TFG 2012 Annual Report

TenGer Financial Group - 2012 Annual Report

People Planet Profit

ANNUAL REPORT

2 12

TenGer Financial Group - 2012 Annual Report 2


INTRODUCTION

4 Guiding Principles

5 About TenGer Financial Group

6 Shareholders

7 Corporate Snapshot

8 Financial Highlights

9 Chairman’s Statement

10 CEO’s Statement

11 Our Logo

12 Our Strategy

13 Our Approach

14 Management Discussion and Analysis

15 Key Performance Indicators

17 Funding

18 TFG Organization Structure

19 Institutional Development

19 Social and Environmental

Responsibility & Compliance

19 Human Capital

20 Internal Audit

SOCIAL & ENVIRONMENTAL

RESPONSIBILITY

21 Hosting GIFT program for Impact Fund

22 Eco Banking

SUBSIDIARIES

24 XacBank

25 XacLeasing

26 TenGer Insurance

27 TenGer Capital

28 TianRong MCC

29 XacSecurity

30 TenGer Solutions

GOVERNANCE

31 Board of Directors

33 Corporate Governance Report

36 Executive Management Team

37 Recent History of TFG

38 Company Overview & Contacts

FINANCIAL INFORMATION

40 Auditor’s Statement

42 Statement of Comprehensive Income

43 Statement of Financial Position

44 Statement of Cash Flows

46 Statement of Changes in Equity

Table of Contents

4 TenGer Financial Group - 2012 Annual Report

OUR GUIDING

PRINCIPLES

People

Planet

Profit

OUR VISION

TenGer Financial Group is a family

of companies built to provide equi-

table access to inclusive financial

services. The Group will strive to

be a dynamic leader setting the

highest standards of Triple Bottom

Line mission in corporate govern-

ance, social and environmental

responsibility while returning fair

value to the Shareholders.

OUR MISSION

TenGer Financial Group’s mission

is to create synergies among our

affiliates in order to maximize

social and financial gains to our

Stakeholders. Business will be

driven by innovation and dyna-

mism in delivering premium quality

services and added value to our

Customers.


We are a diversified regional family of companies headquartered in

Ulaanbaatar, Mongolia. Our portfolio includes XacBank, XacLeasing,

TenGer Insurance, TenGer Capital, TianRong, XacSecurity and

TenGer Solutions, all providing fair access to broad financial

services to our customers.

We strive to meet all our customers’ financial needs and help them

succeed financially through banking, insurance, leasing, investing,

mortgage, and commercial and consumer finance.

TenGer Financial Group aims to build a transnational group of

companies to deliver a full range of financial services to people and

businesses. The Group will adhere to the highest norms of ethical

business conduct and environmental sustainability as one of its

mission pillars.

XacBank, the flagship subsidiary of TenGer Financial Group, has

maintained its leading positions in Mongolia as a transparent and

socially responsible banking institution.

TenGer Financial Group

Commercial Banking

Leasing Services

Physical Security

Software Developer

Investment Banking

Microcredit(China)

General Insurance

X.A.C NGO


Shareholders

Shareholder Composition

Shareholders Shares Stake

1 EIT Capital Management (ECM) 4,971,991 29.98%

2 Bamboo Finance (formerly Blue Orchard) 3,102,174 18.71%

3 International Finance Corporation (IFC) 2,524,559 15.22%

4 European Bank for Reconstruction and

Development (EBRD) 1,929,475 11.63%

5 Mercy Corps 1,254,180 7.56%

6 Triodos Fair Share Fund 1,236,518 7.46%

7 Stichting Triodos-Doen 1,009,074 6.08%

8 Open Society Forum 264,141 1.59%

9 UB Rotary Club 150,153 0.91%

10 Mongolian Women’s Federation 50,000 0.30%

11 Ganhuyag Ch. Hutagt 47,464 0.29%

12 Bold Magvan 16,968 0.10%

13 Chuluun Ganbold 15,372 0.09%

14 EIT LLC 9,657 0.06%

15 Delgermaa Zagd 1,723 0.01%

16 Otgonhuu Hishigsuh 1,195 0.01%

TOTAL 16,584,644 100.00%


As of December 31st, 2012


Corporate Snapshot

Name TenGer Financial Group LLC

Principles People, Planet and Profit

Purpose provide equitable access to inclusive financial services

Established October 2001

Location of Head Office Central Tower, Room 508, 2 Sukhbaatar Square, SBD-8 Ulaanbaatar-14200, Mongolia

Board of Directors

Chairman: Chuluun Ganbold

Local: 4 out of 9

International: 5 out of 9

Female Board Members 3 out of 9 (33%)

Senior Management CEO: Bold Magvan

Managing Director: Amartuvshin Hanibal

Description of Business

diversified financial services holding company, banking, insurance, leasing, investment advisory, mortgage, and commercial and consumer finance

Number of Subsidiaries 7

Type of Company Limited liability company (private)

Currency Units Mongolian Togrog (₮ or MNT)

Total Assets MNT 1,124 billion or USD 807 million (as of December 31, 2012)

Number of Employees 1,769 (consolidated as of December 31, 2012)

1,932 (including those on maternity leave)

Average Age of Employees 30 years old

Employee Gender Balance 57% female and 43% male

Investor Relations

Contact Ashidmaa Dashnyam, VP, Investor Relations and Corporate Affairs

Email [email protected]

mailto:[email protected]


18.1

8.6

18.5

20.9

15.6

0

3

6

9

12

15

18

21

2008 2009 2010 2011 2012

%

15.6%

ROaE (ordinary shares)

3.42.4

6.7

12.9

15.9

0

4

8

12

16

2008 2009 2010 2011 2012

Profit after tax

MNT BMNT B

MNT 15.9B

2,902 3,594

4,270

6,104

7,057

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012

Book Value per share

MNT 7,057MNT

10.5

6.0

11.1

13.1

11.5

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2008 2009 2010 2011 2012

Profit Margin

11.5%%

208 321

475

834

1,124

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012

Assets

MNT 1,124BMNT B

11.110.3

8.3

10.911.4

2.0

4.0

6.0

8.0

10.0

12.0

2008 2009 2010 2011 2012

Capital Strength

11.4%%

Group Consolidated Financial Highlights (as of December 31)

USD 11.4 MM

EUR 8.7 MM

Core tier 1 ratio USD 807 MM

EUR 612 MM

USD 5.07

EUR 3.84

Operational

highlights

Established TenGer Capital, an

investment bank in March 2012 and

cross-broader investment, TianRong

MCC, a micro-credit company in

Urumqi, Xingjian Autonomous

Region, China in September 2012

Developed and approved the revised

Consolidated Business Plan for

2012-2016.

Strengthened group-wide

governance, risk, financial, human

resources, legal and compliance

management systems and

processes.

The boards of the wholly-owned

subsidiaries of TFG were disman-

tled. Shareholder meeting rights for

the wholly-owned subsidiaries are

exercised by the Executive Commit-

tee Meeting of TFG. ECM structure

is adopted in the subsidiaries.

Started developing new accounting

software for TenGer Solutions,

XacSecurity and TenGer Financial

Group LLC to share back-office

capacity among the companies.

Received USD 5 million loan from

BIO Belgium to lend to XacLeasing

in line with the new fund manage-

ment policy towards leveraging its

equity.

Dec.31.2012 MNT/USD exchange rate: 1,392.10

Dec.31.2012 MNT/EUR exchange rate: 1,835.83

Highlights of 2012


Chairman’s Statement

provide consolidated management and coordination amongst

the Group companies in risk management, financial planning,

legal compliance, corporate governance and human resource

management. The senior management team of the holding

company, leading each of these functions, was supported

further by hiring bright young junior professionals – investment

officers and accountants – who brought new energy and

enthusiasm to the Group.

Never has it been more important to improve and strengthen our

good corporate governance practices. Recognizing always that

that a strong and efficient board is part of good corporate

governance and a sign of a healthy organization, the board of

the Group conducted a self-evaluation to assess its overall func-

tioning and efficiency. This exercise was instrumental in sharing

different opinions among board members, highlighting strengths

and weaknesses of the board, and improving the board structure

and performance. A strong professional independent director – a

seasoned banker with 30-year experience in the banking and

financial sector of Mongolia – joined the board of XacBank,

continuing our commitment to good governance and transparent

decision making.

We have always given importance to gender balance and

female representation in our boardroom. 3 out of 9 board

directors within the Group are women, which is already exceed-

ing the aspirations of the boards globally to have a minimum

of 25 percent female representation.

Throughout the year, the board of the Group has remained

highly committed to the highest standards of personal and pro-

fessional ethics, integrity and values to fulfill their fiduciary duty

to the shareholders. All directors completed and filed an Annual

Conflict of Interest Disclosure Statement.

The year of 2012 also marked the beginning of the process of

share sales by some of our existing shareholders. This process

of change of ownership coincides with the transformational

process at the Group as XacBank transitions form a niche player

to a universal bank of systemic nature. The driving force of our

past success and guide to the future achievements is the

diverse and balanced shareholders’ structure, combining

international investors as well as Mongolian business represen-

tations and organizations. We believe that the on-going change

in the ownership structure of the company will not only maintain

such balance but also strengthen it further on with new strategic

institutional investors, both local and international.

Closing 2012 and welcoming 2013, I would like to remind and

reiterate that we have more challenges and opportunities ahead

and more responsibility. I would like to wish to all of us – share-

holders, stakeholders, board and management - to stay true to

our fundamental mission of People, Planet and Profit,

encourage progress and be faster and smarter while combining

courage with prudence. I am confident that we will build on our

successes and meet new milestones in the years to come.

Sincerely yours,

Chuluun Ganbold

Chairman of the Boards of Directors

of TenGer Financial Group and XacBank

Dear Shareholders,

Board Directors and

Stakeholders,

It is a pleasure and honor for me

to address you in our 2012

Annual Report. I congratulate all

our stakeholders with another

year of growth, success and

concerted actions to develop

TenGer Financial Group as a

group of companies providing

equitable access to inclusive

financial services. The year of 2012 signified a major milestone in

the history of TenGer Financial Group as the company’s consoli-

dated assets surpassed MNT 1 trillion. We owe this remarkable

achievement to all our Group companies but first and foremost to

XacBank, our pride and biggest subsidiary. On behalf of the

Board of Directors, I would like to congratulate the team of

TenGer Financial Group led by Chief Executive Officer Bold

Magvan as well as the teams of the Group’s other subsidiaries for

their hard work and dedication to make this possible. Special

thanks go to the management team of the Bank for their efforts to

transform XacBank into a leading universal bank. Our board

directors also deserve a commendation for their stewardship and

wisdom to guide the Group throughout our journey. I extend my

and the board’s sincere appreciations to all our shareholders who

continued to support and inspire us to attain farther horizons.

In 2012, the Group’s consolidated assets reached MNT 1.1 trillion,

an increase of 35 percent from the previous year, and total net

profit amounted to MNT 15.9 billion, an increase of 23 percent

compared to a year earlier. Our book value has reached MNT

7,057.18 per share, an increase of 16 percent over the reporting

year.

All our Group companies contributed to such success despite

challenges posed by the external environment in 2012. In addition

to the size and scale reached in assets, XacBank earned a net

income of MNT 15.2 billion, a 26 percent increase from 2011 and

increased its return on equity to over 17 percent. The Bank

started a number of new initiatives to refresh brand identity and

refocus the business lines. Profits almost tripled at XacLeasing

compared to 2011 and TenGer Insurance maintained its position

as 4th largest insurance company, increasing its total assets by

28 percent from 2011, tripling the number of customers and

reinforcing its reinsurance by signing a treaty with one of the top

three global reinsurers.

Efforts over the last two years to establish a micro credit institution

in Urumqi, Xinjiang and build presence in one of the biggest

regional financial markets resulted in the official opening of

TianRong, our greenfield investment in China. The management

team is in place and first disbursements are made. Although it is

only a start and results are yet to be seen, we are, nevertheless,

confident that the Chinese venture will replicate the success of

XacBank as there are opportunities to capitalize on the economic

growth in China and relatively low penetration of financial services

among SMEs in the Xinjiang province and utilize the substantial

knowledge base of XacBank in microfinance.

We strengthened our senior management teams across the

Group companies with new appointments at XacBank,

XacLeasing and TenGer Capital. In addition, we continued to

build our institutional capacity at TenGer Financial Group to


Dear Customers,

Shareholders, Board

and Colleagues,

The year of 2012 was the first

year of TenGer Financial Group’s

newly developed consolidated

business strategy for 2012-2016.

The year was shaped by new

expectations of domestic and

international investment commu-

nities in conjunction with the

preparation for and conduct of the

popular elections in June and formation of the new parliament and

coalition government of Mongolia. Drop in FDI, exacerbated by

slump in world commodity prices, slowed down the economic

growth from 17% in 2011 to 12% in 2012.

TenGer was short of its target in assets growth but exceeded the

targets set in its net profit and portfolio quality, growing its assets

base above the average of the banking sector. Led by XacBank,

TenGer’s assets grew 35% reaching MNT 1.1 trillion, while

increasing net income by 23% to reach MNT 15.9 billion. Book

value per share rose from MNT 6,104.06 to MNT 7,057.18.

Two new investments extended the TenGer Financial

Group outreach in local and cross-border markets.

Launched on September 3rd

, 2013, TianRong micro

credit company, a greenfield investment in Urumqi,

Xinjiang Uyghur Autonomous Region, China,

marked the first ever international investment of USD

9 million from Mongolia in financial sector of the

People’s Republic of China. Technical assistance to

TianRong, funded by IFC, is being provided by XacBank, with

“on the job” training to new staff of TianRong in Ulaanbaatar.

In March, a small brokerage house was acquired and renamed to

TenGer Capital. TenGer Capital will advise the individual custom-

ers and companies in allocating their “windfall” revenues and

government cash handouts in mining stocks and SMEs, and will

play an instrumental role in enhancing the synergy with banking,

insurance and leasing services.

In order to streamline the governance structures within the Group,

the boards of the subsidiaries were dismantled. The rights of

shareholders at XacLeasing, TenGer Capital, TenGer Solutions

and XacSecurity are now exercised through the Executive

Committee of the Group, whereas each individual company intro-

duced the Executive Committee structure to facilitate collective

decision making respectively.

To ensure compliance with Code of Conduct and Conflict of

Interest Policy, an annual Conflict of Interest Disclosure

Statement was filed by the directors and senior managers of all

subsidiaries. Compliance assurance is obtained from the

respective subsidiaries in line with Social and Environmental

Policy.

To strengthen and safeguard our most valued asset, human

capital, Succession and Leadership capability development

plans are put into practice by senior and middle managers, in

addition to a pool of high potential and high performing staff.

Health care program is introduced, staff well-being program is

rolled out, and the new Key Employees Stock Ownership Plan is

nearing the approval. The management team is strengthened

with addition of new talents, increasing TenGer’s competitive-

ness in retail, SME, corporate services, finance, IT and risk

management. TenGer employees number totaled 1,769 at the

end of 2012, an increase by 10.4%.

To further advance back office functions at the Group level, the

new funds management policy is followed, while a new whole-

sale loan was received from Belgium Investment Company for

Developing Countries (BIO) with sole purpose of supporting

local SMEs via XacLeasing. The Group is working on increasing

the operational efficiency through implementation of

NetSuite ERP system.

Over this period, TenGer continued to attract strong

interest from local and foreign investors, thanks to its

proven reputation, shareholders’ composition,

governance practices and team of outstanding

executives. The profiles of our partners and investors

represent the prominent corporates of the country

together with internationally known banking and

financial institutions.

In 2012, TenGer shareholders, board directors and employees

remained as the true advocates of the mission centered around

People Planet and Profit both at home and abroad alike, and are

being acknowledged for transparency and good corporate

governance. I would like to thank our Customers, Shareholders,

Board directors and colleagues for their consistent support to

fulfilling the mission of TenGer.

With warmest regards,

Bold Magvan

Chief Executive Officer


Growth in profit

after tax

23.0 %

CEO’s Statement


The New Logo:

Trinity symbol on Mongolian stones3

Overview

The current name and the logo of TenGer Financial Group

(Company) were assigned in 2008. TenGer, sky or universe in

English, is the symbol of wideness, greatness, infinity and eternal

life. The name embraces the philosophy of the Mongols to associ-

ate eternal sky with their love to the Mother Nature (planet) and

great respect for wisdom and generosity. In English it can mean

Ten Ger or Ten families, portraying an idea of creating a big fam-

ily with 10 members. Historically, number 10 symbolized one of

the legendary principles of the peoples management adhered to

by the Mongols. The logo is the word “Tenger” in a traditional

Mongolian calligraphy. Subsequently, in 2011 the Company re-

vised its double bottom line mission to adhere to triple bottom line

values of People, Planet and Profit.

To better depict the values of the Company on its logo a new Trin-

ity symbol was adopted that bares traditional roots of the Mongols

along with universal values of humanity.

Similar symbols are known in modern world as Roerich's peace

banner, described by his followers as an “ancient trinity symbol

which can be found on monuments over nine thousand years old.

We find the symbol on stones in Mongolia and on ceramic wares

of the Paleolithic age. In India the symbol is known as Chinta-

mani. It has been seen on medieval walls, the image of the Stras-

burg Madonna, in Brussels, on ancient Russian icons, and the Pe-

king Temple of the Sky. Native Mexican settlements recognized

and honored the symbol as well. The sigh of the Banner of Peace

has been discovered on an old stone, in the middle of the river

Saliente on the island of Puerto Rico in the Caribbean.”1

The trinity symbol, widely known in Mongolia as “Ongon tamga”

was used in seals of the Mongolian khans and nobles since 1284.

Described by the Mongolian scholar Bira Shagdar, the symbol is

explaining the ancient philosophy of Mongols about existence of

sky, earth, and humans in harmony. The sky represents father,

the earth is mother, and the humans are children of sky and

earth.2 Some other Mongolian scholars are describing the circles

as representing the eternity of time, encompassing the past, pre-

sent, and future.

In the new logo of TenGer Financial Group, the first sphere stands

for People, the concept that our services should bring positive im-

pact and prosperity to people and all customers. The second

sphere represents our Planet, free from obliteration. The third

sphere is Profit. If the Company cares about people and planet,

then profits will be sustainable and ethical. The three circles are

held together in a partial round shape of the traditional Mongolian

pattern which represents longevity or sustainability. The three

spheres will also carry on the traditional universal meanings of

trinity symbol.

Source 1: The Banner of Piece, a Non-Governmental Organization of the United Nations. http://www.banderadelapaz.org/en/articles/index.shtml Source 2: Mongolian Prof. Bira, an 85 year old student of George Roerich, speaks about the Mongolian reading of "The Roerich Peace Banner." Source 3: "Nikolas Roerich - Leben und Werk eines russischen Meisters" von Jacqueline Decter. Kapitel 8. AMERIKA Source 4: S. Dulam, The Mongolian Symbols. Page 71.

Trinity symbols can be found in remote areas of Hovd and

Gobi-Altay aymag in Western Mongolia.4

Nicolai Konstantinovich and Yuri Nicolaevich Roerichs

in Mongolia. Year of 1935.

Trinity

symbols

New Logo of TenGer Financial Group


Long-term Trends in Mongolia

Economic Development

There is an increasing demand for financing of corporations, individuals,

retail and SMEs as the economy continues to develop and national income

rises. Given the geographical and segment reach our subsidiaries, TenGer

Financial Group is poised to benefit from and contribute to the national

growth.

Fueled by investments into mining and related sectors, Mongolia is

projected to be one of the fastest-growing economies in the world over

the next decade. Oyu Tolgoi is the 2nd largest copper reserve in the

world as well as rich deposits of coal, gold, iron ore, uranium, among

others. It is located next to China and in the heart of Asia, the fastest

growing region in the world and also heavy users of commodities.

Demand for Finance

is the leading financial services holding company

in Mongolia. TFG will strive to maximize synergies among


subsidiaries and ensure the highest standards of corporate governance in conducting

our operations through subsidiaries. TenGer believes that the mix of strong and reputable, domestic

and international shareholders coupled with solid corporate governance will enable the Group to grow in sustainable way.

4,1634,892

5,5126,379

7,133 7,469

8,5009,324

2010 2011 2012 2013 2014 2015 2016 2017

Real GDP growth(MNT Billions)

-1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Ma

r-0

4

Se

p-0

4

Ma

r-0

5

Se

p-0

5

Ma

r-0

6

Se

p-0

6

Ma

r-0

7

Se

p-0

7

Ma

r-0

8

Se

p-0

8

Ma

r-0

9

Se

p-0

9

Ma

r-1

0

Se

p-1

0

Ma

r-1

1

Se

p-1

1

Ma

r-1

2

Se

p-1

2

Banking Sector Credit growth(MNT Billions)

Accounting for long-term trends and our competitive advantage, TenGer’s strategy involves:

Full Financial Service Package for Corporate Clients

With our unique origin of being a micro-finance institution, we will

continue building on our extensive experience to expand our SME and

retail clients.

TFG holds a unique position in Mongolia in its ability to provide a

broad spectrum of financial service solutions to current and potential

customers through its subsidiaries.

Expansion of the SME and Retail Client Base

Source: Bank of Mongolia (as of December 31st, 2012) Source: IMF, World Economic Outlook (October, 2012)

TFG employees in a formation representing “TenGer” in Mongolian

Our Strategy


People, Planet & Profit

TenGer seeks to combine social and environ-mental performance with strong financial performance in its core business operations. TenGer has been a pioneer in the financial arena to grow into one of the most successful micro finance institutions in the world. XacBank, our flagship subsidiary, has developed into a univer-sal bank with systemic influence in Mongolia. Since 1998, TenGer has grown from a small local project to a major financial group, that provides financial services to the people of Mongolia and across the border.

Transparent Governance

TenGer Financial Group is committed to main-taining high standards of corporate governance to safeguard the interests of its shareholders and stakeholders and to enhance corporate value and accountability.

In addition to the OECD Principles of Corporate Governance of 2003, TenGer’s corporate gov-ernance practices are based on the principles and certain recommended best practices as set out in the Corporate Governance Code, which was adopted by the Mongolian Financial Regulatory Commission in 2007. To further strengthen its commitment and the principles of corporate governance applicable within the Group companies, TenGer adopted the Group’s Code of Corporate Governance in May of 2011.

Our values, governance, and commitment to the triple bottom line guide us in delivering value to our stakeholders and shareholders

Our Approach

Foundational elements of our business management

Our Values

Respect: we value everyone’s opinion, work and concern

Excellence: we repeatedly do our best in everything we take on

Innovation: we consistently search for ways of doing things better

Sharing: we receive with others, including our society and the world

Teamwork: we stay in sync and stand for our wins and losses as one

Accountability: we take responsibility for all our actions and their outcomes

Integrity: we see honesty as the basis of our progress, we walk what we talk

Fortitude: we face any challenge with courage and see adversity as an opportunity


149 195

326

549

651

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012

Loan Portfolio

MNT 651 billionMNT billions

15.3 20.1

27.7

47.9

63.3

0

20

40

60

80

2008 2009 2010 2011 2012

Net Interest Income

MNT 63.3 billionMNT billions

Balance Sheet

As of December 31st, 2012, TenGer Financial Group’s consoli-

dated total assets stood at ₮1,123.7 billion (USD 807 million), an

increase of 34.8% from the previous year. The Group demon-

strated discipline and focus in sustaining a strong balance sheet,

which continues to be highly liquid, diversified and conservative

with its low non-performing loans. Total assets’ growth was

largely financed by depositors’ growth, followed by borrowed

funds and other banks.

The surge in cash and cash equivalent is primarily due to money

transfer, from an expanded wholesale funding, in the fourth

quarter and more stringent liquidity requirements that have

necessitated higher holdings. As the cash proceeds from various

wholesale funding have not been converted into loans yet, the

Group’s cash position jumped 53% from the prior year. Addition-

ally, 42% of XacBank’s increase in cash can be attributed to

increased holdings in the Bank of Mongolia.

The Group’s Loan and lease portfolio had a solid growth of 19%

by further expanding our footprint in the SME, micro and

consumer segments respectively. Reflecting XacBank’s strategic

shift toward a universal bank, the number of active borrowers

decreased 8% while the average loan size increased 17%.

For majority of the year, customer deposits were the primary

source of funding for the loan growth. Deposits grew 42% to

reach ₮512 billion, which resulted in a decrease in loans-to-

deposit ratio from 152% in 2011 to the current 127%.

Whilst growth was seen across all accounts, time

deposits had the largest growth, of 53%, effectively

supplying a steadier funding base.

The Groups borrowed funds increased by 33%

owing to various loan facilities provided by foreign

financial institutions. The finalized subordinated debt,

from the IFC Capitalization Fund, should give the

Group sufficient capital, along with the cash proceeds

from loan facilities, to assertively face the uncertainties for the

upcoming year.

Predominantly reflecting the increased share issuance and

minority interest relating to TianRong, as their financials were

consolidated in November, the Group experienced a 528 bps

decrease in ROaE to end the year 15.6%. In conjunction with

increased shares and the unutilized cash, ROaA contracted 36

bps to the current 1.61%.

Income Statement

The Group ended the 2012 year with a record net profit of ₮15.9

billion, an increase of 23% from last year.

Net Interest Income rose 32% to reach ₮63.3 billion for the year

driven by the loan portfolio’s expansion into SME and corporate

segment. The increase of lower-yielding liquid assets (Central

Bank bills) to support more stringent regulatory requirements was

more than offset by growth in SME, micro and consumer loans.

Net fees and commission income had the largest increase of

141% from ₮1.2 billion in 2011 to ₮2.8 billion. This is reflective of

XacBank’s strategic focus on expanding its trade finance, foreign

currency trading, for corporate clients, and an expanding ATMs

network to be a universal bank.

Credit loss expense rose 8%, to ₮3.1 billion, but still remains low

compared to the banking sector’s domestic credit expansion of

24% this past year. XacBank’s NPL ratio is only 1.3%, despite the

rapid growth, thanks to a studious risk management process. The

Bank maintains a conservative strategy on credit expansion to

have internal ratios well above the mandatory requirements.

Operating expenses increased ₮13.8 billion, to reach ₮46.1

billion, as we continue to invest in our businesses to underpin

income momentum. The increase was primarily in staff and

infrastructure investments for new branches, ATMs and improved

IT hardware.

As a result of the foregoing, net profit increased ₮3.0

billion to ₮15.9 billion, ahead of our financial target.

Growth in total assets

34.8 %

USD 45.5 MM

EUR 34.5 MM

USD 468 MM

EUR 355 MM

Management Discussion & Analysis


18.1

8.6

18.5

20.9

15.6

0

3

6

9

12

15

18

21

2008 2009 2010 2011 2012

ROaE (ordinary shares)

%

0.43

0.26

0.73

0.87 0.96

0.100.200.300.400.500.600.700.800.901.001.10

2008 2009 2010 2011 2012

MNT

Earnings per ordinary share

11.110.3

8.3

10.910.4

2

4

6

8

10

12

2008 2009 2010 2011 2012

Tier 1 Capital Ratio

%

1.93

0.91

1.68

1.98

1.61

0.0

0.5

1.0

1.5

2.0

2.5

2008 2009 2010 2011 2012

ROaA

%

Key Performance Indicators

Measuring our

performance

The Group’s

management team

evaluates the financial

operation of its

subsidiaries in line with

our business plan,

strategy and historical

performance, using both

quantitative and

qualitative measures.

The following pages are

the key consolidated

high-level financial

indicators.

Capital deployment

Measure: (percentage) net profit after

taxes attributable to shareholders divided

by average total shareholders’ equity.

Target: to maintain a return above 20%.

Outcome: return on average ordinary

shareholders’ equity was below the target

due to new business expansions.

Measure: (percentage) net profit after

taxes divided by average total assets.

Target: to maintain a return above 1.5%.

Outcome: return on average assets was

above the target despite rapid business

expansions.

Sustainable shareholder return

Measure: (percentage) core tier 1 capital

comprising shareholders’ equity excluding

minority interest divided by total assets.

Target: to maintain a strong capital base

to support the development of the

business and meet regulatory capital

requirements at all times

Outcome: the Group’s equity base was

stable throughout the year resulting in

sustainable shareholder return.

Measure: (Togrog) level of earnings

generated per ordinary share.

Target: to deliver consistent growth in

earnings per share

Outcome: earnings per share increased,

for the third straight year, that ultimately

enhanced shareholders’ value.


47

31

67 69

19

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012

Loan Growth

%

197

157

140152

127

70

90

110

130

150

170

190

210

2008 2009 2010 2011 2012

Loans to Deposit Ratio

%

21

63

89

54

42

0

20

40

60

80

100

2008 2009 2010 2011 2012

Deposit Growth

%

72

6169 66

58

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012

Loan to Asset Ratio

%

70

77

71

63

67

50

55

60

65

70

75

80

2008 2009 2010 2011 2012

Overhead Ratio

%

48

8

6065

35

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012

Operating Income Growth

%

Key Performance Indicators continued

Positioning ourselves for success

Measure: (percentage) increase in

deposits by customers since last year.

Target: growth between 20% and 60%, a

range which is expected to fund future

business growth.

Outcome: while all deposit accounts

grew, time deposits had a particularly

large increase that contributed to larger

funding base.

Measure: (percentage) increase in net

operating income before impairment and

other credit risk charges since last year.

Target: to deliver consistent growth in

operating income from diverse sources.

Outcome: operating income increased

primarily due to interest income but also

from net fees and commission and other

operating income contributing this year.

Measure: (percentage) total loan and

lease portfolio divided by total assets

Target: to have sufficient liquid assets to

buffer against uncertainties while attaining

target income.

Outcome: aside from higher regulatory

requirements, there was a surge in cash

late in the year due to the various funding

facilities coming online that have resulted

in unutilized cash as of this reporting.

Measure: (percentage) operating

expense divided by net interest income,

net fees & commission and other

operating income.

Target: to be below 50% by 2016.

Outcome: the ratio is still above our long-

term target with a slight increase in 2012,

in part due to staff and infrastructure

investments in new branches, ATMs and

improved IT software.

Measure: (percentage) increase in

total loan and lease portfolio since last

year.

Target: growth between 20% and 45%, a

range which is expected to support future

business income.

Outcome: our loan portfolio grew on the

back of SME, micro and consumer loans

to achieve a fairly balanced portfolio.

Measure: (percentage) total loan and

lease portfolio divided by deposits.

Target: to achieve a diversified funding

base from long term steady sources.

Outcome: Throughout most of the year,

customer deposits were the primary

source of funding that contributed to a

reduction in the ratio.

Generating growth


Syndicated Loan

Earlier in the year, senior management of TFG and the Bank went to meet EBRD in London for a syndicated loan facility. In December, the Bank closed on a series of financing agreements, including but not limited to USD 46 million EBRD syndicated loan facility and USD 15 million from Lim Advisors (a bond investor). With these facilities, the Bank has largely compensated for the lack of bond proceeds in 2012.

Other Developments

In October, 2012, TFG signed the Memorandum of Mutual Understanding (“MoU”) on Strategic Alliance with Hana Financial Group of Korea during the visit of Mr. Jung-Tae Kim, Chairman of Hana Financial Group to Mongolia. The MoU outlines the proposed cooperation between the parties, concerning customer referral, banking cooperation, staff exchange and exchange of information.

Withholding Tax Changes

On November 2, 2012, the Parliament of Mongolia has passed a legislation to invalidate Mongolia's double-taxation treaties with the United Arab Emirates, the Netherlands, Luxembourg and Kuwait to be effective from January 2014. The legislation was passed based on a study performed by the Ministry of Finance, which found that certain treaties had a net negative impact on Mongolia. This will negatively affect TenGer’s shareholder(s) from Netherlands, Triodos, by increasing their tax rates on dividends and other income, including income from share sale, from previous 10 percent to 20 percent.

Overview

When compared to many other Mongolian financial institutions,

TenGer has an access to diversified funding sources from both

domestic depositors and foreign financial institutions to allow a

robust capital structure to take advantage of the growth opportuni-

ties in Mongolia. Mongolia’s rapid economic expansion, yet at its

infancy, requires stable and sufficient capital sources to capitalize

on the opportunities created by the increasing economic growth.

Our established partnerships with international financial institu-

tions and development organizations, including our shareholders,

provide a solid support network to guide and train our staff to

international standards. We believe our diverse funding sources

and international guidance provide a competitive advantage and

will enable us to expand our loan portfolio prudently as Mongolia’s

economic development continues.

Financing Facility

TenGer has finalized the USD 5 million financing facility agreement with the Belgium Investment Company for Developing Countries (BIO) in December. The first tranche of USD 2.5 million was received by XacLeasing through TFG, at less than 7 percent per annum for 5 years term. Contract requirements were rigorous enough to push the process for over twelve months until the final signing toward the end of the year.

Negotiations with the IFC Capitalization Fund concluded in June on USD 40 million subordinated debt facility of 8 years for XacBank.

Funding

The Group’s top management discussing future funding plans at its 2013 retreat

Signing ceremony of EBRD led USD 46 million syndicated loan to XacBank

The Group continues to hold a liquid position while further diversifying its funding sources from international financial institutions.


Commercial Banking

Leasing Services

Physical Security

Software Developer

Investment Banking

Microcredit (China)

General Insurance

Management Committees

The Group has several committees to facilitate the dissipation of

knowledge and integration of the Group’s mission with its

subsidiaries. It serves as a communication bridge for senior

management, of each company, to build a greater overall

synergy.

The Executive Committee (ECM) functions as the shareholders

of wholly-owned subsidiaries of TFG. ECM structure is adopted

within each subsidiaries.

Our Organization

At the holding company level, TenGer will implement the business

plan by setting the overall guidance of the Group, aligning our

affiliate companies to maximize synergies and ensuring best

practice in corporate governance. Our immediate focus will be on

assisting in institutional development, driving the implementation

of each division’s business plan, providing management support,

and exploring new investment opportunities that complement

TenGer’s existing investments and overall strategy. The Group

believes a blend of reputable local and international shareholders

along with solid corporate governance will enable us to reach our

goals.

TFG (Holding Company) LLC structure: Management Committee structure:

MD: Managing Director

IRMD: Integrated Risk Management Division

CRO: Chief Risk Officer

HRD: Human Resource Division

Shareholders

Board of Directors

CEO

Executive Committee VP, Investor Relations

& Corporate AffairsChief Auditor

Executive assistant

Office managerManaging Director

Treasurer HR Officer

Risk Management Officer

Group Risk Management Committee

VP/Legal & Compliance

Investment Analyst

Compliance Officer

Subsidiary Legal Units

Group HR Management Committee

Investment Officer

VP/Human Resources

VP, Chief Financial Officer

Financial Analyst

Internal Auditor

Accountant

Group Risk Management Committee

CRO, TenGer Insurance

Risk Manager, XacLeasing

Head of IRMD, XacBank

MD, TFG (chair)

Executive Committee Members (ECM)

VP, TFG

CEO, XacBank

CEO, XacLeasing

CEO, TenGer Insurance

CEO, TianRong

CEO, XacSecurity

CEO, TenGerSolutions

MD, TFG

CEO, TFG (chair)

Group Human Resource Committee

COO, XacLeasing

COO, TenGer Insurance

CEO,TenGer Solutions

CEO, XacSecurity

Head of HRD, XacBank

HR, TFG (chair)

HR staff, XacSecurity

VP, TenGer Capital

The Group’s structure:

TFG Organization Structure

People

Planet

Profit


Overview

TenGer Financial Group (TFG) considers Corporate Social

Responsibility (CSR) as one of its important management

policies, which is aimed at meeting our responsibilities to society

and environment, by ensuring sound business management and

according the top priority to integrity and compliance.

As part of TFG activities, the Group companies adopted their

Social and Environmental management policies and appointed

responsible officers. Regular meeting are held to discuss

progress and issues, such as environmental monitoring and

reporting, safety, compliance and human resources.

To promote the Group’s triple bottom line “People, Planet and

Profit” and enhance social and environmental awareness, we

engage in dialogue with a wide range of stakeholders, including

our shareholders, investors, customers, employees, suppliers and

local communities.

We organize various charitable activities, hold meetings and com-

municate information to enable communities, schools, customers,

businesses and students to learn about TFG activities and its

social and environmental goals. In order to achieve these goals,

we promote initiatives aimed at reducing the environmental impact

of our products and business activities, and apply all available

instruments and tools to positively influence the behavior of our

customers so that they comply with regulatory requirements.

Throughout the activities of all Group companies’ activities, we

strive to ensure compliance with laws and regulation, ethical

norms, and internal policies and rules. Our compliance rules and

standards go beyond what’s legally binding and embrace broader

standards of integrity and ethical conduct.

In order to enforce the TFG’s Compliance Management procedure

and foster high standards of ethical and compliance culture within

the Group, in 2012 we implemented the following:

Organized and set priorities for the compliance function in the

subsidiary companies, in a manner that is consistent with the

company’s risk management policies and structures.

Appointed Compliance Officers for the companies, within their

relevant risk management units. Began enforcing compliance

monitoring and reporting procedures.

Strongly believing that managing compliance risk is key to foster-

ing and sustaining ethical corporate culture, TFG adopted

supporting operational processes and worked towards instilling

compliance culture at all levels, both within the holding company

and each subsidiary.

Our commitment to corporate responsibility will not change.

Efforts will continue as regards new initiatives to make TFG more

sustainable, more engaging and involved in our communities.

Institutional Development

Social and Environmental

Responsibility & Compliance Human Capital

Overview

In 2012, the Group’s total headcount increased by 167 or 10.4%

to reach 1,769 employees (1,932 including those on maternity

leave). The highest net growth experienced by XacBank adding

109 employees (increase of 8.2%).

The group further enhanced its leadership capability through

acquiring top talent at senior management positions.

In order to remain competitive in a rapidly growing economy with

tight labor market the group formalized its merit policy, executing

merit increases by differentiating pay based on employee

performance. The group is equally concerned about employee

security, both now and in retirement. Group continues to maintain

its employee pension accounts at a private pension plan, a

pioneering initiative, which is operational since February 2007.

The benefit package was expanded by offering health insurance,

replacing the medical and health screening expense reimburse-

ment program.

In 2012 the group emphasized the importance of the talent man-

agement. Following the guidelines developed by TFG, XacBank,

the largest employer within the group, successfully conducted

talent reviews of all eligible HQ staff and identified a pool of high

potential and high performing staff.

Based on employee satisfaction survey results, TFG initiated

group-wide well-being program with the aim to improve employee

personal wellbeing and health. The program contained several

initiatives that were organized consistently throughout the year to

help employees get the best out of life with the ultimate goal for

happier and healthier employees. Well-being activities are aimed

at physical and mental health, active life style, sports, cultural

and social activities. Even though the participation is entirely on a

voluntary basis turn-out rates were high.

People

Planet

Profit


Overview

The mission of the Internal Audit Division (“IAD”)is to add value

through an independent appraisal of operations and activities and

corporate governance of TenGer Financial Group and its subsidi-

aries, resulting in improved operational efficiency, risk manage-

ment and internal control systems.

The Board of Directors (“BoD”) should direct and monitor the

capabilities and effectiveness of the organizational structure and

staffing of the Internal Audit Division for achieving its mission

objectively and independently from any elements of the family of

the TenGer Financial Group.

The Internal Audit Division adheres to risk-based internal audit

principles and implements “international standards for the profes-

sional practice of internal auditing,” which is developed by Institute

of Internal Auditors as stated in its “Internal Audit Charter”.

In order to comply with risk-based internal auditing, IAD has

applied risk evaluation method of the audit universe and audit

sampling method to its audit activity, aiming to define sufficient and

appropriate amount of sample, which is approved by the BOD

Audit Committee.

2012 Audits

In 2012, IAD has audited subsidiaries of the TenGer Financial

Group and head office units and branches of Xacbank in accor-

dance with “2012 Audit plan” approved by the Board’s Audit

Committee. All audit reports and recommendations have been

reported to the respective Executive Management of the subsidiar-

ies for their official resolutions aimed at improvement of opera-

tional efficiency, internal control system and risk management.

IAD has followed-up implementations of the Executive Manage-

ment decisions on a regular basis.

IAD has successfully fulfilled its duty to organize a BOD Audit

Committee meeting every quarter and presented on topics such as

all audit results, internal control system of the bank, performance,

staffing and structure of the IAD, in accordance with the “Charter of

the BOD Audit Committee.”

Internal Audit

Institutional Development continued

People

Planet

Profit


included ORIX Corporation, NEC, DuPont, Bosch, DBS Bank,

and BASF. The diversity in participant cultures, backgrounds,

and work experience added dynamism and fresh perspectives in

achieving project goals.

The final report of the participants can be found here.

Overview

Participants on the 28th Global Young Leaders Programme

(YLP), an experiential executive leadership programme run by the

Global Institute For Tomorrow (GIFT), took on this challenge and

crafted an initial blueprint for the first ever impact investment fund

to be set up in Mongolia. Leveraging global executive talent

through interactive classroom learning and first-hand onsite field-

work, this groundbreaking YLP delivered a detailed framework for

TenGer Financial Group to create, manage and measure an

investment fund, tailored to Mongolia’s particular needs. Their

conclusions highlight that attractive investment opportunities do

exist beyond the mining sector, many of which will provide

measurable value to society, and that these are currently not in

the spotlight of other more conventional funds.

“The timing of this fund is critical in the development of Mongolia,

as it seeks to balance wealth created by mining activity with social

and environmental consequences”, says Amartuvshin Hanibal,

Managing Director at TenGer Financial Group. “In this respect,

our organization is well positioned to pioneer the fund in Mongolia

given the fact that TenGer Financial Group and XacBank were

built on a unique balance of social and financial priorities.”

The proposal focused on small-to-medium sized enterprises

(SMEs) in key sectors such as agriculture, healthcare, affordable

housing, vocational training and waste management in addition to

certain mining services and is expected to have significant impact

on the country’s economic and social development, while also

providing healthy returns to investors. This has started an impor-

tant discussion in Mongolia about the role of foreign investment,

the primary beneficiaries and how to ensure that the unique op-

portunity currently facing the country is not wasted, but maximized

for the benefit of its people.

Programme participants came from eleven countries, including

Mongolia, Japan, Singapore, Malaysia, Indonesia, China, Austra-

lia, India, Canada, UK, and USA. Of the thirty participants, six

came from Mongolia, holding senior level positions in organiza-

tions such as Oyu Tolgoi LLC, the Ministry of Finance, XacBank,

Monet Capital and Inter Group. Other companies represented Social and Environmental Responsibility

Social Impact Investing: Creating Growth Opportunities for Homegrown Businesses

“The GIFT YLP represents a unique opportunity for

global business leaders to create meaningful solutions

to today’s developmental challenges. For Mongolia, it is

good timing as the country is experiencing rapid growth

but at the same time, facing many difficult challenges

which require strong leadership and new ways of think-

ing. We are looking forward to working with the group

on this important project.”

- Bold Magvan, CEO, TenGer Financial Group

The presentation team featured in the above photo collage– five participants with five

different nationalities (Canada, USA, Indonesia, Mongolia, and Japan) were chosen to

present highlights of the final output.

People

Planet

Profit

http://www.global-inst.com/downloads/programme_materials/past/GIFT_Mongolia_Social_Impact_Fund_Aug_2012.pdf


2012 Achievements

In December 2012, the Department concluded the final segment

of what has been its flagship project: a two-year contract with the

Millennium Challenge Account of Mongolia (MCA-M), the na-

tional compact of the United States Millennium Challenge Corpo-

ration. The results of the partnership surpassed even XacBank’s

expectations. During the contract period, the Eco Banking De-

partment facilitated the sale of over 100,000 energy-efficient

products and transferred over USD 22 million in subsidies to lo-

cal manufacturers and importers of environmentally friendly prod-

ucts. Fuel expenses in Ulaanbaatar’s ger districts were reduced

by over MNT 153 billion, or MNT 925,000 per household that pur-

chased a product through the program, and 58% of the house-

holds registered in the ger districts have purchased an energy

efficient stove—reflecting significant market penetration. Each

stove lowers particulate matter emissions by upwards of 85%,

helping to mitigate this type of pollution, which incurs over USD

470 million in health expenses each year in Ulaanbaatar. Overall,

carbon emissions in Mongolia were reduced by an estimated

388,000 tons in 2012, markedly reducing the country’s impact on

global climate change.

In 2012, in collaboration with MicroEnergy Credits, XacBank has

successfully submitted its project for registration with the United

Nations’ Clean Development Mechanism and secured a pur-

chase agreement with CitiGroup to purchase 1.17 million tons of

CO2 over 7 years. Carbon revenue has already been received for

credits generated in 2011 and is being used to cover ongoing

operational expenditures and to support the expansion of the

Department’s work to address environmental issues. Securing

additional capital is an important element of the Department’s

expansion, allowing it to fund ongoing activities while exploring

additional avenues for business development.

In December 2012, the Eco Banking Department finalized an

agreement with the Deutsche Bank Global Climate Partnership

Fund securing an loan facility of USD 20 million to be used for

mortgage loans and small and medium enterprise (SME) lending

that result in at least a 20% decrease in regular carbon output.

Working together with XacBank’s SME Lending Department, Eco

Banking established a pipeline of local manufacturers producing

alternative fuels, improved heating systems, and insulated con-

struction materials and windows—all of which will contribute to

improving residential energy consumption in Mongolia.

Overview

XacBank’s focus on environmentally sustainable finance began in

2009, with the formation of the Eco Products Unit, which began by

looking at both short and long-term efforts to mitigate air pollution

in Mongolia’s capital of Ulaanbaatar, the second most polluted city

in the world. This initiative was born out of XacBank’s “Triple

Bottom Line” mission and vision of generating a positive impact

on people and the environment as well as generating profit for the

Bank’s shareholders. The majority of the air pollution in Ulaan-

baatar is caused by household-level consumption of raw coal in

the ger districts—periurban slum areas that surround the capital,

comprising approximately 60% of the city’s population.

XacBank developed an innovative model to address air pollution

in Ulaanbaatar. Partnering with local and international donors, the

Eco Products Unit established sales centers (Product Centers)

housed in gers (traditional Mongolian felt tents) with the core

energy efficient technologies available in the Mongolian market—

fuel efficient stoves and insulating ger blankets made of high qual-

ity felt—in use and on display. This marketing and distribution

channel allowed donors to provide subsidies to the producers of

products that would reduce air pollution to offset the cost of these

technologies to end users and XacBank developed a below mar-

ket rate, flexible microloan product to expand access to energy

efficient products to even the lowest income clients.

To make this project sustainable with or without donor involve-

ment, XacBank partnered with MicroEnergy Credits, a US-based

carbon finance company, to evaluate, bundle, and sell the carbon

emissions reduced by the products distributed through the

XacBank program. XacBank’s carbon finance program is antici-

pated to generate more carbon emission reductions per year than

any other single project in Mongolia.

Indicative of its success, the unit became the Eco Banking

Department in 2011, and while it continues to focus on the

distribution of energy efficient products to reduce air pollution in

Ulaanbaatar, it has also begun to look at a wide range of financial

products and services that can mitigate the entire range of

environmental challenges facing Mongolia across sectors as

diverse as energy generation, industrial production, and waste

and sanitation.

Social and Environmental Responsibility: Eco Banking

Eco Banking: Transforming a City through Environmental Banking

People

Planet

Profit


Nansalmaa’s Story:

Discovering the Benefits of Sustainability

Endon Nansalmaa is one of over 700,000 residents in Ulaan-

baatar’s ger districts—an expanse of sprawling, peri-urban

neighborhoods burdened by low incomes, poorly insulated housing,

and harsh winter conditions. Between September and May, Nansal-

maa endures temperatures that regularly drop to below -30° Cel-

sius. Struggling to keep warm, most families rely on inefficient

stoves, burning 4.5 tons of coal per year per household.

In 2010, when XacBank began offering improved stoves, ger blan-

kets, and vestibules through its product centers, Nansalmaa found

the savings potential and the added comfort provided by these en-

ergy-efficient products to be extremely appealing. The reduced cost

of fuel would be worth more than twice Nansalmaa’s monthly salary

and would allow her to spend more on food and other basic neces-

sities; it would also allow her to help her sons and daughters finan-

cially, who were growing older and starting families of their own.

Still, even at the subsidized price, the combined cost of the ger

blanket, stove, and vestibule was unaffordable. She would need to

take out a loan—something that Nansalmaa had never done before.

“This was the first loan I ever took,” Nansalmaa explained. “I wasn’t

confident…I was really pessimistic about the likelihood of getting a

loan. But fortunately XacBank gave me a loan even though my in-

come was so low.” The ease with which Nansalmaa was able to ac-

cess financial support was especially important to her. “The bank

gave me all the documents and I was able to prepare them in two

days, which was so easy. I waited a week to get the documents ap-

proved. I am so appreciative of their fast service and the loan’s af-

fordability.”

Now, just under two years later, Nansalmaa has almost entirely paid

off her debt. “I have to pay 8,000 more tugrik (6 USD) and I will be

finished with my loan.” Because of the bank’s below-market interest

rates, Nansalmaa continued to support her sons and daughters

throughout the loan period, helping them to begin their new lives

beyond the family ger. “I consider myself a very lucky person,” she

said, “the bank allowed me to get these products and made this all

happen.”

To encourage ger district residents to purchase energy-efficient

housing, XacBank’s Mortgage and Eco Banking Departments

worked together to provide below market interest rates for clients

opting to move into highly insulated homes and apartment build-

ings from poor quality ger district residences, further minimizing

the impact of household coal consumption on pollution in Ulaan-

baatar. Through these efforts, the Eco Banking Department has

demonstrated both its willingness to grow beyond existing projects

and its ability to adapt to a changing environmental landscape,

envisioning a broader response to Ulaanbaatar’s pollution crisis.

Social and Environmental Responsibility: Eco Banking

An Eco Banking Product Center. Product centers are housed in traditional gers, better

demonstrating how energy-efficient products can be put to use in a Mongolian house-

hold.

XacBank client sits happily in his ger,

heated by an energy-efficient stove.

An Eco Banking product representative

explains the benefits of energy-efficiency

to a potential customer.

People

Planet

Profit


Overview

XacBank (“Bank” or “Company”) is one of Mongolia’s largest banks that are of systemic influence serving retail and corporate clients

with a range of inclusive banking, fair investment and other financial products and services. It operates all over the country city serving

more than 525 thousand customers through its 103 retail and 4 business service branches as well as specialized banking outlets which

includes over 888 AMAR mobile banking merchants and 49 Savings and Credit Cooperatives. The Bank aims to create a sustainable

value for its shareholders and institutional investors, while promoting a triple-bottom line vision and mission built around “People,

Planet and Profit.”

XacBank is the undisputed leader in Corporate Governance, Transparency and Risk Management, and is best known for its world

standard Corporate Social Responsibility implementations. In 2012, both Moody’s and Fitch ratings affirmed the operational scope and

the credit capacity of XacBank at “B1 stable” and “B stable” respectively, whilst development finance rating agency Planet Rating

awarded the Bank a rating grade of “4-” out of “5” for its long-standing social performance.

The Bank’s goal is to be a client-driven organization that is more accessible, innovative, and able to strike quickly at the numerous

unique growth opportunities, in line with the tremendous economic growth prospect for Mongolia in the coming decade.

MNT billions 2010 2011 2012

Net Interest Income 26.8 45.3 60.0

Profit 6.5 12.1 15.2

Total Assets 468 818 1,078

Equity 34.6 82.6 97.8

% 2010 2011 2012

RoE 20.0 22.0 16.9

NPL 1.5 1.2 1.3

Liquidity Ratio 26 31 38

CAR 13.7 20.8 20.4

Tier 1 capital ratio 9.7 14.4 13.6

Performance

At the end of 2012, total assets reached ₮1.09 trillion. The

increase, of 33%, was principally funded by a rapid increase in

time deposits. As a result, the Bank’s gross loan portfolio

expanded 18.5% to reach ₮636.5 billion.

Total liabilities rose ₮252 billion (34%), mainly through deposits

and borrowed funds to finance our growth. XacBank’s deposit

increase, of 43%, was the highest in the banking sector.

Borrowed funds expanded by ₮88 billion owing to 16 new funds

from foreign financial institutions. Of particular note, a large

portion of borrowed funds were transferred to XacBank late in

the year.

Total capital amounted to ₮146.2 billion, consisting of subordi-

nated debt and equity, making XacBank one of the most well

capitalized Banks in Mongolia with a Capital Adequacy Ratio of

20.4%.

Revenues attributable to short-term securities surged 128% to

reach ₮12.5 billion while non-interest income grew ₮2.2 billion to

₮ 9.5 billion on the back of trade finance and active foreign

currency trading for corporate clients.

XacBank started “XacLottery” with the aim of helping the Mongolian people under-

stand the benefits of financial savings and value of saving up for the future.

General, personnel and administrative expenses were ₮45

billion, an increase of 42% versus 2011. The growth is directly

linked to operating expenses related to an overall increase in the

expansion of branch network and banking activities.

XacBank had an effective tax rate of 24.3%, one of the top 50 tax

paying businesses in Mongolia, with a reported net profit of

₮15.2 billion. Net interest income was the key driver of the 26%

growth in net profit.

Jul.

Aug.

Nov.

Dec.

XacBank migrated to TDB’s card processing center

and started real-time transaction

Eco Banking Department successfully implemented

the Clean Air project

Established SME and Corporate Banking division

based on customer focused structure

EBRD arranges USD 46 Million Syndicated Loan to

Boost XacBank’s SME financing

Jan.

Mar.

Apr.

May

Jun.

Jun.

2012 Major events

XacBank launched XacLotto savings campaign

Customer Value Management Initiative implemented

XacBank was nominated and granted the first

“Pioneer Award” from Child Youth Finance Award

Approved the business plan for next 5 years

Signs USD 40 million sub-debt agreement with IFC

Selected as a Clearing Bank by the Mongolian Stock

Exchange under the Millennium Information Technol-

ogy Program

XacBank

People

Planet

Profit


Overview

XacLeasing was founded in 2007 as a wholly owned subsidiary of TenGer Financial Group with the aim of spearheading the

development of Mongolia’s leasing sector and contributing to the development of micro, small and medium sized enterprises through

access to leasing services while complying with environmentally–friendly practices.

Leasing has allowed entrepreneurs to access necessary financing for equipment and vehicles without the inflexible collateral require-

ments of banks. XacLeasing has constantly improved its outreach, profitability and operations supported by IFC’s technical assistance

and a network of domestic and international funders.

Following patterns observed elsewhere, the company has started out providing “plain-vanilla” financial leases and improved the

operational efficiency of doing so. XacLeasing’s attractiveness in the market is based on the ability to provide longer terms for leases,

fast credit decision process, friendly service and low collateral requirements. XacLeasing has done groundbreaking work to potentially

expand into new products like operational leasing in the near future.


Net Interest Income 0.72 1.31 2.87

Profit .24 .39 1.25

Total Assets 6.1 18.1 26.0

Equity 2.4 5.9 7.2

XacLeasing

provided the company with the ability to add income without add-

ing extra costs. In other words, the (lease interest and fee) in-

come in 2011 and 2012 both grew by 94%, operational costs

grew by 112% in 2011 but only by 26% in 2012, highlighting the

scalability reached through the vendor-approach.

While the share of overdue leases was still high at the end of

2012, XacLeasing’s portfolio in December of 2012 was more

diversified and both the average asset size as well as top 20 con-

centration has reached lows compared to 2011: Top 20 clients

compared to equity decreased from 110% to 108% and average

size reduced to ₮64 million from ₮70 million despite double digit

inflation. In brief, the company has moved towards a more diver-

sified portfolio of micro and small leases. The net interest margin

has improved to 13.4% from 11.8% a year earlier as a result of

focusing on high-margin, low-risk deals.

Performance

XacLeasing has more than tripled its profits and increased the

return on average equity ratio from 12.4% at the end of 2011 to

19.3% at the end of 2012, while at the same time reducing the

overhead ratio from 53.4% end of 2011 to 31.6%, as a result of

achieving economies of scale.

The gross lease portfolio grew by 39% and the net portfolio by

36% due to increased provisions in order to mitigate potential

losses in the future. While growth in 2012 has been slower than

in years before, the market share of XacLeasing in the market of

financing assets from quality vendors has increased to roughly

20% from 15% in 2011.

Throughout 2012, NPLs remained low, but the disbursements

done in the last quarter of 2011 and the first quarter of 2012

show significant overdue at year end 2012: 12.7% (4Q, 2011)

and 38.6% (1Q, 2012). Since XacLeasing has experience in re-

possession and resale of leased assets, the company expects to

keep NPLs on low levels throughout 2013 as well.

The stricter downpayment requirements were introduced at the

end of the second quarter have let to positive results, only 3.4%

of 3Q, 2012 and 1.8% of 4Q 2012 disbursements have been

overdue at the end of the year, and the vendor-approach has

XacLeasing’s customers

Sep.

Oct.

4Q

Nov.

Order tracking system An order tracking system was developed and implemented that allows

the tracking of accountability within the company and the time neces-

sary for processing of application to disbursement.

XacLeasing hired a new COO

Mr. Daurenbek was hired as COO to head the operations, accounting,

legal, reporting, audit and compliance functions in XacLeasing

USD 5 million agreement with BIO through TFG.

The first tranche of USD 2.5 million of this was received in November/

December 2012.

Scoring system was introduced to improve the risk

assessment capacity of the team.

Mar.

May

Jun.

Jun.

Aug.

2012 Major events

XacLeasing hired a new CEO, Philipp Marxen The new management embarked on a turnaround strategy to move

away from a walk-in client approach to a vendor-approach.

Respons Ability provided USD 1 million to fund

XacLeasing’s continuous growth

Board of Directors dismantled The responsibility of the board was passed-on to the Group’s execu-

tive committee, which ensures a closer cooperation and coordination

within the Group.

Stricter risk management & utilized tracking devices Higher downpayment requirements instituted while the firm started

using tracking devices in case a client is repeatedly not willing or able

to make payments on time.

XacLeasing received USD 1 million from Oxfam/SEIIF,

managed by Symbiotics

People

Planet

Profit


Overview

TenGer Insurance was established in 2001 by the initiative of Mongolia’s largest petro chemical company under the name Bat Insur-

ance. In 2010, the name was changed to TenGer Insurance, and the firm has grown into one of the leading insurance firms in Mongolia

with its nationwide presence.

The company has 20 branches throughout Mongolia serving both corporate and retail customers. Currently, the firm is engaged in

business activities with more than 300 insurance representatives. TenGer Insurance offers competitive and comprehensive insurance

products of various types, depending on the needs of the customers. Some of the products include coverage of property and equip-

ment, petrochemical products, auto vehicle, third party liability, cargo and passenger liability, personal accident, temporary disability,

comprehensive general liability to name a few.

In particular, TenGer Insurance is the leader in petrochemical and international transport insurances. Along with the firm’s strong

focuses on corporate services, TenGer Insurance is aiming to introduce an unique micro-insurance for low incomes individuals within

the country through its cooperation with leading micro finance institutions.


Gross Written Premiums 3.94 4.11 6.03

Profit .37 .66 .20

Total Assets 4.3 5.8 7.4

Equity 1.5 2.2 2.4

Other Highlights

A new branch was opened in Songino Hairhan district,

making our total number of branches 22 as of 2012.

The FRC increased the minimum statutory capital require-

ments to ₮ 2 billion for all insurance firms by year end 2012.

Any bonus, discount or lottery on driver’s mandatory liability

insurance was prohibited by the FRC.

The TenGer Insurance was re-selected as one of the

implementing companies for Mongolia’s Index-Based

Livestock Insurance Program, to mitigate the negative

impacts of livestock loss due to the harsh winter. The

company was awarded by the Mongolian National Chamber

of Commerce and Industry for business excellence

The firm’s staff retention significantly improved and stabilized

with a turnover of 24.3% compared to last year’s 43.5%.

During the past year, pre-paid insurance card was introduced

while SMS insurance is being developed. The firm is also

negotiating with other commercials banks to offer insurance

policies through their branches.

Performance

TenGer Insurance ended the year with total assets of ₮ 7.4

billion, up 28% from the previous year. Primary changes include

an increase in short term investment by ₮977 million, receiv-

ables by ₮769 million (95%), reserve funds by ₮1.5 billion

(49%), and an increase in paid-capital by ₮1 billion (100%).

Gross written premium reached ₮6 billion, an increase of 47%

compared to 2011. The mandatory driver’s liability insurance law

passed by the Parliament has forced drivers to sign-up for insur-

ance, which became one of the major driving factors for the

increase in gross written premiums in market. Cross selling of

TenGer Insurance policies, through XacBank and XacLeasing,

increased notably in the second half of the year.

Total claims paid for the year was ₮1.7 billion, nearly 43%

occurred in the 4Q, due to a sudden increase on drivers’ insur-

ance driving up the risk exposure of the firm. The large increase

led the company to build more reserve funds from ₮3.1 billion to

₮ 4.6 billion for 2012.

The result of an increase in paid claims and reserve funds lead

to a decrease in net income in the fourth quarter, relative to the

rest of the year. Net income for the year was recorded at ₮204.1

million, a decrease of 69% YoY.

FY.

FY.

2012 Major events

Year of operation expansion and growth Total equity doubled and reached MNT 2 billion, total assets rose

30% to MNT 7.5 million and the number of customers tripled to

62,000. In order to make our products more available we established

new branches, customer service centers in distant provinces and

sums.

Transfers received risks to reinsurer partner The firm cooperated with reputable international reinsurers like

Lloyd’s syndicates, Kiln group, Mitsui Sumitomo Co.Ltd., Hannover re

Co.Ltd., Mapfre Asistencia Co.Ltd, Munich Re and HSBC through

world class brokers.

FY.

Dec.

Dec.

Implements our social responsibility successfully. Provided suitable daycare facilities for disabled children, organized

Science Conference among students and offered job position to the

outstanding students.

Awarded as a “TOP-5 Insurance Company” Mongolian National Chamber of Commerce and Government selected

TenGer Insurance as one of the top 5 insurance company among

other organizations for outstanding contribution to the Mongolian

economy and society.

Won “Business Excellence” nomination Received the Business Excellence award from the Mongolian National

Chamber of Commerce for growth and trusted customer service.

2012 TenGer Insurance staff members

TenGer Insurance

People

Planet

Profit


Performance

TenGer Financial Group’s investment into Arta Invest and the

associated name change to “TenGer Capital” (“TGC” or

“Company”) were approved by the Financial Regulatory Com-

mission (“FRC”) on March 27th, 2012. The Company received

the underwriting and financial advisory licenses from the FRC on

April 18th, 2012.

TenGer Capital finalized all arrangements regarding clearing

services and became one of the first four brokerage houses to

be approved for trading under the new Millennium IT system

installed at the Mongolian Stock Exchange. TGC is currently

using ECM’s front and back office system (“BOS”) with special

permit acquired without any cost. The Company is mediating the

current BOS supplier and XacBank IT to improve the current

connection to XacBank for over 30 other brokerage firms that

chose XacBank as its clearing agent. The Company had

prepared and printed 2,500 account opening agreements to

distribute through XacBank’s branches after appropriate training

is to be carried out in October.

The Company's first securities underwriting mandate, IPO of a

local telecommunication firm on the Mongolian Stock Exchange,

has been put on hold upon the client's request to postpone the

offering due to internal issues. TenGer Capital has been work-

ing as a co-lead with Monet Capital under the mandate.

Mar.

Apr.

2012 Major events

Apr.

4Q.

TenGer Capital is established

Arta Invest’s name is changed to “TenGer Capital” and a revised

charter to the company were approved by the FRC

Received the underwriting and financial advisory

licenses from the FRC

Began work on its first syndicated mandate of an IPO

to list one local telecommunication firm on the MSE.

The IPO has been put on hold upon the client's request to postpone

the offering due to internal issues.

Signed a mandate in connection with equity

fundraising for a fluorspar miner

In the fourth quarter, TGC signed a mandate in connection with

equity fundraising for a fluorspar miner and was in the process of

finalizing a service agreement with a large local producer of infra-

structure materials who requested our service as a management

and financial advisor. As part of the engagement, with the infra-

structure material producer, the team will advise the Company on

financial restructuring and development of necessary internal

policies. One of the accomplishments for TenGer Capital was

two advisory service engagements with TFG and its affiliates.

These included the business valuation of TenGer Insurance and

due diligence coordination for potential strategic investment in

TFG.

The shareholders meeting of TenGer Capital LLC was held on

November 1th, 2012. As a result of the meeting, the Board was

abolished and its responsibilities transferred to the Group’s

Executive Committee, the quorum of which is the Company’s

shareholder meeting. Also, amendments were made into the

Company by-laws reflecting the latest licenses acquired for un-

derwriting and investment advisory services. Another important

result of the meeting was the approval of the Company’s 2013

action plan. The management team is in the process of strategic

and budgetary revisions in light of lackluster domestic capital

markets. In the meantime, TenGer Capital moved into the

premises of XacBank headquarters on Prime Minister Amar

Street, after our sublease period ended.

Overview

TenGer Capital is a full-service investment bank offering clients services in corporate finance, sales and trading, advisory, mergers and

acquisition. The team is dedicated on advising Mongolian-related transactions with domestic as well as foreign clients. TenGer Capital

is owned by one of the leading financial institutions in Mongolia, TenGer Financial Group, thus able to provide service utilizing the

Group’s network and expertise.

The LSE Group has finished implementing

the Millennium IT trading platform for the

MSE, enabling online orders for clients.

TenGer Capital, along with other Group subsidiaries, participated in the “Finance Mongolia” forum that

informed citizens about the financial markets such as opening a brokerage account

TenGer Capital

People

Planet

Profit


Overview

Urumqi TianRong Microcredit Company is a joint venture of between TenGer Financial Group, IFC, MAK, Xinjiang Longhaida and

Shanghai Junhe from China. TFG’s flagship subsidiary XacBank is a leading micro, small and medium enterprises finance provider in

Mongolia and a globally recognized microfinance bank. IFC has been a long-term partner of TFG and XacBank since 1999.

TianRong is the First Sino-Mongolia Micro Finance Institution that opened in September 2012 to provide loans worth more than $200

million to around 15,000 small businesses in the next couple of years.

The Company has built a collaborative corporate culture where

staffs have a voice in major decision-making processes. The cur-

rent management team (consisting of the CEO, COO and CCO),

in place since beginning, has made significant strides in building

a shared understanding that ultimately results in a speeder

decision-making processes. A short-term management consult-

ant worked with the Company during the last three months of the

year focusing on building management-related and marketing-

related capacity in addition to improving the structural issues

around credit operations.

The Company enjoyed a strong support from its Board of Direc-

tors through their flexible decision on liquidity management to

mitigate foreign exchange risk arising from foreign investment

regulations.

Management is committed to implement further actions step-by-

step with the goal of strengthening the Company’s position and

reputation while increasing the value of its shareholders’ invest-

ment.

Performance

Urumqi TianRong Micro-Credit (“TianRong or Company”) ended

its crucial year of operations with fruitful successes, challenges

and some unexpected hurdles. The Management has focused

primarily on institutional capacity building, piloting products and

penetrating new markets.

The number of total borrower reached 34 while the outstanding

portfolio were RMB 14,930,576. Reflecting a lower than antici-

pated demand and the minor difficulties of building a productive

staff for operation, loans has not met its projections. The Man-

agement has taken steps to build institutional capacity and

improve productivity by bringing on board two local experts

alongside a loan officer coaching program by senior managers.

Ms. Chen Yu, COO, who was previously a representative of

TFG, based in Beijing, has decided to take responsibility for the

Company’s future and was added to the team during the early

stage of application period.

Another senior officer, Mr. Azamat Jamsap, has joined from the

beginning of October as the Chief Credit Officer. Mr Azamat has

a 12 year banking experience that involves working for two differ-

ent banks in positions relating to lending and risk management.

He has also worked in Xinjiang’s Government Financial Office

alongside an extensive knowledge about the local conditions and

different industries of Xinjiang.

Opening Ceremony: All the respective shareholders and stakeholders of TianRong

Our Vision

We will become the leading Microfinance Institution in Xinjiang, known for providing excellent service and helping our clients.

Our Mission

To provide competitive, fair and transparent micro-credit services to unbanked and under-banked people while maintaining an equal focus on protecting the environment, helping people

realize their full potential and achieving profitability.

TianRong’s 2012 staff members

Sep.

Oct.

Oct.

2012 Major events

Dec.

Dec.

Dec.

Opening ceremony of TianRong The first Sino-Mongolia micro finance institution launched during the

2nd EuroAsia Conference

Start of market penetration

Conducted marketing and promotion activity such as door-to-door

activity and potential vendor meetings at the firm’s office

Training Two local consultants from Planet Finance and MicroCred MCC have

conducted short term training for Management and all staffs.

The Company received trainers from IFC, and they have conducted

"Responsible Finance" training for Management.

Conducted market research and customer satisfaction survey

based on the Management consultant’s support.

Installed new MIS, Goldsoft announced from Xinjiang Financial

Office.

Six of our staffs visited Mongolia to attended trainings and practiced

in XacBank branches.

TianRong MCC

People

Planet

Profit


Overview

XacSecurity was established in 2002 as the physical security unit of XacBank with the initial purpose of providing security services to

XacBank branches and Headquarter office. Following the adoption of Law on Security Service by the Parliament of Mongolia, the

security service industry requires a license by the relevant authorities in order to properly protect individuals and corporations. The firm

is routinely recognized among the best security companies by the Police Authority and Capital City Specialized Inspection Agency.

Currently, the firm has over 160 full-time staff that provides universal body, alarm and disaster mitigation service throughout TenGer

Financial Group and its customers. Its goal is to utilize their decade long experience with the aim of catering external companies and

government agencies.


Net Sales .82 1.09 1.52

Profit .03 .05 .13

Total Assets .13 .18 .31

Equity .12 .18 .30

XacSecurity

Non-XacBank market: The non-XacBank income, 2.3% of net

revenues, derives from 22 Alarm service contracts with an inten-

tion of increasing that number to 50 in 2013. These clients are

usually within the same building as an already secured XacBank

building/branch. XacSecurity does not incur any direct cost as

the clients usually buy their own equipment and cables to be in-

stalled. They send engineers to install the equipment and config-

ure it with XacSecurity’s central software. The firm has enough

capacity to handle up to 400-500 Alarm equipment. There are

roughly 170 Alarm equipment currently being used, meaning

that the utilization rate is only 34% of total capacity.

Performance

XacSecurity has done well for shareholders as its ROaE

between 2008-2012 averaged 35.5%. XacBank composes the

lion’s share of net revenue at 97.6% in 2012. XacSecurity

provides two main protection services to their clients, Alarm and

Guard services. Guard protection means physical security at

buildings/branches while Alarm protection service includes theft,

fire, alarm button and emergency unit.

The service price that is charged will depend on the risk level of

a specific building/branch. XacSecurity divides its risks into 4

uniform category of A=High, Б=Med-High, В=Medium, Г=Low.

Typical buildings that are classified as High risk are those that

have cash that stay overnight i.e. branches, SME centers, or es-

sentially, any building that potential robbers would think stores

cash. A Low risk building could be those located in the country

side or non-significant cash storing buildings.

Current Financial State: Nearly 78% of their total income came

from Guard service while Alarm service made up 22% in 2012.

XacSecurity has 108 buildings/branches that are protected.

Within the High risk category, 9 out of 12 buildings were located

in UB, while the Med-High risk category had only had 21 out of

30 buildings located in the UB. Medium and Low risk category

were roughly equal in their split between UB and the countryside.

Guard service price is significantly higher than Alarm service due

to the human capital that is required on site. The price discount

between High to Medium risk segment is relatively closer to each

other than the drop from Medium to Low risk as the probability of

risk occurrence is smaller in the Low risk category. Alarm income

per building was significantly larger in the High risk category than

the other categories. In the High risk category, alarm income per

building is roughly 2.28 times compared to the Low risk category.

People

Planet

Profit

XacSecurity staff members

Aug.

Sep

Network integration of XacBank’s branches Connected majority of the Bank’s country side branches and transac-

tion centers with XacSecurity central network system.

50 employees had injury insurance coverage In order the protect the company’s work force against possible

injuries, XacSecurity extended coverage of its injury insurance

program to encompass over 50 employees.

Apr.

May.

Jul.

2012 Major events

10 year anniversary of XacSecurity The firm celebrated 10 years of establishment as the organization

that protected and guarded all the employees of the Group

Security training

Conducted a training seminar to the employees of the Group, along

with the Ulaanbaatar Emergency Unit, on self protection methods.

Expanded the firms modern alarm equipments Purchased state of the art alarm detection equipments from the top

security firms in Israel. XacSecurity plans on further expanding its

technological capacity with future interactions with the firm.

Senior staff members in front of the Chinggis Khaan statue


Overview

TenGer Solutions was established in May 2008 with the focus of

delivering information technology support to XacBank and other

subsidiaries of TenGer Financial Group. The firm also provides

professional consulting and training to the financial sector by de-

veloping new and improving existing software systems.

AMAR is an in-house developed mobile banking application to

provide a simple e-banking product for banks and microfinance

institutions. The application enables customers to perform bank-

ing operations on mobile phones through all cellular operators in

Mongolia. In order to mitigate risks associated with the banking

operations and improve security of remote transactions, the ap-

plication program was developed and deployed in modules with

least privileged rights. Currently, AMAR is used by over 80,000

XacBank customers.

RightBanker is a management information system designed to

automate activities of all nonbanking and finance institutions

(NBFI), savings and credit cooperatives, pawnshops, and cur-

rency exchange bureaus. The system was developed to meet

international financial reporting standards as well as domestic

requirements of Bank of Mongolia and the Financial Regulatory

Commission.

Currently, this system is being used by three companies and

over 30 savings and credit cooperatives.

Performance

TenGer Solutions generated its first positive net income, ₮7.4

million, in 2012 primary through its main client XacBank. While it

is a positive step financially, the firm still has a negative Equity

figure as the accumulation of net losses for several years took its

effect.

The firm has attempted to extend its service offering with Office

365 and NetSuite in the future. However, the vast majority of the

income is still generated through XacBank with their mainte-

nance and development service.

The firm will inevitable have a closer interaction and workings

with XacBank’s IT department to have a cohesive and unified

source for the Group’s IT needs in the future.

Jun.

2012 Major events

Aug.

Aug.

Acquired the exclusive license of NetSuite for

installment in Mongolia.

The firm will install the software throughout the Group and eventually

to external firms

Completed developing mobile application, AMAR, for

iOS, Android and Blackberry

Adopted Microsoft Office 365

Mobile application, AMAR, for mobile banking

TenGer Solutions

People

Planet

Profit

Mobile application, AMAR, for mobile payments


Arvid Tuerkner

Non-Executive Director

Appointed to the Board: 2009

Experience: Arvid is a senior banker with the

financial institutions team of the European

Bank for Reconstruction and Development

(EBRD)’s office in Moscow, the Russian

Federation. He graduated from the Free

University of Berlin, Germany, in 2000 with

special focus on banking and finance, enterprise valuation,

financial sector reform, microfinance, political economy of

countries in transition, privatization, and social security systems.

Current Appointments: Non-executive director on the Board of

Directors of TenGer Financial Group and XacBank.

Former Appointments: Arvid started his professional career in

1996 as a research analyst with the European Institute of Inter-

national Economic Relations, Potsdam University. Between 2001

-2002 and 2004-2008, Arvid was a senior investment manager

for DEG – Deutsche Investitions und Entwicklungsgesellschaft –

responsible for debt and equity investments in Russia, CIS and

Latin America. In 2002-2004, Arvid was UNDP’s donor relations

advisor, responsible for cooperation with its major donor

countries and institutions on resource mobilization.

Erdenejargal Perenlei



Experience: Erdenejargal has been involved

with the Mongolian Foundation for Open

Society (Soros Foundation) in supervision of

programs for education, information, media

and public health. Since the transformation of

Soros Foundation into a national NGO in

2004, Erdenejargal has served the Executive Director and is now

actively involved in promoting citizen participation in decision

making through research-based advocacy. She is a 1982

graduate from the Rostov-na-Don University in psychology.


Directors of TenGer Financial Group and XacBank and the

Executive Director of Open Society Forum in Mongolia.

Former Appointments: Erdenejargal started her career at the

State Committee (Ministry) of Labor and Social Welfare as a

labor economist in 1982-1988, a lecturer at the Government Insti-

tute of Management in 1988-1991, a researcher and later a chief

of Social Studies Unit at the Government Center for Public Policy

and Social Studies in 1991-1992, and an Executive Director of

Mongolian Development Foundation in 1992-1997.

Chuluun Ganbold

Non-Executive Director, Chairman


Experience: Ganbold is the CEO of Email

Daily News LLC. He has an extensive 30-

year career and professional experience in

administration, public relations, business

consultancy and facilitation, mass media and

arts management. Ganbold is a graduate of

the Moscow University of Foreign Languages in Russia.

Current Appointments: Chairman of the Board of Directors of

TenGer Financial Group and XacBank, a member of the Board

of Directors of Oyu Tolgoi LLC and President of several NGOs.

Former Appointments: Founding member of X.A.C. (Golden

Fund for Development), the first NBFI in Mongolia and a prede-

cessor of XacBank. He formerly served as Advisor to the Prime

Minister of Mongolia, the Constitutional Court and in 1993-1995

as Director General of the World Mongolian Federation. Ganbold

is a founder of the Rotary movement in Mongolia.

Bold Magvan

Executive Director


Experience: Bold is a senior banking

professional with more than 20-year

expertise in public and private global financial

institutions, including the World Bank and the

International Monetary Fund. He holds a

Master’s in International Affairs degree with a

major in economic policy management from

the Columbia University, New York.

Current Appointments: CEO and an executive director of

TenGer Financial Group, non-executive director on the Board of

Directors of XacBank, president of the Mongolian Bankers Asso-

ciation, Honorary Consul of the Republic of Iceland in Mongolia,

chairman of the boards of the Credit Information Bureau LLC and

Development Solutions NGO in Mongolia.

Former Appointments: From 1996 to 2000, Bold was the

Deputy Governor of the Bank of Mongolia (Central Bank),

Deputy Director at the Market Research Institute, CEO of the

Mongolian Export-Import Bank, member of the boards of the

International Investment Bank and the International Bank for

Economic Cooperation in the Russian Federation and advisor for

Da Afghanistan Bank (Central Bank), Islamic State of Afghani-

stan.

The Board of Directors


Frank Streppel



Experience: Frank Streppel is Deputy

Managing Director of Triodos Bank N.V.

heading the globally operating team of

investment officers working in the field of

microfinance in the regions of Latin America,

Africa, Asia and NIS countries. Frank

Streppel joined Triodos in 2000 as investment officer and, prior

to his current position, worked as Fund Manager and Head of

Africa Department from January 2005 to January 2008 and

Senior Investment Officer from 2003 to 2005.


Directors of TenGer Financial Group

Former Appointments: Prior to joining Triodos, Frank Streppel

worked at ABN AMRO Bank N.V. from 1992 to 2000, joining first

as trainee and serving later as account manager for small busi-

ness between 1993 and 1997 and as senior account manager

from 1998 to 2000.

Michael Madden



Experience: Michael is a successful

entrepreneur and a founder and managing

director of Ronoc, an investment and

advisory services business based in Dublin,

Ireland. He graduated in 1987 from the

College of Management Studies, Limerick, Ireland, with a

diploma in industrial engineering.



Former Appointments: Michael has been involved in the cards

and banking business in Eastern European markets for over 15

years working for American Express on different positions,

starting in 1988 as a quality assurance manager and becoming

in 1998 a vice president for franchise markets EMEA, London,

UK. In 2003, Michael established Renaissance Credit - the third

largest consumer finance bank in Russia and has worked as the

founding CEO. In 2007, Michael founded Ronoc.

Richard Ranken



Experience: Richard is a senior advisor to

IFC in the East Asia and the Pacific Region

with membership on the boards of several

banks and private equity funds in Asia. He

has had a 30-year career with IFC and has

spent majority of this professional life working in the former

Soviet Union, Africa and most recently in East Asia.



continued

Former Appointments: He headed IFC’s Advisory Services,

which privatized over 50,000 enterprises, introduced them

corporate governance standards, and played a leading role in the

financial sector development. As a director of IFC’s operations in

Africa, he put in place a new strategy and team that built IFC’s

investment business to USD1.5 billion in 30 countries, with con-

centration on SME and microfinance. Also, as a director of East

Asia and the Pacific, he focused IFC’s work on climate change

financing and related advisory services. Richard is a graduate of

the Australian Institute of Company Directors (GAICD).

Sarah Djari



Experience: Sarah is a senior investment

manager at Bamboo Finance, a commercial

investment firm managing 250MM USD that

specializes in the financing of entrepreneur-

ship globally. Sarah has 8-year working

experience in strategy and organization

consulting, consulting for microfinance

institutions and investments. She graduated in 1998 from Ecole

Centrale, Paris, France with a MSc in Engineering.



Former Appointments: Before joining Bamboo Finance, Sarah

founded and headed the strategy team of the Center for Microfi-

nance in Chennai, India, to support fast-growing Indian microfi-

nance institutions in the development and implementation of their

growth strategy. Sarah started her career at Bain & Company in

2000 and as senior consultant in Bain and Company Paris,

London and Brussels. She also worked as a consultant at

Colmar Company in Tunisia and as a head of the microfinance

strategy unit of Center for Microfinance at ICICI Bank in India.

Tselmuun Nyamtaishir



Experience: Tselmuun is a vice president of

Mongolyn Alt MAK Corporation, one of the

largest mining companies in Mongolia. She is

in charge of the firm’s investments and

finance department. Tselmuun graduated in

2004 from Valparaiso University, Indiana,

USA with a Bachelor in Business Administration.

Current Appointments: Interim non-executive director on the

Board of Directors of TenGer Financial Group.

Former Appointments: She has worked throughout MAK’s

departments such as railway, social responsibility, procurement

and trading to support their strategy. Tselmuun started her career

at the Trade and Development Bank of Mongolia in 2005 .

Board of Directors continued


Board Composition

In 2012, the Board had 9 members, consisting of one executive

director, 7 shareholder-nominated non-executive directors, in-

cluding an interim director, and one independent non-executive

director.

The non-executive directors bring a wide range of business and

financial expertise, experience and independent judgment to the

Board and the executive management. Through active participa-

tion in board meetings and serving on board committees, all

directors make various contributions to the effective guidance

and direction of the Company.

2012 Corporate Governance Report

The Board of Directors (the “Board”) of TenGer Financial Group

(“TFG”, the “Group” or the “Company”) is pleased to present this

Corporate Governance Report in the Group’s annual report for

the period ended 31 December 2012.

Effective corporate governance has always been an important

part of our identity at the Group and Group companies. TFG’s

corporate governance practices are based on the principles and

certain recommended best practices as set out in the Corporate

Governance Code adopted by the Mongolian Financial Regula-

tory Commission in 2007 as well as the OECD Principles of Cor-

porate Governance of 2004. As a bank holding company, TFG

is subject to governance rules and procedures issued from time

to time by The Bank of Mongolia, the banking sector regulator.

To reaffirm further its commitment and the principles of corporate

governance applicable within the Group companies, TFG

adopted in May 2011 the Group’s Code of Corporate Govern-

ance. Together, these form the corporate governance framework

based on equitable treatment of all shareholders, including mi-

nority and foreign shareholders, accountability at all levels, dis-

closure and transparency, and responsibility before all stake-

holders.

Results of 2012

During the year of 2012, TenGer Financial Group has continued

to endeavor to achieve excellence in corporate governance and

business performance by maintaining the standards of corporate

governance that had garnered numerous awards for the Group

companies in the past. Efforts were focused on implementation

and compliance with the major policies and procedures, includ-

ing a Code of Corporate Governance, Code of Conduct and

Conflict of Interest Policy, a Related Party Transactions Policy,

renewed Internal Rules of Procedure of the Board of Directors

and a Board Director Selection and Nomination Policy, put in

place in 2011.

Continuing its good governance practice and to improve further

its governance and functioning, the Board conducted a 2012

board self-evaluation and identified certain strengths and weak-

nesses that will be addressed in the board improvement plan in

2013.

Significant progress was made on improving the timeliness and

effectiveness of board’s decision making in view of the fact that

the Board has a diverse composition with directors residing out-

side of Mongolia and operating from different geographical time

zones.

TFG will continue to review and enhance its corporate govern-

ance practices to conform further to international best practices

and to meet the requirements of the stock exchange of potential

listing in the future and the rising expectations of shareholders

and investors.

Corporate Governance Report

Chuluun Ganbold Chairman, independent non-executive director

Bold Magvan Executive director, Chief Executive Officer of TFG

Shareholder-nominated non-executive directors are:

Arvid Tuerkner Non-executive director,

representing EBRD

Erdenejargal Perenlei Non-executive director,

representing minority shareholders

Frank Streppel Non-executive director,

representing Triodos funds

Michael Madden Non-executive director,

representing ECM

Richard Ranken Non-executive director,

representing IFC

Sarah Djari Non-executive director,

representing Bamboo Finance

(formerly Blue Orchard)

Tselmuun Nyamtaishir Interim non-executive director,

representing ECM


Chairman and Chief Executive Officer

The roles and duties of the Chairman and the Chief Executive

Officer of the Company are carried out by different individuals

and have been clearly defined in the Charter of TFG.

Key responsibilities

Appointment, election and retirement of directors

The board directors are elected at the annual general meeting of

shareholders for a term of 2 years with an option of re-election.

Upon expiry of this term, the directors are subject to retirement

or re-election by the shareholders. In the case of a vacancy on

the board, an interim director is appointed by the board until

election and approval at the next annual general meeting of

shareholders.

The procedures and process of nomination, appointment,

election, re-election and removal of a director are set out in the

Charter of TFG and the Board Director Selection and Nomination

Policy. The board’s Governance, Nomination and Compensation

(“GNC) Committee is responsible for reviewing the board compo-

sition, developing and formulating the relevant procedures for

nomination and appointment of directors, monitoring the succes-

sion planning of directors and assessing the skills, expertise and

experience.

Executive director Bold Magvan and non-executive directors

Michael Madden and Arno de Vette were each elected for a

2-year term in May 2011. In accordance with the Charter, these

directors, except Arno de Vette, who resigned on February 1,

2012, stand for re-election at the AGM and the GNC Committee

recommended them for re-election at the forthcoming annual

general meeting of shareholders.

Each of non-executive directors, including Chairman Chuluun

Ganbold, Richard Ranken, Arvid Tuerkner, Sarah Djari, Erdene-

jargal Perenlei and Frank Streppel were elected by shareholders’

resolution on May 24, 2012, for a 2-year term.

Non-executive director Tselmuun Nyamtaishir was appointed by

the Board as interim director on August 23, 2012.

Corporate Governance Report continued

Training and Continuing Development

In 2012, Board Director Induction and Orientation Programs were

organized for all new non-executive directors to help to them

familiarize with the corporate culture and corporate governance

system of TenGer Financial Group, provide directors with basic

information about the history, culture and future of the Group and

introduce new directors to the fundamental information and skills

necessary for a board director to meet his or her fiduciary

responsibilities. Formal on-site meetings were a core element of

the Board Director Induction and Orientation Program to provide

new directors with an opportunity to communicate directly with

the Board Chairman and senior management executives.

Sessions on corporate governance and governance compliance

were organized to assist the board members of the Group’s

subsidiary companies with information and guidance necessary

for the board members to fulfill their duties and responsibilities.

Senior management and board directors attended corporate gov-

ernance training courses provided by the Corporate Governance

Development Center in cooperation with IFC and Luxembourg

Institute for Financial Knowledge Transfer. The Group’s partici-

pants received a certification of formal training, which is expected

to become a formal requirement for directorship with Mongolian

companies.

Board meetings

The board conducts its business based on the Internal Rules of

Procedure of the Board and the Charter. The board functions

through a board meeting by issuing its decisions in the form of

resolutions.

In 2012, board meetings were held on the following dates:

February 29, 2012

May 22 - 24, 2012

August 23, 2012

November 27, 2012

All board meetings were held in Ulaanbaatar, Mongolia. The

details of directors’ attendance at the board and committee

Chairman - Chuluun Ganbold

Appointed in 2003

Ensuring the effective functioning of the Board

Leading the Board in the process of periodic reviews of the

performance of the executives

Setting agendas for board meetings

Encouraging the appropriate level of deliberation of all issues

and inputs from individual board members

Chief Executive Officer - Bold Magvan

Appointed in 2011

Implementing strategies, objectives and policies approved

and delegated by the board

The Company’s day-to-day management and operations

Developing strategies and business plans

Formulating the organizational structure, control systems,

internal processes and procedures.

Attendance

Number of meetings held 4

Chuluun Ganbold 4

Bold Magvan 4

Arvid Tuerkner 3

Erdenejargal Perenlei 3

Frank Streppel 4

Michael Madden 4

Richard Ranken 4

Sarah Djari 4

Tselmuun Nyamtaishir 1


Major decisions made by the Board during 2012:

Approval of TFG’s 2012 Funds Management Policy;

Approval of sub-debts for XacBank, a wholly-owned

subsidiary of the Group;

Approval of 2012 TFG consolidated budget;

Approval of 2011 consolidated audited financials of TFG;

Approval of TFG consolidated business plan 2012-2016;

Approval of TFG 2013 action plan and budget;

Approval of revised KESOP;

Approval of amendments to the TFG Charter;

Decision not to pay a dividend payment for the fiscal year

2012.

The board directors receive regular and appropriate information to enable them to make informed decisions. During the year un-der reporting, the notices and pre-reading papers for the board directors were all delivered at least 14 days prior to the board meetings to provide an opportunity to review and include matters on the agenda and give sufficient time to analyze the information and obtain, as necessary, independent professional advice.

The Chief Financial Officer and other senior management attend all regular board meetings and, where necessary, other board and committee meetings to provide information and advice on business developments, financial and accounting matters, regu-latory compliance, corporate governance and other major aspects of the Company.

The Code of Conduct and Conflict of Interest Policy of the Com-pany, approved in November 2011 and applicable to all directors and employees, require directors to disclose the nature of inter-est and abstain from voting for approving transactions in which a director has a material interest. In 2012, all directors completed and submitted an Annual Conflict of Interest Statement.

In addition to these formal communications, the board directors are in regular informal communication with senior executives and this fosters an open dialogue and exchange of knowledge and experience between the management and the board.

The board had regular discussions with the executive manage-ment during the year on the Group’s strategy. An annual strategy discussion retreat was held at the time of the Q3 regular board meeting, during which the chief executives gave strategy presen-tations in each area of the Group’s businesses and had a detailed review session with the board on the Group’s strategy for 2012-2016.

Board Evaluation

The Board has always recognized that a strong and efficient

board is part of good corporate governance and a sign of a

healthy organization. Continuing its good governance practice,

the Board conducted in 2012 a board self-evaluation to have a

general understanding of its overall functioning and efficiency,

identify different perceptions and opinions among board mem-

bers and obtain the signs of strengths and weaknesses in order

to maximize the potential of the board, improve its performance

and structure and, thus, demonstrate credibility to funders and

other external audiences. Further improvements will be consid-

ered based on the board’s self-evaluation results and the conclu-

sions.

Corporate Governance Report continued

The directors are responsible for financial reporting in respect of

financial statements. The directors are responsible for the prepa-

ration of financial statements of the Company with a view to

ensuring that the financial statements give a true and fair of the

state of affairs of the Group and that relevant regulatory require-

ments and applicable accounting standards are complied with.

The management provides explanation and information to the

Board to enable the directors to make an informed assessment

of the financial information and position of the Company put to

the Board for approval.

The consolidated audited financial statements of the Group for

2012 were reviewed and approved by the Board.

The Board has overall responsibility for the internal control

system of the Group and for reviewing its effectiveness. The

Board is also responsible for maintaining an adequate internal

control system to safeguard the interests of the shareholders and

the assets of the Company.

The Chief Internal Auditor of the Group reports to the Board’s

Audit Committee.

TFG believes that effective communication with shareholders is

essential for enhancing shareholder involvement and investor

relations and understanding of the Group’s business perform-

ance and strategies. TFG recognizes the importance of

shareholder involvement and participation by being sufficiently

informed of decisions concerning important corporate matters

ensuring at the same time proper exercise of shareholder rights

and effective and prompt shareholder decision making.

Annual general meetings of shareholders provide a forum for

communication between the shareholders, the board and the

executive management.

As one of the measures to safeguard the shareholders’ interests

and rights, separate resolutions are proposed at the sharehold-

ers’ meetings on each substantial issue. All resolutions put

forward at the shareholders’ meetings are voted on by ballots

and a tabulating commission counts the ballots and announces

the results of voting.

TFG recognizes the importance of safeguarding minority

shareholders’ rights.

Accountability and Audit

Internal Control

Communication with Shareholders and

Investor Relations

Shareholders’ Rights


Bold Magvan

CEO, Head of Executive Committee

Amartuvshin Hanibal

Managing Director

Zul Ganzorig

VP, Human Resources

Bat-Ochir Dugersuren

CEO, XacBank

Philipp Marxen

CEO, XacLeasing

Tsogbadrah Galbadrah

CEO, TenGer Insurance

Enhbaatar Jambaldorj

CEO, XacSecurity

Munhsayhan Jargalsayhan

CEO, TianRong

Ariuntulga Tserendavaa

CEO, TenGer Solutions

For the year ended

31 December 2012

Management Team

Senior Executive Management of

TenGer Financial Group (Holding Company)

CEOs of the Group Companies

Erdenedalai Odkhuu

VP, Legal & Compliance

Saynsanaa Yamaaranz

Chief Internal Auditor

Ashidmaa Dashnyam

VP, Investor Relations and

Corporate Affairs

Bold Magvan

CEO, TenGer Financial Group

Amartuvshin Hanibal

CEO, TenGer Capital


2010

April: Group exits from Mol Bulak Finance

Due to the firm’s rapid expansion and civil unrest in Kyrgyzstan, the

Group successfully exited from Mol Bulak Finance

May: Acquired 50% of TenGer Insurance

The Group acquired 50% of TenGer Insurance, one of the largest

insurance companies in Mongolia, from ECM (TFG shareholder). The

other major shareholder of TenGer Insurance is Petrovis, one of Mon-

golia’s largest fuel distributors.

2011

January: Former XacBank CEO, Bold Magvan, becomes the

CEO of TFG

Crucial first steps were made to make TenGer a truly professional hold-

ing company with an active management function – among one of

them is the transfer of the CEO position from Ganhuyag Chuluun to

Bold Magvan.

December: Reorganization of the Group’s head office

Key focus was devoted on investment and risk management, treasury,

investor relations and corporate affairs, legal and compliance, internal

control and audit, and human resources.

The Group also produced its 5 year Business Plan as well update its

Vision and Mission statement to embrace the triple bottom line mission

and the highest standards of corporate governance and social

responsibility across the TenGer family companies.

December: XacBank becomes a systemic bank in Mongolia

Nearly 10 years after its inception, XacBank becomes the 4th largest

commercial bank in Mongolia in terms of total assets. The central bank

recognized XacBank’s significance in the financial sector and resulted

in them labeling XacBank as “systemically important institution”.

2012

March: TenGer Capital is established as the Group’s

investment banking arm

Through an 80% acquisition of Arta Invest, local brokerage and

advisory firm, the Group has extended its available services to

corporate as well as retail clients.

August: Urimqui TianRong MCC is established as the

Group’s China based microcredit company

The Group owns 51% along with its other shareholders: IFC, MAK,

Xinjiang Longhaida and Shanghai Junhe from China. The goal of the

firm is to utilize XacBank’s extensive experience in micro finance to

provide loans to the local market.

2007

May: XacLeasing is established as the Group’s leasing

service company

The firm was set up to contribute to the development of SMEs and

individuals through access to leasing services. Technical assistance

from IFC has improved XacLeasing’s operating system and their

product line.

4Q: EBRD and IFC became shareholders of the Group

Two of the world’s most respected development institution became

shareholders of TenGer Financial Group. The investment exemplifies

their trust in the Group and its management.

2008

May: Change of name from XAC-GE Group to TenGer

Financial Group

The overwhelming majority of shareholders supported the name change at its annual meeting. “Tenger” means “sky” in Mongolian that is associated with greatness, eternity and endless boundaries. It is also a play of words that can be broken down as “Ten” and “Ger”, where ten is a number in English and “ger” stands for a nomadic round shaped tent, a family, or a home in Mongolian.

June: TenGer Solutions is established as the Group’s

software developer company

The firm was originally called Horus Nomadic Solutions that developed the mobile banking software “AMAR”. The aim was to develop and market a flexible and comprehensive mobile banking solution, geared toward banks and micro-finance institutions.

2009

January: Mol Bulak Finance joins the Group as its Kyrgyz

Republic based micro credit company.

The Group made a pilot investment in Mol Bulak Finance, acquired

30.5%, an institution that was established as a micro credit company

to provide micro loans to the rural areas of Kyrgyzstan.

August: Representative office was set up in China

A representative office was set up in Beijing, China to supply manage-

ment with timely updates on the microfinance market and regulatory

environment in China.

Recent History of TFG

TenGer Financial Group has its origin from the merger of two pioneering non-bank financial institutions of Mongolia, X.A.C. and Goviin Ehlel, in 2001. Below are the

significant recent events that occurred to our organization against the backdrop of the changing times.


Location of Head Office Central Tower, Room 508, 2 Sukhbaatar Square, SBD-8

Ulaanbaatar-14200, Mongolia

Website www.tengerfinancialgroup.com

Telephone (976-11) – 320341

TenGer Financial Group LLC

Established May 2007

Location of Head Office Mongol Insurance building, 2nd floor, Enkhtaivan avenue 13,

SBD-1, Ulaanbaatar-14210, Mongolia

Website www.xacleasing.mn

Telephone (976) - 7011-2061


XacLeasing LLC

Location of Head Office Post Branch 20A, PO Box-721, Ulaanbaatar-14200, Mongolia

Website www.xacbank.mn

Telephone (976-11) – 318185


XacBank LLC

Company Contacts

Established 2007

Location of Head Office City Center, 11th floor, Altangerel street 5, SBD-8, Ulaanbaatar-

14200, Mongolia

Website www.tengerdaatgal.mn

Telephone (976-11) - 312234


TenGer Insurance LLC

http://www.tengerfinancialgroup.com

http://www.xacleasing.mn

http://www.xacbank.mn

http://www.tengerdaatgal.mn


Established March 2012

Location of Head Office Central Tower, Room 508A, 2 Sukhbaatar Square, SBD-8

Ulaanbaatar-14200, Mongolia

Website www.tengercapital.mn

Telephone (976-11) - 7011-0637


TenGer Capital LLC

Established April 2002

Location of Head Office Mongol Insurance building, 3rd floor, Rm 304, Enkhtaivan avenue

13, SBD-1, Ulaanbaatar-14210, Mongolia

Website www.xacsecurity.mn

Telephone (976-11) - 318185

XacSecurity LLC

Established September 2012

Location of Head Office 11-A-4 and A-5, Hongshan New Century Plaza, No. 108 Xinhua Bei

Road, Tianshan District, Urumqi City, China

Urumqui Tianrong Micro-Credit LLC

Company Overview continued

http://www.tengercapital.mn

http://www.xacsecurity.mn


2012 MNT'000

2011 MNT'000

2012 MNT'000

2011 MNT'000

Interest and similar income 132,072,558 95,204,305 622,443 1,475,145

Interest and similar expenses (68,733,284) (47,314,528) (344,723) (264,238)

Net interest income 63,339,274 47,889,777 277,720 1,210,907 Fees and commission income

3,398,492

1,732,832

2,516,980

1,022,856

Fees and commission expenses (623,519) (581,760) - - Net fees and commission income

2,774,973

1,151,072

2,516,980

1,022,856

Net trading loss (47,212)

(77,485)

(676,858) -

Other operating income

2,737,929

2,037,128

261,707

1,100,394

Total operating income 68,804,964 51,000,492 2,379,549 3,334,157 Credit loss expense

(3,066,123)

(2,848,950) - -

Net operating income 65,738,841 48,151,542 2,379,549 3,334,157 Operating expenses

(46,107,679)

(32,316,156)

(3,592,202)

(2,035,654)

Amortisation of deferred grants

1,270,175

1,064,697

-

-

Share of profit of an associate

102,028

329,997

-

-

Profit before tax 21,003,365 17,230,080 (1,212,653) 1,298,503

Income tax expense

(5,219,758)

(4,295,586)

(62,244)

(245,036)

Profit/(loss) for the year 15,783,607 12,934,494 (1,274,897) 1,053,467

Attributable to: Equity holders of the parent

15,911,636

12,934,494

(1,274,897)

1,053,467

Non-controlling interests (128,029) - - -

15,783,607 12,934,494 (1,274,897) 1,053,467

Other comprehensive income

Exchange differences on translation of

foreign operations, net of tax

487,876 - - -

Total comprehensive income, net of tax 16,271,483 12,934,494 (1,274,897) 1,053,467

Attributable to:

Equity holders of the parent

16,399,512

12,934,494

(1,274,897)

1,053,467

Non-controlling interests (128,029) - - -

16,271,483 12,934,494 (1,274,897) 1,053,467

Group Company


For the year ended 31 December 2012

Statement of Comprehensive Income


2012 MNT'000

2011 MNT'000

2012 MNT'000

2011 MNT'000

174,464,009

114,304,390

-

-

ASSETS Cash and balances with central bank

Due from banks 163,677,693 39,532,224 481,155 1,538,868

Reverse repurchase agreements 3,498,061 - - -

Financial investment - held-for-trading 80,056 123,558 - -

Financial investments - available-for-sale 546,116 434,680 - -

Financial investments - held-to-maturity 88,135,490 98,854,788 - -

Loans and advances to customers 650,844,727 549,114,203 6,951,609 3,430,807

Other assets 9,224,158 6,021,960 891,793 475,199

Property, plant and equipment 25,776,697 19,473,645 448,068 91,814

Intangible assets 4,746,717 3,951,510 - -

Investments in subsidiaries - - 72,030,379 60,666,530

Investments in an associate 2,057,700 1,955,672 1,750,000 1,750,000

Deferred tax asset 677,103 - - -

TOTAL ASSETS 1,123,728,527 833,766,630 82,553,004 67,953,218

LIABILITIES

Due to banks

55,931,724

62,464,219 - -

Repurchase agreements 63,004,615 48,822,587 - -

Derivative financial instrument 1,761,536 - 676,858 -

Due to customers 511,978,212 360,686,991 - -

Borrowed funds 302,146,544 226,705,739 7,713,767 4,222,099 Subordinated loans 48,864,226 37,028,367 - - Deferred grants 1,576,638 689,015 - - Finance lease liability - - 312,948 - Other liabilities 9,428,578 5,823,061 920,623 652,182 Income tax payable 1,099,803 128,277 - 58,177

Deferred tax liability - 268,168 - 69,739

TOTAL LIABILITIES 995,791,876 742,616,424 9,624,196 5,002,197

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE GROUP AND OF THE COMPANY

Ordinary shares 16,584,644 14,932,723 16,584,644 14,932,723

Share premium 56,495,362 46,894,599 56,495,362 46,894,599

Other reserves 9,579,293 11,340,829 809,461 809,461

Retained profits/(accumulated losses) 33,893,691 17,982,055 (960,659) 314,238

Foreign exchange revaluation reserve 487,876 - - -

Equity attributable to equity holders of the parent 117,040,866 91,150,206 72,928,808 62,951,021

Non-controlling interests 10,895,785 - - -

TOTAL EQUITY 127,936,651 91,150,206 72,928,808 62,951,021

TOTAL LIABILITIES AND EQUITY 1,123,728,527 833,766,630 82,553,004 67,953,218

Group Company

Statement of Financial Position TenGer Financial Group LLC



2012 MNT'000

2011 MNT'000

2012 MNT'000

2011 MNT'000

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 21,003,365 17,230,080 (1,212,653) 1,298,503

Adjustments for:

Changes in fair value of held-for-trading financial instrument and financial derivative instrument

41,371 77,485 676,858 -

(Gain)/Loss on disposal of property, plant and equipment (3,957) (50,131) (2,833) 1,593

Unrealised foreign exchange (gain)/loss (44,655) 552,623 (4,092) (25,256)

Credit loss on loans and advances to customers 3,031,578 2,834,373 - -

Credit loss on other assets 34,545 14,577 - -

Depreciation of property, plant and equipment 2,936,709 2,313,750 48,606 15,841

Amortisation of intangible assets 541,181 505,544 - -

Property, plant and equipment written off - 21,067 - -

Recoveries on foreclosed properties (13,048) (188,073) - -

Amortisation of deferred grants (1,270,175) (1,064,697) - -

Reversal of current and deferred income tax payable (97,522) - (97,522) -

Share of profit of an associate (102,028) (329,997) - -

Dividend income - - - (975,215)

Operating profit/(loss) before working capital changes 26,057,364 21,916,601 (591,636) 315,466

Changes in operating assets:

Statutory deposit with Bank of Mongolia (23,376,094) (31,886,502) - -

Due from banks (104,241) (5,140,685) - -

Reverse repurchase agreements (3,498,061) - - -

Loans and advances to customers (104,905,149) (210,098,304) (3,535,748) (3,408,441)

Other assets (3,346,536) (1,504,933) (519,095) (322,970)

Changes in operating liabilities:

Due to banks (6,485,611) 29,873,497 - -

Repurchase agreements 14,182,028 48,822,587 - -

Due to customers 147,936,826 121,244,147 - -

Other liabilities 4,054,387 (1,529,071) 268,379 (2,252,324)

Cash generated/(used in) from operations 50,514,913 (28,302,663) (4,378,100) (5,668,269)

Income tax paid (5,095,982) (3,662,888) (92,639) (65,000)

Net cash flows generated/(used in) from operating

activities 45,418,931 (31,965,551) (4,470,739) (5,733,269)

Group Company

Statement of Cash Flows TenGer Financial Group LLC



2012 MNT'000

2011 MNT'000

2012 MNT'000

2011 MNT'000

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of financial investments (24,315,604) (201,043) - -

Proceeds from disposal of property, plant and equipment 421,355 255,091 153,619 40

Purchase of property, plant and equipment (9,207,183) (5,038,394) (121,572) (14,212)

Purchase of intangible assets (1,105,823) (917,696) - -

Acquisition of a subsidiary, net of cash acquired 238,257 - - -

Increase in investment in subsidiaries - - (11,363,849) (39,899,997)

Net cash flows used in investing activities (33,968,998) (5,902,042) (11,331,802) (39,914,169)

CASH FLOWS FROM FINANCING ACTIVITIES

Drawdown of borrowed funds 118,615,524 104,012,574 3,515,502 4,159,127

Drawdown of subordinated loans 11,955,949 19,976,369 - -

Proceeds from issuance of ordinary shares 22,284,373 39,899,997 11,252,683 39,899,997

Repayment of borrowed funds (43,601,325) (39,887,512) - -

Payment of finance lease liabilities (23,416) - (23,416) -

Dividends paid (697,392) (277,823) - -

Deferred grants received 2,136,771 1,450,103 - -

Net cash flows generated from financing activities 110,670,484 125,173,708 14,744,769 44,059,124

Net increase/(decrease) in cash and cash equivalents 122,120,417 87,306,115 (1,057,772) (1,588,314)

Effect of exchange rate changes on cash and cash equivalents

3,781,184 6,601,081 59 297,757

Cash and cash equivalents brought forward 191,027,877 97,120,681 1,538,868 2,829,425

Cash and cash equivalents carried forward 316,929,478 191,027,877 481,155 1,538,868

Group Company

Statement of Cash Flows continued




Group Ordinary

shares MNT'000

Share

premium MNT'000

Other

reserves MNT'000

Retained

profits MNT'000

Foreign currency

translation reserve MNT'000

Total

MNT'000

Non-controlling

interest MNT'000

Total Equity

MNT'000

At 1 January 2011

9,200,834

12,726,491

11,340,829

6,022,776

-

39,290,930

-

39,290,930

Total comprehensive income - - - 12,934,494 - 12,934,494 - 12,934,494

Issuance of ordinary shares 5,731,889 34,168,108 - - - 39,899,997 - 39,899,997

Dividends - - - (975,215) - (975,215) - (975,215)

At 31 December 2011 and 1 January 2012 14,932,723 46,894,599 11,340,829 17,982,055 - 91,150,206 - 91,150,206

Profit for the year - - - 15,911,636 - 15,911,636 (128,029) 15,783,607

Other comprehensive income - - - - 487,876 487,876 - 487,876

Total comprehensive income - - - 15,911,636 487,876 16,399,512 (128,029) 16,271,483

Issuance of ordinary shares 1,651,921 9,600,763 - - - 11,252,684 - 11,252,684

Written put option - - (1,761,536) - - (1,761,536) - (1,761,536)

Acquisition of subsidiaries - - - - - - 11,023,814 11,023,814

At 31 December 2012 16,584,644 56,495,362 9,579,293 33,893,691 487,876 117,040,866 10,895,785 127,936,651

Company

Ordinary shares MNT'000

Share premium MNT'000

Other reserves MNT'000

Retained profits /(accumulated

losses) MNT'000

Total equity MNT'000

At 1 January 2011

9,200,834

12,726,491

809,461

235,986

22,972,772

Total comprehensive income

-

-

-

1,053,467

1,053,467

Issuance of ordinary shares 5,731,889 34,168,108 - - 39,899,997

Dividends - - - (975,215) -

At 31 December 2011 and 1 January 2012 14,932,723 46,894,599 809,461 314,238 62,951,021

Total comprehensive loss

-

-

-

(1,274,897)

(1,274,897)

Issuance of ordinary shares 1,651,921 9,600,763 - - 11,252,684

At 31 December 2012 16,584,644 56,495,362 809,461 (960,659) 72,928,808



Statement of Changes in Equity


GOLDEN FUND FOR

DEVELOPMENT ASSOCIATION

Central Tower, Room 508, 2 Sukhbaatar Square, SBD-8 Ulaanbaatar-14200, Mongolia

www.tengerfinancialgroup.com (976-11) – 320341

http://www.tengerfinancialgroup.com

TFG 2012 Annual Report

Documents

Transcript of TFG 2012 Annual Report