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Development Bank of Mongolia
International Financial Reporting Standards
Financial Statements and Independent Auditors Report
31 December 2016
Contents
STATEMENT BY EXECUTIVES
INDEPENDENT AUDITORS REPORT
FINANCIAL STATEMENTS
Consolidated Statement of Financial Position ............................................................................................ 1
Consolidated Statement of Profit or Loss and Other Comprehensive Income ....................................... 2
Consolidated Statement of Changes in Equity ....................................................................................... 3
Consolidated Statement of Cash Flows .................................................................................................. 4
NOTES TO THE FINANCIAL STATEMENTS
1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT ........................................... 6

2. FINANCIAL REPORTING FRAMEWORK AND BASIS FOR PREPARATION AND
PRESENTATION .......................................................................................................................... 8
3. SIGNIFICANT ACCOUNTING POLICIES ..................................................................................... 9
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY ........................................................................................................................... 17
5. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING
STANDARDS .............................................................................................................................. 19
6. CASH AND CASH EQUIVALENTS ............................................................................................ 21
7. BANK DEPOSITS ....................................................................................................................... 22
8. SHORT TERM INVESTMENTS .................................................................................................. 22
9. LOANS AND ADVANCES ........................................................................................................... 23
10. INVESTMENTS SECURITIES AVAILABLE FOR SALE ............................................................. 30
11. OTHER ASSETS ......................................................................................................................... 31
12. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS ........................................................... 32
13. CUSTOMER ACCOUNTS........................................................................................................... 33
14. OTHER LIABILITIES ................................................................................................................... 33
15. DUE TO GOVERNMENT ............................................................................................................ 34
16. DUE TO OTHER BANKS ............................................................................................................ 34
17. BONDS ........................................................................................................................................ 35
18. BORROWINGS ........................................................................................................................... 36
19. RELATED PARTY TRANSACTIONS ......................................................................................... 37
20. CONTRIBUTED CAPITAL .......................................................................................................... 40
21. INTEREST INCOME ................................................................................................................... 41
22. INTEREST EXPENSE ................................................................................................................. 41
23. FOREIGN EXCHANGE NET LOSSES ....................................................................................... 41
24. LOSSES FROM FINANCIAL DERIVATIVES.............................................................................. 42
25. ADMINISTRATIVE AND OTHER OPERATING EXPENSES ..................................................... 42
26. INCOME TAXES ......................................................................................................................... 43
27. FINANCIAL RISK MANAGEMENT ............................................................................................. 46
28. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY ........... 60
29. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES ...................................................... 61
30. COMMITMENTS AND CONTINGENCIES ................................................................................. 66
31. SEGMENT REPORTING ............................................................................................................ 67
32. POST BALANCE SHEET EVENTS ............................................................................................ 68
f-
DEVELOPMENT BANK OF
MONGOLIA
Peace Avenue-19 building, 12th floor,
Sukhbaatar District 1 "t khoroo,
Ulaanbaatar'1 421 0, Mongolia,
Tel: +(976) 70130513
Fax: +(976) 70130602
Date 10 .il-ur An 4+
Ref !, lt/1+
STATEMENT BY EXECUTIVES
We, Balgan Batbayar, being the Chief Executive Officer of Development Bank of Mongolia
LLC and its subsidiaries ("the Bank") and Sod-Erdene Yangug, being the Deputy CEO and Head
of Supervision and Administration Department, being the officers primarily responsible for the
consolidated financial statements (collectively "the financial statements") of the Bank, do hereby
state that, in our opinion, the accompanying financial statements set out on pages 1, to 68 present
fairly, in all material respects, the consolidated financial position of the Bank as at 3L December
2016 and, of its consolidated financial performance and consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards.
,,Ak
Deputy CEO and Head of Supervision
and Administration Department
012I
Deloitte"
Deloitte Onch Audit LLC
15th floor, ICC Tower
lamiyan Gun Street
Sukhbaatar district, 1't khoroo
Ulaanbaatar, 14240
Mongolia
Tel: +976 70100450

+976 70t20450
Fax: +976 70130450
www. deloitte.com
INDEPENDENT AUDITOR'S REPORT
To the Shareholder of Development Bank of Mongolia
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Development Bank of Mongolia and its subsidiary
(the "Bank"), which comprise the consolidated statement of financial position as at 31 December 2016, and
the consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Bank as at 31 December 2016, and its consolidated financial performance
and its consolidated cash flows for the year then ended in accordance with International Financial Reporting
Standards (IFRSS).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs), Our responsibilities
under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are Independent of the Bank in accordance with the International
Ethics Standards Board for Accountants'Code of Ethics for Professional Accountants ("IESBA Code"), and we
have fulfilled our other ethical responsibilities in accordance with the IESBA Code, We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the consolidated financial statements of the current period. These matters were addressed in the context of
our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key audit matter How our audit addressed the Key audit matter
Impairment of financial assets that are subject

to credit risk
Our procedures in relation to impairment of financial
We identified the impairment loss allowance of assets that are subject to credit risk included:
financial assets as a key audit matter due to the
significance of these financial assets to the Bank's . Testing the controls over impairment assessment
consolidated financial statements and the and provision estimate;
corresponding uncertainty inherent in the
impairment assessment and provision estimate. . Selecting samples on the credit review performed
Financial assets including loans and advances to by the Bank and reviewing the assumptions used
including the expected future cash flows from
customers, short term investment classified as customers, counterparties or guarantors, and
receivable and debt securities available for sale are the realization of collateral held;
exposed to credit risk and therefore are subject to
regular impairment assessment. These three items . Recalculating the provision and compared the
altogether represent 64.7o/o of the total assets of the results with those estimated by the Bank;
Bank's consolidated financial statement.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (DTTL), its network of member firms and their related
entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to
clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.
Deloitte orovides audit, consultinq, financial advisory, risk management, tax and related seruices to public and private clients spanning multiple industries.
Deloitte"
Key audit matter How our audit addressed the Kev audit matter
f mpairment of financial assets that are subject

to credit risk
' For the financial assets collectively assessed for
The impairment assessment on these items and the impairment loss, understanding the impairment
corresponding provisions are estimated by the estimation methods used by the Bank, evaluating
management through the application of judgement the appropriateness of the critical assumptions
and use of highly subjective assumptions.
used in the impairment estimation methods,
recalculating the provision and comparing the
results with those estimated by the Bank.
Please refer to notes 8, 9 and 10 to the consolidated
financial statements respectively for details of these
financial assets. Evaluating the adequacy of the related
disclosures in the financial statements.
Other information
Management is responsible for the other information. The other information comprise the information included
in the CEO statements.
Our opinion on the consolidated financial statements does not cover the other information and we will not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above when it becomes available and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated.
When we read the other information, if we conclude that there is a material misstatement thereln, we are
required to communicate the matter to those charged with governance and we are required to perform other
procedures to conclude whether:
. A material misstatements of the other information exists;

o A material misstatements of the Bank's consolidated financial statements exists; or
. Our understanding of the Bank and its environment needs to be updated.
If we conclude that material misstatement exists in other information and this is not corrected we will ask
those charged with governance to take appropriate actions in order to bring the uncorrected material
misstatements to the attention of the users for whom our report is prepared.
If we conclude that material misstatement exists in the Bank's consolidated financial statements or our
understanding of the Bank's and its environment, we shall respond appropriately in accordance with other
ISAs.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with IFRSs and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Bank's ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Bank or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank's financial reporting process.
I
Deloitte,
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that
includes our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no
other purpose. We do not assume responsibility towards or accept liability to any other person for the contents
of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
. Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Bank's internal control.
. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the directors.
. Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material unceftainty exists related to events or conditions that
may cast significant doubt on the Bank's ability to continue as a going concern, If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor's report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report,
However, future events or conditions may cause the Bank to cease to continue as a going concern.
. Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Bank's to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit, We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements r:egarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were
of most significance in the audit of the consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes
I
Deloitte.
From the matters communicated with those charged with governance/ we determine those matters that were
of most significance in the audit of the consolidated financial statements of the current period and are therefore
the key audit matters, We describe these matters in our auditor's report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of such communication.
Other matter
The financial statements of the Bank for the year ended 31 December 20t5 were audited by another auditor,
who expressed an unmodified opinion on those financials statement on 31 March 2016.
The engagement partner on the audit resulting in this independent auditor's report is Norjinbat Shagdarsuren.
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Consol idatded Statement of Fi nanciat position
Asat31 December2016
Assets
Cash and cash equivalents 6 1,011,171,810 700,079,051
Bank deposits 7 153,663,395
Short term investment 8 128,O25,101 131,152,821
Loans and advances I 2,935,660,121 4,909,244,156
lnvestment securities available for sale 10 142,247,203 27,737,595
Other assets 11 482,922,502 9,662,779
Tax credit I 284,350 83,035,868
Property and equipment 12 28,488,319 27,637,460
lntangible assets 12 511,089 611,580
Deferred tax assets 26 115,'115,358 27,581,843
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Total assets 4,844,425,953 6,070,406,549 I
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Liabilities
Customer accounts 13 23,322,928 42,863,240
Other fi nancial liabilities 14 33,418,202 7,837,609
Other non-fi nancial liabilities 14 1,1 19,907 2,876,649
Current income tax payable 7,975,990
Other taxes payable 2,653,764 95,827
Prepaid income 8,104,638 I
Due to government 15 13,225,315 i
,l
Due to other banks 16 81,304,498 435,64037;
Bonds 17 2,254,883,385 1,727,150,414 i
Borrowings 18 1,464,860,474 3,566,540,551
Total liabilities 3,890,869,101 5,783,004,661
Equity
Contributed capital 20 1,095,793,182 245,336,288
lnvestment revaluation reserve 16,175,530 8,778,838
Retained earnings (158,411,960) 33,286,761
Totalequity 953,556,752 287,401,997
Total liabilities and equity 4,844,425,853 6,070,406,549
on behalf of the Executive management on 30 March 2017.

YNAAHEAATAP XOT
Deputy CEO and Head of Supervision and

Administration Department
The notes set out on pages 6 to 68 form an integral part of these financial statements.
,ll
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Consolidated Statement of Profit or Loss and Other Comprehensive Income
As at 31 December 2016
Year ended Year ended
Note
In thousands of Mongolian Tugriks 31 December 2016 31 December 2015
Interest income 21 427,510,784 410,175,574

Interest expense 22 (334,689,831) (279,101,331)
Net interest income 92,820,953 131,074,243
Charge of provision for loan impairment 9 (115,399,608) (46,454,176)
Net interest (loss)/income after provision for loan

(22,578,655) 84,620,067
impairment
Fee and commission income 124,695 906,503

Dividend income 10 743,368 538,833
Gains from trading in foreign currencies 692,213 24,572
Losses from short term investment (824,565) (23,011)
Foreign exchange net losses 23 (157,638,483) (24,955,953)
Losses from financial derivatives 24 (303,240) (6,433,985)
Losses from derecognition of liability - (1,048,984)
Administrative and other operating expenses 25 (11,907,810) (12,009,748)
(Loss)/profit before tax (191,692,477) 41,618,294

Income tax expense 26 (6,244) (8,331,533)
(Loss)/profit for the year (191,698,721) 33,286,761
Items that may be reclassified subsequently to profit or loss:

Fair value gain on investment securities available for
26 7,396,692 7,578,838
sale after tax
Other comprehensive income for the year 7,396,692 7,578,838
Total comprehensive (loss)/profit for the year (184,302,029) 40,865,599
2
Consolidated Statement of Changes in Equity
In thousands of Contributed Investment revaluation Retained

Note Total equity
Mongolian Tugriks capital reserve earnings
Balance at 1
20 143,879,436 1,200,000 101,456,852 246,536,288
January 2015
Profit for the year - - 33,286,761 33,286,761

Other
comprehensive - 7,578,838 - 7,578,838
income, net of tax
Contributed capital
20 101,456,852 - (101,456,852) -
for the year
Balance at 31
20 245,336,288 8,778,838 33,286,761 287,401,887
December 2015
Loss for the year - - (191,698,721) (191,698,721)

Other
comprehensive - 7,396,692 - 7,396,692
income, net of tax
Contributed capital
20 850,456,894 - - 850,456,894
for the period
Balance at 31
20 1,095,793,182 16,175,530 (158,411,960) 953,556,752
December 2016
3
Consolidated Statement of Cash Flows 31 December 2016
Note Year ended Year ended

Cash flows from operating activities

(Loss)/ profit before tax (191,692,477) 41,618,294
Adjustments to:
Depreciation and amortization expenses 25 826,496 355,896
Charge of provision for loan impairment 9 115,399,608 46,454,176
Unrealized foreign exchange translation losses 23 391,217,787 45,314,518
Unrealized losses from financial derivatives 24 - 6,433,986
Property and equipment write off 12 4,889 102
Interest income 21 (427,510,784) (410,175,574)
Interest expense 22 334,689,831 279,101,331
Dividend income 10 (743,368) (538,833)
Realized foreign exchange loss from financial activities 158,635,150 63,698
Cash flows from operating activities before changes in

380,827,132 8,627,594
operating assets and liabilities
Net decrease/(increase) in bank deposits 165,803,563 515,328,168

Net decrease/(increase) in short term investment 9,005,308 7,915,487
Net decrease/(increase) in loans and advances (916,726,197) (1,083,281,658)
Net decrease/(Increase) in other assets 12,781,702 3,366,552
Net increase/(decrease) in customer accounts (23,710,483) (36,488,874)
Net increase/(decrease) in due to government 13,200,000 -
Net increase/(decrease) in due to other banks (358,798,848) 230,545,870
Net increase/(decrease) in other liabilities 23,723,995 1,558,629
Net cash used in operating activities before tax and

(693,893,828) (352,428,232)
interest
Income taxes paid - (17,838,542)

Interest received 353,298,195 378,662,793
Interest paid (304,187,713) (263,436,652)
Net cash used in operating activities (644,783,346) (255,040,633)
Cash flows used in investing activities
Acquisition of investment securities available for sale 10 - (5,547,528)

Purchase of property and equipment 12 (1,575,703) (26,481,669)
Purchase of intangible assets 12 (6,050) (12,151)
Dividend income received (net of withholding tax) 669,031 -
Net cash used in investing activities (912,722) (32,041,348)
4
Consolidated Statement of Cash Flows 31 December 2016

Cash flows from financing activities
Repayment of promissory notes - (34,576,843)

Proceeds from bonds 86,465,000 146,960,388
Proceeds from borrowings 297,633,085 163,639,810
Repayment of borrowings (173,316,141) (5,171,996)
Proceed from contributed capital 745,955,854 -
Net cash from financing activities 956,737,798 270,851,359
Effect of exchange rate changes on cash and cash

51,029 (148,165)
equivalents
Net increase/(decrease) in cash and cash equivalents 311,092,759 (16,378,787)

Cash and cash equivalents at the beginning of the year 700,079,051 716,457,838
Cash and cash equivalents at the end of the year 1,011,171,810 700,079,051
5
Consolidated Notes to the Financial Statements 31 December 2016
(Expressed in thousands of Mongolian Tugriks unless otherwise stated)
1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT
The Development Bank of Mongolia ('the Bank) is a Government-owned, government policy-oriented

statutory financial institution established on 25 March 2011 pursuant to the Resolution No. 195 dated 20
July 2010 issued by the Government of Mongolia (the Government) and under the Law on Development
Bank of Mongolia passed by the Parliament on 10 February 2011. The Bank was registered with the
Legal Entity Registration Office of the General Authority for State Registration. The Bank conducts its
business under the direct supervision of the Cabinet, which is the highest institution of Government
administration in Mongolia, and is regulated, principally, by the Law on Development Bank of Mongolia.
The Bank commenced its operations in May 2011.
The Government of Mongolia is the Bank's sole shareholder.
In 2015, by the resolution No.407, the Government gave the permission to the Bank to establish its two
subsidiary companies named National Export Insurance LLC and Development Leasing Finance LLC.
Pursuant to this resolution the Board of Directors of the Bank (BOD) has issued the decision No.93 to
establish National Export Insurance LLC dated 15 December 2015.
Under the decision of the BOD (No.93, 2015), the Banks CEO has issued the order No.A-160 dated 25
December 2015 to contribute MNT 5 billion of capital in National Export Insurance LLC and the Bank
has made the cash contribution in amount of MNT 4.96 billion in January 2016.
The number of employees of the Bank is 121 on average during the year ended 31 December 2016 (year
ended 31 December 2015: average of 117 employees).
On 25 April 2016, the Bank's principal place of business has changed as TDB Building 11th and 12th floor,
Peace Avenue 19, Ulaanbaatar 14210, Mongolia.
These consolidated financial statements are presented in Mongolian Tugriks (MNT), unless otherwise
stated.
These consolidated financial statements were approved for issue by the Executive management of the
Bank on 31 March 2017.
Operating Environment of the Bank
Mongolia displays many characteristics of an emerging market including relatively high inflation and
interest rates. After recording steady growth in 2010 and 2011, the Mongolian economy slowed down in
2012 and 2013 due to declining global commodity prices, concerns over slowing growth in China and
changes to the Mongolian Foreign Investment Law in 2012 which slowed inbound foreign investment into
the country. The slowdown of the economy continued further with the economy being adversely affected
by significant decline in global commodity prices that took place in the last quarter of 2014 and 2015, and
further slowdown of the Chinese economy during 2014, 2015 and in 2016.
The Bank obtained a standalone rating from Standard and Poors and Moodys in 2015. On 22 August
2016, Standard and Poors downgraded Banks rating to B- with Stable outlook which mirrors that on
the sovereign rating on Mongolia. S&Ps rating reflects their view of an almost certain likelihood that the
Government would provide timely and sufficient support to the Bank. On 21 November 2016, Moodys
downgraded Banks rating to Caa1 with Stable outlook following the downgrade of Sovereign rating.
The downgrade was driven by the increased uncertainty over debt service obligations and budget deficit.
According to the Bank of Mongolia, the monetary policy for 2016 intends to provide external economic
balance, keep inflation at a low and stable level, strengthen economic stabilization and create an
environment for balanced and sustainable medium to long-term economic growth.
6
1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT (CONTINUED)
Operating Environment of the Bank (Continued)
The tax and customs legislation in Mongolia is subject to varying interpretations and frequent changes
(refer to Note 26). The future economic performance of Mongolia is tied to the continuing demand from
China and continuing volatile global prices for commodities as well as dependent upon the effectiveness
of economic, financial and monetary measures undertaken by the Government together with tax, legal
regulatory and political developments.
Current uncertainty in the world economy, volatility of financial markets, decline in global prices of
commodities, slowdown of growth of Chinese economy, slowdown of Mongolian economy, depreciation
of Mongolian Tugrik (MNT) against USD and EUR, and other potential risks could have a significant
negative effect on the Mongolian financial and corporate sectors.
In accordance with International Financial Reporting Standards (IFRS), the Banks management has
determined loan impairment provisions using the incurred loss model. Recognition of impairment losses
that arose from past events is required and the recognition of impairment losses that could arise from
future events is prohibited. These future events include for example future changes in the economic
environment. Impairment losses that could arise from future events cannot be recognized, no matter how
likely those future events are. Thus final impairment losses from financial assets could differ significantly
from the current level of provisions.
On 18 February 2015, the Parliament of Mongolia passed Debt Management Law. Pursuant to the Debt
Management Law, the Bank is the only institution in the country to obtain 100 per cent Government
guarantee on its future issuance while all other institutions are limited by up to 85 per cent of debt
obligation.
However, management is unable to predict all developments, which could have an impact on the
Mongolian economy, and consequently what effect, if any, they could have on the future financial position
of the Bank. Management believes it is taking all the necessary measures to support the sustainability
and development of the Banks business.
7
2. FINANCIAL REPORTING FRAMEWORK AND BASIS FOR PREPARATION AND
PRESENTATION
Basis of Preparation and Presentation
These consolidated financial statements have been prepared in accordance with IFRS, under the
historical cost convention, as modified by the initial recognition of financial instruments based on fair value
and valuation (measurement) of certain financial instruments (derivatives, investment securities available
for sale) at fair value. The Bank presents its statement of financial position broadly in order of liquidity. An
analysis regarding recovery or settlement within 12 months after the statement of financial position date
(current) and more than 12 months after the statement of financial position date (noncurrent) is
presented in Note 27. The principal accounting policies applied in the preparation of these consolidated
financial statements are set out below. These policies have been consistently applied to all the periods
presented, unless otherwise stated. The preparation of consolidated financial statements in conformity
with IFRS requires the use of certain critical accounting estimates. It also requires management to
exercise its judgment in the process of applying the Banks accounting policies. The areas involving a
higher degree of judgment or complexity, or areas where assumptions and estimates are significant to
the financial statement are disclosed in Note 4.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the Bank and entities
controlled by the Bank and its subsidiary. Control is achieved when the Bank:
- has power over the investee;
- is exposed, or has right, to variable returns from its involvements with the investee; and
- has the ability to use its power to affect its returns.
The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there
are changes to one or more of the three elements of control listed above.
Details of the subsidiaries, country of incorporation and their principal activities are shown as follows
Percentage of equity
Country of
Name of Company Principal activities held as at 31 December
incorporation
2016
National Export Insurance LLC Mongolia Financial services 100%
Functional Currency
These consolidated financial statements are presented in Mongolian Tugriks ('MNT') the currency of the
primary economic environment in which the Bank operates and the Banks functional currency.
Amendments of the Consolidated financial statements after issue.
The Banks management has the power to amend the consolidated financial statements after issue.
Financial instruments - key measurement terms. Depending on their classification financial

instruments are carried at fair value or amortised cost as described below.
Fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
8
3. SIGNIFICANT ACCOUNTING POLICIES
The best evidence of fair value is price in an active market. An active market is one in which transactions
for the asset or liability take place with sufficient frequency and volume to provide pricing information on
an ongoing basis. Fair value of financial instruments traded in an active market is measured as the product
of the quoted price for the individual asset or liability and the quantity held by the entity. This is the case
even if a markets normal daily trading volume is not sufficient to absorb the quantity held and placing
orders to sell the position in a single transaction might affect the quoted price. The price within the bid-
ask spread that is most representative of fair value in the circumstances was used to measure fair value,
which management considers is the last trading price on the reporting date. The quoted market price
used to value financial assets is the current bid price; the quoted market price for financial liabilities is the
current asking price.
Valuation techniques such as discounted cash flow models or models based on recent arms length
transactions or consideration of financial data of the investees are used to measure fair value of certain
financial instruments for which external market pricing information is not available. Fair value
measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements
at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two
measurements are valuations techniques with all material inputs observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements
are valuations not based on solely observable market data (that is, the measurement requires significant
unobservable inputs). Transfers between levels of the fair value hierarchy are deemed to have occurred
at the end of the reporting period.
Transaction costs. Transaction costs are incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have
been incurred if the transaction had not taken place. Transaction costs include fees and commissions
paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by
regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not
include debt premiums or discounts, financing costs or internal administrative or holding costs.
Amortised cost. Amortised cost is the amount at which the financial instrument was recognised at initial
recognition less any principal repayments, plus accrued interest, and for financial assets less any write-
down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred
at initial recognition and of any premium or discount to maturity amount using the effective interest
method. Accrued interest income and accrued interest expense, including both accrued coupon and
amortised discount or premium (including fees deferred at origination, if any), are not presented
separately and are included in the carrying values of related items in the consolidated statement of
financial position.
The effective interest method. The effective interest method is a method of allocating interest income
or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective
interest rate) on the carrying amount.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
(excluding future credit losses) through the expected life of the financial instrument or a shorter period, if
appropriate, to the net carrying amount of the financial instrument.The effective interest rate discounts
cash flows of variable interest instruments to the next interest repricing date, except for the premium or
discount which reflects the credit spread over the floating rate specified in the instrument, or other
variables that are not reset to market rates. Such premiums or discounts are amortised over the whole
expected life of the instrument. The present value calculation includes all fees paid or received between
parties to the contract that are an integral part of the effective interest rate.
Initial recognition of financial instruments. Trading securities, derivatives and other financial
instruments at fair value through profit or loss are initially recorded at fair value. All other financial
instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best
evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a
difference between fair value and transaction price which can be evidenced by other observable current
market transactions in the same instrument or by a valuation technique whose inputs include only data
from observable markets. All purchases and sales of financial assets are recorded at the settlement date,
i.e. when the entity becomes a party to the contractual provisions of the instrument.
9
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derecognition of financial assets. The Bank derecognises financial assets when (a) the assets are
redeemed or the rights to cash flows from the assets otherwise expired or (b) the Bank has transferred
the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement
while (i) also transferring substantially all risks and rewards of ownership of the assets or (ii) neither
transferring nor retaining substantially all risks and rewards of ownership, but not retaining control. Control
is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an
unrelated third party without needing to impose restrictions on the sale.
Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash
equivalents include all interbank placements with original maturities of less than 3 months. Funds
restricted for a period of more than 3 months on origination are excluded from cash and cash equivalents.
Cash and cash equivalents are carried at amortised cost.
Bank deposits. Bank deposit are recorded when the Bank advances money to counterparty banks with
initial maturity of more than 3 months with no intention of trading the resulting unquoted non-derivative
receivable due on fixed or determinable dates. Amounts due from other banks are carried at amortised
cost.
Loans and advances to customers. Loans and advances to customers are recorded when the Bank
advances money to purchase or originate an unquoted non-derivative receivable from a customer due on
fixed or determinable dates, and has no intention of trading the receivable. Loans and advances to
customers are carried at amortised cost.
Renegotiated loans. Where possible, the Bank seeks to restructure loans rather than to take possession
of collateral. This may involve extending the payment arrangements and the agreement of new loan
conditions. Once the terms have been renegotiated, the loan is no longer considered past due.
Management continuously reviews renegotiated loans to ensure that all criteria are met and that future
payments are likely to occur. The loans continue to be subject to an individual or collective impairment
assessment, calculated using the loans original effective interest rate.
Short-term investment. Short-term investment represents government bonds issued by the Ministry of
Finance of Mongolia which are recorded when the Bank advances money to purchase or originate an
unquoted non-derivative receivable on fixed or determinable dates and has no intention of trading the
receivable. Government bonds issued by the ministry of Finance are carried at amortized cost.
Impairment of financial assets carried at amortised cost. Impairment losses are recognised in profit
or loss for the period when incurred as a result of one or more events (loss events) that occurred after
the initial recognition of the financial asset and which have an impact on the amount or timing of the
estimated future cash flows of the financial asset or Bank of financial assets that can be reliably estimated.
The primary factors that the Bank considers in determining whether a financial asset is impaired its
overdue status and realisability of related collateral, if any.
The following other principal criteria are also used to determine whether there is objective evidence that
an impairment loss has occurred:
- any instalment is overdue and the late payment cannot be attributed to a delay caused by the
settlement systems;
- the borrower experiences a significant financial difficulty as evidenced by the borrowers financial
information that the Bank obtains;
- the borrower considers bankruptcy or a financial reorganisation;
- there is an adverse change in the payment status of the borrower as a result of changes in the national
or local economic conditions that impact the borrower; or
- the value of collateral significantly decreases as a result of deteriorating market conditions.
10
Impairment of financial assets carried at amortised cost (continued). Future cash flows in a Bank of
financial assets that are collectively evaluated for impairment, are estimated on the basis of the
contractual cash flows of the assets and the experience of management in
respect of the extent to which amounts will become overdue as a result of past loss events and the
success of recovery of overdue amounts . Past experience is adjusted on the basis of current observable
data to reflect the effects of current conditions that did not affect past periods, and to remove the effects
of past conditions that do not exist currently.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified
because of financial difficulties of the borrower or issuer, impairment is measured using the original
effective interest rate before the modification of terms. The renegotiated asset is then derecognized and
a new asset is recognized at its fair value only if the risks and rewards of the asset substantially changed.
This is normally evidenced by a substantial difference between the present values of the original cash
flows and the new expected cash flows.
Impairment losses are always recognised through an allowance account to write down the assets
carrying amount to the present value of expected cash flows (which exclude future credit losses that have
not been incurred) discounted at the original effective interest rate of the asset. The calculation of the
present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows
that may result from foreclosure less costs for obtaining and selling the collateral, whether or not
foreclosure is probable. Allowances are made against the carrying amount of loans and advances that
are identified as being impaired, based on regular reviews of outstanding balances, in accordance with
IFRS. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised (such as an improvement
in the debtors credit rating), the previously recognised impairment loss is reversed by adjusting the
allowance account through profit or loss for the period.
Uncollectible assets are written off against the related impairment loss provision after all the necessary
procedures to recover the asset have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off are credited to impairment loss account in profit
or loss for the period.
Investment securities available for sale. This classification includes investment securities which the
Bank intends to hold for an indefinite period of time and which may be sold in response to needs for
liquidity or changes in interest rates, exchange rates or equity prices.
Investment securities available for sale are carried at fair value. Dividends on available-for-sale equity
instruments are recognised in profit or loss for the period when the Banks right to receive payment is
established and it is probable that the dividends will be collected. All other elements of changes in the fair
value are recognised in consolidated other comprehensive income until the investment is derecognised
or impaired, at which time the cumulative gain or loss is reclassified from other comprehensive income to
profit or loss for the period. Impairment losses are recognised in profit or loss for the period when incurred
as a result of one or more events (loss events) that occurred after the initial recognition of investment
securities available for sale. A significant or prolonged decline in the fair value of an equity security below
its cost is an indicator that it is impaired. The cumulative impairment loss measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that asset previously
recognised in profit or loss is reclassified from other comprehensive income to profit or loss for the
period. Impairment losses on equity instruments are not reversed and any subsequent gains are
recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument
classified as available for sale increases and the increase can be objectively related to an event occurring
after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit
or loss for the period.
11
Accounting treatment of costs incurred with regard to obtaining of financing (funding

arrangements). The Bank incurs costs necessary for obtaining of borrowings and other funding
arrangements such as fees for professional services of legal firms and other advisors. In accordance with
IAS 39 and IAS 18 requirements, such fees for professional services represent transaction costs and are
integral part of the effective interest rate of the related financial liabilities. Therefore, these costs are
deferred and recognised as an adjustment to the effective interest rate (i.e. deferred fees are recognised
as part of the related financial liability carried at amortized cost). If transaction costs relate to funding not
received during the reporting period, such costs are recognised (deferred) in other assets to the extent
that the Bank considers probable that it will enter into related arrangement and receive financing. Refer
to Note 11 for further details.
Offsetting financial instruments. Financial assets and liabilities are offset and the net amount reported
in the consolidated statement of financial position when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the
liability simultensely.
Prepayments. Prepayments represent expenses not yet incurred but already paid in cash. Prepayments
are initially recorded as assets and measured at the amount of cash paid. Subsequently, these are
charged to profit or loss as they are consumed in operations or expire with the passage of time.
Property and Equipment. Property and equipment are initially measured at cost. At the end of each
reporting period, property and equipment are measured at cost less any subsequent accumulated
depreciation, amortization and impairment losses. Cost includes expenditure that is directly attributable
to the acquisition of the asset.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of
that equipment.
Depreciation is computed on the straight-line method, based on the estimated useful lives of the assets
as follows:
- Buildings and facilities 40 years
- IT Equipment 3 years
- Furniture and fixture 10 years
- Vehicles 10 years
Derecognition of property and equipment. An item of property and equipment is derecognized upon
disposal or when no future economic benefits are expected to arise from the continued use of the asset.
Gain or loss arising on the disposal or retirement of an asset is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Intangible Assets. Intangible assets that are acquired by the Bank with finite useful lives are initially
measured at cost. At the end of each reporting period items of intangible assets acquired are measured
at cost less accumulated amortization and accumulated impairment losses. Cost includes purchase price,
including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates
and any directly attributable cost of preparing the intangible asset for its intended use.
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in
the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.
Amortization for intangible asset with finite useful life is calculated over the cost of the asset, or other
amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a
straight-line basis over the estimated useful lives of intangible assets from the date that they are available
for use, since this most closely reflects the expected pattern of consumption of the future economic
benefits embodied in the asset. The estimated useful lives are as follows:
- Software 10 years
- Licence 1 year
12
Derecognition of intangible assets. An intangible asset is derecognized on disposal, or when no future

economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an
intangible asset are measured as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in profit or loss when the asset is derecognized.
Customer accounts. Customer accounts are non-derivative liabilities to individuals, state or corporate
customers and are carried at amortised cost.
Sale and repurchase agreements. Sale and repurchase agreements (repo agreements), which
effectively provide a lenders return to the counterparty, are treated as secured financing transactions.
Securities sold under such sale and repurchase agreements are not derecognized. The securities are not
reclassified in the statement of financial position unless the transferee has the right by contract or custom
to sell or repledge the securities, in which case they are reclassified as repurchase receivables. The
corresponding liability is presented within amounts due to other banks or other borrowed funds.
Promissory notes, Bonds and Borrowings. Debt securities representing bonds issued and borrowings
(including promissory notes) are stated at amortised cost. If the Bank purchases its own debt securities in
issue or settles its borrowings (including promissory notes), they are removed from the statement of
financial position and the difference between the carrying amount of the liability and the consideration paid
is included in gains or losses arising from retirement of debt (derecognition of liability).
Contributed capital. As at 31 December 2016, the Government had paid in capital contributions to the
Bank, but no share certificate had been issued. Contributed capital is increased either by cash
contributions or capitalization of retained earnings.
Derivative financial instrument. Derivative financial instruments primarily include cross currency swap
and are carried at fair value. Derivative instruments are carried as assets when fair value is positive and
as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included
in profit or loss for the period (gains less losses on derivatives). The Bank does not apply hedge
accounting.
Income tax. Income tax has been provided for in the consolidated financial statements in accordance
with legislation enacted or substantively enacted by the end of the reporting period. The income tax
charge comprises current tax and deferred tax and is recognised in profit or loss for the period, except if
it is recognised in other comprehensive income or directly in equity because it relates to transactions that
are also recognised, in the same or a different period, in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to, or recovered from, the taxation authorities in respect of
taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates
if the consolidated financial statements are authorised prior to filing relevant tax returns. Taxes other than
on income are recorded within administrative and other operating expenses.
Deferred income tax. Deferred income tax is provided using the balance sheet liability method for tax
loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. In accordance with the initial recognition
exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or
a liability in a transaction other than a business combination if the transaction, when initially recorded,
affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or
substantively enacted at the end of the reporting period, which are expected to apply to the period when
the temporary differences will reverse or the tax loss carry forwards will be utilised.
Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to
the extent that it is probable that future taxable profit will be available against which the deductions can
be utilised.
13
Impairment of tangible and intangible assets. At the end of each reporting period management
assesses whether there is any indication of impairment of premises and equipment or intangible assets.
If any such indication exists, management estimates the recoverable amount, which is determined as the
higher of an assets fair value less costs to sell and its value in use. The carrying amount is reduced to
the recoverable amount and the impairment loss is recognised in profit or loss for the period. An
impairment loss recognised for an asset in prior years is reversed if there has been a change in the
estimates used to determine the assets value in use or fair value less costs to sell.
Provisions, Contingent Liabilities and Contingent Assets

Provisions. Provisions are recognized when the Bank has a present obligation, either legal or
constructive, as a result of a past event, it is probable that the Bank will be required to settle the obligation
through an outflow of resources embodying economic benefits, and the amount of the obligation can be
estimated reliably. The amount of the provision recognized is the best estimate of the consideration
required to settle the present obligation at the end of each reporting period, taking into account the risks
and uncertainties surrounding the obligation. A provision is measured using the cash flows estimated to
settle the present obligation; its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered
from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will
be received and the amount of the receivable can be measured reliably.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate. If it is no longer probable that a transfer of economic benefits will be required to settle the
obligation, the provision is reversed.
Contingent Liabilities and Assets. Contingent liabilities and assets are not recognized because their
existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity.
Contingent liabilities are disclosed, unless the possibility of an outflow of resources embodying economic
benefits is remote.
Contingent assets are disclosed only in case if an inflow of economic benefits is probable.
Credit related commitments. From time to time, the Bank enters into credit related commitments,
including letters of credit and financial guarantees. Financial guarantees represent irrevocable
assurances to make payments in the event that a customer cannot meet its obligations to third parties
and carry the same credit risk as loans.
Financial guarantees and commitments to provide a loan are initially recognized at their fair value, which
is normally evidenced by the amount of fees received. This amount is amortized on a straight line basis
over the life of the commitment, except for commitments to originate loans if it is probable that the Bank
will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after
origination; such loan commitment fees are deferred and included in the carrying value of the loan on
initial recognition.
At the end of each reporting period, the commitments are measured at the higher of (i) the remaining
unamortized balance of the amount at initial recognition and (ii) the best estimate of expenditure required
to settle the commitment at the end of each reporting period. In cases where the fees are charged
periodically in respect of an outstanding commitment, they are recognized as revenue on a time
proportion basis over the respective commitment period.
Staff costs and related contributions. Wages, salaries and other salary related expenses are
recognized as an expense in the period in which the associated services are rendered by the Banks
employees. Short term accumulating compensated absences such as paid annual leave are recognized
when services are rendered by employees that increase their entitlement to future compensated
absences. Short term non-accumulating compensated absences such as sick leave are recognized when
absences occur.
14
Employee Benefits
As required by law, companies in Mongolia make contributions to the government pension scheme -
Social Security and Health Insurance Fund. Such contributions are recognized as an expense in the profit
or loss as incurred. The Bank has no legal or constructive obligation to make pension or similar benefit
payments beyond the payments to the statutory defined contribution scheme.
Long-term benefits. The Bank has provided funding to 3rd party banks in order for them to provide its
Employees with cheaper mortgage and salary loans. The cost of this scheme has been booked as a
prepayment and will be expensed through the consolidated statement of profit or loss and other
comprehensive income over the life-time of the loan scheme.
Income and expense recognition. Interest income and expense are recorded for all debt instruments on an
accrual basis using the effective interest method. This method defers, as part of interest income or expense,
all fees paid or received between the parties to the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
Fees integral to the effective interest rate include origination fees received or paid by the entity relating
to the creation or acquisition of a financial asset or issuance of a financial liability, for example fees for
evaluating creditworthiness, evaluating and recording guarantees or collateral, negotiating the terms of
the instrument and for processing transaction documents. Commitment fees received by the Bank to
originate loans at market interest rates are integral to the effective interest rate if it is probable that the
Bank will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly
after origination. The Bank does not designate loan commitments as financial liabilities at fair value
through profit or loss.
When loans and other debt instruments become doubtful of collection, they are written down to the present
value of expected cash inflows and interest income is thereafter recorded for the unwinding of the present
value discount based on the assets effective interest rate which was used to measure the impairment loss.
All other fees, commissions and other income and expense items are generally recorded on an accrual
basis by reference to completion of the specific transaction assessed on the basis of the actual service
provided as a proportion of the total services to be provided.
Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a
third party, such as the acquisition of loans, shares or other securities or the purchase or sale of
businesses, and which are earned on execution of the underlying transaction, are recorded on its
completion.
Foreign currency transactions. The functional currency of the Bank is the currency of the primary
economic environment in which the entity operates. Thus, the Banks functional currency and presentation
currency is the national currency of Mongolia, Mongolian Tugrik (MNT).
Monetary assets and liabilities are translated into the Banks functional currency at the official exchange
rate of the Bank of Mongolia (BOM) at the respective end of the reporting period. Foreign exchange
gains and losses resulting from the settlement of the transactions and from the translation of monetary
assets and liabilities into the Banks functional currency at period-end official exchange rates of the BOM
are recognised in profit or loss. Translation at period-end rates does not apply to non-monetary items that
are measured at historical cost.
At 31 December 2016 the principal rate of exchange used for translating USD, JPY, EUR and CNY
denominated balances were USD 1 equal to MNT 2,489.53, JPY 1 equal to MNT 21.19, EUR 1 equal to MNT
2,605.79 and CNY 1 equal to MNT 357.96 (31 December 2015: USD 1 equal to MNT 1,995.98, JPY 1 equal
to MNT 16.58, EUR 1 equal to MNT 2,182.70 and CNY 1 equal to MNT 307.54).
15
Government Grants. Grants from the government are recognised at their fair value, where there is a
reasonable assurance that the grant will be received, and the Bank will comply with all attached conditions.
Government grants relating to costs are deferred, and recognised in the consolidated statement of profit or
loss and other comprehensive income over the period necessary to match them with the costs they are
intended to compensate. The Bank has opted to recognise its Government Grants as a reduction of the related
expense. If part, or all, of a grant becomes repayable to the government, the repayment is first matched against
any remaining deferred income set up for that grant. If this is insufficient, the remainder is expensed
immediately.
Principal and agent arrangements. The Bank obtains funding designated to advance a specific loan facility
to a specific borrower. For such arrangements, the Bank considers whether it acts as a principal or an agent
of the party providing the funding, by applying the pass-through criteria in IAS 39 to the loans which are as
follows: a) the Bank has no obligation to pay amounts to the eventual recipients unless it collects equivalent
amounts from the original asset; b) the Bank is prohibited by the terms of the transfer contract from selling or
pledging the original asset other than as security to the eventual recipients for the obligation to pay them cash
flows; and c) the Bank has an obligation to remit any cash flows it collects on behalf of the eventual recipients
without material delay. If the pass-through criteria are not met, the Bank acts as a principal, it recognizes funds
disbursed and funds received as assets and liabilities in the consolidated statement of financial position, and
related interest income and interest expenses in the consolidated statement of profit or loss and other
comprehensive income.
If the pass-through criteria are met, the Bank acts as an agent and recognizes the amount of fee received from
the related arrangement in the consolidated statement of profit or loss and other comprehensive income.
Funds received and funds disbursed do not meet definition of assets and liabilities, and are not recognized in
the consolidated statement of financial position.
If there are no indications that the Bank acts as principal, the Bank acts as an agent and recognizes the amount
of fee received from the related arrangement in the consolidated statement of profit or loss and other
comprehensive income. Funds received and funds disbursed do not meet definition of assets and liabilities,
and are not recognized in the consolidated statement of financial position.
Related Party Transactions

A related party transaction is a transfer of resources, services or obligations between the Bank and a
related party, regardless of whether a price is charged.
A person or a close member of that persons family is related to the Bank if that person:
- has control or joint control over the Bank or;
- has significant influence over the Bank or;
- is a member of the key management personnel of the Bank or of a parent of the Bank.
An entity is related to the Bank if any of the following conditions apply:

- the entity and the Bank are members of the same Bank which means that each parent, subsidiary
and fellow subsidiary is related to the others;
- one entity is an associate or joint venture of the other entity or an associate or joint venture of a
member of a group of which the other entity is a member;
- both entities are joint ventures of the same third party;
- one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
- the entity is a post-employment benefit plan for the benefit of employees of either the Bank or an
entity related to the Bank;
- the entity is controlled or jointly controlled by a person who is a related party as identified above and;
- A person that has control or joint control over the reporting entity has significant influence over the
entity or is a member of the key management personnel of the entity or of a parent of the entity.
Due to the nature of the Bank and its role as a policy bank almost all loans and transactions are with
related parties. The Bank applies the exemption from the disclosure of individually insignificant
transactions with government related parties as allowed under IAS 24, paragraph 25.
16
Presentation of statement of financial position in order of liquidity. The Bank does not have a clearly
identifiable operating cycle and therefore does not present current and non-current assets and liabilities
separately in the consolidated statement of financial position. Instead, assets and liabilities are presented
in order of their liquidity. The amounts of financial assets and liabilities expected to be recovered or settled
before and after twelve months after the reporting period approximate the amounts disclosed in analysis
of the financial assets and liabilities presented for liquidity management purposes in Note 27. In case of
non-financial assets and liabilities, management believes that the Notes related to these assets and
liabilities, contain sufficient information for the users of these consolidated financial statements with
regard to period of their expected recovery or settlement.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The estimates and associated assumptions are based on the historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both current and future periods.
Key Sources of Estimation Uncertainty. The following are the key assumptions concerning the future
and other key sources of estimation uncertainty at the end of each reporting period that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial period.
Determining the level of loan loss provisioning.

Loans to be repaid from the State budget. Since its establishment the purpose of the Bank has been
providing financing to development projects in Mongolia. Until the end of 2016, the projects are often of
a social infrastructure nature and may not have a clearly defined stand-alone profit-oriented cash flow
sufficient to demonstrate a long-term ability to repay the development loan. However, for many such loans
a guarantee is provided by the Government, and this is considered when assessing whether there is a
risk of loss on any particular loan.
The Parliament of Mongolia issued a resolution No.81 on 28 December 2016 with regards to actions
taken on the Bank. Based on this, Government of Mongolia issued a resolution No.219, according to the
fulfillment of above mentioned Parliament resolution 81, on 28 December 2016. In accordance with above
mentioned resolutions, loans repaid by state budget were transferred to Government of Mongolia on 31
December 2016. Therefore, loan loss provisions that were accumulated on 31 December 2015 and on
31 December 2016 were written back.
Loans to be repaid by project revenue and guaranteed by the Government. The Bank has assessed
whether impairment indicators exist in case of corporate loans with indirect Government guarantee (refer
to Note 9 for definition of direct and indirect Government guarantees) and whether recognition of
impairment provision is needed. In case of customers with impairment indicators, management assessed
probability of the Bank requesting repayment from the Government and need for recognition of
impairment provision, due to delays in repayment by the customer or the Government, which are unlikely
to be compensated by additional interest. In making this assessment management has considered all
available information at the time of the approval of these consolidated financial statements.
Management believes that all customers with impairment indicators, which are likely to lead to substantial
delays in loan repayment by the customer or requesting the Government to make loan repayments (in
case of customer default), have been identified and that sufficient provision has been recognised in these
consolidated financial statements.
In assessing the recoverability of corporate loans guaranteed by the Government, management has
considered the implications of the Governments decision No. 95 dated 11 March 2015, which indicates
the Governments strong commitment to fulfil its obligations, including repayment of corporate loans with
Government guarantees, over long-term period.
17
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
(CONTINUED)
Loans to be repaid by the Corporates without Government guarantees. The Bank regularly reviews
its loan portfolios to assess impairment. In determining whether an impairment loss in relation to its
corporate loans without Government guarantees should be recorded in profit or loss for the period, the
Bank makes judgements as to whether there is any observable data indicating that there is a measurable
decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified
with an individual loan in that portfolio. This evidence may include observable data indicating that there
has been an adverse change in the payment status of borrowers in the Bank, or national or local economic
conditions that correlate with defaults on assets of the Bank. Management uses estimates based on credit
risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling
its future cash flows. The methodology and assumptions used for estimating both the amount and timing
of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual
loss experience. Impairment losses for individually significant loans are based on estimates of discounted
future cash flows of the individual loans, taking into account repayments and realisation of any assets
held as collateral against the loans. In addition, management considered whether impairment provision
is needed on collective basis for loans without impairment indicators or loans with no specific impairment
provision, given current operating environment, financial conditions and liquidity of the industries in which
customers operate, the level of collateral and its ability to be foreclosed in the practice, and likelihood that
projects financed by the Bank would experience delays. Collective assessment included corporate loans
with indirect Government guarantees, which are expected to be repaid by the customer rather than the
Government, and corporate loans without such guarantees.
A 10% increase or decrease in actual loss experience compared to the loss estimates would result in an
increase or decrease in loan impairment losses of MNT 19,275 million (31 December 2015: 10% increase
or decrease MNT 7,735 million). Refer to Note 9.
Initial recognition of borrowings and loans. Management assessed that the borrowings from Credit
Suisse, Commerzbank Aktiengesellschaft, China Development Bank obtained in 2014,
Vnesheconombank obtained in June 2015, International Investment Bank obtained in September 2015,
VTB Bank and Cargill FSI Inc. in 2016 (Note 18) represent a principal market for the Bank. Accordingly,
no gains or losses were recognized on initial recognition of these borrowings and loans. Management
reached the same conclusion in case of bond issued through private placement in December 2015 and
related loans funded by this bond (Note 17).
Deferred income tax asset recognition. The recognised deferred tax asset represents income taxes
recoverable through future deductions from taxable profits, and is recorded in the consolidated statement
of financial position. Deferred income tax assets are recorded to the extent that realisation of the related
tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the
future are based on a medium term business plan prepared by management and extrapolated results
thereafter. The business plan is based on management expectations that are believed to be reasonable
under the circumstances taking into account the Banks actual profitability during the period. As of 31
December 2016 the Bank recognized deferred tax asset of MNT 115,115,358 thousand (Note 26) which
mostly relates to the temporary differences arising from net unrealized foreign exchange translation
losses on financial assets and liabilities denominated in foreign currency in accordance with Mongolian
tax legislation. Management has concluded that it will be able to recover its deferred tax asset in the
period of repayment of foreign currency denominated financial liabilities (such as bonds and borrowings)
and is likely to incur tax at the rate of 25%.
As a result, management believes that deferred tax asset of MNT 115,115,358, recognized as at 31
December 2016 is fully recoverable. In reaching this conclusion, management considered relevant
regulations, nature of its settlement and related tax credit, precedents relevant to this case and other
available information at the time of approval of these consolidated financial statements.
18
STANDARDS
Amendments to IFRSs and new Interpretations that are mandatory effective for the current year
In the current year, the Bank has applied a number of amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an accounting periods that begins on or after 1 January
2016.
Effective for annual Amendments

periods beginning
or after
Amendments to IAS 16 and IAS 41 Bearer Plants
Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations
Amendments to lAS 16 and lAS 38 Clarification of Acceptable Methods of Depreciation
and Amortisation
1 January 2016 Amendments to IAS 1 Disclosure Initiative
Amendments to IAS 27 Equity Method in Separate Financial Statements
Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: .Applying the
Consolidation Exception
Annual Improvements to IFRSs 2012-2014 Cycle Various Standards
The adoption of the above amendments to standards did not result in significant changes to the accounting policies
and did not have any effect on the financial statements of the Bank.
The Bank has not applied the following new and amendments to IFRSs that have been issued but are not yet
effective:
The Standards amendments and Interpretations that are issued, but not yet effective, up to the date of issuance of
the Banks consolidated financial statements are disclosed below. The Bank intends to adopt these standards, if
applicable, when they become effective.
Effective for annual New Standards or amendments

periods beginning
or after
Amendments to IAS 7 Disclosure Initiative
1 January 2017
Amendments to IAS 12 Recognition of Deferred tax assets for unrealised losses
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customer
Amendments to IFRS 2 Classification and Measurement of Share-based Payment
Transactions
1 January 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration
Amendments to IAS 40 Transfers of Investment Property
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts
Clarification to IFRS 15 Revenue from Contracts with Customers
1 January 2017 or 1 Annual Improvements to IFRS standards 2014-2016 Cycle
January 2018*
1 January 2019 IFRS 16 Leases
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an
To be determined
Investor and its Associate or Joint Venture
* The amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after 1 January 2018, the
amendment to IFRS 12 for annual periods beginning on or after 1 January 2017.
The adoption of the above amendments to some of the standards in future may have a material impact on the amount
reported and disclosure made in the Banks consolidated financial statements. However it is not practicable to provide
a reasonable estimate of the effect of the above IFRS.
19
STANDARDS (CONTINUED)
None of the above new standards and amendments to Standards and interpretation is expected to have a significant
effect on the financial statements of the Bank except the following set out below:
IFRS 9 Financial Instruments
Based on the Bank's financial instruments and risk management policies as at December 31, 2016, application of
IFRS 9 in the future may have a material impact on the classification and measurement of the Bank's financial assets.
The Bank's available-for-sale financial assets, including those currently stated at cost less impairment, will either be
measured as fair value through profit or loss or be designated as FVTOCI. In addition, the expected credit loss model
may result in early provision of credit losses which are not yet incurred in relation to the Bank's financial assets
measured at amortized cost. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9
until the Bank performs a detailed review.
IFRS 15 Revenue from Contracts with Customers

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial
statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entitys
contracts with customers. An entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when
'control' of the goods or services underlying the particular performance obligation is transferred to the customer. Far
more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive
disclosures are required by IFRS 15. However, it is not practicable to provide a reasonable estimate of the effect of
IFRS 15 until the Bank performs a detailed review.
20
6. CASH AND CASH EQUIVALENTS
Cash on hand 15,631 8,933

Cash at Bank of Mongolia 5,322,272 3,048,110
Cash at other banks:
- Domestic 70,656,514 112,666,722
- Foreign 91,077 389,542
Short term deposits with local banks 188,313,991 583,965,744
Investment with less than three month of maturity 746,772,325 -
Total cash and cash equivalents 1,011,171,810 700,079,051
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts
of cash and which are subject to an insignificant risk of changes in value.
On December 28 2016, pursuant to the Parliament resolution No.81 of 2016, Government resolution
No.219 of 2016 and in accordance with Ministry of Finance and the Bank representatives meeting
protocol, Ministry of Finance has increased the Banks equity fund by issuing zero coupon government
bond in favor of DBM. Since this being investment with original maturity less than three months have
been classified under cash and cash equivalents. (See note 20)
Cash and cash equivalents are not collateralised. All amounts are classified as neither past due nor
impaired. The interest on the short term deposit ranges from 16.50% to 17.00% p.a. for MNT, from 6.00%
to 8.00% p.a. for USD deposits, from 4.50% to 6.00% p.a. for JPY and 8.50% p.a. for EUR deposits for
the year ended 31 December 2016 (31 December 2015: from 13.30% to 16.10% p.a. for MNT, from
6.10% to 8.15% p.a. for USD ,from 7.95% to 9.00% p.a. for EUR and 6.30% p.a. for JPY deposits).
The credit quality of cash and cash equivalents balances may be summarised based on Moodys ratings
or equivalents of Standard and Poors and/or Fitch ratings. The credit quality at 31 December 2016 and
31 December 2015 was as follows.
Aa3 552 -
Central Bank of Mongolia - B2 Rated 5,322,272 3,048,110
Baa1 4,720 -
Ba1 85,805 483
B1 - 389,059
B2 - 5,835,312
B3 - 410,325,004
Caa1 102,141,905
Unrated 903,600,925 280,472,150
Total cash and cash equivalents, excluding cash

1,011,156,179 700,070,118
on hand
The unrated balance relates to commercial banks in Mongolia, which have not been rated by any rating
agency. Financial condition of these commercial banks is regularly monitored by the Bank. Based on the
reputation of these banks on the Mongolian market and other available information (including financial
information), management believes that counterparty risk is low and the related amounts are fully
recoverable.
21
7. BANK DEPOSITS
The credit quality of term deposits may be summarised based on Moodys ratings or equivalents of
Standard and Poors and/or Fitch ratings. The credit quality at 31 December 2016 and 31 December 2015
was as follows:
B3 rated - 131,716,498
Unrated - 21,946,897
Total bank deposits - 153,663,395
The unrated balance relates to commercial banks in Mongolia, which have not been rated by any rating
agency. Financial condition of these commercial banks is regularly monitored by the Bank. Based on the
reputation of these banks on the Mongolian market and other available information (including financial
information), management believes that counterparty risk is low and related amounts are fully
recoverable.
8. SHORT TERM INVESTMENTS
Government securities 128,025,101 131,152,821
Total short term investments 128,025,101 131,152,821
On 27 December 2015, in accordance with the Government Resolution the Bank has acquired 1-year
maturity MNT 10.0 billion Government notes with coupon rate of 8.30% in exchange for Erdenes Tavan
Tolgoi JSC loan repayments. Upon the Ministry of Finance proposal, the Bank has encashed these
Government notes on December 19, 2016. For more details, refer to Note 9.
In order to increase the profitability and reduce the concentration of idle funds, the Bank has acquired
Government transferable promissory notes with its accumulated coupon payments in the par value of
MNT 53.61 billion from Ulaanbaatar City Bank and MNT 131.9 billion notes from Trade and Development
Bank pursuant to the ALTCO decision No.16/01/13 dated June 30, 2016, and No.16/02/016 dated August
9, 2016 respectively. Subsequently promissory notes received from TDB, in accordance with ALTCO
decision No.16/02/16 dated August 31, 2016, the Bank sold MNT 70 billion Government transferable
promissory notes with its accumulated coupon payments to the State Bank at a premium of 17%, in
exchange for its USD 32.03 million short term deposit repayment.
These promissory notes have coupon rate of 14.941% and maturing on February 24, 2017.
These investments are classified as loans and receivables and carried at amortized cost. They are neither
past due nor impaired as of 31 December 2016. These investments are not collateralised.
Refer to Note 29 for the estimated fair value of financial assets carried at amortised cost. Currency,
interest rate and maturity analysis of short term investments are disclosed in Note 27.
22
9. LOANS AND ADVANCES
Loans and advances as of 31 December 2016 and 31 December 2015 consist of the following:
Loans and advances to be repaid from the State budget - 2,743,986,071

Loans and advances to be repaid by Corporates 3,128,406,924 2,242,605,280
Total loans and advances 3,128,406,924 4,986,591,351
Less: Provision for loan impairment (192,746,803) (77,347,195)
Total net amount of loans and advances 2,935,660,121 4,909,244,156
At 31 December 2016, MNT 2,230,493 million of loans and advances are expected to be recovered more
than 12 months after the period end (31 December 2015: MNT 4,518,936 million).
The Bank provides financing to major policy-oriented projects including the priority sectors such as
infrastructure, roads and transportation, engineering infrastructure, energy, manufacturing, processing
industries, air transport, mining, and housing industries within the Government economic development
policy.
In previous years, loans and advances given to projects to be repaid from the State budget refer to socially
beneficial projects that do not create cash flows of their own which covers areas such as improvement of
rural and city roads, civil engineering construction, extension and improvement of power and heat plant,
building of new railways and mortgage financing through commercial banks for middle income families
and individuals. These loans represent loans with direct Government guarantees, as they are repaid
directly from the State budget. The Government issued guarantees for the repayment of these loans and
loan payments have been budgeted every year and thus have been paid from the State Budget.
taken on the Bank. Based on this, Government of Mongolia issued a resolution No.219, according to the
fulfillment of above mentioned Parliament resolution 81, on 28 December 2016. In accordance with above
mentioned resolutions, loans repaid by state budget were transferred to Government of Mongolia on 31
December 2016.
Loans and advances given to corporate projects are to be repaid from the projects or borrowers future
cash flow generation and the Bank also holds collateral including indirect Government guarantees (which
represent guarantees that could be used by the Bank in case corporate customer does not meet its loan
repayment obligations). The Bank provides lending to corporate projects which the Government considers
priority activities (air transport development, support of mining industry, housing and manufacturing
projects).
The loans to corporate customers include loans in the amount of MNT 1,026,871 million as at 31
December 2016, (31 December 2015: MNT 781,494 million), which are related to the Government
programs for financing SMEs and strategically important sectors or projects determined by the
Government at preferential rates, such as Import substitution and export promoting projects, Leather
production projects and funding via SME Fund. The related arrangements involve 11 commercial banks,
which effectively bear credit risk with regard to principal repayment and in some cases interest
repayments. The Bank has assessed impairment indicators of related commercial banks and collective
impairment provision was recognized.
23
9. LOANS AND ADVANCES (CONTINUED)
The bank has made three contracts with Erdenes Tavan Tolgoi JSC (ETT) and allocated total of USD
250.0 million loan. As of 31 December 2016, total of USD 200.0 million, were outstanding. The remaining
two loans were restructured and the repayment date was extended to 2019. These loans have fully
guaranteed by Government.
In accordance with Government resolutions No.515 dated 21 December 2015 and No.520 dated 25
December 2015, the Government settled outstanding balance related to one of the three loans issued to
ETT and interest, including additional interest for late payment, on all loans issued to ETT, in the amount
of MNT 100,268,809 thousand. Through this arrangement the Bank acquired government bonds in the
amount of MNT 10,000,000 thousand (Note 8) and recognized current income tax credit in the amount of
MNT 90,268,809 thousand, which can be used for settlement of tax liabilities within unlimited number of
years. The net amount of tax credit after setoff with tax payable at the end of the year given below:
Tax credit 284,350 83,035,868
Total tax credit 284,350 83,035,868
Pursuant of Parliament resolution, No.81 dated 28 December 2016, to take actions on the Bank and
Government resolution, No.219 dated 28 December 2016, to fulfill the Parliament resolution No.81,
responsible individuals of both Ministry of Finance and the Bank held a meeting on 28 December 2016 in
order to change the repayment conditions of the following projects with total of MNT 249,616 million from
repaid by state budget to repaid by corporate, such as Erdenes Mongolia LLC, Construction project of
Eg river hydroelectric plant with 315 MV capacity, and construction project of power plant based on the
Tavantolgoi coal mining resource.
24
The analysis by credit quality of loans outstanding at 31 December 2016 is as follows:
Loans and
Loans and advances
advances to be
In thousands of Mongolian Tugriks to be repaid by the Total
repaid from the
Corporates
State budget
Neither past due nor impaired:

- Public sector - 854,086,845 854,086,845
- Private sector - 1,198,759,644 1,198,759,644
Total neither past due nor impaired - 2,052,846,489 2,052,846,489
Past due but not impaired:

- Less than 30 days overdue - 579,580,752 579,580,752
- 30 to 90 days overdue - 203,269,959 203,269,959
Total past due but not impaired - 782,850,711 782,850,711
Impaired loans
- 180 to 360 days overdue - 185,723,848 185,723,848
- Over 360 days overdue - 106,985,876 106,985,876
Total impaired loans - 292,709,724 292,709,724
Less: Provision for loan impairment - (192,746,803) (192,746,803)
Total net amount of loans and advances - 2,935,660,121 2,935,660,121
All corporate entities are unrated. The management believes that all neither past due nor impaired loans
are performing loans. As at 31 December 2016 the aggregated amount of the top 5 largest borrowers
before impairment is MNT 1,458,585 million (as at 31 December 2015: MNT 1,491,261 million) or 46.6%
of total loans and advances (31 December 2015: 29.9%). These top 5 largest borrowers loans do not
include on-lending loans through commercial banks.
25
Analysis by credit quality of loans outstanding at 31 December 2015 is as follows:
Loans and Loans and

advances to be advances to be
In thousands of Mongolian Tugriks Total
repaid from the repaid by the
State budget Corporates
Neither past due nor impaired:

- Public sector 2,564,016,338 605,973,693 3,169,990,031
- Private sector - 928,675,311 928,675,311
Total neither past due nor impaired 2,564,016,338 1,534,649,004 4,098,665,342

- 30 to 90 days overdue - 24,021,318 24,021,318
Individually determined to be impaired loans

- Not past due 179,969,733 170,932,712 350,902,445
- 90 to 180 days overdue - 151,920,171 151,920,171
- Over 360 days overdue - 5,945,027 5,945,027
Total impaired loans 179,969,733 405,669,525 585,639,258
Less: Provision for loan impairment (1,770,115) (75,577,080) (77,347,195)
Total net amount of loans and advances 2,742,215,956 2,167,028,200 4,909,244,156
The primary factors that the Bank considers in determining whether a loan in the collective category is
impaired are its overdue status, financial conditions including impact of the operating environment on the
client and its industry, and realisability of related collateral, if any.
The Bank considers specific impairment triggering events, future cash flows and realisability of related
collateral to assess the loan impairment. As a result, the Bank presents below analysis of the loans to
be impaired.
26
Movements in the provision for loan impairment for the year ended 31 December 2015 and 31
December 2016 are as follows:
Loans and
Loans and advances
advances to be
In thousands of Mongolian Tugriks to be repaid by the Total
repaid from the
Corporates
State budget
Provision for loan impairment at 1

30,893,019 30,893,019
January 2015 -
Charge of provision during the year 1,770,115 44,684,061 46,454,176

1,770,115 75,577,080 77,347,195
December 2015
(Reversal)/charge of provision during

(1,770,115) 117,169,723 115,399,608
the year

- 192,746,803 192,746,803
December 2016
As stated on the Note 4 that loans repaid by state budget were transferred to Government and, for some,
repayment conditions were changed to be repaid by project revenue. Loan loss provisions made for these
loans as at 31 December 2015 with amount of MNT 1,770,115 thousands were written back and recorded
on the loans repaid by corporates.
Information about collateral as at 31 December 2016 is as follows:
Loans and advances Loans and advances

In thousands of Mongolian Tugriks to be repaid from the to be repaid by the Total
Loans and advances collateralized by:

- Government guarantee - 880,252,214 880,252,214
- Commercial banks promissory notes - 942,757,309 942,757,309
- Immovable Property - 418,046,456 418,046,456
- Licenses - 195,882,120 195,882,120
- Equipment - 244,147,595 244,147,595
- Sales revenue - 185,723,848 185,723,848
- Commercial banks guarantees - 84,114,229 84,114,229
- Cash - 101,788,229 101,788,229
- Share - 75,694,924 75,694,924
Total loans and advances (before

- 3,128,406,924 3,128,406,924
impairment)
The financial effect of collateral is presented by disclosing collateral values separately for (i) those assets
where collateral and other credit enhancements are equal to or exceed carrying value of the asset (over-
collateralised assets) and (ii) those assets where collateral and other credit enhancements are less than
the carrying value of the asset (under-collateralised assets).
Above mentioned collaterals were valued by the lowest amount of loan account and collateral value.
27
Information about collateral as at 31 December 2015 is as follows:

Loans and advances Loans and advances
In thousands of Mongolian Tugriks to be repaid from the to be repaid by the Total
Loans and advances collateralized by:

- Government guarantee 2,743,986,071 487,680,554 3,231,666,625
- Commercial banks promissory notes - 664,804,032 664,804,032
- Immovable Property - 340,317,165 340,317,165
- Licenses - 180,433,148 180,433,148
- Equipment - 164,148,730 164,148,730
- Sales revenue - 140,928,543 140,928,543
- Commercial banks guarantees - 116,689,986 116,689,986
- Cash - 91,054,312 91,054,312
- Share - 56,548,810 56,548,810
Total loans and advances (before

2,743,986,071 2,242,605,280 4,986,591,351
impairment)
The financial effect of collateral as of 31 December 2016 and 31 December 2015 consist of the following:
31 December 2016 31 December 2015

Carrying value Value of Carrying value Value of
In thousands of Mongolian Tugriks of the assets collateral of the assets collateral
Loans and advances to be repaid from

- - 2,742,215,956 2,742,215,956
the State budget
Loans and advances to be repaid by
2,935,660,121 3,625,171,662 2,167,028,200 2,576,697,030
Corporates
Total net amount of loans and

2,935,660,121 3,625,171,662 4,909,244,156 5,318,912,986
advances
Due to increase in exchange rate of foreign currencies, market value of particular collaterals cannot meet
the requirement of outstanding amount of loans and advances. The Bank have been reevaluating those
collaterals and, for shortfall, acquiring additional collaterals. Loans in the amount of MNT 2,467,769,950
(2015: 4,338,360,853) thousands are considered over-collateralized.
Carrying amount for renegotiated financial assets as of 31 December 2016 and 31 December 2015
consist of the following:
Loans and advances to be repaid from the State budget - 197,235,330

Loans and advances to be repaid by Corporates 1,525,498,723 834,040,394
Total renegotiated loans and advances 1,525,498,723 1,031,275,724
Performing loans as of 31 December 2016 with the amount of MNT 668,426,562 thousand (31 December
2015: MNT 518,391,508) have been restructured in the loan history.
28
Economic sector risk concentrations within the loan portfolio are as follows:

In thousands of Mongolian
Tugriks Amount % Amount %
- Manufacturing 1,434,871,857 46% 1,193,147,944 24%

- Mining 783,947,159 25% 612,603,845 12%
- Construction 569,976,099 18% 398,700,359 8%
- Road 183,529,229 6% 1,365,643,396 27%
- Power plant 86,468,790 3% 387,876,119 8%
- Agriculture 38,403,181 1% - -
- Transportation 31,210,609 1% 30,004,168 1%
- Utility - - 406,443,177 8%
- Railway - - 442,727,832 9%
- Mortgage - - 117,017,903 2%
- Other - - 32,426,608 1%
Total loans and advances

3,128,406,924 100% 4,986,591,351 100%
before impairment
29
10. INVESTMENTS SECURITIES AVAILABLE FOR SALE
Equity securities
MIK Holding JSC 37,599,851 27,737,595
Debt securities
Government securities 104,647,352 -
Total investment securities available for sale 142,247,203 27,737,595
Equity securities
Investment securities available for sale fully relates to the Banks equity investment in Mongolian
Mortgage Corporation HFC LLC (MIK HFC). In March 2014, the Bank and MIK HFC signed a partnership
agreement enabling the Bank to own 14.88% of shares in MIK HFC at a cost of MNT 10 billion. The
Banks investment is the result of the decision of the Government, the Banks sole shareholder, to boost
MIK HFCs operations in building affordable apartments.
MIK HFC declared dividend in the form of shares in third quarter of 2015 and the Bank has gained 119,661
shares, which were valued MNT 539 million by MIK HFC. As a result, the Bank recognized an increase
in investment in MIK HFC and dividend income in the amount of MNT 539 million. The percentage of
share owned by the Bank has not changed. MIK HFC has changed its ownership type into a joint-stock
company and named into MIK Holding JSC (MIK) on 3 December 2015.
In late December 2015 MIK initiated a successful IPO placement of its shares on Mongolian Stock
Exchange at price of MNT 12,000 per share. The Bank was offered to purchase additional 462,294 shares
at above mentioned to sustain its existing ownership of MIKs shares at 14.88%. The Bank has revalued
its investment in MIK at price of MNT 9,000 per share based on valuation performed by the Banks internal
specialists, considering the further risk.
At 31 December 2016, the quoted value of per share was MNT 12,200 at Mongolian Stock Exchange.
The Banks management believes that quoted value can represent fair value of MIKs shares owned by
the Bank in further. As a result, the Bank has revalued this investment at price of MNT 12,200 per share
and the amount of investment as of 31 December 2016 increased by MNT 9,862 million due to
revaluation. In May 2016, MIK has declared dividend and the Bank has received and recognized dividend
income in the amount of MNT 743,367 thousand (2015: 538,833 thousand).
The Bank does not have significant influence or joint control over MIK Holding as of 31 December 2016.
Debt securities
protocol, Ministry of Finance has increased the Banks equity fund by issuing zero coupon government
bond in favor of the Bank (See note 20). This investment has been classified under investments securities
available for sale.
30
11. OTHER ASSETS
Receivable from Ministry of Finance 481,651,152 8,447,858

Prepaid employee benefit 590,890 642,647
Other prepayments 562,547 157,282
Other receivables 114,671 611
Supply materials 3,242 7,111
Expense for professional fees related to funding
- 407,270
arrangements
Total other assets 482,922,502 9,662,779
Receivable from Ministry of Finance

taken on the Bank. Based on this, Government of Mongolia issued a resolution No.219 according to the
fulfilment of above mentioned Parliament resolution 81 on 28 December 2016. In accordance with above
mentioned resolutions, borrowings and loan receivables between Government of Mongolia and the Bank
were set-off by 31 December 2016, and the balance of USD 190.5 million (equivalent to MNT 474,314,323
thousands according to the official exchange rate of the reporting date) from the Ministry of Finance were
recorded.
The receivables from the Ministry of Finance include exchange rate loss of MNT 7,336,829 thousands.
Exchange rate related receivables are derived from MNT denominated loans issued under Government
Grant Scheme during 2012 and 2013, which were not converted to USD loans. As part of an agreement
with the Bank, the Ministry of Finance has agreed that it has a responsibility for repayment of principal
and interest amounts and any foreign currency loss to the Bank.
Therefore total receivables of MNT 481,651,152 thousands, which will be paid subsequently, were
recorded. (31 December 2015: MNT 8,447,858 thousand).
Prepaid employee benefit
In line with other banks in Mongolia, the Bank offers its employees reduced rates on Mortgage loans. The
Bank has arranged this benefit by providing other commercial banks with interest free funding for a period
of 15 - 20 years. The commercial banks in turn, issues loans to the Bank's employees at reduced rates.
This scheme began in June 2013 with a MNT 1 billion deposit at 0% interest rate with State bank but later
minor changes have been made in December 2013, in June 2014 and in August 2014 to share this
scheme across State Bank and Trade and Development Bank. Management has concluded that the
interest rate for these deposits to commercial banks is below market interest rates.
Based on available information on comparable transactions, management made judgment that the policy
rate of the Bank of Mongolia of 10.5% p.a. (effective on the dates of origination of these transactions)
represents reasonable approximation of market interest rate on MNT funding. As a result, related
prepayment was recognized at its fair value at initial recognition of MNT 776 million. The loss on initial
recognition (i.e. the difference between nominal value of this deposit and its fair value) represents salary
prepayments in accordance with IFRS requirements. Management has concluded that it is appropriate
to recognize the cost of the scheme over the lifetime of the deposit which is not expected to exceed the
service period of the employees benefiting from the scheme. MNT 539 million of the MNT 591 million is
non-current as of 31 December 2016 (31 December 2015: MNT 591 million of the MNT 643 million). In
case if an employee leaves the Bank, the mortgage is repriced on market terms.
All Other receivables, prepayments and supply materials are current assets.
31
12. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Movements in the carrying amounts of the Banks property and equipment are as follows:
Buildings Total Computer

Construction Furniture
In thousands of Mongolian Tugriks Note and Equipment Vehicle property and software and Total
in progress and fixtures
facilities equipment license
Cost at 1 January 2015 - - 480,904 293,187 984,525 1,758,616 1,032,854 2,791,470
Accumulated depreciation - - (234,285) (41,358) (81,253) (356,896) (323,356) (680,252)
Carrying amount at 1 January 2015 - - 246,619 251,829 903,272 1,401,720 709,498 2,111,218
Additions 26,334,733 - 145,686 1,250 - 26,481,669 12,151 26,493,820
Depreciation/amortization charge 25 - - (117,972) (29,402) (98,453) (245,827) (110,069) (355,896)
Disposal at cost - - (138,963) - - (138,963) (29,554) (168,517)
Disposal of accumulated
138,861 - - 138,861 29,554 168,415
depreciation/amortization - -
Carrying amount at 31 December 2015 26,334,733 - 274,231 223,677 804,819 27,637,460 611,580 28,249,040
Cost at 31 December 2015 26,334,733 - 487,627 294,437 984,525 28,101,322 1,015,451 29,116,773
Accumulated depreciation - - (213,396) (70,760) (179,706) (463,862) (403,871) (867,733)
Carrying amount at 31 December 2015 26,334,733 - 274,231 223,677 804,819 27,637,460 611,580 28,249,040
Additions 1,396,273 - 87,047 92,383 - 1,575,703 6,050 1,581,753
Depreciation/amortization charge 25 - (462,183) (129,451) (29,869) (98,452) (719,955) (106,541) (826,496)
Transfer at cost (27,731,006) 27,731,006 - - - - - -
Disposal at cost - - (150,103) (7,532) - (157,635) (5,551) (163,186)
Disposal of accumulated depreciation - - 150,103 2,643 - 152,746 5,551 158,297
Carrying amount at 31 December 2016 - 27,268,823 231,827 281,302 706,367 28,488,319 511,089 28,999,408
Cost at 31 December 2016 - 27,731,006 424,571 379,288 984,525 29,519,390 1,015,950 30,535,340
Accumulated depreciation - (462,183) (192,744) (97,986) (278,158) (1,031,071) (504,861) (1,535,932)
Carrying amount at 31 December 2016 - 27,268,823 231,827 281,302 706,367 28,488,319 511,089 28,999,408
Transfer in buildings and facilities amounting to MNT 27,731 million is related to purchase of office premise on 11th and 12th floors in Trade and Development
Bank Building in Sukhbaatar district, Peace Avenue 19.
32
13. CUSTOMER ACCOUNTS
Customer accounts 23,322,928 42,863,240
Total customer accounts 23,322,928 42,863,240
These customer accounts are primarily used for disbursements and repayments of the loans issued to
related customers by the Bank. They are not used by the customers for regular business purposes (i.e.
as transactional accounts).
No interest is paid on these customer current accounts. As at 31 December 2016 customer current
accounts consist of 14 accounts (31 December 2015: 16).
Economic sector risk concentrations within the customer accounts are as follows:
- Power plant 17,576,106 19,705,165

- Railway 4,231,346 1,041,550
- Manufacturing 1,377,410 9,803,493
- Construction 122,689 2,801,506
- Mining 14,528 377,144
- Road 849 9,134,382
Total customer accounts 23,322,928 42,863,240
14. OTHER LIABILITIES
Other financial liabilities 33,418,202 7,837,609
Total other financial liabilities 33,418,202 7,837,609
Other non-financial liabilities 982,572 1,686,812

Other provision for liabilities and charges 137,335 1,189,837
Total other non-financial liabilities 1,119,907 2,876,649
Total other liabilities 34,538,109 10,714,258
Other financial liability refers to warranty deposit for loans transferred to Government of Mongolia. Please
refer to Note 9 for transferred loans.
33
15. DUE TO GOVERNMENT
Deposit from Government 13,225,315 -
Total due government 13,225,315 -
On December 28, 2016, in the frame of financial services bilateral agreement signed between the Bank
and the Ministry of Finance, the Ministry of Finance has opened a 1-year maturity deposit account at the
Bank in the amount of MNT 13,200 million with 17.50% interest rate.
As of December 31, 2016, there are no other payables between the Bank and Ministry of Finance.
16. DUE TO OTHER BANKS
Short-term placement of other banks 81,304,498 334,557,108

Sale and repurchase agreements with securities with
- 101,083,263
other banks
Total due to other banks 81,304,498 435,640,371
The deposits due to other banks consist of term deposits from local banks with maturities ranging from
three to twelve months at interest rates from 6.00% p.a. to 7.00 % p.a. for USD deposits and term deposits
with Russian banks denominated in EUR with maturities between six to twelve months at interest rates
from 5.70% p.a. to 5.80% p.a. (31 December 2015: 14.75% p.a. for MNT and from 6.00% p.a. to 6.50%
p.a. for USD deposits and 4.85% p.a. to 5.95% p.a. for EUR deposits).
34
17. BONDS
This account is composed of:
Bond issued on Singapore Stock Exchange 1,466,786,846 1,175,056,812

Samurai bond issued in the Japanese bond market 552,736,392 404,388,823
Bond issued to Mongolian bank through private
235,360,147 147,704,779
placement
Total issued bonds 2,254,883,385 1,727,150,414
The Bank has established a USD 600 million Euro Medium Term Notes Programme in November 2011
that allows it to issue notes denominated in any currency agreed between the Bank and the dealer. The
Ministry of Finance irrevocably and unconditionally guarantees the interest and principal payment of all
amounts in respect of the notes.
The Bank issued a second series of notes in March 2012 amounting to USD 580 million with fixed interest
rate 5.75% p.a. and a 5 year maturity.
In December 2013, Japan Bank of International Cooperation (JBIC) and the Ministry of Finance has
signed set of agreements to provide guarantee for yen-denominated foreign bonds issued by the Bank in
the Japanese bond market (Samurai bond). The Ministry of Finance guarantees 100% of the bond
principal and JBICs guarantee covers the principal and the last 5.5 years of interest of this issue. The
joint lead arrangers were Nomura Securities Co., Ltd. and Daiwa Securities Co., Ltd. while Mizuho Bank
Ltd. participated as the bond administrator.
The Samurai bond was issued in January 2014 in the amount of JPY 30 billion with fixed interest rate of
1.52% p.a. and a 10 year maturity.
As of 31 December 2016, the Bank issued notes of MNT 235,360,147 thousand in accordance with Article
7.1.4 of the Law on the Development Bank of Mongolia and Resolution No. 344 dated 24 August 2015
issued by the Government. The bond issued in order to obtain funding for issuance of loans at low interest
rate with the purposes of construction or renovation of hotels for accommodation of Asia-Europe Meeting
(ASEM) representatives. The bond initially issued to a Mongolian two commercial banks through private
placement and subsequently purchased by Central Bank (Bank of Mongolia). The bond bears interest of
4% p.a. with maturity on 21 December 2018 and 14 March 2022. As this funding is used for a specific
purpose, management believes that this funding represents a principal market, refer to Note 4. Similarly,
the loan issued represent a principal market.
The initial fair value of liabilities is determined taking into consideration the guarantees provided by the
Government. Bond issuance costs are amortised over the period of the notes. Please refer to Note 0
liquidity disclosures for a breakdown of the Bonds into current and non-current amounts.
35
18. BORROWINGS
This account is composed of:
Financing from the Government - 2,563,914,387

Borrowing from foreign banks
Syndicated Loan Facility 754,439,628 598,253,376
China Development Bank 409,337,851 302,212,876
Cargill FSI Inc. 191,270,718 -
International Investment Bank 51,859,339 43,264,225
Vnescheconombank 38,767,433 35,162,308
Commerzbank 24,056,676 23,733,379
VTB Bank (4,871,171) -
Total borrowings 1,464,860,474 3,566,540,551
Based on Government Resolution No.113 of 4 April 2014, the Bank approved a total of EUR 13.1 million
financing for Erel LLCs construction of a housing production factory, which is comprised of the 70% or
EUR 12.1 million of the EUR 17.4 million equipment sales contracts with EBAWE of Germany as well the
EULER HERMES sellers credit fee of EUR 0.97 million. The loan agreement with Commerzbank was
finalized on 14 April 2014 and the loan and other relevant agreements were signed with Erel LLC on 28
April 2014. The loan bears interest rate of 1.9% - 2.3% p.a. As of 31 December 2016, total amount of
EUR 11.1 million have been financed from the facility through sales invoices. As this funding is used for
issuing loan to particular project, based on the terms of the Agreement with Commerzbank
Aktiengesellschaft, it represents principal market, Note 4. Related loan is included in loans and advances
to customers (Note 9).
The Bank also entered into a bilateral facility agreement with the International Investment Bank on 14
September 2015 for total amount of EUR 20 million for a period of 7 years for the purpose of refinancing
the project on expansion of CHP-4, through on-lending to Erel LLC, for purpose of financing the
reconstruction and modernization of housing production factory and for the purpose of financing other
projects of significant social and economic importance for Mongolia. The loan bears floating rate of 3 month
EURIBOR plus 6%. This borrowing and related loans represent principal market, refer to Note 4.
On 29 August 2014 the Bank entered into a syndicated term facility agreement led by Credit Suisse AG.
The investing party of the syndicated loan includes Credit Suisse AG, the Export-Import Bank of China,
Sumitomo Mitsui Banking Corporation (SMBC) and The Export-Import Bank of the Republic of China and
the loan facility was in the aggregate amount of USD 300 million for a period of 3 and 5 years to (a)
finance energy production and energy transfer infrastructure; (b) manufacturing (to promote exports and
to substitute imports); (c) infrastructure (road, railway networks and utilities); and (d) mining. The loan
bears interest rate of LIBOR plus 4.375% for tranche A and LIBOR plus 4.250% for tranche B. Tranche
A has maturity of 5 years and will start amortizing after 30 months from the facility agreement date while
Tranche B has a bullet repayment schedule. Full amount of facility was drawdown as of 31 December
2014. As this funding is used for issuing loans for specific predefined purposes (sectors and types of
projects), this borrowing and related loans represent principal market, refer to Note 4.
The Bank entered into loan agreement with China Development Bank on 21 August 2014 for total amount
of USD 162 million for a period of 8 years to finance customers to be used in the highway, electricity and
urban infrastructure sectors in Mongolia. The loan bears fixed interest rate of 6% p.a. As of 31 December
2016, the loan facility was fully drawdown. As this funding is used for issuing loans to predefined sectors,
this borrowing and related loans represent principal market, refer to Note 4.
36
18. BORROWINGS (CONTINUED)
The Bank entered into bilateral loan agreement with the Russian State Corporation Bank for
Development and Foreign Economic Affairs (Vnesheconombank) on 15 June 2015 for total amount of
USD 20 million for a period of 8 years to refinance required funds for expansion of Combined Heat and
Power Plant 4 (CHP4). The loan bears fixed interest rate of 3.2% p.a. As of 31 December 2016, full
amount of the facility had been utilized.
The Government Resolutions No. 93 dated March 11, 2015 granted an approval for the Bank to open a
credit line facility in the amount of up to USD 300.0 million with 36 months maturity with JSC VTB Bank.
The purpose of the facility is to counterbalance foreign currency outflow needed for financing petroleum
import from the Russian Federation. Pursuant to the resolution, the Bank established a loan agreement
with JSC VTB Bank on April 19, 2016. Within the agreement, the Bank obtained the first tranche of USD
65.4 million on June 15, 2016 and was fully repaid on December 01, 2016.
Pursuant to the Government Resolution No. 50 dated January 18, 2016, the Bank entered into a loan
agreement with Cargill FSI Inc. on April 19, 2016 for the purpose of financing development projects and
obtained total of USD 75.0 million for a period of 2 years with interest rate of 9.5% on April 21, 2016. This
loan is not guaranteed by the Government.
All of the borrowings from foreign institutions except for International Investment Bank, Commerzbank,
Vnesheconombank and Cargill FSI Inc. are secured by Government Guarantee. The initial fair value of
these borrowings is determined taking into consideration of the guarantees, provided by the government.
The Bank has not prepaid any of its borrowing during the period ended 31 December 2016 (As at 31
December 2015: Nil). The Bank did not have any defaults on principal or interest payments with regard to
all borrowings as at 31 December 2016. (As at 31 December 2015: Nil).
19. RELATED PARTY TRANSACTIONS
Related parties and transactions with related parties are assessed in accordance with IAS 24 Related
Party Disclosures. As discussed in Note 1, the Bank is 100% owned by the Government and its
operations include financing of projects within Mongolia, which include projects undertaken by
governmental entities. Accordingly, the Bank enters into numerous transactions with related parties as a
result of its ownership by the Government. According to IAS 24 Related Party Disclosures other related
parties of the Bank comprise national companies and other organisations controlled, jointly controlled or
under significant influence of the Government.
Given the nature of its operations, the Bank has significant volume of transactions with the Government
and other related parties, including guarantees received from the Government. The Banks financial
position and performance is highly dependent on the recoverability of the loans and advances to be repaid
from the State budget and other loans and receivables guaranteed by the Government (Notes 9 and 11),
as well as the Governments execution of other guarantees and contractual obligations including getting
approval of related payment/guarantees into signed state budget. As a result, the sustainability of the
Banks growth and profitability depends on the continuing support from the Government, and sufficiency
of the State budget revenue, which could be substantially influenced by developments in the operating
environment during 2017 and the following years. The information on the operating environment of the
Bank is disclosed in Note 1. Managements judgments in determining level of loan loss provision are
disclosed in Note 4.
Detailed information on related party transactions is outlined below.
Assets and Transactions with Related Parties
The Bank has disclosed the balances and transactions with the following related parties:
1) Government (which includes organizations, such as Ministry of Finance and other Ministries, of
which management is appointed by the central government);
2) entities controlled by the Government, which include state organizations (i.e. corporate entities),
local commercial bank (State Bank) and central bank of Mongolia (Bank of Mongolia); these
entities represent entities under common control in relation to the Bank;
3) other related party MIK (which is an entity over which Government has significant influence). The
Banks balance to MIK relates to investment securities available for sale.
37
19. RELATED PARTY TRANSACTIONS (CONTINUED)
An analysis of the Banks assets (excluding loans) held by related parties and transactions with related
parties is disclosed as follows:
31 December Year ended 31 31 December Year ended 31

In thousands of Mongolian
Tugriks
Statement of Statement of Statement of Statement of
Financial Comprehensive Financial Comprehensive
Position Income Position Income
Investment within three months
746,772,325 816,472 - -
(Note 6)
Current account with Bank of
5,322,272 - 3,048,110 -
Mongolia (Note 6)
Current account with State bank 22,322,176 155,910 56,198,581 488,782
Time deposits with State bank - 8,361,563 108,408,271 14,449,191
Current account with State bank
850,000 - 850,000 -
for employee benefit
Short term investment (Note 8) 128,025,101 14,177,926 131,152,821 10,876,710
Investment securities available for

142,247,203 7,543,003 27,737,595 7,578,838
sale (Note 10)
Receivables from Ministry of
7,336,828 7,415,407 8,447,858 4,275,965
Finance (Note 11)
Customer account with State
(23,308,629) - (26,508,193) -
organizations (Note13)
Tax credit (Note 9) 284,350 - 83,035,868 -
Deferred income tax asset (Note
115,115,358 - 27,581,843 -
26)
Current income tax payable (7,975,990) - - -
Other tax payable - - -
(2,653,764)
Income tax expense (Note 26) - (6,244) - (8,331,533)
Promissory notes Bank of
- - - (2,729,560)
Mongolia
Bond issued in local market (Note (235,360,147) (8,819,776) (147,704,779) (722,692)
17)
Borrowings from the Government
- (124,580,927) (2,563,914,387) (122,325,708)
(Note18)
Amount of transaction with

related parties (excluding 898,977,083 (94,936,666) (2,291,666,412) (96,440,007)
loans)
Current accounts with the Bank of Mongolia and State Bank are on the same terms and basis as the
Banks other current accounts and deposits. Bank of Mongolias current account earns Nil interest and
the State Bank current accounts earn 9% interest for MNT and 1.2% interest for USD for the period ended
31 December 2016 (31 December 2015: the Bank earned Nil interest from Bank of Mongolia and 9%
interest from the State Bank for MNT and 1.2% interest for USD).
As mentioned in Note 11, the receivable from the Ministry of Finance is due to the Project Financing
Agreements between the Ministry of Finance, the Ministry of Industry and the Bank in the form of a
Government Grant.
For information for borrowings please refer to Note 18.
38
Loans to Related Parties

An analysis of the Bank loans to related parties is disclosed as follows. All entities listed below, except
for the Ministry of Finance, represent entities under common control in relation to the Bank, as they are
controlled by the Government.
From 1 From 1
January 2016 January 2015
31 December 31 December
to 31 to 31
2016 2015
December December
2016 2015
Statement of Statement of Statement of Statement of
In thousands of Mongolian Tugriks Financial Comprehensive Financial Comprehensive
Position Income Position Income
To be repaid by the State budget: - 181,893,797 2,743,986,071 164,894,781
- The Ministries - 112,534,983 1,625,091,485 98,536,303

- Mongolian Railway SOSC - 30,134,473 442,727,832 27,446,397
- Erdenes Mongol LLC - - 179,969,734 8,458,228
- Amgalan Thermal Power Plant - 11,988,932 127,725,471 6,966,368
- Fourth Power Station SOSC - 10,164,885 121,945,067 9,320,907
- State Bank SOC - 8,494,378 117,017,902 7,803,322
- Third Power Station SOSC - 5,615,066 70,174,365 -
- Tavan tolgoi power plant - - 30,141,501 1,812,309
- Egiin gol power plant - - 15,202,683 679,137
- Sainshand industrial park SOCSC - 708,735 8,899,386 689,240
- Erdenes Oyu Tolgoi LLC - 417,649 5,073,568 219,175
- SME Development Fund - 1,834,696 17,077 2,754,530
- Mongolian Stock Exchange SOSC - - - 208,865
To be repaid by the Corporates : 1,386,946,903 80,691,304 914,243,293 59,941,101
- Erdenes Tavan Tolgoi JSC 592,860,096 32,689,893 447,163,274 37,354,663

- State Housing Corporation SOC 318,010,165 23,119,612 278,265,433 14,456,979
- SME Development Fund 88,953,917 4,311,601 121,517,382 4,944,053
- MIAT Airlines SC 31,210,609 2,064,626 30,004,168 1,436,222
- Fourth Power Station SOSC 20,381,975 1,327,686 19,846,942 401,221
- Baganuur SOSC 6,565,465 782,378 10,513,111 1,122,263
- State Bank SOC 79,238,576 2,921,551 3,866,466 176,219
- Amgalan Thermal Power Plant - 242,653 2,840,089 24,070
- Central geological laboratory of Mongolia 110,056 14,527 226,428 25,411
- Erdenes MGL SOC 183,529,229 10,360,745 - -
- Tavan tolgoi power plant 43,481,661 1,979,038 - -
- Egiin gol power plant 22,605,154 876,994 - -
Total loans to related parties 1,386,946,903 262,585,101 3,658,229,364 224,835,882
Loans provided to the above related parties are provided on the same terms and basis as loans provided
to non-related entities with interest rates between 4.5% - 9.6% (31 December 2015: 4.25% - 10.0% p.a.)
for MNT and 5.125% - 8.45% p.a. (31 December 2015: 5.125% - 8.45% p.a.) for USD loans and advances
with maturities ranging between one to ten years. Refer to Note 9.
39
The remuneration and employee benefit paid to the key management (i.e.executive management team
and members of Board ) for the period ended 31 December 2016 and 31 December 2015 amounted to
MNT 688 million and MNT 805 million respectively.
Guarantees Received
The Bank is the recipient of a number of guarantees from the Government. On the lending side substantial
portion of loans are guaranteed by Ministry of Finance (Note 9). Please refer to Note 18 for further details
on the borrowings side. The Bank has Bonds issued on the Singapore stock exchange and on the
Japanese bond market on which the Ministry of Finance irrevocably and unconditionally guarantees the
interest and principal payment of all amounts in respect of the bond notes. Please refer to Note 17.
Loan Commitments
As of 31 December 2016, the Bank has MNT 133,937 million (31 December 2015: MNT 347,391 million)
of loan commitments to related parties.
Guarantees Given
In January 2014, the Bank issued a two year guarantee in the name of Erdenes Tavan Tolgoi JSC to a
local commercial bank. The guarantee expired on 10 January 2016.
20. CONTRIBUTED CAPITAL
In accordance with the Law on Development Bank of Mongolia, the Bank's contributed capital consists
of a contribution from the Government and other sources as specified in the Law on Development Bank
of Mongolia. The Banks authorized capital is equal to contributed capital disclosed below.
Authorized:
Contributed capital 1,095,793,182 245,336,288
Paid:
at 1 January, 245,336,288 143,879,436
Contribution during the year 850,456,894 101,456,852
Total contributed capital 1,095,793,182 245,336,288
In June 2015, The Board of Directors issued a resolution No.45 to increase the Banks capital by retained
earnings of the year ended 2014 amounting 101.4 billion.
protocol, Ministry of Finance has increased the Banks equity fund by MNT 850,456 million by way of
issuing government bond in favor of the Bank. The details of which are as follows:
Face Value Discounted value Discount rate Maturity date Classified under
Cash and cash

770,450,000 745,955,854 14% 28 Mar 2017
equivalents (note 6)
Investment
229,550,000 104,501,040 17% 28 Dec 2017 securities available
for sale (note 10)
1,000,000,000 850,456,894
40
21. INTEREST INCOME
In thousands of Mongolian Tugriks Year ended Year ended

Loans and advances 357,061,695 293,588,622

Bank deposits 55,308,380 105,710,242
Short term investment 14,177,926 10,876,710
Cash and cash equivalents 816,472 -
Investment securities available for sale 146,311 -
Total interest income 427,510,784 410,175,574
For information on interest income generated on different products/services of the Bank, refer to Note
30. Interest Income on loans determined to be impaired amounted to MNT 10,797 million (31 December
2015: MNT 29,465 million).
22. INTEREST EXPENSE

Due to Government 124,580,927 122,323,589

Borrowings from foreign banks 74,370,924 52,047,378
Bond issued to international market 72,406,111 66,382,954
Samurai bond issued in the Japanese bond market 19,039,730 16,977,749
Due to other banks 15,715,050 14,262,547
Borrowing from foreign institution 13,682,015 -
Bond issued to local market 8,819,776 744,391
Securities with repurchase agreement 4,899,914 3,633,163
Due to government 1,175,384 -
Promissory note - 2,729,560
Total interest expense 334,689,831 279,101,331
23. FOREIGN EXCHANGE NET LOSSES
Included with the foreign exchange gains less losses is an amount of MNT 7,219 million due from the
Ministry of Finance under the Government Grant scheme in relation to the SME loan and Sainshand
Industrial park loan disclosed in Note 11 (31 December 2015: MNT 2,482 million). The exchange
differences charged/credited to the statement of comprehensive income are as follows:
Realized foreign exchange translation gains, net 233,579,304 20,358,565

Unrealized foreign exchange translation losses, net (391,217,787) (45,314,518)
Total foreign exchange net losses (157,638,483) (24,955,953)
41
24. LOSSES FROM FINANCIAL DERIVATIVES

In thousands of Mongolian Tugriks
EUR receivable on settlement 45,871,140 45,835,291

USD payable on settlement (54,011,989) (53,672,900)
Net fair value of foreign exchange swap (8,140,849) (7,837,609)
On 2 December 2014, the Bank entered into a swap arrangement with Trade Development Bank of
Mongolia. The first leg was to receive USD 26,086 thousand on 3 December 2014 and in return receive
EUR 21,000 thousand on 3 March 2015. The swap arrangement has been prolonged to 3 June 2015, 3
September 2015, and 3 December 2015 subsequently and to 29 January 2016 based on both parties
agreement. The arrangement settled on 29 January, 2016 and Bank has recognized a loss on this
arrangement amounting to MNT 303,240 thousand.
25. ADMINISTRATIVE AND OTHER OPERATING EXPENSES
Included in employee cost and benefit account is the contribution to the state pension fund of MNT
393,874 thousand for the year ended 31 December 2016 (31 December 2015: MNT 412,202 thousand).

In thousands of Mongolian Tugriks Note
Employee cost and benefit 5,061,828 5,267,501

Audit and other professional services 3,187,506 3,721,206
Advertising 1,250,860 720,650
Depreciation and amortization 12 826,496 355,896
Tax expense except income tax 275,981 95,827
Rental costs 262,050 788,803
Utilities, security and maintenance 248,567 11,866
Communication and Stationery 210,058 216,221
Business travel and event 197,563 240,843
IT and software 169,835 173,737
Fuel and Transportation expense 44,713 55,086
Training cost 23,912 138,097
Property and equipment write off 4,889 102
Insurance cost 2,252 11,310
Others 141,300 212,603
Total operating expenses 11,907,810 12,009,748
42
26. INCOME TAXES
The Bank provides for income taxes on the basis of income for financial reporting purposes, adjusted for
items which are not assessable or deductible for income tax purposes. The income tax rate for profits of
the Bank is 10% for the first MNT 3.0 billion of taxable income, and 25% on the excess of taxable income
over MNT 3.0 billion in accordance with Mongolian tax legislation.
Components of income tax expense charged to profit or loss are as follows:

Current income tax charge 90,005,322 25,616,702

Deferred tax benefit (89,999,078) (17,285,169)
Income tax expense for the period 6,244 8,331,533
A reconciliation between the expected and the actual taxation charge is provided below.
Loss/(profit) before tax (191,692,477) 41,618,294
Theoretical tax charge at statutory rate (47,923,119) 10,404,574
Tax effect of items which are not deductible or

assessable for taxation purposes:
- Profit subject to lower tax rate (450,000) (450,000)
- Expenses not deductible for tax purposes 756,414 1,176,961
- Income which is exempt from taxation (interest
(3,785,177) (2,719,177)
income on government securities)
- Income tax withheld in different tax rate (120,871) (80,825)
- Deductible temporary difference not recognized as
51,528,997 -
aadeferred tax assets
Income tax expense for the period 6,244 8,331,533
Differences between IFRS and statutory taxation regulations in Mongolia give rise to temporary
differences between the carrying amount of assets and liabilities for financial reporting purposes and their
tax bases.
Deferred tax asset (liability) was recognized for deductible or taxable timing differences resulting from
the revaluation of foreign currency denominated monetary assets and liabilities, differing amortisation
rates between the tax authorities and the Bank, revaluation gains on available for sale securities and
impairment provision on performing loans (Note 4).
43
26. INCOME TAXES
Components of deferred tax asset as at 31 December 2016 are as follows:
Credited/
Recognized (charged) to
31 December
In thousands of Mongolian Tugriks 1 January 2016 in profit or other
2016
loss comprehensive
income
Deferred tax (liabilities)/assets in

relation to:
Bank deposits (200,246) (3,720,238) - (3,920,484)
Short term investment (2,193,900) 2,193,900 - -
Loans and advances (119,518,846) (6,936,002) - (126,454,848)
Provision for impairment on performing
3,977,308 3,727,476 - 7,704,784
loans and advances
Intangible assets (118,786) 20,963 - (97,823)
Customer accounts 529,381 1,042,409 - 1,571,790
Other liabilities 2,609,531 (2,550,233) - 59,298
Due to other banks 2,366,726 (670,918) - 1,695,808
Bonds 99,238,500 54,610,753 - 153,849,253
Borrowings 43,818,455 42,280,968 - 86,099,423
Investment securities available for sales (2,926,280) - (2,465,563) (5,391,843)
Deferred tax asset 27,581,843 89,999,078 (2,465,563) 115,115,358
Deductible temporary difference for which no deferred tax assets have been recognized shown below:
Deductible temporary difference (expire: 31 December 2019) 51,528,997 -
Deferred tax asset deducted 51,528,997 -
44
26. INCOME TAXES (CONTINUED)
Components of deferred tax asset as at 31 December 2015 are as follows:
Credited/
Recognized (charged) to
31 December
In thousands of Mongolian Tugriks 1 January 2015 in profit or other
2015
loss comprehensive
income
Deferred tax (liabilities)/assets in

relation to:
Bank deposits 157,338 (357,584) - (200,246)
Short term investment (1,035,160) (1,158,740) - (2,193,900)
Loans and advances (91,362,655) (28,156,191) - (119,518,846)
Provision for impairment on performing
2,566,217 1,411,091 - 3,977,308
loans and advances
Intangible assets (139,748) 20,962 - (118,786)
Customer accounts 395,897 133,484 - 529,381
Other liabilities 350,906 2,258,625 - 2,609,531
Due to other banks 407,084 1,959,642 - 2,366,726
Bonds 76,977,438 22,261,062 - 99,238,500
Borrowings 24,905,636 18,912,819 - 43,818,455
Investment securities available for sales - - (2,926,280) (2,926,280)
Deferred tax asset 13,222,953 17,285,170 (2,926,280) 27,581,843
Current and deferred tax effects relating to each component of other comprehensive income are as
follows:
In thousands of Deferred Deferred

Mongolian Tugriks Before tax Net of tax Before tax Net of tax
tax tax
amount amount amount amount
(expense) (expense)
Available for sale

investments:
- Gains arising during
9,862,256 (2,465,564) 7,396,692 11,705,118 (2,926,280) 8,778,838
the year
Other comprehensive
9,862,256 (2,465,564) 7,396,692 11,705,118 (2,926,280) 8,778,838
income
45
27. FINANCIAL RISK MANAGEMENT
Introduction and overview
The Bank has exposure to the following risks:

credit risk
operational risk
market risk
This note presents information about the Banks exposure to each of the above risks, its objectives,
policies and processes for measuring and managing risk.
Risk management policies and procedures
The Banks risk management policies aim to identify, analyze and manage the risks it faces, to set
appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits. Risk
management policies and procedures are reviewed regularly to reflect changes in market conditions,
products and services offered and emerging best practice. The Board of Directors of the Bank has overall
responsibility for the oversight of the risk management framework for the Bank, overseeing the manage-
ment of key risks and reviewing its risk management policies and procedures as well as approving
significantly large exposures.
The Executive Management of the Bank is responsible for monitoring and implementation of risk
mitigation measures and making sure that the Bank operates within the established risk parameters set
by the BOD. The Risk department of the Bank, Internal audit unit and Supervision and monitoring division
of the Bank are jointly responsible for the overall risk management and compliance functions, ensuring
the implementation of common principles and methods for identifying, measuring, managing and
reporting both financial and non-financial risks.
Credit, market and operational risks both at portfolio and transactional levels are managed and controlled
through Credit Committee, Asset, Liability and Treasury Management Committee, and Risk Evaluation
and Management Committee.
Board of Directors
The Board of Directors is responsible for the overall risk management approach and for approving the risk
strategies and principles that establish the objectives guiding the Bank's activities and implement the
necessary policies and procedures. The risk strategy, including all significant risk policies, is approved and
periodically reviewed by the Board of Directors.
Executive Committee is responsible for conducting the Bank's daily operations consistent with the Law on
Development Bank of Mongolia, Company Law and other related laws and regulations.
Credit Committee
The Credit Committee is accountable directly to the Board of Directors. This is the credit decision making
body of the Bank and operates within clearly defined parameters authorised by the Board of Directors.
The Committee has the following main duties:
a) Discussion of credit policies and procedures and their amendments and updates;
b) Approval of risk classification and provisioning levels;
c) Review of the quality, composition and risk profile of the entire credit portfolio on an ongoing basis
and;
d) Approval of credit limits applicable to exposures of industrial sectors and geographical regions.
Assets, Liabilities and Treasury Management Committee (ALTCO)
The ALTCO is responsible for providing centralized asset and liability management of the funding,
liquidity, foreign currency, maturity and interest rate risks to which the Bank is exposed. The purpose of
the ALTCO is to set up the asset and liability structure of the Bank's financial position conducive for
sustainable growth of the Bank, its profitability and liquidity through comprehensive management of the
Bank's assets and liabilities and monitoring of the liquidity, foreign currency, interest rate and other market
risks. The ALTCO Committee is chaired by the Chief Executive Officer.
46
27. FINANCIAL RISK MANAGEMENT (CONTINUED)
Risk Evaluation and Management Committee
The Bank established the Risk Evaluation and Management Committee in October 2013. The Risk
Evaluation and Management Committee is an executive management level committee and is not a
formally constituted committee of the board of the directors of the Bank. Main duties of the committee
are:
- Discuss the policies and procedures of the banks operation;
- Define potential future risks, and determine the banks risk management strategies;
- Monitor/control surety of that the bank operates within the risk parameters/limits, discuss new
risk parameters if the parameters comply with the current policies;
- Discuss and evaluate the banks risk reports;
- Determine the banks contingency plan and revise if necessary;
- Discuss and make decisions for operational risks which are not accounted by any of the
existing policies and procedures such as information security, technical and program
malfunction etc.,
- Monitor the implementation of decisions made by Risk Evaluation and Management Committee
- Other risk management operations;
Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty fails to meet its contractual
obligations, and arises principally from the Banks loans and advances, and deposits in commercial
banks.
The Bank has developed policies and procedures of credit risk management, including guidelines to limit
portfolio concentration and the establishment of a Credit Committee which actively monitors the Banks
credit risk. The Banks credit policy is reviewed and approved by the Board of Directors.
The Banks credit policy establishes:
- Procedures for reviewing and approving loan applications;
- Approaches for the credit assessments
- Approaches for the evaluation of collaterals;
- Credit documentation requirements;
- Procedures for the ongoing monitoring of loans and other credit exposures;
- Other limitations.
According to the credit policy approved, the Credit Committee has the authority to approve transactions
with a total amount of up to MNT 5.0 billion. Any requests with higher amounts need to be approved by
the Board of Directors. Credit applications are originated by the Project Financing and Credit Department.
Credit analysts make structured analysis focusing on a customers business prospects and the current
financial performances, and prepare reports. Then, the Risk Evaluation and Management Department
independently reviews the credit application and prepares second report from the perspective of policy
compliances and potential risks that may occur. The Credit Committee makes decision based on credit
assessment by Project Financing and Credit Department including Engineering Expertise, and opinions
by Risk Evaluation and Management Department, Administration Departments Legal Division and Asset,
Liability and Treasury Management Department.
Individual transactions are also reviewed by the Banks Legal Division depending on the specific risks
and pending final approval of the Credit Committee. The Bank operates in a very specific environment
and manages credit risk using the guarantees it receives from the Mongolian Government and over-
collateralization of its loan portfolio.
The Banks maximum exposure to credit risk is reflected in the carrying amounts of financial assets on
the statement of financial position. The impact of possible netting of assets and liabilities to reduce
potential credit exposure is not significant. For guarantees and commitments to extend credit, the
maximum exposure to credit risk is the amount of the commitment, refer to Note 30. The credit risk is
mitigated by collateral as disclosed in Note 9.
47
Analysis of credit risk by sector of loans and advances outstanding at 31 December 2016 is as follows:
Loans and Loans and

repaid from the repaid by
Neither past due, nor impaired:

- Manufacturing - 917,752,226 917,752,226
- Mining - 777,887,033 777,887,033
- Construction - 232,335,259 232,335,259
- Power plant - 86,468,790 86,468,790
- Agriculture - 38,403,181 38,403,181
- Other - - -
Total neither past due nor impaired - 2,052,846,489 2,052,846,489

Less than 30 days overdue:
- Construction - 318,010,165 318,010,165
- Manufacturing - 230,359,978 230,359,978
- Transportation - 31,210,609 31,210,609
30 to 90 days overdue:
- Road - 183,529,228 183,529,228
- Mining - 19,630,675 19,630,675
- Construction - 110,056 110,056
Individually determined to be impaired loans:

Not past due:
- Road - - -
- Manufacturing - - -
- Transportation
- - -
- Manufacturing - 185,723,848 185,723,848
Over 360 days overdue
- Manufacturing - 101,035,806 101,035,806
- Mining - 5,950,070 5,950,070
Total impaired loans - 292,709,724 292,709,724
Less: Provision for loan impairment - (192,746,803) (192,746,803)
Total net amount of loans and advances - 2,935,660,121 2,935,660,121
48
Analysis of credit risk by sector of loans and advances outstanding at 31 December 2015 is as follows:
Loans and Loans and

repaid from the repaid by
Neither past due, nor impaired:

- Road 1,185,673,663 - 1,185,673,663
- Railway 442,727,832 - 442,727,832
- Utility 406,443,177 - 406,443,177
- Power plant 365,189,088 22,687,031 387,876,119
- Mortgage 117,017,903 - 117,017,903
- Manufacturing 8,916,462 814,511,152 823,427,614
- Mining 5,621,605 601,037,213 606,658,818
- Construction - 96,413,608 96,413,608
- Other 32,426,608 - 32,426,608
Total neither past due nor impaired 2,564,016,338 1,534,649,004 4,098,665,342

Less than 30 days overdue:
- Construction - 278,265,433 278,265,433
30 to 90 days overdue
- Construction - 24,021,318 24,021,318
Individually determined to be Impaired:

Not past due
- Road 179,969,733 - 179,969,733
- Manufacturing - 140,928,543 140,928,543
- Transportation - 30,004,168 30,004,168
Less than 30 days overdue
- Manufacturing - 76,871,616 76,871,616
- Manufacturing - 151,920,171 151,920,171
Over 360 days overdue
- Mining - 5,945,027 5,945,027
Total impaired loans 179,969,733 405,669,525 585,639,258
Less: Provision for loan impairment (1,770,115) (75,577,080) (77,347,195)
Total net amount of loans and advances 2,742,215,956 2,167,028,200 4,909,244,156
49
Credit risk (continued)

The Bank monitors credit risk by ratio of total amount of loans shall not exceed 80% of total assets
amount. An analysis of the credit risk at the reporting date is shown on Note 9 .
Credit-related Commitments Risks
The Bank offers guarantees and letters of credit, which represent irrevocable assurances that the Bank
will make payments in the event that a customer cannot meet its obligations to third parties. The Bank
regards guarantees and letters of credit as carrying same credit risk exposures as loans. In other words,
when issuing guarantees or letters of credit, the Bank follows the same originating, analyzing, collateral
evaluation, reviewing, monitoring, and approval processes as loans.
As stipulated in the Law on Development Bank of Mongolia, the total value of loans, and loan equivalent
assets provided by the Bank shall not exceed the amount equal to 50 times of the Banks equity capital
(EQ). Total amount of letters of credit, guarantees shall not exceed the amount equal to 50 times of the
EQ.
Above criteria as at 31 December 2016 and 31 December 2015 are as follows:
Suitable As at 31 December 2016 As at 31 December 2015

In thousands of ratio
Mongolian Tugriks Restriction limit Actual amount Restriction limit Actual amount
Total amount of the loan

< EQ 50
and assets equivalents to 47,677,837,600 3,063,685,222 14,370,094,350 5,194,060,372
times
loan
Total amount of the < EQ 50
47,677,837,600 208,824,659 14,370,094,350 177,804,209
guarantees times
Collateral and other credit enhancements

The amount and type of collateral required depends on an assessment of the credit risk of the
counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation
parameters and the loan to collateral ratio shall not exceed 90%. The main types of collateral obtained
are as follows:
a) Guarantees issued from the Government, reputable insurance companies, Development banks and
investment bank and commercial banks with the overall ratings of B2 B3 or above;
b) Fixed asset: Land, Building, factory etc;
c) Movable properties: Vehicles and equipment etc;
d) Special property rights: Mineral licenses, Project execution right etc.,
e) Time deposits, Securities/Bond and Stocks; and
f) Assets and revenues generated as a result of performance by borrower and project contractors.
g) Others.
The Project Financing and Credit Department and the Risk Evaluation and Management Department
monitor the market value of collaterals, request additional collaterals in accordance with the underlying
agreement, and monitor the market value of collaterals.
Loan amount collection through sales of the collaterals can take place by the Bank when a borrower
notifies their inability to repay the loan and requests to make repayment through its values of the
collaterals, or the borrower has not made repayment for substantial period after the delivery of Notice and
Demand Notice, or has not taken any initiatives to make loan repayment. The proceeds will be used to
reduce or repay the outstanding claim.
50
Impairment Assessment
The main considerations for the loan impairment assessment include whether any payments of principal
or interest are overdue by more than 30 days or there are any known difficulties in the cash flows of
counterparties, credit rating downgrades, or infringement of the original terms of the contract.
The Bank monitors the credit quality of loans primarily based on classification of loans according to the
internal Regulation on Asset Classification which is used for impairment provision calculation. In
accordance with this regulation, the Bank is required to determine the quality of loans and advances
based on their qualitative factors and time characteristics (i.e. delays in repayment). Loans are classified
into the following three groups: not impaired performing loans, watch list but not impaired and impaired
loans.
For credit risk for off-balance sheet financial instruments, the Bank uses the same credit policies in
assuming conditional obligations as it does for on balance sheet financial instruments, through
established credit approvals, risk control limits and monitoring procedures.
Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial
liabilities. The Bank's approach to managing liquidity is to ensure, as far as possible, that it will always
have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Bank's reputation. The Bank manages each
currency liquidity and aggregated liquidity as well. ALTCO is responsible for monitoring and controlling
liquidity risk to which potential liquidity risks and liquidity analysis reports are submitted on regular basis.
The Bank invests the funds in portfolios of liquid assets, in order to be able to respond quickly and
efficiently to unforeseen liquidity requirements. Since the Bank does not accept deposits, it does not have
any legal obligations to maintain a statutory deposit with the Central Bank of Mongolia. The liquidity
position is assessed and managed under a variety of scenarios, giving due consideration to stress factors
relating to both the market in general and specifically to the Bank.
The liquidity plan and maturity gap report is made by the Bank for each major currency (over USD 1
million equivalents) as well as an aggregated amount using the cash flow approach.
Exposure to liquidity risk
The key measure used by the Bank for managing short term liquidity risk is the ratio of net liquid assets
to total funding. For this purpose net liquid assets includes cash and cash equivalents, central bank bills,
current accounts and deposits placed with Bank of Mongolia and other commercial banks less clearing
delay. Details of the reported ratio of net liquid assets to total funding at the reporting date were as follows:

Net Liquid Assets 1 3
The table below shows the financial assets and liabilities at 31 December 2016 and 31 December 2015
by their remaining contractual maturity. The amounts of liabilities and assets disclosed in the maturity
table are the contractual undiscounted cash flows, gross loan commitments and financial guarantees.
Such undiscounted cash flows differ from the amount included in the statement of financial position
because the amount in the statement of financial position is based on discounted cash flows. The Bank
places short term deposits in commercial banks and deposits are flexible to call back which has
comparatively less liquidity risk.
With regards to the market risk management, stronger emphasis has been put on managing the liquidity
risk and interest rate volatility. Liquidity stress testing has been conducted on a regular basis and
presented to Asset, Liability and Treasury Committee (ALTCO). Movements of the interest rate spread
have been discussed and analysed during ALTCO meetings. These analyses are performed across all
business units and all loans and deposit products.
51
Liquidity risk (Continued)

The following table provides an analysis of the financial assets and liabilities of the Bank into relevant maturity groupings based on the remaining periods to
maturity:
Less than Three to six Six months to One year to Over five
three months months one year five years years
Financial assets
Cash and cash equivalents 1,034,849,485 - - - - 1,034,849,485
Short term investment 128,025,101 - - - - 128,025,101
Loans and advances 205,108,864 115,249,508 839,709,089 2,983,312,576 43,719,994 4,187,100,031
Investment securities available for sale - - - 229,550,000 - 229,550,000
Total financial assets 1,367,983,450 115,249,508 839,709,089 3,212,862,576 43,719,994 5,579,524,617
Financial liabilities
Customer accounts (23,322,928) - - - - (23,322,928)
Loan commitments not yet paid (122,616,303) (349,813,047) (128,375,800) - - (600,805,150)
Due to government - - (15,510,000) (15,510,000)
Due to other banks (55,455,935) (5,119,736) (22,064,947) - - (82,640,618)
Bonds (1,488,169,251) (1,935,941) (9,500,779) (231,830,433) (721,334,869) (2,452,771,273)
Borrowings (135,609,221) (17,271,544) (276,239,876) (1,146,426,600) (91,913,566) (1,667,460,807)
(1,825,173,638) (374,140,268) (451,691,402) (1,378,257,033) (813,248,435) (4,842,510,776)

Total financial liabilities
Net financial assets/(liabilities) (457,190,188) (258,890,760) 388,017,687 1,834,605,543 (769,528,441) 737,013,841
Total cumulative amount (457,190,188) (716,080,948) (328,063,261) 1,506,542,282 737,013,841 737,013,841
52
Liquidity risk (Continued)
Less than Three to six Six months to One year to Over five
three months months one year five years years
Financial assets
Cash and cash equivalents 703,083,365 - - - - 703,083,365
Bank deposits 137,393,162 8,956,180 9,129,786 - - 155,479,128
Short term investment - - 137,175,534 - - 137,175,534
Loans and advances 286,164,224 323,591,332 478,227,542 4,335,377,856 1,920,773,473 7,344,134,427
Total financial assets 1,126,640,751 332,547,512 624,532,862 4,335,377,856 1,920,773,473 8,339,872,454
Customer accounts (42,863,240) - - - - (42,863,240)
Gross settled swaps
-inflows 45,835,291 - - - - 45,835,291
-outflows (53,672,900) - - - - (53,672,900)
Guarantees given to the Entities (177,804,209) - - - - (177,804,209)
Loan commitments not yet paid (138,518,897) (72,433,697) (116,307,100) (804,072,258) - (1,131,331,952)
Due to other banks (243,937,228) (167,803,049) (28,784,337) - - (440,524,614)
Bonds (34,479,679) (5,524,213) (40,023,618) (1,324,699,108) (582,474,865) (1,987,201,483)
Borrowings (24,126,783) (67,973,373) (92,947,409) (2,273,398,980) (1,932,390,508) (4,390,837,053)
Total financial liabilities (669,567,645) (313,734,332) (278,062,464) (4,402,170,346) (2,514,865,373) (8,178,400,160)
Net financial assets/(liabilities) 457,073,106 18,813,180 346,470,398 (66,792,490) (594,091,900) 161,472,294
Total cumulative amount 457,073,106 475,886,286 822,356,684 755,564,194 161,472,294 161,472,294
53
Market risks
Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rates will
affect the Bank's income or the value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable levels, while optimizing the
return on risk.
Management of market risks: Interest rate risk is measured by the extent to which changes in market
interest rates impact margins and net income. To the extent the term structure of interest bearing assets
differs from that of liabilities, net of interest income will increase or decrease as a result of movements in
interest rates. The Bank principally manages interest rate risk through monitoring interest rate gaps.
Financial assets and financial liabilities presented as non-interest sensitive mostly relate to accrued interest
and interest receivables and payables on interest bearing assets and liabilities. For the purposes of financial
risk management, management monitors separately principal amounts of assets and liabilities (i.e.
amounts which generate interest at nominal contractual interest rates), and accrued interest and interest
receivables and payables separately, which do not generate interest based on at nominal contractual
interest rates. A summary of the Bank's interest rate gap position on its financial assets and liabilities are as
follows:
54
Market risks (Continued)
Non-interest Less than Three to six Six months One to five Over five
sensitive three months months to one year years years
Financial assets
Cash and cash equivalents 6,464,039 1,004,707,771 - - - - 1,011,171,810
Short term investment 14,416,496 113,608,605 - - - - 128,025,101
Loans and advances 203,085,604 17,564,269 161,327,301 247,335,651 2,055,845,359 250,501,937 2,935,660,121
Investment securities available for sale 37,746,162 - - - 104,501,041 - 142,247,203
Total financial assets 261,712,301 1,135,880,645 161,327,301 247,335,651 2,160,346,400 250,501,937 4,217,104,235
Customer accounts (23,322,928) - - - - - (23,322,928)
Other financial liabilities (33,418,202) - - - - - (33,418,201)
Due to government (25,315) - - (13,200,000) - - (13,225,315)
Due to other banks (709,458) (54,769,660) (4,979,060) (20,846,320) - - (81,304,498)
Bonds (25,209,273) (1,443,724,116) - - (168,425,388) (617,524,608) (2,254,883,385)
Borrowings (26,629,487) (99,682,537) (6,013,415) (231,145,014) (1,016,169,963) (85,220,058) (1,464,860,474)
Total financial liabilities (109,314,663) (1,598,176,313) (10,992,475) (265,191,334) (1,184,595,351) (702,744,666) (3,871,014,801)
Net financial assets/(liabilities) 152,397,638 (462,295,668) 150,334,826 (17,855,683) 975,751,049 (452,242,729) 346,089,434
Total cumulative amount 152,397,638 (309,898,030) (159,563,204) (177,418,887) 798,332,162 346,089,433 346,089,434
55
Non-interest Less than Three to six Six months One to five Over five
sensitive three months months to one year years years
Financial assets
Cash and cash equivalents 119,423,646 580,655,405 - - - - 700,079,051
Bank deposits 1,559,904 134,641,891 8,730,800 8,730,800 - - 153,663,395
Short term investment 1,394,021 - - 129,758,800 - - 131,152,821
Loans and advances 53,670,026 200,169,701 33,911,512 102,556,689 2,647,483,176 1,871,453,052 4,909,244,156
Total financial assets 176,047,597 915,466,997 42,642,312 241,046,289 2,647,483,176 1,871,453,052 5,894,139,423
Customer accounts (42,863,240) - - - - - (42,863,240)
Other financial liabilities (7,837,609) - - - - - (7,837,609)
Due to other banks (3,029,713) (242,011,338) (163,097,300) (27,502,020) (435,640,371)
Bonds (19,379,923) - - - (1,243,526,663) (464,243,828) (1,727,150,414)
Borrowings (19,160,282) - (4,978,321) (4,978,321) (1,849,214,204) (1,688,209,423) (3,566,540,551)
Total financial liabilities (92,270,767) (242,011,338) (168,075,621) (32,480,341) (3,092,740,867) (2,152,453,251) (5,780,032,185)
Net financial assets/(liabilities) 83,776,830 673,455,659 (125,433,309) 208,565,948 (445,257,691) (281,000,199) 114,107,238
Total cumulative amount 83,776,830 757,232,489 631,799,180 840,365,128 395,107,437 114,107,238 114,107,238
56

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the
sensitivity of the Bank's financial assets and liabilities to various standard and non-standard interest
rate scenarios. If interest rates had been 100 bps higher or lower and all other variables were held
constant, the Banks net income would have resulted as follows:
100 bp parallel 100 bp parallel
Sensitivity of projected net interest income Increase Decrease

At 31 December 2016 1,936,918 (1,936,918)
At 31 December 2015 303,304 (303,304)
The Bank is exposed to effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The Asset, Liability and Treasury Management Department (ALTMD)
is responsible for monitoring the Banks exchange risk and minimising its exposure. The Bank manages
its currency risk primarily through assessing the impact of foreign currency exchange rate movements
on the Banks liquidity and profitability.
The table below summarizes the Banks exposure to foreign currency exchange rate risk at 31
December 2016:
In thousands of
Mongolian Tugriks MNT USD EUR JPY CNY Total
Assets
Cash and cash

819,121,041 114,404,401 2,577,714 74,991,688 76,966 1,011,171,810
equivalents
Short term investment 128,025,101 - - - - 128,025,101
Loans and advances 1,175,287,524 1,723,548,401 36,824,196 - - 2,935,660,121
Investments securities
412,247,203 142,247,203
available for sale
Total monetary 2,264,680,869 1,837,952,802 39,401,910 74,991,688 76,966 4,217,104,235

financial assets
Liabilities
Customer accounts 1,142,821 22,179,927 - - 180 23,322,928

Due to government 13,225,315 - - - - 13,225,315
Other financial
33,418,202 - - - - 33,418,202
liabilities
Due to other banks - 60,174,907 21,129,591 - - 81,304,498
Bonds 151,981,472 1,466,990,129 - 635,911,784 - 2,254,883,385
Borrowings (15,414,074) 1,403,822,982 76,451,566 - - 1,464,860,474
Total monetary
184,353,736 2,953,167,945 97,581,157 635,911,784 180 3,871,014,802
financial liabilities
Net balance sheet

2,080,327,133 (1,115,215,143) (58,179,247) (560,920,096) 76,786 346,089,433
position
57
Market risk (Continued)

The table below summarizes the Banks exposure to foreign currency exchange rate risk at 31
December 2015:
In thousands of
Mongolian Tugriks MNT USD EUR JPY CNY Total
Assets
Cash and cash

596,413,558 85,316,487 15,231,422 3,051,438 66,146 700,079,051
equivalents
Bank deposits - 62,755,863 21,951,677 68,955,855 - 153,663,395
Short term
10,004,548 121,148,273 - - - 131,152,821
investment
Loans and advances 2,326,008,223 2,558,181,042 25,054,891 - - 4,909,244,156
Total monetary
2,932,426,329 2,827,401,665 62,237,990 72,007,293 66,146 5,894,139,423
financial assets
Liabilities
Customer accounts 26,606,535 16,256,551 - - 154 42,863,240

Due to other banks 14,096,178 325,492,940 96,051,253 - - 435,640,371
Bonds 147,704,779 1,175,056,812 - 404,388,823 - 1,727,150,414
Borrowings 2,025,221,259 1,474,321,688 66,997,604 - - 3,566,540,551
Total monetary
2,213,628,751 2,991,127,991 163,048,857 404,388,823 154 5,772,194,576
financial liabilities
Derivatives - (53,672,900) 45,835,291 - - (7,837,609)
Net balance sheet

718,797,578 (217,399,226) (54,975,576) (332,381,530) 65,992 114,107,238
position
The following table presents sensitivities of profit or loss to reasonably possible changes in currency
exchange rates applied at the end of the reporting period to the functional currency of the Bank, with all
other variables held constant.
US Dollar strengthening by 15% (2015:15%) (167,282,271) (34,850,668)

US Dollar weakening by 15% (2015:15%) 167,282,271 34,850,668
Euro strengthening by 15% (2015:15%) (8,726,887) (8,351,355)
Euro weakening by 15% (2015:15%) 8,726,887 8,351,355
Yen strengthening by 10% (2015:10%) (56,092,010) (33,238,154)
Yen weakening by 10% (2015:10%) 56,092,010 33,238,154
CNY strengthening by 10% (2015:10%) 7,679 6599
CNY weakening by 10% (2015:10%) (7,679) (6599)
Total effects - -
58
Operational risk
The Bank has implemented its own policies and procedures to manage operational risks, including anti-
corruption measures, anti-fraud management, anti-money laundering, terrorism financing measures,
information risk management and legal compliance. These policies are designed to ensure consistent
management and stable operations, at the same time, complying with the relevant laws, regulations
and policies.
To manage internal fraud-related risks, the Bank maintains a separate database of classified
information with restricted access rights. The Bank also utilizes a multi-stage selection process in hiring
new employees under the Human Resources Policy, and conducts regular assessments based on key
HR performance indicators. For managing external fraud-related risks, the Bank implements
procedures with respect to placing and withdrawing cash deposits in commercial banks, analyzing
counterparty risks, and is registered with the central credit information system maintained by the Bank
of Mongolia in order to enhance the monitoring of borrowers.
In relation to the implementation of the Glass Account Law, the Bank has developed a regulation that
the Bank must follow internally to ensure its compliance risk. In addition, the Bank works with the
Government on proposed amendments to the Law on Development Bank which will improve corporate
governance according to the Organization for Economic Co-operation and Development and World
Bank recommended standards.
Capital Management
The Bank is not subject to any externally imposed capital requirements, as it is not regulated by the by
the Central Bank (Bank of Mongolia). The Bank adopted the standardized internal approach which takes
into consideration of credit risk exposure by risk weighting on on-balance sheet exposures to credit risk
according to broad categories of relative credit risk. Risk-weights are determined according to specified
requirements that seek to reflect the varying levels of risk attached to assets.
The Banks policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The impact of the level of capital on
shareholders return is also recognized and the Bank recognizes the need to maintain a balance between
the higher returns that might be possible with greater gearing and the advantages and security afforded by
a sound capital position.
The ratios of the Banks capital adequacy as at 31 December 2016 and 31 December 2015,
respectively, were as following:
Tier I capital:
Share capital 1,095,793,182 245,336,288
Retained earnings (158,411,960) 33,286,761
Total tier I capital 937,381,222 278,623,049
Tier II capital:
Revaluation reserve for investment securities available-for-
7,278,989 8,778,838
sale
Total tier II capital 7,278,989 8,778,838
Total regulatory capital/capital base 944,660,211 287,401,887
Risk weighted capital ratio 30.0% 13.3%
The Bank weights all assets where the Government is the counterparty at 0%.
59
28. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY
The following table provides a reconciliation of financial assets with measurement categories at 31
December 2016:
Available for
Loans and
In thousands of Mongolian Tugriks sale financial Total
receivables
assets
Financial assets:
Cash and cash equivalents 1,011,171,810 - 1,011,171,810
Short term investment 128,025,101 - 128,025,101
Loans and advances to customers: - 2,935,660,121
2,935,660,121
- Loans and advances to be repaid by the
2,935,660,121 - 2,935,660,121
Corporates
Investment securities available for sale - 142,247,203 142,247,203
Total financial assets 4,074,857,032 142,247,203 4,217,104,235
For investment securities available for sale please refer to Note 10.
The following table provides a reconciliation of financial assets with measurement categories at 31
December 2015:
Available for
Loans and
In thousands of Mongolian Tugriks sale financial Total
receivables
assets
Financial assets:
Cash and cash equivalents 700,079,051 - 700,079,051
Bank deposits: 153,663,395 - 153,663,395
- Short-term placements with other banks with
153,663,395 - 153,663,395
original maturities of more than three months
Short term investment 131,152,821 - 131,152,821
Loans and advances to customers: 4,909,244,156 - 4,909,244,156
- Loans and advances to be repaid from the State
2,742,215,956 - 2,742,215,956
budget
- Loans and advances to be repaid by the
2,167,028,200 - 2,167,028,200
Corporates
Investment securities available for sale - 27,737,595 27,737,595
Total financial assets 5,894,139,423 27,737,595 5,921,877,018
As of 31 December 2016 and 31 December 2015 all of the Banks financial liabilities except for
derivatives were carried at amortized cost. Derivatives belong to the fair value through profit or loss
measurement category.
60
29. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Determination of fair value and fair value hierarchy

Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are
measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level
two measurements are valuations techniques with all material inputs observable for the asset or liability,
either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three
measurements are valuations not based on observable market data (that is, unobservable inputs).
Management applies judgement in categorising financial instruments using the fair value hierarchy. If a
fair value measurement uses observable inputs that require significant adjustment, that measurement
is a Level 3 measurement. The significance of a valuation input is assessed against the fair value
measurement in its entirety.
The Bank's principal financial instruments comprise of cash on hand and in bank, deposits, loans and
advances, other current assets, accounts and other payables and borrowings (including promissory
notes). As outlined below, the management considers that the carrying amounts of financial assets and
liabilities recognized in the financial statements approximate their fair value except for the Banks bond.
a) Recurring fair value measurements

Recurring fair value measurements are those that the accounting standards require or permit in the
statement of financial position at the end of each reporting period. The level in the fair value hierarchy
into which the recurring fair value measurements are categorised are as follows:

In thousands of Mongolian Level Level
Level 1 Level 2 Total Level 2 Level 3 Total
Tugriks 3 1
Assets at fair value

Financial assets
Investment securities
Investment securities
37,599,851 104,647,352 - 142,247,203 - - 27,737,595 27,737,595
available for sale
Total assets recurring

37,599,851 104,647,352 - 142,247,203 - - 27,737,595 27,737,595
fair value measurements
Liabilities carried at fair

value
Other financial liabilities
Financial derivatives - - - - - 7,837,609 - 7,837,609
Total liabilities recurring

- - - - - 7,837,609 - 7,837,609
fair value measurements
Financial derivatives measured at level 2 are fair valued through interest rate parity analysis using the
inter-bank rates of each currency.
Investment securities available for sale fully relate to the Banks investment in MIK (Note 4 and Note
10). Investment in MIK was fair valued at the end of 2015 using discounted cash flows valuation model.
In 2016, MIK shares was listed in Mongolian Stock Exchange and it is valued at the last closing rate. If
the share price of MIK would increase/ (decrease) by 10%, the fair value of investment would increase/
(decrease) by MNT 3.8 billion.
61
29. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
b) Assets and liabilities not measured at fair value but for which fair value is disclosed
The Bank carries its investments available for sale and financial derivatives at fair values. All other
assets and liabilities are carried at amortised cost. The Bank determines fair values for those financial
instruments carried at amortized cost as follows:
(i) Financial assets and liabilities for which fair value approximates carrying amount
For financial assets and financial liabilities that are liquid or have short term maturity of less than one
year, carrying amounts approximate their respective fair value.
(ii) Fixed rate financial instruments
The fair value of unquoted fixed interest rate instruments was estimated based on estimated future cash
flows expected to be received discounted at current interest rates for new instruments with similar credit
risk and remaining maturity. Thus, market interest rates when they were first recognized are compared
to the current market rates offered for the comparable financial instruments available in Mongolia. In
case there were no significant changes in market rates, carrying amounts approximate fair value of the
instrument.
The Bank does not operate in a normal market environment. On the asset side loans are provided to
socially and economically important entities or sectors at well below normal commercial market rates.
The rate at which the Bank has issued loans to both Ministries and Corporates has not significantly
changed since inception and thus, carrying value of lending approximates its fair value. Interest rates
on short-term investment (i.e. Mongolian government bonds) are not representative of loans given to
the Ministries due to different credit risk and different factors affecting these interest rates and their
movements over time.
The Banks long term debt instruments consist of Bond issued to international market and Samurai
bond issued in the Japanese bond market. Bond issued to international market was fully guaranteed
by Mongolia and issued in March 2012 at a fixed interest rate of 5.75% and 5 years maturity. This bond
is listed on the Singapore Stock Exchange and its fair value has been calculated using its quoted price
as at 31 December 2016.
In January 2014, Samurai bond was issued at a fixed rate of 1.52% p.a. with 10 years maturity and
guaranteed by the Government and Japan Bank of International Cooperation (JBIC). JBICs guarantee
covers the principal and part of the interest of this issue. This bond is listed on the Japanese Stock
Market and its fair value has been calculated using its quoted price as at 31 December 2016.
Fair values of other borrowings, issued promissory notes and bonds which represent a principal market
(Note 4), approximate carrying values as of 31 December 2016, as there were no substantial changes
in interest rates since inception and/or related liabilities (as in the case of issued promissory notes)
represent principal market and thus their interest rates are not sensitive to the overall changes of
interest rates in the Mongolian banking sector. Related loans financed from these borrowings and
issued promissory notes represent principal market and their fair values (included in loans and
advances) approximate carrying values as of 31 December 2016, as there were no substantial changes
in interest rates since inception and/or related interest rates are not sensitive to the overall changes of
interest rates in the Mongolian banking sector.
The interest rates used in determining fair values are presented below. These rates represent
contractual interest rates and are not materially different from effective interest rates.
62
Discount rates, used below, depend on currency, maturity of the instrument and credit risk of the
counterparty. The discount rates were as follows:
Bank deposits
- Short-term placements with other MNT - -
banks with original maturities of more USD - 6.00% to 7.75% p.a.
than three months JPY - 4.50% to 5.50% p.a.
EUR - 6.95% to 7.95% p.a.
Short term investment USD - 5.50 % p.a.

MNT 14.94 % p.a. 8.30 % p.a.
Loans and advances funded by:
- The Bank's equity and Bond:

- Loans given to the Ministries MNT - 7.38% to 10.00% p.a.
USD - 5.125% to 7.90% p.a.
- Loans given to the Corporates MNT 5.00% to 12.00% p.a. 4.79% to 12.00% p.a.
USD 7.00% to 8.45% p.a. 7.35% to 8.45% p.a.
- Borrowing:
- Loans given to the Ministries MNT - 6.00% to 6.125% p.a.
USD - 5.125% to 7.90% p.a.
- Loans given to the Corporates MNT 5.00% to 13.50% p.a. 5.00% to 10.0% p.a.
USD 5.125% to 8.45% p.a. 5.125% to 8.45% p.a.
EUR 4.40% p.a. 4.40% to 4.79% p.a.
Due to other banks USD 6.00% to 7.00% p.a. 6.00% to 6.50% p.a.
EUR 5.70% to 5.80% p.a. 4.85% to 5.95% p.a.
MNT 17.50% p.a. 14.75 p.a.
Bonds USD 5.75% p.a. 5.75% p.a.

JPY 1.52% p.a. 1.52% p.a.
MNT 4.00% p.a. 4.00% p.a.
Borrowing MNT - 4.79% p.a.

USD 3.20% to 11.875%p.a. 3.20% to 6.00%p.a.
EUR 1.90% to 6.00% p.a. 2.29% to 6.00% p.a.
63
Fair values of financial instruments as at 31 December 2016 carried at amortised cost are as follows:
31 December 2016
In thousands of Mongolian Tugriks Carrying Amount Level 1 Level 2 Level 3
Assets:
Short term investment 128,025,101 - 128,025,101 -
Loans and advances 2,935,660,121 - - 2,935,660,121

Loans and advances to be repaid from the
- - - -
State budget
Loans and advances to be repaid by the
2,935,660,121 - - 2,935,660,121
Corporates
Total financial assets carried at

3,063,685,222 - 128,025,101 2,935,660,121
amortized cost
Liabilities:
Customer accounts 23,322,928 - 23,322,928 -
Due to government 13,225,315 - 13,225,315 -
Due to other banks 81,304,498 - 81,304,498 -
Bonds 2,254,883,385 2,018,713,423 - 235,360,147

Bond issued to international market 1,466,786,846 1,447,029,227 - -
Samurai bond issued in the Japanese
552,736,392 571,684,196 - -
bond market
Bond issued in Mongolian bond market 235,360,147 - - 235,360,147
Borrowings 1,464,860,474 1,464,860,474

Borrowing from foreign banks 1,464,860,474 1,464,860,474
Total financial liabilities carried at

3,837,596,600 2,018,713,423 117,852,741 1,700,220,621
amortized cost
64
Fair values of financial instruments as at 31 December 2015 carried at amortised cost are as follows:
31 December 2015
Carrying
In thousands of Mongolian Tugriks Level 1 Level 2 Level 3
Amount
Assets:
Bank deposits 153,663,395 - 153,663,395 -
Short term investment 131,152,821 - 131,152,821 -
Loans and advances 4,909,244,156 - - 4,909,244,156

Loans and advances to be repaid from the
2,742,215,956 - - 2,742,215,956
State budget
Loans and advances to be repaid by the
2,167,028,200 - - 2,167,028,200
Corporates
Total financial assets carried at

5,194,060,372 - 284,816,216 4,909,244,156
amortized cost
Liabilities:
Customer accounts 42,863,240 - 42,863,240 -
Due to other banks 435,640,371 - 435,640,371 -
Bonds 1,727,150,414 1,546,023,310 - 147,704,779

Bond issued to international market 1,175,056,812 1,126,914,734 - -
Samurai bond issued in the Japanese
404,388,823 419,108,576 - -
bond market
Bond issued in Mongolian bond market 147,704,779 - - 147,704,779
Borrowings 3,566,540,551 - - 3,566,540,551

Financing from the Government 2,563,914,387 - - 2,563,914,387
Borrowing from foreign banks 1,002,626,164 - - 1,002,626,164
Total financial liabilities carried at

5,772,194,576 1,546,023,310 478,503,611 3,714,245,330
amortized cost
65
30. COMMITMENTS AND CONTINGENCIES
Guarantees issued 208,824,659 177,804,209

Loan commitments not yet paid 600,805,150 1,131,331,952
Total 809,629,809 1,309,136,161
The Banks management believes that fair value of guarantees and loan commitments not yet paid is
not material as of 31 December 2016 and 31 December 2015.
Guarantees Given
The Bank has given a guarantee to the Export-Import Bank of China on behalf of New Yarmag Housing
Projects LLC amounting to USD 84 million (equivalent to MNT 208.8 billion) on the 13 September 2012.
To date the Export-Import Bank of China has not yet provided any funding to the New Yarmag Housing
Project.
Tax legislation. Mongolian tax, currency and customs legislation is subject to varying interpretations,
and changes, which can occur frequently. Managements interpretation of such legislation as applied
to the transactions and activity of the Bank may be challenged by the relevant authorities.
The Mongolian tax authorities may be taking a more assertive position in their interpretation of the
legislation and assessments, and it is possible that transactions and activities that have not been
challenged in the past may be challenged by tax authorities. As a result, significant additional taxes,
penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in
respect of taxes for five calendar years preceding the year of review. Under certain circumstances
reviews may cover longer periods.
The Mongolian tax legislation does not provide definitive guidance in certain areas, specifically in areas
such as VAT, withholding tax, corporate income tax, personal income tax, transfer pricing and other
areas. From time to time, the Bank adopts interpretations of such uncertain areas that reduce the overall
tax rate of the Bank. As noted above, such tax positions may come under heightened scrutiny as a
result of recent developments in administrative and court practices. The impact of any challenge by the
tax authorities cannot be reliably estimated; however, it may be significant to the financial position
and/or the overall operations of the entity.
Management believes that its interpretation of the relevant legislation is appropriate and the Banks
positions related to tax and other legislation will be sustained. Management believes that tax and legal
risks are remote at present. The management performs regular re-assessment of tax risk and its
position may change in the future as a result of the change in conditions that cannot be anticipated with
sufficient certainty at present. As of 31 December 2016, management has assessed that recognition of
a provision for uncertain tax position is not necessary.
66
31. SEGMENT REPORTING
Operating segments are components that engage in business activities that may earn revenues or incur
expenses, whose operating results are regularly reviewed by the chief operating decision maker
(CODM), and for which discrete financial information is available. The CODM is the person - or group of
persons - who allocates resources and assesses the performance for the entity. The functions of the
CODM are performed by the Management Board of the Bank.
The Bank is a development finance institution dedicated to the economic and social progress of
Mongolia. The Banks products and services are similar and are structured and distributed in a fairly
uniform manner across borrowers.
Based on the evaluation of the Banks operations, management has determined that the Bank has only
one reportable segment since the Bank does not manage its operations by allocating resources based
on a determination of the contribution to net income from individual borrowers. Management receives
and reviews financial information in IFRS format.
The Banks revenue is received solely from entities with Mongolia. All non-current assets of the Bank
are located within Mongolia.
A split of the Banks revenue per products/services is shown below.

Interest income for loan paid by: 357,061,695 293,588,622

- The State budget 181,893,797 164,894,781
- The Corporates 175,167,898 128,693,841
Interest income from Commercial banks: 55,308,380 105,710,242

- Deposit 53,724,557 104,599,076
- Current account 1,583,823 1,111,166
Interest income from short term investment: 14,177,926 10,876,710

- The State budget 14,177,926 10,876,710
Fee and commission income: 124,695 906,503

- With the Corporates 124,695 906,503
Gain less losses from trading in foreign currency: (692,213) (24,572)

- With the Government - 5,767
- With the Corporates (commercial banks) (692,213) (30,339)
Losses from short term investment: (824,565) (23,011)

- With the Government (824,565) (23,011)
Losses from derecognition of liability: - (1,048,984)

- With the Government - (1,048,984)
Losses from financial derivatives: (303,240) (6,433,985)

-With the Corporates (commercial banks) (303,240) (6,433,985)
Total income 424,852,678 403,551,525
Total income generated from the Government and Government controlled entities amount to MNT
220,510,390 thousand in the year ended 31 December 2016 (year ended 31 December 2015:
194,985,429 thousand).
67
32. POST BALANCE SHEET EVENTS
On 10 February 2017, amendments to existing Law on Development bank of Mongolia have been
approved by the Parliament. The amendments are targeted at improving its corporate governance,
increasing oversight of lending operations, increasing independence from the Government, and
improving development policy and profitability.
On 15 February 2017, Moodys rating agency placed Mongolias sovereign rating on review for
downgrade. According to Moodys, the agency will use the review period to assess the impact on the
sovereigns own credit profile. Consequently, Moodys also placed the Banks rating on review for
downgrade.
On 19 February 2017, the Ministry of Finance announced a staff-level agreement with the International
Monetary Fund (IMF) has been reached. According the Ministry of Finance and the IMF joint press
conference, the Government is to be supported by a three-year Extended Fund Facility (EFF) for
USD440 million. Moreover, other partner countries and multilateral organizations expected to provide
up to USD 3 billion in budget and project support, and the Peoples Bank of China is expected to extend
its RMB15 billion swap line with the Bank of Mongolia for at least another three years.
On 19 February 2017, the Government announced an exchange offer for the USD580 million notes
issued by the Bank. Subsequently, the Government launched the exchange offer on 20 February 2017.
The exchange offer provides existing holders of the Bank notes the opportunity to exchange the Banks
notes for a new sovereign bonds directly issued by the Government.
On 9 March 2017, holders of USD476 million of the Banks USD580 million bonds agreed to exchange
to the new sovereign bonds with a 7 year maturity. On 21 March 2017, the Bank fully paid remaining
USD104 million with its accrued interests to the investors.
68

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Development Bank of Mongolia

International Financial Reporting Standards

Financial Statements and Independent Auditors Report

NOTES TO THE FINANCIAL STATEMENTS

1. CORPORATE INFORMATION AND OPERATING ENVIRONMENT ........................................... 6

Tel: +976 70100450

INDEPENDENT AUDITOR'S REPORT

To the Shareholder of Development Bank of Mongolia

Report on the Audit of the Consolidated Financial Statements

Basis for Opinion

Key Audit Matters

Impairment of financial assets that are subject

f mpairment of financial assets that are subject

. A material misstatements of the other information exists;

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Total assets 4,844,425,953 6,070,406,549 I

Due to government 15 13,225,315 i

Borrowings 18 1,464,860,474 3,566,540,551

Total liabilities 3,890,869,101 5,783,004,661

Totalequity 953,556,752 287,401,997

Total liabilities and equity 4,844,425,853 6,070,406,549

on behalf of the Executive management on 30 March 2017.

Deputy CEO and Head of Supervision and

Interest income 21 427,510,784 410,175,574

Net interest income 92,820,953 131,074,243

Charge of provision for loan impairment 9 (115,399,608) (46,454,176)

Net interest (loss)/income after provision for loan

Fee and commission income 124,695 906,503

(Loss)/profit before tax (191,692,477) 41,618,294

(Loss)/profit for the year (191,698,721) 33,286,761

Items that may be reclassified subsequently to profit or loss:

Other comprehensive income for the year 7,396,692 7,578,838

Total comprehensive (loss)/profit for the year (184,302,029) 40,865,599

In thousands of Contributed Investment revaluation Retained

Profit for the year - - 33,286,761 33,286,761

Loss for the year - - (191,698,721) (191,698,721)

Note Year ended Year ended

Cash flows from operating activities

Cash flows from operating activities before changes in

Net decrease/(increase) in bank deposits 165,803,563 515,328,168

Net cash used in operating activities before tax and

Income taxes paid - (17,838,542)

Net cash used in operating activities (644,783,346) (255,040,633)

Cash flows used in investing activities

Acquisition of investment securities available for sale 10 - (5,547,528)

Net cash used in investing activities (912,722) (32,041,348)

Year ended Year ended

Repayment of promissory notes - (34,576,843)

Net cash from financing activities 956,737,798 270,851,359

Effect of exchange rate changes on cash and cash

Net increase/(decrease) in cash and cash equivalents 311,092,759 (16,378,787)

The Development Bank of Mongolia ('the Bank) is a Government-owned, government policy-oriented

The Government of Mongolia is the Bank's sole shareholder.

Operating Environment of the Bank

Operating Environment of the Bank (Continued)

Basis of Preparation and Presentation

Amendments of the Consolidated financial statements after issue.

Financial instruments - key measurement terms. Depending on their classification financial

Accounting treatment of costs incurred with regard to obtaining of financing (funding

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

Provisions, Contingent Liabilities and Contingent Assets

Related Party Transactions

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

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY