Printed DBM Fs Eng Dec 5 Last To Public

Development Bank of Mongolia
International Financial Reporting Standards

Interim Financial Statements and

Independent Auditors Report

30 June 2013

Contents

INDEPENDENT AUDITORS REPORT

INTERIM FINANCIAL STATEMENTS

Interim Statement of Financial Position ......................................................................................................... 1
Interim Statement of Comprehensive Income............................................................................................... 2
Interim Statement of Changes in Equity........................................................................................................ 3
Interim Statement of Cash Flows ............................................................................................................. 4

Notes to the Interim Financial Statements

1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT 8
2. FINANCIAL REPORTING FRAMEWORK AND BASIS FOR PREPARATION AND 9
PRESENTATION
3. SIGNIFICANT ACCOUNTING POLICIES 13
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION 21
UNCERTAINTY
5. APPLICATION OF NEW AND REIVISED INTERNATIONAL FINANCIAL 22
REPORTING STANDARDS
6. CASH AND CASH EQUIVALENTS 26
7. BANK DEPOSITS 27
8. LOAN AND ADVANCES 28
9. OTHER ASSETS 32
10. PROPERTY AND EQUIPMENT 33
11. INTANGIBLES ASSETS 34
12. CUSTOMER ACCOUNTS AND OTHER LIABILITIES 35
13. BONDS 35
14. BORROWINGS 36
15. RELATED PARTY TRANSACTIONS 36
16. CONTRIBUTED CAPITAL 38
17. INTEREST INCOME 39
18. INTEREST EXPENSE 39
19. FOREIGN EXCHANGE LOSSES LESS GAINS 40
20. ADMINISTRATIVE AND OTHER OPERATING EXPENSES 40
21. INCOME TAXES 40
22. FINANCIAL RISK MANAGEMENT 42
23. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY 55
24. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES 56
25. COMMITMENTS AND CONTINGENCIES 60
26. SEGMENT REPORTING 61
27. POST BALANCE SHEET EVENTS 62
Interim Statement of Financial Position
Period ended 30 J une 2013

The accompanying notes are an integral part of these financial statements.

Interim Statement of Comprehensive Income

4


5

In thousands of Mongolian
Tugriks
Note 30 June 2013
(Restated)
1 January 2012
(Restated)
Assets
Cash and cash equivalents 6 245,896,656 216,468,206 75,817,745
Bank deposits 7 137,243,869 168,924,490 -
Loans and advances 8 1,110,543,393 493,555,967 -
Intangible assets 11 798,248 726,688 811,286
Property and equipment 10 375,355 234,558 182,563
Deferred tax assets 21 8,132,651 5,940,360 44,933
Other assets 9 15,352,501 2,285,515 3,667
Total assets 1,518,342,673 888,135,784 76,860,194
Liabilities
Customer accounts 12 38,011,542 6,960 -
Other liabilities 1,202,933 505,688 1,139,593
Income tax payables 21 6,943,985 3,313,560 -
Borrowings 14 433,553,076 - -
Bonds 13 964,184,602 817,317,727 26,622,791
Total liabilities 1,443,896,138 821,143,935 27,762,384
Equity
Share capital 16 73,300,000 73,300,000 49,700,000
Retained earnings 1,146,535 (6,308,151) (602,190)
Total equity 74,446,535 66,991,849 49,097,810
Total liabilities and equity 1,518,342,673 888,135,784 76,860,194

6

Approved for issue and signed on behalf of the Executive management on 8 November 2013.

Munkhbat Nanjid Tuyachimeg Sevjid
Chief Executive Officer Acting Head of Accounting Division
Development Bank of Mongolia Development Bank of Mongolia

In thousands of Mongolian Tugriks Note
1 January 2013
to 30 June 2013
1 January 2012
to 30 June 2012
Interest income 17 40,580,655 600,573
Interest expense 18 (27,655,733) (406,668)
Net interest income 12,924,922 193,905
Net interest income after provision for loan
impairment 12,924,922 193,905
Gains less losses from trading in foreign currencies 770,852 -
Foreign exchange gains less losses 19 (1,966,848) (2,500,419)
Administrative and other operating expenses 20 (2,149,512) (755,243)
Profit/(loss) before tax 9,579,414 (3,061,757)
Income tax (expenses)/benefit 21 (2,124,726) 829,757
Profit/(loss) for the period 7,454,688 (2,232,000)
Total comprehensive income/(loss) for the period 7,454,688 (2,232,000)
Interim Statement of Changes in Equity


In thousands of Mongolian Tugriks
Note Share capital
Retained
earnings
Total equity
Balance at 1 January 2012 16 49,700,000 (602,190) 49,097,810
Loss for the period - (2,232,000) (2,232,000)
Total comprehensive loss - (2,232,000) (2,232,000)
Balance at 30 June 2012 16 49,700,000 (2,834,190) 46,865,810
Balance at 1 January 2013 16 73,300,000 (6,308,151) 66,991,849
Profit for the period - 7,454,688 7,454,688
Total comprehensive income - 7,454,688 7,454,688
Balance at 30 June 2013 16 73,300,000 1,146,535 74,446,535
Interim Statement of Cash Flows

8

1 January 2013
to 30 June 2013
1 January 2012
to 30 June 2012
Cash flows from operating activities
Profit / (loss) before tax 9,579,414 (3,061,757)
Adjustments to:
Depreciation, amortization 84,927 75,207
Interest income (40,580,655) (600,573)
Interest expense on borrowings 27,655,733 406,668
FX (gain)/loss -Unrealized 1,638,772 186,086
Other non-cash operating expenses 233,569 114,775

Cash flows from operating activities before changes in
operating assets and liabilities (1,388,240) (2,879,594)
Net (increase)/decrease in loans and advances to customers (616,987,426) (27,225,665)
Net (increase)/decrease in other financial assets 30,917,488 (26,133,092)
Net increase/ (decrease) in other financial liabilities
38,701,826 (1,138,514)
Net cash (used in)/from operating activities before tax
and interest received and paid
(548,756,352) (57,376,865)
Income taxes paid (686,593) -
Interest received 22,014,073 391,657
Interest paid on borrowings (24,357,996) (738,049)
Net cash (used in)/from operating activities (551,786,868) (57,723,257)
Interim Statement of Cash Flows

9

1 January 2013
to 30 June 2013
1 January 2012
to 30 June 2012
Net cash (used in)/from operating activities (551,786,868) (57,723,257)
Cash flows from investing activities
Purchase of property, plant, equipment and intangible assets (297,283) (110,026)
Net cash used in investing activities (297,283) (110,026)
Cash flows from financing activities
Proceeds from borrowings 433,553,076
-
Proceeds from bonds 147,045,342 769,007,622
Net cash from/(used in) financing activities 580,598,418 769,007,622
Effect of exchange rate changes on cash and cash
equivalents 914,183 6,200,770
Net (decrease)/increase in cash and cash equivalents 29,428,450 717,375,109
Cash and cash equivalents at the beginning of the period 216,468,206 75,817,745
Cash and cash equivalents at the end of the period 245,896,656 793,192,854
Notes to the Interim Financial Statement 30 J une 2013
(Expressed in thousands of Mongolian tugriks unless otherwise stated)

10
1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT
The Development Bank of Mongolia ('the Bank') is a Government-owned, policy-oriented statutory
financial institution established on 25 March, 2011 pursuant to Resolution No. 195 dated 20 July 2010
by the Government of Mongolia and under the Development Bank Law passed by Parliament on 10
February 2011. The Bank has been registered as a limited liability company with the Legal Entity
Registration Office of the General Authority for State Registration since 25 March 2011 and is the
only policy bank in Mongolia. The Bank conducts its business under the direct supervision of the
Cabinet, which is the highest institution of Government administration in Mongolia and the Ministry of
Economic Development, and is regulated, principally, by the Development Bank Law. The Bank
commenced operations in May 2011.
The Government of Mongolia is the Bank's sole shareholder. In May and December 2011, the
Government contributed MNT 16.7 billion and MNT 33.0 billion, respectively, in cash to the Bank's
capital. In 2012, the Government contributed a further MNT 23.6 billion and as at 30 June 2013, the
Bank's share capital was 73.3 billion. The Government has contributed a further MNT 10.0 billion,
MNT 5.0 billion and MNT 35.0 billion in July, August and September 2013, respectively, to the Banks
capital.
In accordance with Article 21.1 of the Development Bank Law, Parliament determines the source of
equity financing the Government can provide to the Bank and determines the limits of loan
guarantees to be provided by the Government. The Bank is not subject to the rules and regulations
issued by the Bank of Mongolia in relation to commercial banks. The Bank's policy is to maintain a
strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business.
Until July 2013, the executive management of the Bank had been carried out by a joint team from the
Bank and the Korean Development Bank. In July 2013, the Management Agreement with the Korean
Development Bank was changed to the Advisory Agreement, and the Bank is managed solely by
Mongolian nationals appointed by the Government. The Bank had an average of 63 employees
during the period ended 30 June 2013 (2012: 43). The Bank's principal place of business is: Max
Tower Building 2-3
rd
floor, Juulchin Street 4/4 Ulaanbaatar 15170, Mongolia.

These financial statements are presented in Mongolian Tugriks (MNT), unless otherwise stated.
These interim financial statements were approved for issue by the Executive mement of Directorsof
the Bank on 8 November 2013.
Operating Environment of the Bank
Mongolia displays many characteristics of an emerging market including relatively high inflation and
interest rates. After recording steady growth in 2010 and 2011, the Mongolian economy has shown
signs of a slowdown in 2012 that continued to 2013 due to declining global commodities prices,
concerns over slowing growth in China and changes to the Mongolian foreign investment law which
have slowed inbound foreign investment into the country.
The tax and customs legislation in Mongolia is subject to varying interpretations. The future economic
performance of Mongolia is tied to the continuing demand from China and continuing high global
prices for commodities as well as dependent upon the effectiveness of economic, financial and
monetary measures undertaken by the Government together with tax, legal regulatory and political
developments.
The international sovereign debt crisis, stock market volatility and other risks could have a negative
effect on the Mongolian financial and corporate sector.
Management is unable to predict all developments, which could have an impact on the Mongolian
economy, and consequently what effect, if any, they could have on the future financial position of the
Bank. Management believes it is taking all the necessary measures to support the sustainability and
development of the Banks business.

11
2. FINANCIAL REPORTING FRAMEWORK AND BASIS FOR PREPARATION AND
PRESENTATION

Statement of Compliance
The interim financial statements of the Bank have been prepared in accordance International
Financial Reporting Standards (IFRS), which includes all applicable IFRS, International Accounting
Standards (IAS), and interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC) and Standing Interpretations Committee (SIC).
Basis of Preparation and Presentation

These interim financial statements have been prepared in accordance with International
Accounting Standard No. 34 Interim Financial Reporting, under the historical cost convention, as
modified by the initial recognition of financial instruments based on fair value. The principal
accounting policies applied in the preparation of these financial statements are set out below.
These policies have been consistently applied to all the periods presented, unless otherwise
stated.
Functional Currency

These financial statements are presented in Mongolian tugriks ('MNT') the currency of the primary
economic environment in which the Bank operates and the Banks functional currency.

Amendments of the financial statements after issue.

The Banks management has the power to amend the financial statements after issue.

Restatements
The following retrospective restatements have been made in these financial statements:
Accrued Interest Receivable and Accrued Interest Payable. Accrued Interest Receivable and
Accrued Interest Payable were previously reported as separate line items in the Statement of
Financial Position for the year ended 31 December 2012, while they are integral to
measurement of the related assets and liabilities at amortized cost according to the Banks
accounting policies. They have therefore been reclassified within Loans and advances, Bank
Deposits, Cash and cash equivalents and Long Term Debt in these financial statements.
Accrued Interest receivables on bank deposits of MNT 2,350 million as at 31 December 2012
has been restated to Bank Deposits in the amount of MNT 1,872 million and to Cash and cash
equivalents in the amount of MNT 478 million. Accrued Interest receivables on loans and
advances of MNT 6,771 million as at 31 December 2012 has been restated to Loans and
advances. Accrued Interest receivables on bank deposits of MNT 108 million as at 1 January
2012 has been restated to Bank Deposits. Accrued Interest payables on bonds of MNT 12,896
million as at 31 December 2012 has been restated to Bonds. Accrued Interest payables on
bonds of MNT 102 million as at 1 January 2012 has been restated to Bonds. This restatement
has no impact on the Statement of Comprehensive Income while its impact on the Statement of
Financial Position as of 31 December 2012 is presented below.
Unearned Income and Non-Interest income. Management has reconsidered the accounting for
Unearned Income previously reported within Accounts and Other Liabilities and Non-interest
income which represented loan origination fees. These two items were presented as separate
line items in the Statement of Financial Position and the Statement of Comprehensive Income,
respectively, for the year ended 31 December 2012. They are reported within Loans and
advances and Interest Income in these financial statements. Other liabilities and Loans and
advances have been reduced by MNT 590 million. This restatements impact on the Statement
of Comprehensive Income and on the Statement of Financial Position as of 31 December 2012
is presented below.


12
PRESENTATION (CONTINUED)

Restatements (continued)
Deposits from Borrowers. Management has reconsidered the accounting for Deposits from
Borrowers previously shown within Accounts and Other Liabilities. These amounts
represented conditional loan commitments. This was presented as a separate line in the
Statement of Financial Position for the year ended 31 December 2012. Following a
reassessment of the nature of this deposit amounting to MNT 2,330 million has now been
presented off balance sheet as undrawn commitments with the corresponding amount
removed from Loans and Advances. This restatement has no impact on the Statement of
Comprehensive Income while its impact on the Statement of Financial Position as of 31
December 2012 is presented below.
Previously recorded Interest Income: In 2013, the management performed a detailed analysis
of nature of certain transactions with the Government and their accounting treatment in
accordance with IFRS. As a result of this analysis, management concluded that cash
contributions received from the Government in the amount of MNT 23,957 million in 2012
(MNT 13 billion in the first half of the year) represents Government support with regard to the
guarantee issued by the Ministry of Finance and the Banks repayment of notes issued under
Euro Medium Term Notes Programme, and therefore meet definition of government grant
under IAS 20. As a result, related amount is recognised as a reduction in the related Interest
Expense in these financial statements. Related amount was recognised as interest income in
IFRS financial statements for year ended 31 December 2012. This restatement has no impact
on the Statement of Financial Position as of 31 December 2012, while its impact on the
Statement of Comprehensive Income as of 31 December 2012 is presented below.
Change in Deferred Tax Rate: In 2013, the management performed a detailed analysis of its
deferred tax calculation and its future tax rate. As a result of this analysis and on the basis of
forecasts management concluded that the Bank will incur tax at a rate of 25%. The Bank had
previously used 10% to calculate deferred tax. The related deferred tax asset and income tax
expense for 2012 have been restated in these financial statements. Related amount of MNT
2,475 million was recognised in Deferred tax assets on the Statement of Financial Position
as of 31 December 2012 and in Income tax expense on the Statement of Comprehensive
Income as of 31 December 2012. This restatements impact on the Statement of
Comprehensive Income and on the Statement of Financial Position as of 31 December 2012
is presented below.
Recognition of income tax charge: In 2013, the management performed a detailed analysis of
its current income tax return for 2012. As a result of this analysis management concluded that
the Bank will incur a current tax charge of MNT 3,314 million for the year ending 31 December
2012. This amount has been recognised within Income tax payables and Income tax
expenses. This restatements impact on the Statement of Comprehensive Income and on the
Statement of Financial Position as of 31 December 2012 is presented below.

Bank Deposits. Management has reconsidered the presentation of Bank Deposits amounting
to MNT 9,000 million as at 1 January 2012 which represented cash. As a result of this
analysis management concluded that this amount should be restated to Cash and cash
equivalents. This restatement has been reflected in the 1 January 2012 Statement of
Financial Position comparatives shown on page 3.

Reclassifications
Operating expenses. In 2013, the management performed a detailed analysis of its
presentation of operating expenses. As a result of this analysis management concluded that
Operating Expenses should be split to show Foreign exchange translation gain less loss
and Foreign exchange trading gain less loss separately on the Statement of Comprehensive
Income. Of MNT 5,771 million reclassified from Operating Expenses MNT 5,767 million was
reclassified to FX translation gain less losses and MNT 4 million was reclassified to FX
trading gain. This reclassification has no impact on the Statement of Financial

13
Tugriks
Year ended
31 December 2012
(as previously
reported
Restatements Note
Year ended
31 December 2012
(restated)
Assets
Cash and cash equivalents 215,990,270 477,936 6 216,468,206
Bank deposits 167,052,000 1,872,490 7 168,924,490
Loans and advances 489,704,568 3,851,399 8 493,555,967
Accrued interest receivables 9,121,272 (9,121,272) 8 -
Intangible assets 726,688 - 11 726,688
Property and equipment 234,558 - 10 234,558
Deferred tax assets 3,465,282 2,475,078 21 5,940,360
Other assets 2,285,515 - 9 2,285,515
Total assets 888,580,153 444,369 - 888,135,784
Liabilities
Other liabilities 3,425,135 (2,919,447) 505,688
Customer accounts 6,960 - 12 6,960
Income tax payables - 3,313,560 21 3,313,560
Accrued interest payables 12,896,260 (12,896,260) 13 -
Bonds 804,421,467 12,896,260 13 817,317,727
Total liabilities 820,749,822 394,113 821,143,935
Equity
Share capital 73,300,000 - 16 73,300,000
Retained earnings (5,469,669) (838,482) (6,308,151)
Total equity 67,830,331 (838,482) 66,991,849
Total liabilities and equity 888,580,153 (444,369) 888,135,784
PRESENTATION (CONTINUED)
Reclassifications (continued)
Position as of 31 December 2012, while its impact on the Statement of Comprehensive
Income as of 31 December 2012 is shown below.
Other Assets and Foreign exchange gain less losses. In 2013, the management performed a
detailed analysis of nature of certain transactions with the Government and their accounting
treatment in accordance with IFRS. As a result of this analysis, management concluded that
receivables due from the Ministry of Finance, presented within Other Assets, in the amount
of MNT 2,168,468 thousand meets the definition of a government grant under IAS 20. The
grant amount is recognised in the related expense to which the grant relates to namely the
Foreign exchange gain less losses in these financial statements. This was previously treated
as an embedded derivative and recorded within Operating Expenses in the 31 December
2012 financial statements. This reclassification has no impact on the Statement of Financial
Position as of 31 December 2012, and no impact on the Statement of Comprehensive Income
as of 31 December 2012.
The reclassifications have no impact on the Statement of Financial Position. The impact of the above
restatements on the Statement of Financial Position as of 31 December 2012 is presented below.


14
Year ended
31 December
2012
(as previously
reported
Restatements
Reclassific
ation
Note
Year ended
31 December
2012
(adjusted)
Interest income 36,787,338 (23,909,064) - 17 12,878,274
Interest expense (37,652,609) 23,957,121 - 18 (13,695,488)
Net interest income (865,271) 48,057 - (817,214)
Non-interest income 48,057 (48,057) -
Operating expenses (7,470,614) - 5,767,295 20 (1,703,319)
Foreign exchange trading gains less losses - - 4,060 4,060

Foreign exchange gains less losses
- - (5,771,355) 19 (5,771,355)
Profit before tax (8,287,828) (48,057) - (8,287,828)
Income tax expense 3,420,349 (838,482) - 21 2,581,867
Profit for the year (4,867,479) (838,482) - (5,705,962)
Total comprehensive income for the
year (4,867,479) (838,482) - (5,705,962)
PRESENTATOIN (CONTINUED)

The impact of the above reclassification and restatements on the Statement of Comprehensive
Income as of 31 December 2012 is presented below.

The period 1 January 2012 to 30 June 2012 has never previously been audited, published or made
publically available. As such the figures for this period are not restated.
The abovementioned restatements and reclassifications were reflected in the Banks Statement of
cash flows in these financial statements. Management concluded that detailed disclosures of the
effect of restatements, reclassifications or other improvements on each financial statement line item
of the statement of cash flows are not necessary, given that the only impact is an increase of MNT 9
billion to the cash and cash equivalents opening balance as at 1 January 2012 and a corresponding
impact on the Net (increase)/decrease in other financial assets line.


15
3. SIGNIFICANT ACCOUNTING POLICIES
Financial instruments - key measurement terms. Depending on their classification financial
instruments are carried at fair value or amortised cost as described below.
Fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The best evidence of
fair value is price in an active market. An active market is one in which transactions for the asset or
liability take place with sufficient frequency and volume to provide pricing information on an ongoing
basis. Fair value of financial instruments traded in an active market is measured as the product of the
quoted price for the individual asset or liability and the quantity held by the entity. This is the case
even if a markets normal daily trading volume is not sufficient to absorb the quantity held and placing
orders to sell the position in a single transaction might affect the quoted price.
A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an
active market is measured at the fair value of a group of financial assets and financial liabilities on the
basis of the price that would be received to sell a net long position (i.e. an asset) for a particular risk
exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an
orderly transaction between market participants at the measurement date. This is applicable for
assets carried at fair value on a recurring basis if the Group: (a) manages the group of financial
assets and financial liabilities on the basis of the entitys net exposure to a particular market risk (or
risks) or to the credit risk of a particular counterparty in accordance with the entitys documented risk
management or investment strategy; (b) it provides information on that basis about the group of
assets and liabilities to the entitys key management personnel; and (c) the market risks, including
duration of the entitys exposure to a particular market risk (or risks) arising from the financial assets
and financial liabilities is substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arms length
transactions or consideration of financial data of the investees are used to measure fair value of
certain financial instruments for which external market pricing information is not available. Fair value
measurements are analysed by level in the fair value hierarchy as follows: (i) level one are
measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii)
level two measurements are valuations techniques with all material inputs observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three
measurements are valuations not based on solely observable market data (that is, the measurement
requires significant unobservable inputs). Transfers between levels of the fair value hierarchy are
deemed to have occurred at the end of the reporting period.
Transaction costs. Transaction costs are incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have
been incurred if the transaction had not taken place. Transaction costs include fees and commissions
paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies
by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do
not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost. Amortised cost is the amount at which the financial instrument was recognised at
initial recognition less any principal repayments, plus accrued interest, and for financial assets less
any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction
costs deferred at initial recognition and of any premium or discount to maturity amount using the
effective interest method. Accrued interest income and accrued interest expense, including both
accrued coupon and amortised discount or premium (including fees deferred at origination, if any),
are not presented separately and are included in the carrying values of related items in the statement
of financial position.
The effective interest method. The effective interest method is a method of allocating interest
income or interest expense over the relevant period, so as to achieve a constant periodic rate of
interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts (excluding future credit losses) through
the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying
amount of the financial instrument. The effective interest rate discounts cash flows of variable interest
instruments to the next interest reprising date, except for the premium or discount which reflects the
credit spread over the floating rate specified in the instrument, or other variables that are not reset to

16
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Market rates. Such premiums or discounts are amortised over the whole expected life of the
instrument. The present value calculation includes all fees paid or received between parties to the
contract that are an integral part of the effective interest rate
Initial recognition of financial instruments. Trading securities, derivatives and other financial
instruments at fair value through profit or loss are initially recorded at fair value. All other financial
instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is
best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is
a difference between fair value and transaction price which can be evidenced by other observable
current market transactions in the same instrument or by a valuation technique whose inputs include
only data from observable markets.
All purchases and sales of financial assets that require delivery within the time frame established by
regulation or market convention (regular way purchases and sales) are recorded at trade date,
which is the date on which the Bank commits to deliver a financial asset. All other purchases are
recognised when the entity becomes a party to the contractual provisions of the instrument.
Derecognition of financial assets. The Bank derecognises financial assets when (a) the assets are
redeemed or the rights to cash flows from the assets otherwise expired or (b) the Bank has
transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-
through arrangement while (i) also transferring substantially all risks and rewards of ownership of the
assets or (ii) neither transferring nor retaining substantially all risks and rewards of ownership, but not
retaining control. Control is retained if the counterparty does not have the practical ability to sell the
asset in its entirety to an unrelated third party without needing to impose restrictions on the sale.
Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and
cash equivalents include all interbank placements with original maturities of less than 90 days. Funds
restricted for a period of more than 90 days on origination are excluded from cash and cash
equivalents. Cash and cash equivalents are carried at amortised cost.
Loans and advances to customers. Loans and advances to customers are recorded when the
Bank advances money to purchase or originate an unquoted non-derivative receivable from a
customer due on fixed or determinable dates, and has no intention of trading the receivable. Loans
and advances to customers are carried at amortised cost.

Bank Deposits. Bank deposit are recorded when the Bank advances money to counterparty banks
with no intention of trading the resulting unquoted non-derivative receivable due on fixed or
determinable dates. Amounts due from other banks are carried at amortised cost.

Impairment of financial assets carried at amortised cost. Impairment losses are recognised in
profit or loss for the year when incurred as a result of one or more events (loss events) that occurred
after the initial recognition of the financial asset and which have an impact on the amount or timing of
the estimated future cash flows of the financial asset or group of financial assets that can be reliably
estimated.

The following other principal criteria are also used to determine whether there is objective evidence
that an impairment loss has occurred:
- any instalment is overdue and the late payment cannot be attributed to a delay caused by the
settlement systems;
- the borrower experiences a significant financial difficulty as evidenced by the borrowers
financial information that the Bank obtains;
- the borrower considers bankruptcy or a financial reorganisation;
- there is an adverse change in the payment status of the borrower as a result of changes in
the national or local economic conditions that impact the borrower; or
- the value of collateral significantly decreases as a result of deteriorating market conditions.


17

Future cash flows in a group of financial assets that are collectively evaluated for impairment, are
estimated on the basis of the contractual cash flows of the assets and the experience of management
in respect of the extent to which amounts will become overdue as a result of past loss events and the
success of recovery of overdue amounts. Past experience is adjusted on the basis of current
observable data to reflect the effects of current conditions that did not affect past periods, and to
remove the effects of past conditions that do not exist currently.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise
modified because of financial difficulties of the borrower or issuer, impairment is measured using the
original effective interest rate before the modification of terms. The renegotiated asset is then
derecognized and a new asset is recognized at its fair value only if the risks and rewards of the asset
substantially changed. This is normally evidenced by a substantial difference between the present
values of the original cash flows and the new expected cash flows.
Impairment losses are always recognised through an allowance account to write down the assets
carrying amount to the present value of expected cash flows (which exclude future credit losses that
have not been incurred) discounted at the original effective interest rate of the asset. The calculation
of the present value of the estimated future cash flows of a collateralised financial asset reflects the
cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether
or not foreclosure is probable. Allowances are made against the carrying amount of loans and
advances that are identified as being potentially impaired, based on regular reviews of outstanding
balances, to reduce these loans and advances to their recoverable amount in accordance with
Regulations on Asset Classification and provisioning approved by the Executive director of
Development Bank of Mongolia.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised (such as an
improvement in the debtors credit rating), the previously recognised impairment loss is reversed by
adjusting the allowance account through profit or loss for the year.
Uncollectible assets are written off against the related impairment loss provision after all the
necessary procedures to recover the asset have been completed and the amount of the loss has
been determined. Subsequent recoveries of amounts previously written off are credited to impairment
loss account in profit or loss for the year.
Prepayments. Prepayments represent expenses not yet incurred but already paid in cash.
Prepayments are initially recorded as assets and measured at the amount of cash paid.
Subsequently, these are charged to profit or loss as they are consumed in operations or expire with
the passage of time.
Property and Equipment. Property and equipment are initially measured at cost. At the end of each
reporting period, property and equipment are measured at cost less any subsequent accumulated
depreciation, amortization and impairment losses. Cost includes expenditure that is directly
attributable to the acquisition of the asset.
Purchased software that is integral to the functionality of the related equipment is capitalized as
part of that equipment.
When an item of property and equipment is acquired in an exchange for non-monetary asset/s, or a
combination of monetary and non-monetary assets, the cost of that item is measured at fair value
unless:
- the exchange transaction lacks commercial substance; or
- the fair value of neither the asset received nor the asset given up is reliably measurable.


18

Costs of minor repairs and maintenance are expensed when incurred. Costs of replacing major
parts or components of premises and equipment items are capitalised, and the replaced part is
retired.
Depreciation is computed on the straight-line method, based on the estimated useful lives of the
assets as follows:
- IT Equipment 3 years
- Furniture and fixture 10 years
- Vehicles 10 years
Derecognition of property and equipment. An item of property and equipment is derecognized
upon disposal or when no future economic benefits are expected to arise from the continued use of
the asset. Gain or loss arising on the disposal or retirement of an asset is determined as the
difference between the sales proceeds and the carrying amount of the asset and is recognized in
profit or loss.
Intangible Assets. Intangible assets that are acquired by the Bank with finite useful lives are initially
measured at cost. At the end of each reporting period items of intangible assets acquired are
measured at cost less accumulated amortization and accumulated impairment losses. Cost includes
purchase price, including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates and any directly attributable cost of preparing the intangible asset for its
intended use.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied
in the specific asset to which it relates. All other expenditure, including expenditure on internally
generated goodwill and brands, is recognized in profit or loss as incurred.
Amortization for intangible asset with finite useful life is calculated over the cost of the asset, or other
amount substituted for cost, less its residual value.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of
intangible assets from the date that they are available for use, since this most closely reflects the
expected pattern of consumption of the future economic benefits embodied in the asset. The
estimated useful lives are as follows:
Software 10 years
Derecognition of intangible assets. An intangible asset is derecognized on disposal, or when no
future economic benefits are expected from use or disposal. Gains or losses arising from
derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is
derecognized.

Impairment of Tangible and Intangible Assets. At the end of each reporting period management
assesses whether there is any indication of impairment of premises and equipment or intangible
assets. If any such indication exists, management estimates the recoverable amount, which is
determined as the higher of an assets fair value less costs to sell and its value in use. The carrying
amount is reduced to the recoverable amount and the impairment loss is recognised in profit or loss
for the year. An impairment loss recognised for an asset in prior years is reversed if there has been a
change in the estimates used to determine the assets value in use or fair value less costs to sell.
Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate
customers and are carried at amortised cost.


19

Bonds and Borrowings. Debt securities representing bonds issued are stated at amortised cost. If
the Bank purchases its own debt securities in issue, they are removed from the statement of financial
position and the difference between the carrying amount of the liability and the consideration paid is
included in gains arising from retirement of debt.
Ordinary shares. As at 30 June 2013, the Government of Mongolia had paid in capital contributions
to the Bank, but no share certificates had been issued.

Income tax. Interim period income tax expense is accrued using the effective tax rate that would be
applicable to expected total annual earnings, that is, the estimated weighted average annual effective
income tax rate applied to the pre-tax income of the interim period.

Deferred income tax. Deferred income tax is provided using the balance sheet liability method for
tax loss carry forwards and temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial
recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition
of an asset or a liability in a transaction other than a business combination if the transaction, when
initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at
tax rates enacted or substantively enacted at the end of the reporting period, which are expected to
apply to the period when the temporary differences will reverse or the tax loss carry forwards will be
utilised.
Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded
only to the extent that it is probable that future taxable profit will be available against which the
deductions can be utilised.
Provisions, Contingent Liabilities and Contingent Assets
Provisions. Provisions are recognized when the Bank has a present obligation, either legal or
constructive, as a result of a past event, it is probable that the Bank will be required to settle the
obligation through an outflow of resources embodying economic benefits, and the amount of the
obligation can be estimated reliably.
The amount of the provision recognized is the best estimate of the consideration required to settle the
present obligation at the end of each reporting period, taking into account the risks and uncertainties
surrounding the obligation. A provision is measured using the cash flows estimated to settle the
present obligation; its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, the receivable is recognized as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable can be measured reliably.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate.
If it is no longer probable that a transfer of economic benefits will be required to settle the obligation,
the provision is reversed.
Contingent Liabilities and Assets. Contingent liabilities and assets are not recognized because
their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity.
Contingent liabilities are disclosed, unless the possibility of an outflow of resources embodying
economic benefits is remote.
Contingent assets are disclosed only an inflow of economic benefits is probable.

20

Credit related commitments. From time to time, the Bank enters into credit related commitments,
including letters of credit and financial guarantees. Financial guarantees represent irrevocable
assurances to make payments in the event that a customer cannot meet its obligations to third parties
and carry the same credit risk as loans. Financial guarantees and commitments to provide a loan are
initially recognized at their fair value, which is normally evidenced by the amount of fees received.
This amount is amortized on a straight line basis over the life of the commitment, except for
commitments to originate loans if it is probable that the Bank will enter into a specific lending
arrangement and does not expect to sell the resulting loan shortly after origination; such loan
commitment fees are deferred and included in the carrying value of the loan on initial recognition. At
the end of each reporting period, the commitments are measured at the higher of (i) the remaining
unamortized balance of the amount at initial recognition and (ii) the best estimate of expenditure
required to settle the commitment at the end of each reporting period. In cases where the fees are
charged periodically in respect of an outstanding commitment, they are recognized as revenue on a
time proportion basis over the respective commitment period.
Employee Benefits
Short-term benefits. The Bank recognizes a liability net of amounts already paid and an expense for
services rendered by employees during the reporting period. A liability is also recognized for the
amount expected to be paid under short-term cash bonus or profit sharing plans if the Bank has a
present legal or constructive obligation to pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed
as the related service is provided.
Long-term benefits. The Bank has provided funding to a 3
rd
party bank in order for it to give its
Employees cheaper mortgage and salary loans. The cost of this scheme has initially been booked as
a prepayment and will be expensed through the statement of comprehensive income over the life-
time of the loan scheme.
Post-employment benefits. The Bank does not have any pension arrangements separate from the
state pension system of Mongolia, which requires current contributions by the employer calculated
as a percentage of current gross salary payments; such expense is charged to the statement of
comprehensive incomes in the period the related salaries and wages are payable.

Offsetting. Financial assets and liabilities are offset and the net amount reported in the statement of
financial position only when there is a legally enforceable right to offset the recognised amounts, and
there is an intention to either settle on a net basis, or to realise the asset and settle the liability
simultaneously.
Income and expense recognition. Interest income and expense are recorded for all debt instruments on
an accrual basis using the effective interest method. This method defers, as part of interest income or
expense, all fees paid or received between the parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include origination fees received or paid by the entity
relating to the creation or acquisition of a financial asset or issuance of a financial liability, for example
fees for evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating
the terms of the instrument and for processing transaction documents. Commitment fees received by
the Bank to originate loans at market interest rates are integral to the effective interest rate if it is
probable that the Bank will enter into a specific lending arrangement and does not expect to sell the
resulting loan shortly after origination. The Bank does not designate loan commitments as financial
liabilities at fair value through profit or loss.


21

When loans and other debt instruments become doubtful of collection, they are written down to the
present value of expected cash inflows and interest income is thereafter recorded for the unwinding of the
present value discount based on the assets effective interest rate which was used to measure the
impairment loss.
All other fees, commissions and other income and expense items are generally recorded on an
accrual basis by reference to completion of the specific transaction assessed on the basis of the
actual service provided as a proportion of the total services to be provided.
Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for
a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of
businesses, and which are earned on execution of the underlying transaction, are recorded on its
completion.
Government Grants. Grants from the government are recognised at their fair value, where there is a
reasonable assurance that the grant will be received, and the Bank will comply with all attached
conditions. Government grants relating to costs are deferred, and recognised in the Statement of
Comprehensive Income over the period necessary to match them with the costs they are intended to
compensate. The Bank has opted to recognise its Government Grants as a reduction of the related
expense. If part, or all, of a grant becomes repayable to the government, the repayment is first matched
against any remaining deferred income set up for that grant. If this is insufficient, the remainder is
expensed immediately.
Foreign Currency
Foreign currency transactions. Transactions in currencies other than the MNT are recorded at the
rates of exchange prevailing on the dates of the transactions. At the end of each reporting period,
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates
prevailing at the end of the reporting period. Non-monetary assets and liabilities carried at fair value
that are denominated in foreign currencies are translated at the rates prevailing at the date the fair
value was determined. Gains and losses arising on retranslation are included in profit or loss for the
year. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign
currency are not retranslated.
Related Party Transactions
A related party transaction is a transfer of resources, services or obligations between the Bank and a
related party, regardless of whether a price is charged.
A person or a close member of that person
s family is related to the Bank if that person:

has control or joint control over the Bank or
has significant influence over the Bank or
is a member of the key management personnel of the Bank or of a parent of the
Bank


22

An entity is related to the Bank if any of the following conditions apply:
the entity and the Bank are members of the same group which means that each
parent, subsidiary and fellow subsidiary is related to the others;
one entity is an associate or joint venture of the other entity or an associate or joint
venture of a member of a group of which the other entity is a member;
both entities are joint ventures of the same third party;
one entity is a joint venture of a third entity and the other entity is an associate of
the third entity;
the entity is a post-employment benefit plan for the benefit of employees of either
the Bank or an entity related to the Bank;
the entity is controlled or jointly controlled by a person who is a related party as
identified above; and
A person that has control or joint control over the reporting entity has significant
influence over the entity or is a member of the key management personnel of the
entity or of a parent of the entity.

Due to the nature of the Bank and its role as a policy bank almost all loans and transactions are with
related parties. The Bank applies the exemption allowed under IAS 24.25.


23
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
In the application of the Bank's accounting policies, management is required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on the historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future periods if the revision affects both
current and future periods.
Key Sources of Estimation Uncertainty. The following are the key assumptions concerning the
future and other key sources of estimation uncertainty at the end of each reporting period that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year.

Determining the carrying value of employee prepayments. Management has concluded that
deposit to State bank of MNT 1 billion receives interest rate below market rate. Based on available
information on comparable transactions, management made judgment that the policy rate of the
Bank of Mongolia of 10.5% p.a. represents reasonable approximation of market interest rate on
MNT funding. As a result, related prepayment was recognized at its fair value at initial recognition
of MNT 776,352 thousand. The loss on initial recognition (i.e. the difference between nominal
value of this deposit and its fair value) represents salary prepayments in accordance with IFRS
requirements. Management has concluded that it is appropriate to recognize the cost of the
scheme over the lifetime of the deposit. Refer to Note 9 for details.
Determining the level of loan loss provisioning. The purpose of the Bank is to provide financing to
development projects in the Mongolia. As a result, the projects are often of a social infrastructure
nature and may not have a clearly defined stand-alone profit-oriented cash flow sufficient to
demonstrate a long-term ability to repay the development loan. However, for substantially all loans a
guarantee is provided by the State, and this is considered when assessing whether there is a risk of
loss on any particular loan. Management does not believe any loan impairment assessment is
required on loans where guarantees have been received from the Government. No collective loan
loss provision calculation is performed by the Bank as management assess that given the structure of
the loan portfolio and the guarantees received from Government any loss given default LGD on
loans would be zero. Given the close involvement of the Government, the Bank and the underlying
projects the Bank finances, management assess that there are no losses incurred but not reported
affecting the Bank. The level of Government guarantees and other collateral guarantees is disclosed
in Note 8. Any changes in the assessment of recoverability of guarantees would impact the profit or
loss of the Bank.
Determining the treatment of Government Grant Schemes. Management has concluded that it is
a recipient of two grant schemes described in Note 18 and Note 19 in the periods 1 January 2012 to
30 June 2012 and 1 January 2013 to 30 June 2013 amounting to MNT 13 billion and MNT 12.3 billion
respectively. Determining whether the transaction falls within the scope of IAS 20 requires
judgement. The definition of government grants includes transfers to an entity, subject to certain
conditions placed on the operating activities of the entity. However, it excludes government
assistance on which cannot be distinguished from normal trading transactions of the entity and
transactions which constitute "government participation in the ownership of the entity". Management
have concluded that the two schemes fall within the scope of IAS 20. Management have also
concluded that the receivable due from Government at each reporting date was reasonably assured
to be received.


24
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (CONTINUED)
Initial recognition of borrowings and loans at below market rates. During the first half 2013, the
Bank has obtained financing directly from the Government of Mongolia. These funds are
denominated in MNT and obtained at an interest rate of 4.9%, which is lower than rates at which the
Bank could source the funds from other lenders at Mongolian market. Based on available information
on comparable transactions, management made judgment that the policy rate of the Bank of
Mongolia represents the best approximation of market interest rate on MNT funding for banks
(10.5%). As a result of such financing, the Bank is able to advance funds to target customers as
determined by the Government, at advantageous rates of approximately 8% p.a. The Bank has little
or no discretionary rights in determining interest rates on issued loans should it continue to wish
receiving cheap financing from the Government. Management has considered whether gains or
losses should arise on initial recognition of such instruments. Managements judgement is that these
funds and the related lending are at market rates and no initial recognition gains or losses should
arise. In making this judgement management also considers that these instruments are a separate
market segment (i.e. the Bank operates in a separate principal market).

Deferred income tax asset recognition. The recognised deferred tax asset represents income
taxes recoverable through future deductions from taxable profits, and is recorded in the statement of
financial position. Deferred income tax assets are recorded to the extent that realisation of the related
tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in
the future are based on a medium term business plan prepared by management and extrapolated
results thereafter. The business plan is based on management expectations that are believed to be
reasonable under the circumstances taking into account the Banks actual profitability during 2013.
Management has concluded that it will be able to recover its deferred tax asset including tax losses
and is likely to incur tax at the rate of 25%.

5. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS

The following new standards and interpretations became effective for the Group from 1 January 2013:

IFRS 10 Consolidated Financial Statements (issued in May 2011 and effective for annual
periods beginning on or after 1 J anuary 2013) replaces all of the guidance on control and
consolidation in IAS 27 Consolidated and separate financial statements and SIC-12 Consolidation -
special purpose entities. IFRS 10 changes the definition of control so that the same criteria are
applied to all entities to determine control. This definition is supported by extensive application
guidance. The Standard did not have any material impact on the Banks financial statements.
IFRS 11 Joint Arrangements (issued in May 2011 and effective for annual periods beginning
on or after 1 J anuary 2013) replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly
Controlled EntitiesNon-Monetary Contributions by Ventures. Changes in the definitions have
reduced the number of types of joint arrangements to two: joint operations and joint ventures. The
existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated.
Equity accounting is mandatory for participants in joint ventures. The Standard did not have any
material impact on the Banks financial statements.


25

STANDARDS (CONTINUED)
IFRS 12 Disclosure of Interests in Other Entities (issued in May 2011 and effective for
annual periods beginning on or after 1 J anuary 2013) applies to entities that have an interest in a
subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the
disclosure requirements previously found in IAS 28 Investments in associates. IFRS 12 requires
entities to disclose information that helps financial statement readers to evaluate the nature, risks and
financial effects associated with the entitys interests in subsidiaries, associates, joint arrangements
and unconsolidated structured entities. To meet these objectives, the new standard requires
disclosures in a number of areas, including significant judgments and assumptions made in
determining whether an entity controls, jointly controls, or significantly influences its interests in other
entities, extended disclosures on share of non-controlling interests in group activities and cash flows,
summarized financial information of subsidiaries with material non-controlling interests, and detailed
disclosures of interests in unconsolidated structured entities. The Standard did not have any material
impact on the Banks financial statements.

IFRS 13 Fair Value Measurement (issued in May 2011 and effective for annual periods
beginning on or after 1 J anuary 2013) improved consistency and reduced complexity by providing
a revised definition of fair value, and a single source of fair value measurement and disclosure
requirements for use across IFRSs The Standard did not have any material impact on the Banks
financial statements.
IAS 27 Separate Financial Statements (revised in May 2011 and effective for annual periods
beginning on or after 1 J anuary 2013) was changed and its objective is now to prescribe the
accounting and disclosure requirements for investments in subsidiaries, joint ventures and
associates when an entity prepares separate financial statements. The guidance on control and
consolidated financial statements was replaced by IFRS 10 Consolidated Financial Statements. The
Standard did not have any material impact on the Banks financial statements.
IAS 28 Investments in Associates and Joint Ventures (revised in May 2011 and effective for
annual periods beginning on or after 1 J anuary 2013). The amendment of IAS 28 resulted
from the Boards project on joint ventures. When discussing that project, the Board decided to
incorporate the accounting for joint ventures using the equity method into IAS 28 because this
method is applicable to both joint ventures and associates. With this exception, other guidance
remained unchanged. The Standard did not have any material impact on the Banks financial
statements.
Amendments to IAS 1 Presentation of Financial Statements (issued in June 2011, effective for annual
periods beginning on or after 1 J uly 2013) changed the disclosure of items presented in other
comprehensive income. The amendments require entities to separate items presented in other
comprehensive income into two groups, based on whether or not they may be reclassified to profit or
loss in the future. The suggested title used by IAS 1 has changed to statement of profit or loss and
other comprehensive income. The amended standard resulted in changed presentation of financial
statements, but did not have any impact on measurement of transactions and balances.
Amended IAS 19 Employee Benefits (issued in June 2011, effective for periods beginning on or after 1
J anuary 2013) makes significant changes to the recognition and measurement of defined benefit
pension expense and termination benefits, and to the disclosures for all employee benefits. The
standard requires recognition of all changes in the net defined benefit liability (asset) when they
occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other
comprehensive income. The Standard did not have any material impact on the Banks financial
statements.
Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7
(issued in December 2011 and effective for annual periods beginning on or after 1 J anuary
2013). The amendment requires disclosures that enable users of an entitys financial statements to
evaluate the effect or potential effect of netting arrangements, including rights of set-off. The
Standard did not have any material impact on the Banks financial statements.

26
Improvements to International Financial Reporting Standards (issued in May 2012 and
effective for annual periods beginning 1 J anuary 2013). The improvements consist of changes to
five standards. IFRS 1 was amended to (i) clarify that an entity that resumes preparing its IFRS
financial statements may either repeatedly apply IFRS 1 or apply all IFRSs retrospectively as if it had
never stopped applying them, and (ii) to add an exemption from applying IAS 23 Borrowing costs,
retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory notes are not
required to support the third balance sheet presented at the beginning of the preceding period when it
is provided because it was materially impacted by a retrospective restatement, changes in accounting
policies or reclassifications for presentation purposes, while explanatory notes will be required when
an entity voluntarily decides to provide additional comparative statements. IAS 16 was amended to
clarify that servicing equipment that is used for more than one period is classified as property, plant
and equipment rather than inventory. IAS 32 was amended to clarify that certain tax consequences
of distributions to owners should be accounted for in the income statement as was always required
by IAS 12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 now requires
disclosure of a measure of total assets and liabilities for an operating segment only if such
information is regularly provided to chief operating decision maker and there has been a material
change in those measures since the last annual financial statements. The Standard did not have any
material impact on the Banks financial statements.
Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12 (issued in June 2012
and effective for annual periods beginning 1 J anuary 2013). The amendments clarify the
transition guidance in IFRS 10 Consolidated Financial Statements. Entities adopting IFRS 10
should assess control at the first day of the annual period in which IFRS 10 is adopted, and if the
consolidation conclusion under IFRS 10 differs from IAS 27 and SIC 12, the immediately preceding
comparative period (that is, year 2012) is restated, unless impracticable. The amendments also
provide additional transition relief in IFRS 10, IFRS 11 Joint Arrangements and IFRS 12 Disclosure
of Interests in Other Entities, by limiting the requirement to provide adjusted comparative information
only for the immediately preceding comparative period. Further, the amendments remove the
requirement to present comparative information for disclosures related to unconsolidated structured
entities for periods before IFRS 12 is first applied. The Standard did not have any material impact on
the Banks financial statements.
Other revised standards and interpretations: IFRIC 20 Stripping Costs in the Production Phase of
a Surface Mine, considers when and how to account for the benefits arising from the stripping
activity in mining industry. The interpretation did not have an impact on the Groups financial
statements. Amendments to IFRS 1 First-time adoption of International Financial Reporting
Standards - Government Loans, which were issued in March 2012 and are effective for annual
periods beginning 1 January 2013, give first-time adopters of IFRSs relief from full retrospective
application of accounting requirements for loans from government at below market rates. The
amendment is not relevant to the Group.

New Accounting Pronouncements
Certain new standards and interpretations have been issued that are mandatory for the annual periods
beginning on or after 1 January 2014 or later, and which the Group has not early adopted.
IFRS 9 Financial Instruments Part 1: Classification and Measurement. IFRS 9, issued in
November 2009, replaces those parts of IAS 39 relating to the classification and measurement of
financial assets. IFRS 9 was further amended in October 2010 to address the classification and
measurement of financial liabilities and in December 2011 to (i) change its effective date to annual
periods beginning on or after 1 January 2015 and (ii) to add transition disclosures. Key features of the
standard are as follows:
Financial assets are required to be classified into two measurement categories: those to be
measured subsequently at fair value, and those to be measured subsequently at amortised cost.
The decision is to be made at initial recognition. The classification depends on the entitys
business model for managing its financial instruments and the contractual cash flow
characteristics of the instrument.

27

An instrument is subsequently measured at amortised cost only if it is a debt instrument and both
(i) the objective of the entitys business model is to hold the asset to collect the contractual cash
flows, and (ii) the assets contractual cash flows represent payments of principal and interest only
(that is, it has only basic loan features). All other debt instruments are to be measured at fair
value through profit or loss.
All equity instruments are to be measured subsequently at fair value. Equity instruments that are
held for trading will be measured at fair value through profit or loss. For all other equity
investments, an irrevocable election can be made at initial recognition, to recognise unrealised
and realised fair value gains and losses through other comprehensive income rather than profit
or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election
may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or
loss, as long as they represent a return on investment.
Most of the requirements in IAS 39 for classification and measurement of financial liabilities were
carried forward unchanged to IFRS 9. The key change is that an entity will be required to present
the effects of changes in own credit risk of financial liabilities designated at fair value through
profit or loss in other comprehensive income.
While adoption of IFRS 9 is mandatory from 1 January 2015, earlier adoption is permitted. The Bank
is considering the implications of the standard, the impact on the Bank and the timing of its adoption
by the Bank.
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in
December 2011 and effective for annual periods beginning on or after 1 J anuary 2014). The
amendment added application guidance to IAS 32 to address inconsistencies identified in applying
some of the offsetting criteria. This includes clarifying the meaning of currently has a legally
enforceable right of set-off and that some gross settlement systems may be considered equivalent to
net settlement. The Bank is considering the implications of the standard, the impact on the Bank and
the timing of its adoption by the Bank.
Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment entities (issued on 31 October
2012 and effective for annual periods beginning 1 J anuary 2014). The amendment introduced a
definition of an investment entity as an entity that (i) obtains funds from investors for the purpose of
providing them with investment management services, (ii) commits to its investors that its business
purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and
evaluates its investments on a fair value basis. An investment entity will be required to account for its
subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries that provide
services that are related to the entity's investment activities. IFRS 12 was amended to introduce new
disclosures, including any significant judgements made in determining whether an entity is an
investment entity and information about financial or other support to an unconsolidated subsidiary,
whether intended or already provided to the subsidiary. The Bank does not expect the amendment to
have any impact on its financial statements.
IFRIC 21 Levies (issued on 20 May 2013 and effective for annual periods beginning 1
J anuary 2014). The interpretation clarifies the accounting for an obligation to pay a levy that is not
income tax. The obligating event that gives rise to a liability is the event identified by the legislation
that triggers the obligation to pay the levy. The fact that an entity is economically compelled to
continue operating in a future period, or prepares its financial statements under the going concern
assumption, does not create an obligation. The same recognition principles apply in interim and
annual financial statements. The application of the interpretation to liabilities arising from emissions
trading schemes is optional. The Bank does not expect the amendment to have any impact on its
financial statements.


28
Amendments to IAS 36 Recoverable amount disclosures for non-financial assets (issued
in May 2013 and effective for annual periods beginning 1 J anuary 2014; earlier application is
permitted if IFRS 13 is applied for the same accounting and comparative period). The
amendments remove the requirement to disclose the recoverable amount when a CGU contains
goodwill or indefinite lived intangible assets but there has been no impairment. The Bank is currently
assessing the impact of the amendments on the disclosures in its financial statements.
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
issued in J une 2013 and effective for annual periods beginning 1 J anuary 2014).The
amendments will allow hedge accounting to continue in a situation where a derivative, which has
been designated as a hedging instrument, is novated (i.e parties have agreed to replace their original
counterparty with a new one) to effect clearing with a central counterparty as a result of laws or
regulation, if specific conditions are met. The Bank does not expect the amendment to have any
impact on its financial statements.
Unless otherwise described above, the new standards and interpretations are not expected to affect
significantly the Banks financial statements.

6. CASH AND CASH EQUIVALENTS

Cash equivalents are short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.

Cash and cash equivalents are not collateralised. All amounts are classified as neither past due nor
impaired. The interest on the short term deposit ranges from 7.5%-12.5% p.a. for MNT and 4.8%-
7.2% p.a. for USD deposits for the six months of 2013 (in 2012: 4.5%-11.5% p.a.).

Cash at Bank of Mongolia and other banks and short term deposits with local banks with original
maturities of less than three months represent balances with Mongolian banks and the Bank of
Mongolia.

30 June 2013 31 December 2012
(Restated)
Cash on hand 5,322 6,132
Cash at Bank of Mongolia 130,649 31,672,320
Cash at other banks 6,551,516 31,358,100
Short term deposits with local banks 239,209,169 153,431,654
Total cash and cash equivalents 245,896,656 216,468,206

29
(Restated)
B1 rated 136,007,722 140,712,501
Unrated 1,236,147 28,211,989
Total bank deposits 137,243,869 168,924,490
6. CASH AND CASH EQUIVALENTS (CONTINUED)
The credit quality of cash and cash equivalents balances may be summarised based on
Standard and Poors ratings or equivalents of Moodys and/or Fitch ratings. The credit quality at
30 June 2013 and 31 December 2012 was as follows.

The unrated balance relates to commercial banks in Mongolia, which have not been rated by any
rating agency. Financial condition of these commercial banks is regularly monitored by the Bank.
Based on the reputation of these banks on the Mongolian market and other available information
(including financial information), management believes that counterparty risk is low and related
amounts are fully recoverable.
7. BANK DEPOSITS

Bank deposits consist of term deposits at the local banks with different maturities (over three months
but less than a year) and interest rate between 8.5%-11.5% p.a. for MNT deposits. The Bank has no
USD deposits over 3 months.
The credit quality of term deposits may be summarised based on Standard and Poors ratings or
equivalents of Moodys and/or Fitch ratings. The credit quality at 30 June 2013 and 31 December
2012 was as follows:

The unrated balance relates to commercial banks in Mongolia, which have not been rated by any
rating agency. Financial condition of these commercial banks is regularly monitored by the Bank.
Based on the reputation of these banks on the Mongolian market and other available information
(including financial information), management believes that counterparty risk is low and related
amounts are fully recoverable.

(Restated)
Neither past due nor impaired
Central Bank of Mongolia - B1 Rated 130,649 31,672,320
B1 rated 103,999,971 80,940,815
Unrated 141,760,714 103,848,939
Total cash and cash equivalents, excluding
cash on hand 245,891,334 216,462,074

30
8. LOANS AND ADVANCES

Loans and advances as of 30 June 2013 and 31 December 2012 consist of the following:

The Bank has a policy to estimate allowances for loan losses. Management has concluded that the
Bank requires no provisions on it loans and receivables. Management does not assess any loan
impairment assessment is required on loans where guarantees have been received from the
Government. Only one loan of MNT 89,825 million as at 30 June 2013 does not hold a direct or
indirect guarantee from Government and no impairment indicators have been identified.

At 30 June 2013, MNT 758,911 million of loans and advances are expected to be recovered more
than 12 months after the period end (2012: MNT 418,202 million).
The Bank provides loans for the projects implemented by Government under the following conditions:
1. Loans to Ministries: Socially beneficial projects under the condition of repayment from the State
Budget and with a Government guarantee of repayment. These projects are not expected to create
cash flows with which to repay the debt.
The following projects are included in under the condition of repayment from the State Budget and
subject to a Government guarantee: improvement of city and domestic roads, building of a new
railway, extension and improvement of the power and heat station, and, through other commercial
banks, mortgages for families and individuals of small and medium earnings.

2. Loans to Corporates: Entities which the Government consider operate priority commercial
activities (Air Transport, Mining, Railway, Infrastructure and Housing) under the condition of
repayment from future income of the projects themselves.

The following projects are included in programs under the condition of repayment from future income
of the projects: support of small and medium-sized manufactures, support of mining industry, and
support to entities for developing air transport.

Within some corporate loan agreements it has been agreed that the Ministry of Finance will pay the
interest and principal on the loans.

(Restated)
Loans and advances given to the Ministries 555,774,979 256,159,934
Loans and advances given to Corporates 554,768,414 237,396,033

Total net amount of loans and advances 1,110,543,393 493,555,967

31
8. LOANS AND ADVANCES (CONTINUED)
The analysis by credit quality of loans outstanding at 30 June 2013 is as follows:

All loans to Ministries have the same credit rating as the Government of Mongolia, B1. All corporate
entities are unrated. The Management believes that all neither past due nor impaired loans are
performing loans.

As at 30 June 2013 the aggregated amount of the top 5 largest borrowers is MNT 855,839 million (31
December 2012: MNT 394,898 million) or 77% of total loans and advances (31 December 2012:
80%).

By 30th of June 2013, loans of 29.3 billion MNT are up to 30 days overdue. As for loans and
advances given to the Ministries, the Government issued a resolution outlining its plan to restructure
these loans to extend principal repayment to 2017 to match the repayment of the bond. Interest
continues to be earned and paid on these overdue loans at the same rate as before. The restructure
loan agreements have not yet been finalised. Management believes that no impairment will arise as
a result of restructuring.

Loans and
advances given
to the Ministries
Loans and
advances given
to the
Corporates
Total
Neither past due nor impaired 534,173,861 547,023,355 1,081,197,216
- Infrastructure 296,790,892 - 296,790,892
- Mortgage 82,414,583 - 82,414,583
- Mining - 312,815,338 312,815,338
- Air transportation - 114,985,383 114,985,383
- Manufacturing - 119,222,634 119,222,634
- Railway 154,968,386 - 154,968,386
Past due but not impaired:
- less than 30 days overdue 21,601,118 7,745,059 29,346,177
Total past due but not impaired 21,601,118 7,745,059 29,346,177
Total loans and advances 555,774,979 554,768,414 1,110,543,393

32
Total
Loans collateralized by:
- Government guarantees 555,774,979 308,914,883 864,689,862
- Commercial bank guarantees - 29,130,800 29,130,800
- Machinery and Equipment - 216,722,731 216,722,731
Total Loans and Advances 555,774,979 554,768,414 1,110,543,393
Loans and
advances given
to the Ministries
Loans and
advances given
to Corporates

Analysis by credit quality of loans outstanding at 31 December 2012 (restated) is as follows:

All loans to Ministries are have the same credit rating as the Government of Mongolia, B1. All corporate entities
are unrated.

Information about collateral as at 30 June 2013 is as follows:

Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or
collateral taken.

Loans and
advances given
to the Ministries
Loans and
advances given
to the
Corporates
Total
Neither past due nor impaired 256,159,934 237,396,033 493,555,967
- Infrastructure 205,385,976 - 205,385,976
- Mortgage 50,773,958 50,773,958
-Mining - 141,512,394 141,512,394
-Air transport - 7,443,401 7,443,401
-Manufacturing - 88,440,238 88,440,238
Total loans and advances 256,159,934 237,396,033 493,555,967

33
Total
Loans collateralized by:
- Government guarantees 256,159,934 141,433,083 397,593,017
- Commercial bank guarantees 2,058,000 2,058,000
- Machinery and Equipment 93,904,950 93,904,950
Total Loans and Advances 256,159,934 237,396,033 493,555,967
Loans and
advances given
to the Ministries
Loans and
advances given
to Corporates
Carrying value of
the assets
Value of
collateral
Carrying value of
the assets
Value of
collateral
loans and advances collateralized
by:
- Government guarantees 864,689,862 864,689,862 397,593,017 397,593,017
- Commercial bank guarantees 29,130,800 29,130,800 2,058,000 2,058,000
- Machinery, equipment and others 216,722,731 257,461,125 93,904,950 132,485,968
Total value 1,110,543,393 1,151,281,787 493,555,967 532,136,985
Over-collateralised assets as
at 30 June 2013
Over-collateralised assets as
at 31 December 2012
Information about collateral as at 31 December 2012 is as follows:

The financial effect of collateral at 30 June 2013:

Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or
collateral taken.
Economic sector risk concentrations within the loan portfolio are as follows:

In thousands of Mongolian Tugriks Amount % Amount %
Loan and advances given to the Ministries 555,774,979 50% 256,159,934 52%
Mining 308,647,610 28% 141,512,394 29%
Air transportation 122,730,442 11% 7,443,401 2%
Manufacturing 123,390,362 11% 88,440,238 18%
Total Loans and Advances (before
impairment) 1,110,543,393 100% 493,555,967 100%
(Restated)

34
9. OTHER ASSETS

The receivables from the Ministry of Finance are due to the Project Financing Agreements between
the Ministry of Finance and Government Project implementation bodies (Ministry of Roads Transport
Construction and Urban Development and State Governor Administration, Ministry of Foods and
Agriculture of Mongolia) and the Bank in the form of a Government Grant.
Loan agreements between the Government Ministries and the Bank are in MNT. As part of the
agreement the Ministry of Finance has agreed to cover any movement in the MNT loans compared to
a USD loan. Loans are therefore converted into USD at the date of disbursement and settlement. Any
resulting foreign exchange loss will be reimbursed by the Ministry of Finance in the form of a
Government Grant. As of 30 June 2013, this amounted to MNT 14.5 billion. This represents an
increase of MNT 12.3 billion since 31 December 2012. MNT 428.1 million has been subsequently
paid down by the Government.
The amount of receivables from Ministry of Finance is variable depending on MNT/USD exchange
rate movements. Should the MNT appreciate in value against USD the receivable from Ministry of
Finance would decrease with the movement being expensed in the profit and loss. MNT 14,044
million of the MNT 14,472 million is non-current.
In line with other banks in Mongolia, the Development Bank of Mongolia offers its employees reduced
rates on Mortgage loans. The Bank has arranged this benefit by providing 0% interest funding to the
State Bank for a period of 15 years who in turn issue loans to the bank's employees at reduced rates.
This scheme began in June 2013. The initial amount of this employee benefit of MNT 776,351 is
amortised over the duration of the scheme. MNT 720,281 of the MNT 772,038 is non-current.
All Other receivables, prepayments, and supply materials are current assets.

In thousands of Mongolian Tugriks 30 June 2013 31 December 2012
Receivables from the Ministry of Finance 14,472,321 2,168,468
Other receivables 1,338 251
Prepaid employee benefit 772,038 -
Prepayments 98,711 114,283
Supply materials 8,093 2,513
Total other assets 15,352,501 2,285,515

35

10. PROPERTY AND EQUIPMENT

Movements in the carrying amounts of the Banks property, plant and equipment are as follows:

There was no disposal of property, plant and equipment during the first six months of 2013.
Management believes that there is no indication that an impairment loss has occurred.

Equipment at
cost
Furniture and
fixtures at
cost
Vehicle at
cost
Total property
and
equipment
Cost at 1 January 2012 140,608 71,970 - 212,578
Accumulated depreciation (25,607) (4,409) - (30,016)
Carrying amount at 1January 115,002 67,561 182,563
-
Additions 7,240 110,026 117,266
Depreciation charge (47,070) (7,197) (11,003) (65,270)
Carrying amount at 31 December
2012 75,171 60,364 99,023 234,558
Cost at 31 December 2012 147,848 71,970 110,026 329,844
Accumulated depreciation (72,677) (11,606) (11,003) (95,286)
Carrying amount at 31 December
2012 75,171 60,364 99,023 234,558
-
Additions 91,338 48,817 41,200 181,355
Depreciation charge (30,614) (4,443) (5,501) (40,558)
Carrying amount at 30 June 2013 135,895 104,738 134,722 375,355
Cost at 30 June 2013 239,186 120,787 151,226 511,199
Accumulated depreciation (103,291) (16,049) (16,503) (135,844)
Carrying amount at 30 June 2013 135,895 104,738 134,722 375,355

36
In thousands of Mongolian Tugriks Amount
Cost at 1 January 2012 840,732
Accumulated amortization (29,446)
Carrying amount at 1 January 2012 811,286
Additions -
Amortization charge (84,597)
Carrying amount at 31 December 2012 726,689
Cost at 31 December 2012 811,286
Carrying amount at 31 December 2012 726,689
Additions 115,929
Amortization charge (44,369)
Carrying amount at 30 June 2013 798,249
Cost at 30 June 2013 956,661
Carrying amount at 30 June 2013 798,249

11. INTANGIBLES ASSETS
Intangible assets relate to banking software system. The carrying amounts of the Bank
s intangible
assets are as follows:

The Bank amortises the intangible assets (software) for 10 years for financial reporting purpose and 3
years for the tax purposes
There was no disposal of intangible assets during the first six months of 2013. Management believes
that there is no indication of an impairment loss.


37
(Restated)
Customer accounts 38,011,542 6,960
Total customer accounts 38,011,542 6,960
Payable to the Government 344,012 344,012
Other accrued expenses 858,920 161,676
Total other liabilities 1,202,932 505,688
Total other liabilities and customer accounts 39,214,474 512,648
12. CUSTOMER ACCOUNTS AND OTHER LIABILITIES
The Bank makes loan payments of the Borrowers through the customer accounts and the balance on
customer accounts are undrawn amounts of disbursed loans. No interest is paid on these customer
accounts. As at 30 June 2013 customer accounts consists of 4 accounts (2012: 1) which total MNT
38,011 million (2012: MNT 6,090 million)
Included within Other accrued expenses is an amount of MNT 704 million penalty interest for late
payment of the 31 December 2012 tax charge which was identified in 2013.

13. BONDS
This account is composed of:

The Bank has established a USD 600 million Euro Medium Term Notes Programme in November
2011 that allows it to issue notes denominated in any currency agreed between the Bank and the
dealer.
The Ministry of Finance irrevocably and unconditionally guarantees the interest and principal
payment of all amounts in respect of the notes.
On December 9, 2011, an initial series of notes was issued amounting to USD 20,000,000 with a
fixed interest rate of 6.0% and 1 year maturity. The Bank fully repaid these notes in December 2012.
The Bank issued a second series of notes in March 2012 amounting to USD 580,000,000 with fixed
interest rate 5.75% and a 5 year maturity. In May 2013, the Bank issued a USD 78,550,000 bond with
a fixed interest rate of 7.5% for the duration of 232 days to a local commercial bank.
Bond issuance costs are amortised over the period of the notes.
(Restated)
Bond issued to local commercial bank 114,898,282 -
Bond issued to international market 849,286,320 817,317,727
Total liabilities 964,184,602 817,317,727

38
14. BORROWINGS

This account is composed of:

The Bank has received a loan from Government in order to further fund financing projects and
programs. The Government has provided this money from proceeds of the Chinggis Bond. Interest is
charged at 4.79% p.a on this loan.

15. RELATED PARTY TRANSACTIONS
Related parties and transactions with related parties are assessed in accordance with IAS 24
Related Party Disclosures. As discussed in Note 1, the Bank is 100% owned by the Government of
Mongolia and its operations include the financing of projects within Mongolia, which include projects
undertaken by governmental entities. Accordingly, the Bank enters into numerous transactions with
related parties as a result of its ownership by the Government. These balances and transactions
have been disclosed throughout the financial statements and as such have not been included below.
According to IAS 24 Related Party Disclosures other related parties of the Bank comprise the
Government of Mongolia, national companies and other organisations controlled, jointly controlled or
under significant influence of the Government.

Assets with Related Parties
An analysis of the Banks assets held by related parties is disclosed as follows:

Statement of
Financial
Position
Statement of
Comprehensive
Income
Statement of
Financial
Position
Statement of
Comprehensive
Income
Receivables from Ministry of
Finance
14,472,321 12,303,853 2,168,468 2,168,468
Current account with Bank of
Mongolia
130,649 - 31,672,320 -
Current account with Saving
Bank
1,638 4,935 21,761,643 50,637
Short term deposits with
Saving Bank
73,363,518 2,081,515 34,853,753 61,957
Deposit with State Bank for
Employee benefit
1,000,000 (2,356) - -
Total amounts to related
parties transaction
88,968,126 14,387,947 90,456,184 2,281,062
Tugriks
Six months period ended 30 June 31 December 2012 (Restated)
Financing from the Government 433,553,076 -
Total borrowings 433,553,076 -

39

15. RELATED PARTY TRANSACTIONS (CONTINUED)

Current accounts with the Bank of Mongolia and State Bank on the same terms and basis as the Banks
other current accounts and deposits. Bank of Mongolia current accounts earn 0% interest and 5.6%
p.a interest is earned on the State Bank current accounts.

The interest on the State Bank short term deposit ranges from 7.5%-11% p.a. for MNT and is 4.8%
p.a. for USD deposits.
As discussed in Note 9 the receivable from the Ministry of Finance is due to the Project Financing
Agreements between the Ministry of Finance and Government Project implementation bodies
(Ministry of Roads Transport Construction and Urban Development and State Governor
Administration, Ministry of Foods and Agriculture of Mongolia) and the Bank in the form of a
Government Grant.
The Development Bank of Mongolia offers its employees reduced rates on Mortgage loans as
referred to in Note 9. The Bank has arranged this benefit by providing 0% interest funding to the
State Bank of MNT 1 billion for a period of 15 years who in turn issue loans to the Bank's employees
at reduced rates. The initial cost of this employee benefit is MNT 776,351 thousands which has been
recorded as a prepayment. The deposit was therefore recorded at initiation of the scheme within the
Statement of Financial Position at a value of MNT 223,648 thousands by discounting the deposit by
10.5%. Please refer to Note 4.
Loans to Related Parties
An analysis of the Bank loans to related parties is disclosed as follows:

Loans provided to the above related parties are provided on the same terms and basis as loans
provided to non-related entities with interest rates between 6.75% - 9.6% p.a for MNT and 6.12% -
9.5% p.a for USD loans and advances and maturities of between one and five years.

Statement of
Financial
Position
Statement of
Comprehensive
Income
Statement of
Financial
Position
Statement of
Comprehensive
Income
Funded by the Government : 555,774,979 13,399,336 256,159,933 1,201,865
- The Ministries 265,359,364 7,985,481 202,611,654
- State Bank 82,414,583 2,615,625 50,773,958 1,198,125
- 4th Power Station SOSC 50,260,613 860,487 2,774,321 3,740
- Tavan tolgoi power plant 2,772,033 24,180 - -
- Mongolian Railway SOSC 154,968,386 1,913,563 - -
Funded by the Corporates : 464,943,854 12,285,099 150,934,485 2,855,613
- MIAT Airlines SC 122,730,442 1,943,297 7,443,401 297,523
- Erdenes Tavan Tolgoi SC 296,191,716 9,833,303 141,512,394 2,502,401
- Baganuur SOSC 16,623,621 296,915 - -
- SME Development Fund 29,398,074 211,584 1,978,690 55,689
Total loans to related parties 1,020,718,833 25,684,435 407,094,418 4,057,478
31 December 2012 (Restated)
Tugriks
six months ended 30 June 2013

40
In thousands of Mongolian Tugriks 30 June 2013 31 December 2012
Contributed capital 73,300,000 73,300,000
Total contributed capital 73,300,000 73,300,000

15. RELATED PARTY TRANSACTIONS (CONTINUED)

The remuneration and employee benefit paid to the executive officers, directors and members of
Board for the period ended 30 June 2013 and 30 June 2012 amounted to MNT 171,905,731 and
MNT 158,416,684 respectively.

Guarantees Received
The Bank is the recipient of a number of guarantees from the Government of Mongolia. On the
lending side most loans are guaranteed by the Ministry of Finance. Please refer to Note 8 for further
details

On the borrowing side the Bank has a Bond issued on the Singapore stock exchange on which the
Ministry of Finance irrevocably and unconditionally guarantees the interest and principal payment of
all amounts in respect of the bond notes.

Guarantees Given
The Bank has given a guarantee to the China Machinery Engineering Corporation on the 24th May
2013 in the amount of USD 75,900,000 on behalf of the Ministry of Energy and Ministry of Economic
Development. Under the guarantee should the Bank be required to pay out on this guarantee the
Bank would be refunded the cost from the State budget in accordance with resolution #155.

The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag
Housing Projects LLC amounting to USD 83,881,158 on the 13th September 2012. To date the
Export-Import Bank of China has not yet provided any funding to the New Yarmag Housing Project.
The bank will earn a 2% fee when funds are provided to New Yarmag

16. CONTRIBUTED CAPITAL
Components of contributed capital are as follows:

In accordance with Development Bank Law, the Bank's share capital consists of contribution from
government and other sources as specified in Development Bank Law. No shares had actually
been issued.
As at 30 September, 2013, the Banks share capital has increased to MNT 123.3 billion. Refer to
Note 27.


41
1 January 2013 to 30
June 2013
June 2012
Authorized:
Contribution 73,300,000 49,700,000
Paid contribution:
At January 1, 73,300,000 49,700,000
Total contributed capital 73,300,000 49,700,000
16. CONTRIBUTED CAPITAL (CONTINUED)
In May and December 2011, the Government contributed 16.7 billion and 33.0 billion, respectively
in cash to the Bank's capital. An additional contribution amounting to MNT 23.6 billion was
received in December 2012.

17. INTEREST INCOME

18. INTEREST EXPENSE

Under the Government Grant scheme the Ministry of Finance has agreed to provide funding to pay
the interest on the Euro Medium Term Notes Programme until such time as the Bank is in an
operational position to fund the interest payments from its own sources. This amounted to MNT 13
billion for the first six months of 2012. This payment has been netted off against Interest Expense
(bond issued to international market) in accordance with IAS 20.

From October 2012 the Bank was considered to be in operational position to fund the interest itself
and no further payments from Government are expected.

June 2013
June 2012
Loans and advances 29,438,551 77,473
Deposits and placements at banks 11,142,104 523,100
Total interest income 40,580,655 600,573
June 2013
June 2012
Bond issued to international market 23,976,746 406,668
Bond issued to local commercial bank 1,294,501 -
Borrowings 2,384,486 -
Total interest expense 27,655,733 406,668

42
19. FOREIGN EXCHANGE GAINS LESS LOSSES

Included with the Foreign exchange gain less losses is an amount of MNT 12.3 billion due from the
Ministry of Finance under the scheme described in Note 9. The total amount now owed to the Bank
under the scheme amounts to MNT 14.5 billion. Under the scheme Ministry of Finance has a
responsibility for repayment of principal amount and interest amount with FX loss to DBM. In
accordance with IAS 20 this has been netted off the related expense.

20. ADMINISTRATIVE AND OTHER EXPENSES
Included in employee cost and benefits are the contribution to state pension fund MNT 64.6 million
for the period ended 30 June 2013 (30 June 2012: MNT 27.7 million). The penalty interest of MNT
704 million relates to late payment of the 31 December 2012 tax charge.

21. INCOME TAXES
Components of income tax expense charged to profit or loss are as follows:

June 2013
June 2012
Employee cost and benefit 940,013 523,143
Penalty interest 703,585 -
IT and software 90,100 1,475
Depreciation and amortization 84,927 75,207
Utilities, security and maintenance 28,805 16,305
Rental costs 51,231 -
Communication and Stationeries 62,985 39,770
Business travel and event 56,693 32,370
Audit and other professional services 72,102 33,100
Advertising 22,619 3,928
Fuel and Transportation expense 8,810 6,772
Training 3,971 2,799
Insurance cost 2,819 2,135
Others 20,854 18,239
Total operating expenses 2,149,512 755,243
June 2013
June 2012
Current income tax charge 4,317,017 -
Deferred tax (benefit) (2,192,291) (829,757)
Income tax expense/(benefit) for the period
2,124,726 (829,757)

43
21. INCOME TAXES (CONTINUED)
The Bank provides for income taxes on the basis of income for financial reporting purposes, adjusted
for items which are not assessable or deductible for income tax purposes. The income tax rate for
profits of the Bank is 10% for the first MNT 3 billion of taxable income, and 25% on the excess of
taxable income over MNT 3 billion in accordance with Mongolian tax legislation.
Interim period income tax expense is recognised based on managements best estimate of the
weighted average annual income tax rate expected for the full financial year. The estimated average
annual tax rate applied for the six months ended 30 June 2013 is 25%.
Reconciliation between the expected and the actual taxation charge is provided below.

Differences between IFRS and statutory taxation regulations in Mongolia give rise to temporary
differences between the carrying amount of assets and liabilities for financial reporting purposes and
their tax bases.

Tax losses can be carried forward for the next two years and are deductible up to 50% of the taxable
income of that year in accordance with Mongolian legislation. In order to utilise tax losses the Bank
must subject itself to a voluntary tax audit, the results of which in the Mongolian tax environment can
be uncertain. Please refer to Note 25.

Deferred tax asset (liability) was recognized for deductible or taxable timing differences resulting
from the revaluation of foreign currency denominated monetary assets and liabilities and differing
amortisation rates between the tax authorities and the Bank.

June 2013
June 2012
Profit/(loss) before tax 9,579,414 (3,061,757)
Theoretical tax charge at statutory rate (2013:
25%; 2012: 25%) 2,394,854 (765,439)
Tax effect of items which are not deductible or
assessable for taxation purposes:
-Profit subject to lower tax rate (450,000) -
-Expenses not deductible for tax purposes 179,872 3,082
-Income not taxable
Estimation difference of deferred tax - (67,400)
Income tax expense/(benefit) for the period
2,124,726 (829,757)

44
21. INCOME TAXES (CONTINUED)

22. FINANCIAL RISK MANAGEMENT
Introduction and overview
The risk management function within the Bank is carried out in respect of the risks inherent in the
Bank's operations, which are credit risk, liquidity risk, interest rate risk, foreign exchange risk and
operational risk, all of which are monitored and controlled by the various committees and teams
established by the Bank and reporting directly to the Board of Directors.
This process of risk management is critical to the Bank's continuing profitability and all of the Bank
executives are accountable for the management of risks relating to their responsibilities. The day-
to-day risk management process does not include business risks such as changes in the
environment, technology and industry. These are addressed through the Bank's strategic planning
process.
The Bank's risk management policies are established to identify and analyse the risks faced by the
Bank, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions,
products and services offered. The Bank, through its training and management standards and
procedures, conducts its risk management in a comprehensive manner with all employees being
responsible for the risk arising in their role in financial or non-financial transactions.
1 January 2013 to 30 June 2013
Opening
balance
(restated)
Recognised in
profit or loss
Closing balance
Deferred tax (liabilities)/assets in relation to:
Deposits (2,091,211) 1,593,216 (497,995)
Loans and advances (408,815) (4,816,963) (5,225,778)
Other Assets (542,117) (3,075,964) (3,618,080)
Intangibles (65,215) (24,456) (89,671)
Bond 9,047,718 8,419,882 17,467,600
Other Liabilities 96,575 96,575
Deferred tax asset 5,940,360 2,192,290 8,132,651
1 January 2012 to 30 June 2012
Opening
balance
Recognised in
profit or loss
Closing balance
Deferred tax (liabilities)/assets in relation to:
Cash and cash equivalents - (1,541,621) (1,541,621)
Loans and advances - (11,515) (11,515)
Intangibles (6,522) (34,238) (40,760)
Bond 51,340 1,676,668 1,728,008
Other Liabilities 114 (114) -
Tax loss carry forward - 740,578 740,578
Deferred tax asset 44,933 829,757 874,690

45
22. FINANCIAL RISK MANAGEMENT (CONTINUED)
Monitoring and controlling risks is primarily performed based on limits established by the related
Management Committees of the Bank. These limits reflect the business strategy and market
environment of the Bank as well as the level of risk that the Bank is willing to accept. In addition, the
Bank monitors and measures the overall risk bearing capacity in relation to the aggregate risk
exposures across all risk types and activities.
As part of its overall risk management, the Bank uses basic sensitivity analysis to manage exposures
resulting from possible changes in interest rates, foreign currencies risks. Also, the individual
mitigation plans for each type of risk are developed and implemented by each business unit, and the
process is monitored by the Asset and Liability Committee.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank's
risk management framework. The Board has established an Executive Committee, the Asset and
Liability Management Committee (ALCO) and Credit Committee, which are responsible for
developing and monitoring the Bank's risk management policies in their specified areas.
Board of Directors
The Board of Directors is responsible for the overall risk management approach and for approving the
risk strategies and principles that establish the objectives guiding the Bank's activities and implement the
necessary policies and procedures. The risk strategy, including all significant risk policies, is approved
and periodically reviewed by the Board of Directors.
Executive Committee is responsible for conducting the Bank's daily operations consistent with the
Development Bank Law of Mongolia, Company Law and other related laws and regulations.
Assets and Liabilities Committee (ALCO)
The ALCO is responsible for providing centralized asset and liability management of the funding,
liquidity, foreign currency, maturity and interest rate risks to which the Bank is exposed. The purpose
of the ALCO is to set up the asset and liability structure of the Bank's balance sheet conducive for
sustainable growth of the Bank, its profitability and liquidity through comprehensive management of
the Bank's assets and liabilities and monitoring of the liquidity, foreign currency, interest rate and
other market risks. The ALCO Committee is chaired by the Chief Executive Officer.
Credit Committee
The Credit Committee is responsible directly to the Board of Director. It is the credit decision making
body of the Bank and operates within clearly defined parameters authorised by the Board of Director.
The Committee has the following main functions:
a) approval of clearly defined Credit Policies and Procedures and amendments and
updates;
b) approval of risk classification and provisioning levels;
c) review of the quality, composition and risk profile of the entire credit portfolio on an
ongoing basis; and
d) approval of credit limits applicable in exposures to industrial sectors and
geographical regions.
Internal Audit
Risk management processes throughout the Bank are audited at least annually by the Internal Audit
function that examines both the adequacy of the procedures and the Bank's compliance with
established policies and procedures. Internal Audit discusses the results of all assessments with
management, and reports its findings and recommendations to the Chief Executive Officer and the
Board of Directors depending on the significance of the issues identified.

46
Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Bank
s loans and
advances, and deposits in commercial banks.
The Bank manages and controls credit risk by setting limits on the amount of risk it is willing to
accept for individual counterparties and industry concentrations, and by monitoring exposures in
relation to such limits.
The Bank has established a credit quality review process to provide early identification of possible
changes in the creditworthiness of counterparties, including regular collateral revisions.
Counterparty limits are established by the use of a credit risk classification system, which assigns
to each counterparty a risk rating. Risk ratings are subject to regular revision. The credit quality
review process allows the Bank to assess the potential loss as a result of the perceived risks to
which it is exposed and take corrective action.
The Board of Directors has delegated responsibility for the management of credit risk to its Credit
Committee in collaboration with Risk Management Department. The Bank is required to implement
its credit policies and procedures, with credit approval authorities delegated from the Board of
Director. Each member of Credit Committee and relevant Bank Officers are liable for the quality
and performance of its credit portfolio and for monitoring and controlling all credit risks in its
portfolios.
According to the Credit Policy approved by the Board of Directors, the Credit Committee has the
authority to approve transactions with a total amount of up to MNT 5.0 billion. Any requests with
higher amounts need to be approved by the Board of Directors, before which the Risk Management
Department will issue an independent risk analysis report on case by case basis.
Credit-related Commitments Risks
The Bank offers guarantees and letters of credit, which represent irrevocable assurances that the
Bank will make payments in the event that a customer cannot meet its obligations to third parties.
The Bank regards guarantees and letters of credit that they carry same credit risk exposures as
loans.


47
Loans and
advances given
to the Ministries
Loans and
advances given
to the
Corporates
Total
Neither past due nor impaired 534,173,861 547,023,355 1,081,197,216
- Infrastructure 296,790,892 - 296,790,892
- Mortgage 82,414,583 - 82,414,583
- Mining - 312,815,338 312,815,338
- Air transportation - 114,985,383 114,985,383
- Manufacturing - 119,222,634 119,222,634
- Railway 154,968,386 - 154,968,386
Past due but not impaired:
- less than 30 days overdue 21,601,118 7,745,059 29,346,177
Total past due but not impaired 21,601,118 7,745,059 29,346,177
Total loans and advances 555,774,979 554,768,414 1,110,543,393
In thousands of Mongolian Tugriks Amount % Amount %
Loan and advances given to the Ministries 555,774,979 50% 256,159,934 52%
Mining 308,647,610 28% 141,512,394 29%
Air transportation 122,730,442 11% 7,443,401 2%
Manufacturing 123,390,362 11% 88,440,238 18%
Total Loans and Advances (before
impairment) 1,110,543,393 100% 493,555,967 100%
(Restated)
Credit risk

Any credit shall be secured by collateral, guarantee, or other securities. The loan amount shall not
exceed 90% of the collateral value.

The Bank operates in a very specific environment and bears minimal credit risk given the guarantees
it receives from the Mongolian Government and over-collateralisation of its loan portfolio.

The Bank monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk
at the reporting date is shown below:


48
Tugriks
Restriction
limit
Actual amount
Restriction
limit
Actual
amount
Total amount of the loan and
assets equivalents to loan
< EQ 50 times 3,722,326,750 1,243,924,904 3,349,592,425 662,480,457
Total amount of the loan
guarantee and securities
< EQ 50 times 3,722,326,750 231,070,717 3,349,592,425 116,771,542
Suitable ratio
As at 30 June 2013 As at 31 December 2012
As stipulated in the Law on Development Bank of Mongolia, the total value of loans, and loan
equivalent assets provided by the Bank shall not exceed the amount equal to 50 times of the Bank
s
equity capital. Total amount of letters of credit, guarantees and securities shall not exceed the
amount equal to 50 times of the equity. Above criteria as at 30 June 2013 are as follows:

Collateral and other credit enhancements
The amount and type of collateral required depends on an assessment of the credit risk of the
counterparty. Guidelines are implemented regarding the acceptability of types of collateral and
valuation parameters.
The main types of collateral obtained are as follows:
a) Fixed asset: Land, Building, factory etc
b) Movable properties: Vehicles and equipment etc;
c) Special property rights: Mineral licenses, Project execution right etc.,
d) Time deposits, Securities/Bond and Stocks
e) Guarantees issued from Government, reputable insurance companies, Development
banks and investment bank and commercial banks with overall rating of Stable or
above.
f) Assets and revenues generated as a result of performance by borrower and project
contractors.
g) Others
Management monitors the market value of collateral, requests additional collateral in accordance with
the underlying agreement, and monitors the market value of collateral obtained during its review of
the adequacy of the allowance for impairment losses.
Loan amount collection through sale of the collateral can take place by the Bank when a borrower
notifies their inability to repay the loan and requests to make repayment through its value of the
collateral, or the borrower has not made repayment for substantial period after the delivery of Notice
and Demand Notice, or has not taken any initiatives to make loan repayment. The proceeds will be
used to reduce or repay the outstanding claim. The Bank does not occupy repossessed properties for
business use and has no such properties as at 30 June 2013.
Impairment Assessment
The main considerations for the loan impairment assessment include whether any payments of
principal or interest are overdue by more than 30 days or there are any known difficulties in the cash
flows of counterparties, credit rating downgrades, or infringement of the original terms of the contract.

49
The Bank monitors the credit quality of loans primarily based on classification of loans based on the
Regulations on Asset Classification and Provisioning which is used for impairment provision
calculation, approved by the Executive Director of the Bank. In accordance with this regulation, the
Bank is required to determine the quality of loans and advances based on their qualitative factors and
time characteristics (i.e. delays in repayment). Loans are classified into the following five groups:
performing, in arrears, substandard, doubtful, and loss.
For credit risk for off-balance sheet financial instruments, the Bank uses the same credit policies in
assuming conditional obligations as it does for on balance sheet financial instruments, through
established credit approvals, risk control limits and monitoring procedures.
Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial
liabilities. The Bank's approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Bank's reputation.
The Bank manages each currency liquidity and aggregated liquidity as well.
ALCO is responsible for monitoring and controlling liquidity risk to which potential liquidity risks and
liquidity analysis reports are submitted on regular basis.
The Bank invests the funds in portfolios of liquid assets, in order to be able to respond quickly and
efficiently to unforeseen liquidity requirements. Since the Bank does not accept deposits, it does not
have any legal obligations to maintain a statuary deposit with the Central Bank of Mongolia.
The liquidity position is assessed and managed under a variety of scenarios, giving due consideration
to stress factors relating to both the market in general and specifically to the Bank.
The liquidity plan and maturity gap report is made by the Bank for each major currency (Over USD 1
million equivalents) as well as aggregated amount using cash flow approach.
Exposure to liquidity risk
The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to
deposits from customers/banks. For this purpose net liquid assets are considered as including cash
and cash equivalents, central bank bills, current accounts and deposits placed with Bank of Mongolia
and other domestic and foreign banks less clearing delay. Details of the reported ratio of net liquid
assets to deposits from customers/banks at the reporting date were as follows:

30 June 2013
31 December
2012
Net Liquid Assets 10 55,373


50
The following table provides an analysis of the financial assets and liabilities of the Bank into relevant maturity groupings based on the remaining periods
to maturity:

Less than One year to Over five
three months five years years Total
Financial assets
Cash and cash equivalents 245,896,656 - - - - 245,896,656
Bank deposits - 137,243,869 - - - 137,243,869
Loans and advances 29,809,173 117,757,417 204,066,116 598,469,869 160,440,818 1,110,543,393
Total financial assets 275,705,829 255,001,286 204,066,116 598,469,869 160,440,818 1,493,683,918
Financial liabilities -
-
Other liabilities (858,921) - - - - (858,921)
Customer accounts (38,011,542) - - - - (38,011,542)
Guarantees given to the Entities (231,070,717) - - - - (231,070,717)
Loan commitments not yet paid (659,008,241) (89,864,760) (47,322,694) (796,195,695)
Borrowings - (21,975,312) (32,114,498) (688,973,852) - (743,063,662)
Bonds (24,114,885) (119,087,158) (24,114,885) (983,467,909) - (1,150,784,836)
Total financial liabilities (953,064,305) (230,927,230) (103,552,077) (1,672,441,760) - (2,959,985,373)
Net financial assets/(liabilities) (677,358,476) 24,074,056 100,514,039 (1,073,971,891) 160,440,818 (1,466,301,455)
Total cumulative amount (677,358,476) (653,284,420) (552,770,381) (1,626,742,273) (1,466,301,455) (1,466,301,455)
As at 30 June 2013
Three to six
months
Six months to
one year

51
Less than One year to Over five
three months five years years Total
Financial assets
Cash and cash equivalents 216,468,206 - - - - 216,468,206
Bank deposits 140,712,501 28,211,989 - - - 168,924,490
Loans and advances 50,773,958 15,939,736 8,640,638 418,201,635 - 493,555,967
Total financial assets 407,954,665 44,151,725 8,640,638 418,201,635 - 878,948,663
-
Other liabilities (161,676) - - - - (161,676)
Customer accounts (6,960) - - - - (6,960)
Guarantees given to the Entities (116,770,960) - - - - (116,770,960)
Loan commitments not yet paid (149,986,913) (239,979,060) (209,981,678) (112,133,161) (712,080,811)
Bonds - (23,213,268) (23,213,268) (969,910,873) - (1,016,337,408)
Total financial liabilities (266,926,508) (263,192,328) (233,194,945) (1,082,044,034) - (1,845,357,814)
Net financial assets/(liabilities) 141,028,157 (219,040,602) (224,554,307) (663,842,399) - (966,409,150)
Total cumulative amount 141,028,157 (78,012,445) (302,566,752) (966,409,150) (966,409,150) (966,409,150)
As at 31 December 2012 /Restated/
Three to six
months
Six months to
one year
Liquidity risk (Continued) The following table provides an analysis of the financial assets and liabilities of the Bank into relevant maturity groupings
based on the remaining periods to maturity:

52
Tugriks
Non-interest
sensitive
Less than three
months
Three to six
months
Six months to
one year
One to five
years
Over five
years Total
Financial assets
Cash and cash equivalents 8,667,149 237,229,507 - - - - 245,896,656
Bank deposits 1,020,221 136,223,648 - - - 137,243,869
Loans and advances 26,191,355 28,782,426 116,084,378 197,555,211 582,650,389 159,279,634 1,110,543,393
Total financial assets 35,878,725 402,235,581 116,084,378 197,555,211 582,650,389 159,279,634 1,493,683,918
Other liabilities (858,921) - - - - - (858,921)
Customer accounts (38,011,542) - - - - - (38,011,542)
Borrowings (1,495,211) (432,057,865) - - - - (433,553,076)
Bonds (11,809,349) - (113,596,654) - (838,778,600) - (964,184,602)
Total financial liabilities (52,175,022) (432,057,865) (113,596,654) - (838,778,600) - (1,436,608,140)
Net financial assets/(liabilities) (16,296,297) (29,822,283) 2,487,725 197,555,211 (256,128,211) 159,279,634 57,075,778
Total cumulative amount (16,296,297) (46,118,581) (43,630,856) 153,924,355 (102,203,856) 57,075,778 57,075,778
As at 30 June 2013
(a) Market risks
Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rates will affect the Bank's income or the value of its
holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimizing the return on risk.
Management of market risks: Interest rate risk is measured by the extent to which changes in market interest rates impact margins and net income. To
the extent the term structure of interest bearing assets differs from that of liabilities, net of interest income will increase or decrease as a result of
movements in interest rates. The Bank principally manages interest rate risk through monitoring interest rate gaps. A summary of the Bank's interest rate
gap position on its financial assets and liabilities are as follows:


53
(d) Market risks (Continued)

Tugriks
Non-interest
sensitive
Less than three
months
Three to six
months
Six months to
one year
One to five
years
Over five
years Total
Financial assets
Cash and cash equivalents 63,514,488 152,953,719 - - - - 216,468,206
Bank deposits 1,872,490 139,210,000 27,842,000 - - - 168,924,490
Loans and advances 6,770,844 50,000,000 15,794,964 8,502,053 412,488,106 - 493,555,967
Total financial assets 72,157,822 342,163,719 43,636,964 8,502,053 412,488,106 - 878,948,663
Other liabilities (161,676) - - - - - (161,676)
Customer accounts (6,960) - - - - - (6,960)
Bonds (9,899,727) - - - (807,418,000) - (817,317,727)
Total financial liabilities (10,068,363) - - - (807,418,000) - (817,486,363)
Net financial assets/(liabilities) 62,089,460 342,163,719 43,636,964 8,502,053 (394,929,894) - 61,462,301
Total cumulative amount 62,089,460 404,253,178 447,890,142 456,392,195 61,462,301 61,462,301 61,462,301
As at 31 December 2012

54
Market risks (Continued)
The management of interest rate risk against interest rate gap limits is supplemented by monitoring
the sensitivity of the Bank's financial assets and liabilities to various standard and non-standard
interest rate scenarios. An analysis of the Bank's sensitivity to a 100 basis point (bp) increase or
decrease in market interest rates (assuming no asymmetrical movement in yield curves and a
constant balance sheet position) is as follows:

100 bp parallel 100 bp parallel
Sensitivity of projected net interest income 2013 Increase Decrease
At 30 June 2013 733,721 (733,721)
At 31 December 2012 (6,272) 6,272

The Bank is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The Asset and Liability Department ALD are responsible for
monitoring the Banks exchange risk and minimising its exposure. ALD does this by setting limits on
the level of exposure by currencies, which are monitored on a frequent basis. The Bank manages its
currency risk primarily through ensuring compliance with the prudential ratio for foreign currency open
position established by the Bank of Mongolia (Central Bank) and through assessing the impact of
foreign currency exchange rate movements on the Banks liquidity and profitability.

MNT Foreign MNT Foreign
Denominated currency Denominate
d
currency
Financial assets
Cash and cash
equivalents
220,812,188 25,084,468 245,896,656 196,470,141 19,998,064 216,468,206
Bank deposits 137,243,869 - 137,243,869 - 168,924,490 168,924,490
Loans and advances 393,795,643 716,747,750 1,110,543,393 255,364,302 238,191,665 493,555,967
Total financial assets
751,851,700 741,832,218 1,493,683,918 451,834,443 427,114,219 878,948,663
Financial liabilities
Other liabilities (858,921) - (858,921) 161,676 - 161,676
Customer accounts 3,549,868 34,461,674 38,011,542 - 6,960 6,960
Borrowings 307,766,643 125,786,433 433,553,076 - - -
Bonds - 964,184,602 964,184,602 - 817,317,727 817,317,727
Total financial
liabilities
310,457,591 1,124,432,709 1,434,890,299 161,676 817,324,688 817,486,364
Net financial
assets/(liabilities)
441,394,109 (382,600,491) 58,793,619 451,672,767 (390,210,469) 61,462,299
Total Total
In thousands of
Mongolian Tugriks

55
Market risk (Continued)
A 10 percent strengthening of the MNT against the USD at 30 June 2013 and 31 December 2012
would have increased profit by the amounts shown below. This analysis assumes that all other
variables, in particular interest rates, remain constant.

In thousands of tugriks 30 June 2013
31 December
2012
Profit before Tax 38,260,049 39,021,047

At 10 percent weakening of the MNT against the USD at 30 June 2013 and 31 December 2012 would
have had the equal but opposite effect on the above currency to the amounts shown above, on the
basis that all other variables remain constant.
Capital Management
The Bank sets and monitors capital requirements for the Bank as a whole.
The Bank adopted the standardised approach which is a set of risk measurement techniques
proposed under Basel II capital adequacy rules.
Credit risk exposure is calculated by risk weighting on and off-balance sheet exposures to credit risk
according to broad categories of relative credit risk. Risk-weighted assets are determined according
to specified requirements that seek to reflect the varying levels of risk attached to assets and off-
balance sheet exposures
Foreign currency exchange risk exposure in a single foreign currency is derived by subtracting the
aggregate value of financial liabilities in that foreign currency from the aggregate value of the financial
assets in that foreign currency.
The Bank's policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The impact of the level of capital on
shareholders' return is also recognized and the Bank recognizes the need to maintain a balance between
the higher returns that might be possible with greater gearing and the advantages and security afforded
by a sound capital position.
There have been no material changes in the Bank's management of capital during reporting period.

56
Capital Management (Continued)
The Ratios of the Bank
s capital adequacy as at 30 June 2013 and 31 December 2012, respectively,

were as following:

(Restated)
Tier I capital
Share capital
73,300,000 73,300,000
Retained earnings
1,146,535 (6,308,151)
Total tier I capital
74,446,535 66,991,849
Total regulatory capital / capital base
74,446,535 66,991,849
Risk weighted capital ratio
10.90% 18.31%
Assets Risk weighted
assets
Assets Risk weighted
assets
0% 570,384,609 - 290,007,105 -
20% 245,760,684 49,152,137 184,789,753 36,957,951
50% 137,243,869 68,621,935 168,924,490 84,462,245
100% 564,953,511 564,953,511 244,414,436 244,414,436
Total 1,518,342,673 682,727,582 888,135,784 365,834,632
Risk weight factor

57
23. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY
The following table provides a reconciliation of financial assets with measurement categories at 30
June 2013.

The following table provides a reconciliation of financial assets with measurement categories at 31
December 2012 (restated)

Loans and
receivables
Total
Assets
Cash and cash equivalents 245,896,656 245,896,656
Due from other banks
- Short-term placements with other banks with original
maturities of more than three months
137,243,869 137,243,869
- Reverse sale and repurchase agreements with other
banks with original maturities of more than three
months
- -
Loans and advances to customers
- Loans to Corporate entities 554,768,414 554,768,414
- Loans to Ministries 555,774,979 555,774,979
Total Financial assets 1,493,683,918 1,493,683,918
Loans and
receivables
Total
Assets
Cash and cash equivalents 216,468,206 216,468,206
- Short-term placements with other banks with original
maturities of more than three months
168,924,490 168,924,490
- Reverse sale and repurchase agreements with other
banks with original maturities of more than three
months
- -
- Loans to Corporate entities 237,396,033 237,396,033
- Loans to Ministries 256,159,934 256,159,934
Total Financial assets 878,948,663 878,948,663
Notes to the Financial Statements 30 June 2013
(Expressed in thousands of Mongolian Tugriks unless otherwise stated)
58
24. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Determination of fair value and fair value hierarchy
Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are
measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii)
level two measurements are valuations techniques with all material inputs observable for the asset or
liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three
measurements are valuations not based on observable market data (that is, unobservable inputs).
Management applies judgement in categorising financial instruments using the fair value hierarchy. If
a fair value measurement uses observable inputs that require significant adjustment, that
measurement is a Level 3 measurement. The significance of a valuation input is assessed against
the fair value measurement in its entirety.
The Bank's principal financial instruments comprise of cash on hand and in bank, investments, loans
and advances, accrued interest receivable and payable, other current assets, accounts and other
payable, long term debt. The management considers that the carrying amounts of financial assets
and liabilities recognized in the financial statements approximate their fair value.
Fair Values of Financial Assets and Liabilities

The Bank has no financial assets or liabilities carried at fair value i.e. all of the Banks financial assets
and liabilities are carried at amortised cost. The Bank determines fair values for those financial
instruments as follows:

(i) Financial assets and liabilities for which fair value approximates carrying amount

For financial assets and financial liabilities that are liquid or have short term maturity of less than one
year, carrying amounts approximate their respective fair value.

(ii) Fixed rate financial instruments

The fair value of unquoted fixed interest rate instruments was estimated based on estimated future
cash flows expected to be received discounted at current interest rates for new instruments with
similar credit risk and remaining maturity. Thus, market interest rates when they were first recognized
are compared to the current market rates offered for the comparable financial instruments available in
Mongolia. In case there were no significant changes in market rates, carrying amounts approximate
fair value of the instrument.
The Bank does not operate in a normal market environment. On the asset side loans are provided to
socially and economically important entities or sectors at well below normal commercial market rates.
The rate of the Bank has issued loans at has not significantly changed since inception and thus,
carrying value of lending approximates its fair value.
The Bank has only one long term fixed rate debt instrument Bond issued to international market
which was fully guaranteed by Mongolia and issued back in March 2012 at a rate of 5.75%. This bond
is listed on the Singapore Stock Exchange and its fair value has been calculated using its quoted
price as at 30 June 2013.
Discount rates, used below, depend on currency, maturity of the instrument and credit risk of the
counterparty and were as follows:

59
Short-term placements with other banks with
original maturities of more than three months
8.5% to 11.5% pa% 4.5% to 11.25% pa%
Loans to Corporate entities 6.75% to 9.6% pa% 7.35% to 8.1% pa%
Loans to Ministries 6.125% to 7.34% pa% 6.75% to 7.34% pa%
Customer accounts 0% 0%
Bond 5.75% to 7.5% pa% 5.75% pa%
Borrowing 4.79% pa% -
24. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
The rates used in determining fair values.

The discount rates, used above, to calculate the fair value of financial assets and liabilities presented
below, depend on currency, maturity of the instrument and credit risk of the counterparty.

60

Fair values of financial instruments as at 30 June 2013 carried at amortised cost are as follows

Carrying
Amount
Level 1 Level 2 Level 3
Assets
Cash and cash equivalents 245,896,656
Cash on hand 5,322 5,322 - -
Cash at Bank of Mongolia 130,649 130,649 - -
Cash at other banks 6,551,516 6,551,516 - -
Short term deposits with local banks 239,209,169 - 239,209,169 -
Bank deposits 137,243,869 - 137,243,869 -
Loans and advances 1,110,543,393
loans and advances given to the
Ministries 555,774,979 - 555,774,979 -
loans and advances given to
Corporates 554,768,414 - 554,768,414 -
Total financial assets carried at
amortised cost 1,493,683,918 6,687,487 1,486,996,431 -
Liabilities
Other liabilities 858,920
Other accrued expenses 858,920 858,920 - -
Customer accounts 38,011,542 38,011,542 - -
Borrowings 433,553,076 - 433,553,076 -
Bonds 964,184,602
Bond issued to local commercial bank 114,898,282 - 114,898,282 -
Bond issued to international market 849,286,320 838,670,241 - -
Total financial liabilities carried
at amortised cost 1,436,608,140 877,540,703 548,451,358 -
30 June 2013
61
Fair values of financial instruments as at 31 December 2012 carried at amortised cost are as follows

Carrying
Amount
Level 1 Level 2 Level 3
Assets
Cash and cash equivalents 216,468,206
Cash on hand 6,132 6,132 - -
Cash at Bank of Mongolia 31,672,320 31,672,320 - -
Cash at other banks 31,358,100 31,358,100 - -
Short term deposits with local bank 153,431,654 - 153,431,654 -
Bank deposits 168,924,490 - 168,924,490 -
Loans and advances 493,555,967
loans and advances given to the
Ministries 256,159,934 - 256,159,934 -
loans and advances given to
Corporates 237,396,033 - 237,396,033 -
Total financial assets carried at
amortised cost 878,948,663 63,036,552 815,912,111 -
Liabilities
Other liabilities 161,676
Other accrued expenses 161,676 161,676 - -
Customer accounts 6,960 6,960 - -
Borrowings - - - -
Bonds 817,317,727
Bond issued to local commercial bank - - - -
Bond issued to international market 817,317,727 807,101,255 - -
Total financial liabilities carried
at amortised cost 817,486,363 807,269,891 - -
31 December 2012 (Restated)
62
25. COMMITMENTS AND CONTINGENCIES

Guarantees provided 30 June 2013 31 December 2012
Within a year 121,306,414 116,770,960
Later than one year but not later than five years 109,764,303 -

The Bank has given a guarantee to the China Machinery Engineering Corporation on the 24th May
2013 in the amount of USD 75,900,000 on behalf of the Ministry of Energy and Ministry of Economic
Development. Under the guarantee should the bank be required to pay out on this guarantee the
Bank would be refunded the cost from the State budget in accordance with resolution #155.

The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag
Housing Projects LLC amounting to USD 83,881,157.75 on the 13th September 2012. To date the
Export-Import Bank of China has not yet provided any funding to the New Yarmag Housing Project.
The Bank has MNT 796,195 million of loan commitments (2012: MNT 116,770 million).
The Bank has MNT 4,937 million of undrawn conditional loan commitments to be paid if certain
conditions are met by the Borrowers.
Tax legislation. Mongolian tax, currency and customs legislation is subject to varying interpretations,
and changes, which can occur frequently. Managements interpretation of such legislation as applied
to the transactions and activity of the Bank may be challenged by the relevant authorities.
The Mongolian tax authorities may be taking a more assertive position in their interpretation of the
legislation and assessments, and it is possible that transactions and activities that have not been
challenged in the past may be challenged by tax authorities. As a result, significant additional taxes,
penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in
respect of taxes for five calendar years preceding the year of review. Under certain circumstances
reviews may cover longer periods.
The Mongolian tax legislation does not provide definitive guidance in certain areas, specifically in
areas such as VAT, withholding tax, corporate income tax, personal income tax, transfer pricing and
other areas. From time to time, the Bank adopts interpretations of such uncertain areas that reduce
the overall tax rate of the Bank. As noted above, such tax positions may come under heightened
scrutiny as a result of recent developments in administrative and court practices. The impact of any
challenge by the tax authorities cannot be reliably estimated; however, it may be significant to the
financial position and/or the overall operations of the entity.
Management believes that its interpretation of the relevant legislation is appropriate and the Banks
positions related to tax and other legislation will be sustained. Management believes that tax and
legal risks are remote at present. The management performs regular re-assessment of tax risk and
its position may change in the future as a result of the change in conditions that cannot be anticipated
with sufficient certainty at present. As of 30 June 2013, management has assessed that recognition
of a provision for uncertain tax position is not necessary.

63
June 2013
June 2012
Loan interest income given to: 29,438,551 77,473
- The Government 13,610,920 60,000
- Corporates 15,827,631 17,473
Interest income from Commercial banks: 11,142,104 523,100
- Deposit 10,855,134 523,100
- Current account 286,971 -
Foreign Exchange trading gain: 770,852 -
- From the Government - -
- From Corporates 770,852 -
Total income 41,351,508 600,573
26. SEGMENT REPORTING
Operating segments are components that engage in business activities that may earn revenues or
incur expenses, whose operating results are regularly reviewed by the chief operating decision maker
(CODM), and for which discrete financial information is available. The CODM is the person - or group
of persons - who allocates resources and assesses the performance for the entity. The functions of the
CODM are performed by the management board of the Group.
The Bank is a development finance institution dedicated to the economic and social progress of
Mongolia. The Banks products and services are similar and are structured and distributed in a fairly
uniform manner across borrowers.
Based on the evaluation of the Banks operations, management has determined that the Bank has
only one reportable segment since the Bank does not manage its operations by allocating resources
based on a determination of the contribution to net income from individual borrowers. Management
receives and reviews financial information in IFRS format.
The Banks revenue is received solely from entities with Mongolia. All non-current assets of the Bank
are located within Mongolia.
A spilt of the Banks revenue streams from sources is shown below.

64
27. POST BALANCE SHEET EVENTS
The Government of Mongolia has a plan to increase Development Bank of Mongolias capital up to
USD 200million momentarily and issued resolution no 238 in July 2013. In accordance with this
resolution the Government has contributed MNT 10.0 billion, MNT 5.0 billion and MNT 35.0 billion in
July, August and September 2013 respectively to the Banks capital. As at 30 September, 2013, the
Banks share capital is MNT 123.3 billion.
The Government of Mongolia issued a resolution on the 10 September 2013 ordering the conversion
of the Banks USD 200 million loan to Erdenes Tavan Tolgoi LLC into equity shares. Detailed
information about the transaction is not yet available.
The executive management of the Bank was carried out by a joint team from Development Bank of
Mongolia and the Korean Development Bank (KDB). In July 2013, the Management Agreement with
the Korean Development Bank was changed to the Consulting Agreement, and the Bank is now
managed solely by Mongolian nationals appointed by the Government. A new local CEO Mr
Munkhbat Nanjid was appointed in August 2013.

The Government of Mongolia has approved Export Promotion Program on July 6th, 2013 through
Resolution No. 239 to increase Mongolias export revenues by promoting export oriented and import
substituting markets, in which the Bank will perform a significant role as the main liaison with foreign
export-credit agencies (ECA) as well as the provider of necessary funds.
During the Prime Minister Mr Altankhuyag Norovs official visit to Japan in September 2013 a
Memorandum of Understanding (MOU) between the Bank and Japan Bank for International
Cooperation (JBIC) was signed. According to the MOU, the Bank and JBIC have agreed to
exchange views regarding the Banks foreign funding operations, including the potential issuance of
Samurai Bond supported by JBIC.

During that visit to Japan in September 2013, the Bank has initiated discussions with Multilateral
Investment Guarantee Agency (MIGA), a World Bank Group company, to facilitate low-cost, long-
term foreign funding resources to Mongolia by utilizing the guarantee agencys AAA-rating credit
enhancement program.

The draft of the Amendment to the Law on Development Bank of Mongolia was formulated and
discoursed among Ministers on the Cabinet meeting of the Government of Mongolia. In the Meeting
Minutes of the Cabinet of the Government of Mongolia dated June 26, 2013, it is stated: ... The draft
of the Amendment to the Law on Development Bank of Mongolia was discussed and supported to
submit to the Parliament of Mongolia reflecting proposals of the Cabinet members.
The core amendment to the law is highlighting the Banks ability to maintain a sufficient capital
adequacy ratio through Government support of capital injection, and regulating the procedure of
project financing repayment by Government in detail.

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s family is related to the Bank if that person:

s capital adequacy as at 30 June 2013 and 31 December 2012, respectively,

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