Audit Report 2016H1 ENG Final

Development Bank of Mongolia
International Financial Reporting Standards

Interim Consolidated Financial Statements
Together with Independent Auditors Report
30 June 2016
Contents
INDEPENDENT AUDITORS REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Interim Consolidated Statement of Financial Position ................................................................................. 1
Interim Consolidated Statement of Profit or Loss and Other Comprehensive Income .............................. 2
Interim Consolidated Statement of Changes in Equity ................................................................................ 3
Interim Consolidated Statement of Cash Flows ....................................................................................... 4
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CORPORATE INFORMATION AND OPERATING ENVIRONMENT...........................................6
1.
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 ........................................................................................................................... 17
5.
APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS .............................................................................................................................. 19
6.
CASH AND CASH EQUIVALENTS ............................................................................................ 23
7.
BANK DEPOSITS ....................................................................................................................... 24
8.
SHORT TERM INVESTMENTS .................................................................................................. 24
9.
LOANS AND ADVANCES ........................................................................................................... 24
10. INVESTMENT SECURITIES AVAILABLE FOR SALE ............................................................... 30
11. OTHER ASSETS.... 31
12. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS ...........................................................33
13. CUSTOMER ACCOUNTS........................................................................................................... 34
14. OTHER LIABILITIES ................................................................................................................... 34
15. DUE TO GOVERNMENT ............................................................................................................ 34
16. DUE TO OTHER BANKS ............................................................................................................ 35
17. PROMISSORY NOTES............................................................................................................... 35
18. BONDS ........................................................................................................................................ 36
19. BORROWINGS ........................................................................................................................... 37
20. RELATED PARTY TRANSACTIONS ......................................................................................... 38
21. CONTRIBUTED CAPITAL .......................................................................................................... 41
22. INTEREST INCOME ................................................................................................................... 42
23. INTEREST EXPENSE ................................................................................................................. 42
24. FOREIGN EXCHANGE NET GAINS/(LOSSES) ........................................................................ 42
25. GAINS LESS LOSSES FROM FINANCIAL DERIVATIVES .......................................................43
26. ADMINISTRATIVE AND OTHER EXPENSES ........................................................................... 43
27. INCOME TAXES ......................................................................................................................... 44
28. FINANCIAL RISK MANAGEMENT ............................................................................................. 46
29. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES .........................................61
30. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY ...........63
31. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES ......................................................64
32. COMMITMENTS AND CONTINGENCIES ................................................................................. 69
33. SEGMENT REPORTING ............................................................................................................ 70
34. POST BALANCE SHEET EVENTS ............................................................................................ 71

Interim Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the six months ended 30 June 2016
In thousands of Mongolian Tugriks
Interest income
Interest expense
Note
22
23
Net interest income
Provision charge for loan impairment
Net interest income after provision for loan impairment
Fee and commission income

Dividend income
Gains less (losses) from trading in foreign currencies, net
Foreign exchange translation gains less (losses), net
Losses from financial derivatives
Losses from derecognition of liability
Administrative and other operating expenses
10
24
25
17
26
(Loss)/Profit before tax

Income tax benefit/(expenses)
27
(Loss)/Profit for the period
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
208,897,092
(156,288,471)
202,155,840
(135,802,596)
52,608,621
66,353,244
(34,172,412)
(32,561,519)
18,436,209
33,791,725
124,695
743,368
22,576
(67,320,597)
(303,240)
(4,769,014)
377,710
(107,761)
(13,775,550)
(5,425,400)
(1,048,984)
(4,387,351)
(53,066,003)
9,424,389
14,012,577
(817,696)
(39,053,426)
8,606,693
8,667,998
1,950,000
8,667,998
1,950,000
Total comprehensive (loss)/income for the period
(30,385,428)
10,556,693
(Loss)/Profit is attribute to:

- Owners of the Bank
(39,053,426)
8,606,693
Items that may be reclassified subsequently to profit or loss:

Gains on available-for-sale investment securities after
provision for tax
Other comprehensive income for the period
- Non-controlling interest
10
(Loss)/Profit for the period
(39,053,426)
8,606,693
Total comprehensive income /(loss) is attributable to:

- Owner of the Bank
- Non-controlling interest
(30,385,428)
10,556,693
Total comprehensive (loss)/income for the period
(30,385,428)
10,556,693
The notes set out on pages 6 to 71 form an integral part of these consolidated financial statements.
2

Interim Consolidated Statement of Changes in Equity
Balance at 1 January 2015
Note
Contributed
capital
Revaluation
reserve for
investment
securities
available-for-sale
Retained
earnings
Attributable to
the owner of the
Bank
Non-controlling
interest
Total equity
21
143,879,436
1,200,000
101,456,852
246,536,288
246,536,288
1,950,000
8,606,693
-
8,606,693
1,950,000
8,606,693
1,950,000
10,556,693
-
10,556,693
-
Profit for the period

Revaluation gain
Total comprehensive income

Contributed capital for the period
21
101,456,852
1,950,000
-
Balance at 30 June 2015
21
245,336,288
3,150,000
8,606,693
257,092,981
257,092,981
Balance at 1 January 2016
21
245,336,288
8,778,838
33,286,761
287,401,887
287,401,887
Loss for the period

Revaluation gain
8,667,998
(39,053,426)
-
(39,053,426)
8,667,998
(39,053,426)
8,667,998
Total comprehensive loss
8,667,998
(39,053,426)
(30,385,428)
(30,385,428)
245,336,288
17,446,836
(5,766,665)
Balance at 30 June 2016
21
8,606,693
(101,456,852)
257,016,459
257,016,459
3

Interim Consolidated Statement of Cash Flows
Note
Cash flows from operating activities
Adjustments to:
Depreciation, amortization
Provision charge for loan impairment
Unrealized foreign exchange translation losses
Unrealized losses from financial derivatives
Interest income
Interest expense
1 January 2016
to 30 June 2016
(53,066,003)
26
9
24
25
22
23
Cash flows (used in)/from operating activities before

changes in operating assets and liabilities
303,242
34,172,412
67,477,068
(208,897,092)
156,288,471
(3,721,902)
1 January 2015
to 30 June 2015
9,424,389
176,705
32,561,519
19,108,602
5,425,400
(202,155,840)
135,802,596
343,371
Net decrease/(increase) in bank deposits

Net decrease/(increase) in short term investment
Net increase in loans and advances
Net decrease/(increase) in other assets
Net (decrease) in customer accounts
Net increase/(decrease) in due to other banks
Net increase/(decrease) in other liabilities
(19,889,387)
(390,889,681)
(10,360,727)
(26,614,101)
(89,729,579)
(8,692,761)
291,452,837
7,968,000
(433,962,924)
1,480,234
(61,177,590)
161,612,008
295,744
Net cash used in operating activities before tax and

interest
(549,898,138)
(31,988,320)
89,809,806
(80,100,662)
(7,342,405)
180,516,051
(131,911,684)
Income taxes paid

Interest received
Interest paid
Net cash (used in)/from operating activities
(540,188,994)
9,273,642
Cash flows used in investing activities

Purchase of property and equipment
Purchase of intangible assets
Dividend income (net of withholding tax)
Net cash used in investing activities
12
12
(1,398,791)
669,031
(32,579)
(6,600)
-
(729,760)
(39,179)
4

Interim Consolidated Statement of Cash Flows
Cash flows from financing activities
Proceeds from due to government
Proceeds from due to other banks
Repayment of due to other banks
Repayment of promissory notes
Proceeds from bonds
Proceeds from borrowings
Repayment of borrowings
Net cash from financing activities
Effect of exchange rate changes on cash and cash

equivalents
Note
15
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
30,000,000
225,217,480
(13,652,238)
86,465,000
288,605,038
(5,099,453)
(34,576,843)
84,835,389
-
611,535,827
50,258,546
(55,230)
(23,012)
Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the period
70,561,843
700,079,051
59,469,997
716,457,838
Cash and cash equivalents at the end of the period
770,640,894
775,927,835
5

Notes to the Interim Consolidated Financial Statements 30 June 2016
(Expressed in thousands of Mongolian Tugriks unless otherwise stated)
1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT
The Development Bank of Mongolia ('the Bank thereafter) is a Government-owned, government policyoriented 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. 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.
In accordance with Article 21.1 of the Law on Development Bank of Mongolia, Parliament has a right to
decide and approve the source of equity financing that the Government provides to the Bank and sets
the upper limits for the government loan guarantees. The Bank is not subject to the rules and
regulations issued by the Bank of Mongolia that are for commercial banks. The Bank's policy is directed
to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business.
Following the Parliament Resolution No. 41 dated 18 February 2015, the Government of Mongolia issued
resolution No. 95 on 11 March 2015, which stipulates the actions to be taken by the Government and
the Development Bank of Mongolia until 2018 including the Banks gradual transition from being policyoriented bank with majority of loan portfolio to be repaid from the State budget and high reliance on the
Government in terms of direct financing of the Bank and the issuance of Government guarantees in the
process of obtaining funding from financial institutions and on international markets, to operating as a
self-sustainable financial institution. As a result of this decision, the Banks mission and activities are
expected to substantially change over the following years as follows:
-
The structure of the Banks loan portfolio is expected to gradually shift from loans to be repaid
from the State budget and other loans guaranteed by the Government to corporate loans
issued without Government guarantees.
Existing loans to be repaid from the State budget and other loans guaranteed by the
Government (in case of default of corporate customers) will be fully repaid from the State
budget by 2018, while issuance of such new loans will be gradually reduced.
Further policy funding of socially beneficial projects from 2018 onwards will be primarily
financed directly by the Government i.e. directly from the State budget rather than through the
Bank.
As a part of this transition, by 2018, the Bank will turn into a largely self-sustainable financial
institution which will raise funding from international markets and international financial
institutions without use of Government guarantees as collateral. As part of this transition, the
Banks reliance on the Government will also be gradually reduced through the repayment of the
borrowings from the Government (Note 19). The Government is committed to support the Bank
in the transition process, including providing financial support, when needed.
For the implications of this Governments decision on the recoverability of the Banks loans and
advances to the customers refer to Note 4.
In 2015, by the resolution No.407 the Government of Mongolia gave the permission to the Bank to
establish its two subsidiary companies named National Export Insurance LLC and Development
Leasing Finance LLC. Pursuant to this resolution the Board of Directors of the Bank (BOD) has issued
the decision No.93 to establish National Export Insurance LLC dated 15 December 2015.
Under the decision of the BOD (No.93, 2015), the Banks CEO has issued the order No.A-160 dated 25
December 2015 to contribute MNT 5 billion of capital in National Export Insurance LLC and the Bank
has made the cash contribution in amount of MNT 4.96 billion in January 2016.

1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT (CONTINUED)
The number of employees of the Bank is 118 on average during the period ended 30 June 2016 (year
ended 31 December 2015: average of 117 employees, period ended 30 June 2015: average of 119
employees).
th
th
On 25 April 2016, the Bank's principal place of business has changed as TDB Building 11 and 12
floor, Peace Avenue 19, Ulaanbaatar 14210, Mongolia.
These consolidated financial statements are presented in Mongolian Tugriks (MNT), unless otherwise
stated.
These consolidated financial statements were approved for issue by the Executive management of the
Bank on 27 September 2016.
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 slowed down in
2012 and 2013 due to declining global commodity prices, concerns over slowing growth in China and
changes to the Mongolian Foreign Investment Law in 2012 which slowed inbound foreign investment
into the country. The slowdown of the economy continued further with the economy being adversely
affected by significant decline in global commodity prices that took place in the last quarter of 2014 and
2015, and further slowdown of the Chinese economy during 2014, 2015 and in 2016.
The Bank obtained a standalone rating from Standard and Poors and Moodys in 2015. On 22 August
2016, Standard and Poors downgraded Banks rating to B- with Stable outlook which mirrors that on
the sovereign rating on Mongolia. S&Ps rating reflects their view of an almost certain likelihood that the
Government of Mongolia would provide timely and sufficient support to the Bank.
Moodys assigned to B2 rating with Negative outlook which is also on par with their assigned rating
to the Sovereign. Moodys assumption is based on the fact that the Government of Mongolia would
provide support to the Bank because of the Banks policy mandate and the government ownership.
According to the Bank of Mongolia, the monetary policy for 2016 intends to provide external economic
balance, keep inflation at a low and stable level, strengthen economic stabilization and create an
environment for balanced and sustainable medium to long-term economic growth.
The tax and customs legislation in Mongolia is subject to varying interpretations and frequent changes
(refer to Note 32). The future economic performance of Mongolia is tied to the continuing demand from
China and continuing volatile 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.
Current uncertainty in the world economy, volatility of financial markets, decline in global prices of
commodities, slowdown of growth of Chinese economy, slowdown of Mongolian economy, depreciation
of Mongolian Tugrik (MNT) against USD and EUR, and other potential risks could have a significant
negative effect on the Mongolian financial and corporate sectors.
In accordance with International Financial Reporting Standards (IFRS), the Banks management has
determined loan impairment provisions using the incurred loss model. Recognition of impairment
losses that arose from past events is required and the recognition of impairment losses that could arise
from future events is prohibited. These future events include for example future changes in the
economic environment. Impairment losses that could arise from future events cannot be recognized, no
matter how likely those future events are. Thus final impairment losses from financial assets could differ
significantly from the current level of provisions.
On 18 February 2015, the Parliament of Mongolia passed Debt Management Law. Pursuant to the Debt
Management Law, the Bank is the only institution in the country to obtain 100 per cent Government
guarantee on its future issuance while all other institutions are limited by up to 85 per cent of debt
obligation.
7

1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT (CONTINUED)
However, management is unable to predict all developments, which could have an impact on the
Mongolian economy, and consequently what effect, if any, they could have on the future financial
position of the Bank. Management believes it is taking all the necessary measures to support the
sustainability and development of the Banks business.
2. FINANCIAL REPORTING
PRESENTATION
FRAMEWORK
AND
BASIS
FOR
PREPARATION
AND
Basis of Preparation and Presentation

These consolidated financial statements have been prepared in accordance with IFRS, under the
historical cost convention, as modified by the initial recognition of financial instruments based on fair
value and valuation (measurement) of certain financial instruments (derivatives, investment securities
available for sale) at fair value. The Bank presents its statement of financial position broadly in order of
liquidity. An analysis regarding recovery or settlement within 12 months after the statement of financial
position date (current) and more than 12 months after the statement of financial position date (non
current) is presented in Note 28. The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been consistently applied to all
the periods presented, unless otherwise stated. The preparation of consolidated 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.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Bank and entities
controlled by the Bank and its subsidiary. Control is achieved when the Bank:
- has power over the investee;
- is exposed, or has right, to variable returns from its involvements with the investee; and
- has the ability to use its power to affect its returns.
The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control listed above.
Details of the subsidiaries, country of incorporation and their principal activities are shown as follows
Name of Company
Country of
incorporation
Principal activities
Percentage of equity
held as at 30 June 2016
National Export Insurance LLC
Mongolia
Financial services
100%
Functional Currency
These consolidated 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 Consolidated financial statements after issue.
The Banks management has the power to amend the consolidated 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.
8

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value (continued). 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. The price within the bid-ask spread that is most representative of fair value in
the circumstances was used to measure fair value, which management considers is the last trading
price on the reporting date. The quoted market price used to value financial assets is the current bid
price; the quoted market price for financial liabilities is the current asking 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.
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 consolidated 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 repricing 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 are recorded at the settlement
date, i.e. when the entity becomes a party to the contractual provisions of the instrument.
9

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 3 months. Funds
restricted for a period of more than 3 months 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
initial maturity of more than 3 months 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.
Renegotiated loans. Where possible, the Bank seeks to restructure loans rather than to take
possession of collateral. This may involve extending the payment arrangements and the agreement of
new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past
due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that
future payments are likely to occur. The loans continue to be subject to an individual or collective
impairment assessment, calculated using the loans original effective interest rate.
Short-term investment. Short-term investment represents government bonds issued by the Ministry of
Finance of Mongolia which are recorded when the Bank advances money to purchase or originate an
unquoted non-derivative receivable on fixed or determinable dates and has no intention of trading the
receivable. Government bonds issued by the ministry of Finance are carried at amortized cost.
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit
or loss for the period 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 primary factors that the Bank considers in determining whether a financial asset is
impaired its overdue status and realisability of related collateral, if any.
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.
10

Impairment of financial assets carried at amortised cost (continued). 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
IFRS. 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 period.
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 period.
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.
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 period 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 consolidated 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 period. Impairment losses are recognised in profit or loss
for the period 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 period. 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 period.
Accounting treatment of costs incurred with regard to obtaining of financing (funding
arrangements). The Bank incurs costs necessary for obtaining of borrowings and other funding
arrangements such as fees for professional services of legal firms and other advisors. In accordance
with IAS 39 and IAS 18 requirements, such fees for professional services represent transaction costs
and are integral part of the effective interest rate of the related financial liabilities. Therefore, these
costs are deferred and recognised as an adjustment to the effective interest rate (i.e. deferred fees are
recognised as part of the related financial liability carried at amortized cost). If transaction costs relate to
funding not received during the reporting period, such costs are recognised (deferred) in other assets to
the extent that the Bank considers probable that it will enter into related arrangement and receive
financing. Refer to Note 11 for further details.
11

Offsetting financial instruments. Financial assets and liabilities are offset and the net amount
reported in the consolidated 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 simultensely.
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:
- Buildings and facilities
40 years
- IT Equipment
3 years
- Furniture and fixture
10 years
- Vehicles
10 years
Derecognition of property and equipment. An item of property and equipment is derecognized upon
disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Gain or loss arising on the disposal or retirement of an asset is determined as the difference between
the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Intangible Assets. Intangible assets that are acquired by the Bank with finite useful lives are initially
measured at cost. At the end of each reporting period items of intangible assets acquired are measured
at cost less accumulated amortization and accumulated impairment losses. Cost includes purchase
price, including import duties and non-refundable purchase taxes, after deducting trade discounts and
rebates and any directly attributable cost of preparing the intangible asset for its intended use.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in
the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.
Amortization for intangible asset with finite useful life is calculated over the cost of the asset, or other
amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a
straight-line basis over the estimated useful lives of intangible assets from the date that they are
available for use, since this most closely reflects the expected pattern of consumption of the future
economic benefits embodied in the asset. The estimated useful lives are as follows:
-
Software 10 years
Licence 1 year
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.
Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate
customers and are carried at amortised cost.
12

Sale and repurchase agreements. Sale and repurchase agreements (repo agreements), which
effectively provide a lenders return to the counterparty, are treated as secured financing transactions.
Securities sold under such sale and repurchase agreements are not derecognised. The securities are
not reclassified in the statement of financial position unless the transferee has the right by contract or
custom to sell or repledge the securities, in which case they are reclassified as repurchase receivables.
The corresponding liability is presented within amounts due to other banks or other borrowed funds.
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 or settles its borrowings (including promissory notes), 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 or losses arising from retirement of debt (derecognition of liability).
Contributed capital. As at 30 June 2016, the Government of Mongolia had paid in capital
contributions to the Bank, but no share certificate had been issued. Contributed capital is increased
either by cash contributions or capitalization of retained earnings.
Derivative financial instrument. Derivative financial instruments primarily include cross currency swap
and are carried at fair value. Derivative instruments are carried as assets when fair value is positive and
as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included
in profit or loss for the period (gains less losses on derivatives). The Bank does not apply hedge
accounting.
Income tax. Income tax has been provided for in the consolidated 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 period, 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 consolidated 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.
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 period. 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.
13

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 in case if 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 period 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 are 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.
14

rd
Long-term benefits. The Bank has provided funding to 3 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 consolidated statement of profit or loss and other
comprehensive income over the life-time of the loan scheme.
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. The functional currency of the Bank is the currency of the primary
economic environment in which the entity operates. Thus, the Banks functional currency and
presentation currency is the national currency of Mongolia, Mongolian Tugrik (MNT).
Monetary assets and liabilities are translated into the Banks functional currency at the official exchange
rate of the Bank of Mongolia (BOM) at the respective end of the reporting period. Foreign exchange
gains and losses resulting from the settlement of the transactions and from the translation of monetary
assets and liabilities into the Banks functional currency at period-end official exchange rates of the
BOM are recognised in profit or loss. Translation at period-end rates does not apply to non-monetary
items that are measured at historical cost.
At 30 June 2016 the principal rate of exchange used for translating USD, JPY, EUR and CNY denominated
balances were USD 1 equal to MNT 1,962.53, JPY 1 equal to MNT 19.23, EUR 1 equal to MNT 2,172.72
and CNY 1 equal to MNT 295.12 (31 December 2015: USD 1 equal to MNT 1,995.98, JPY 1 equal to MNT
16.58, EUR 1 equal to MNT 2,182.70 and CNY 1 equal to MNT 307.54).
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 consolidated statement of profit or
loss and other 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.
15

Principal and agent arrangements. The Bank obtains funding designated to advance a specific loan facility
to a specific borrower. For such arrangements, the Bank considers whether it acts as a principal or an agent
of the party providing the funding, by applying the pass-through criteria in IAS 39 to the loans which are as
follows: a) the Bank has no obligation to pay amounts to the eventual recipients unless it collects equivalent
amounts from the original asset; b) the Bank is prohibited by the terms of the transfer contract from selling or
pledging the original asset other than as security to the eventual recipients for the obligation to pay them
cash flows; and c) the Bank has an obligation to remit any cash flows it collects on behalf of the eventual
recipients without material delay. If the pass-through criteria are not met, the Bank acts as a principal, it
recognizes funds disbursed and funds received as assets and liabilities in the consolidated statement of
financial position, and related interest income and interest expenses in the consolidated statement of profit
or loss and other comprehensive income.
If the pass-through criteria are met, the Bank acts as an agent and recognizes the amount of fee received
from the related arrangement in the consolidated statement of profit or loss and other comprehensive
income. Funds received and funds disbursed do not meet definition of assets and liabilities, and are not
recognized in the consolidated statement of financial position.
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 consolidated statement of profit or loss and
other comprehensive income. Funds received and funds disbursed do not meet definition of assets and
liabilities, and are not recognized in the consolidated 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 person s family is related to the Bank if that person:
-
has control or joint control over the Bank or;

has significant influence over the Bank or;
is a member of the key management personnel of the Bank or of a parent of the Bank.
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.
Presentation of statement of financial position in order of liquidity. The Bank does not have a
clearly identifiable operating cycle and therefore does not present current and non-current assets and
liabilities separately in the consolidated statement of financial position. Instead, assets and liabilities are
presented in order of their liquidity. The amounts of financial assets and liabilities expected to be
recovered or settled before and after twelve months after the reporting period approximate the amounts
disclosed in analysis of the financial assets and liabilities presented for liquidity management purposes
in Note 28. In case of non-financial assets and liabilities, management believes that the Notes related to
these assets and liabilities, contain sufficient information for the users of these consolidated financial
statements with regard to period of their expected recovery or settlement.
16

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
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 period.
Determining the level of loan loss provisioning.
Loans to be repaid from the State budget. Since its establishment the purpose of the Bank has been
providing financing to development projects in 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 many such 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. The
level of Government guarantees and other collateral is disclosed in Note 9. Any changes in the
assessment of recoverability of guarantees would impact the profit or loss of the Bank.
Management has considered the implications of the Governments decision No. 95 dated 11 March
2015 on the Banks gradual transition from acting as a policy-oriented bank to operating as a selfsustainable financial institution (Note 1) on recoverability of loans to be repaid from the State budget, as
well as implications of restructuring of certain loans during 2014 and early 2015 by delaying principal
repayment to 2017, as well as implications of possible restructuring of loans during 2016 by delaying
principal repayment due to 2017 or 2018.
In managements view this decision demonstrates strong Governments commitment to fulfil its
obligations, including repayment of loans to be repaid from the State budget, over long-term period.
Though management is aware that further restructuring or short-term delays in repayment may take
place during 2015 and 2016, in the view of the abovementioned Governments decision, management
expects that loans to be repaid from the State budget, including restructured loans, will be fully settled
during 2017 and 2018, and that short-term delays in repayment and restructuring are unlikely to
materially affect recoverability of related loans.
In making this judgment, management considered that, in case of restructuring, delay in repayment in
principal payment would be compensated by the additional interest payments at original interest rate, as
it was the case with loans restructured so far, and thus material impairment is unlikely.
Loans to be repaid by the Corporates guaranteed by the Government. The Bank has assessed
whether impairment indicators exist in case of corporate loans with indirect Government guarantee
(refer to Note 9 for definition of direct and indirect Government guarantees) and whether recognition of
impairment provision is needed. In case of customers with impairment indicators, management
assessed probability of the Bank requesting repayment from the Government and need for recognition
of impairment provision, due to delays in repayment by the customer or the Government, which are
unlikely to be compensated by additional interest. In making this assessment management has
considered all available information at the time of the approval of these consolidated financial
statements.
Management believes that all customers with impairment indicators, which are likely to lead to
substantial delays in loan repayment by the customer or requesting the Government to make loan
repayments (in case of customer default), have been identified and that sufficient provision has been
recognised in these consolidated financial statements.
17

(CONTINUED)
Loans to be repaid by the Corporates guaranteed by the Government (Continued). In assessing
the recoverability of corporate loans guaranteed by the Government, management has considered the
implications of the Governments decision No. 95 dated 11 March 2015, which indicates strong
Governments commitment to fulfil its obligations, including repayment of corporate loans with
Government guarantees, over long-term period.
Loans to be repaid by the Corporates without Government guarantees. The Bank regularly
reviews its loan portfolios to assess impairment. In determining whether an impairment loss in relation
to its corporate loans without Government guarantees should be recorded in profit or loss for the period,
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. 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. In addition,
management considered whether impairment provision is needed on collective basis for loans without
impairment indicators or loans with no specific impairment provision, given current operating
environment, financial conditions and liquidity of the industries in which customers operate, the level of
collateral and its ability to be foreclosed in the practice, and likelihood that projects financed by the
Bank would experience delays. Collective assessment included corporate loans with indirect
Government guarantees, which are expected to be repaid by the customer rather than the Government,
and corporate loans without such guarantees.
A 10% increase or decrease in actual loss experience compared to the loss estimates would result in
an increase or decrease in loan impairment losses of MNT 11,152 million (31 December 2015: 10%
increase or decrease MNT 7,735 million).
Initial recognition of borrowings and loans. During 2013 and 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 4.79%, which is lower than rates at which the Bank would be able to source the funds
from other lenders on the Mongolian market (e.g. the rate for MNT funds in Mongolia was 10.5% per
annum as of 30 June 2016, based on the Bank of Mongolia policy rate, which represents a reasonable
approximation of market interest rates on MNT funding). The financing from the Government of
Mongolia is designated for specific projects and for specific groups of borrowers. The Bank advances
loans to target customers at advantageous rates and it has little or no discretion in determining interest
rates on the loans, financed by the Government. Management has considered whether gains or losses
should arise on initial recognition of the funding and the loans, respectively. Managements judgment is
that these funds and the related lending represent principal market for the Bank and therefore is at
market rates and no initial recognition gains or losses should arise. In making this judgment
management has considered the following factors: the main business objective of the Bank, volumes of
the lending programs involved, availability of the low interest funding to other banks in Mongolia, as well
as the fact that the loans advanced to the borrowers are classified in level 3 of the fair value
measurement hierarchy (IFRS 13).
Similarly, management assessed that the borrowings from Credit Suisse, Commerzbank
Aktiengesellschaft, China Development Bank obtained in 2014, Vnesheconombank obtained in June
2015, International Investment Bank obtained in September 2015, VTB Bank and Cargill FSI Inc. in
2016 (Note 19) represent a principal market for the Bank. Accordingly, no gains or losses were
recognised on initial recognition of these borrowings and loans. Management reached the same
conclusion in case of bond issued through private placement in December 2015 and related loans
funded by this bond (Note 18). These borrowings are classified in level 3 of the fair value measurement
hierarchy (IFRS 13).
18

(CONTINUED)
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 consolidated
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 the period. As of 30 June 2016 the Bank recognized deferred tax asset of MNT 38,785,668
thousand (Note 27) which mostly relates to the temporary differences arising from net unrealized
foreign exchange translation losses on financial assets and liabilities denominated in foreign currency in
accordance with Mongolian tax legislation. Management has concluded that it will be able to recover its
deferred tax asset in the period of repayment of foreign currency denominated financial liabilities (such
as bonds and borrowings) and is likely to incur tax at the rate of 25%.
Further, the Bank recognized the net amount of tax credit of MNT 82,502,320 thousand as a result of
settlement of one of the issued loans (refer to Note 9 for further details). Management plans to use this
tax credit (allowance) in each reporting period only after utilization of deferred tax asset (i.e. only if the
Bank has corporate tax liability after treating net realized foreign exchange losses as deductible
expenses in its tax return).
As a result, management believes that deferred tax asset of MNT 38,785,668, recognized as at 30 June
2016 is fully recoverable regardless of recognition of abovementioned tax credit. In reaching this
conclusion, management considered relevant regulations, nature of its settlement and related tax credit,
precedents relevant to this case and other available information at the time of approval of these
consolidated financial statements.
5. APPLICATION
STANDARDS
OF
NEW
AND
REVISED
INTERNATIONAL
FINANCIAL
REPORTING
Certain new standards and interpretations became effective for the Bank from 1 January 2016:
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.
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. These amendments do not have any impact on the Bank as there has been
no interest acquired in a joint operation during the period.
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 benefits
embodied in the asset. These amendments do not have any impact to the Bank given that the Bank has
not used a revenue-based method to depreciate its noncurrent assets.
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. These
amendments do not have any impact to the Bank as the Bank does not have any bearer plants.
19

5. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL
STANDARDS (CONTINUED)
REPORTING
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for annual
periods beginning on or after 1 January 2016). These amendments address an inconsistency
between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of
assets between an investor and its associate or joint venture. The main consequence of the
amendments is that a full gain or loss is recognised when a transaction involves a business. A partial
gain or loss is recognised when a transaction involves assets that do not constitute a business, even if
these assets are held by a subsidiary. These amendments do not have any impact to the Bank as the
Bank does not have any associate or joint venture.
Annual Improvements to IFRSs 2014 (issued on 25 September 2014 and effective for annual
periods beginning on or after 1 January 2016). The amendments impact 4 standards. IFRS 5 was
amended to clarify that change in the manner of disposal (reclassification from "held for sale" to "held
for distribution" or vice versa) does not constitute a change to a plan of sale or distribution, and does not
have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management
determine whether the terms of an arrangement to service a financial asset which has been transferred
constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment
also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods,
unless required by IAS 34. These amendments do not have any impact on the Bank.
The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions regarding
discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to
use as a basis, should be based on the currency that the liabilities are denominated in, and not the
country where they arise. IAS 34 will require a cross reference from the interim financial statements to
the location of "information disclosed elsewhere in the interim financial report". The Bank is currently
assessing the impact of the new standard on its consolidated financial statements.
Disclosure Initiative Amendments to IAS 1 (issued in December 2014 and effective for annual
periods on or after 1 January 2016). The Standard was amended to clarify the concept of materiality
and explains that an entity need not provide a specific disclosure required by an IFRS if the information
resulting from that disclosure is not material, even if the IFRS contains a list of specific requirements or
describes them as minimum requirements.
The Standard also provides new guidance on subtotals in financial statements, in particular, such
subtotals (a) should be comprised of line items made up of amounts recognised and measured in
accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that
constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be
displayed with more prominence than the subtotals and totals required by IFRS standards. These
amendments do not have any impact on the Bank.
Investment Entities: Applying the Consolidation Exception Amendment to IFRS 10, IFRS 12 and
IAS 28 (issued in December 2014 and effective for annual periods on or after 1 January 2016).
The Standard was amended to clarify that an investment entity should measure at fair value through
profit or loss all of its subsidiaries that are themselves investment entities. In addition, the exemption
from preparing consolidated financial statements if the entitys ultimate or any intermediate parent
produces consolidated financial statements available for public use was amended to clarify that the
exemption applies regardless whether the subsidiaries are consolidated or are measured at fair value
through profit or loss in accordance with IFRS 10 in such ultimate or any intermediate parents financial
statements. These amendments do not have any impact on the Bank as the Bank does not apply the
consolidation exception.
20

REPORTING
New Accounting Pronouncements

Certain new standards and interpretations have been issued that are mandatory for the annual periods
beginning on or after 1 January 2017 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.
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 consolidated financial
statements. However, it is expected that the introduction of IFRS 9 will have an impact on most financial
institutions.
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
21

REPORTING
IFRS 16 Leases (issued in January 2016 and is effective for annual periods on or after 1 January
2019). The standard supersedes IAS 17 Leases, IFRIC 14 Determining whether an Arrangement
contains a Lease, SIC-15 Operating Leases Incentives and SIC-27 Evaluating the Substance of
Transactions Involving the Legal form of a Lease. The Management believes that this standard may
impact its consolidated financial statements in future since it plans to create a leasing subsidiary in the
nearest future.
Recognition of Deferred Tax Assets for Unrealised Losses Amendments to IAS 12 (issued in
January 2016 and effective for annual periods beginning on or after 1 January 2017) The
amendment has clarified the requirements on recognition of deferred tax assets for unrealised losses
on debt instruments. The entity will have to recognise deferred tax asset for unrealised losses that arise
as a result of discounting cash flows of debt instruments at market interest rates, even if it expects to
hold the instrument to maturity and no tax will be payable upon collecting the principal amount. The
economic benefit embodied in the deferred tax assets arises from the ability of the holder of the debt
instrument to achieve future gains (unwinding of the effects of discounting) without paying taxes on
those gains. The Bank is currently assessing the impact of the new standard on its consolidated
financial statements.
Disclosure Initiative Amendments to IAS 7 (issued on 29 January 2016 and effective for annual
periods beginning on or after 1 January 2017). The amended IAS 7 will require disclosure of a
reconciliation of movements in liabilities arising from financing activities. The Bank is currently
Unless otherwise described above, the new standards and interpretations are not expected to affect
significantly the Banks consolidated financial statements.
22

6. CASH AND CASH EQUIVALENTS
30 June 2016
31 December 2015
Cash on hand
Cash at Bank of Mongolia
Cash at other banks:
- Domestic
- Foreign
Short term deposits with local banks
18,518
4,533,155
8,933
3,048,110
258,042,418
105,870
507,940,933
112,666,722
389,542
583,965,744
Total cash and cash equivalents
770,640,894
700,079,051
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 11.35% to 14.85% p.a. for MNT, from
7.00% to 8.50% p.a. for USD, from 7.00% to 8.00% p.a. for EUR and 4.50% p.a. for JPY deposits for
the period ended 30 June 2016 (31 December 2015: from 13.30% to 16.10% p.a. for MNT, from 6.10%
to 8.15% p.a. for USD, from 7.95% to 9.00% p.a. for EUR and 6.30% p.a. for JPY).
The credit quality of cash and cash equivalents balances may be summarised based on Moodys
ratings or equivalents of Standard and Poors and/or Fitch ratings.
The credit quality at 30 June 2016 and 31 December 2015 was as follows:
30 June 2016
31 December 2015
Central Bank of Mongolia - B2 Rated

Ba1
B1
B2
B3
Unrated
4,533,155
5,800
100,070
536,039,338
229,944,013
3,048,110
483
389,059
5,835,312
410,325,004
280,472,150
Total cash and cash equivalents, excluding cash on hand
770,622,376
700,070,118
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 the related amounts are
fully recoverable.
23

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 14.50% p.a. for MNT, from 6.95% to 7.85 % p.a.
for EUR, from 6.00% to 6.50% p.a. for USD and 4.50% to 5.25% p.a. for JPY deposits as at 30 June
2016 (31 December 2015: from 6.95% to 7.95 % p.a. for EUR, from 6.00% to 7.75% p.a. for USD and
4.50% to 5.50% p.a. for JPY).
The credit quality of term deposits may be summarised based on Moodys ratings or equivalents of
Standard and Poors and/or Fitch ratings. The credit quality at 30 June 2016 and 31 December 2015
was as follows:
30 June 2016
31 December 2015
B3 rated
Unrated
123,202,338
53,342,771
131,716,498
21,946,897
Total bank deposits
176,545,109
153,663,395
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.
8.
SHORT TERM INVESTMENTS
In October 2014, the Bank has invested government bonds at par value of USD 115,000 thousand and
coupon rate was 5.5% p.a. On 11 June 2015, the Bank transferred its government bonds of USD
55,000 thousand to Bank of Mongolia in order to settle promissory note, issued by the Bank in 2014.
Refer to Note 17.
On 26 May 2015, the Bank entered into sale and repurchase agreement with Trade and Development
Bank of Mongolia and its government bond of USD 60,000 thousand totaling to MNT 117,752 million
were used as collateral under this arrangement. Refer to Note 16.
On 27 December 2015, as a part of settlement of loan receivables due from a corporate customer
Erdenes Tavan Tolgoi JSC, guaranteed by the Government of Mongolia, in accordance with the
Government Resolution, the Bank acquired Government bonds at par value of MNT 10,000 million and
coupon rate of 8.30% p.a. and one year maturity. For more details, refer to Note 9.
These investments are classified as loans and advances and carried at amortized cost. They are
neither past due nor impaired as of 30 June 2016. These investments are not collateralised. Refer to
Note 31 for the estimated fair value of financial assets carried at amortised cost. Currency, interest rate
and maturity analysis of short term investments are disclosed in Note 28.
9.
LOANS AND ADVANCES
Loans and advances as of 30 June 2016 and 31 December 2015 consist of the following:
30 June 2016
31 December 2015
Loans and advances to be repaid from the State budget

Loans and advances to be repaid by Corporates
2,928,896,294
2,524,571,077
2,743,986,071
2,242,605,280
Total gross loans and advances
5,453,467,371
4,986,591,351
Less: Provision for loan impairment

Total net amount of loans and advances
(111,519,607)
5,341,947,764
(77,347,195)
4,909,244,156
24

9. LOANS AND ADVANCES (CONTINUED)
At 30 June 2016, MNT 4,033,792 million of loans and advances are expected to be recovered more
than 12 months after the period end (31 December 2015: MNT 4,518,936 million).
The Bank provides financing to major policy-oriented projects including the priority sectors such as
infrastructure, roads and transportation, engineering infrastructure, energy, manufacturing, processing
industries, air transport, mining, and housing industries within the Government economic development
policy.
Loans and advances given to projects to be repaid from the State budget refer 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 new railways and mortgage financing through commercial banks for middle income families and
individuals. These loans represent loans with direct Government guarantees, as they are repaid directly
from the State budget. The Government of Mongolia issued guarantees for the repayment of these
loans and loan payments have been budgeted every year and thus have been paid from the State
Budget.
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 including indirect Government guarantees
(which represent guarantees that could be used by the Bank in case corporate customer does not meet
its loan repayment obligations). The Bank provides lending to corporate projects which the Government
considers priority commercial activities (air transport development, support of mining industry, housing
and manufacturing projects).
The loans to corporate customers include loans in the amount of MNT 1,039,952 million as at 30 June
2016, (31 December 2015: MNT 781,494 million), which are related to the Government programs for
financing SMEs and strategically important sectors or projects determined by the Government at
preferential rates, such as 888 Import substitution and export promoting projects, Leather production
projects and funding via SME Fund. The related arrangements involve 11 commercial banks, which
effectively bear credit risk with regard to principal repayment from the customers and in some cases
interest repayments from the customers. As a result, the Banks counterparty risk in case of these loans
to customers relates primarily to the Mongolian commercial banks. The Bank has assessed impairment
indicators of related commercial banks as of 30 June 2016 and no impairment provision is considered
necessary.
Loans to be repaid by the Corporates include loans to Erdenes Tavan Tolgoi JSC (ETT). In accordance
with the resolution No.148 dated 12 December 2012, the Bank issued loans to ETT in the amount of
USD 200 million (MNT 392,506 million as of 30 June 2016). These loans were restructured in the loan
history and their repayment postponed to 2017. The management expects that related loans (including
accrued interest) will be repaid by the State budget, as these loans are guaranteed by the Government,
if ETT fails to meet its contractual obligations.
In accordance with Government resolutions No.515 dated 21 December 2015 and No.520 dated 25
December 2015, the Government settled outstanding balance related to one of the three loans issued
to ETT and interest, including additional interest for late payment, on all loans issued to ETT, in the
amount of MNT 100,268,809 thousand. Through this arrangement the Bank acquired government
bonds in the amount of MNT 10,000,000 thousand (Note 8) and recognized current income tax credit in
the amount of MNT 90,268,809 thousand, which can be used for settlement of tax liabilities within
unlimited number of years. The Bank incurred tax expense for the last quarter of 2015 and the first half
of 2016. The related tax payables were settled against the abovementioned tax credit. As a result, the
Bank has recognized the tax credit of MNT 82,502,320 thousand as of 30 June 2016.
The loans to be repaid from the State budget include the loan to Erdenes Mongol LLC in the amount of
MNT 185,047,292 thousand, which was due for repayment in February 2015. According to the
Government resolution No 449 dated 16 November 2015, the loan has been restructured so that
principal and interest amount are due for repayment by the State Budget within the period of 20192020, and interest rate is increased from 4.25% to 6.06% p.a. As a result, the above loan has been
reclassified from Loans to be repaid by Corporates category to the Loans to be repaid from the State
budget category.
25

The analysis by credit quality of loans outstanding at 30 June 2016 is as follows:
Loans and
advances to be
repaid from the
State budget
Loans and
advances to be
repaid by the
Corporates
Total
Neither past due nor impaired:

- Public sector
- Private sector
190,339,252
-
183,562,759
1,150,095,708
373,902,011
1,150,095,708
Total neither past due nor impaired
190,339,252
1,333,658,467
1,523,997,719
Past due but not impaired:

- 30 to 90 days overdue
1,682,949,301
1,055,607,741
454,141,245
3,122,461
2,137,090,546
1,058,730,202
Total past due but not impaired
2,738,557,042
457,263,706
3,195,820,748
Individually determined to be Impaired

loans
- Not past due
- Over 360 days overdue
29,596,658
142,289,190
555,815,528
5,947,528
29,596,658
142,289,190
555,815,528
5,947,528
Total impaired loans
733,648,904
733,648,904
(108,759,736)
(111,519,607)
Total net amount of loans and

advances
(2,759,871)
2,926,136,423
2,415,811,341
5,341,947,764
All loans to be repaid from the State budget are guaranteed by the Government and have the same
credit rating as the Government of Mongolia, B2 Rated (31 December 2015: B2 Rated). All corporate
entities are unrated. The Management believes that all neither past due nor impaired loans are
performing loans. As at 30 June 2016 the aggregated amount of the top 5 largest borrowers before
impairment is MNT 1,528,721,172 thousand (as at 31 December 2015: MNT 1,491,260,673 thousand)
or 28.0% of total loans and advances (31 December 2015: 29.9%).
26

Analysis by credit quality of loans outstanding at 31 December 2015 is as follows:
Loans and
advances to be
repaid from the
State budget
Loans and
advances to be
repaid by the
Corporates
Total
Neither past due nor impaired:

- Public sector
- Private sector
2,564,016,338
-
605,973,693
928,675,311
3,169,990,031
928,675,311
2,564,016,338
1,534,649,004
4,098,665,342

- Less than 30 days overdue
278,265,433
24,021,318
278,265,433
24,021,318
302,286,751
302,286,751
Individually determined to be Impaired loans

- Not past due
- Less than 30 days overdue
- Over 360 days overdue
179,969,733
-
170,932,712
76,871,615
151,920,171
5,945,027
350,902,445
76,871,615
151,920,171
5,945,027
179,969,733
405,669,525
585,639,258
(1,770,115)
2,742,215,956
(75,577,080)
2,167,028,200
(77,347,195)
4,909,244,156
The primary factors that the Bank considers in determining whether a loan in the collective category is
impaired are its overdue status, financial conditions including impact of the operating environment on
the client and its industry, 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.
27

Movements in the provision for loan impairment for the period ended 30 June 2016 and 30 June 2015
are as follows:
Loans and
advances to be
repaid from the
State budget
Loans and
advances to be
repaid by the
Corporates
Provision for loan impairment at 1 January 2015
30,893,019
30,893,019
Charge of provision during the period
32,561,519
32,561,519
Provision for loan impairment at 30 June 2015
63,454,538
63,454,538
1,770,115
75,577,080
77,347,195
989,756
33,182,656
34,172,412
2,759,871
108,759,736
111,519,607
Provision for loan impairment at 1 January 2016
Charge of provision during the period
Provision for loan impairment at 30 June 2016
Total
Government guarantees issued in relation to loans and advances to be repaid from the State budget
represent direct guarantees, while Government guarantees issued in relation to loans and advances to
be repaid by the Corporates represent indirect guarantees. While direct guarantees are immediately
enforceable upon their issuance (which typically coincides with the issuance of loan, which is
subsequently repaid directly by the Government), the Bank may experience delays in enforcing indirect
guarantees due to time lag between default of corporate customer on loan repayments and the
inclusion of related loan repayments into the State budget or reaching agreement on the alternative
method of settlement between the Bank and the Government. As a result, delays in repayments which
are not compensated by interest for the period of delay may result in impairment provision in case of
loans with indirect guarantees.
Information about collateral as at 30 June 2016 is as follows:
Loans and advances collateralized by:

- Government guarantee
- Commercial banks promissory notes
- Immovable Property
- Licenses
- Equipment
- Sales revenue
- Commercial banks guarantees
- Cash
- Share
Total loans and advances (before
impairment)
Loans and advances

to be repaid from the
State budget
Loans and advances

to be repaid by the
Corporates
Total
2,928,896,294
-
491,628,355
938,228,105
343,321,150
178,720,889
177,162,802
142,289,190
101,724,280
93,768,193
57,728,113
3,420,524,649
938,228,105
343,321,150
178,720,889
177,162,802
142,289,190
101,724,280
93,768,193
57,728,113
2,928,896,294
2,524,571,077
5,453,467,371
Guarantee collateral values above are recorded at the lower of the carrying amount of the loan or
collateral taken.
28

Information about collateral as at 31 December 2015 is as follows:
Loans and advances collateralized by:

- Government guarantee
- Commercial banks promissory notes
- Immovable Property
- Licenses
- Equipment
- Sales revenue
- Commercial banks guarantees
- Cash
- Share

impairment)
Loans and advances

to be repaid from the
State budget
Loans and advances

to be repaid by the
Corporates
Total
2,743,986,071
-
487,680,554
664,804,032
340,317,165
180,433,148
164,148,730
140,928,543
116,689,986
91,054,312
56,548,810
3,231,666,625
664,804,032
340,317,165
180,433,148
164,148,730
140,928,543
116,689,986
91,054,312
56,548,810
2,743,986,071
2,242,605,280
4,986,591,351
Based on the valuations performed by the Bank's internal valuation specialists, which meet the
Mongolian legal requirements, all loans and advances are over-collateralized i.e. value of collateral
determined by the valuation specialists is higher or equal than the carrying value of loans and
advances.
The financial effect of collateral as of 30 June 2016 and 31 December 2015 consist of the following:

Loans and advances to be repaid from
the State budget
Loans and advances to be repaid by
Corporates
Total net amount of loans and

advances
30 June 2016
Carrying value
Value of
of the assets
collateral
31 December 2015
Carrying value
Value of
of the assets
collateral
2,926,136,422
2,926,136,422
2,742,215,956
2,742,215,956
2,415,811,342
3,170,184,246
2,167,028,200
2,576,697,030
5,341,947,764
6,096,320,668
4,909,244,156
5,318,912,986
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).
Carrying amount for renegotiated financial assets as of 30 June 2016 and 31 December 2015 consist of
the following:
Loans and advances to be repaid from the State budget
Loans and advances to be repaid by Corporates
Total gross loans and advances
30 June 2016
31 December 2015
204,534,138
835,273,095
197,235,330
834,040,394
1,039,807,233
1,031,275,724
29

Economic sector risk concentrations within the loan portfolio are as follows:
- Road
- Manufacturing
- Mining
- Construction
- Engineering infrastructure
- Railway
- Power plant
- Mortgage financing
- Transportation
- Agriculture
- Other

impairment)
30 June 2016
Amount
31 December 2015
%
Amount
1,457,688,374
1,302,147,389
614,639,300
556,672,679
469,620,823
448,945,678
404,952,236
118,940,360
29,596,658
16,659,408
33,604,466
27%
24%
11%
10%
9%
8%
7%
2%
1%
0%
1%
1,365,643,396
1,193,147,944
612,603,845
398,700,359
406,443,177
442,727,832
387,876,119
117,017,903
30,004,168
32,426,608
27%
24%
12%
8%
8%
9%
8%
2%
1%
0%
1%
5,453,467,371
100%
4,986,591,351
100%
Performing loans as of 30 June 2016 in the amount of MNT 460,927,986 thousand (31 December 2015:
MNT 518,391,508) have been restructured in the loan history.
10. INVESTMENTS SECURITIES AVAILABLE FOR SALE
Investment securities available for sale fully relates to the Banks equity investment in Mongolian
Mortgage Corporation HFC LLC (MIK HFC). In March 2014, the Bank and MIK HFC signed a
partnership agreement enabling the Bank to own 14.88% of shares in MIK HFC 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 MIK HFCs operations in building affordable apartments.
MIK HFC declared dividend in the form of shares in third quarter of 2015 and the Bank has gained
119,661 shares, which were valued MNT 539 million by MIK HFC. As a result, the Bank recognized an
increase in investment in MIK HFC and dividend income in the amount of MNT 539 million. The
percentage of share owned by the Bank has not changed. MIK HFC has changed its ownership type
into a joint-stock company and named into MIK Holding JSC on 3 December 2015.
In late December 2015 MIK Holding initiated a successful IPO placement of its shares on Mongolian
Stock Exchange at price of MNT 12,000 per share. Development Bank of Mongolia was offered to
purchase additional 462,294 shares at abovementioned to sustain its existing ownership of MIK
Holdings shares at 14.88%. The Bank has revalued its investment in MIK Holding at price of MNT
9,000 per share based on valuation performed by the Banks internal specialists, considering the further
risk.
At 30 June 2016, the quoted value of per share was MNT 12,750 at Mongolian Stock Exchange. The
Banks management believes that quoted value can represent fair value of MIK Holdings shares owned
by Development Bank of Mongolia in further. As a result, the Bank has revalued this investment at price
of MNT 12,750 per share and the amount of investment as of 30 June 2016 increased by MNT 11,557
million due to revaluation. In May 2016, MIK Holding has declared dividend and the Bank has received
and recognized dividend income in the amount of MNT 743 million.
The Bank does not have significant influence or joint control over MIK Holding as of 30 June 2016.
Refer to Note 31.
30

11. OTHER ASSETS
Receivable from Ministry of Finance
Other receivables
Prepaid employee benefit
Other prepayments
Expense for professional fees related to funding
arrangements
Supply materials
Total other assets
30 June 2016
31 December 2015
8,216,937
1,947,198
621,081
584,080
8,447,858
611
642,647
157,282
37,436
407,270
540
7,111
11,407,272
9,662,779
The receivables from the Ministry of Finance relate to Tugrik denominated loans issued under
Government Grant Scheme during 2012 and 2013, which were not converted to USD loans in late
December 2013, which relates to the SME loan.
These losses arise due to the fact that these loans are financed through USD denominated bonds. 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 and any foreign currency loss to the Bank. 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 8,216,937
thousand (31 December 2015: MNT 8,447,858 thousand).
Based on the mutual agreement between the Ministry of Finance and the Bank, the Bank periodically
issues invoices to the Ministry of Finance for realized foreign exchange losses on these loans, which
have arisen during 2016 and previous years mostly on received interest. Most of the related loans
mature in the subsequent years.
Unrealized foreign exchange losses are not invoiced and are not yet due for payment by the Ministry of
Finance before being realized. As of 30 June 2016, receivable from the Ministry of Finance mostly
relates to unrealized foreign exchange losses related to principal amounts of loans. As a result of the
reconciliation with the Ministry of Finance in September 2016, the total amount of the receivable as of
30 June 2016 is considered fully recoverable.
The amount of receivables from the Ministry of Finance related to the unrealized foreign exchange loss
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 4,510 million of the MNT 8,217 million is non-current (31
December 2015: MNT 7,303 million of the MNT 8,448 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 other commercial banks with interest free 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 at 0% interest rate with State bank
but later minor changes have been made in December 2013, in June 2014 and in August 2014 to share
this scheme across State Bank and Trade and Development Bank. Management has concluded that
the interest rate for these deposits to commercial banks is 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. (effective on the dates of origination of these
transactions) 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 which is not expected to
exceed the service period of the employees benefiting from the scheme. MNT 569 million of the MNT
621 million is non-current (31 December 2015: MNT 591 million of the MNT 643 million). In case if an
employee leaves the Bank, the mortgage is repriced on market terms.
31

11. OTHER ASSETS (CONTINUED)
Expenses for professional fees related to funding arrangements in the amount of MNT 37,436 thousand
relate to transaction costs incurred with regard to the Banks funding arrangements. These professional
services were provided during 2015, while funding is expected to be obtained during 2016.
Management believes that it is probable that the Bank will obtain related funding during 2016. Thus
related professional fees will be deferred over the life of related financial liability as part of the effective
interest rate.
All Other receivables, prepayments and supply materials are current assets.
32

12. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Construction
in progress
Buildings
and
facilities
Equipment
Furniture
and fixtures
Vehicle
Total
property and
equipment
Computer
software and
license
Total
Cost at 1 January 2015

Accumulated depreciation/
amortization
480,904
293,187
984,525
1,758,616
1,032,854
2,791,470
(234,285)
(41,358)
(81,253)
(356,896)
(323,356)
(680,252)
Carrying amount at 1 January 2015
246,619
251,829
903,272
1,401,720
709,498
2,111,218
31,329
(55,191)
(3,615)
3,615
1,250
(14,679)
-
(49,227)
-
32,579
(119,097)
(3,615)
3,615
6,600
(57,608)
(1,955)
1,955
39,179
(176,705)
(5,570)
5,570
Cost at 30 June 2015

Accumulated depreciation
508,618
(285,861)
294,437
(56,037)
984,525
(130,480)
1,787,580
(472,378)
1,037,499
(379,009)
2,825,079
(851,387)
Carrying amount at 30 June 2015
222,757
238,400
854,045
1,315,202
658,490
1,973,692
Cost at 1 January 2016

amortization
26,334,733
487,627
294,437
984,525
28,101,322
1,015,451
29,116,773
(213,396)
(70,760)
(179,706)
(463,862)
(403,871)
(867,733)
Carrying amount at 1 January 2016
26,334,733
274,231
223,677
804,819
27,637,460
611,580
28,249,040
1,396,273
(27,731,006)
(115,546)
27,731,006
1,358
(70,469)
-
1,160
(14,731)
-
(49,226)
-
1,398,791
(249,972)
-
(53,270)
-
1,398,791
(303,242)
-
Cost at 30 June 2016

amortization
27,731,006
488,985
295,597
984,525
29,500,113
1,015,451
30,515,564
(115,546)
(283,865)
(85,491)
(228,932)
(713,834)
(457,141)
(1,170,975)
Carrying amount at 30 June 2016
27,615,460
205,120
210,106
755,593
28,786,279
558,310
29,344,589
Additions
Depreciation/ amortization charge
Disposal at cost
Disposal of accumulated depreciation
Additions
Depreciation/amortization charge
Transfer at cost
Note
26
26
th
th
Addition to construction in progress amounting to MNT 27,731 million is related to purchase of office premise on 11 and 12 floors in Trade and Development
Bank Building in Sukhbaatar district, Peace Avenue 19.
33

13. CUSTOMER ACCOUNTS
30 June 2016
31 December 2015
Customer accounts
15,977,141
42,863,240
Total customer accounts
15,977,141
42,863,240
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 2016 customer current accounts
consist of 14 accounts (31 December 2015: 16).
Economic sector risk concentrations within the customer accounts are as follows:
30 June 2016
31 December 2015
13,856,404
1,085,527
1,024,323
5,526
5,351
10
19,705,165
9,803,493
1,041,550
377,144
9,134,382
2,801,506
15,977,141
42,863,240
30 June 2016
31 December 2015
Other non - financial liabilities

Other provision for liabilities and charges
Other financial liabilities
825,907
1,169,897
-
1,686,812
1,189,837
7,837,609
Total other liabilities
1,995,804
10,714,258

- Power plant
- Manufacturing
- Railway
- Mining
- Road
- Construction
Total customer accounts
14. OTHER LIABILITIES

15. DUE TO GOVERNMENT

On 3 June 2016, as part of increasing its own fund, in accordance with the Assets and Liabilities
Committee of the Banks decision, the Bank acquired MNT 30,000 million from Ministry of Finance with
an aim to increase its own source of funds at interest rate of 10.875% p.a. and 2-month maturity. The
initial maturity date of agreement was on 3 August 2016 and the Bank has partially paid MNT 16,000
million to the Ministry of Finance. The residual amount of MNT 14,000 million prolonged to 31 August
2016 based on mutual agreement and then prolonged as a demand deposit.
34

16. DUE TO OTHER BANKS
30 June 2016
31 December 2015
Short-term placement of other banks

Sale and repurchase agreements with securities with
other banks
452,106,409
334,557,108
99,405,639
101,083,263
Total due to other banks
551,512,048
435,640,371
The deposits due to other banks consist of term deposits from local banks with maturities ranging from
three to twelve months at interest rates from 6.00% p.a. to 8.50% p.a. for USD deposits and term
deposits with Russian banks denominated in EUR with maturities between six to twelve months at
interest rates from 4.00% p.a. to 5.95% p.a. (31 December 2015: 14.75% p.a. for MNT and from 6.00%
p.a. to 6.50% p.a. for USD deposits and from 4.85% p.a. to 5.95% p.a. for EUR deposits).
On 26 May 2015, the Bank initially entered into repurchase agreement with Trade Development Bank
of Mongolia, also known as a repo, for USD 50,000 thousand at interest rate of 6.10% p.a. for a period
of 125 days. The initial maturity date of agreement was on 28 September 2015 and prolonged to 11
October 2016 based on mutual agreement. The placement was fully collateralized by the Government
bonds in the amount of USD 60,000 thousand (Note 8). The transferee Trade Development Bank does
not have the right by contract or custom to sell or repledge these securities to the third party.
17. PROMISSORY NOTES
The Government issued a resolution No.299 dated on 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
Mongol LLC. Pursuant to this Resolution, in February 2014 the Bank has lent to Erdenes Mongol LLC
amount of MNT 170,595 million with interest rate of 4.25% p.a. for the acquisition of road and
infrastructure. This loan is included in loans to and advances (Note 9), as the Bank acts as a principal
and bears credit risk related to this loan.
In order to fund this loan, the Bank has issued a promissory note with a maturity of 1 year which was
purchased by the Trade and Development Bank of Mongolia at a price of MNT 170,595 million with
interest rates of 4.0% p.a. The note has been purchased by Bank of Mongolia from Trade and
Development Bank during 2014. As this funding is used for a specific purpose (issuing loan to Erdenes
Mongol LLC), management believes that this funding represents a principal market, refer to Note 4.
Similarly, the loan issued to Erdenes Mongol LLC represents a principal market.
The loan issued to Erdenes Mongol LLC has been restructured in December 2015 and based on the
terms of restructuring the loan will mature in 2020. The amount of liability in relation to the issued
promissory notes was fully settled on 16 June 2015 in cash and through transfer of ownership over
Government bonds (Note 8) to the Bank of Mongolia. The Bank has recognized a loss on this
transaction in the amount of MNT 1,048,984 thousand.
35

18. BONDS
This account is composed of:
30 June 2016
31 December 2015
Bond issued on Singapore Stock Exchange

Samurai bond issued in the Japanese bond market
Bond issued to Mongolian bank through private
placement
1,155,786,567
488,839,198
1,175,056,812
404,388,823
235,341,991
147,704,779
Total issued bond
1,879,967,756
1,727,150,414
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.
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 January 2014 in the amount of JPY 30 billion with fixed interest rate of
1.52% p.a. and 10 years maturity.
As of 30 June 2016, the Bank issued notes of MNT 235,341,991 thousand in accordance with Article
7.1.4 of the Law on the Development Bank of Mongolia and Resolution No. 344 dated 24 August 2015
issued by the Government of Mongolia. The bond issued in order to obtain funding for issuance of loans
at low interest rate with the purposes is construction or renovation of hotels for accommodation of AsiaEurope Meeting (ASEM) representatives. The bond initially issued to a Mongolian two commercial
banks through private placement and subsequently purchased by Central Bank (Bank of Mongolia). The
bond bears interest of 4% p.a. with maturity on 21 December 2018 and 23 September 2021. As this
funding is used for a specific purpose, management believes that this funding represents a principal
market, refer to Note 4. Similarly, the loan issued represent a principal market.
The initial fair value of liabilities is determined taking into consideration the guarantees provided by the
government. Bond issuance costs are amortised over the period of the notes. Please refer to Note 28
liquidity disclosures for a breakdown of the Bonds into current and non-current amounts.
36

19. BORROWINGS
30 June 2016
31 December 2015
Financing from the Government

Borrowing from foreign banks and financial institution:
Syndicated Loan Facility
China Development Bank
Cargill FSI Inc.
VTB Bank
International Investment Bank
Vnescheconombank
Commerzbank
2,616,002,718
2,563,914,387
590,948,390
308,524,104
150,541,845
120,949,441
43,111,358
32,374,022
21,006,866
598,253,376
302,212,876
43,264,225
35,162,308
23,733,379
Total borrowings
3,883,458,744
3,566,540,551
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 years maturity ending January 2018 and two thirds of this funding have a 10 years
maturity ending December 2022.
On 29 August 2014 the Bank entered into a syndicated term facility agreement led by Credit Suisse AG.
The investing party of the syndicated loan includes Credit Suisse AG, the Export-Import Bank of China,
Sumitomo Mitsui Banking Corporation (SMBC) and The Export-Import Bank of the Republic of China
and the loan facility was in the aggregate amount of USD 300 million for a period of 3 and 5 years to (a)
finance energy production and energy transfer infrastructure; (b) manufacturing (to promote exports and
to substitute imports); (c) infrastructure (road, railway networks and utilities); and (d) mining. The loan
bears interest rate of LIBOR plus 4.375% for tranche A and LIBOR plus 4.250% for tranche B and will
be repaid in semi-annual instalments. As this funding is used for issuing loans for specific predefined
purposes (sectors and types of projects), this borrowing and related loans represent principal market.
As of 30 June 2016, the loan facility was fully drawdown. Refer to Note 4.
The Bank entered into loan agreement with Chinese Development Bank on 21 August 2014 for total
amount of USD 162 million for a period of 8 years to finance customers to be used in the highway,
electricity and urban infrastructure sectors in Mongolia. The loan bears fixed interest rate of 6% p.a. As
of 30 June 2016, USD 155.31 million was received by the Bank. As this funding is used for issuing
loans to predefined sectors, this borrowing and related loans represent principal market, refer to Note 4.
The Government of Mongolia Resolutions No. 93 dated March 11, 2015 granted an approval for the
DBM to open a credit line facility in the amount of up to USD 300.0 million with 36 months maturity with
JSC VTB Bank. The purpose of the facility is to counterbalance foreign currency inflow needed for
financing petroleum import from the Russian Federation. Pursuant to the resolution, DBM established a
loan agreement with JSC VTB Bank on April 19, 2016 and obtained the first tranche of USD 65.4
million.
Pursuant to the Government of Mongolia Resolution No. 50 dated January 18, 2016, DBM entered into
a loan agreement with Cargill FSI Inc. on April 19, 2016 for the purpose of financing development
projects and obtained total of USD 75.0 million for a period of 2 years with coupon rate of 11.875% on
April 21, 2016. This loan is not guaranteed by the Government.
The Bank also entered into a bilateral facility agreement with the International Investment Bank on 14
September 2015 for total amount of EUR 20 million for a period of 7 years for the purpose of refinancing
the project on expansion of CHP-4, through on-lending to Erel LLC, for purpose of financing the
reconstruction and modernization of housing production factory and for the purpose of financing other
projects of significant social and economic importance for Mongolia. The loan bears floating rate of 3
month EURIBOR plus 6%. This borrowing and related loans represent principal market, refer to Note 4.
37

19. BORROWINGS (CONTINUED)
The Bank entered into bilateral loan agreement with the Russian State Corporation Bank for
Development and Foreign Economic Affairs (Vnesheconombank) on 15 June 2015 for total amount of
USD 20 million for a period of 8 years to refinance required funds for expansion of Combined Heat and
Power Plant 4 (CHP4). The loan bears fixed interest rate of 3.2% p.a. As of 31 December 2015, full
amount of the facility had been utilized.
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 is comprised of
the 70% or EUR 12,145 thousand of the EUR 17,350 thousand equipment sales contracts with EBAWE
of Germany as well the EULER HERMES sellers credit fee of EUR 970 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. The loan bears interest rate of 1.9% - 2.3% p.a. As this funding
is used for issuing loan to particular project, based on the terms of the Agreement with Commerzbank
Aktiengesellschaft, it represents principal market, Note 4. Related loan is included in loans and
advances to customers (Note 9).
All of the borrowings from foreign institutions except for International Investment Bank, Commerzbank,
Vnesheconombank and Cargill FSI Inc. are secured by Government Guarantee. The initial fair value of
these borrowings is determined taking into consideration the guarantees, provided by the government.
The Bank has not prepaid any of its own borrowing during the period ended 30 June 2016 (As at 31
December 2015: Nil). The Bank did not have any defaults on principal or interest payments with regard
to all borrowings as at 30 June 2016. (As at 31 December 2015: Nil).
As at 30 June 2016, the Bank is in compliance with all financial covenants set by the lenders. However,
certain ratios fell below the pre-agreed level as at 30 June 2016, which may result in increase in interest
rate in accordance with the facility agreement with one particular lender. The management believes that
this event does not have any adverse consequences on the Banks operation nor does it result in the
borrowing payable on demand.
20. 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 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
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 from the State budget and other loans and receivables guaranteed by the Government (Notes 9
and 11), as well as the Governments execution of other guarantees and contractual obligations
including getting approval of related payment/guarantees into signed state budget. 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 2016 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
The Bank has disclosed the balances and transactions with the following related parties:
1) Government (which includes organizations, such as Ministry of Finance and other Ministries,
which management is appointed by the central government);
2) entities controlled by the Government, which include state organizations (i.e. corporate entities),
local commercial bank (State Bank) and central bank of Mongolia (Bank of Mongolia); these
entities represent entities under common control in relation to the Bank;
3) other related party MIK Holding (which is an entity over which Government has significant
influence). The Banks balance to MIK Holding relates to investment securities available for sale.
38

20. RELATED PARTY TRANSACTIONS (CONTINUED)
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 account earns 0% interest and
the State Bank current accounts earn 9% interest for MNT and 0% interest for USD for the period
ended 30 June 2016 (31 December 2015: Bank of Mongolia earned 0% interest and the State bank
earned 9% interest for MNT and 1.2% interest for USD).
The interest on the State Bank short term deposit (under three months period) is between 12.10% to
13.00% for the period ended 30 June 2016 (31 December 2015: 14.75%) for MNT deposits. There were
no deposits for the periods ended 30 June 2016 and 31 December 2015 for MNT deposits.
As mentioned in Note 11, the receivable from the Ministry of Finance is due to the Project Financing
Agreements between the Ministry of Finance, the Ministry of Industry and the Bank in the form of a
Government Grant.
For information on promissory notes please refer to Note 17 and for borrowings please refer to Note 19.
An analysis of the Banks assets (excluding loans) held by related parties and transactions with related
parties is disclosed as follows:
30 June 2016
From 1
January 2016
to 30 June
2016
Statement of
Statement of
Financial Comprehensive
Position
Income
Receivables from Ministry of Finance
(Note 11)
Current account with Bank of Mongolia
(Note 6)
Current account with State bank
Time deposits with State bank
Deposit with State bank for employee
benefit
Short term investment (Note 8)
Investment securities available for sale
(Note 10)
Customer account with State
organizations (Note14)
Promissory notes Bank of Mongolia
(Note17)
Bond issued in local market (Note 18)
Borrowings from the Government
(Note19)
Tax credit (Note 9)
Deferred income tax asset (Note 27)
Current income tax payable
Other tax payable
Income tax expense (Note 27)
Amount of transaction with related

parties (excluding loans)
8,216,937
(230,921)
31 December
2015
From 1
January 2015
to 30 June
2015
Statement of
Statement of
Financial Comprehensive
Position
Income
8,447,858
2,949,599
4,533,155
3,048,110
50,805,884
-
76,430
5,270,097
56,198,581
108,408,271
188,078
7,858,765
850,000
850,000
129,536,399
3,720,753
131,152,821
7,490,918
39,294,926
8,667,998
27,737,595
1,950,000
(15,971,819)
-
(26,508,193)
-
(235,341,991)
(4,112,897)
(147,704,779)
(2,616,002,718)
(61,421,139)
(2,563,914,387)
82,502,320
38,785,668
(6,244)
(61,807)
-
(2,512,859,290)
14,018,821
(34,010,858)
(2,729,560)
(60,687,741)
83,035,868
27,581,843
(95,827)
-
(817,696)
(2,291,762,239)
(43,797,637)
39

Loans to Related Parties
An analysis of the Bank loans to related parties is disclosed as follows. All entities listed below, except
for the Ministry of Finance, represent entities under common control in relation to the Bank, as they are
controlled by the Government.
30 June 2016
From 1
January 2016
to 30 June
2016
31 December
2015
From 1
January 2015
to 30 June
2015
Statement of
Financial
Position
Statement of
Comprehensive
Income
Statement of
Financial
Position
Statement of
Comprehensive
Income
To be repaid by the State budget:
2,928,896,294
92,475,432
2,743,986,071
76,479,214
- The Ministries
- Mongolian Railway SOSC
- Erdenes Mongol LLC
- Amgalan Thermal Power Plant
- Fourth Power Station SOSC
- State Bank SOC
- Third Power Station SOSC
- Tavan tolgoi power plant
- Egiin gol power plant
- Sainshand industrial park SOCSC
- Erdenes Oyu Tolgoi LLC
- SME Development Fund
- Mongolian Stock Exchange SOSC
1,776,484,586
448,945,677
185,047,292
141,296,760
124,349,651
118,940,360
71,561,105
30,536,757
16,421,959
9,085,809
5,179,204
1,047,134
-
54,005,576
13,965,033
5,154,881
5,316,821
4,553,421
3,976,854
2,624,343
922,021
398,520
332,660
195,244
1,030,058
-
1,625,091,485
442,727,832
179,969,734
127,725,471
121,945,067
117,017,902
70,174,365
30,141,501
15,202,683
8,899,386
5,073,568
17,077
-
43,247,026
13,462,498
2,963,195
4,636,408
3,843,334
5,158,367
889,043
300,140
355,913
45,176
1,475,654
102,460
To be repaid by the Corporates :
974,044,892
30,759,779
914,243,293
31,046,072
- Erdenes Tavan Tolgoi JSC

- State Housing Corporation SOC
- SME Development Fund
- MIAT Airlines SC
- Fourth Power Station SOSC
- Baganuur SOSC
- State Bank SOC
- Amgalan Thermal Power Plant
- Central geological laboratory of Mongolia
- Erdenes MGL SOC
454,141,245
298,297,768
106,063,078
29,596,658
17,663,544
7,890,453
57,107,842
3,122,461
161,843
-
15,036,562
10,809,495
2,269,027
973,947
651,361
424,300
465,891
120,652
8,544
-
447,163,274
278,265,433
121,517,382
30,004,168
19,846,942
10,513,111
3,866,466
2,840,089
226,428
-
18,572,575
4,668,563
2,456,415
643,917
584,822
13,988
4,105,792
3,902,941,186
123,235,211
3,658,229,364
107,525,286
Total loans to related parties
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 4.5% - 10.0% (31 December 2015: 4.25% 10.0% p.a.) for MNT and 5.125% - 8.45% p.a. (31 December 2015: 5.125% - 8.45% p.a.) for USD loans
and advances with maturities of between one and ten years.
The remuneration and employee benefit paid to the key management (i.e.executive management team
and members of Board ) for the period ended 30 June 2016 and 30 June 2015 amounted to MNT 344
million and MNT 368 million respectively.
40

Guarantees Received
The Bank is the recipient of a number of guarantees from the Government of Mongolia. On the lending
side substantial portion of loans are guaranteed by the Ministry of Finance (Note 9). Please refer to
Note 19 for further details on the borrowings 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 18.
Loan Commitments
As of 30 June 2016, the Bank has MNT 185,837 million (31 December 2015: MNT 347,391 million) of
loan commitments to related parties.
Guarantees Given
In January 2014, the Bank issued a two years guarantee in the name of Erdenes Tavan Tolgoi JSC to a
local commercial bank. The guarantee expired on 10 January 2016.
21. 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.
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 ended 2013 amounting to MNT 20.6 billion. Further, in June 2015, The
Board of Directors issued a resolution No.45 to increase the Banks capital by retained earnings of the
year ended 2014 amounting 101.4 billion.
Authorized:
Contributed capital
30 June 2016
31 December 2015
245,336,288
245,336,288
245,336,288
-
143,879,436
101,456,852
245,336,288
245,336,288
Paid:
at 1 January,
Contribution during the period
Total contributed capital
41

22. INTEREST INCOME
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
Loans and advances

Deposits and placements at banks
Short term investment
169,037,873
36,138,466
3,720,753
135,739,529
58,925,393
7,490,918
Total interest income
208,897,092
202,155,840
For information on interest income generated on different products/services of the Bank, refer to Note
33.
Interest Income on loans determined to be impaired amounted to MNT 23,594 million (30 June 2015:
MNT 9,903 million).
23. INTEREST EXPENSE
Bond issued to international market
Borrowing from foreign bank
Due to other banks
Samurai bond issued in the Japanese bond market
Bond issued to local market
Securities with repurchase agreement
Borrowing from foreign institution
Due to government
Promissory note
Total interest expense
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
61,421,139
33,952,409
31,169,613
9,896,277
9,035,335
4,112,897
3,056,368
3,394,159
250,274
-
61,026,552
32,720,015
24,506,906
5,851,884
8,395,013
572,666
2,729,560
156,288,471
135,802,596
24. FOREIGN EXCHANGE NET GAINS/(LOSSES)

Included with the foreign exchange gains less losses is an amount of MNT 473 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 11 (30 June 2015: MNT 2,952 million).
The exchange differences charged/credited to the statement of comprehensive income are as follows:
Realized foreign exchange translation gains, net
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
156,471
5,333,052
Unrealized foreign exchange translation losses, net
(67,477,068)
(19,108,602)
Net foreign exchange translation losses
(67,320,597)
(13,775,550)
42

25. GAINS LESS LOSSES FROM FINANCIAL DERIVATIVES
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
Foreign exchange swap: fair values, at the end the reporting period
EUR receivable on settlement
USD payable on settlement
46,830,245
(52,255,645)
Net fair value of foreign exchange swap
(5,425,400)
Loss recognized from derivatives
(303,240)
On 2 December 2014, the Bank entered into a swap arrangement with Trade Development Bank of
Mongolia. The first leg was to receive USD 26,086 thousand on 3 December 2014 and in return receive
EUR 21,000 thousand on 3 March 2015. The swap arrangement has been prolonged to 3 June 2015, 3
September 2015, 3 December 2015 subsequently and to 29 January 2016 based on both parties
agreement. The arrangement settled on 29 January, 2016 and the Bank has recognized a loss on this
arrangement in the amount of MNT 303,240 thousand.
26. ADMINISTRATIVE AND OTHER OPERATING EXPENSES
Included in employee cost and benefit account is the contribution to the state pension fund of MNT
210,089 thousand for the period ended 30 June 2016 (30 June 2015: MNT 203,378 thousand).
Employee cost and benefit

Advertising
Audit and other professional services
Depreciation and amortization
Rental costs
Tax expense except income tax
Communication and Stationeries
IT and software
Business travel and event
Utilities, security and maintenance
Fuel and Transportation expense
Training cost
Insurance cost
Others
Total operating expenses
Note
12
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
2,619,916
602,045
466,009
303,242
259,825
137,990
99,267
87,741
62,443
53,859
21,574
6,644
1,323
47,136
2,617,748
171,418
529,178
176,705
399,135
109,272
77,539
112,802
5,014
28,177
96,221
5,883
58,259
4,769,014
4,387,351
43

27. INCOME TAXES
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.
Components of income tax expense charged to profit or loss are as follows:
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
Current income tax charge

Deferred tax benefit
80,580
(14,093,157)
7,193,086
(6,375,390)
Income tax (benefit)/expense for the period
(14,012,577)
817,696
A reconciliation between the expected and the actual taxation charge is provided below.
1 January 2016
to 30 June 2016
1 January 2015
to 30 June 2015
(53,066,003)
9,424,389
Theoretical tax charge at statutory rate
(13,266,501)
2,356,097
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
- Income which is exempt from taxation (interest
income on Government bonds)
- Incomes subject to flat 10% rate
Income tax (benefit)/expense for the period
304,983
(930,188)
(450,000)
784,328
(1,872,729)
(120,871)
(14,012,577)
817,696
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, differing amortisation
rates between the tax authorities and the Bank, revaluation gains on available for sale securities and
impairment provision on performing loans (Note 4).
44

27. INCOME TAXES (CONTINUED)
Components of deferred tax asset as at 30 June 2016 are as follows:
Deferred tax (liabilities)/assets in relation to:

Bank deposits
Loans and advances
Provision for impairment on performing
loans and advances
Intangible assets
Customer accounts
Other liabilities
Due to other banks
Bonds
Borrowings
Available-for-sale investment
Deferred tax asset during current period loss
Deferred tax asset
1 January 2016
(200,246)
(2,193,900)
(119,518,846)
Recognized
in profit or
loss
Credited/
(charged) to
other
comprehens
ive income
30 June 2016
(1,033,186)
501,750
11,536,134
(1,233,432)
(1,692,150)
(107,982,712)
3,977,308
(1,288,853)
(118,786)
529,381
2,609,531
2,366,726
99,238,500
43,818,455
(2,926,280)
-
10,481
(67,908)
(2,314,591)
(2,674,850)
15,024,750
(6,777,688)
1,177,118
(2,889,332)
-
(108,305)
461,473
294,940
(308,124)
114,263,250
37,040,767
(5,815,612)
1,177,118
27,581,843
14,093,157
(2,889,332)
38,785,668
2,688,455
Components of deferred tax asset as at 30 June 2015 are as follows:
Deferred tax (liabilities)/assets in relation to:

Bank deposits
Loans and advances
Provision for impairment on performing
loans and advances
Intangible assets
Customer accounts
Other liabilities
Due to other banks
Bonds
Borrowings
Available-for-sale investment
Deferred tax asset
1 January 2015
157,338
(1,035,160)
(91,362,655)
2,566,217
Recognized
in profit or
loss
Credited/
(charged) to
other
comprehensi
ve income
1,650,750
(523,454)
(19,076,680)
(30,276)
30 June 2015
1,808,088
(1,558,614)
(110,439,335)
2,535,941
(139,748)
395,897
350,906
407,084
76,977,438
24,905,636
-
10,481
(358,332)
1,356,654
589,779
10,976,218
11,780,250
-
(1,050,000)
(129,267)
37,565
1,707,560
996,863
87,953,656
36,685,886
(1,050,000)
13,222,953
6,375,390
(1,050,000)
18,548,343
45

27. INCOME TAXES (CONTINUED)
Current and deferred tax effects relating to each component of other comprehensive income are as
follows:
31 December 2015
30 June 2016
In thousands of
Mongolian Tugriks
Available-for-sale
investments:
- Gains arising during
the period
Other comprehensive
income
Before-tax
amount
Deferred
tax
(expense)
11,557,331
11,557,331
Net-of-tax
amount
Before-tax
amount
Deferred tax
(expense)
Net-of-tax
amount
(2,889,333)
8,667,998
11,705,118
(2,926,280)
8,778,838
(2,889,333)
8,667,998
11,705,118
(2,926,280)
8,778,838
28. FINANCIAL RISK MANAGEMENT

Introduction and overview
The Bank has exposure to the following risks:
credit risk
operational risk
market risk
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 Executive Management 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 set
by the BOD. The Risk Department of the Bank and Internal Audit Unit of the Bank are jointly
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 operational 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.
46

28. FINANCIAL RISK MANAGEMENT (CONTINUED)
Executive Committee is responsible for conducting the Bank's daily operations consistent with the law
about Development Bank of Mongolia, Company Law and other related laws and regulations.
Credit Committee
The Credit Committee is accountable directly to the Board of Directors. This is the credit decision
making body of the Bank and operates within clearly defined parameters authorised by the Board of
Directors. The Committee has the following main duties:
a) Discussion of Credit Policies and Procedures and their amendments and updates;
b) Approve of risk classification and provisioning levels;
c) Review of the quality, composition and risk profile of the entire credit portfolio on an ongoing basis
and;
d) Approve of credit limits applicable to exposures of 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. Main duties of the committee are:
-
Discuss the policies, procedures, guidelines and internal rules of the banks operation;
Define potential future risks;
Monitor/control surety of that the bank operates within the risk parameters/limits, discuss new
risk parameters if the parameters comply with the current policies;
Discuss and evaluate the banks risk reports;
Determine the banks contingency plan and revise if necessary;
Discuss and make decisions for operational risks which are not accounted by any of the
existing policies and procedures such as information security, technical and program
malfunction etc.,
Monitor the implementation of decisions made by Risk Management Committee
Make decisions related to other risk management activities and monitor the implementation
Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty 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 of credit risk management, 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 policy establishes:
- Procedures for reviewing and approving loan applications;
- Approaches for the credit assessments
- Approaches for the evaluation of collaterals;
- Credit documentation requirements;
- Procedures for the ongoing monitoring of loans and other credit exposures;
- Other limitations.
47

Credit risk (continued)
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. Credit analysts
make structured analysis focusing on a customers business prospects and the current financial
performances, and prepare reports. Then, the Risk Management Department independently reviews the
credit application and prepares second report from the perspective of policy compliances and potential
risks that may occur. The Credit Committee makes decision based on credit assessment by Credit
Department including Engineering Expertise, and opinions by Risk Management Department,
Administration Departments Legal Division and Asset and Liability Management Department.
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 manages credit risk using the guarantees it receives from the Mongolian Government and overcollateralization of its loan portfolio.
The Banks maximum exposure to credit risk is reflected in the carrying amounts of financial assets on
the statement of financial position. The impact of possible netting of assets and liabilities to reduce
potential credit exposure is not significant. For guarantees and commitments to extend credit, the
maximum exposure to credit risk is the amount of the commitment, refer to Note 32. The credit risk is
mitigated by collateral as disclosed in Note 9.
48

Analysis of credit risk by sector of loans and advances outstanding at 30 June 2016 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:

- Road
- Manufacturing
- Mining
- Power plant
- Construction
- Agriculture
186,385,936
1,047,134
2,906,182
-
917,083,341
148,753,108
17,663,544
233,499,066
16,659,408
186,385,936
918,130,475
148,753,108
17,663,544
233,499,066
2,906,182
16,659,408
190,339,252
1,333,658,467
1,523,997,719
808,248,760
5,179,204
402,907,351
124,349,651
342,264,335
454,141,245
-
808,248,760
459,320,449
402,907,351
124,349,651
342,264,335
463,053,678
9,085,809
618,215
46,038,327
259,816,580
118,940,360
124,450,306
33,604,466
3,122,461
-
463,053,678
9,085,809
618,215
46,038,327
262,939,041
118,940,360
124,450,306
33,604,466
2,738,557,042
457,263,706
3,195,820,748
29,596,658
29,596,658
142,289,190
142,289,190
232,641,915
323,173,613
232,641,915
323,173,613
5,947,528
5,947,528
733,648,904
733,648,904
(108,759,736)
(111,519,607)

30 to 90 days overdue
- Road
- Mining
- Railway
- Power plant
- Road
- Manufacturing
- Mining
- Railway
- Power plant
- Other
Individually determined to be Impaired:
Not past due
- Transportation
30-90 days overdue
- Manufacturing
180 to 360 days overdue:
- Manufacturing
- Construction
Over 360 days overdue
- Mining
(2,759,871)
2,926,136,423
2,415,811,341
5,341,947,764
49

Analysis of credit risk by sector of loans and advances outstanding at 31 December 2015 is as follows:
Loans and
advances to be
repaid from the
State budget
Loans and
advances to be
repaid by
Corporates
Total
Neither past due, nor impaired:

- Road
- Railway
- Utility
- Power plant
- Manufacturing
- Mining
- Construction
- Other
1,185,673,663
442,727,832
406,443,177
365,189,088
117,017,903
8,916,462
5,621,605
32,426,608
22,687,031
814,511,152
601,037,213
96,413,608
-
1,185,673,663
442,727,832
406,443,177
387,876,119
117,017,903
823,427,614
606,658,818
96,413,608
32,426,608
2,564,016,338
1,534,649,004
4,098,665,342

Less than 30 days overdue:
- Construction
- Construction
278,265,433
278,265,433
24,021,318
24,021,318
302,286,751
302,286,751
179,969,733
-
140,928,543
30,004,168
179,969,733
140,928,543
30,004,168
76,871,616
76,871,616
151,920,171
151,920,171
5,945,027
5,945,027
179,969,733
405,669,525
585,639,258
(75,577,080)
(77,347,195)
Individually determined to be Impaired:

Not past due
- Road
- Manufacturing
- Transportation
Less than 30 days overdue
- Manufacturing
90 to 180 days overdue:
- Manufacturing
Over 360 days overdue
- Mining
(1,770,115)
2,742,215,956
2,167,028,200
4,909,244,156
50

Credit risk (continued)
The Bank monitors concentrations of credit risk by sector and the total value of loans provided by the
Bank to single economic sector shall not exceed 30% of the total loan portfolio. Total amount of loans
shall not exceed 80% of total assets amount. An analysis of concentrations of credit risk at the reporting
date is shown on Note 9 .
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 as carrying 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.
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 shall not exceed the amount equal to 50 times of the
equity.
Above criteria as at 30 June 2016 and 31 December 2015 are as follows:
In thousands of
Mongolian Tugriks
Total amount of the loan
and assets equivalents to
loan
Total amount of the
guarantees
Suitable
ratio
As at 30 June 2016
Restriction limit
As at 31 December 2015
Actual amount
Restriction limit
Actual amount
< EQ 50
times
12,850,822,950
5,648,029,272
14,370,094,350
5,194,060,372
< EQ 50
times
12,850,822,950
164,619,289
14,370,094,350
177,804,209
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 and the loan to collateral ratio shall not exceed 90%. The main types of collateral obtained
are as follows:
a) Guarantees issued from Government, reputable insurance companies, Development banks and
investment bank and commercial banks with the overall ratings of B2 B3 or above;
b) Fixed asset: Land, Building, factory etc;
c) Movable properties: Vehicles and equipment etc;
d) Special property rights: Mineral licenses, Project execution right etc.,
e) Time deposits, Securities/Bond and Stocks; and
f)
Assets and revenues generated as a result of performance by borrower and project contractors.
g) Others.
The Credit Department and the Risk Management Department monitor the market value of collaterals,
request additional collaterals in accordance with the underlying agreement, and monitor the market
value of collaterals.
Loan amount collection through sales of the collaterals can take place by the Bank when a borrower
notifies their inability to repay the loan and requests to make repayment through its values of the
collaterals, 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.
51

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
internal 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.
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 short term liquidity risk is the ratio of net liquid assets
to total funding. For this purpose net liquid assets includes cash and cash equivalents, central bank
bills, current accounts and deposits placed with Bank of Mongolia and other commercial banks less
clearing delay. Details of the reported ratio of net liquid assets to total funding at the reporting date were
as follows:
Net Liquid Assets
30 June 2016
31 December 2015
The table below shows the financial assets and liabilities at 30 June 2016 and 31 December 2015 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.
52

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:
As at 30 June 2016
Less than three
months
Three to six
months
Six months to one

year
One year to five

years
Over five years
Total
Financial assets
Cash and cash equivalents
Bank deposits
Loans and advances
773,534,785
13,915,684
53,149,250
166,167,016
10,827,726
412,960,050
120,998,846
1,758,807,183
3,509,658,673
39,294,926
1,897,325,367
773,534,785
180,082,700
171,121,498
7,631,900,523
Total financial assets
840,599,719
589,954,792
1,879,806,029
3,509,658,673
1,936,620,293
8,756,639,506
Financial liabilities
Customer accounts
Guarantees given to the Entities
Loan commitments not yet paid
Due to government
Due to other banks
Bonds
Borrowings
(15,977,141)
(164,619,289)
(72,564,298)
(30,545,240)
(302,155,539)
(35,240,256)
(86,188,440)
(254,625,341)
(185,394,906)
(6,557,777)
(206,482,208)
(770,938,854)
(1,180,041,512)
(180,670,092)
(170,213,089)
(2,328,106,753)
(727,622,200)
(1,864,582,379)
Total financial liabilities
(707,290,203)
(653,060,232)
(2,131,650,458)
(2,498,319,842)
(2,592,204,579)
Net financial assets/(liabilities)
133,309,516
(63,105,440)
(251,844,429)
1,011,338,831
Total cumulative amount
133,309,516
70,204,076
(181,640,353)
829,698,478
(15,977,141)
(164,619,289)
(1,098,128,493)
(30,545,240)
(487,550,445)
(2,119,674,834)
(4,666,029,872)
(8,582,525,314)
(655,584,286)
174,114,192
174,114,192
174,114,192

53

Liquidity risk (Continued)

Financial assets
Bank deposits
Loans and advances
Six months to
One year to
one year
five years
Less than
three months
Three to six
months
Over five
years
Total
703,083,365
137,393,162
286,164,224
8,956,180
323,591,332
9,129,786
137,175,534
478,227,542
4,335,377,856
1,920,773,473
703,083,365
155,479,128
137,175,534
7,344,134,427
1,126,640,751
332,547,512
624,532,862
4,335,377,856
1,920,773,473
8,339,872,454
Customer accounts
Gross settled swaps
-inflows
-outflows
Guarantees given to the Entities
Due to other banks
Bonds
Borrowings
45,835,291
(53,672,900)
(177,804,209)
(138,518,897)
(243,937,228)
(34,479,679)
(24,126,783)
(72,433,697)
(167,803,049)
(5,524,213)
(67,973,373)
(116,307,100)
(28,784,337)
(40,023,618)
(92,947,409)
(804,072,258)
(1,324,699,108)
(2,273,398,980)
(582,474,865)
(1,932,390,508)
45,835,291
(53,672,900)
(177,804,209)
(1,131,331,952)
(440,524,614)
(1,987,201,483)
(4,390,837,053)
(669,567,645)
(313,734,332)
(278,062,464)
(4,402,170,346)
(2,514,865,373)
(8,178,400,160)
457,073,106
18,813,180
346,470,398
(66,792,490)
(594,091,900)
161,472,294
457,073,106
475,886,286
822,356,684
161,472,294
161,472,294
(42,863,240)
755,564,194
(42,863,240)
54

Market risks
Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rates will
affect the Bank's income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable levels, 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 separately, which do not generate interest based on at nominal
contractual interest rates. A summary of the Bank's interest rate gap position on its financial assets and
liabilities are as follows:
55

Market risks (Continued)
As at 30 June 2016
Non-interest
sensitive
Less than three

months
Three to six
months
Six months to
one year
One to five
years
Over five
years
Total
Financial assets
Bank deposits
Loans and advances
264,895,886
1,561,436
1,784,599
147,531,376
505,745,008
13,385,033
103,136,184
161,598,640
127,751,800
48,239,513
1,009,248,218
1,924,294,606
2,109,497,867
770,640,894
176,545,109
129,536,399
5,341,947,764
415,773,297
622,266,225
337,589,953
1,009,248,218
1,924,294,606
2,109,497,867
6,418,670,166
Customer accounts
Due to government
Due to other banks
Bonds
Borrowings
(15,977,141)
(8,938)
(3,666,411)
(20,253,421)
(85,350,158)
(30,000,000)
(368,024,865)
-
(179,820,772)
(168,839,661)
(1,137,605,907)
(163,711,121)
(108,425,388)
(1,799,337,545)
(613,683,040)
(1,666,220,259)
(15,977,141)
(30,008,938)
(551,512,048)
(1,879,967,756)
(3,883,458,744)
(125,256,069)
(398,024,865)
(348,660,433)
(1,301,317,028)
(1,907,762,933)
(2,279,903,299)
(6,360,924,627)
290,517,228
224,241,360
(11,070,480)
(292,068,810)
16,531,673
(170,405,432)
57,745,539
290,517,228
514,758,588
211,619,298
228,150,971
57,745,539
57,745,539
503,688,108
56

Non-interest
sensitive
Less than
three months
Three to six
months
Six months
to one year
One to five
years
Over five
years
Total
Financial assets
Bank deposits
Loans and advances
119,423,646
1,559,904
1,394,021
53,670,026
580,655,405
134,641,891
200,169,701
8,730,800
33,911,512
8,730,800
129,758,800
102,556,689
2,647,483,176
1,871,453,052
700,079,051
153,663,395
131,152,821
4,909,244,156
176,047,597
915,466,997
42,642,312
241,046,289
2,647,483,176
1,871,453,052
5,894,139,423
Customer accounts
(42,863,240)
(7,837,609)
(42,863,240)
(7,837,609)
Due to other banks

Bonds
Borrowings
(3,029,713)
(19,379,923)
(19,160,282)
(242,011,338)
-
(163,097,300)
(4,978,321)
(27,502,020)
(4,978,321)
(1,243,526,663)
(1,849,214,204)
(464,243,828)
(1,688,209,423)
(435,640,371)
(1,727,150,414)
(3,566,540,551)
(92,270,767)
(242,011,338)
(168,075,621)
(32,480,341)
(3,092,740,867)
(2,152,453,251)
(5,780,032,185)
83,776,830
673,455,659
(125,433,309)
208,565,948
(445,257,691)
(281,000,199)
114,107,238
83,776,830
757,232,489
631,799,180
840,365,128
395,107,437
114,107,238
114,107,238
57

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
Sensitivity of projected net interest income
At 30 June 2016
At 31 December 2015
100 bp parallel
Increase
2,327,717
303,304
Decrease
(2,327,717)
(303,304)
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. 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
2016:
In thousands of
Mongolian Tugriks
As at 30 June 2016
MNT
USD
EUR
JPY
CNY
Total
391,754,259
322,392,709
11,202,385
45,228,076
63,465
770,640,894
1,220,022
138,540,101
11,186,061
25,598,925
176,545,109
10,418,411
119,117,988
129,536,399
2,894,963,232
2,430,234,130
16,750,402
5,341,947,764
3,298,355,924
3,010,284,928
39,138,848
70,827,001
63,465
6,418,670,166
Customer accounts
Due to government
Due to other banks
Bonds
Borrowings
19,086
30,008,938
235,341,991
2,073,647,391
15,957,907
455,267,945
1,155,786,567
1,745,693,129
96,244,103
64,118,224
488,839,198
-
148
-
15,977,141
30,008,938
551,512,048
1,879,967,756
3,883,458,744
Total monetary
financial liabilities
2,339,017,406
3,372,705,548
160,362,327
488,839,198
148
6,360,924,627
Net balance sheet

position
959,338,518
(121,223,479)
(418,012,197)
63,317
57,745,539
Assets
Cash and cash
equivalents
Bank deposits
Short term
investment
Loans and advances
Total monetary
financial assets
Liabilities
(362,420,620)
58

Market risk (Continued)
The table below summarizes the Banks exposure to foreign currency exchange rate risk at 31
December 2015:
In thousands of
Mongolian Tugriks
MNT
USD
EUR
JPY
CNY
Total
596,413,558
85,316,487
15,231,422
3,051,438
66,146
700,079,051
62,755,863
21,951,677
68,955,855
153,663,395
10,004,548
121,148,273
131,152,821
2,326,008,223
2,558,181,042
25,054,891
4,909,244,156
2,932,426,329
2,827,401,665
62,237,990
72,007,293
66,146
5,894,139,423
Customer accounts
Due to other banks
Bonds
Borrowings
26,606,535
14,096,178
147,704,779
2,025,221,259
16,256,551
325,492,940
1,175,056,812
1,474,321,688
96,051,253
66,997,604
404,388,823
-
154
-
42,863,240
435,640,371
1,727,150,414
3,566,540,551
Total monetary
financial liabilities
2,213,628,751
2,991,127,991 163,048,857
404,388,823
154
5,772,194,576
(7,837,609)
65,992
114,107,238
Assets
Cash and cash
equivalents
Bank deposits
Short term
investment
Loans and advances
Total monetary
financial assets
Liabilities
Derivatives
Net balance sheet

position
(53,672,900)
718,797,578
(217,399,226)
45,835,291
(54,975,576) (332,381,530)
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 6% (2015: 6%)
US Dollar weakening by 6%(2015: 6%)
Euro strengthening by 5% (2015: 5%)
Euro weakening by 5% (2015: 5%)
Yen strengthening by 5% (2015: 5%)
Yen weakening by 5% (2015: 5%)
CNY strengthening by 1% (2015: 1%)
CNY weakening by 1% (2015: 1%)
Total effects
30 June 2016
(21,745,237)
21,745,237
(6,061,174)
6,061,174
(20,900,610)
20,900,610
633
(633)
31 December 2015
(13,043,954)
13,043,954
(2,748,779)
2,748,779
(16,619,077)
16,619,077
660
(660)
59

Operational risk
The Bank has implemented its own policies and procedures to manage operational risks, including
anti-corruption measures, anti-fraud management, anti-money laundering, terrorism financing
measures, information risk management and legal compliance. These policies are designed to ensure
consistent management and stable operations, at the same time, complying with the relevant laws,
regulations and policies.
To manage internal fraud-related risks, the Bank maintains a separate database of classified
information with restricted access rights. The Bank also utilizes a multi-stage selection process in
hiring new employees under the Human Resources Policy, and conducts regular assessments based
on key HR performance indicators. For managing external fraud-related risks, the Bank implements
procedures with respect to placing and withdrawing cash deposits in commercial banks, analyzing
counterparty risks, and is registered with the central credit information system maintained by the Bank
of Mongolia in order to enhance the monitoring of borrowers.
In relation to the implementation of the Glass Account Law, the Bank has developed a regulation that
the Bank must follow internally to ensure its compliance risk. In addition, the Bank works with the
Government on proposed amendments to the Development Bank Law which will improve corporate
governance according to the Organization for Economic Co-operation and Development and World
Bank recommended standards.
Capital Management
The Bank is not subject to any externally imposed capital requirements, as it is not regulated by the
by the Central Bank (Bank of Mongolia). The Bank adopted the standardized internal approach which
takes into consideration of credit risk exposure by risk weighting on on-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.
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 Bank s capital adequacy as at 30 June 2016 and 31 December 2015, respectively,
were as following:
30 June 2016
31 December 2015
Tier I capital:
Share capital
Retained earnings
245,336,288
(5,766,665)
245,336,288
33,286,761
Total tier I capital
239,569,623
278,623,049
17,446,836
8,778,838
17,446,836
8,778,838
257,016,459
287,401,887
11.0%
13.3%
Tier II capital:
Revaluation reserve for investment securities availablefor-sale
Total tier II capital
Total regulatory capital/capital base
Risk weighted capital ratio
The Bank weights all assets where the Government of Mongolia is the counterparty at 0%.
60

29. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 30 June 2016:
ASSETS
Total ASSETS SUBJECT TO

OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
LIABILITIES
Sale and repurchase agreements
Total LIABILITIES SUBJECT TO

OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
Gross amounts
before
offsetting in the
statement of
financial
position
Gross amounts
set off in the
statement of
financial
position
Net amount
after offsetting
in the statement
of financial
position
(a)
(b)
(c) = (a) - (b)
Amounts subject to master netting

and similar arrangements not set off
in the statement of financial position
Financial
instruments
Cash collateral
received
(d)
(e)
Net amount of
exposure
(c) - (d) - (e)
119,117,988
119,117,988
99,405,639
19,712,349
119,117,988
119,117,988
99,405,639
19,712,349
99,405,639
99,405,639
99,405,639
99,405,639
99,405,639
99,405,639
On 26 May 2015, the Bank entered into repurchase agreement with Trade Development Bank of Mongolia, also known as a repo, for USD 50,000 thousand
at interest rate of 6.10% p.a. for a period of 125 days. The maturity date of agreement was on 28 September 2015 and this placement is fully collateralized
by the Government bonds in the amount of USD 60,000 thousand (Note 8). Subsequently the repurchase agreement has been prolonged to14 April 2016
and 11 October 2016 by both parties agreement.
61

29. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED)
Financial instruments subject to offsetting, enforceable master netting and similar arrangements are as follows at 31 December 2015:
Gross amounts
before offsetting
in the statement of
financial position
Gross amounts set

off in the statement
of financial position
(a)
(b)
Net amount after

offsetting in the
statement of
financial position
Financial
instruments
Cash collateral
received
(c) = (a) - (b)
(d)
(e)
ASSETS
Total ASSETS SUBJECT TO

OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
LIABILITIES
Sale and repurchase agreements
Total LIABILITIES SUBJECT TO

OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
Amounts subject to master netting and

similar arrangements not set off in the
statement of financial position
Net amount of
exposure
(c) - (d) - (e)
121,148,273
121,148,273
101,083,263
20,065,010
121,148,273
121,148,273
101,083,263
20,065,010
101,083,263
101,083,263
101,083,263
101,083,263
101,083,263
101,083,263
62

30. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY
The following table provides a reconciliation of financial assets with measurement categories at 30
June 2016:
Loans and
receivables
Available for
sale financial
assets
Total
770,640,894
770,640,894
Bank deposits:
- Short-term placements with other banks with original
maturities of more than three months
176,545,109
176,545,109
176,545,109
176,545,109
129,536,399
129,536,399
Loans and advances to customers:
5,341,947,764
5,341,947,764
- Loans and advances to be repaid by the State budget
2,926,136,423
2,926,136,423
- Loans and advances to be repaid by the Corporates
2,415,811,341
2,415,811,341
39,294,926
39,294,926
6,418,670,166
39,294,926
6,457,965,092
Financial assets:
For investment securities available for sale please refer to Note 10.
The following table provides a reconciliation of financial assets with measurement categories at 31
December 2015:
Loans and
receivables
Available for
sale financial
assets
Total
700,079,051
700,079,051
Bank deposits:
153,663,395
153,663,395
- Short-term placements with other banks with original

maturities of more than three months
153,663,395
153,663,395
131,152,821
131,152,821
Loans and advances to customers:
4,909,244,156
4,909,244,156
- Loans and advances to be repaid from the State budget
2,742,215,956
2,742,215,956
- Loans and advances to be repaid by the Corporates
2,167,028,200
2,167,028,200
27,737,595
27,737,595
5,894,139,423
27,737,595
5,921,877,018
Financial assets:
As of 30 June 2016 and 31 December 2015 all of the Banks financial liabilities except for derivatives
were carried at amortized cost. Derivatives belong to the fair value through profit or loss measurement
category.
63

31. 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 consolidated 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 2016
In thousands of Mongolian
Tugriks
Level 1
31 December 2015
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Assets AT FAIR VALUE

FINANCIAL Assets
Investment securities
available for sale
39,294,926
39,294,926
- 27,737,595
27,737,595
Total ASSETS RECURRING

FAIR VALUE
MEASUREMENTS
39,294,926
39,294,926
- 27,737,595
27,737,595
Financial derivatives
7,837,609
7,837,609
Total LIABILITIES
RECURRING FAIR VALUE
MEASUREMENTS
7,837,609
7,837,609
LIABILITIES CARRIED AT
FAIR VALUE
Financial derivatives measured at level 2 are fair valued through interest rate parity analysis using the
inter-bank rates of each currency.
Investment securities available for sale fully relate to the Banks investment in MIK (Note 4 and Note
10). Investment in MIK was fair valued as at 31 December 2015 using discounted cash flows
valuation model. On 4 January 2016 MIK shares was listed and same was categorized as level 1, as
the quoted price was available as at 30 June 2016 and it has been valued at the closing rate of
Mongolian Stock exchange rate.
If the share price of MIK would increase/(decrease) by 10%, the fair value of investment would
increase/(decrease) by MNT 3.9 billion.
64

31. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
b) Assets and liabilities not measured at fair value but for which fair value is disclosed
The Bank carries its investments available for sale and financial derivatives at fair values. All other
assets and liabilities are carried at amortised cost. The Bank determines fair values for those financial
instruments carried at amortized 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.
(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. Interest rates
on short-term investment (i.e. Mongolian government bonds) are not representative of loans given to
the Ministries due to different credit risk and different factors affecting these interest rates and their
movements over time.
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 2016.
In January 2014, Samurai bond was issued at a fixed rate of 1.52% p.a. with 10 years maturity and
guaranteed by the Mongolian Government and Japan Bank of International Cooperation (JBIC).
JBICs guarantee covers the principal and part of the interest of this issue. This bond is listed on the
Japanese Stock Market and its fair value has been calculated using its quoted price as at 30 June
2016.
Fair values of other borrowings, issued promissory notes and bonds which represent a principal
market (Note 4), approximate carrying values as of 30 June 2016, as there were no substantial
changes in interest rates since inception and/or related liabilities (as in the case of issued promissory
notes) represent principal market and thus their interest rates are not sensitive to the overall changes
of interest rates in the Mongolian banking sector. Related loans financed from these borrowings and
issued promissory notes represent principal market and their fair values (included in loans and
advances) approximate carrying values as of 30 June 2016, as there were no substantial changes in
interest rates since inception and/or related interest rates are not sensitive to the overall changes of
interest rates in the Mongolian banking sector.
The interest rates used in determining fair values are presented below. These rates represent
contractual interest rates and are not materially different from effective interest rates.
65

Discount rates, used below, depend on currency, maturity of the instrument and credit risk of the
counterparty. The discount rates were as follows:
30 June 2016
31 December 2015
MNT
USD
JPY
EUR
14.50% p.a.
6.00% to 6.50% p.a.
4.50% to 5.25% p.a.
6.95% to 7.85% p.a.
6.00% to 7.75% p.a.

4.50% to 5.50% p.a.
6.95% to 7.95% p.a.
USD
MNT
5.50 % p.a.
8.30% p.a.
5.50 % p.a.
8.30% p.a.
MNT
USD
MNT
USD
4.79% to 10.00% p.a.

5.125% to 7.90% p.a.
4.50% to 13.15% p.a.
5.125% to 8.45% p.a.
4.25% to 10.00% p.a.

5.125% to 7.90% p.a.
4.5% to 12.00% p.a.
5.125% to 8.45% p.a.
MNT
USD
MNT
USD
EUR
6.00% to 6.125% p.a.

5.125% to 7.90% p.a.
5.00% to 10.0% p.a.
5.125% to 8.45% p.a.
4.40% to 4.79% p.a.
6.00% to 6.125% p.a.

5.125% to 7.90% p.a.
5.00% to 10.0% p.a.
5.13% to 8.45% p.a.
4.40% to 4.79% p.a.
Due to government
MNT
10.875% p.a.
Due to other banks
USD
EUR
MNT
6.00% to 8.50% p.a.

4.00% to 5.90% p.a.
-
6.00% to 6.50% p.a.

4.85% to 5.95% p.a.
14.75 p.a.
Bond
USD
JPY
MNT
5.75% p.a.
1.52% p.a.
4.00% p.a.
5.75% p.a.
1.52% p.a.
4.00% p.a.
Borrowing
MNT
USD
EUR
4.79% p.a.
3.20% to 11.875%p.a.
1.90% p.a. to 6.00% p.a.
4.79% p.a.
3.20% to 6.00%p.a.
2.29% p.a. to 6.00% p.a.
Bank deposits
Short-term placements with other banks with
original maturities of more than three months

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
66

Fair values of financial instruments as at 30 June 2016 carried at amortised cost are as follows:
30 June 2016
Carrying
Amount
Level 1
Level 2
Level 3
Assets:
Cash on hand
Cash at other banks
770,640,894
18,518
4,533,155
258,148,288
507,940,933
18,518
18,518
-
770,622,376
4,533,155
258,148,288
507,940,933
Bank deposits
176,545,109
176,545,109
129,536,399
129,536,399
5,341,947,764
5,341,947,764
2,926,136,423
2,926,136,423
Loans and advances to be repaid by the

Corporates
2,415,811,341
2,415,811,341
Total financial assets carried at amortised

cost
6,418,670,166
18,518
1,076,703,884
5,341,947,764
Liabilities:
Customer accounts
15,977,141
15,977,141
Due to government
30,008,938
30,008,938
Due to other banks
551,512,048
551,512,048
Bonds
Samurai bond issued in the Japanese bond
market
Bond issued in Mongolian bond market
1,879,967,756
1,155,786,567
1,669,129,196
1,157,739,846
235,341,991
-
488,839,198
511,389,350
235,341,991
235,341,991
Borrowings
Borrowing from foreign bank
3,883,458,744
2,616,002,718
1,266,785,607
3,883,458,744
2,616,002,718
1,267,456,026
Total financial liabilities carried at amortised

cost
6,360,924,627
1,669,129,196
597,498,127
4,118,800,735
Loans and advances

Loans and advances to be repaid by the State
budget
67

Fair values of financial instruments as at 31 December 2015 carried at amortised cost are as follows:
31 December 2015
Carrying
Amount
Level 1
Level 2
Level 3
Assets:
Cash on hand
Cash at other banks
700,079,051
8,933
3,048,110
113,056,264
583,965,744
8,933
8,933
-
700,070,118
3,048,110
113,056,264
583,965,744
Bank deposits
153,663,395
153,663,395
131,152,821
131,152,821
4,909,244,156
4,909,244,156
2,742,215,956
2,742,215,956
2,167,028,200
2,167,028,200
5,894,139,423
8,933
984,886,334
4,909,244,156
Liabilities:
Customer accounts
42,863,240
42,863,240
Due to other banks
435,640,371
435,640,371
Bonds
Samurai bond issued in the Japanese
bond market
Bond issued in Mongolian bond market
1,727,150,414
1,175,056,812
1,546,023,310
1,126,914,734
147,704,779
-
404,388,823
419,108,576
147,704,779
147,704,779
Borrowings
Borrowing from foreign banks
3,566,540,551
2,563,914,387
1,002,626,164
3,566,540,551
2,563,914,387
1,002,626,164
Total financial liabilities carried at

amortised cost
5,772,194,576
1,546,023,310
478,503,611
3,714,245,330
Loans and advances

Loans and advances to be repaid from the
State budget
Loans and advances to be repaid by the
Corporates
Total financial assets carried at

amortised cost
68

32. COMMITMENTS AND CONTINGENCIES
30 June 2016
31 December 2015
Guarantees issued
164,619,289
1,098,128,493
177,804,209
1,131,331,952
Total
1,262,747,782
1,309,136,161
The Banks management believes that fair value of guarantees and loan commitments not yet paid is
not material as of 30 June 2016 and 31 December 2015.
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 164.6 billion as of 30 June
2016) on the 13 September 2012. To date the Export-Import Bank of China has not yet provided any
funding to the New Yarmag Housing Project.
Assets pledged and restricted. Government bond in the amount of USD 60 million (31 December
2015: USD 60 million) represent collateral for sales and repurchase agreement with Trade and
Development Bank of Mongolia (Note 16). In case the borrowing bank does not have sufficient funds
to return amounts borrowed under repurchase agreements to the lending bank, the payments of
principal and interest on related Government bond is transferred to the lending bank.
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 2016, management has assessed that recognition of
a provision for uncertain tax position is not necessary.
69

33. 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 split of the Banks revenue per products/services is shown below.
01 January 2016
to 30 June 2016
01 January 2015
to 30 June 2015
Interest income for loan paid by:

- The State budget
- The Corporates
169,100,321
92,475,432
76,624,889
135,739,529
76,479,214
59,260,315
36,138,466
35,071,797
1,066,669
58,925,392
58,596,734
328,658
3,720,753
3,720,753
7,490,918
7,490,918
124,695
124,695
377,710
377,710
22,576
22,576
(107,762)
20,853
(128,615)
(1,048,984)
(1,048,984)
Interest income from Commercial banks:

- Deposit
- Current account
Short term investment:
- The State budget
Fee and commission income:
- With the Corporates
Gain/(loss) from foreign currency trading:
- With the Government
- With the Corporates (commercial banks)
Gains less losses from recognition of liability:
- With the Government
Losses from financial derivatives:
-With the Corporates (commercial banks)
Total income
(303,240)
(303,240)
208,803,571
(5,425,400)
(5,425,400)
195,951,403
Total income generated from Government and Government controlled entities amount to MNT
101,311,791 thousand in the period ended 30 June 2016 (period ended 30 June 2015: 94,966,574
thousand).
70

34. POST BALANCE SHEET EVENTS
Effective from 18 August 2016 the Bank of Mongolia changed its policy rate from 10.5% to 15% p.a.
Standard & Poor's rating agency downgraded the sovereign rating of Mongolia to B- with stable
outlook on 19 August 2016. Moody's rating agency downgraded the sovereign rating of Mongolia to
B3 from B2 on 26 August 2016. This downgrade was due to the slowdown in Mongolias fiscal and
growth prospects.
On 17 August 2016, by resolution No.36 the Government of Mongolia has built an inspection team
which combines representatives from related authorities (the ministries, BOM, etc.). The purpose of
the inspection team was to examine total financing which has obtained from the date of Banks
establishment, its investing activities and selection and implementation of the projects. The final report
of the inspection team has not yet finalized as at the approval date of these consolidated financial
statements.
On 15 September 2016, Board of Directors of the Bank has approved a resolution No.69 in order to
reorganize the operational structure of the Bank. The process of reorganizing the Banks operational
structure is in the process and the change has not impacted to the owners equity of the Bank. The
management considers that the change does not have adverse impact to the Banks consolidated
financial statements, in the future.
71

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Development Bank of Mongolia

International Financial Reporting Standards

Development Bank of Mongolia

Net interest income

Provision charge for loan impairment

Net interest income after provision for loan impairment

Fee and commission income

(Loss)/Profit before tax

(Loss)/Profit for the period

Total comprehensive (loss)/income for the period

(Loss)/Profit is attribute to:

Items that may be reclassified subsequently to profit or loss:

Other comprehensive income for the period

(Loss)/Profit for the period

Total comprehensive income /(loss) is attributable to:

Total comprehensive (loss)/income for the period

Development Bank of Mongolia

In thousands of Mongolian Tugriks

Balance at 1 January 2015

Profit for the period

Total comprehensive income

Balance at 30 June 2015

Balance at 1 January 2016

Loss for the period

Total comprehensive loss

Balance at 30 June 2016

Development Bank of Mongolia

Cash flows (used in)/from operating activities before

Net decrease/(increase) in bank deposits

Net cash used in operating activities before tax and

Income taxes paid

Net cash (used in)/from operating activities

Cash flows used in investing activities

Net cash used in investing activities

Development Bank of Mongolia

Net cash from financing activities

Effect of exchange rate changes on cash and cash

Net increase in cash and cash equivalents

Cash and cash equivalents at the end of the period

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

Basis of Preparation and Presentation

National Export Insurance LLC

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

Derecognition of intangible assets. An intangible asset is derecognized on disposal, or when no

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

has control or joint control over the Bank or;

An entity is related to the Bank if any of the following conditions apply:

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

Development Bank of Mongolia

New Accounting Pronouncements

Development Bank of Mongolia

Development Bank of Mongolia

Total cash and cash equivalents