INVEST MONGOLIA September 3, 2012 Frontier 6th Annual Conference. Norihiko Kato Acting CEO, Khan Bank

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1 INVEST MONGOLIA September 3, 212 Frontier 6th Annual Conference Norihiko Kato Acting CEO, Khan Bank

2 Banking Industry in Mongolia

3 Mongolia Macroeconomic Overview Overview GDP per capita (U$) Since 21, Mongolia has made strong economic recovery. Real GDP grew by 17.5% in 211, making Mongolia one of the fastest growing countries. Growth rates were 42.5% in wholesale and retail, 16% in manufacturing, 14% in construction, and 8.7% in mining and quarrying In the Banking system, loans grew by 72% and deposits grew by 46% in E 213E 214E 215E 216E Robust GDP growth (U$ in trillion) GDP composition by sector US$ E E E E E 32.8% 3.5% 6.6% 7.1% 2.2% 13.% 9.7% 7.2% Mining & quarrying Agriculture Wholesale and retail trade Transportation and storage Manufacturing Real estate Government Others

4 Mongolia Macroeconomic Overview Trade Balance Foreign Direct Investment (in U$m) Q Export Import Trade Balance Export destination Export composition 3% 2% 4% China 6% 5% Mineral products 5% 8% Canada Textiles 86% Russia UK Others 81% Precious metal & jewlery Others

5 Mongolia Macroeconomic Overview Budget Balance Foreign reserves Revenue Expenditure Balance % 2% Inflation MNT rate against USD 15% 14 1% % 11 % Core Inflation National CPI 1 28 Mar Jun Sep Dec 29 Mar Jun Sep Dec 21 Mar Jun Sep Dec 211 Jan Mar Jun Sep Dec 212 Jan Feb Mar Apr May Jun

6 Banking Sector Development 14 commercial banks, 195 small NBFIs,162 savings & credit cooperatives, and 17 insurance companies. The largest three banks (Khan, TDB, & Golomt) make up the 7% of the total assets and 68% of the total loans in the system. The largest 5 banks (Top 3, Xac, & Savings) make up the 87% of the total assets and 85% of the total loans in the system. Total Asset Market Share (212 2Q) Total Loan Market Share (212 2Q) Savings 8% XacBank 9% Others 15% Khan Bank 23% Savings 8% XacBank 1% Others 11% Khan Bank 25% Golomt 22% TDB 23% Golomt 23% TDB 23%

7 Banking Sector Development Banking Sector Asset Banking Sector Loan 1 6% 6 1% % 41% 21% 11% Assets Growth 5% 4% 3% 2% 1% % ,16% 25.31% 25.97% -6.64% Loan /net/ Growth 8% 6% 4% 2% % -2% Banking Sector Deposit Banking sector Equity % 54.64% 24.52% 23.33% % 6% 5% 4% 3% 2% 1% % % 66.9% -9.57% % % 8% 6% 4% 2% % -2% -4% Deposit Growth Equity Growth

8 Banking Sector Development Banking sector Non-performing Loans (MNT billions) % 11.5% 7.1% 8.% 5.8% 4.5% 3.% 4.8% 2.8% 2.3% 1.5% 2.% Q 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % Banking Sector Gross Loan Banking Sector NPL Banking Sector NPL Ratio Khan Bank NPL Ratio

9 Banking Sector Development Total Asset Market Share (212 2Q) Number of Branches (YE211) 2 Khan Loan (MNT in billions) XAC TDB Savings Golomt 2 1 4% 3% Khan Savings XacBank Golomt TDB Fee Income (case of KB) 2% Deposit (MNT in billions) 1% % -1% Transfer Fee Card Service Fee SMS Banking Source: TDB & Golomt & Xac & Savings Website, audited report

10 Banking Sector Development Consistent Profitability (Khan bank) Superior Profitability (TOP 4) (in MNT billion) 45.9% 31.2% 29.6% 39.3% 58,379 51,122 29, % 12,192 4.% 2.8% 1.5% 2.3% 3.1% Khan TDB Golomt XacBank ROAE ROAA One of the Highest ROE in the Region Strong ROA 37.7% 3.8% 2.83% 21.6% 2.5% 19.2% 16.3% 1.89% 1.61% 12.4% 11.2% 11.2% 11.1% Khan Indo China India MY Thai SG HK Korea Khan TDB XacBank Golomt

11 Banking Sector Development Adequately Capitalized CAR Khan Bank Loan Deposit Ratio Khan Bank 25.% 2.% 15.% 11.4% 12.4% CAR-Khan Bank 19.3% 16.6% 15.4% 12% 1% 8% 6% 98% 84% 68% 59% 76% 1.% 4% 5.% 2%.% % CAR of TOP 4 banks (YE 211) Loan Deposit Ratio of TOP 4 banks (YE211) 2.8% 116% 15.4% 13.3% 12.6% 62.4% 74% 68.1% XacBank Khan Golomt TDB XacBank TDB Khan Golomt Source: TDB & Golomt & XacBank Website, audited report

12 Capacity for Further Growth (Banking system) (in billion MNT) Total Banking Sector Loan to GDP % 79% 79% 84% 66% Deposit Loan LDR 12% 1% 8% 6% 4% 2% % Banking sector assets Banking sector loans /net/ Loan to GDP ratio 6% 5% 4% 3% 2% 1% % 211 Regional Loan Growth 211 Regional Deposit Growth 1% 45% 46,% 72% 9% 4% 8% 35% 7% 3% 6% 25% 5% 2% 4% 26.8% 3% 22.5% 15% 16.5% 2% 15.2% 14.4% 13.5% 13.1% 13.% 1% 1% 5% % % 25.2% 14.5% 14.3% 11.3% 11.% 9.% 7.2% 6.% Source: Bank of Mongolia, Deutsche bank

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

14 Mongolia s banking sector has attractive opportunity

15 Case of Khan Bank Diversified Business Portfolio Khan Bank Loan Composition Khan Bank Income Composition Mortgage 13% Other 4% Corporate 23% Retail 33% SME 27% FX Income Fees & Other Income Net Interest Income

16 KHAN BANK-NATIONWIDE NETWORK 5 Branches in every part of Mongolia of which 8 are in urban areas and 42 are in rural areas Estimated that 8% of all Mongolian households utilize Khan Bank s services 1.6 million customers all over the country 299, borrowers of which 82% is retail consumer borrower. 26 ATMs 63% of national market penetration 1 million debit card holders 8

17 Bulgan Branch, Bulgan Aimag Mongolia

18 Thank you for your attention.