FS - DBM - ENG - 14 06 30 - UB JP - v12 - Clean - Final - 2015.01.26

Development Bank of Mongolia
International Financial Reporting Standards

Interim Financial Statements and
Independent Auditors Report
30 June 2014
Contents
INDEPENDENT AUDITORS REPORT
INTERIM FINANCIAL STATEMENTS
Interim Statement of Financial Position ........................................................................................................ 3
Interim Statement of Profit or Loss and Other Comprehensive Income ..................................................... 4
Interim Statement of Changes in Equity ....................................................................................................... 5
Interim Statement of Cash Flows ............................................................................................................. 6
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1.
CORPORATE INFORMATION AND OPERATING ENVIRONMENT............................................ 7
2.
FINANCIAL REPORTING FRAMEWORK AND BASIS FOR PREPARATION AND

PRESENTATION ........................................................................................................................... 8
3.
SIGNIFICANT ACCOUNTING POLICIES ...................................................................................... 8
4.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY ............................................................................................................................ 15
5.
APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING

STANDARDS ............................................................................................................................... 17
6.
CASH AND CASH EQUIVALENTS ............................................................................................. 21
7.
BANK DEPOSITS ........................................................................................................................ 22
8.
LOANS AND ADVANCES ............................................................................................................ 23
9.
INVESTMENTS SECURITIES AVAILABLE FOR SALE .............................................................. 27
10.
OTHER ASSETS .......................................................................................................................... 27
11.
PROPERTY AND EQUIPMENT................................................................................................... 28
12.
INTANGIBLES ASSETS .............................................................................................................. 29
13.
CUSTOMER ACCOUNTS AND OTHER LIABILITIES ................................................................ 30
14.
DUE TO OTHER BANKS ............................................................................................................. 31
15.
PROMISSORY NOTES................................................................................................................ 31
16.
BONDS ......................................................................................................................................... 31
17.
BORROWINGS ............................................................................................................................ 32
18.
RELATED PARTY TRANSACTIONS .......................................................................................... 32
19.
CONTRIBUTED CAPITAL ........................................................................................................... 36
20.
INTEREST INCOME .................................................................................................................... 36
21.
INTEREST EXPENSE .................................................................................................................. 37
22.
FOREIGN EXCHANGE GAINS LESS LOSSES .......................................................................... 37
23.
ADMINISTRATIVE AND OTHER EXPENSES ............................................................................ 37
24.
INCOME TAXES .......................................................................................................................... 38
25.
FINANCIAL RISK MANAGEMENT .............................................................................................. 39
26.
PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY ............ 53
27.
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES ....................................................... 54
28.
COMMITMENTS AND CONTINGENCIES .................................................................................. 59
29.
SEGMENT REPORTING ............................................................................................................. 60
30.
POST BALANCE SHEET EVENTS ............................................................................................. 61

2
.3
pwc
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors of Development Bank of Mongolia
We have audited the accompanying financial statements of Development Bank of Mongolia (the "Bank"), which
comprise the statement of financial position as at 30 June 2014 and the statements of profit and loss and other
comprehensive income, changes in equity and cash flows for the six monh period then ended, and a summary
of significant accounting policies and oher explanatory notes.
Ma n ag e me n
t's re spo n s ib i lityr fo r
th
e fi n a nc ia I state me n E
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with International Financial Reporting Standards, and for such intemal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whetherdue to fraud or error.
Au d ito r's res pon sibi I ity
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance over whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of
the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at 30 June 2014, and its financial performance and its cash flows for the period tren
ended in accordance with Intemational Financial Reporting Standards.
Audit LLC
Matthew Poftle
Managing Partner
19 Jahuary 2015
Ulaanbaatar, Mongolia
i PricewaterhouseCoopers Audit LLC, Central
Tower Office Building

Suite 507, Floor 6, Sukhbaatar Squore, SBD-8, Ulaanbaotar 74200, Mongolia
T: +976 (11)329088, +976 (11)329089, F: +976 (11)322068, www.pwc.com/mn
Devetopment Bank of Mongolia

lnterim Statement of Financial Position
As at 30 June 2014
ln thousands of Mongolian Tugriks
Note
30 June 2014
31 December2013
948,296,284
699,232,292
2,798,339,483
379,461,233
Assets
Cash and cash equivalents
Bank deposits
Loans and advances
Investment securities available for sale
Other assets
Current income tax prepayment
Property and equipment
Intangible assets
Deferred tax assets
7
8
652,338,027
2,179,590,302
10,000,000
10
11,311,064
6,036,490
3,846,446
11
586,590
752,895
24,041,304
583,037
8,236,534
4,492,559,912
3,230,869,554
23.047,947
19,436,132
16,860,373
55,037,948
16,278,742
373,841
12
24
Total assets
777,485
Liabilities
Customer accounts
Other liabilities
Current income tax payable
Due to other banks
Promissory notes
Bonds
Borrowings
13
13
14
15
16
17
Total liabilities
111,041,307
173,194,140
1,506,523,012
2,524,970,347
4,319,069,999
3,086,990,119
143,879,436
29,610.577
123,300,000
173,490,013
'|'43,879,436
4,492,559,912
3,230,869,554
972,107,02;
,987,1 89,1 99
Equity
Contributed capital
Retained earnings
19
Total equity
Total liabilities and equity
Approved for
20,579,436
signed on behalf of the Executive management on 19 January 2015.

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

Interim Statement of Profit or Loss and Other Comprehensive Income
Period ended at 30 June 2014
In thousands of Mongolian Tugriks

Interest income
Interest expense
Note
20
21
Net interest income
Recovery of provision for loan

impairment
Net interest income after provision

for loan impairment
Fee and commission income

Gains less losses from trading in
foreign currencies
Foreign exchange translation gains
less losses
Administrative and other operating
expenses
01 January 2014
to 30 June 2014
01 January 2013
to 30 June 2013
152,044,959
(99,203,652)
40,580,655
(27,655,733)
52,841,307
12,924,922
4,457,019
57,298,326
12,924,922
407,499
504,245
770,852
22
(15,486,916)
(1,966,848)
23
(3,817,455)
(2,149,512)
24
38,905,699
(9,295,122)
9,579,414
(2,124,726)
Profit for the period
29,610,577
7,454,688
Total comprehensive income for the

period
29,610,577
7,454,688
Profit before tax

Income tax expenses

Interim Statement of Changes in Equity
Contributed
capital
Retained
earnings
Total equity
73,300,000
(6,308,152)
66,991,848
7,454,688
7,454,688
Total comprehensive income
7,454,688
7,454,688

Balance at 1 January 2013
Note
19
Balance at 30 June 2013
19
73,300,000
1,146,536
74,446,536
Balance at 1 January 2014
19
123,300,000
20,579,436
143,879,436
29,610,577
29,610,577
Total comprehensive income

Contributed capital for the period
19
20,579,436
29,610,577
(20,579,436)
29,610,577
-
Balance at 30 June 2014
19
143,879,436
29,610,577
173,490,013

Interim Statement of Cash Flows
Cash flows from operating activities
Profit before tax
Adjustments to:
Depreciation, amortization expenses
Recovery of provision for loan impairment
Unrealized foreign exchange translation loss
Interest income
Interest expense
Other non-cash operating expenses
01 January 2014
to 30 June 2014
01 January 2013
to 30 June 2013
38,905,699
9,579,414
127,432
(4,457,019)
56,641,705
(152,044,959)
99,203,652
-
84,927
1,638,772
(40,580,655)
27,655,733
233,569
Cash flows from operating activities before changes in

operating assets and liabilities
Net increase in bank deposits
Net increase in loans and advances
Net (increase)/decrease in other assets
Net increase in customer accounts
Net decrease in due to other banks
Net increase in other liabilities
38,376,510
(1,388,240)
(38,881,212)
(429,470,740)
(833,587)
5,552,516
(59,100,598)
19,059,464
(616,987,426)
30,917,488
38,701,826
Net cash used in operating activities before tax and interest
(465,297,647)
(548,756,352)
(4,393,072)
102,009,186
(86,494,946)
(686,593)
22,014,073
(24,357,996)
(454,176,479)
(551,786,868)
Cash flows used in investing activities

Acquisition of investment
Purchase of property and equipment
Purchase of intangible assets
(10,000,000)
(76,041)
(30,354)
(181,355)
(115,928)
Net cash used in investing activities
(10,106,395)
(297,283)
Cash flows from financing activities

Proceeds from promissory notes
Proceeds from bonds
Proceeds from borrowings
170,595,480
379,789,673
482,728,136
147,045,342
433,553,076
1,033,113,289
580,598,418
4,636
914,183
Net increase in cash and cash equivalents
568,835,051
29,428,450
Cash and cash equivalents at the beginning of the year
379,461,233
216,468,206
Cash and cash equivalents at the end of the year
948,296,284
245,896,656
Income taxes paid

Interest received
Interest paid
Net cash used in operating activities
Net cash from financing activities
Effect of exchange rate changes on cash and cash

equivalents

Notes to the Interim Financial Statements - 30 June 2014
(Expressed in thousands of Mongolian tugriks unless otherwise stated)
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 the Resolution No. 195 dated 20 July
2010 issued by the Government of Mongolia and under the Law on Development Bank of Mongolia
passed by the Parliament on 10 February 2011. The Bank was registered with the Legal Entity
Registration Office of the General Authority for State Registration 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 is regulated, principally, by the Law
on Development Bank of Mongolia. The Bank commenced its operations in May 2011.
The Government of Mongolia is the Bank's sole shareholder. The Government of Mongolia has
contributed a total of MNT 143.9 billion to the Banks share capital as at 30 June 2014.
In accordance with Article 21.1 of the Law on Development Bank of Mongolia, Parliament determines
the source of equity financing that 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.
The Bank had an average of 79 employees during the period ended 30 June 2014 (period ended 30
June 2013:63).
The Bank's principal place of business is: Max Tower Building 2-3rd and 5th floor, Juulchin Street 4/4
Ulaanbaatar 15170, Mongolia.
These financial statements are presented in Mongolian Tugriks (MNT), unless otherwise stated.
These financial statements were approved for issue by the Executive management of the Bank on 19
January 2015.
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 and 2013 due to declining global commodities prices, concerns over
slowing growth in China and changes to the Mongolian Foreign Investment Law in 2012 which have
slowed inbound foreign investment into the country. The country was downgraded from B1 to B2 by
Moodys in July of 2014.
The tax and customs legislation in Mongolia is subject to varying interpretations and frequent changes
(refer to Note 26). 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.
Statement of Compliance
The interim financial statement of the Bank have been prepared in accordance with International
Financial Reporting Standards (IFRS) in accordance with all applicable IFRS, International Accounting
Standards (IAS), and interpretations issued by the International Financial Reporting Interpretations
Committee (IFRIC) and Standing Interpretations Committee (SIC).

2. FINANCIAL REPORTING
PRESENTATION
FRAMEWORK
AND
BASIS
FOR
PREPARATION
AND
Basis of Preparation and Presentation

These interim financial statements have been prepared in accordance with International Accounting
Standards 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.
The preparation of financial statements in conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgment in the process of applying
the Banks accounting policies. The areas involving a higher degree of judgment or complexity, or
areas where assumptions and estimates are significant to the financial statement are disclosed in note
4.
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.
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.
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.
8

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
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.
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.
9

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.
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 impaired, based on regular reviews of outstanding balances, in
accordance with International Financial Reporting Standards and provisioning approved by the Chief
executive director of the Bank.
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.
Impairment of financial assets carried at amortised cost (continued). 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.
Investment securities available for sale. This classification includes investment securities which the
Bank intends to hold for an indefinite period of time and which may be sold in response to needs for
liquidity or changes in interest rates, exchange rates or equity prices.
10

Investment securities available for sale are carried at fair value. Dividends on available-for-sale equity
instruments are recognised in profit or loss for the year when the Banks right to receive payment is
established and it is probable that the dividends will be collected. All other elements of changes in the
fair value are recognised in other comprehensive income until the investment is derecognised or
impaired, at which time the cumulative gain or loss is reclassified from other comprehensive income to
profit or loss for the year. 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 investment
securities available for sale. A significant or prolonged decline in the fair value of an equity security
below its cost is an indicator that it is impaired. The cumulative impairment loss measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that
asset previously recognised in profit or loss is reclassified from other comprehensive income to profit
or loss for the year. Impairment losses on equity instruments are not reversed and any subsequent
gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a
debt instrument classified as available for sale increases and the increase can be objectively related
to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is
reversed through profit or loss for the year.
Offsetting financial instruments. Financial assets and liabilities are offset and the net amount
reported in the statement of financial position when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis or realise the asset and settle
the liability simultaneously. The Bank has not offset any financial assets and liabilities.
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.
Depreciation is computed on the straight-line method, based on the estimated useful lives of the
assets as follows:
-
IT Equipment
Furniture and fixture
Vehicles
3 years
10 years
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 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.
11

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
Licence 1 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.
Promissory notes, Bonds and Borrowings. Debt securities representing bonds issued and
borrowings (including promissory notes) 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.
Income tax. Income tax has been provided for in the financial statements in accordance with
legislation enacted or substantively enacted by the end of the reporting period. The income tax charge
comprises current tax and deferred tax and is recognised in profit or loss for the year, except if it is
recognised in other comprehensive income or directly in equity because it relates to transactions that
are also recognised, in the same or a different period, in other comprehensive income or directly in
equity. Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in
respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are
based on estimates if the financial statements are authorised prior to filing relevant tax returns. Taxes
other than on income are recorded within administrative and other operating expenses.
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.
12

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.
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.
Staff costs and related contributions. Wages, salaries and other salary related expenses are
recognized as an expense in the year in which the associated services are rendered by the Banks
employees. Short term accumulating compensated absences such as paid annual leave are
recognized when services rendered by employees that increase their entitlement to future
compensated absences. Short term non-accumulating compensated absences such as sick leave are
recognized when absences occur.
Employee Benefits
As required by law, companies in Mongolia make contributions to the government pension scheme Social Security and Health Insurance Fund. Such contributions are recognized as an expense in the
profit or loss as incurred. The Bank has no legal or constructive obligation to make pension or similar
benefit payments beyond the payments to the statutory defined contribution scheme.
13

Long-term benefits. The Bank has provided funding to 3rd party banks in order for them to provide its
Employees with cheaper mortgage and salary loans. The cost of this scheme has been booked as a
prepayment and will be expensed through the Statement of Profit or Loss and Other Comprehensive
Income over the life-time of the loan scheme.
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.
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.
Foreign currency transactions. Transactions in currencies other than the MNT are recorded at the
foreign exchange rates prevailing on the date of the transactions. At the end of each reporting period,
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the
foreign exchange 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 foreign
exchange 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 at historical cost in a foreign currency are not retranslated.
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.
14

Principal and agent arrangements. The Bank acts as a principal when it has exposure to the significant
risks and rewards associated with the rendering of services. Features indicating that the Bank acts as a
principal include its primary responsibility for providing services to the customer, its latitude in establishing
prices (i.e. discretion to determine interest rate to customer based on assessed risk related to particular
customer and related interest margin), and bearing the customer's credit risk for the amount receivable
from the customer. If the Bank acts as a principal, it recognizes funds disbursed and funds received as
assets and liabilities in the Statement of financial position, and related interest income and interest
expenses in the Statement of comprehensive income.
If there are no indications that the Bank acts as principal, the Bank acts as an agent and recognizes the
amount of fee received from the related arrangement in the Statement of comprehensive income. Funds
received and funds disbursed do not meet definition of assets and liabilities, and are not recognized in the
Statement of financial position.
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 persons 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
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 from the disclosure of individually insignificant
transactions with government related parties as allowed under IAS 24, paragraph 25.
4. CRITICAL ACCOUNTING
UNCERTAINTY
JUDGEMENTS
AND
KEY
SOURCES
OF
ESTIMATION
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.
15

3. CRITICAL ACCOUNTING
UNCERTAINTY (CONTINUED)
JUDGEMENTS
AND
KEY
SOURCES
OF
ESTIMATION
Determining the carrying value of employee prepayments. Management has concluded that the
interest rate for the deposits to certain commercial banks in the amount of MNT 1 billion at below
market interest rates. 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 million. 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.
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 Government, 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 the
guaranteed 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 in respect of the guaranteed loans affecting the Bank. The level of Government guarantees
and other collateral is disclosed in Note 8. Any changes in the assessment of recoverability of
guarantees would impact the profit or loss of the Bank.
Further, the Bank has assessed whether any impairment indicators exist and whether impairment
provision should be recognised on the loan issued to Erdenes MGL (Note 15) given that this loan is
not guaranteed by the Government, even though it is expected to be repaid by the State budget.
Management has considered the existence of impairment indicators and need for impairment
provision as of 30 June 2014 by taking into account all available information as of the date of approval
of these financial statements and have concluded that no impairment provision as of 30 June 2014 is
necessary. In making this assessment, management considered the likelihood that this loan would be
repaid by the State budget on its maturity date in February 2015, willingness of the Government and
DBM to agree on repayment of this loan in 2016 or following years through its restructuring under the
same terms as other previously restructured loans to be repaid by the State budget, as well as
alternative possibilities for repayment. In addition, management believes the collateral value of the
underlying assets is in excess of the outstanding loan balance and that the Bank has the right to
execute this collateral, if needed. Also, as in the case of loans to be repaid by the State budget for
which the Government provided guarantee, management assessed that no loan impairment
assessment is required on this loan, as it is highly likely that the loan will be repaid by the Government
from the State budget, and that there are no losses incurred but not reported in respect of the
guaranteed loans affecting the Bank.
The Bank regularly reviews its loan portfolios to assess impairment. In determining whether an
impairment loss should be recorded in profit or loss for the year, the Bank makes judgements as to
whether there is any observable data indicating that there is a measurable decrease in the estimated
future cash flows from a portfolio of loans before the decrease can be identified with an individual loan
in that portfolio. This evidence may include observable data indicating that there has been an adverse
change in the payment status of borrowers in the Bank, or national or local economic conditions that
correlate with defaults on assets of the Bank. Management uses estimates based on credit risk
characteristics and objective evidence of impairment similar to those in the portfolio when scheduling
its future cash flows. The methodology and assumptions used for estimating both the amount and
timing of future cash flows are reviewed regularly to reduce any differences between loss estimates
and actual loss experience.
16

4.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY (CONTINUED)
A 10% increase or decrease in actual loss experience compared to the loss estimates used would
result in an increase or decrease in loan impairment losses of MNT 177 million (31 December 2013:
MNT 663 million), respectively. Impairment losses for individually significant loans are based on
estimates of discounted future cash flows of the individual loans, taking into account repayments and
realisation of any assets held as collateral against the loans.
Initial recognition of borrowings and loans at below market rates. During the first half of 2014, the
Bank has obtained financing directly from the Government of Mongolia. These funds are denominated
in MNT and obtained at an interest rate of 4.7917%, 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 6% 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 considers that these instruments are a separate market segment (i.e. the
Bank operates in a separate principal market) and that they fall in level 2 of the fair value
measurement hierarchy.
Similarly, management assessed that the borrowings from Commerzbank Aktiengesellschaft (Note
17) and issued promissory notes (Note 15), which are used for specific purposes to predefined loan
customers (i.e. funding specific projects) at below market rates, represent separate market segments
and that they fall in level 2 of the fair value measurement hierarchy.
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
STANDARDS
NEW
AND REVISED INTERNATIONAL FINANCIAL
REPORTING
The following new standards and interpretations became effective for the Bank from 1 January 2014:
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (issued in
December 2011 and effective for annual periods beginning on or after 1 January 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 January 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
17

5. APPLICATION OF NEW
STANDARDS (CONTINUED)
REPORTING
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
January 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 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.
Amendments to IAS 36 Recoverable amount disclosures for non-financial assets (issued in
May 2013 and effective for annual periods beginning 1 January 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 June 2013 and effective for annual periods beginning 1 January 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.
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 Bank has not early adopted.
IFRS 9 Financial Instruments: Classification and Measurement (amended in July 2014 and
effective for annual periods beginning on or after 1 January 2018). Key features of the new
standard are:
Financial assets are required to be classified into three measurement categories: those to be
measured subsequently at amortised cost, those to be measured subsequently at fair value
through other comprehensive income (FVOCI) and those to be measured subsequently at fair
value through profit or loss (FVPL).
Classification for debt instruments is driven by the entitys business model for managing the
financial assets and whether the contractual cash flows represent solely payments of principal
and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if
it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are
held in a portfolio where an entity both holds to collect assets cash flows and sells assets
may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI
must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer
separated from financial assets but will be included in assessing the SPPI condition.
18

REPORTING
Investments in equity instruments are always measured at fair value. However, management
can make an irrevocable election to present changes in fair value in other comprehensive
income, provided the instrument is not held for trading. If the equity instrument is held for
trading, changes in fair value are presented in profit or loss.
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.
IFRS 9 introduces a new model for the recognition of impairment losses the expected credit
losses (ECL) model. There is a three stage approach which is based on the change in credit
quality of financial assets since initial recognition. In practice, the new rules mean that entities
will have to record an immediate loss equal to the 12-month ECL on initial recognition of
financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where
there has been a significant increase in credit risk, impairment is measured using lifetime ECL
rather than 12-month ECL. The model includes operational simplifications for lease and trade
receivables.
Hedge accounting requirements were amended to align accounting more closely with risk
management. The standard provides entities with an accounting policy choice between
applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all
hedges because the standard currently does not address accounting for macro hedging.
The Bank is currently assessing the impact of the new standard on its financial statements.
Amendments to IAS 19 Defined benefit plans: Employee contributions (issued in November
2013 and effective for annual periods beginning 1 July 2014). The amendment allows entities to
recognise employee contributions as a reduction in the service cost in the period in which the related
employee service is rendered, instead of attributing the contributions to the periods of service, if the
amount of the employee contributions is independent of the number of years of service. The
amendment is not expected to have any material impact on the Banks financial statements.
Annual Improvements to IFRSs 2012 (issued in December 2013 and effective for annual
periods beginning on or after 1 July 2014, unless otherwise stated below). The improvements
consist of changes to seven standards.
IFRS 2 was amended to clarify the definition of a vesting condition and to define separately
performance condition and service condition; The amendment is effective for share-based payment
transactions for which the grant date is on or after 1 July 2014.
IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the
definition of a financial instrument is classified as a financial liability or as equity, on the basis of the
definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial,
is measured at fair value at each reporting date, with changes in fair value recognised in profit and
loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on
or after 1 July 2014.
IFRS 8 was amended to require (1) disclosure of the judgements made by management in
aggregating operating segments, including a description of the segments which have been
aggregated and the economic indicators which have been assessed in determining that the
aggregated segments share similar economic characteristics, and (2) a reconciliation of segment
assets to the entitys assets when segment assets are reported.
19

REPORTING
The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in
IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure
short-term receivables and payables at invoice amount where the impact of discounting is immaterial.
IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated
depreciation are treated where an entity uses the revaluation model.
IAS 24 was amended to include, as a related party, an entity that provides key management
personnel services to the reporting entity or to the parent of the reporting entity (the management
entity), and to require to disclose the amounts charged to the reporting entity by the management
entity for services provided.
The Bank is currently assessing the impact of the amendments on its financial statements.
periods beginning on or after 1 July 2014). The improvements consist of changes to four
standards.
The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is
not yet mandatory but is available for early adoption; a first-time adopter can use either the old or the
new version, provided the same standard is applied in all periods presented.
periods beginning on or after 1 July 2014) (continued) IFRS 3 was amended to clarify that it does
not apply to the accounting for the formation of any joint arrangement under IFRS 11. The amendment
also clarifies that the scope exemption only applies in the financial statements of the joint arrangement
itself.
The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to
measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to
all contracts (including contracts to buy or sell non-financial items) that are within the scope of IAS 39
or IFRS 9.
IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in
IAS 40 assists preparers to distinguish between investment property and owner-occupied property.
periods beginning on or after 1 July 2014)(continued). Preparers also need to refer to the
guidance in IFRS 3 to determine whether the acquisition of an investment property is a business
combination.
The Bank is currently assessing the impact of the amendments on its financial statements.
IFRS 14, Regulatory deferral accounts (issued in January 2014 and effective for annual periods
beginning on or after 1 January 2016). IFRS 14 permits first-time adopters to continue to recognise
amounts related to rate regulation in accordance with their previous GAAP requirements when they
adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not
recognise such amounts, the standard requires that the effect of rate regulation must be presented
separately from other items. An entity that already presents IFRS financial statements is not eligible to
apply the standard. The amendment is not expected to have any material impact on the Banks
financial statements.
Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 (issued
on 6 May 2014 and effective for the periods beginning on or after 1 January 2016). This
amendment adds new guidance on how to account for the acquisition of an interest in a joint operation
that constitutes a business. The Bank is currently assessing the impact of the amendments on its
Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16
and IAS 38 (issued on 12 May 2014 and effective for the periods beginning on or after 1
January 2016). In this amendment, the IASB has clarified that the use of revenue-based methods to
calculate the depreciation of an asset is not appropriate because revenue generated by an activity
that includes the use of an asset generally reflects factors other than the consumption of the economic
20

REPORTING
benefits embodied in the asset. The Bank is currently assessing the impact of the amendments on its
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the
periods beginning on or after 1 January 2017). The new standard introduces the core principle that
revenue must be recognised when the goods or services are transferred to the customer, at the
transaction price. Any bundled goods or services that are distinct must be separately recognised, and
any discounts or rebates on the contract price must generally be allocated to the separate elements.
When the consideration varies for any reason, minimum amounts must be recognised if they are not
at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised
and amortised over the period when the benefits of the contract are consumed. The Bank is currently
assessing the impact of the new standard on its financial statements.
Agriculture: Bearer plants - Amendments to IAS 16 and IAS 41 (issued on 30 June 2014 and
effective for annual periods beginning 1 January 2016). The amendments change the financial
reporting for bearer plants, such as grape vines, rubber trees and oil palms, which now should be
accounted for in the same way as property, plant and equipment because their operation is similar to
that of manufacturing. Consequently, the amendments include them within the scope of IAS 16,
instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. The
Bank is currently assessing the impact of the amendments on its financial statements.
6.
CASH AND CASH EQUIVALENTS
30 June 2014
31 December 2013
Cash on hand
Cash at Bank of Mongolia
Cash at other banks:
- Domestic
- Foreign
Short term deposits with local banks
5,033
2,282,053
6,589
418,732
12,511,035
18,575
933,479,588
21,273,230
19,830
357,742,852
Total cash and cash equivalents
948,296,284
379,461,233
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 8.4%-11.0% p.a. for MNT and 5.0% p.a.
for USD deposits for the period ended 30 June 2014 (31 December 2013: from 8.0%-10.5% p.a. for
MNT and 3.0% p.a. for USD).
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, foreign banks and the
Bank of Mongolia.
21

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 2014 and 31 December 2013 was as follows.
Neither past due nor impaired
Central Bank of Mongolia - B2 Rated
A- Rated
B2 rated
Unrated
Total cash and cash equivalents, excluding cash

on hand
30 June 2014
31 December 2013
2,282,053
18,575
484,285,755
461,704,868
418,732
19,830
208,885,908
170,130,174
948,291,251
379,454,644
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
The Bank deposits consist of term deposits at the local banks with different maturities (over three
months but less than a year) and interest rate ranges between 9.0%-13.0% p.a. for MNT and 5.10%
p.a. for JPY deposits (31 December 2013: from 8.5%-12.0% p.a. for MNT and 5.0%-5.4% p.a. for
USD).
30 June 2014
31 December 2013
B2 rated (2013: B1 Rated)

Unrated
615,774,526
83,457,766
534,141,815
118,196,212
Total bank deposits
699,232,292
652,338,027
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 2014 and 31 December
2013 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.
22

8.
LOANS AND ADVANCES
Loans and advances as of 30 June 2014 and 31 December 2013 consist of the following:
30 June 2014
31 December 2013
Loans and advances to be repaid by the State budget

Loans and advances to be repaid by the Corporates
1,630,340,963
1,169,766,293
1,321,250,545
864,564,549
Total gross loans and advances
2,800,107,256
2,185,815,094
(1,767,773)
(6,224,792)
2,798,339,483
2,179,590,302
Less: Provision for loan impairment
Total net amount of loans and advances
At 30 June 2014, MNT 2,616,677 million of loans and advances are expected to be recovered more
than 12 months after the period end (31 December 2013: MNT 1,937,970 million).
Loans and advances given to projects to be repaid from the State budget refers to socially beneficial
projects that do not create cash flows of their own which covers areas such as, improvement of rural
and city roads, civil engineering construction, extension and improvement of power and heat plant,
building of a new railways and mortgage financing through commercial banks for middle income
families and individuals.
Loans and advances given to corporate projects are to be repaid from the projects or borrowers
future cash flow generation and the Bank also holds collateral. The Bank provides lending to corporate
projects which the Government considers priority commercial activities (air transport development,
support of mining industry, railway, infrastructure, Small and Medium Enterprises (SME), housing and
manufacturing projects).
The Government of Mongolia issued a resolution No.319 dated on the 10 September 2013 to improve
operations of state owned companies. In line with this resolution, necessary work has been organized
to convert the Banks loan issued to Erdenes Tavan Tolgoi LLC to the equity of the borrower. The
structure and conversion are in development and the transaction has not yet been finalized.
23

8. LOANS AND ADVANCES (CONTINUED)
The analysis by credit quality of loans outstanding at 30 June 2014 is as follows:
Loans and
advances to be
repaid by the State
budget
Loans and
advances to be
repaid by the
Corporates
Total
Neither past due nor impaired:

- Performing loan
929,398,406
1,000,438,142
1,929,836,548
Total neither past due nor impaired
929,398,406
1,000,438,142
1,929,836,548
Past due but not impaired:

- Less than 30 days overdue
- 31 to 90 days overdue
560,463,901
140,478,656
45,675,400
-
606,139,301
140,478,656
Total past due but not impaired
700,942,557
45,675,400
746,617,957
Individually determined to be Impaired loans

- not past due
- 181 to 360 days overdue
118,094,403
5,558,348
118,094,403
5,558,348
Total impaired loans
123,652,751
123,652,751
(1,767,773)
(1,767,773)
1,630,340,963
1,167,998,520
2,798,339,483
Past due but not impaired loans as of 30 June 2014 in the amount of MNT 746,618 million include
loans with overdue principal as of 30 June 2014 in the amount of MNT 43,065 million, and loans with
overdue interest receivable as of 30 June 2014 in the amount of MNT 23,154 million. In accordance
with IFRS requirements, the total outstanding amount of these loans is disclosed as past due. These
loans are collateralized by Government guarantees, except in the case of loans issued to certain
SMEs, in which case interest is repaid by the State budget, while principal amounts are repaid by
related SMEs. As a result, these loans issued to SMEs are disclosed as loans to be repaid by the
Corporates.
The overdue interest amount from the Ministry of Finance as of 30 June 2014 has been fully repaid in
December 2014. Loans with overdue principal from the Ministry of Finance as of 30 June 2014 were
restructured in November 2014 and all interest due for 2014 was fully repaid in December 2014. As
most of these loans are collateralized by the Government guarantees, overdue amounts as of 30 June
2014 are not significant compared to total outstanding loan balances, overdue interest was collected
within a six month period, while in the case of restructured loans delays in repayment of principal
amounts are compensated by additional interest, and management believes that no impairment
provision on these loans as of 30 June 2014 is necessary. Managements judgments related to the
level of impairment provision are disclosed in Note 4.
All loans to be repaid by the State budget are guaranteed by the Government and has the same
credit rating as the Government of Mongolia, B2 Rated (31 December 2013: B1 Rated). All corporate
entities are unrated. The Management believes that all neither past due nor impaired loans are
performing loans.As at 30 June 2014 the aggregated amount of the top 5 largest borrowers is MNT
1,323,289 million (as at 31 December 2013: MNT 1,078,746 million) or 47% of total loans and
advances (31 December 2013: 49%).
24

Analysis by credit quality of loans outstanding at 31 December 2013 is as follows:
Loans and
advances to be
repaid by the State
budget
Loans and
advances to be
repaid by the
Corporates
Total

- Performing loan
1,321,250,545
733,423,880
2,054,674,425
1,321,250,545
733,423,880
2,054,674,425

- less than 30 days overdue
4,778,921
4,778,921
Total past due but not impaired loans
4,778,921
4,778,921
Individually determined to be Impaired

Loans but not past due
126,361,748
126,361,748
126,361,748
126,361,748
(6,224,792)
(6,224,792)
1,321,250,545
858,339,757
2,179,590,302
The primary factors that the Bank considers in determining whether a loan in the collective category is
impaired are its overdue status and realisability of related collateral, if any. The Bank considers
specific impairment triggering events, future cash flows and realisability of related collateral to assess
the loan impairment. As a result, the Bank presents above analysis of the loans to be impaired.
Past due, but not impaired loans primarily include collateralised loans where the fair value of collateral
covers the overdue interest and principal repayments. The amount reported as past due but not
impaired is the whole balance of such loans, not only the individual instalments that are past due.
Movements in the provision for loan impairment for six months period ended 30 June 2014 are as
follows:
Loans and
advances to be
repaid by the State
budget
Loans and
advances to be
repaid by the
Corporates
Total
Provision for loan impairment at 1

January 2014
6,224,792
6,224,792
Recovery of provision during the period
(4,457,019)
(4,457,019)
Provision for loan impairment at 30 June

2014
1,767,773
1,767,773
There were no movements in provision for loan impairment for six months period ended 30 June
2013.
25

The financial effect of collateral is presented by disclosing collateral values separately for (i) those
assets where collateral and other credit enhancements are equal to or exceed carrying value of the
asset (over-collateralised assets) and (ii) those assets where collateral and other credit
enhancements are less than the carrying value of the asset (under-collateralised assets).
Information about collateral as at 30 June 2014 is as follows:
Loans and
advances to be
repaid by the
State budget
Loans and
advances to be
repaid by the
Corporates
Total
1,630,340,963
-
398,660,123
318,411,611
452,694,559
2,029,001,086
318,411,611
452,694,559
1,630,340,963
1,169,766,293
2,800,107,256
Loans and advances collateralized by:

- Government guarantees
- Commercial bank guarantees
- Plant, property and equipment
Total loans and advances (before

impairment)
Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or
collateral taken.
Information about collateral as at 31 December 2013 is as follows:
Loans and
advances to be
repaid by the
State budget
Loans and
advances to be
repaid by the
Corporates
Total
1,321,250,545
-
339,160,662
308,836,172
216,567,715
1,660,411,207
308,836,172
216,567,715
1,321,250,545
864,564,549
2,185,815,094


impairment)
The financial effect of collateral is as follows:
Over-collateralised assets as at
30 June 2014
Carrying value
Value of
of the assets
collateral
Over-collateralised assets as at
31 December 2013
Carrying value
Value of
of the assets
collateral

2,029,001,086
318,411,611
450,926,786
2,029,001,086
318,411,611
681,862,861
1,660,411,207
308,836,172
210,342,923
1,660,411,207
308,836,172
217,677,467
Total value
2,798,339,483
3,029,275,558
2,179,590,302
2,186,924,846
Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or
collateral taken.
26

Economic sector risk concentrations within the loan portfolio are as follows:
- Road
- Manufacturing
- Mining
- Railway
- Power plant
- Construction
- Mortgage
- Utility
- Transportation
- Finance

impairment)
9.
30 June 2014
Amount
31 December 2013
Amount
968,474,900
495,711,248
403,174,808
372,476,673
190,168,016
100,023,769
115,430,588
146,341,823
5,558,348
2,747,083
35%
18%
14%
13%
7%
4%
4%
5%
0%
0%
690,416,375
440,446,405
357,222,876
301,953,037
127,700,433
67,364,832
101,318,012
94,614,203
4,778,921
-
32%
20%
16%
14%
6%
3%
5%
4%
0%
0%
2,800,107,256
100%
2,185,815,094
100%
INVESTMENTS SECURITIES AVAILABLE FOR SALE
Investment securities available for sale fully relates to the Banks equity investment in Mongolian
Mortgage Corporation LLC (MIK). In March 2014, The Bank and MIK signed a partnership agreement
enabling the Bank to own 14.88% of shares in MIK at a cost of MNT 10 billion. The Banks investment
is the result of the decision of the Government of Mongolia, the Banks sole shareholder, to boost
MIKs operations in building affordable apartments. The Bank does not have significant influence or
joint control over MIK as of 30 June 2014.
10. OTHER ASSETS
Receivable from Ministry of Finance
Other receivables
Prepaid employee benefit
Other prepayments
Supply materials
Total other assets
30 June 2014
31 December 2013
9,538,597
396,272
720,282
643,067
12,846
5,097,610
530
746,160
182,832
9,358
11,311,064
6,036,490
The receivables from the Ministry of Finance relate to loans issued under Government Grant Scheme
during 2012 and 2013, which were not converted to USD loans in late December 2013, including
agreements related to the SME loan and the Sainshand Industrial Park loan with the Ministry of Food
and Agriculture and the Ministry of Finance issued in October 2013. As part of an agreement with the
Bank, the Ministry of Finance has agreed that it has a responsibility for repayment of principal and
interest amounts with foreign currency loss to the Bank. The loans are therefore effectively 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, which is recognised as
receivable from the Ministry of Finance in the amount of MNT 9,539 million (31 December 2013: MNT
5,098 million).
Based on the mutual agreement between the Ministry of Finance and the Bank, the Bank periodically
issues invoices to the Ministry of Finance for realised foreign exchange losses on these loans, which
have arisen during 2014 and previous years mostly on received interest , given that most of the
related loans mature in the subsequent years. Unrealised foreign exchange losses are not invoiced
and are not yet due for payment by the Ministry of Finance. As of 30 June 2014, receivable from the
Ministry of Finance mostly relates to unrealised foreign exchange losses related to principal amounts
27

8. OTHER ASSETS (CONTINUED)
of loans, which are not due for payment before maturity of the loans. MNT 1,398 million related to
realised foreign exchange losses on received principal and interest as of 30 June 2014 have been
collected from the Ministry of Finance in December 2014 in accordance with a reconciliation between
the Ministry of Finance and the Bank, which was finalised in November 2014. As a result of the
reconciliation with the Ministry of Finance, the total amount of the receivable as of 30 June 2014 is
considered fully recoverable.
The amount of receivables from the Ministry of Finance on the above loan 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 8,141 million of the MNT 9,539 million is non-current (31 December 2013: MNT 4,740
million of the MNT 5,098 million).
In line with other banks in Mongolia, the Bank offers its employees reduced rates on Mortgage loans.
The Bank has arranged this benefit by providing to other commercial banks 0% - 2% interest funding
for a period of 15 - 20 years. The commercial banks in turn, issues loans to the Bank's employees at
reduced rates. This scheme began in June 2013 with a MNT 1 billion deposit with State bank but later
minor changes have made in December 2013 and in June 2014 to share this scheme across State
Bank, Golomt Bank and Trade and Development Bank.
The initial cost of this employee benefit of MNT 776 million is amortised over the duration of the
scheme. MNT 669 million of the MNT 721 million is non-current (31 December 2013: MNT 694 million
of the MNT 746 million).
All Other receivables, prepayments and supply materials are current assets.
11. PROPERTY AND EQUIPMENT
Movements in the carrying amounts of the Banks property and equipment are as follows:
Note
Cost at 1 January 2013

Accumulated depreciation
Carrying amount at 1 January 2013
Additions
Depreciation charge
Carrying amount at 30 June 2013
Cost at 30 June 2013

Carryingamountat30June2013
23
Equipment
Furniture and
fixtures
Vehicle
Total
147,849
(72,677)
71,970
(11,606)
110,025
(11,003)
329,844
(95,286)
75,172
60,364
99,022
234,558
91,338
(30,614)
48,817
(4,443)
41,200
(5,501)
181,355
(40,558)
135,896
104,738
134,721
375,355
239,187
(103,291)
120,787
(16,049)
151,225
(16,504)
511,199
(135,844)
135,896
104,738
134,721
375,355
28

11. PROPERTY AND EQUIPMENT (CONTINUED)
Note

Additions
Depreciation charge
23

Equipment
Furniture and
fixtures
Vehicle
Total
291,016
143,649
346,525
781,190
(143,731)
(22,487)
(31,935)
(198,153)
147,285
121,162
314,590
583,037
32,320
43,721
76,041
(47,121)
(8,042)
(17,325)
(72,488)
132,484
156,841
297,265
586,590
323,336
187,370
346,525
857,231
(190,852)
(30,529)
(49,260)
(270,641)
132,484
156,841
297,265
586,590
12. INTANGIBLES ASSETS

Intangible assets relate to purchased banking software systems. The carrying amounts of the Banks
intangible assets are as follows:
Note

Accumulated amortization
Additions
Amortization charge

23
Software
License
Total
838,487
(111,799)
2,246
(2,246)
840,733
(114,045)
726,688
726,688
115,929
(44,368)
115,929
(44,368)
726,688
71,561
798,249
838,487
(111,799)
118,175
(46,614)
956,662
(158,413)
726,688
71,561
798,249
29

12. INTANGIBLE ASSETS (CONTINUED)
Software
License
Total
861,678
(197,068)
124,847
(11,972)
986,525
(209,040)
664,610
112,875
777,485
Additions
Amortization charge
22,250
(44,008)
8,104
(10,936)
30,354
(54,944)
642,852
110,043
752,895
883,928
(241,076)
132,951
(22,908)
1,016,879
(263,984)
642,852
110,043
752,895
Note

23

The Bank amortises the intangible assets over 3 years for the tax purposes.
13. CUSTOMER ACCOUNTS AND OTHER LIABILITIES
30 June 2014
31 December 2013
Customer accounts
23,047,947
16,278,742
Total customer accounts
23,047,947
16,278,742
Other liabilities
Deferred income
18,924,712
511,420
373,841
-
Total other liabilities
19,436,132
373,841
Total customer accounts and other liabilities
42,484,079
16,652,583
These customer accounts are primarily used for disbursements and repayments of the loans issued to
related customers by the Bank. They are not used by the customers for regular business purposes
(i.e. as transactional accounts).
No interest is paid on these customer current accounts. As at 30 June 2014 customer current
accounts consist of 17 accounts (at 31 December 2013: 11).
Other liabilities includes MNT 18,505,019 thousands of withholding tax payable arising from JBIC
guarantee fee related to Samurai bond issuance.
30

13. CUSTOMER ACCOUNTS AND OTHER LIABILITIES (CONTINUED)
Economic sector risk concentrations within the customer accounts are as follows. The changes
compared to 31 December 2013 are due to the nature of these accounts outlined above.
- Power plant
- Manufacturing
- Railway
- Construction
- Mining
Total customer accounts
30 June 2014
31 December 2013
19,452,587
1,005,111
808,409
871,840
910,000
99,732
2,062,996
11,665,299
428,950
2,021,765
23,047,947
16,278,742
14. DUE TO OTHER BANKS

The local banks deposits consist of term deposits at the Bank with under three months maturities at
interest rates of 5.0% p.a. for USD deposits (2013: 6.0% p.a. for USD deposits and 8.5% p.a. for MNT
deposits).
15. PROMISSORY NOTES
The Government of Mongolia issued a resolution No.299 dated on the 16 August 2013 pertaining to
enhancement of coal exports of Mongolia. The Resolution states the road built by Gobi Road LLC
connecting Tavan tolgoi and Gashuunsukhait and basic infrastructure built by Energy Resources LLC
to enhance Gashuunsukhait port capacity are to be purchased and ownership of the assets
transferred to Erdenes MGL LLC. Pursuant to this Resolution, on February 2014 the Bank has lent to
Erdenes MGL LLC amount of MNT 170.6 billion with interest rate of 4.25% p.a. for the purchase of
road and infrastructure. This loan is included in loans to and advances (Note 8), as the Bank acts as a
principal and bears credit risk related to this loan.
In order to fund this loan, DBM has issued a promissory note with a maturity of 1 year which was
purchased by the Trade and Development Bank of Mongolia at a discounted price of MNT 170.6
billion with interest rates of 4.0% p.a. As this funding is used for a specific purpose (issuing loan to
Erdenes MGL) issued at a below market rate, management believes that this funding represents a
specific principal market (market segment), refer to Note 4. Similarly, the loan issued to Erdenes MGL
represents a specific principal market (market segment).
16. BONDS
This account is composed of:
30 June 2014
31 December 2013
Bond issued to international market

Samurai bond issued in the Japanese bond market
1,073,706,343
432,816,669
972,107,029
-
Total issued bond
1,506,523,012
972,107,029
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.
31

16. BONDS (CONTINUED)
On 9 December 2011, an initial series of notes was issued amounting to USD 20 million 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 million with fixed interest
rate 5.75% p.a. and a 5 year maturity.
In December 2013, Japan Bank of International Cooperation (JBIC) and the Ministry of Finance has
signed set of agreements to provide guarantee for yen-denominated foreign bonds issued by the Bank
in the Japanese bond market (Samurai bond). The Ministry of Finance guarantees 100% of the bond
principal and JBICs guarantee covers the principal and the last 5.5 years of interest of this issue. The
joint lead arrangers were Nomura Securities Co., Ltd. and Daiwa Securities Co., Ltd. while Mizuho
Bank Ltd. participated as the bond administrator.
The Samurai bond was issued in the amount of JPY 30 billion with fixed interest rate of 1.52% p.a.
and 10 years maturity.
Bond issuance costs are amortised over the period of the notes. Please refer to Note 23 liquidity
disclosures for a breakdown of the Bonds into current and non-current amounts.
17. BORROWINGS
This account is composed of:
30 June 2014
31 December 2013
Financing from the Government

Borrowing from foreign bank
2,522,725,044
2,245,303
1,987,189,199
-
Total borrowings
2,524,970,347
1,987,189,199
The Bank entered into a tri-party Financial Intermediary Agreement with the Ministry of Finance and
the Ministry of Economic Development on 30 April 2013. The Government has provided this funding
from proceeds of the Chinggis Bond. Interest is charged at 4.7917% p.a. on this loan. One third of this
funding has a 5 year maturity ending January 2018 and two thirds of this funding have a 10 year
maturity ending December 2022. In accordance with the agreement the Bank has received during the
six months period of 2014 an additional financing of MNT 480,485 million from the Government of
Mongolia in order to further fund projects and programs.
Based on Government Resolution No.113 of 4 April 2014, the Bank approved a total of EUR 13,115
thousand financing for Erel LLCs construction of a housing production factory, which includes the
remaining 70% or EUR 12,145 thousand of the EUR 17,350 thousand equipment sales contract with
EBAWE of Germany as well the EULER HERMES sellers credit fee of EUR 970,000 thousand. The
loan agreement with Commerzbank was finalized on 14 April 2014 and the loan and other relevant
agreements were signed with Erel LLC on 28 April 2014. According to confirmation from
Commerzbank, total amount of EUR 2,683 have been financed from the facility through sales invoices
as of 8 September 2014. As this funding is used for issuing loan to particular project at below market
interest rate, based on the terms of the Agreement with Commerzbank Aktiengesellschaft, it
represents separate principal market (i.e. specific market segment), Note 4. Related loan is included in
loans and advances to customers (Note 8).
18. 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. According to IAS 24 Related Party Disclosures other
32

18. RELATED PARTY TRANSACTIONS (CONTINUED)
related parties of the Bank comprise national companies and other organisations controlled, jointly
controlled or under significant influence of the Government.
Given the nature of its operations, the Bank has significant volume of transactions with the
Government and other related parties, including guarantees received from the Government. The
Banks financial position and performance is highly dependent on the recoverability of the loans and
advances to be repaid by the State budget and other loans and receivables guaranteed by the
Government (Notes 8 and 10), as well as the Governments execution of other guarantees and
contractual obligations. As a result, the sustainability of the Banks growth and profitability depends
on the continuing support from the Government, and sufficiency of the State budget revenue, which
could be substantially influenced by developments in the operating environment during 2015 and the
following years. The information on the operating environment of the Bank is disclosed in Note 1.
Managements judgments in determining level of loan loss provision are disclosed in Note 4.
Detailed information on related party transactions is outlined below.
Assets and Transactions with Related Parties
An analysis of the Banks assets (excluding loans) held by related parties and transactions with
related parties is disclosed as follows:
Current accounts with the Bank of Mongolia and State Bank are on the same terms and basis as the
Banks other current accounts and deposits. Bank of Mongolias current accounts earn 0% interest
and 6.8% p.a. interest is earned on the State Bank current accounts for the period ended 30 June
2014 (31 December 2013: 5.6%).
The interest on the State Bank short term deposit (under three months) ranges from 10.0%-10.4% for
the period ended 30 June 2014 (31 December 2013: 9.2%-10.4%) for MNT deposits. The interest on
time deposits which are over three months but less than a year ranges from 9.9%-13.0% for the
period 30 June 2014 (31 December 2013: 9.7%-9.9% p.a.) for MNT deposits.
As discussed in Note 10 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 Bank offers its employees reduced rates on Mortgage loans as referred to in Note 10. The Bank
has arranged this benefit by providing 0% interest funding to the State Bank of MNT 850 million 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 was MNT 660 million of which MNT 612 million remains on the Statement of
Financial Position as a prepayment. The deposit was therefore recorded at initiation of the scheme
within the Statement of Financial Position at a value of MNT 212 million by discounting the deposit by
10.5%. Please refer to Note 4.
For promissory notes please refer to Note 15 and for borrowings please refer to Note 17.
33

30 June 2014
In thousands of Mongolian
Tugriks
Receivables from Ministry of
Finance (Note 10)
Current account with Bank of
Mongolia (Note 6)
Current account with State
bank
Time deposits with State
bank
Current account with Saving
bank
Time deposits with Saving
bank
Deposit with State bank for
employee benefit:
Promossiry notes of Erdenes
MGL SOC
Borrowings from the
Government
Amount of transaction
with related parties
(excluding loans)
31 December
2013
Statement of
Financial
Position
From 1 January
2014 to 30 June
2014
Statement of
Comprehensive
Income
Statement of
Financial
Position
From 1 January
2013 to 30 June
2013
Statement of
Comprehensive
Income
9,538,597
4,520,593
5,097,610
12,303,853
2,282,053
418,732
11,122,801
180,658
12,862,872
170,046,603
6,617,991
110,000,000
4,935
2,081,515
850,000
850,000
173,194,140
(2,598,660)
2,522,725,044
(54,694,118)
1,987,189,199
(2,384,486)
2,889,759,238
(45,973,536)
2,116,418,413
12,005,817
34

Loans to Related Parties
An analysis of the Bank loans to related parties is disclosed as follows:
Tugriks
To be repaid by the State
budget:
- The Ministries
- State Bank SOC
- 4th Power Station SOSC
- Tavan tolgoi power plant
- Egiin gol power plant
- Mongolian Railway SOSC
- SME Development Fund
- Sainshand industrial park
SOCSC
- Mongolian Stock Exchange
SOSC
To be repaid by the
Corporates :
- MIAT Airlines SC
- Erdenes Tavan Tolgoi SC
- Baganuur SOSC
- State Housing Corporation
SOC
- SME Development Fund
- Erdenes MGL SOC
Total loans to related parties
30 June 2014
Statement of
Financial
Position
From 1 January
2014 to 30 June
2014
Statement of
Comprehensive
Income
31 December
2013
Statement of
Financial
Position
From 1 January
2013 to 30 June
2013
Statement of
Comprehensive
Income
1,630,340,963
53,980,953
1,321,250,546
13,610,920
1,002,677,602
115,430,588
95,194,332
27,751,701
6,507,595
372,476,673
1,068,721
34,256,244
3,494,071
2,971,515
700,982
117,536
10,568,961
1,649,689
831,822,771
101,318,012
76,187,348
3,268,982
3,177,633
301,953,037
156,337
7,985,481
2,615,625
860,487
24,180
1,913,563
211,584
6,486,668
202,880
3,366,426
2,747,083
19,075
713,064,508
19,723,302
458,752,907
12,073,515
5,558,348
386,625,208
16,046,554
275,798
13,261,608
796,709
4,778,921
339,160,662
18,062,214
1,943,297
9,833,303
296,915
85,802,442
2,628,111
60,660,257
45,675,400
173,356,556
2,761,076
36,090,853
-
2,343,405,471
73,704,255
1,780,003,453
25,684,435
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 4.25% - 10.0% (31 December 2013: 6.75%
- 9.6% p.a.) for MNT and 5.125% - 9.5% p.a. (31 December 2013: 5.125% - 9.5% p.a.) for USD loans
and advances with maturities of between one and ten years.
The remuneration and employee benefit paid to the executive officers, directors and members of
Board for the period ended 30 June 2014 and 30 June 2013 amounted to MNT 588 million and MNT
172 million 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 Bonds issued on the Singapore stock exchange and on the
Japanese bond market on which the Ministry of Finance irrevocably and unconditionally guarantees
the interest and principal payment of all amounts in respect of the bond notes. Please refer to Note 16.
Loan Commitments
As of 30 June 2014, the Bank has MNT 1,092,894,753 thousand of loan commitments to related
parties.
35

Guarantees Given
The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag
Housing Projects LLC amounting to USD 84 million (equivalent to MNT 138.7 billion) 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.
The Bank has issued a two year guarantee in the name of Erdenes Tavan Tolgoi LLC to a local
commercial bank in the amount of USD 35 million in January 2014. The Bank has received a fee of
MNT 919 million during the period which is to be amortized on a straight line basis over the useful life
of the guarantee.
19. CONTRIBUTED CAPITAL
In accordance with the Law on Development Bank of Mongolia, the Bank's contributed capital
consists of a contribution from the Government of Mongolia and other sources as specified in the Law
on Development Bank of Mongolia. The Banks authorized capital is equal to contributed capital
disclosed below.
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. An additional contribution amounting to MNT 23.6 billion
was received in December 2012. The Government of Mongolia 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. As at 31 December 2013, the Banks contributed capital was MNT 123.3 billion.
In January 2014, The Board of Directors issued a resolution No.04 to increase the Banks capital by
retained earnings of the year end 2013 amounting to MNT 20.6 billion.
Authorized:
Contributed capital
1 January 2014
to 30 June 2014
1 January 2013
to 31 December 2013
143,879,436
123,300,000
123,300,000
20,579,436
73,300,000
50,000,000
143,879,436
123,300,000
Paid:
at 1 January ,
Contribution during the year
Total contributed capital
20. INTEREST INCOME

1 January 2014
to 30 June 2014
1 January 2013
to 30 June 2013
Loans and advances

Deposits and placements at banks
85,191,268
66,853,691
11,142,104
29,438,551
152,044,959
40,580,655
Total interest income
Interest Income on loans determined to be impaired amounted to MNT 4,704 million (for the period
ended 30 June 2013: nil).
36

21. INTEREST EXPENSE
1 January 2014
to 30 June 2014
1 January 2013
to 30 June 2013

Samurai bond issued in the Japanese bond market
Due to other banks
Promissory note
Bond issued to local commercial bank
54,694,118
30,001,563
8,763,870
3,082,339
2,598,660
63,102
-
2,384,486
23,976,746
1,294,501
Total interest expense
99,203,652
27,655,733
22.
FOREIGN EXCHANGE GAINS LESS LOSSES
Included with the Foreign exchange gains less losses is an amount of MNT 4,520 million due from the
Ministry of Finance under the Government Grant scheme in relation to the SME loan and Sainshand
Industrial park loan disclosed in Note 10 (30 June 2013: MNT 12,304 million).
The exchange differences charged/credited to the statement of comprehensive income are as follows:
1 January 2014
to 30 June 2014
1 January 2013
to 30 June 2013
Realised translation gain/(loss)

Unrealised translation loss
41,154,789
(56,641,705)
(328,076)
(1,638,772)
Net translation loss
(15,486,916)
(1,966,848)
23. ADMINISTRATIVE AND OTHER EXPENSES

Included in employee cost and benefit account is the contribution to the state pension fund of MNT
99.6 million for the period ended 30 June 2014 (30 June 2013: MNT 64.6 million).
Employee cost and benefit
Advertising
Audit and other professional services
Rental costs
Depreciation and amortization
Business travel and event
Communication and stationeries
IT and software
Fuel and transportation expense
Training cost
Utilities, security and maintenance
Insurance cost
Penalty interest
Others
Total operating expenses
Note
11,12
1 January 2014
to
30 June 2014
1 January 2013
to 30 June 2013
1,886,608
850,086
324,025
275,557
127,432
86,381
77,328
71,154
26,998
22,971
10,334
2,622
55,959
940,013
22,619
72,102
51,231
84,926
56,693
62,985
90,100
8,810
3,971
28,805
2,818
703,585
20,854
3,817,455
2,149,512
37

24. INCOME TAXES
Components of income tax expense charged to profit or loss are as follows:
1 January 2014
to 30 June 2014
1 January 2013
to 30 June 2013
25,099,892
(15,804,770)
4,317,017
(2,192,291)
9,295,122
2,124,726
Current income tax charge

Deferred tax (benefit)
Income tax expense for the period
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 3.0 billion of taxable income, and 25% on the excess of
taxable income over MNT 3.0 billion in accordance with Mongolian tax legislation.
A reconciliation between the expected and the actual taxation charge is provided below.
1 January 2014
to 30 June 2014
1 January 2013
to 30 June 2013
38,905,699
9,579,414
9,726,425
2,394,854
Tax effect of items which are not deductible or assessable for

taxation purposes:
- Profit subject to lower tax rate
- Expenses not deductible for tax purposes
(450,000)
18,697
(450,000)
179,872
Income tax expense/ (benefit) for the period
9,295,122
2,124,726

Profit/(loss) before tax
Theoretical tax charge at statutory rate (2014: 25%; 2013:

25%)
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.
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.
1 January 2014
Recognised in
profit or loss
30 June 2014
(771,120)
(42,866,329)
(114,127)
337
(745,383)
46,953,295
5,779,861
715,180
(36,679,462)
(24,456)
293,184
707
1,596,234
38,315,517
11,587,866
(55,940)
(79,545,791)
(138,583)
293,521
707
850,851
85,268,812
17,367,727
8,236,534
15,804,770
24,041,304
Deferred tax (liabilities)/assets in relation to:

Bank deposits
Loans and advances
Intangibles
Customer accounts
Other liabilities
Due to other banks
Bond
Borrowings
Deferred tax asset
38

24. INCOME TAXES (CONTINUED)
Deferred tax (liabilities)/assets in relation to:
Bank deposits
Loans and advances
Other assets
Intangibles
Bond
Other liabilities
Deferred tax asset
1 January 2013
Recognised in
profit or loss
30 June 2013
(2,091,211)
(408,815)
(542,117)
(65,215)
9,047,718
-
1,593,216
(4,816,963)
(3,075,964)
(24,456)
8,419,882
96,575
(497,995)
(5,225,778)
(3,618,081)
(89,671)
17,467,600
96,575
5,940,360
2,192,290
8,132,650
25. FINANCIAL RISK MANAGEMENT

Introduction and overview
The Bank has exposure to the following risks:
credit risk
market risk
liquidity risks
This note presents information about the Banks exposure to each of the above risks, its objectives,
policies and processes for measuring and managing risk.
Risk management policies and procedures
The Banks risk management policies aim to identify, analyze and manage the risks it faces, to set
appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits.
Risk management policies and procedures are reviewed regularly to reflect changes in market
conditions, products and services offered and emerging best practice. The Board of Directors of the
Bank has overall responsibility for the oversight of the risk management framework for the Bank,
overseeing the management of key risks and reviewing its risk management policies and procedures
as well as approving significantly large exposures.
The Board of Directors of the Bank is responsible for monitoring and implementation of risk mitigation
measures and making sure that the Bank operates within the established risk parameters.
The Head of the Risk Department of the Bank is responsible for the overall risk management and
compliance functions, ensuring the implementation of common principles and methods for identifying,
measuring, managing and reporting both financial and non-financial risks.
Credit, market and liquidity risks both at portfolio and transactional levels are managed and controlled
through Credit Committee, Asset and Liability Management Committee, and Risk Management
Committee.
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.
39

25. FINANCIAL RISK MANAGEMENT (CONTINUED)
Credit Committee
The Credit Committee is responsible directly to the Board of Directors. 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:
approval of clearly defined Credit Policies and Procedures and amendments and updates;
a) approval of risk classification and provisioning levels;
b) review of the quality, composition and risk profile of the entire credit portfolio on an ongoing basis;
and approval of credit limits applicable in exposures to industrial sectors and geographical regions
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.
Risk Management Committee
The Bank established the Risk Management Committee in October 2013. The Risk Management
Committee is an executive management level committee and is not a formally constituted committee
of the board of the directors of the Bank. The main duties of the committee are:
a)
b)
c)
d)
e)
Assessment of the Company's risk profile and key areas of risk in particular;
Recommending to the management and adopting risk assessment and rating procedures;
Examining and determining the sufficiency of the Companys internal processes for reporting on
and managing key risk areas;
Assessing and recommending to the Board acceptable levels of risk;
Development and implementation of a risk management framework and internal control system.
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 Banks loans and
advances, and deposits in commercial banks.
The Bank has developed policies and procedures for the management of credit exposures, including
guidelines to limit portfolio concentration and the establishment of a Credit Committee, which actively
monitors the Banks credit risk. The Banks credit policy is reviewed and approved by the Board of
Directors.
The Banks credit policies establish:
- Procedures for review and approval of loan/credit applications;
- Methodology for the credit assessment of borrowers;
- Methodology for the evaluation of collateral;
- Credit documentation requirements;
- Procedures for the ongoing monitoring of loans and other credit exposures.
According to the credit policy approved, 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.
Credit applications are originated by the Credit Department. Reports produced by the departments
credit analysts are based on a structured analysis focusing on the customers business and financial
performance. The Risk Management Department then independently reviews the credit application
and the report and a second opinion is given accompanied by a check that credit policy requirements
have been met. The Credit Committee reviews the credit application on the basis of submissions by
the Credit Department and the Risk Management Department.
40

Individual transactions are also reviewed by the Banks Legal Division depending on the specific risks
and pending final approval of the Credit Committee.
The Bank operates in a very specific environment and bears minimal credit risk given the guarantees
it receives from the Mongolian Government and over-collateralization of its loan portfolio.
The Banks maximum exposure to credit risk is set out below. The impact of possible netting of assets
and liabilities to reduce potential credit exposure is not significant.
Analysis of credit risk by sector of loans and advances outstanding at 30 June 2014 is as follows:
Loans and advances to
be repaid by the State
budget
Loans and advances

to be repaid by the
Corporates
Total
422,210,328
503,047
327,192,349
34,259,296
142,486,303
2,747,083
173,356,556
324,386,056
402,671,761
100,023,769
-
595,566,884
324,386,056
403,174,808
327,192,349
34,259,296
100,023,769
142,486,303
2,747,083
929,398,406
1,000,438,142
1,929,836,548
372,908,016
7,555,389
60,714,388
115,430,588
3,855,520
45,675,400
-
372,908,016
53,230,789
60,714,388
115,430,588
3,855,520
45,284,324
95,194,332
45,284,324
95,194,332
700,942,557
45,675,400
746,617,957
Individually determined to be Impaired:

- not past due:
- Manufacturing
- 181 to 360 days overdue:
- Transportation
118,094,403
118,094,403
5,558,348
5,558,348
123,652,751
123,652,751
Less: Provision for loan

impairment
(1,767,773)
(1,767,773)
1,630,340,963
1,167,998,520
2,798,339,483

- Road
- Manufacturing
- Mining
- Railway
- Power plant
- Construction
- Mortgage
- Utility
- Finance
Total neither past due nor

impaired

- Less than 30 days overdue:
- Road
- Manufacturing
- Power plant
- Mortgage
- Utility
- 31 to 90 days overdue:
- Railway
- Power plant
Total net amount of loans and

advances
41

Credit risk (continued)
Analysis of credit risk by sector of loans and advances outstanding at 31 December 2013 is as
follows:
Loans and advances to
be repaid by the State
budget
Loans and
advances to be
repaid by the
Corporates
Total
690,416,375
5,248,485
301,953,037
127,700,433
101,318,012
94,614,203
308,836,172
357,222,876
67,364,832
-
690,416,375
314,084,657
357,222,876
301,953,037
127,700,433
67,364,832
101,318,012
94,614,203
1,321,250,545
733,423,880
2,054,674,425

- Less than 30 days overdue:
- Transportation
4,778,921
4,778,921
4,778,921
4,778,921
Individually determined to be Impaired

loans but not past due:
- Manufacturing
126,361,748
126,361,748
126,361,748
126,361,748
(6,224,792)
(6,224,792)
1,321,250,545
858,339,757
2,179,590,302

- Road
- Manufacturing
- Mining
- Railway
- Power plant
- Construction
- Mortgage
- Utility
Total net amount of loans and

advances
The Bank monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk
at the reporting date is shown on page 26.
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. In
other words, when issuing guarantees or letters of credit, the Bank follows the same originating,
analyzing, collateral evaluation, reviewing, monitoring, and approval processes as loans.
42

Credit-related Commitments Risks (continued)
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 Banks
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 2014 and 31 December 2013 are as
follows:
In thousands of
Mongolian Tugriks
Suitable
ratio
Total amount of the

loan and assets
equivalents to loan
Total amount of the
loan guarantee and
securities
As at 30 June 2014
Restriction limit
Actual amount
As at 31 December 2013
Restriction limit
Actual amount
< EQ 50
times
8,674,500,650
3,497,571,775
7,193,971,780
2,831,928,329
< EQ 50
times
8,674,500,650
385,849,067
7,193,971,780
264,294,013
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)
b)
c)
d)
e)
f)
Fixed asset: Land, Building, factory etc;

Movable properties: Vehicles and equipment etc;
Special property rights: Mineral licenses, Project execution right etc.,
Time deposits, Securities/Bond and Stocks
Guarantees issued from Government, reputable insurance companies, Development banks and
investment bank and commercial banks with overall rating of Stable or above.
Assets and revenues generated as a result of performance by borrower and project contractors.
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 2014.
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.
The Bank monitors the credit quality of loans primarily based on classification of loans according to
the Regulation on Asset Classification which is used for impairment provision calculation. 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 three groups: neither past due nor impaired, past due but not
impaired and impaired loans.
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.
43

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 statutory 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 an aggregated amount using the 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:
Net Liquid Assets
30 June 2014
31 December 2013
14
The table below shows the financial assets and liabilities at 30 June 2014 and 31 December 2013 by
their remaining contractual maturity. The amounts of liabilities and assets disclosed in the maturity
table are the contractual undiscounted cash flows, gross loan commitments and financial guarantees.
Such undiscounted cash flows differ from the amount included in the statement of financial position
because the amount in the statement of financial position is based on discounted cash flows.
The Bank places short term deposits in commercial banks and deposits are flexible to call back which
has comparatively less liquidity risk.
With regards to the market risk management, stronger emphasis has been put on managing the
liquidity risk and interest rate volatility. Liquidity stress testing has been conducted on a regular basis
and presented to Asset and Liability Committee (ALCO). Movements of the interest rate spread have
been discussed and analysed during ALCO meetings. These analyses are performed across all
business units and all loans and deposit products.
44

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:
Financial assets
Bank deposits
Loans and advances
Less than
three months
Three to six
months
As at 30 June 2014
Six months to one
One year to five years
year
Over five
Total
954,335,630
604,635,553
52,059,916
74,171,121
151,878,992
29,023,138
479,719,510
2,785,721,834
2,395,814,933
954,335,630
707,829,812
5,865,195,185
Total financial assets
1,611,031,099
226,050,113
508,742,648
2,785,721,834
2,395,814,933
7,527,360,627
Financial liabilities
Customer accounts
Other liabilities
Guarantees given to the Entities
Loan commitments not yet paid
Due to other banks
Promissory notes
Bonds
Borrowings
(23,047,947)
(419,694)
(153,153,574)
(606,676,696)
(55,090,695)
(30,445,882)
-
(443,966,578)
(4,108,050)
(62,501,881)
(560,086,070)
(177,419,299)
(34,553,932)
(60,232,264)
(94,114,237)
(337,020,843)
(1,213,635,128)
(1,351,033,723)
(576,972,450)
(1,907,985,388)
(23,047,947)
(419,694)
(247,267,811)
(1,947,750,187)
(55,090,695)
(177,419,299)
(1,859,715,442)
(3,381,753,256)
Total financial liabilities
(868,834,488)
(510,576,509)
(832,291,565)
(2,995,803,931)
(2,484,957,838)
(7,692,464,331)
Net financial assets/(liabilities)
742,196,611
(284,526,396)
(323,548,917)
(210,082,097)
(89,142,905)
(165,103,704)
Total cumulative amount
742,196,611
457,670,215
134,121,298
(75,960,799)
(165,103,704)
(165,103,704)
45

Liquidity risk (Continued)
Tugriks
Less than
three months
Three to six
months
Six months to one
One year to
year
five years
Over five
years
Financial assets
Bank deposits
Loans and advances
383,873,413
304,560,321
445,442,560
104,529,808
37,390,772
95,445,385
792,963,542
482,833,332
Customer accounts
Other liabilities
Guarantees given to the Entities
Loan commitments not yet paid
Due to other banks
Bonds
Borrowings
(16,278,742)
(373,841)
(138,747,823)
(249,922,973)
(111,171,976)
(27,582,118)
-
Total
1,829,334,351
971,009,513
383,873,413
750,002,881
3,037,709,829
95,445,385
1,829,334,351
971,009,513
4,171,586,123
(451,254,924)
(40,733,062)
(522,761,941)
(27,582,118)
(47,610,072)
(1,097,288,587)
(1,169,104,575)
(1,378,693,198)
(16,278,742)
(373,841)
(138,747,823)
(1,223,939,838)
(111,171,976)
(1,152,452,823)
(2,636,140,907)
(544,077,473)
(491,987,986)
(597,954,131)
(2,266,393,162)
(1,378,693,198)
(5,279,105,950)
248,886,069
(9,154,654)
(502,508,746)
(437,058,811)
(407,683,685)
(1,107,519,827)
248,886,069
239,731,415
(262,777,331)
(699,836,142)
(1,107,519,827)
(1,107,519,827)
46

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.
Financial assets and financial liabilities presented as non-interest sensitive mostly relate to accrued
interest and interest receivables and payables on interest bearing assets and liabilities. For the purposes
of financial risk management, management monitors separately principal amounts of assets and liabilities
(i.e. amounts which generate interest at nominal contractual interest rates), and accrued interest and
interest receivables and payables, which do not generate interest based at nominal contractual interest
rates. A summary of the Bank's interest rate gap position on its financial assets and liabilities are as follows:
47

Market risks (Continued)
As at 30 June 2014
Non-interest
sensitive
Less than three

months
Three to six
months
Six months to
one year
One to five years
Total
Over five years
Financial assets
Bank deposits
Loans and advances
27,953,364
14,539,792
38,702,982
920,342,920
586,875,000
71,000,000
26,817,500
6,825,627
231,336,042
1,464,215,285
1,057,259,547
948,296,284
699,232,292
2,798,339,483
81,196,138
1,514,043,547
71,000,000
258,153,542
1,464,215,285
1,057,259,547
4,445,868,059
Bonds
Borrowings
(23,047,947)
(419,694)
(30,141)
(2,598,660)
(17,038,061)
(8,701,550)
(55,007,807)
-
(170,595,480)
-
(1,489,484,951)
(915,163,969)
(1,601,104,828)
(23,047,947)
(419,694)
(55,037,948)
(173,194,140)
(1,506,523,012)
(2,524,970,347)
(51,836,053)
(55,007,807)
(170,595,480)
(2,404,648,920)
(1,601,104,828)
(4,283,193,088)
29,360,085
1,459,035,740
71,000,000
87,558,062
(940,433,635)
(543,845,281)
162,674,971
29,360,085
1,488,395,825
1,559,395,825
1,646,953,887
706,520,252
162,674,971
162,674,971
Customer accounts
Other liabilities
Due to other banks
Promissory notes
48

Non-interest
sensitive
Less than
three months
Three to six
Six months to
One to five
months
one year
years
Over five years
Total
Financial assets
Bank deposits
Loans and advances
3,533,902
7,195,227
37,116,475
375,927,331
231,102,407
645,142,800
-
1,692,850
1,101,656,133
808,022,437
379,461,233
652,338,027
2,179,590,302
47,845,604
607,029,738
645,142,800
1,692,850
1,101,656,133
808,022,437
3,211,389,562
Customer accounts
Other liabilities
Due to other banks
Bonds
Borrowings
(16,278,742)
(373,841)
(336,307)
(15,323,399)
-
(110,705,000)
-
(956,783,630)
(827,050,000)
(1,160,139,199)
(16,278,742)
(373,841)
(111,041,307)
(972,107,029)
(1,987,189,199)
(32,312,289)
(110,705,000)
(1,783,833,630)
(1,160,139,199)
(3,086,990,118)
15,533,315
496,324,738
645,142,800
1,692,850
(682,177,497)
(352,116,762)
124,399,444
15,533,315
511,858,053
1,157,000,853
1,158,693,703
476,516,206
124,399,444
124,399,444
49

Notes to the Interim Financial Statements 30 June 2014
(Expressed in thousands of Mongolian Tugriks unless otherwise stated)
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. If interest rates had been 100 bps higher or lower and all other variables were
held constant, the Banks net income would have resulted as follows:
100 bp parallel
100 bp parallel
Increase
1,333,149
1,088,661
Decrease
(1,333,149)
(1,088,661)
Sensitivity of projected net interest income

At 30 June 2014
At 31 December 2013
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 Management Department (ALMD) is
responsible for monitoring the Banks exchange risk and minimising its exposure. ALMD does this by
setting limits on the level of exposure by currency, which are monitored on a frequent basis. The Bank
manages its currency risk primarily through assessing the impact of foreign currency exchange rate
movements on the Banks liquidity and profitability.
The table below summarizes the Banks exposure to foreign currency exchange rate risk at 30 June
2014:
As at 30 June 2014
In thousands of
Mongolian Tugriks
MNT
USD
EUR
Total
JPY
Assets
Cash and cash
equivalents
Bank deposits
Loans and advances
947,021,006
1,256,240
18,575
463
948,296,284
692,316,676
1,184,436,664
1,611,977,477
1,925,342
6,915,616
-
699,232,292
2,798,339,483
2,823,774,346
1,613,233,717
1,943,917
6,916,079
4,445,868,059
Customer accounts
Other liabilities
Due to other banks
Promissory notes
Bonds
Borrowings
2,237,219
246,705
173,194,140
2,028,245,507
20,810,728
172,854
55,037,948
1,055,201,325
494,479,537
2,245,303
135
451,321,687
-
23,047,947
419,694
55,037,948
173,194,140
1,506,523,012
2,524,970,347
2,203,923,571
1,625,702,392
2,245,303
451,321,822
4,283,193,088
619,850,775
(12,468,675)
(301,386)
(444,405,743)
162,674,971
Liabilities
Net financial assets/

(liabilities)
50

Market risk (Continued)
The table below summarizes the Banks exposure to foreign currency exchange rate risk at 31
December 2013:
MNT
USD
Total
EUR

Assets
374,591,094
473,572,082
857,930,377
4,850,309
178,765,945
1,321,659,925
19,830
-
379,461,233
652,338,027
2,179,590,302
1,706,093,553
1,505,276,179
19,830
3,211,389,562
Customer accounts
Other liabilities
Due to other banks
Promissory notes
Bonds
Borrowings
10,818,483
373,841
28,033,056
1,540,765,736
5,460,259
83,008,251
972,107,029
446,423,463
16,278,742
373,841
111,041,307
972,107,029
1,987,189,199
1,579,991,116
1,506,999,002
3,086,990,118
126,102,437
(1,722,823)
19,830
124,399,444

Bank deposits
Loans and advances
Liabilities
Net financial assets/ (liabilities)
The following table presents sensitivities of profit or loss to reasonably possible changes in currency
exchange rates applied at the end of the reporting period to the functional currency of the Bank, with
all other variables held constant.
US Dollar strengthening by 10%
US Dollar weakening by 10%
Euro strengthening by 10%
Euro weakening by 10%
Yen strengthening by 10%
Yen weakening by 10%
Total effects
At 30 June 2014
At 31 December 2013
(1,246,867)
1,246,867
(30,139)
30,139
(44,440,574)
44,440,574
(172,282)
172,282
1,983
(1,983)
-
51

Capital Management
The Bank sets and monitors capital requirements for the Bank as a whole.
The Bank does not have external reporting requirements related to capital management. Though it is
not regulated by the Central Bank (the Bank of Mongolia), for internal monitoring purposes the Bank
manages its capital by using the methodology of the Bank of Mongolia for calculating capital
adequacy ratio, as disclosed below.
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-weights 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 Banks 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.
The ratios of the Banks capital adequacy as at 30 June 2014 and 31 December 2013, respectively,
were as following:
30 June 2014
31 December 2013
Tier I capital:
Share capital
Retained earnings
143,879,436
29,610,577
123,300,000
20,579,436
Total tier I capital
173,490,013
143,879,436
Total regulatory capital/capital base
173,490,013
143,879,436
10.89%
12.78%
Risk weighted capital ratio
The Bank weights all assets where the Government of Mongolia is the counterparty at 0%.
The Bank does not have any externally imposed capital requirements.
52

26. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY
The following table provides a reconciliation of financial assets with measurement categories at 30
June 2014.
Loans and
receivables
Available for
sale financial
assets
Total
948,296,284
948,296,284
Bank deposits:
- Short-term placements with other banks with
original maturities of more than three months
699,232,292
699,232,292
699,232,292
699,232,292
2,798,339,483
2,798,339,483
1,630,340,963
1,630,340,963
1,167,998,520
1,167,998,520
10,000,000
10,000,000
4,445,868,059
10,000,000
4,455,868,059

Financial assets:
Loans and advances to customers:

- Loans and advances to be repaid by the State
budget
- Loans and advances to be repaid by the
Corporates
Investment securities available for sale
For Investment securities available for sale please refer to Note 9.

The following table provides a reconciliation of financial assets with measurement categories at 31
December 2013.
Loans and receivables
Total
379,461,233
379,461,233
Bank deposits:
- Short-term placements with other banks with original
maturities of more than three months
652,338,027
652,338,027
652,338,027
652,338,027
Loans and advances to customers:

- Loans and advances to be repaid by the State budget
- Loans and advances to be repaid by the Corporates
2,179,590,302
1,321,250,545
858,339,757
2,179,590,302
1,321,250,545
858,339,757
3,211,389,562
3,211,389,562

Financial assets:
As of 30 June 2014 and 31 December 2013 all of the Banks financial liabilities were carried at
amortized cost.
53

27. 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, deposits, loans and
advances, other current assets, accounts and other payables and borrowings (including promissory
notes). As outlined below, the management considers that the carrying amounts of financial assets
and liabilities recognized in the financial statements approximate their fair value except for the Banks
bond.
a)
Recurring fair value measurements
Recurring fair value measurements are those that the accounting standards require or permit in the
statement of financial position at the end of each reporting period. The level in the fair value hierarchy
into which the recurring fair value measurements are categorised are as follows:
30 June 2014
Tugriks
ASSETS AT FAIR VALUE
FINANCIAL ASSETS
Investment securities available
for sale
TOTAL ASSETS RECURRING

FAIR VALUE
MEASUREMENTS
31 December 2013
Level 1
Level 2
Level 3
Total
Level
1
Level 2
Level 3
Total
10,000,000
10,000,000
10,000,000
10,000,000
Investment securities available for sale fully relate to the Banks investment in MIK (Note 9). The Bank
has purchased its shares in MIK at the same price at which other third-parties (commercial banks)
purchased MIK shares during this period. Therefore, management believes that this investment was
purchased at market price and that the fair value of this investment as of 30 June 2014 approximates
its carrying value, as investment purchase has occurred close to the period end and there were no
substantial changes in MIKs operations since the share purchase.
If the share price of MIK would increase/(decrease) by 10%, the fair value of investment would
increase/(decrease) by MNT 1 million.
b)
Assets and liabilities not measured at fair value but for which fair value is disclosed
The Bank carries its investments available for sale at fair values. All other assets and liabilities are
carried at amortised cost. The Bank determines fair values for those financial instruments carried at
amortised cost 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.
54

27. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
(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 at which the Bank has issued loans to both Ministries and Corporates has not significantly
changed since inception and thus, carrying value of lending approximates its fair value.
b)
Assets and liabilities not measured at fair value but for which fair value is disclosed
(continued)
The Banks long term debt instruments consist of Bond issued to international market and Samurai
bond issued in the Japanese bond market. Bond issued to international market was fully guaranteed
by Mongolia and issued in March 2012 at a fixed interest rate of 5.75% and 5 years maturity. This
bond is listed on the Singapore Stock Exchange and its fair value has been calculated using its
quoted price as at 30 June 2014.
In January 2014, Samurai bond was issued at a fixed rate of 1.52% p.a. with 10 years maturity and
guaranteed by Mongolian Government and Japan Bank of International Cooperation (JBIC). JBICs
guarantee covers the principal and part of the interest of this issue. Management believes that fair
value as of 30 June 2014 approximates carrying value, as there was no substantial change in interest
rates on the Japanese market since inception of the bond.
Fair values of other borrowings and issued promissory notes, which represent a separate market
segment (Note 4), approximate carrying values as of 30 June 2014, as there were no substantial
changes in interest rates since inception. Related loans financed from these borrowings and issued
promissory notes represent principal market segment and their fair values (included in loans and
advances) approximate carrying values as of 30 June 2014, as there were no substantial changes in
interest rates since inception.
Discount rates, used below, depend on currency, maturity of the instrument and credit risk of the
counterparty. The increase in range in for 6 months period ending 30 June 2014 is due to new one off
specific loan agreements and do reflect a general increase in the interest rates being charged by the
bank in this specific market. The discount rates were as follows:
55

The rates used in determining fair values.
30 June 2014
Bank deposits
Short-term placements with other banks
with original maturities of more than
three months
31 December 2013
MNT
USD
JPY
9.00% to 13.00% p.a.

5.10% p.a.
8.50% to 12.00% p.a.

5.00% to 5.40% p.a.
-
MNT
USD
MNT
USD
7.38% to 10.00% p.a.

6.75% to 7.38% p.a.
4.25% to 12.0% p.a.
7.35% to 8.10% p.a.
7.38% p.a.
6.75% to 7.38% p.a.
7.38% to 12.00% p.a.
7.35% to 8.10% p.a.
MNT
USD
MNT
USD
EUR
6.00% to 6.125% p.a.

5.125% to 6.125% p.a.
5.70% to 7.00% p.a.
8.00% to 9.50% p.a.
4.786% p.a.
6.00% to 6.125% p.a.

5.125% to 6.125% p.a.
5.70% to 7.00% p.a.
8.00% to 9.50% p.a.
-
Due to other banks
MNT
USD
5.00% p.a.
8.50% p.a.
6.00% p.a.
Promissory notes
MNT
4.00% p.a.
Bond
USD
JPY
7.21% p.a.
1.35% p.a.
7.64% p.a.
-
Borrowing
MNT
USD
EUR
4.79% p.a.
4.79% p.a.
2.29% p.a.
4.79% p.a.
4.79% p.a.
-
Loans and advances funded by:

- The Bank's equity and Bond:
- Loans given to the Ministries
- Loans given to the Corporates
- Borrowing:
- Loans given to the Ministries
- Loans given to the Corporates
56

Fair values of financial instruments as at 30 June 2014 carried at amortised cost are as follows:
30 June 2014
Carrying
Amount
Level 1
Level 2
Level 3
948,296,284
5,033
2,282,053
12,529,610
5,033
5,033
-
948,291,251
2,282,053
12,529,610
933,479,588
933,479,588
699,232,292
2,798,339,483
699,232,292
-
2,798,339,483
1,630,340,963
1,630,340,963
1,167,998,520
1,167,998,520
10,000,000
10,000,000
4,455,868,059
5,033
1,647,523,543
2,808,339,483
23,047,947
419,694
55,037,948
173,194,140
23,047,947
419,694
55,037,948
173,194,140
Bonds
Bond issued to international
market
Samurai bond issued in the
Japanese bond market
1,506,523,012
1,474,735,964
1,073,706,343
1,035,643,453
432,816,669
439,092,511
Borrowings
2,524,970,347
2,522,725,044
2,245,303
2,524,970,347
2,522,725,044
2,245,303
Total financial liabilities carried at

amortised cost
4,283,193,088
1,474,735,964
2,776,670,076
Assets:
Cash on hand
Cash at other banks
Short term deposits with local
banks
Bank deposits
Loans and advances
Loans and advances to be repaid
by the State budget
Loans and advances to be repaid
by the Corporates
Investment securities available
for sale
Total financial assets carried at

amortised cost
Liabilities:
Customer accounts
Other liabilities
Due to other banks
Promissory notes
57

Fair values of financial instruments as at 31 December 2013 carried at amortised cost are as follows:
31 December 2013
Assets:
Cash on hand
Cash at other banks
Short term deposits with local banks
Bank deposits
Loans and advances
Loans and avdances to be repaid by
the State budget
Loans and advances to be repaid by
the Corporates
Investment securities available for
sale
Total financial assets carried at

amortised cost
Liabilities:
Customer accounts
Other liabilities
Due to other banks
Promissory notes
Bonds
Borrowings
Total financial liabilities carried at

amortised cost
Carrying
Amount
Level 1
Level 2
Level 3
379,461,233
6,589
418,732
21,293,060
357,742,852
652,338,027
2,179,590,302
6,589
6,589
-
379,454,644
418,732
21,293,060
357,742,852
652,338,027
-
2,179,590,302
1,321,250,545
1,321,250,545
858,339,757
858,339,757
3,211,389,562
6,589
1,031,792,671
2,179,590,302
16,278,742
373,841
111,041,307
16,278,742
373,841
111,041,307
972,107,029
972,107,029
1,987,189,199
1,987,189,199
-
920,565,915
920,565,915
-
1,987,189,199
1,987,189,199
-
3,086,990,118
920,565,915
2,114,883,089
58

28. COMMITMENTS AND CONTINGENCIES
30 June 2014
31 December 2013
Guarantees issued
Import letters of credit
217,057,974
30,209,837
138,747,823
-
Total
247,267,811
138,747,823
The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag
Housing Projects LLC amounting to USD 84 million 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 issued a two year guarantee in the name of Erdenes Tavan Tolgoi LLC to a local
commercial bank in the amount of USD 35 million in January 2014.
In April 2014, the Bank made a basic loan agreement with Commerzbank Aktiengesellschaft in order
to promote trade relations between Mongolia and Federal Republic of Germany and/or other member
countries of the OECD. The Bank has issued a letter of credit in the name of Erel LLC to a
Commerzbank amounting to EUR 12 million
The Bank has MNT 1,947,750,187 thousand of loan commitments (31 December 2013: MNT
1,223,940 thousand).
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 2014, management has assessed that recognition of
a provision for uncertain tax position is not necessary.
59

29. 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 Bank.
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.
1 January 2014
to 30 June 2014
1 January 2013
to 30 June 2013
Interest income for loan paid by:

- The State budget
- The Corporates
85,191,268
53,980,953
31,210,315
29,438,551
13,610,920
15,827,631
Interest income from Commercial banks:

- Deposit
- Current account
66,853,691
66,448,570
405,121
11,142,104
10,855,134
286,970
Fee and commission income:

- With the Corporates
407,499
407,499
Gain from foreign currency trading:

- With the Government
- With the Corporates
504,245
284,143
220,102
770,852
770,852
152,956,703
41,351,507
Total income
60

30. POST BALANCE SHEET EVENTS
In accordance with the Government resolution No.117 dated on 4 April 2014, the Bank was granted a
permission to obtain up to USD 300 million funding through syndicated loan arranged by Credit
Suisse Bank. The initial tranche of USD185 million has been received on September 2014 with an
interest rate of 6 months LIBOR + 4.375% maturing in 5 years. Additional amount of USD 115 million
relating to two tranches (USD 85 million and USD 35 million) with 5 years and 3 years of maturities
and has been obtained on 18 December 2014.
In September 2014, in order to strength the diplomatic relations between Mongolia and Russia, the
Bank has signed on the Letter of Intent and Strategic Partnership Agreement with
Vnesheconombank (the Development Bank of Russia) and International Investment Bank
respectively.
International Investment Bank and International Bank for Economic Co-operation which are based in
Moscow, Russia have opened EUR 25 million and EUR 10 million credit lines for the Bank
respectively without Government guarantee. The Bank considers this as a good indication of trust in
its future potential.
In accordance with Memorandum of Understanding signed on 25 December 2013 between
Development Bank of Mongolia and China Development Bank, the both parties agreed to intensify
further cooperation. As such, China Development Bank agreed to finance projects with Chinese
participation. In 2014, China Development Bank has agreed to lend USD 162 million during its 12th
Credit Committee Meeting. On the 8 September 2014, first tranche of USD 112 million has been
disbursed to the Bank, maturing in 8 years at an interest rate of 6%.
On 18 September 2014, the Government granted permission to the Bank to participate and buy short
term government bonds with up to 1 year maturity.
In accordance with the Government resolution, the Bank had bought government bonds with MNT 25
billion nominal value and 11.5 percent coupon at MNT 30.1 billion, MNT10 billion nominal value and
7.8 percent coupon at MNT 9.9 billion from Ulaanbaatar City Bank. Also, the Bank had bought
government bond with MNT 30 billion nominal value and 11 percent coupon at MNT 35.9 billion from
Trade and Development Bank of Mongolia.
Policy rate. On 31 July 2014, Bank of Mongolia has increased policy rate from 10.5% to 12.0%. This
was further increased to 13% effective from 15 January 2015.
61

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Development Bank of Mongolia

International Financial Reporting Standards

CORPORATE INFORMATION AND OPERATING ENVIRONMENT............................................ 7

FINANCIAL REPORTING FRAMEWORK AND BASIS FOR PREPARATION AND

SIGNIFICANT ACCOUNTING POLICIES ...................................................................................... 8

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION

APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING

CASH AND CASH EQUIVALENTS ............................................................................................. 21

BANK DEPOSITS ........................................................................................................................ 22

LOANS AND ADVANCES ............................................................................................................ 23

INVESTMENTS SECURITIES AVAILABLE FOR SALE .............................................................. 27

OTHER ASSETS .......................................................................................................................... 27

PROPERTY AND EQUIPMENT................................................................................................... 28

INTANGIBLES ASSETS .............................................................................................................. 29

CUSTOMER ACCOUNTS AND OTHER LIABILITIES ................................................................ 30

DUE TO OTHER BANKS ............................................................................................................. 31

RELATED PARTY TRANSACTIONS .......................................................................................... 32

CONTRIBUTED CAPITAL ........................................................................................................... 36

INTEREST INCOME .................................................................................................................... 36

INTEREST EXPENSE .................................................................................................................. 37

FOREIGN EXCHANGE GAINS LESS LOSSES .......................................................................... 37

ADMINISTRATIVE AND OTHER EXPENSES ............................................................................ 37

INCOME TAXES .......................................................................................................................... 38

FINANCIAL RISK MANAGEMENT .............................................................................................. 39

PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY ............ 53

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES ....................................................... 54

COMMITMENTS AND CONTINGENCIES .................................................................................. 59

SEGMENT REPORTING ............................................................................................................. 60

POST BALANCE SHEET EVENTS ............................................................................................. 61

t's re spo n s ib i lityr fo r

i PricewaterhouseCoopers Audit LLC, Central

Tower Office Building

Devetopment Bank of Mongolia

ln thousands of Mongolian Tugriks

Total liabilities and equity

signed on behalf of the Executive management on 19 January 2015.

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

Development Bank of Mongolia

In thousands of Mongolian Tugriks

Net interest income

Recovery of provision for loan

Net interest income after provision

Fee and commission income

Profit for the period

Total comprehensive income for the

Profit before tax

Development Bank of Mongolia

Profit for the period

Total comprehensive income

In thousands of Mongolian Tugriks

Balance at 30 June 2013

Balance at 1 January 2014

Profit for the period

Total comprehensive income

Balance at 30 June 2014

Development Bank of Mongolia

Cash flows from operating activities before changes in

Net cash used in operating activities before tax and interest

Cash flows used in investing activities

Net cash used in investing activities

Cash flows from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year