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Unofficial translation

LAW ON DEVELOPMENT BANK OF MONGOLIA

Chapter I
General Provisions
Article 1. Purpose of the law
1.1 The purpose of this law is to establish and govern legal basis for operations principles,
management, organization and scope of operation of the Development Bank of Mongolia (hereinafter
referred to as the Development Bank).
Article 2. Legislation of the Development Bank
2.1 Legislation of the Development Bank is comprised of the Constitution of Mongolia, this law and
other legislative acts issued in conformity with them.
2.2 If an international treaty to which Mongolia is a party is inconsistent with this law, the provisions
of the international treaty shall prevail.
Article 3. Framework of the law
3.1 This law shall regulate relations concerning the operations of the Development Bank.
Article 4. Development Bank
4.1 The Development Bank is a state owned and for profit legal entity with specific functions to carry
out the operations specified in this law with an aim to finance large scale development projects and
programs of Mongolia as stipulated in Article 8.1 of this law.
4.2 The Government shall adopt a decision to establish, restructure and dissolve the Development Bank
and report to the State Great Khural.
Article 5. Equity capital of the Development Bank
5.1 The share capital of the Development Bank shall consist of the following sources:
5.1.1 the fund of the Development Bank allocated from the state budget; and
5.1.2 other sources specified in laws.
5.2 The Government shall establish the minimum level for the equity capital of the Development Bank.
Article 6. Principles of the Development Bank
6.1 The Development Bank shall observe the following principles in its activities:
6.1.1 providing stable operations;
6.1.2 acting independently;
6.1.3 operating profitably;

6.1.4 being transparent; and


6.1.5 being accountable.
Chapter II
Operations of the Development Bank
Article 7. Operations of the Development Bank
7.1 The Development Bank shall be engaged in the following activities:
7.1.1 grant and obtain loans;
7.1.2 provide international and domestic transaction services with respect to the borrowers
account;
7.1.3 issue loan guarantee and surety on its behalf;
7.1.4 issue, sell and purchase securities;
7.1.5 purchase, sell and deposit foreign currencies;
7.1.6 sell loans, sell and purchase other financial instruments;
7.1.7 other activities, that are not prohibited by laws for the purpose of prudently implementing
asset and liability management.
Article 8. Disbursement of loans
8.1 The Development Bank shall provide loans to finance large scale development projects and
programs of Mongolia approved by the State Great Khural and the list of projects and programs to be
financed shall be approved by spring session of the State Great Khural annually.
8.2 The decision to grant loans shall be issued by the Credit Committee based on a review provided by
the Asset and Liability and the Risk Management units of the Development Bank.
8.3 The loan operation of the Development Bank shall be met the following requirements:
8.3.1 have interest rate below the average interest rate of other banks;
8.3.2 to be based exclusively on a review of professional analysis and assessments;
8.3.3 finance and grant loans for the efficient projects and programs;
8.3.4 have precise loan repayment schedule;
8.3.5ensure loans by back up of loan collateral, guarantees and other methods ensuring
performance of obligation;
8.3.6 provide preferential terms of loan.
Article 9. Financing projects and programs
9.1 The Development Bank may finance those projects and programs specified in Article 8.1 of this
law if the Government issued guarantees. The Government guarantee shall be limited by the
Government`s shared ownership in those projects and programs. The Government guarantee shall be
issued to those insured projects and programs only.
9.2 Financial support may be provided from the state budget to implement those projects and programs
guaranteed by the Government.

9.3 The Board of the Development Bank shall approve the list of projects and programs to be financed
from other capital sources apart from those guaranteed by Government and deposits of the
Development Bank.
9.4 The state and private sector entities may jointly implement the projects and programs to be financed
by the Development Bank.
Article 10. Requirements to projects and programs to be financed by the Development Bank
10.1 The project and programs to be financed from the Development Bank based on the selection result
shall comply with the following requirements:
10.1.1 refer to strategically important and priority sectors of the development of Mongolia that
approved by Government;
10.1.2 its design, budget and economical and technical feasibility study shall be prepared;
10.1.3 enhancing economic growth and oriented to produce value added goods substituting
export and import products that meet the international and EU standard; and
10.1.4 the evaluation of credit risks, grounds for obtaining loans and the economic and social
benefits of the projects and programs shall be estimated in accordance with internationally
recognized professional analysis, evaluation methods and requirements;
10.1.5 assets came forth as a result of the projects and programs shall be pledged as collateral
until the full repayment of the loan;
Article 11. Obtaining loans
11.1 The Development Bank may obtain loans from foreign and domestic sources upon consent of the
Government with an aim to increase its own source of funds.
Article 12. Payment and settlement services
12.1 The Development Bank shall offer all types of payment and settlement services to its customers
on the basis of an agreement signed with the customer.
12.2 The Development Bank shall transfer funds from the customer`s account upon latter`s order
within the limits of remaining account in accordance with relevant procedures.
12.3 The Development Bank shall establish a fee for the settlement services.
12.4 The Development Bank shall make interbank transactions through its account at the Central Bank
of Mongolia.
12.5 The payment and settlements of the Development Bank shall be regulated by the provisions
stipulated in the Law on Deposits, Loans and Banking Transactions.
Article 13. Issuing loan guaranty and warranty
13.1 The Development Bank may issue loan guarantee and warranty to a third party solely or jointly
with other legal bodies within the limitations stipulated in Article 24.1 of this law.
Article 14. Issuing, selling and purchasing securities

14.1 The Shareholders meeting shall adopt a decision to issue, sell and purchase securities to be traded
on the capital and money markets based on the proposals of the Board of the Development Bank and
the Cabinet Member of the Government in charge of financial and fiscal matters within the limitations
stipulated in Article 24.1 of this law.
Article 15. Purchasing, selling, and depositing foreign currencies
15. The relations concerning to purchasing, selling, and depositing foreign currencies of the
Development Bank shall be regulated by relevant laws.
Chapter III
The management and organizational structure of the Development Bank
Article 16. Management of the Development Bank
16.1 The highest organ of the Development Bank shall be the Shareholders meeting. During its break
the Board shall be the governing body.
16.2 The Shareholder of the Development Bank shall be the Government of Mongolia and shall
exercise the power of the Shareholders meeting.
Article 17. Board of Directors
17.1 The Board of the Development Bank shall comprise nine (9) members and three (3) of them shall
be independent members.
17.2 The Chairman and members of Board of the Development bank shall be appointed and dismissed
by the Government.
17.3 The Chairman and members of Board shall meet the following requirements:
17.3.1 have no outstanding debts under a loan agreement, guarantee and warranty;
17.3.2 no criminal records;
17.3.3 have no conflict regarding ethical and business reputation to manage the bank;
17.3.4 have a higher education decree in banking, finance, law, economics or engineering;
17.3.5 hold no state and political posts;
17.3.6 have a proof providing that he/she had no fault in any form for bankruptcy and insolvency
of a legal body where he/she worked at managerial position.
17.4 The independent members of the Board shall be nominated by the Central Bank of Mongolia,
National Chamber of Commerce and Industry of Mongolia and the Banking Association of Mongolia
respectively and shall be appointed by the Government.
17.5 Independent members of the Development Bank shall meet the following requirements in addition
to the provisions stipulated in Article 17.3 of this law:
17.5.1 having no less than 5 years experience in the area, of which no less than 2 years working
in a managerial position;
17.5.2 holding no state political and administrative positions;

17.5.3 having no business relations with the Development Bank.


17.6 Independent members of the Development Bank shall exercise the same right and obligations as
other members of Board.
17.7 The Board shall have sub-committees of Internal Audit, Nomination and Remuneration and the
independent members shall join and work with sub-committees.
Article 18. Power of the Board
18.1 The Board shall execute the following power:
18.1.1 determine the strategy of the Development Bank, making amendments and changes to it,
and approving the risk management policy, annual budget, business plans and performance
indicators of the bank;
18.1.2 define annually the credit policy of the Development Bank based on the principle of secure
creditworthiness;
18.1.3 obtain the Government opinion on getting loans, and issuing, selling and purchasing
securities;
18.1.4 obtain opinions of the Bank of Mongolia and Financial Regulatory Commission when
approving the business plan of the Development Bank;
18.1.5 define the powers and responsibilities of the executive management, oversee its activities,
and set the volume of its salary and remuneration;
18.1.6 submit a well-grounded proposal on convening regular and non-regular Shareholders
meeting;
18.1.7 submit an annual report on the activities of the Development Bank along with the
conclusion of the international audit to the Shareholders meeting for discussion;
18.1.8 organize the internal unit of the Development Bank independently from the executive
management, approve its budget and job positions, appoint the management and employees and
define operational rules by setting the volume/level of salary and remuneration;
18.1.9 define good governance policy and rules of the Development Bank, and oversee its
implementation;
18.1.10 ensure the implementation of laws, regulations and relevant standards on accounting,
financial reporting system, external and internal audits, risk management, financial condition and
activities of the Development Bank;
18.1.11 monitor the process of reporting financial statement, expenditure and cash flow
movement statements, clarifications, notes and other information of the Development Bank to
public;
18.1.12 determine the volume of the interest rate and commission for loan and other financial
services of the Development Bank in compliance with relevant rules.
18.2 Unless otherwise stipulated in the Charter of the Development Bank, Board`s meeting shall
convene not less than once (1) a month.
18.3 The decisions of Board shall be in the form of resolution and the Chairman of Board shall sign the
resolutions.

18.4 The Board`s meeting shall be convened with the attendance of not less than two third of all
members and the matters shall be resolved by the votes of the majority of members attending the
meeting.
18.5 Certified copies of the minutes of Board meeting, its decision, and proposals of the members
attending the meeting shall be submitted to Shareholders within 5 business days after the decision of
Board was adopted.
Article 19. Executive Management
19.1 The executive management shall lead and organize daily operations of the Development Bank
within the rights stipulated in the agreement concluded with Board and the Charter of the Development
Bank.
19.2 The executive management shall be selected through an open international tender and shall be
appointed and dismissed by Board upon the consent of Shareholders meeting. Not less than 50 percent
of the executive management shall be the citizens of Mongolia.
19.3 The executive management shall meet the following requirements in addition to the provisions
stipulated in Article 17.3.3 of this law:
19.3.1 having a higher education in banking, finance and economics and a professional
experience working in a managerial position in a financial sector not less than 5 years;
19.3.2 having no criminal record;
19.3.3 capable to work ensuring criteria for a prudential ratio of the bank and a managerial
capability.
19.4 The executive management shall exercise the following power in addition to the ones stipulated in
the Company Law:
19.4.1 approve the internal rules, regulations, instructions and methods of the Development
Bank;
19.4.2 work ensuring a criteria for prudential ratio on the of activities of the Development Bank;
19.4.3 make decisions on the organization, management, financial accounting, IT with regard to
engaging in activities in a financial market and doing payments/ transactions.
19.4.5 develop the annual budget of the Development Bank and submit for approval and organize
its implementation;
19.4.6 introduce new products and services;
19.4.7 represent the Development Bank, grant/disburse loans based on the Credit Committee
decision within its powers, and conclude agreements and contracts on issuing payment warranties
and guarantees of the Development Bank with the relevant legal bodies;
19.4.8 determine the Development Bank policy on selecting, training, and re-training its
personnel, conclude labor contract with employees, determine the scale of wages, bonuses and
allowances, and take measures to dismiss, reward and discipline employees.
19.4.9 on behalf of the Development Bank, request related information and reports from the
clients, review and check their balance sheets, take their assets as collateral in accordance with
laws and regulations, and close temporarily their account transactions.
19.5 The executive management shall undertake the following duties:

19.5.1 implement business plans and future perspectives of the Development Bank and define
asset and liability management policy;
19.5.2 take actions to enforce financial disciplines, and measures to ensure smooth operations of
the Development Bank;
19.5.3 establish a database with an aim to make analysis and assessment of the Development
Banks investment loans and projects;
19.5.4 define and enhance evaluation principles of projects and programs;
19.5.5 establish supervision system of the Development Banks lending operations;
19.5.6 take and implement measures to have the clients duties fulfilled for the Development
Bank;
19.5.7 organize the implementation of the rules, regulations, guidelines and orders related to the
activities of the Development Bank, and work reviewing its results;
19.5.8 based on the proposal made by BOD and as agreed by the Shareholders meeting
implement the asset management of the Development Bank, place efficiently free funds (excess
liquidity) in highly liquid financial instruments, and take measures to mitigate operational risks;
19.5.9 prepare reports on projects and loans financed by the Development Bank in a timely
manner and be accountable for its accuracy;
19.5.10 produce and present the proposals to BOD and the Shareholders meeting on projects and
programs financed by the Development Bank, the amount of granted loans, bonds issued and the
volume of its sales, formation of funds and its efficiency, and further trends of the bank;
19.5.11 take concrete measures to implement policy aimed at enhancing the Development Banks
finance, solvency and reputation;
19.5.12 not to engage in discussions of matters related to personal interests;
19.5.13 report their performance to BOD;
19.5.14 not concurrently hold positions or employed by other organizations.
19.6 The executive management may transfer his/her power to an individual authorized by Board when
taking vacation/annual leave, traveling on business trips locally and abroad or being on long term sick
leave, however, such transfer shall not be a ground of justification to free him/her from responsibilities.
Article 20. Organizational structure of the Development Bank
20.1 The Development Bank shall have main units in charge of Asset and Liability Management,
Credit, Risk Management, and Administration and Monitoring.
20.2 The Asset and Liability unit shall work ensuring the prudential management on analyzing asset
and liability deployment, its composition and maturity.
20.3 The Credit unit shall analyze and assess projects and programs being and/or to be implemented by
the loans of the Development Bank, monitor the progress of projects and programs, take and implement
measures against possible risks that may occur in loan repayment process, and ensure an optimal loan
portfolio of the Development Bank.
20.4 The Risk Management unit shall work analyzing the Development Bank loan risks and other type
of risks, taking measures to minimize the risks, and monitoring this process.
Chapter IV

Power of State Bodies on the Development Bank


Article 21. Powers of the State Great Khural
21.1 The State Great Khural shall exercise the following powers in relation to the Development Bank:
21.1.1 define the sources of funds for the Government share to contribute to the equity capital of
the Development Bank, and approve its amount;
21.1.2 set the maximum limit for loan guarantees to be issued by the Government;
21.1.3 review the audit report, opinion and recommendations on financial and performance
reports of the Development bank.
Article 22. Powers of the Government
22.1 The Government shall exercise the following powers in relation to the Development Bank:
22.1.1 establish the Development Bank and approve its Charter;
22.1.2 restructure and reorganize the Development Bank;
22.1.3 change the structure and amount of the share capital of the Development Bank;
22.1.4 issue loan guarantees for the Development Bank;
22.1.5 have a direct contact with the bank and other authorities regarding credit policy of the
Development Bank and its implementation, and express its stand;
22.1.6 purchase long term securities of the Development Bank issued with a condition of
repurchasing and make investments;
22.1.7 discuss and approve Board report on annual performance of the Development Bank;
22.1.8 discuss and approve Board report on financial statement verified by the audit organization;
22.1.9 make a decision to purchase securities;
22.1.10 appoint Board member for up to 3 years, terminate his/her power prior to the term, and
dismiss him/her.
22.1.11 determine powers of chairman of the Board and its members, the volume of their
responsibilities, wages and remuneration, and general guidelines for Board activities.
Article 23. Powers of the State Central Administrative body in charge of financial and fiscal
matters
23.1 The State Central Administrative body shall exercise the following powers in relation to the
Development Bank:
23.1.1 monitor funds financed by the state budget with an aim to form the equity capital of the
Development bank and estimations related to loan guarantees to be issued by the Government,
develop a proposal in compliance with the statement on medium term fiscal framework, and have
it discussed by the Government;
23.1.2 develop a proposal on restructuring, reorganizing, and dissolving the structure of the
Development Bank and submit it to the Government;
23.1.3 establish financial criteria to be observed at the Development Bank.
Chapter. V
Restrictions on operations of the Development Bank and audit system
Article 24. Restrictions on operations of the Development Bank

24.1 The following restrictions shall be observed on operations of the Development Bank:
24.1.1 total weight of loans and assets with loan features shall not exceed more than 50 times of
the asset;
24.1.2 total weight of loan guarantee, guarantee/surety, and security shall not exceed more than
50 times of the asset;
Article 25. Internal audit of the Development Bank
25.1 The Development Bank shall have the internal audit unit with a duty to carry out its activities
under the direct management of Board.
25.2 The Internal Audit unit shall undertake the following main functions:
25.2.1 prepare a conclusion on operational and financial statements of the management of the
Development Bank and submit it to Board;
25.2.2 examine the financial operations of the Development bank at the requests and complaints
of the shareholders;
25.2.3 carry out regular and non-regular inspections according to the approved schedule;
25.2.4 examine financial documents of the Development Bank and obtain explanations and
references;
25.2.5 request to obtain required documents from the clients of the Development Bank;
25.2.6 provide necessary documents to the shareholders.
Article 26. Auditor/Inspector
26.1 The Development bank shall have an inspector and an inspector shall inspect and monitor the
activities of the implementer of projects and programs that use the banks funds in accordance with this
Law and agreement.
26.2 The Inspector shall have the following rights:
26.2.1 enter premises, offices and other relevant places of the implementer of the projects and
programs;
26.2.2 examine accounting records, balance sheets and financial documents of the implementer of
the projects and programs and obtain explanations, references and other necessary materials;
26.2.3 review the implementation of projects and programs and present reports on findings and
relevant proposals to the management of the Development Bank.
26.3 The term for powers, rights and duties of the inspector shall be determined in the Charter of the
Development Bank in compliance with this Law.
Charter VI
Accounting, Audit and Financial Statements
Article 27. Accounting, audit and financial statements of the Development Bank
27.1 The financial statement of the Development Bank shall be prepared quarterly in accordance with
accounting legislation and international and national accounting standards; and the annual financial and

operational reports shall be audited by the State central audit agency and reports, conclusions and
recommendations shall be obtained.
27.2 The financial and operational reports of the Development Bank shall be audited by the
international competent audit organization selected by the Board not less than once (1) in two (2) years
and its report shall be presented to the State Great Khural.
27.3 The financial statement of the Development Bank shall contain the components stipulated in
Article 10 of the Accounting Law of Mongolia.
27.4 The executive management shall be responsible for accuracy of the financial statements.
27.5 The Development Bank shall prepare the relevant reports and information in compliance with
formats and templates approved by the Central Bank of Mongolia and submit it to the Central Bank of
Mongolia and Financial Regulatory Commission on a regular basis.
27.6 The Development Bank may provide required information requested by the state authority in
accordance with regulations.
Article 28. Disclosure of the Development Bank reports
28.1 The financial and operational reports of the Development Bank and audit report stipulated in
Article 27.2 of this law shall be reported to public through media.
Chapter VII
Liabilities
Article 29. Liabilities to be imposed on violators of the law
29.1 The judge or respective state inspector shall impose the following administrative sanctions to
guilty individuals if infringement of the law of the Development Bank does not call for criminal
sanctions.
29.1.1 a fine equal to 50-100 times of the minimum wage in tugrugs shall be imposed on an
official who breaches Article 8.3 and 10.1 of this Law, and the authoritative official shall dismiss
him/her from the position;
29.1.2 a fine equal to 50-100 times of the minimum wage in tugrugs shall be imposed on an
official who breaches Article 24.1 of this Law, and the authoritative official shall dismiss him/her
from the position;,
29.1.3 a fine equal to 10-25 times of the minimum wage in tugrugs shall be imposed on an
individual and a fine equal to 50-100 times of minimum wage in tugrugs shall be imposed on an
entity and organization, which hinder the inspection process stated in Article 26.1 of this Law.
29.1.4 a fine equal to 5-25 times of minimum wage in tugrugs shall be imposed on an employee
and official who conceals payment documents or delays transactions, and the authoritative
official shall dismiss him/her from the position;
29.1.5 a fine equal to 5-50 times of minimum wage in tugrugs shall be imposed on an official
who does not provide balance sheets and information in accordance with laws and regulations or
does not deliver such documents to relevant organizations as stated in Article 27 of this Law, and
who does not disclose the financial statement needed to be disclosed to public without serious

grounds, and an authoritative official shall dismiss him/her from the position and warn the
executive management;
29.1.6 if published reports and information contain not true, false and wrong information, a fine
equal to 50-150 times of minimum wage in tugrugs shall be imposed on an Executive Director
and other authoritative officials who verified the reports and information, and an authoritative
official shall dismiss him/her from the position.
29.2 The profits of fines specified in Article 29.2 shall be entered into the state budget.

Speaker, the State Great Khural of Mongolia

D. Demberel