Contents Golomt Bank today

Letter from the Chairman of the Board of Directors 4

Letter from the President and CEO 6 2003 2002
Golomt Bank Vision, Mission, Goals, Strategy and Credo 9 Total assets 114 059,1 79 304.8
Loans 46 788,8 32 337.4
Mongolian macroeconomy 14 Foreign assets 39 797,2 22 885,1
Real sector 15 Current account deposits 26 280,8 20 980,2
Money supply 16 Savings account deposits 66 939,7 44 093,2
Foreign trade 18 Own equity 9 792,8 5 701,6
Banking and financial market 18 Net profit (after tax) 1 089,4 819,9
Unemployment 19
Shareholder company 1 1
Golomt Bank awards in 2003 20 Number of branches 10 10
Number of employees 271 213
Golomt Bank organizational structure 21 Number of borrowers 4 294 2 344
Retail Banking Division 22 Number of cardholders 28 334 4 388
Financial Control Division 23 Number of customers 41 900 33 347
Treasury Division 23
Supports Division 23 Return on equity 11.12% 14.38%
Human Resource Report 24 Cost/income ratio 85.2% 83.80%
Information & Technology Report 25 Fee income/total income ratio 29.65% 25.79%

Major Projects/Achievements 26 Liquidity ratio 57.79% 58.53%

Bodi Tower 27 Own equity to total assets ratio 15.36% 14.18%
Golomt Bank for social development and wellbeing of children 28 Foreign currency risk ratio 27.51% 12.77%
"Golden Key" children savings deposit 29
Mongolian students discount card 30
"Golden Ear" RMB card service 31

Golomt Bank business operations 32

Lending 33
Card service 35
External relations 36
Direct marketing 36
Consulting service 37
Internet banking service 38
Electronic banking service 39
Online banking service 39

Financial report 40
Asset management 41
Deposits 41
Own equity 41
Financial performance 42
Financial performance ratios 42

Risk management report 43

Credit risk 44
Liquidity risk 45
Market risk 45
Operational risk 46

Independent Auditor's Report

 4

BOLD Luvsanvandan
Chairman of the Governing Board

It is my pleasure to report to our esteemed business partners, clients and customers the
performance of Golomt Bank in 2003. On behalf of the Board of Directors and
shareholders of the Golomt Bank I would like to express our full satisfaction with regard
to the Golomt Bank operations over the past year. While we assessed highly the results
of our work produced last year, we have developed a very optimistic plan for the year
2004. We consider that Golomt Bank has achieved its objectives by way of expanding
operations in the Mongolian banking and financial market and introducing many new
products and services. As a result the total assets of Golomt Bank grew by 44 percent
and reached 15 percent of the total assets of the banking system by the end of 2003.
We can proudly state that the Bank impressive results in growth and expansion of
operations were due to our successful cooperation with customers, clients and business
partners. Based on our achievements Golomt Bank was awarded in 2003 with awards
for "Outstanding Business Development" by the Visa International, for "Best Partner in
Mongolia Market" by the Mastercard International, "The Best Banking and Financial
Brand of Mongolia" by Chamber of Trade and Industry of Mongolia and PR Association,
"The Best Student Representative" by the Union of Mongolian Students. We can assure
you that we will be further carrying out successfully our activities and introducing many
innovations relying on the full confidence of our customers.

Taking this opportunity I would like to express once again our gratitude for your
confidence and cooperation and our best wishes for success in your business and
activities. We extend our best wishes for expansion and development of our continued
cooperation and mutual benefit.

BOLD Luvsanvandan
Chairman of the Governing Board
 6

BAYASGALAN Danzandorj
President and CEO

The overall economic prospects and legal and political environment were relatively
stable and there were no significant changes related to the banking sector in 2003. It
should be mentioned that the Government and the Central Bank played a significant role
in ensuring further sustainable development of the Mongolian banking and financial
sector and creating favourable conditions for the banking sector operations, including
Golomt Bank.

In 2003 Golomt Bank total assets increased by 44 percent and reached MNT 114.1
billion, thus advancing our position in the banking and financial market.

The competition at the Mongolian banking and financial market has significantly
intensified from year to year and last year the banking and financial institutions
continued to compete mainly in terms of product pricing. Due to severe price
competition banks were not able to reduce the cost of borrowed funds. On the other
hand, the trend in the decline in lending rates continued throughout 2003. In the
conditions of mounting competition Golomt Bank though proposed to clients and
customers favourable and competitive prices. Though it did not pursue a policy to
compete by pricing, its primary objective was to gain the confidence of its clients and
customers in order to become the most credible bank. As a result, the total number of
customers increased by approximately 86%. In 2003 Golomt Bank has made significant
steps towards reducing substantially the Bank risk and advancing its competitive
position by increasing its capital by 3 billion tugrugs. In the last year, our bank's net
income after tax increased to MNT 1.1 billion and the bank paid income tax of MNT
767 million to the state budget.

Golomt Bank since its establishment has aimed to introduce new and modern products
and services in the Mongolian banking and financial market in order to meet the
demands of clients and customers. In the course of the past year several new products
have been initiated and introduced by Golomt Bank to the market.

In 2003 new products and services, like childrens' "Golden Key" savings account, "the
Golden Ear" RMB card service in cooperation with the Agricultural Bank of the People's
Republic of China , "Mongolian students discount card" have been introduced. Also the
cooperation with Visa International, Mastercard International has been expanded and
Visa International Visa Electronic and Mastercard International Maestro cards have been
newly introduced, thus making more diversified the choices of our products and
services.
7 8

In order to advertise and familiarize the clients with bank products and services and Esteemed business partners and customers,
provide them with in-depth knowledge about the banking services the advanced method
of direct marketing was initiated and this has given us very positive results. With the I am proud to state that Golomt Bank has achieved its goals planned for 2003 and
objective to save the time of the clients as well as to provide the different types of the produced even better results beyond our expectations. We are fully conscious that we
bank services from a single point and in order to provide with business advice, Premier are at the intial stage of our productive activitity and we have to advance further and
Banking service was expanded and Consultancy Unit for business and other issues was create more. Therefore, we plan 2004 to be the year of business success and new
established. productivity. We consider that cooperation with our customers, borrowers, cardholders
is of great significance. We extend to our business partners, customers, foreign and
Last year we paid special attention to providing high quality services rather than domestic clients, organizations and individuals and to all Mongolian people our best
expanding our services in quantitative terms. The mortgage loans to the individuals wishes for success in their activities and well-being. We wish you all this year to be the
were initiated using the funding under the Asian Development Bank project and from most successful year.
our own resources. Small credits have been increased and credit card services have
been activated through the Branch offices and centers. While we expanded the scope of
our products and services, we also faced a growing demand to expanding our external
relations and ensuring a more flexibility to our services. In 2003 we concluded the
agreements on cooperation with the Agricultural Bank of China, with CIC of France, and
Rabobank of Holland as well as renewing our agreements with some correspondent
banks to manage efficiently our funds. In order to promote foreign investment and
businesses to Mongolia from foreign countries new credit opportunities were created by BAYASGALAN Danzandorj
concluding agreements with the Export and Import Bank and the Land Bank of Taiwan President and CEO
and the Samsung Corporation of Korea.

We also streamlined and activated our products and services, internet and electronic
banking, on-line banking, which were introduced by Golomt Bank in the previous years.
We paid special attention to the reliability of bank information technology and developed
and started to utilize new accounting, credit, saving management information software
programs.

"One of our main objectives is to contribute to the development of Mongolia and to

invest for the future so that the future generations will be able to inherit from us the
most valuable things".

Last year the Bodi Tower, a combination of modern and classic construction design,
was commissioned and occupied. Within the framework of the "Investment and
Productivity Year" we have donated 101 million tugrugs to the city of Ulaanbaatar. We
also initiated our activities aimed to the benefit of our children who determine the future
of the country and we selected the World Vision organization amongst other
international and non-governmental organizations in this area and we are actively
cooperating with this organization.
9 10
Golomt Bank Vision, Mission, Goals, Strategy
and Credo
Vision
To be the market leader in Mongolia, a reputable and credible bank with sound international
standard banking practices
Mission
To be the market leader in innovation and the supplier of the best customer oriented banking and
financial services and the most efficient bank with talented employees contributing to the social
and economic development of the country
Goals
To restructure and reorganize the Bank as a public company, the shares of which are freely
traded on the stock exchange.
To gain the leading position in the market and sustain it for long- term.
To introduce and develop advanced technologies in all the activities of the bank.
To develop actively all types of credit facilities and to minimize loan losses.
To maximize balance on the current accounts as a percentage of the total deposits and to
increase long-term customer deposits.
To streamline the payment card market, to strengthen the bank's leading position and increase
the number of the cardholders and volume of card transactions.
To introduce new types of financial services.
Strategy
To introduce new technologies
to introduce the latest achievements in information technology in its activities on a continuous
basis and to make constant upgrading.
To provide the market with a high quality and premium service
to introduce successfully traditional and new types of financial services to the targeted market
based on customer demand.
to streamline and to sustain the new types of customer services.
To attract new customers and to build customer loyalty
to analyze demands of different segments of customers and to operate efficiently in respond to
those demands.
to provide customers with efficient, friendly and high quality services.
to care about customers and to create an atmosphere of trust and confidence.
To create a team of capable and professional staff.
to strengthen the Bank human resources and to create favourable conditions for the personal
development of every employee.
to improve efficiency by increasing each employee's productivity.
to make an annual assessment of each employee's merit and contribution and to create
incentives to work effectively and increase their responsibility.
to ensure that the Bank and the employee both develop and advance.
To contribute to the social and economic development of the country.
to make a major contribution to the social and economic development of the country in a
comprehensive way.
to carry out activities directed to protecting the environment and making better the lives of
children who are the country's future.
Strategic planning and marketing.
to introduce the new types of customer services on the basis of actual assessment of the
business environment by ensuring flexible price policy, providing accurate and timely
information and advertising, prioritizing and activating marketing.
to create an image of a bank which highly values customers.
to establish Bank branches and units first in our neighbouring countries and later in other
foreign countries
 Management Team

TSERENDAVAA Namuu BOLD Canbat SUGAR Dashbazar ENKHTUVSHIN OYUN-ERDENE Lamjav GANBOLD Galsan GANKHUYAG Gombosuren CHIMEGMUNKH Munkhuu MUNKHTUR Dagva GANBAT Jamiyan NATSAGDORJ Namkhai
Director of Information Director of Marketing Director of Back Office Sodnomtseren Director of Investment & Vice President & Director Vice President & Director Vice President & Director Vice President & Director Director of Internal Director of Branch
Technology Department Department Director of Project Finance Department of Supports Division of Treasury Division of Financial Control Division of Corporate Banking Division Audit Department Management
Card Center
15 16

Macroeconomy
The overall economic situation of Mongolia was characterized by positive trends in
recent years and the economic growth has been stable. The preliminary budget
performance for 2003 indicates that the total revenues and grants of Mongolia's
consolidated budget total to MNT535.8 billion and total expenditure and net lending
amount to MNT 616.5 billion by widening the budget deficit to MNT 80.8 billion, which
is by MNT 9.1 billion higher compared to the previous year. The budget current revenue
has amounted to MNT 526.4 billion and current expenditure has totalled to MNT 446.3
billion, which made the current balance with surplus of MNT 80.1 billion.
Real Sector
The real growth of GDP reached 1% in 2001, picked up to 4% in 2002 and preliminary
performance for 2003 has indicated the growth rate of 5.3 % in 2003 by increasing the
nominal GDP to MNT 1,359.7 billion. The positive growth of GDP in recent years
indicate the improvement of overall economic situation and creation of favourable
conditions for business environment, thus deepening confidence of banking institutions,
clients and customers.
GDP growth (in 1995 relative prices)
6.0%
5.0%
In 2003 the overall industrial output grew to MNT 276.6 billion (in 1995 relative prices)
with increase of 2% or MNT 5.5 billion compared to the previous year. The reason for
this performance of the industrial sector was due to increases in the oil and gas
exploration, in cigarette production, in publishing and recording, in wood processing and
manufacturing, in metal processing and production, in clothing and sewing and fur
processing. The industrial output growth also was due to a 1% increase in electricity,
energy and water supply, a 6.7% increase in manufacturing and processing, despite a
1% decline in the minerals and mining sector.
According to the preliminary estimates the total number of livestock has reached 25.8
million heads in 2003, including the 7.9 million newlyborns and 1.3 million heads were
lost, which was 1.6 million less than in the previuos year. In 2003 the output of the
three staple crops was 165 thousand tons of cereals, 78.7 thousand tons of potatoes
and 59.6 thousand tons of vegetables, which are by 39.2 thousand tons of cereals,
19.9 thousand tons of potatoes, 26.8 thousand tons of vegetables higher than in the
previous year.
Growth in construction and maintenance was 23.7% in 2003. In the housing sector
under Housing sector financing project funded by ADB concessional loan 500
individuals have borrowed 5.6 billion tugrugs out of which 88% were allocated for
purchase of condominiums, 8,9% were for completion of construction of private houses
and 2% was allocated to Condominium Associations for maintenance and repair works.

4.0%
In 2003 all types of transport have carried 17.6 million tons of goods and by counting
3.0%
167.9 million passengers, which are higher by 4.1 million tons of load and increase by
2.0% 58.8% or 62.2 million people compared with the previous year. In the communication
1.0% sector a new advanced technology has been introduced and foreign investment and
technical and economic cooperation has been actively underway. In 2003 all aimags and
Source: Statistical bulletin 0.0%
1999 2000 2001 2002 2003 cities have been covered by the mobile phone network with increase of 8.8 thousand
mobile phone centers as well as increase of 62.6 thousand mobile phone users.
The preliminary performance for 2003 show that per capita GDP income has reached
USD 476.4, growing by 4.8% compared with the previous year and by 24.1% The marcoenomic stability and the creation of the favourable banking and financial
compared to 1999. environment has influenced the growth of the wholesale and retail trade and other services.

GDP Real Growth by Sectors Money supply Financial Intermediation Factors

Within the framework of the stabilization policy in the 60.0%
1996-1999 2000 2002 2003 2004 2000-2003 banking sector the main objectives of the State monetary
annual average annual average 50.0%
growth rate(%) growth rate (%) policy were directed to restoring the confidence of the
40.0%
individuals, companies, foreign and domestic investors in
GDP 3.4 1.1 1.0 4.0 5.5 3.5
the banking sector, to protecting their rights, and to 30.0%
Industry 0.6 2.7 16.5 4.7 0.5 7.0
deepening the scope of the financial intermediation. 20.0%
Agriculture, hunting and forestry 5.0 -15.3 -19.2 -11.1 4.5 -9.1
Money supply growth has accelerated in average by
Construction -3.0 -14.6 10.8 18.5 12.6 14.0 10.0%
27.5% during 2000-2003 years reaching MNT 703.3
Transport and communication 10.9 25.2 14.9 16.2 16.5 15.9
billion at the end of 2003. The stable sources of the 0.0%
Trade 7.8 26.1 9.8 13.3 9.6 10.9 2000 2001 2002 2003
increase in money supply come mainly from increases in
All types of services 3.2 2.7 -0.2 6.0 -2.0 1.2
tugrug and foreign currency savings deposits. Money supply/GDP, (%) Savings/GDP, (%)

Source: Statistical bulletin

17 18

The money supply to GDP ratio has accelerated to 51.6% in 2003 from 24.8% in 2000 Foreign trade
and the savings deposits to GDP ratio has increased to 26.7% in 2003 from 8.9% in In 2003 the preliminary performance of foreign trade indicated that the total turnover of
2000, thus indicating the growth of the domestic savings and showing the evidence of foreign trade has reached USD1,387.5 million with exports amounting to USD600.2
restoring confidence in the financial sector. million and imports totalling to USD787.3 million. Total foreign trade turnover has grown
by 14.2% with increase in exports by 14.5% and with rise in imports by 14%. As a
In 2003 interbank loans and repo deals of the central bank bills totalled MNT 347 billion result the foreign trade deficit reached USD187.1 million at the end of 2003. Economic
and the annual average weighted interest rate of the deals was around 10%. Banks in growth, ratio of the average price growth rate of exported to imported goods, foreign
average daily holding of central bank bills amounted to MNT 42.4 billion and by the investment growth and increase of private transfers from individuals working abroad
end of the year the total amount of the central bank bills sold to the banks amounted to have accounted for most of the growth in recent years.
MNT 76 billion. The annual average weighted interest rate was raised to 11.5%, which
is by 1.5 unit higher than in the previous year. The world market price fluctuations of the main export goods directly affect our export
revenue. The average prices of the major export products at the world market are the
In order to meet the demands of the free market and remove the exchange rate following:
distortions at the market the Bank of Mongolia has started to announce daily the
exchange rates of major currencies. The exchange rate fluctuations show that the value Unprocessed Processed cash- Copper concen- Gold (1 ounce)
cashmere (1kg) mere (1 kg) trates (1 ton)
of tugrug against US dollar and euro have weakened by 3.8% and by 24.9%. The
tugrug has also depreciated against Japanese yen by 16.4% , against Chinese yuan by 1996-1999 average 19.5 50.8 344.2 317.5
3.8% and against Russian rouble by 12.7%. The development in the banking sector has 2000 30.5 70.1 323.1 276.6
been stable and the public confidence has been restored and favourable conditions for 2001 18.1 55.0 273.4 276.4
foreign investment have been created. Though those developments led to the increase of 2002 16.5 48.3 255.6 296.8
foreign currency supply, the dollarization affects the national currency tugrug by 2003 35.7 45.6 287.2 351.8
weakening its value. A major indicator of the dollarization process is the increase of ratio 2000-2001 average 25.2 54.7 284.8 300.4
of foreign currency savings to money supply totalling to 35.6% or a growth by 7 points.
Source: Customs foreign trade statistical bulletin

Foreign currency savings deposits (1) Money M2 (2) Ratio 1 to 2

Banking and financial market
2000 69,063.1 258,842.6 26.7%
In 2003 the Agricultural Bank and the Trade and Development Bank was privatized to
2001 87,318.6 331,064.3 26.4%
the foreign investors. Also the Savings Bank has started to operate on commercial terms
2002 135,186.1 470,125.6 28.8%
and the Chinggis Khaan Bank was newly established. At the end of 2003 the number of
2003 250,218.9 703,332.4 35.6%
commercial banks remained at 17 and the number of non-banking financial institutions
Source: Statistical bulletin has reached 88, thus intensifying competition. The banking sector total assets have
reached MNT 766.8 billion or 56.4% of GDP, thus indicating the significance of the
In the last three years inflation has declined by 3.5% compared to 1996-1999. Inflation banking and financial sector in the country's economic development.
is estimated to 4.7% in 2003.
The total loans lent from the banking sector to companies and individuals has reached
In the past year the increase in Inflation MNT 442.1 billion or 32.5% of GDP with increase of MNT 210.7 billion or 91% in
the price level by 3.1 points is 10.0% comparison with 2002. A major part or 84.2% of total loans was lent in Ulaanbaatar
10.0%
due to increase of 7.7 % in food 8.1%
and the remaining part was disbursed in rural areas. The loan portfolio of performing
8.0%
basket price in the consumer price 8.0% loans could be divided by types ownership, as 3.5% to the public sector and 96% to
index compared with the previous 6.0% the private and other sectors. The total non-performing loans from banks have increased
4.7%
year. However, the quarterly price by 1.1% in comparison with the previous year and have risen by 0.2% in comparison to
4.0%
fluctuations have substantially 2001, though it has declined by 15.6% compared to 2000. Total non-performing loans
declined and stabilized, which 2.0% 1.6% from banks have accelerated to MNT 36.7 billion with increase of MNT 21.1 billion,
now enables forecast price 0.0%
representing 8.3% of total loan portfolio. The weighted average interest rate on loans in
changes in the economy to be 1999 2000 2001 2002 2003 tugrugs has declined by 1.9 points and reached 31.5% and on loans in foreign currency
more effective. Source: Statistical bulletin has decreased by 0.2 points and reached 19.6%.
19 20

In the reporting period the total amount of the current accounts has increased by 80% The Golomt Bank Awards in 2003
and the savings accounts have accelerated by 72%, thus showing the increase of the
public confidence in the banking sector as well as the significant progress in the
development of the banking and financial sector. At the end of 2003 the size of the
own capital of the banking sector has increased by 80% and has reached MNT 110.4 Visa International Outstanding Business Development
billion indicating the growing economic capacity of the banks.

Unemployment
In 2003 the number of unemployed people registered at the Employment Agency has
reached 33.3 thousand or 3.5%, which is by 8% or 2.5 thousand higher than in the
previous year.

MasterCard Best Partner in Mongolia Market

International

The Mongolian Chamber The best brand of banking

of Trade and Commerce and financial sector
and PR Association

Union of Mongolian Special award "To the benefit

Students of students, youth"
21 22

Structure of The Golomt Bank Retail Banking Division

The Retail Banking Division is in charge of implementing the marketing policy aimed at
advancing the Golomt Bank and its competitive position in the banking and financial
market, creating and introducing new products and services to the market, accelerating
Shareholders and improving the quality of services, providing high quality and efficient services and
managing the operations of the branch offices of the Bank.

Governing Board Supervisory Board

of Shareholders
The Golomt Bank has 2 branches offices and 9 sub-branches. Through its branches the
Golomt Bank operates and provides the customers with efficient service seven days a
Internal Audit Department week and 24 hours a day.
President & CEO

Credit Committee
In order to provide the customers with efficient services the installation of the most
Board of Executive Directors advanced bank software program and computer internal network was considered
Asset & Liability
essential. Therefore, special attention has been given to the improvement of the banking
Committee software program and to the introduction of the latest computer technology. During the
last five years the software program has been completely renewed 2 times and total
investment has amounted to hundreds of thousand. As the Bank scope and size and the
Corporate Retail Banking Card center Treasury Supports Financial number of customers have been constantly increasing the number of transactions are
Banking Division Division Division Control
gone up significantly. For instance, the number of interbank settlement transactions has
Division Division
reached 200 thousand, which was 30% higher than in the previous year. Therefore, in
order to overcome this challenge a new main objective has been put forward to
establish on-line banking based on the latest technology.
Corporate & Marketing & Risk Treasury Back office Accounting
SME lending New product management department & Financial
development control (MIS)
In 2003 the Bank branch offices have attracted 18,727 new customers who have
opened current and savings accounts. Also through branch offices the domestic Master
Investment Premier Customer International Information Strategy cards have been distributed. The loans made by the Bank branches are closely
and Project banking Service Dept. Technology & Planning supervised and monitored and around 13% of total loans have been disbursed through
Finance
the branch offices in the past year. In future the Bank will pay a special attention to
making the interest rate on the loans lent through the branch offices more flexible.
Microlending Branch Back office Trading in FX Legal service Risk
management & Money for the bank management
The automatization and installation of the accounting software system of the Bank
markets
branch offices has been fully completed and a 24-hour branch offices have been
connected to the on-line network within Ulaanbaatar. As a result the customers, savings
Branches Human deposit holders and borrowers were provided with a 24-hour service 7 days a week.
resources

In order to improve the Bank branch office management the project titled "the Best
Management Team" has been organized on a competitive basis amongst all workers and
Premises &
Administration
the results have been announced. The Bank workers have actively participated in this
event and have established their teams and in order to advance and accelerate the
operations of some branch offices have decided to implement their projects in 2004.

Security
service Also several professional training programs and seminars have been organized for the
Bank divisions and branch offices staff. All the staff have participated in the training
seminar titled "Smiling banker" organized to improve the ability and capability to provide
high quality service to customers, to change the ways of handling the customers and
smiling at them which has resulted in a positive outcome and gained the appreciation of
customers.
23
Financial Control Division
Financial Control Division is in charge of the Golomt Bank policy on assets and liabilities
management, accounting policy, determination of the principal guidelines of the banking
and financial operations, assessment and evaluation of the performance, preparation of
the consolidated balance sheet, supervision and monitoring of reporting, carrying out
research and analyses and reporting on the outcome. The division is also responsible for
risk management, evaluation and assessment, preparation of a long- and a short-term
strategic plan, budget preparation, monitoring of implementation, determination of bank
service fees, tariffs, interest rates and charges, provision of necessary financial
information to the management, divisions, departments and units.
Treasury Division
The Treasury Division is in charge of implementing the assets and liabilities policy
approved by the Bank Assets and Liabilities Committee, ensuring and making efficient
the Bank payment processing capacity and positioning optimally the funds to increase
its profitability. Within the scope of the basic responsibilities the division is also in
charge of developing the optimal structure of foreign currency reserve, establishing a
proper risk management system, participating in the bills trading, carrying out foreign
exchange at the request of customers, and taking part within the set limits in the
foreign currency trading. The Treasury Division is also responsible for establishing the
correspondent banking relations with other banks, promoting and expanding the Bank
external relations, providing services related to foreign trade such as letter of credit,
guarantee and money order as well as cooperating with other international banking and
financial institutions and other organizations in the area of funding and liquidity
management.
Supports Division
Supports Division within the scope of its basic activities is in charge of efficient
execution and settlement of all types of bank payments according to the related
procedures and instructions, compilation and preparation of the supporting documents
and information for the accounting. The division is also in charge of the following
activities:
to introduce information technology in the banking operations, to coordinate the
information flow between different divisions and units, to provide information related
to the daily and strategic planning activities, to create conditions for proper
operation of information technology, software system and their further updating and
renewal.
to ensure and create conditions for the Bank units to carry out activities within the
legal framework, to develop legal procedures, instructions and agreements, to
monitor and supervise, to represent the Bank in the legally related matters.
to ensure security of the Bank operations, to organize the registry, the
correspondence flow of documents, filing and archiving, to create necessary
working conditions for bank units, to provide them with necessary transport,
material and technical facilities.
24
to supply the Bank with capable personnel, to train and carry out on-job training, to
manage internal staff movements and to develop and implement the Bank's human
resources management policy.
Human Resource Management Report
In 2003 58 employees were recruited, out of which a majority or 38 persons were
employed at the Bank account centers, 16 persons were recruited at the Head Office
staff and 4 persons were employed as the support staff.
The year 2003 has been announced as the "Training Year" and the Bank staff has been
actively involved in the domestic training programs organized by the Banking Training
Centre and other organizations as well as in overseas training programs. For staff
training and development over 70 million tugrugs was invested by the Bank. Over 100
of the bank staff have participated in the training programs in the areas of legal
framework, marcoeconomic analysis, bank management, standardization of the banking
and financial sector, payment and settlement, accounting, banking marketing, banking
supervision organized by the Banking Training Centre, the Ministry of Finance and
Economy and other domestic institutions. Around 20 of the managing staff have been
actively involved in training at the joint MBA Program of the Institute of Finance and
Economics and the Handong University of Korea, training programs in financial
management, international housing financial system, management training, banking
management and marketing in Sweden, Malaysia, Luxembourg, USA and Taiwan. In
addition in-house training was organized for the Bank staff in English language training,
bank products and services, corporate culture and skills, introduction to new procedures
and instructions. Also the student scientific conferences were organized with the
support of the Golomt Bank and students were assisted with provision of background
materials and preparation of scientific works and reports.
The system of transferring knowledge and skills by the staff participated in training
programs to the other staff and using on-job training methods have been very fruitful
and useful for daily work.
The Bank strives to keep the employees healthy and to develop a corporate culture. In
2003 the Bank organized many sporting events, in which approximately 900 employees
have actively participated and over 10 thousand tugrugs was spent.
25

Information Technology Report

In 2003 Information Technology Division has implemented successfully several projects,
including renewal and updating the bank software program, coordination and
management of the information flow between the Bank's different divisions and units.

1. "The Glaxy" banking accounting integrated system

"The Glaxy" banking accounting integrated system has enabled the full
automatization of the Bank accounting, settlement and internal operations and has
been developed by "ECM" company in the internet environment. Currently all branch
office and units use the software system. "The Glaxy" system has been developed
in the Windows environment and this is the only integrated banking system entirely
developed by the Mongolian software developers. The software system consists of
the following programs:

Banking accounting software

MIS management and analysis software
Savings software program
Loans and loans information data base software program
Phone banking software program
Internet banking software program
Electronic banking software program

"Internet banking", "Electronic banking" software programs have been initiated and
introduced by the Golomt Bank, as a new service to the customers, current and
savings deposit holders, individuals and organizations.

2. "Core banking system" card payment and settlement system

The system connects the banking accounting, payment and settlement with the
card system. The card "Core banking system" connects all the card payments,
discounts and promotions with the internal accounting system and enables it to
execute payments efficiently by the card holding organizations, card issuing or
financing banks.

3. "Online banking" service

The Bank Head Office and Branch offices have been connected with high speed
fibre optical on line network. As a result the Bank Head Office, 1st Account center
and all 24-hour Branch offices were able to operate on-line and the customers and
deposit holders could come and do banking at any branch of the Bank.

4. The Bank internal information exchange-intranet information system

By introducing the Bank internal information network software program the Bank
employees were able to receive information related to the work and other issues in
real time, to express their views and opinions, exchange knowledge, to send text
files in Mongolian, photos and to use time more efficiently and improve the work
productivity.
27
The Bodi Tower
"The Bodi Tower" complex is our major real estate investment in the Mongolia
economy and the construction sector. The complex has a unique and creative
construction design and system, which enables it to provide finest conditions for the
inhabitants.
In 2003 "The Bodi Tower" complex, a combination of the modern and classic design
has been commissioned and officially opened. The complex has started a new page not
only in the history of the Golomt Bank but also in the productive activity of Ulaanbaatar.
It should be especially mentioned here that the complex, of which construction work
had started in February 2001 and completed in October 2003, has become a symbol of
the Bank's future stable operations and growth as well as the biggest investment. It is
the result of joint collaboration between the Bank shareholders and the management
team. The complex was built with the most modern facilities, communication and
information systems are provided with high speed channels, heating, airconditioning,
electricity, water supply are programmed and fully automated, security and alarm
systems are remote and distance sensitive, and there is a smoke control system. The
professionals made assessment of the building, as "an intelligent construction system".
The construction design and work has been
executed jointly by the Korean "AUM&Lee
architectic associates", "Uniworks" and the
Mongolian and Russian joint "Incon" company.
Also architect U. Ganbold, awarded by the
prize of the Mongolian Union of Architects,
engineers-consultants B. Baasanjav, A.Tsogt,
A,Tsogtjav, E.Battzorig have contributed their
outstanding knowledge and skills to the
construction of the building. One part of the
complex is the building of the Golomt Bank
Head Office. The building has a very
convenient and necessary facilities for
customers and the working conditions for the
bank staff meets all the modern banking
construction standards. The Bank Head Office
building provides with all faciltities for meeting
with customers and clients with 5 meeting and
conference rooms, which ensures the
confidentiality and convenience for customers
and clients.
28
Golomt Bank works to the benefit of social development and the wellbeing
of children
We have actively participated in the development of Ulaanbaatar and have
contributed 101 million tugrugs to the city investment and productivity.
We support the cultural and sporting activities directed to the benefit and wellbeing of
children, cooperating actively and donating to the development activities of different
organizations as well as universities and institutes. The organizations with which we
have been actively cooperating include the Mongolian Handball Union, the Art Council
of Mongolia and the World Vision. Within the framework of the Ulaanbaatar year of
investment and productive work we have started the operation of "the Bodi Tower"
complex as well as we contributing to the Ulaanbaatar city development fund by
donating 101 million tugrugs.
Golomt Bank for the benefit and wellbeing of children.
We have paid special attention to the benefit and the future wellbeing of children, which
is a main indicator of social development. In the past year the Golomt Bank has
concluded an agreement with the World Vision, an organization which carries out
actitivities to the benefit of children in Mongolia. The World Vision was chosen amongst
other non-governmental organizations in Mongolia and it has been agreed to cooperate
and to support the activities aimed to the benefit and well-being of children. Within the
scope of this cooperation on the Mother and Children Day we have opened the savings
accounts for 75 orphans and poor children. Also the Golomt Bank has sponsored "the
Smiling child" national assembly organized by the World Vision under the "Children in
difficult circumstances" program. The Golomt Bank has given also presents to the
participants of the assembly.
Children were very happy and we still continue to receive the letters of gratitude from
participants. In addition in order to make contribution to the benefit and wellbeing of the
Mongolian children on a continuing basis we have created a new type of savings
account titled "the Golden key", in which a certain amount of the accrued interest rate
on the savings will be contributed and donated to the childrens fund.
29
"The Golden Key" children savings deposit
"If you help a child today from the bottom of your heart the child life might change
forever".
In 2003 we have initiated and introduced a new long-term savings deposit account
titled "the Golden key". The savings deposit account has an interest rate of 1.25% per
month and 0.05 points will be donated to the "The Golomt Bank Children Fund" for
funding the non-formal education project aimed at improving the education environment
for children of vulnerable groups of the society. The fund will also finance the following
activities:
at the initiation of Golomt Bank in order to develop children's abilities and talent to
organize different types of cultural, sport, scientific competitions.
for purpose of spending children leisure in a useful and correct way to establish
sport and game centers.
to assist in the development of children with outstanding ability by way of financing
education expenses etc.
The Golomt Bank has given presents to children, "the Golden key" new savings deposit
holders as well as to children savings deposit owners whose deposit amount reached a
certain threshold. The children were greatly pleased.
30
"Mongolian Students Card"
The Golomt Bank has introduced for the first time in Mongolia a card payment
instrument for Mongolian students enabling them to use the latest technologies in the
financial market and to be in line with the world class standard.
The first Visa Electronic and Maestro "Mongolian students discount cards" were handed
over to students on September 1, 2003. By owning those cards students not only learn
to manage own finances but the cards enable students to purchase with discounts
goods and servcies. As of today over 120 merchants are covered by the discount
network and this is considered the biggest discount network in the history of
Mongolia's financial and service sectors. We have aimed to include in the network those
organizations and companies which are in demand by students. As a result the library,
public transport, recreational centers, educational centers, internet cafes and catering
services were included into the network.
Since the issuance of the first discount card 11 thousand students became owners of
the Visa Electronic and Maestro "Mongolian students cards".
31

"The Golden Ear" RMB card service Business Operation

The Golomt Bank Card service center in cooperation with the Agricultural Bank of China
started to distribute the"Golden Ear" Maestro debit cards in November 2003. The RMB
cards can be used only in China and when you travel to China cash or non-cash
payments can be easily and efficiently executed without any risk.

"The Golden Ear" card advantages:

to protect from cash loss, theft or purchasing fake banknotes.

to pass through the Mongolian and Chinese customs and border points without any
limitations and obstacles.

to make cash and non-cash payments from the card in China.

to transfer funds from and to the card as well as to transfer the funds from
Mongolia to the owner of the card who travels in China.

the card is not expensive and provides you with the facility to make cash and non-
cash payments with less cost as well as enables to manage and control your funds.

the card expiry period is not given, thus it is not necessary to renew the card.

only with assistance of your confidential PIN code number it is possible to make
payments, thus security and protection is fully ensured.
33 34

Lending
In the reporting period the Bank paid special attention to the quality of loan products.
The Bank has initiated the loans for housing, financed from its own and project
sources, small size credits have been increased and credit services via card have been
activated.
In 2003 the Golomt Bank disbursed loans amounting to 90.8 billion tugrugs and
received loan repayment of 78.5 billion tugrugs. The total amount of loan portfolio
reached 46.8 billion tugrugs by year-end. In comparison with the last year loan
disbursement increased 11.3 %, loan portfolio growth was 44,7%, thus rising the
market share of the Golomt Bank to 12%. Out of total loans disbursed 97.3% was
financed from its own resources and 2.7% was financed from project resources. The
percentage of total loans disbursed to the industrial sector was 44%.
As a result during the last year total loans amounting to 6.6 billion tugrugs were
disbursed through the Bank Branch Offices.
The Golomt Bank has been selected to participate in the ADB funded Housing
development project. Under the project individuals were lent the funds for the period of
10 years with annual 12% interest rate starting from May 2003. Also the Bank has
started to disburse loans for housing from its own sources to individuals and companies.
These loans were disbursed also in Orkhon aimag through the Bank Branch Offices. The
loans amounting to 546 million tugrugs were disbursed to 50 borrowers for purchase of
condominiums, building of houses or improvement of housing conditions last year.

Loans, by sectors

15%, Micro loan Retail, 16%

Other, 8%
3%, Mortgage
4%, Financial service Construction & Agriculture, 7%
3%, Health & Education
Mining, 7%
6%, Infrastructure

16%, Manufacturing Manufacturing of food products, 15%

In addition to disbursing loans from our own sources we have implemented "The Private
Sector Development Project" in cooperation with the World Bank and the Government
of Mongolia, the ADB "Employment Generation Project" and "Housing Development
Project" and we have paid special attention to introducing to the market the cost
reduction of our loan products. During the past period we have also introduced to the
market our several new products and we have pursuing a policy of increasing the share
of some products in the total loan portfolio.

In order to support the financial sector development and to promote small businesses
loans were made to the non-banking financial institutions and the savings and credit
cooperatives.

Under "the Private Sector Development" project 4 subproject were selected and over
642 million tugrugs loans were disbursed as well as employment generating projects
loans amounting to 1 billion tugrugs were lent to 150 borrowers with the creation of
700 new jobs.
Guided by objective to increase loans disbursement and make credits approachable to
small businesses the Bank Branch Offices authority to disburse loans has been
increased and loans disbursement through Branch Offices has been intensified.
Guided with the objective "to enable each person with permanent income the right to
borrow" the Bank has issued international credit cards to 92 individuals and over 1000
people were issued domestic credit cards amounting to 499.5 million tugrugs. In order
to finance the short-tem financial needs of the cardholders the installment credit (with
permanent charges) has been introduced and credits were allotted to 130 customers
amounting to 33.5 million tugrugs. Also within the scope of the card service
agreements with different business entities the disbursement of business loans has
been initiated.
35
Card Service
In the reporting period the Bank Card Center pursued an objective of increasing its
market share and to be leading company in the card business. In order to fulfill the
objective the planned activities were implemented and the necessary action was taken
to coordinate the work between different divisions and departments. As a result the
Golomt Bank Card Center has become the most capable, creative and experienced team
in the Mongolian card business and we will be working to ensure that this position will
be further advanced and strengthened.
Golomt Bank is the only bank in Mongolia, which issues both Visa and MasterCard
cards. In 2003 the Bank successfully implemented several new projects in the card
payment market.
New affiliate members
Golomt Bank as a principal member of Visa International and MasterCard International
has sponsored Zoos and Capitron banks to become MasterCard International affiliate
members, thus increasing the number of participants in the Mongolian card payment
system. The new entrant banks have been assisted by Golomt Bank and have been
successfuly operating and obtaining the benefits from the card business. The Bank is
continuing its efforts to recruit more sub-members and actively cooperated with Visa
International and MasterCard International in this area.
Visa Electronic and Maestro Cards
The Bank has managed to increase the number of products and services and to issue to
customers for the first time in Mongolia Visa Electronic from Visa International and
Maestro card from MasterCard International. Thus new services, as a Visa Electronic
and Maestro cards have become available and foreign organizations started to use the
services which was not available in Mongolia in the past.
The Golomt Bank Card Center newly developed its business plan at the second half of
2003 and set the specific goals in its activities, which resulted in making 153000
transactions of 28.300 cardholders amounting to 13.9 billion tugrugs.
36
External Relations
We paid a special attention to expansion of our external relations and concluded new
agreements with major foreign banks and renewed agreements with banks, with
which we had previously cooperated, on more beneficial terms.
Golomt Bank has a leading postion in foreign exchange settlement and its share of
foreign assets in the banking sector reached 30%. In 2003, we established
correspondent banking relations with 3 new banks and our total balances of our
accounts with foreign banks amounted to MNT 37 billion, a 76.2% increase over the
previous year. In 2003 in order to promote our external relations the following activities
have been implemented:
In 2003 we newly concluded agreements on cooperation with the Agricultural Bank
of China, CIC of France and Rabobank of Holland. Thanks to the agreements, the
bank started to do yuan business and now we have access to major foreign equity
and bond markets.
Agreements were renewed with HSBC and Union Bank of California to manage
foreign reserves more efficiently and to increase international business profitability.
In order to promote foreign investment the new credit opportunities have been
created by concluding agreements with the Export and Import Bank and the Land
Bank of Taiwan and the Samsung Corporation of Korea.
The Bloomberg international financial market information and trading system was
installed and experimental activities for investing in foreign financial market were
carried out.
Direct Marketing
We have moved beyond the traditional methods of marketing in Mongolia and have
introduced the latest and advanced Direct Marketing into our card business. The main
objective of "Direct Marketing" team was to increase the profitability of the card
business, attract more customers, increase the number of current and savings accounts
and advertise and make publicity about Bank's other activities
"Direct Marketing" team's first task was to increase the number of organizations and
individuals, which receive salaries and wages by use of cards. This type of direct
marketing method was never used in Mongolia in the past, thus this type of direct
marketing towards customers, advertising and new methods of introduction were very
successful and useful. The Direct Marketing has influenced the operations of the Bank
Card Center in the following way:
Number Growth
Total number of organizations receiving wages and salaries
with use of cards Over 120 182%
Total number of cash card holders Appr. 7300 150%
37 38

Consulting service Internet banking

We introduced a new service - Premier Banking to the Mongolian banking and
financial market. Last year this service was expanded and consulting service was
introduced.
Premier Banking since its establishment in March 2001 has been expanding and
successfully operating for three years. Until 2003 this service was mostly directed to
attracting the deposits of individuals with higher income and the larger corporations and
to provide them with efficient services. Since last year the scope of this service has
been expanded and Premier Banking activities was reorganized into two main directions:
Private banking service unit - high quality and efficient bank services are rendered to
bigger customers from a single unit in the bank.
Consulting service unit - advice and consulting on business and other issues will be
provided to individual and corporate customers at their request.
Several years have passed since banks and financial institutions in many countries
started to use internet banking service. This modern and the most efficient delivery
channel was introduced to the Mongolian banking and financial market a year ago. We
consider that we were able to bring to our customers the most comprehensive and
integrated service to our customers.
The statistical figures indicate that today there are 80 thousand internet users in
Mongolia, out of which over 13 thousand people are authorized internet users. It means
that for many people the use of internet banking service will save time, will enable them
not to encounter difficulties, such as the bank working hours, location or transport
issues, as well will provide many services from one point.

The Consulting service unit carries out the following activities:

Business consulting: to provide consultancy on developing the customer business

plan for a new or established business, making analysis and preparing the related
documents.

Financial advice: to improve the customer financial management, to advise on

optimal allocation of funds.

Credit advice: to provide advice on business credit, housing credit, project credit and
all information related to credit.

Consulting to non-banking financial institutions and credit and savings cooperatives:

to provide advice to the customers of the new non-banking financial institutions and
credit and savings cooperatives as well as to the customers of the established non-
banking financial institutions and credit and savings cooperatives on ways of
improvement of these institutions.

Training: Training in business management, strategic management, marketing,

financial management, management accounting.

Golomt Bank internet banking is protected by Cisco and Thawte security systems and it
provides high confidentiality and, prevents from any unauthorized access.

Golomt Bank invested substantially in internet banking. In 2003 the number

transactions amounting to MNT 2.2 billion were executed via internet.
39

Electronic banking
Electronic banking was designed in such a way that it suits more the needs of larger
sized companies and organizations in which transactions are made with a limited
Financial Report
number of authorized signatures as well as it meets efficiently daily demands to settle
payments.
Organizations are able to make payments without going to the bank and using a special
program software, which saves time, resources as well as ensuring security. Currently
over 100 companies use electronic banking software and apply electronic payment
system automatically without going to the bank.

Moreover the phone line and electronic signature of the organization are checked each 6
months by the Bank as well as payments requested by e-mail are also monitored on a
daily basis and provide high security protection.

Online banking service

The integrated banking software program developed by Mongolian software programmers
and engineers suitable to the Mongolian banking and financial market conditions was
connected to the highly integrated and structured online computer network covering
75% of Branch offices and account centers. Those branches covered by the network
handle over 98% of total assets of the Bank. Using the computer network Golomt Bank
is able to carry out its activities on-line 24 hours a day and 7 days a week.

It should be mentioned here that on-line banking is one of our products and services.
This service is important that it provides a facility to make transactions and payments
through any Branch office or execute your payment or transaction within a short period
of time. For instance, the interbank payment and interbranch payment is executed within
10 minutes.

It is also efficient to use on-line mode for banking services :

To produce the Bank reporting to different levels of management within a short

period of time, thus creating the opportunity to develop correctly and efficiently the
bank policies and activities.
To create the Bank information databases, such as the credit information internal
database and to use it for the bank activities.
To improve the supervison system of the activities of the bank internal units, branch
offices, account centers and contribute to the production of the effective and
efficient cost saving system.
41 42

Asset management Financial performance

In 2003 the Golomt Bank total assets reached MNT 114.1 billion increasing by MNT In 2003 Golomt bank total income reached MNT 12.4 billion, total expenses amounted
34.8 billion or 43.8% over the previous year. to MNT 9.2 billion and income tax of MNT 767 million has been paid to the state. The
Bank's net profit after tax amounted to MNT 1.1 billion. In addition Golomt Bank
At the end of the year MNT 9.3 billion or 8.1% of total assets was composed of Central established additional loan provisions of MNT 1.4 billion.
Bank bills and the Bank has periodically engaged in the Central Bank's bills trading,
which amounted to MNT 85 billion. Also MNT 46.8 billion or 41% of total assets Also interest income increased by 48.9%, non-interest income increased by 14% and
consisted of loans to companies and individuals. Last year in order to ensure asset risk interest expense accelerated to 43.5% and operating expense increased by 60.6%.
management, the Bank pursued an objective to keep loan portfolio less than 50% of
the total assets. The Bank weighted average annual interest rate for MNT was 28.91% (in million tugrugs)
and for foreign currency was 19.73% with regard to loans. 2003 2002
Interest income 6,821 10,157
Interest expense 3,808 5,466
Other assets 6% Net interest income 3,013 4,691
Non-interest income 1,973 2,250
Investment in securities 8%
Operating expense 2,306 3,704
Loans and advances 41% Net operating profit 2,680 3,237

Deposits and placements with other banks 32%

Operating expense was composed of 18% salaries and bonuses, 19% rental of
Bank Reserve and placements with the Central Bank 13%
premises, 7% communication costs, a total of 44% of total operational expenses.
0% 10% 20% 30% 40% 50%

Performance ratios
Deposits Golomt Bank fulfilled the prudential requirements by the Bank of Mongolia and it
In 2003 the Golomt Bank customer deposits reached MNT 104.3 billion, an increase of demonstrated the following performance ratios. The return on assets declined to
MNT 30,7 billion or 41.7% over the previous year. By the end of the year 25.2% of the 0.96% or by 0.07 points, compared with the previous year. Cost to income ratio
total liabilities was current deposits, 64.2% - savings deposits and 10.6% - banking and increased to 85.2% or by 1.4 points. It can be explained by the factor that during the
non-banking institutions deposits. Although there was strong competition in the market, course of the year the bank decreased its lending rates whereas the the bank borrowing
the Bank interest rates for current and savings deposits were not changed. rates remained unchanged. Return on equity decreased to 11.13% - a decrease by 3.25
points over the previous year due to the increase in equity at the end of the year. Net
However, as a result of several income on fees and commissions to operating income ratio increased to 29.65%, which
measures taken to meet customers' shows the trend of decreasing weight of the interest income on the total income.
(in million tugrugs)
needs and to offer high quality, efficient
2002 2003
and convenient services, the current
Current accounts 20,980.2 26,280.8 2003 2002
account deposits increased by MNT 5.3
Savings accounts 44,093.2 66,939.7 Return on assets 1.03% 0.96%
billion or 25.3% and the savings Return on equity 14,38% 11.13%
Other sources 8,529.8 11,045.8
account deposits increased by MNT Cost/Income ratio 83,80% 85.20%
22.8 billion or 51.8%. Net income on fees and commissions to operating income ratio 25.79% 29.65%

Own equity
In 2003 Golomt Bank increased its paid-up capital by MNT 3 billion, accrued profit by
MNT 1.1 billion and and its own equity reached MNT 9.8 billion, which is up by 71.8%
over the previous year.
43 44

Risk Management Report Golomt Bank principal risk indicators /2003-12-31/

Bank operations compared to other businesses is a high risk and dynamic business and Indices Results
its stable operations and growth are greatly dependent on ensuring the establishment Tier I risk weighted capital ratio 15.61%
and maintenance of successful risk management system. Within the framework of Required level (in percentage) 5.00%
Golomt Bank organizational restructuring in 2001, special efforts were made towards Above the required ratio -10.61%
improving the risk management and early warning system and creating a control Risk weighted capital ratio 15.61%
environment in order to meet the current banking operations requirements. Golomt Bank Required level (in percentage) 10.00%
has the following risk management structure: Above the required ratio -5.61%
Total assets last 6 months average /in thousand tugrugs / 103,972,761.2
Tier I core capital ratio 9.66%
Required level (in percentage) 5.00%
CEO
Above the required ratio -4.66%
Internal Audit
Department

Assets and Liabilities

Committee 1. Credit risk
In an environment of intense price competition between banks and non-bank financial
Financial Control institutions the Bank focused on ensuring high quality of loan products and pursued an
Division
objective to create an effective credit system to meet its customers' needs. In 2003 the
loans to total assets ratio reached 40%. While in the previous year the ratio of
non-performing loans to total loans was 9.7%, it reduced to 9.5% a decrease of 0.2
Corporate Banking Treasury Division Card Center Supports Division points in 2003.
Division

Financial Control Divison is in charge of supervision over the Bank operations, in-depth
analysis of the bank risk, development and introduction of risk management methods
and practices as well as submission of report and information to the management. The
Bank Credit Division is in charge of credit risk management and control, Treasury
Division is in charge of foreign exchange risk management issues and Supports Division
is in charge of operating activities risk control issues.
The Bank Internal Audit Department is responsible for implementing its activities
independently from the management, any other division and unit and is in charge of
supervising the Bank Head office, Branch offices, divisions and units' activities in
accordance with legal and regulatory requirements as well as ensuring on-site
superivison for identifying, reducing and controlling risk.
The Bank had constantly fulfilled and met the prudential requirement from the Bank of
Mongolia that loans and guarantees to individual Bank shareholders, chairman of the
Board of Directors, members, executive directors, employees and their related parties'
should not exceed 5% of the equity of the bank and that the accumulated total amount
should be less than 20% of the equity.
The Bank pursued a policy of expansion and diversification of loans into different
sectors of the economy on the basis of analysis of general trends of sectoral
development and economic outlook. According to the National Statistical Office
preliminary estimates of economic performance for 2003 GDP reached MNT 1359.7
billion and economic growth rate was estimated at 3.5% in real terms due to 3.8%
increase in construction, trade, transport and communication sectors, 1.1% increase in
agriculture and 0.4% increase in industry. Although the industrial production had
developed highly intensively in the previous years, it stabilized and grew by 1.4% in
2003 due to a 0.2% increase in mining sector, 2.6% increase in manufacturing and
processing sector and 2.3% increase in energy and electricity. The growth of the real
sector of the economy created a favourable environment for further economic
develoment. However, indepth analysis and assessment of the current situation of
economic sectors and its future prospects are greatly needed.
45 46

2. Liquidity risk Currency risk indicators /2003-12-31/

Within the scope of primary reponsibilities of the Bank to have the ability to pay the
customer on first demand the Bank made special effort towards developing and Indicators Main currencies Other Total currency
sustaining an optimal level between liquidity funds and financial return. Last year, as USD EUR JPY GBP CHF currencies USD In thousand
before the Bank fulfilled constantly the reserve and liquidity requirements of the Bank of tugrugs
Mongolia. A. Foreign assets 55,770 2,051 672,387 63 83 1,345 66,143 77,254,698

B. Foreign liabilities 54,513 2,278 2,811 187 1 231 57,950 67,685,740

Liquidity indicators /2003-12-31/ C. Off-balance accounts (98) 14 (550,000) - - (604) (5,826) (6,804,939)

D. Foreign currency open position 1,159 (213) 119,576 (124) 83 510 2,366 2,764,019
2003.12. 31
E. Own equity /in million tugrugs/ 10,046 10,046 10,046 10,046 10,046 10,046 10,046 10,046
Indicators MNT Foreign currency 2002
F. Risk ratio 13.5% -3.1% 13.0% -2.6% 0.8% 5.9% 27.5% 27.5%
Liquidity ratio 35% 70% 58%
Required level 18% 18% 18% Required level ±15.0% ±15.0% ±15.0% ±15.0% ±15.0% 15.0% ±40.0% ±40.0%
Above required ratio -17% - 52% - 40% Unfulfilled percentage -1.5% -18.1% -2.0% -17.6% -14.2% -9.1% -12.5% -12.5%
Exchange rate of the BOM 1,168 1,460 10.92 2,073 935.70 1,168 1,168
Other liquidity ratios internally monitored were as follows at the year end:

Indicators Percent 4. Operational risk

Liquid assets/Total liabilities 63.49% The Bank internal supervision department activities aimed at controlling and preventing
Cash(Current+Savings deposits) 77.29% all types of risks related to Bank operations, as accounting, cash management, trading,
Short-term assets/Short-term liabilities 113.04% property, security, legal and regulatory framework, documentation, personnel and
Short term assets/total assets 90.44% information technology. In the process of controlling the aforementioned risks a special
Loans /total assets 41.02% attention was paid to market relations, employment, health and social protection and
Loans /total liabilities 49.30% security issues.

In order to prevent any risks related to the legal and regulatory framework the Bank legal
3. Market risk advisor reviews and imposes control on the agreements and documentations from the
In 2003 the competition in the banking and financial market was intensive. In the legal point of view.
conditions of mounted competition banks, non-banking financial institutions and credit
and savings cooperatives continued to reduce the interest rates on loans and increased Taking into consideration full automatization of the banking operations, online
interest rates on deposits in the course of 2003. These trends have affected accounting and transaction processess, internet banking and increasing information
significantly the level of market average interest rate. The Bank closely monitored the technology risk, special measures were taken to ensure the full utilization of the
interest rate developments at the market and periodically adjusted the interest rates on information system at the high professional level, protection of the computer network
long-term time deposits and pursued a policy of controlling interest rate risk by from outside interference, provision of security and confidentiality for the customers and
sustaining optimal ratios between interest bearing assets and liabilities. the Bank, prevention of professional types of crime and improvement of internal security
system.
In the second half of 2003 the world economic situation improved and US trade deficit
and budget deficit widened. These developments led to US Dollar depreciation against
other currencies. The fall of US dollar did not have a significant impact due to limited
exposure to other major currencies as well as hedging and protection policy. We
received on a timely basis the market information and made forecasts of exchange rates
to manage and control risk. The Bank's exposure to foreign currency exchange risk by
major currencies are as follows by year-end:
 48

Locations and addresses of Golomt Bank Head

Office and Branch Offices

GOLOMT BANK HEAD OFFICE

Ulaanbaatar 210620A
Balance Sheet
Sukhbaatar Square 3
E-mail: mail@golomtbank.com (in million tugrugs)
Web: http://www.golomtbank.com Assets 2001 2002 2003
Phone: (976-11) 311530, 311971
Cash and placement with BOM 6,712.9 10,364.5 14,910.8
Fax: (976-11) 312307, 311958
Deposits with other financial institutions 8,300.2 22,650.3 37,009.9
Securities 6,494.3 10,695.7 9,276.4
Loans /net 22,780.7 32,337.4 46,788.8
Fixed Assets 1,945.1 2,245.3 2,390.9
BRANCH OFFICE Sub-branch No.4
Orkhon aimag 1st Branch Sukhbaatar duureg Other assets 1,029.4 1,011.7 3,682.4
Bayan-Undur soum Amar Street State Center for Citizens Total assets 47,262.5 79,304.8 114,059.1
Phone: (01 352)-25100, 25200 Registration and Information
Phone:350267

Liabilities 2001 2002 2003

Customers' deposits 39,556.0 65,073.4 93,220.5
Darkhan-Uul aimag 2nd Branch Sub-branch No.6 Deposits from other financial institutions 92.8 893.8 1,683.5
Darkhan soum 13th baga Sukhbaatar duureg Solongo Loans from other financial institutions 4,242.0 6,915.4 7,892.2
Phone: (01 372)-27136 Service Center
Other liabilities 501.9 720.6 1,470.2
Phone: 320814, 318479
Total liabilities 44,392.4 73,603.2 104,266.3
Paid-up capital 2,071.7 4,083.2 7,085.0
Retained earnings 798.4 1,618.4 2,707.8
Own equity 2,870.1 5,701.6 9,792.8
Total liabilities and capital funds 47,262.5 79,304.8 114,059.1
Sub-Branch No.1 Sub-branch No.7
Chingeltei duureg, Ulaanbaatar 46 Songino Khairkhan duureg
Khuldaldaany Street 6/2 Tsambagarav service center
Phone: 326231, 311530 Phone: 681267, 680347

Income Statement

2001 2002 2003

Sub-branch No.2 Sub-branch No. 8 Interest income 4,613.1 6,820.5 10,156.8
Bayanzurkh duureg 15 microdistrict Bayangol duureg
Interest expenses 2,289.7 3,807.5 5,466.2
Bayantseel company premises 3 microdistrict
Phone: 456829 Phone: 368602, 305419 Net interest income 2,323.3 3,013.0 4,690.6
Non interest income 1,439.1 1,973.3 2,249.6
Operating expenses 2,060.2 2,306.3 3,704.0
Profit before provisions 1,702.2 2,680.0 3,236.2
Provisions 1,050.1 1,255.4 1,399.9
Profit before taxation 652.1 1,424.5 1,836.3
Sub-branch No.3 Cashier Office 1
Khan-Uul duureg Airport Sukhbaatar duureg Taxation 267.0 604.5 746.9
Phone: 983205 Ulaanbaatar hotel Profit after taxation 385.1 820.0 1,089.4
Phone: 313942
Independent Auditor's Report
 3

Golomt Bank of Mongolia LLC

Report of the Auditors Income statement for the year ended 31 december, 2003

Note 2003 2002

To the Board of Directors of Golomt Bank of Mongolia LLC MNT '000 MNT '000

We have audited the accompanying financial statements of Golomt Bank of Mongolia LLC as at 31 Interest income 4 10,156,803 6,820,549
December 2003 set out on pages 3 to 36. These financial statements are the responsibility of the
Bank's directors. Our responsibility is to express an opinion on these financial statements based on Interest expense 5 (5,466,216) (3,807,522)
our audit.
Net interest income 4,690,587 3,013,027
We conducted our audit in accordance with applicable International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether Non-interest income 6 2,249,632 1,973,259
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Operating profit 6,940,219 4,986,286
includes assessing the accounting principles used and significant estimates made by the directors, as
well as evaluating the overall presentation of the financial statements. We believe that our audit Operating expenses 7 (3,703,999) (2,306,321)
provides a reasonable basis for our opinion.
Profit before provisions 3,236,220 2,679,965
In our opinion, the financial statements have been properly drawn up in accordance with applicable
International Financial Reporting Standards and the Regulations issued by Bank of Mongolia so as to Provisions 8 (1,399,917) (1,255,440)
give a true and fair view of the financial position of the Bank as of 31 December 2003 and of the
results and the cash flows for the year then ended. Profit before taxation 1,836,303 1,424,525

Taxation 9 (746,922) (604,549)

Profit after taxation 1,089,381 819,976

Ulaanbaatar
18 March 2004

The accompanying notes form an integral part of the financial statements.

4 5

Golomt Bank of Mongolia LLC Golomt Bank of Mongolia LLC

Balance sheet as at 31 december 2003 Statement of changes in equity for the year ended
31 december 2003

Note 2003 2002 Statutory Retained Total

MNT '000 MNT '000 fund earnings
Assets MNT '000 MNT '000 MNT '000

Cash and short term funds 10 5,252,245 3,814,560 At 1 January 2002 2,071,700 798,404 2,870,104
Deposits and placements with other banks
and financial institutions 11 46,668,373 29,200,216 Profit for the year - 819,976 819,976
Investment in securities 12 9,276,445 10,695,667
Loans and advances 13 46,788,774 32,337,372 Issue of shares 2,011,530 - 2,011,530
Other assets 14 3,662,109 1,011,673
Tax recoverable 15 20,261 - At 31 December 2002 4,083,230 1,618,380 5,701,610
Property, plant and equipment 16 2,390,869 2,245,312
Total assets 114,059,076 79,304,800 Profit for the year - 1,089,381 1,089,381

Liabilities Issue of shares 3,001,760 - 3,001,760

Deposits from customers 17 93,220,499 65,073,394 At 31 December 2003 7,084,990 2,707,761 9,792,751
Deposits and placements of other banks
and financial institutions 18 1,683,465 893,795
Loans from Bank of Mongolia 19 1,074,000 1,024,000
Government loan 20 320,000 170,000
Loans from foreign financial institutions 21 6,498,162 5,721,374
Other liabilities 22 1,470,199 683,379
Provision for taxation - 37,248
Total liabilities 104,266,325 73,603,190

Equity

Statutory fund 23 7,084,990 4,083,230

Retained earnings 2,707,761 1,618,380
Total equity 9,792,751 5,701,610

Total equity and liabilities 114,059,076 79,304,800

Commitments and off balance sheet items 27 14,522,277 5,632,157

The accompanying notes form an integral part of the financial statements. The accompanying notes form an integral part of the financial statements.
6 7

Golomt Bank of Mongolia LLC Golomt Bank of Mongolia LLC

Cash flow statement Cash flow statement (contd.)
for the year ended 31 december 2003 for the year ended 31 december 2003

2003 2002 2003 2002

MNT '000 MNT '000 MNT '000 MNT '000
Cash flows from operating activities
Profit before taxation 1,836,303 1,424,525 Net increase in cash and cash equivalents 18,905,842 18,001,735
Adjustments for :-
Depreciation of property, plant and equipment 409,775 282,008 Cash and cash equivalents brought forward 33,014,776 15,013,041
Property, plant and equipment written off 2,010 18,523
Net provisions for loan losses 1,374,489 1,255,440 Cash and cash equivalents carried forward 51,920,618 33,014,776
Provision for other assets 19,588 -
Provision for investment securities 5,840 - Cash and cash equivalents comprises:
Gain on disposal of property, plant equipment (2,652) (21,351)
Interest accrued on government securities - (6,825) Cash and short term funds 5,252,245 3,814,560
Deposits and placement with
Operating profit before working capital changes 3,645,353 2,952,320 other banks and financial institutions 46,668,373 29,200,216
Increase in operating assets:- 51,920,618 33,014,776
Loans and advances (15,825,891) (10,682,248)
Other assets (2,651,925) (119,163)
Increase in operating liabilities
Deposits from customers 28,147,105 25,517,440
Deposits and placements of other banks and financial institutions 789,670 801,225
Other liabilities 786,820 260,126
Cash generated from operations 14,891,132 18,729,700

Income tax paid (804,431) (645,906)

Net cash flow from operating activities 14,086,701 18,083,794

Cash flow from investing activities

Net decrease / (increase) in investment securities 1,413,382 (4,194,582)
Proceeds on disposal of property, plant and equipment 5,304 59,196
Purchase of property, plant and equipment (578,093) (631,541)
Net cash flow from investing activities 840,593 (4,766,927)

Cash flows from financing activities

Increase in statutory fund 3,001,760 2,011,530
Increase in Loan from Bank of Mongolia 50,000 238,200
Net increase in loans from government and foreign financial institutions 926,788 2,435,138
Net cash flow from financing activities 3,978,548 4,684,868

The accompanying notes form an integral part of the financial statements.

The accompanying notes form an integral part of the financial statements.
8 9

Golomt Bank of Mongolia LLC c. Foreign Currencies

Notes to the financial statements - 31 december 2003
1. Corporate information
The Bank is principally engaged in the business of provision of banking and financial services
pursuant to License No. 8 issued by Bank of Mongolia. There have been no significant changes in
the nature of these activities during the year.
Transactions in foreign currencies are initially recorded in Togrog at rates of exchange ruling at the
date of the transaction. At each balance sheet date, foreign currency monetary items are
translated into Togrog at exchange rates ruling at that date, unless hedged by forward foreign
exchange contracts, in which case the rates specified in such forward contracts are used. Non-
monetary items initially denominated in foreign currencies, which are carried at historical cost are
translated using the historical rate as of the date of acquisition and non-monetary items which are
carried at fair value are translated using the exchange rate that existed when the values were
determined. All exchange rate differences are taken to the income statement.

The principal exchange rates used for every unit of foreign currency ruling at the balance sheet
The Bank is a limited liability company, incorporated and domiciled in Mongolia. The registered
date used are as follows:
address and the principal place of business of the Bank is Sukhbaatar Square 3, Ulaanbaatar
210620A, Mongolia.
2003 2002
The holding company of the Bank is Bodi International Limited, a company incorporated in United States Dollar 1,168.00 1,125.00
Mongolia. Great Britain Pound 2,073.40 1,804.00
European Euro 1,460.20 1,169.40
These financial statements of the Bank for the year ended 31 December 2003 were authorised for Japanese Yen 10.92 9.38
issue by the Board of Directors in accordance with a resolution of the directors on 18 March Swiss Francs 935.70 804.00
2004.

2. Basis of preparation
d. Loans and Advances and Provision for Loan Loss
These financial statements have been prepared in accordance with applicable International
Loans originated by the Bank by providing money directly to the borrower at draw down are
Financial Reporting Standards and the Regulations issued by Bank of Mongolia.
categorised as loans and advances. Third party expenses, such as legal fees, incurred in securing
a loan are treated as part of the cost of the transaction.
The financial statements have been prepared under the historical cost convention. The reporting
currency used in the financial statements is the Mongolian Togrog, which is denoted by the
All loans and advances are recognised when cash is advanced to borrowers.
symbol MNT, shown rounded to the nearest thousand.

Provisions for loan loss are made as considered necessary having regard to both specific and
3. Significant accounting policies
general factors. In determining the need for provisions, management considers, among other
things, the financial position of the borrowers, the value of any collateral and guarantees received,
a. Interest Income and Expense
industry performance, current economic conditions and past experiences. Provisions made during
Interest income and expense are recognised in the income statement for all interest bearing
the year are charged against the income statement.
instruments on an accrual basis using the effective yield method based on the actual purchase
price. The recognition of interest income is suspended when loans are outstanding for more
The maturity of the loan portfolio is presented in Note 13 which shows the remaining period of
than ninety days, in accordance with the requirements of Bank of Mongolia. On
loans from the balance sheet date to the contractual maturity. Long-term credits are generally not
commencement of suspension, previously accrued interest not received is clawed-back.
available in Mongolia except for programs set up by international financial institutions and under
Recognition of interest subsequent to suspension is on a cash basis. Interest recognition will
government financing arrangements. However, in the Mongolian marketplace, short-term credits
resume on an accruals basis when the uncertainties surrounding the recoverability are
are granted with the expectation of renewing the loans at maturity.
removed and the loan is reclassified as performing.

e. Taxation
b. Fee and Commission Income
The Bank provides for income tax based on its income for financial reporting purposes, adjusted
Fee and commission income are generally recognised on an accrual basis when the service
for items which are not assessable or deductible for income tax purpose, in accordance with the
has been provided. Types of fees and commission income derived by the Bank relate mainly to
regulations of the Mongolian Government and is measured using the tax rates that have been
deposit box fees, loan processing fees, current account withdrawal fees, and money transfer
enacted at the balance sheet date.
commissions.
10 11

3. Significant accounting policies (contd.) i. Deposits From Customers

Deposits from customers are stated at cost which is the fair value of the consideration to be paid
f. Cash and Cash Equivalents in the future for deposits received.
For the purposes of the cash flow statement, cash and cash equivalents consist of cash and
short term funds, deposits and placements with other banks and financial institutions that are j. Impairment of Assets
readily convertible to cash with insignificant risk of changes in value. The Bank reviews the carrying amounts of its assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, impairment is
g. Investment Securities measured by comparing the carrying values of the assets with their recoverable amounts.
Investment securities are securities that are acquired and held for yield or capital growth and Recoverable amount is the higher of net selling price and value in use, which is measured by
are usually held to maturity. reference to discounted future cash flows.

Government bonds and Securities and Bank of Mongolia Treasury Bills are stated at cost adjusted An impairment loss is charged to the income statement immediately, unless the asset is carried at
for amortisation of premiums or accretion of discounts, where applicable, to maturity dates. revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to
the extent of any available previously recognised revaluation surplus for the same asset. Reversal
Quoted investments are stated at the lower of cost and market value. of impairment losses recognised in prior years is recorded when there is an indication that the
impairment losses recognised for the asset no longer exist or have decreased.
Unquoted investments are stated at cost and where applicable, adjusted for amortisation of
premiums or accretion of discounts to maturity dates. Provision is made for diminution in value k. Sale and Repurchase Agreements
which is other than temporary. Securities sold subject to a linked repurchase agreements ('repos') are retained in the financial
statements as trading or investments securities and the counterparty liability is included in
On disposal of the investment securities, the differences between the net disposal proceeds amounts due to other financial instituitions or as appropriate. Securities purchased under
and their carrying amounts are charged or credited to the income statement. agreement to resell ('reverse repos') are recorded as amount due from other financial instituitions
or as appropriate. The difference between sale and repurchase price is treated as interest and
h. Property, Plant and Equipment accrued over the life of the repo agreements using the effective yield method.
Property, plant and equipment are stated at cost less accumulated depreciation and
impairment losses. The policy for the recognition and measurement of impairment losses is in l. Employee Benefits
accordance with Note 3 (j).
(I) Short Term Benefits
The estimated useful lives used by the Bank are as follows :- Wages, salaries and other salary related expenses are recognised as an expense in the year in
which the associated services are rendered by employees of the Bank. Short term
accumulating compensated absences such as paid annual leave are recognised when services
2003 2002
rendered by employees that increase their entitlement to future compensated absences, and
Buildings 40 years 40 years
short term non-accumulating compensated absences such as sick leave are recognised when
Office equipment and vehicles 10 years 2 - 10 years
absences occur.
Computers 5 years 4 - 10 years

(II) Defined Contribution Plans

Assets under construction are not depreciated. Depreciation of these assets begins when the
related assets are placed in service.
Upon disposal of an item of property, plant or equipment, the difference between the net
disposal proceeds and the net carrying amount is recognised in the income statement.
With effect from the current year, the Bank changed the annual depreciation rate for furniture,
fixtures and vehicles from 2 - 10 years to 10 years and computers from 4 - 10 years to 5 years
to better reflect their useful lives. The effect on the financial statements of this change in
accounting estimate is not material.
As required by the law, companies in Mongolia make contributions to the government pension
scheme, Social Security and Health Fund. Such contributions are recognised as an expense in
the income statement as incurred.
m. Operating Leases
Lease payments for operating leases, where substantially all risk and benefits remain with the
lessor, are charged as an expense in the income statement on a straight-line basis over the term
of the relevant lease.
12 13

3. Significant accounting policies (contd.) 5. Interest expense

n. Financial Instruments 2003 2002

Financial instruments are recognised in the balance sheet when the Bank has become a party MNT '000 MNT '000
to the contractual provisions of the instrument. The accounting policies on recognition and Current account deposits 365,292 163,072
measurement of these items are disclosed in their respective accounting policies. Time and demand account deposits 4,641,602 3,305,140
Loans from foreign financial instituition 416,297 338,612
Financial instruments are classified as liabilities or equity in accordance with the substance of Placements by other financial instituitions 43,025 698
the contractual arrangement. Interest, dividends and gains and losses relating to a financial 5,466,216 3,807,522
instrument classified as a liability, are reported as expense or income. Distributions to holders
of financial instruments classified as equity are charged directly to equity. Financial
instruments are offset when the Bank has a legally enforceable right to offset and intends to 6. Non Interest income
settle either on a net basis or to realise the asset and settle the liability simultaneously.
2003 2002
(I) Equity Instruments MNT '000 MNT '000
Statutory fund is classified as equity and dividends are recognised in equity in the period in Fees and commision income:
which they are declared. Service charges and fees 603,972 663,057
Credit cards advance fees 543,296 500,792
(II) Derivative Financial Instruments Other fee income 642,901 314,727
Derivative financial instruments are not recognised in the financial statements on 1,790,169 1,478,576
inception.
Other income:
Forward Foreign Exchange Contracts Realised foreign currency gain 141,008 162,227
The underlying foreign currency assets or liabilities are translated at their respective Unrealised foreign currency gain 212,734 215,980
hedged exchange rate and all exchange gains or losses are recognised as income or Gain on disposal of property, plant and equipment 2,652 21,351
expense in the income statement in the same period as the exchange differences on the Other operating income 103,069 95,125
underlying hedged items. Exchange gains and losses arising on contracts entered into as 459,463 494,683
hedges of anticipated future transactions are deferred until the date of such transaction, at
which time they are included in the measurement of such transaction. Total non-interest income 2,249,632 1,973,259

4. Interest income

2003 2002
MNT '000 MNT '000
Loans and advances 9,326,074 6,091,956
Deposits and placements with other
banks and financial institutions 247,726 218,157
Bank of Mongolia Treasury Bills 520,546 477,622
Government bonds and Securities 62,457 32,814
10,156,803 6,820,549
14 15

7. Operating expenses 9. Taxation

2003 2002 2003 2002

MNT '000 MNT '000 MNT '000 MNT '000
Personnel costs Mongolian taxation based on results for the year
- Salaries and related expenses 667,183 550,998 - Current 747,186 583,579
Depreciation of property, plant and equipment 409,775 282,008 - (Over)/underprovision in prior years (264) 20,970
Travelling 193,682 178,722 746,922 604,549
Rental of premises 688,669 227,024
Entertainment 10,671 12,982
Advertisement 133,132 64,829 Mongolian legal entities must individually report taxable income and remit income taxes thereon to
Communications 254,459 172,218 the appropriate authorities. The income tax rate for banks profits is 15% for the first MNT100
Safety expenses 49,805 24,466 million of taxable income, and 40% on the excess of taxable income over MNT100 million.
Service charges 692,983 350,724 Interest income on government bonds is not subject to income tax. The provision for probable
Stationery 117,101 79,661 loan losses is deductible for income tax purposes.
Other operating expenses 484,529 344,166
Write-off of property, plant & equipments 2,010 18,523 A reconciliation of income tax expense applicable to profit before taxation at the statutory income
3,703,999 2,306,321 tax rate to income tax expense at the effective income tax rate of the Bank is as follows:

2003 2002
The average number of persons employed by the Bank during the year was made up as follows: MNT '000 MNT '000
Income tax at statutory rates based on profit before taxation 709,521 544,810
Tax exempt income (24,982) (13,126)
2003 2002 Non-deductible expenses 62,647 51,895
Directors and head of departments 22 22 (Over)/underprovision in prior year (264) 20,970
Officers 218 164 Tax expense for the year 746,922 604,549
Clerks 31 27
271 213 Management believes that the Bank is in substantial compliance with the tax laws affecting its
Of which: operations.
- Head office 130 110
- Branches 141 103 10.Cash and short term funds
271 213
2003 2002
MNT '000 MNT '000
8. Provisions Cash and bank balances denominated in local currencies 2,379,209 1,890,379
Cash and bank balances denominated in foreign currencies 2,873,036 1,924,181
2003 2003 5,252,245 3,814,560
MNT '000 MNT '000
Provision for loan losses less writebacks 1,374,489 1,255,440
Provision for investment securities 5,840 -
Provision for other assets 19,588 -
1,399,917 1,255,440
16 17

11. Deposits and placements with other banks and financial institutions 13.Loans and advances

2003 2002 2003 2002

MNT '000 MNT '000 MNT '000 MNT '000
Current accounts with Bank of Mongolia 9,658,508 6,549,949 Short term loans 42,926,216 29,873,407
Placements with other banks and financial institutions 37,009,865 22,650,267 Term loans 7,877,251 4,830,210
46,668,373 29,200,216 Credit cards 281,504 855,137
Staff loans 288,311 194,515
Accrued interest 710,313 499,431
Balances with Bank of Mongolia are maintained in accordance with Bank of Mongolia Gross loans and advances 52,083,595 36,252,700
requirements and bear no interest. The balances maintained with Bank of Mongolia are Provision for loan losses
determined at set percentages based on 15 days average cash balances. - specific (4,825,717) (3,624,774)
- general (469,104) (290,554)
Placements with other banks and financial institutions represent foreign currency current accounts Net loans and advances 46,788,774 32,337,372
maintained with foreign and local financial institutions, which are generally denominated in United
States Dollar ("USD") and EURO and bear interest at annual rates ranging from 0.53% to 1.02%
(2002: 0.25% to 6.40%) per annum. 2003 2002
MNT '000 MNT '000
Maturity structure
12.Investment in securities Maturing within one year 38,256,068 23,739,932
One to five years 7,280,489 8,488,761
2003 2002 After five years 1,252,217 108,679
MNT '000 MNT '000 46,788,774 32,337,372
Bank of Mongolia treasury bills 8,568,085 10,538,842
Government bonds - 156,825
Promissory notes 538,098 - Loans and advances analysed by their economic purpose are as follows:
9,106,183 10,695,667
Accretion of discounts 176,102 - 2003 2002
Provision for impairment losses (5,840) - MNT '000 MNT '000
9,276,445 10,695,667 Trading 19,421,270 10,665,530
Processing related industries 16,699,633 11,592,740
Mining 3,798,901 4,838,150
Bank of Mongolia treasury bills are interest bearing short term bills with maturities of less than Construction 2,860,658 3,099,570
three months, and are issued at a discount. The effective annual interest rates of these bills range Transportation 1,622,492 139,236
from 0.97% to 17.00% (2002 : 7.99% to 11.98%) per annum. Power, gas and water supply 1,470,870 549,389
Hospitality 1,137,902 1,417,736
Government bonds are issued by the Ministry of Finance and Economy with maturities ranging Small medium enterprises 607,365 1,320,677
from 60 days to 720 days. Annual interest rates are in the range of 5.04% to 14.18% (2002: Leasing 587,295 324,778
4.55% to 11.95%) per annum. Health and Education 572,795 262,830
Agriculture 344,724 623,831
Promissory notes are issued by a private corporation with a 150 days maturity period. The annual Others 2,959,690 1,418,233
interest rate is 21.6% (2002: nil) per annum. 52,083,595 36,252,700
18 19

13.Loans and advances (contd.) 13.Loans and advances (contd.)

Movements in the non-performing loans ("NPL") are as follows: At 31 December 2003, all loans and advances to borrowers are denominated in Togrog except for
USD loans amounting to MNT25,720 million. Interest rate ranges from 6% to 42% per annum
2003 2002 (2002 : 6% to 42% per annum).
MNT '000 MNT '000
Balance at beginning of year 6,099,950 5,054,748 Loans and advances amounting to approximately MNT46,924 million at 31 December 2003
NPL during the year - gross 4,016,439 8,017,423 (2002 : MNT30,153 million) were classified as normal and provided with a 1% loss reserve.
Recoveries/regularised during the year (5,073,776) (6,582,056) Further, loans amounting MNT5,160 million as at 31 December 2003 (2002 : MNT6,100 million)
Amount written off - (395,519) were classified as NPLs and provisions of MNT4,826 million (2002 : MNT3,625 million) have
Exchange difference 117,374 5,354 been allocated against these NPLs.
Gross balance at end of year 5,159,987 6,099,950
Less: Specific provision (4,825,717) (3,624,774) The provision for possible loan losses is considered adequate by the management based upon
their formal review and analysis of existing credits using their knowledge of prevailing and
Net balance at year end 334,270 2,475,176 anticipated economic conditions.

Gross NPL ratio as a percentage of gross total loans 9.9% 16.8% 14.Other assets

Net NPL ratio as a percentage of net total loans 0.7% 7.7% 2003 2002
MNT '000 MNT '000
Prepaid expenses 3,217,942 479,918
Movements in the provision for loan losses are as follows: Consumables and other inventory 232,911 124,037
Land held for sale 239,797
2003 2002 Other receivables 280,784 219,386
MNT '000 MNT '000 3,731,637 1,063,138
Specific Provision Less: Provision for other assets (69,528) (51,465)
Balance at beginning of year 3,624,774 2,857,463 Net balance of other assets 3,662,109 1,011,673
Provision made during the year 1,395,974 1,162,240
Amount written back in respect of recoveries (200,008) -
Amount written off - (395,519) 15.Tax recoverable
Exchange difference 4,977 590
Balance at end of year 4,825,717 3,624,774 2003 2002
Tax recoverable MNT '000 MNT '000
20,261 -
2003 2002
MNT '000 MNT '000 Tax recoverable represents the excess of tax paid compared to the taxation payable and is
General Provision subject to the approval from the Mongolian Tax Authority ("MTA").
Balance at beginning of year 290,554 193,280
Provision made during the year 178,523 93,200
Exchange difference 27 4,074
Balance at end of year 469,104 290,554
20 21

16.Property, plant and equipment 17.Deposits from customers (contd.)

Buildings Leasehold Office Construction Total (i) The maturity structure of time deposits from customers is as follows:
improvements equipment in progress
and vehicles 2003 2002
MNT '000 MNT '000 MNT '000 MNT'000 MNT '000 MNT '000 MNT '000
At cost Due within six months 31,512,785 25,668,573
Balance at beginning of year 1,007,494 30,538 1,638,021 269,751 2,945,804 Six months to one year 6,734,583 865,917
Additions - - 396,683 181,410 578,093 One year to three years 6,669,997 1,711,388
Disposals - - (6,789) - (6,789) 44,917,365 28,245,878
Transfers - - 335,405 (335,405) -
Adjustment (18,099) (18,099)
Write-offs - - (16,232) - (16,232) (ii) The deposits are sourced from the following customers:
Balance at end of year 1,007,494 30,538 2,347,088 97,657 3,482,777
2003 2002
MNT '000 MNT '000
Accumulated depreciation Business enterprises 20,045,851 1,447,076
Balance at beginning of year 96,918 9,840 593,734 - 700,492 Individuals 71,282,111 62,745,421
Charge for the year 54,621 3,054 352,100 - 409,775 Government 1,892,537 880,897
Disposals - - (4,137) - (4,137) 93,220,499 65,073,394
Write-offs - - (14,222) - (14,222)
Balance at end of year 151,539 12,894 927,475 - 1,091,908
Current account and other deposits generally bear no interest, however for depositors maintaining
Net Book Value current account balance above a precribed limit,interest is provided at annual rates of
approximately 1.2% (2002: 1.2%) per annum and between 3.0% to 3.6% (2002: 3.0% to
At 31 December 2003 855,955 17,644 1,419,613 97,657 2,390,869 3.6%) per annum for foreign currency and local currency accounts respectively.

At 31 December 2002 910,576 20,698 1,044,287 269,751 2,245,312 Foreign currency demand deposits bear interest at an annual rate of approximately 3.6% (2002:
3.6%) per annum, while local currency demand deposits at approximately 7.2% (2002: 7.2%)
Depreciation charge for 2002 15,544 3,054 263,410 - 282,008 per annum.

Interest rates for time deposits vary for different types of accounts. Foreign currency time
17.Deposits from customers deposits bear interest at an annual rate of approximately 0.7% to 7.2% (2002: 0.7% to 7.2%)
per annum, while for local currency time deposits, at a range of approximately 1.3% to 14.4%
2003 2002 (2002: 1.2% to 14.4%) per annum.
MNT '000 MNT '000
Current account deposits 26,280,795 20,980,163 Foreign currency government deposits bear interest at an annual interest at 6.0% to 7.2% (2002:
Demand account deposits 19,291,117 14,285,001 6.0% to 7.2%) per annum, while local currency government deposits, at a range of 12.0% to
Time deposits 44,917,365 28,245,878 14.4% (2002: 12.0% to 14.4%) per annum.
Government deposits 1,892,537 880,897
Other deposits 838,685 681,455
93,220,499 65,073,394
22 23

18.Deposits and placements of other banks and financial institutions 21.Loans from foreign financial institutions (contd.)

2003 2002 World Bank Loan I

MNT '000 MNT '000 The World Bank USD loan amounts to USD2.6 million or MNT3.0 billion (2002: USD2.7 million
Foreign currency current account deposits 1,379,194 153,383 or MNT3.2 billion). The World Bank loan is channeled to various borrowers under the Private
Local currency current account deposits 304,271 40,412 Sector Development Credit Programme. The interest rate of the World Bank loan is variable and
Obligation on securities sold under repurchase agreements - 700,000 calculated on the LIBOR 6 months USD rate +3% (2002: LIBOR 6 months USD rate +3%). The
1,683,465 893,795 repayment of the loan is in accordance with the repayment schedule with the final payment due
in March 2010.
Foreign currency and local currency current deposits are placed by local commercial banks and
generally bear no interest. World Bank Loan II
The World Bank MNT loan balance stands at MNT2.2 billion (2002: MNT1.9 billion) respectively.
The World Bank loan is channeled to various borrowers under the Private Sector Development
19.Loans from Bank of Mongolia Credit Programme. The interest rate of the World Bank loan is variable and calculated on the
LIBOR 6 months USD rate +3% (2002: LIBOR 6 months USD rate +3%). The final repayment
2003 2002 of the loan is in accordance with the repayment schedule with the final repayment due in June
Loans from the bank MNT '000 MNT '000 2009.
1,074,000 1,024,000
World Bank Loan III
These borrowings bear an interest rate of 10% (2002: 10%) per annum. The final repayment of The loan is utilised for staff training purposes. The interest rate of the loan is fixed at 2% (2002 :
these borrowings is due in July 2005 in accordance to the repayment schedule. 2%) per annum with principal repayment commencing on November 2004 and final repayment
due in May 2019 in accordance with the repayment schedule.

20.Government loan Berliner Bank Loan

The Berliner Bank loan is used to finance the purchase of a building in Germany. The interest rate
2003 2002 of the loan is 7.45% (2002: 7.45%) per annum. The Bank commenced principal repayments in
MNT '000 MNT '000 June 1996 and the final repayment is due in September 2025 in accordance with the repayment
Loan from government 320,000 170,000 schedule.

The interest rate of the loan is fixed at 6% (2002: 6%) per annum. The loan is repayable within a Asian Development Bank
year in accordance to the repayment schedule. The loan from the Asian Development Bank was obtained during the year. The loan were
subsequently disbursed to housing loan borrowers. The interest rate on the loans is between 8%
to 8.2% (2002: nil) per annum. Terms of repayment of the loan are in accordance with the
21. Loans from foreign financial institutions respective repayment schedule.

2003 2002 22.Other liabilities

MNT '000 MNT '000
Foreign funded loans: 2003 2002
World Bank Loan I 3,075,422 3,153,086 MNT '000 MNT '000
World Bank Loan II 2,177,796 1,913,221 Payables 244,089 149,311
World Bank Loan III 327,825 259,164 Foreign remittance under request 627,757 59,205
Berliner Bank Loan 488,446 395,903 Delay on clearing settlement 230,390 435,898
Asian Development Bank 428,673 - Other payables 367,963 38,965
6,498,162 5,721,374 1,470,199 683,379
24 25

23.Statutory fund 24.Risk management policies (contd.)

2003 2002 The Bank's concentration of assets and liabilities are as follows:
MNT '000 MNT '000
At the beginning of the year 4,083,230 2,071,700 2003 (MNT'000)
Issued during the year 3,001,760 2,011,530 Foreign
At the end of the year 7,084,990 4,083,230 MNT currencies Total
Assets
At 31 December 2003 the statutory fund was wholly owned by Bodi International Limited. Cash and short term funds 2,379,209 2,873,036 5,252,245
Deposits and placements with other banks and
financial institutions 1,727,290 44,941,083 46,668,373
24.Risk management policies Investment in securities 8,734,727 541,718 9,276,445
Loans and advances 18,919,482 27,869,292 46,788,774
Management of risk is fundamental to the banking business and is an essential element of the Other assets 3,257,406 404,703 3,662,109
Bank's operations. The main risks inherent to the Bank's operations are those related to credit Tax recoverable 20,261 - 20,261
exposures, liquidity and market movements in interest rates and foreign exchange rates. A Property, plant and equipment 1,883,607 507,262 2,390,869
description of the Bank's risk management policies in relation to those risks are as follows: 36,921,982 77,137,094 114,059,076
Liabilities
Credit risk Deposits from customers 32,213,755 61,006,744 93,220,499
The Bank is exposed to credit risk which is the risk that a counter party will be unable to pay Deposits and placements of other banks and
amounts in full when due. The Bank structures the levels of credit risk it undertakes by placing financial institutions 304,271 1,379,194 1,683,465
limits on the amount of risk accepted in relation to one borrower, or group of borrowers, and to Loans from Bank of Mongolia 1,074,000 - 1,074,000
industry segments. Such risks are monitored on a revolving basis and subject to an annual or Government loan 320,000 - 320,000
more frequent review. Limits on the level of credit risk by borrower and product are approved Loans from foreign financial institutions 2,602,212 3,895,950 6,498,162
regularly by the Bank's management team. Other liabilities 5,926 1,464,273 1,470,199
Provision for taxation - - -
Exposure to credit risk is managed through regular analysis of the ability of borrowers and 36,520,164 67,746,161 104,266,325
potential borrowers to meet interest and capital repayment obligations and by changing these
lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining Net position 401,818 9,390,933 9,792,751
collaterals.
Commitments and other off balance sheet items 558,576 12,160,267 12,718,843
Apart from deposits and placements with other bank financial instituitions amounting to MNT36.1
billion (2002: MNT21.0 billion) and property, plant and equipment amounting to MNT507 million
(2002: MNT523 million), all banking assets and liabilities were geographically concentrated in
Mongolia.

Credit related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as
required. Guanrantees and standby 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, carry the same credit risk as loans.

Currency risk
The Bank is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on
its financial position and cash flows. The Bank's management sets limits on the level of exposure
by currencies (primarily USD) and in total.
26 27

24.Risk management policies (contd.) 24.Risk management policies (contd.)

2002 (MNT'000) The contractual maturities of banking assets and liabilities for the year ended 31 December 2003
Foreign are as follows (MNT '000):
MNT currencies Total
Assets Less than 3 to 6 6 months 1 to Over
Cash and short term funds 1,890,379 1,924,181 3,814,560 3 months months to 1 year 5 years 5 years Total
Deposits and placements with other banks and Assets
financial institutions 2,083,765 27,116,451 29,200,216 Cash and short term funds 5,252,245 - - - - 5,252,245
Investment in securities 10,695,667 - 10,695,667 Deposits and placements
Loans and advances 14,556,919 17,780,453 32,337,372 with other banks and
Other assets 912,295 99,378 1,011,673 financial institutions 39,795,061 6,552,000 314,304 7,008 - 46,668,373
Property, plant and equipment 1,722,561 522,751 2,245,312 Investment in securities 8,734,727 541,718 - - - 9,276,445
31,861,586 47,443,214 79,304,800 Loans and advances 15,969,538 7,839,286 14,447,244 7,280,489 1,252,217 46,788,774
Liabilities Other assets 3,662,109 - - - - 3,662,109
Deposits from customers 24,827,657 40,245,737 65,073,394 Tax recoverable - - 20,261 - - 20,261
Deposits and placements of other banks and Property, plant and
financial institutions 740,412 153,383 893,795 equipment 240 85 21,238 902,256 1,467,050 2,390,869
Loans from Bank of Mongolia - 1,024,000 1,024,000 73,413,920 14,933,089 14,803,047 8,189,753 2,719,267 114,059,076
Government loan 170,000 - 170,000 Liabilities
Loans from foreign financial institutions 3,838,719 1,882,655 5,721,374 Deposits from customers 49,457,021 30,358,898 6,734,583 6,669,997 - 93,220,499
Other liabilities 56,820 626,559 683,379 Deposits and placements
Provision for taxation 37,248 - 37,248 of other banks and
29,670,856 43,932,334 73,603,190 financial institutions 1,099,465 - - 584,000 - 1,683,465
Loan from Bank
Net position 2,190,730 3,510,880 5,701,610 of Mongolia - - 772,800 301,200 - 1,074,000
Government loan - 320,000 - - - 320,000
Commitments and other off balance sheet items 1,282,202 4,349,955 5,632,157 Loans from foreign
financial instituitions 317,110 335,220 386,312 4,047,687 1,411,833 6,498,162
Other liabilities 1,470,199 - - - - 1,470,199
Liquidity risk 52,343,795 31,014,118 7,893,695 11,602,884 1,411,833 104,266,325
The Bank is exposed to frequent calls on its available cash resources from demand deposits,
maturing deposits and loan drawdowns. The Bank maintains liquidity management with the Net liquidity gap 21,070,125 (16,081,029) 6,909,352 (3,413,131) 1,307,434 9,792,751
objective of ensuring that funds will be available at all times to honor all cash flow obligations as
they become due. The Reserve department sets limits on the minimum proportion of maturing Accumulated gap 21,070,125 4,989,096 11,898,448 8,485,317 9,792,751
funds available to cover such cash outflows and on the minimum level of interbank and other
borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.
28 29

24.Risk management policies (contd.) 24.Risk management policies (contd.)

The contractual maturities of banking assets and liabilities for the year ended 31 December 2002 Interest rate risk
are as follows (MNT '000): The Bank is exposed to the effects of fluctuations in the prevailing levels of market interest rates
on its financial position and cash flows. Interest rate risk is measured by the extent to which
Less than 3 to 6 6 months 1 to Over changes in market interest rates impact margins and net income. To the extent the term structure
3 months months to 1 year 5 years 5 years Total of interest bearing assets differs from that of liabilities, net of interest income will increase or
Assets decrease as a result of movements in interest rates. The Bank's expected repricing and maturity
Cash and short term funds 3,814,560 - - - - 3,814,560 dates do not differ significantly from the contract dates, which are disclosed in the liquidity risk
Deposits and placements table above.
with other banks and
financial institutions 18,189,050 575,151 8,075,068 2,360,947 - 29,200,216 Interest rate risk is managed by increasing or decreasing positions within limits specified by the
Investment in securities 10,545,667 150,000 - - - 10,695,667 Bank's management. These limits restrict the potential effect of movements in interest rates on
Loans and advances 6,151,180 5,911,078 11,677,674 8,488,761 108,679 32,337,372 interest margin and on the value of interest sensitive assets and liabilities.
Other assets 1,011,673 - - - - 1,011,673
Property, plant and The Bank's interest rate policy is reviewed and approved by the Reserve department. The Bank's
equipment 370 2,207 28,654 622,367 1,591,714 2,245,312 average effective interest rates per annum in 2003 and 2002 for monetary financial instruments
39,712,500 6,638,436 19,781,396 11,472,075 1,700,393 79,304,800 are as follows:

Liabilities 2003 2002

Deposits from customers 32,378,135 19,856,760 12,838,499 - - 65,073,394 MNT USD MNT USD
Deposits and placements Interest earning assets
of other banks and
financial institutions 893,795 - - - - 893,795 Placement with other banks - 0.53%-1.02% - 0.25%-6.40%
Loan from the Bank Bank of Mongolia treasury bills 0.97%-17.00% - 7.99%-11.98% -
of Mongolia - - - 1,024,000 - 1,024,000 Government bonds 5.04%-14.18% - 4.55%-11.95% -
Government loan - 170,000 - - - 170,000 Promissory Notes - 21.6% - -
Loans from foreign Loans and advances 6%-42% 18%-30% 6%-42% 18%-36%
financial institutions 315,210 635,147 367,882 3,098,653 1,304,482 5,721,374
Other liabilities 683,379 - - - - 683,379 Interest bearing liabilities
Provision for taxation 37,248 - - - - 37,248
34,307,767 20,661,907 13,206,381 4,122,653 1,304,482 73,603,190 Demand deposits from
customers 7.2% 3.6% 7.2% 3.6%
Net liquidity gap 5,404,733 (14,023,471) 6,575,015 7,349,422 395,911 5,701,610 Time deposits from customers 1.3%-14.4% 0.7%-7.2% 1.2%-14.4% 0.7%-7.2%
Current account deposits
Accumulated gap 5,404,733 (8,618,738) (2,043,723) 5,305,699 5,701,610 from customers 3.0%-3.6% 1.2% 3.0%-3.6% 1.2%
Government deposits 12.0%-14.4% 6.0%-7.2% 12.0%-14.4% 6.0%-7.2%
Government loan 6% - 6% -
Loans from Bank of Mongolia - 10% - 10%
Loans from foreign
financial instituitions 10.0%-14.4% 2.00%-7.45% 7.5%-12.3% 2.00%-7.45%
30 31

25.Related party disclosures 25.Related party disclosures (contd.)

Parties are considered to be related if one party has the ability to control the other party or 2003 2002
exercise significant influence over the other party in making financial or operational decisions. The MNT '000 MNT '000
Bank is controlled by Bodi International Limited which owns 100% of the Bank. d) Rental of garage to:

A number of banking transactions are entered into with related parties in the normal course of Bodicom Co.Limited 544 607
business. These include loans, deposits and foreign currency transactions. These transactions were Smartcard Co.Limited. 544 607
carried out on commercial terms and at market rates. The volumes of related party transactions, MPC Co.Limited 544 607
outstanding balances as at the year end, and relating expense for the year are listed below. Bodi Insurance Co.Limited 712 607
EBG Properties Co.Limited 544 607
As at 31 December, balances with related parties included: 2,888 3,035

2003 2002 e) Lease agreement with Bodi International Co. Limited

MNT '000 MNT '000 In November 2002, the Bank moved to its new Head Office located at Sukhbaatar Square 3,
a) Deposits from customers: Ulaanbaatar, Mongolia. The building is owned by the holding company, Bodi International
Co.Ltd. The bank entered into a lease agreement for 6 years until the year 2008. The bank has
Bodi Insurance Co. Limited 61 238,030 prepaid the lease payment amounting to MNT3.2 billion.
Bodi International Co. Limited 305 147
Bodicom Co.Limited 1,790 - f) Loans to key management personnel
Smartcard Co.Limited 20,266 - Total outstanding balance as at 31 December 2003 of loans granted to key management
Bodi Computer Co.Limited 23 - personnel amounts to MNT82.5 million (2002: MNT63.9 million). The loans to Bank's
EBG Properties Co.Limited 55,299 - employees bear interest rate of 6% (2002: 6%) per annum.
MPC Co.Limited 12,186 -
Bodi Automotive Co.Limited 44,403 - Directors' Remuneration
SB Logistic Co.Limited 5,835 - The executive director received remuneration totalling MNT5.4 million (2002 : MNT3.6 million).
140,168 238,177 The non-executive director received fees totalling MNT5.4 million (2002 : MNT3.6 million).

2003 2002 26.Capital adequacy

MNT '000 MNT '000
b) Purchase of computers and software from: Bank of Mongolia requires commercial banks to maintain a core capital adequacy ratio of
5% and risk weighted capital ratio of 10%, compiled on the basis of total equity and total
Bodicom Co.Limited - 8,481 assets as adjusted for their risk. The capital adequacy ratios of the Bank as at 31
Smartcard Co.Limited 67,427 42,696 December are as follows:
Bodi Computer Co.Limited - 45,549
MPC Co.Limited 75,808 123,883
143,235 220,609 2003 2002
Core capital ratio 15.36% 14.18%
Risk weighted capital ratio 15.36% 14.18%
2003 2002
MNT '000 MNT '000 Tier I capital
c) Purchase of motor vechicles from: Statutory fund 7,084,990 4,083,230
Retained earnings 2,707,761 1,618,380
Bodi Automotive Co.Limited - 15,456 Total Tier I Capital/ Capital Base 9,792,751 5,701,610
32 33

26.Capital adequacy (contd.) 27.Commitments and off balance sheet items (contd.)

Breakdown of risk weighted assets in the various categories of risk weights are as follows: e. Foreign exchange commitments and derivatives
In the normal course of the business, the Bank enters into foreign currency exchange
2003 (MNT'000) 2002 (MNT'000) contracts with third parties. As at 31 December 2003, the Bank has 10 open positions (2002:
Assets Risk Assets Risk 2 open positions) on foreign currency exchange forward contracts worth approximately
Weighted Weighted MNT11.4 billion (2002: MNT4.7 billion).
%
0 23,420,670 - 20,873,539 - d. Other off balance sheet items.
10 - - - - At 31 December 2003, other off balance sheet items represents loans written off on
20 37,213,395 7,442,679 23,029,852 4,605,970 non-performing loans and the interest suspended.
50 21,280 10,640 13,146 6,573
100 56,292,644 56,292,644 36,345,910 35,594,357
Total 116,947,989 63,745,963 80,262,447 40,206,900 28.Fair values of financial assets and liabilities

Financial instruments comprise financial assets and financial liabilities. The fair value of a financial
27.Commitments and off balance sheet items instrument is the amount at which the instrument could be exchanged or settled between
knowledgeable and willing parties in an arm’s length transaction, other than in a forced or
a. Financial Commitments and Off Balance Sheet Items liquidation sale.
In the normal course of business, the Bank incurs certain commitments with legal recourse to
its customers. No material losses are anticipated as a result of these transactions. Almost all of the financial instruments as at 31 December 2003 are short term in nature with
maturities of less than one year. The estimated fair values of those financial assets and financial
2003 2002 liabilities as at the balance sheet date approximate their carrying amounts as shown in the
MNT '000 MNT '000 balance sheets due to the relatively short term maturity of the financial instruments.
Guarantees and letter of credits 456,781 206,099
Lease commitments 372,402 738,458
Foreign exchange commitments 11,409,051 4,687,600
Other off balance sheet items 2,284,043 -
14,522,277 5,632,157

As at 31 December 2003, the bank has one guarantee which is fully collaterised. Total value
of the guarantees amounts to approximately MNT47 million. The balance of MNT410 million
relates to 3 letter of credits which matures subsequent to year end.

b. Lease Commitments
The Bank has lease commitments in respect of various office premises, all of which are
classified as operating leases. A summary of these commitments are as follows:-

2003 2002
MNT '000 MNT '000
Within a year 103,578 108,594
More than 1 year and less than 5 years 190,856 308,382
5 years and more 77,968 321,482
372,402 738,458
34

29.Comparative figures

Certain comparative figures have been reclassified to conform with current year's presentation.

2003 2002
MNT '000 MNT '000
Assets

Cash and short term funds 3,814,560 10,364,509

Deposits and placements with
other banks and financial instituitions 29,200,216 22,650,267

Liabilities

Deposits from customers 65,073,394 64,192,497

Government deposits - 880,897
Loans from Bank of Mongolia 1,024,000 -
Loans from foreign financial institutions 5,721,374 6,745,374
Other liabilities 683,379 720,627
Provision for taxation 37,248 -

Commitments and off Balance Sheet Items 5,632,157 951,335

30.Subsequent event

Two letter of credits issued in favour of a defaulted borrower amounting to MNT314 million
crystallised subsequent to the year end. The amount has been recognised as a loan and a full
provision has been provided on the amount as at 31 December 2003.

31.Currency

All amounts are in Mongolian Togrog unless otherwise stated.

32.Mongolian translation

These financial statements are also prepared in the Mongolian language. In the event of
discrepancies or contradictions between the English version and the Mongolian version, the
English version will prevail.