial institutionsOther liabilitiesProvision for taxation

Net liquidity gap

Accumulated gap

24.

Total

3,814,560

29,200,216 10,695,667 32,337,372

1,011,673

2,245,312 79,304,800

65,073,394

893,795

1,024,000 170,000

5,721,374 683,379 37,248

73,603,190

5,701,610

Over5 years

-

- -

108,679 -

1,591,714 1,700,393

-

-

- -

1,304,482 - -

1,304,482

395,911

5,701,610

1 to5 years

-

2,360,947

- 8,488,761

-

622,367 11,472,075

-

-

1,024,000 -

3,098,653 - -

4,122,653

7,349,422

5,305,699

6 monthsto 1 year

-

8,075,068

- 11,677,674

-

28,654 19,781,396

12,838,499

- - -

367,882 - -

13,206,381

6,575,015

(2,043,723)

3 to 6 months

-

575,151

150,000 5,911,078

-

2,207 6,638,436

19,856,760

-

- 170,000

635,147

- -

20,661,907

(14,023,471)

(8,618,738)

Less than 3 months

3,814,560

18,189,050 10,545,667 6,151,180 1,011,673

370

39,712,500

32,378,135

893,795

- -

315,210 683,379 37,248

34,307,767

5,404,733

5,404,733

28

31

Related party disclosures (contd.)

d) Rental of garage to: Bodicom Co.Limited Smartcard Co.Limited. MPC Co.Limited Bodi Insurance Co.Limited EBG Properties Co.Limited e) Lease agreement with Bodi International Co. Limited

In November 2002, the Bank moved to its new Head Office located at Sukhbaatar Square 3, Ulaanbaatar, Mongolia. The building is owned by the holding company, Bodi International Co.Ltd. The bank entered into a lease agreement for 6 years until the year 2008. The bank has prepaid the lease payment amounting to MNT3.2 billion.

f) Loans to key management personnel Total outstanding balance as at 31 December 2003 of loans granted to key management personnel amounts to MNT82.5 million (2002: MNT63.9 million). The loans to Bank's employees bear interest rate of 6% (2002: 6%) per annum.

Directors' Remuneration The executive director received remuneration totalling MNT5.4 million (2002 : MNT3.6 million). The non-executive director received fees totalling MNT5.4 million (2002 : MNT3.6 million).

Capital adequacy

Bank of Mongolia requires commercial banks to maintain a core capital adequacy ratio of 5% and risk weighted capital ratio of 10%, compiled on the basis of total equity and total assets as adjusted for their risk. The capital adequacy ratios of the Bank as at 31 December are as follows:

Core capital ratio Risk weighted capital ratio Tier I capital Statutory fund Retained earnings Total Tier I Capital/ Capital Base

25.

26.

Related party disclosures

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. The Bank is controlled by Bodi International Limited which owns 100% of the Bank.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans, deposits and foreign currency transactions. These transactions were carried out on commercial terms and at market rates. The volumes of related party transactions, outstanding balances as at the year end, and relating expense for the year are listed below.

As at 31 December, balances with related parties included:

a) Deposits from customers: Bodi Insurance Co. Limited Bodi International Co. Limited Bodicom Co.Limited Smartcard Co.Limited Bodi Computer Co.Limited EBG Properties Co.Limited MPC Co.Limited Bodi Automotive Co.Limited SB Logistic Co.Limited

b) Purchase of computers and software from: Bodicom Co.Limited Smartcard Co.Limited Bodi Computer Co.Limited MPC Co.Limited

c) Purchase of motor vechicles from: Bodi Automotive Co.Limited

25.

2002MNT '000

238,030147

- - - - - - -

238,177

2002MNT '000

8,48142,69645,549

123,883 220,609

2002MNT '000

15,456

2003MNT '000

61305

1,79020,266

2355,29912,18644,4035,835

140,168

2003MNT '000

-67,427

-75,808

143,235

2003MNT '000

-

2002MNT '000

607607607607607

3,035

200214.18%14.18%

4,083,230 1,618,380 5,701,610

2003MNT '000

544544544712544

2,888

200315.36%15.36%

7,084,990 2,707,761 9,792,751

30

33

Commitments and off balance sheet items (contd.)

Foreign exchange commitments and derivativesIn the normal course of the business, the Bank enters into foreign currency exchange contracts with third parties. As at 31 December 2003, the Bank has 10 open positions (2002: 2 open positions) on foreign currency exchange forward contracts worth approximately MNT11.4 billion (2002: MNT4.7 billion).

Other off balance sheet items.At 31 December 2003, other off balance sheet items represents loans written off on non-performing loans and the interest suspended.

Fair values of financial assets and liabilities

Financial instruments comprise financial assets and financial liabilities. The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction, other than in a forced or liquidation sale.

Almost all of the financial instruments as at 31 December 2003 are short term in nature with maturities of less than one year. The estimated fair values of those financial assets and financial liabilities as at the balance sheet date approximate their carrying amounts as shown in the balance sheets due to the relatively short term maturity of the financial instruments.

27.

e.

d.

28.

Capital adequacy (contd.)

Breakdown of risk weighted assets in the various categories of risk weights are as follows:

2003 (MNT'000) 2002 (MNT'000)

%0102050100Total

Commitments and off balance sheet items

Financial Commitments and Off Balance Sheet ItemsIn the normal course of business, the Bank incurs certain commitments with legal recourse to its customers. No material losses are anticipated as a result of these transactions.

Guarantees and letter of credits Lease commitments Foreign exchange commitments Other off balance sheet items

As at 31 December 2003, the bank has one guarantee which is fully collaterised. Total value of the guarantees amounts to approximately MNT47 million. The balance of MNT410 million relates to 3 letter of credits which matures subsequent to year end.

Lease Commitments The Bank has lease commitments in respect of various office premises, all of which are classified as operating leases. A summary of these commitments are as follows:-

Within a year More than 1 year and less than 5 years 5 years and more

26.

27.

a.

b.

RiskWeighted

- -

4,605,970 6,573

35,594,357 40,206,900

2002MNT '000 206,099 738,458

4,687,600 -

5,632,157

2002MNT '000 108,594308,382321,482738,458

Assets

20,873,539 -

23,029,852 13,146

36,345,910 80,262,447

2003MNT '000 456,781 372,402

11,409,051 2,284,043

14,522,277

2003MNT '000 103,578 190,856 77,968

372,402

RiskWeighted

- -

7,442,679 10,640

56,292,644 63,745,963

Assets

23,420,670 -

37,213,395 21,280

56,292,644 116,947,989

32

Comparative figures

Certain comparative figures have been reclassified to conform with current year's presentation.

Assets Cash and short term funds Deposits and placements with other banks and financial instituitions Liabilities Deposits from customers Government deposits Loans from Bank of Mongolia Loans from foreign financial institutions Other liabilities Provision for taxation

Commitments and off Balance Sheet Items

Subsequent event

Two letter of credits issued in favour of a defaulted borrower amounting to MNT314 million crystallised subsequent to the year end. The amount has been recognised as a loan and a full provision has been provided on the amount as at 31 December 2003.

Currency

All amounts are in Mongolian Togrog unless otherwise stated.

Mongolian translation

These financial statements are also prepared in the Mongolian language. In the event of discrepancies or contradictions between the English version and the Mongolian version, the English version will prevail.

29.

30.

31.

32.

2002MNT '000

10,364,509

22,650,267

64,192,497 880,897

- 6,745,374

720,627-

951,335

2003MNT '000

3,814,560

29,200,216

65,073,394-

1,024,0005,721,374

683,379 37,248

5,632,157

34

Golomt bank report - 2003 english

Documents

Transcript of Golomt bank report - 2003 english