2015 Audited Financial Report

CAPITRON BANK
Limited Liability Company
FINANCIAL STATEMENTS
for the year ended 31 December 2015
with Auditor’s report
Contents
Corporate Information 2
Statement of Management responsibilities 4
Independent Auditor’s Report 5
Statement of Financial Position 8
Statement of Profit or Loss and Other

9
Comprehensive Income
Statement of Changes in Equity 10
Statement of Cash Flows 11
Notes to the financial statements 13
1
CAPITRON BANK LLC
Corporate Information
Incorporation decision, Capitron Bank LLC (“Bank”) was incorporated to operate in
certificate and license the field of currency exchange and saving in accordance with
resolution No. 1 of shareholders. The Bank was registered to
State Registration Office and was granted Certificate No.
9016001012 with registration No. 2677377 on 14 November
2001.
Special License The Bank was granted special license No. 22 for commercial
bank in accordance with Resolution No. 545 of President of
Bank of Mongolia on 12 November 2001, thus commercial
bank’s operation has started 16 November 2001.
Shareholders Erdenebayar D. 44.38%

Bat-Erdene D. 17.19%
Munkhsaikhan D. 17.76%
Capitron Bank LLC 20.67% (Treasury Stock)
Board of the Directors Ganbold G. Chairman of the Board

Narankhuu D. Independent member of the Board
Munkhbileg G. Member of the Board
Dagvadorj D. Member of the Board
Ganchimeg G. Member of the Board
Executive Management
Khurelbaatar O. Acting Chief Executive Officer
Enkhbat Ch. Vice director – Finance (CFO)
Duuren T. Vice director – Operation (COO)
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CAPITRON BANK LLC
Corporate Information (continued)
Executive Management
Team Altankhuyag B. Head of accounting and control
department
Gerelmaa Kh. Head of administration department
Erdenetsetseg B. Head of risk management and control
department
Zorigt D. Head of business banking department
Budee A. Head of retail banking department
Bat-Enkh B. Head of treasury and trading department
Munkhjin A. Head of business development
department
Address CAPITRON BANK LLC

Capitron Bank building,
2nd sub-district,
Sukhbaatar district,
Ulaanbaatar, Mongolia
Auditor BDO AUDIT LLC

10th floor, AB Center Building,
University Street 32/1, 6th sub-district
Sukhbaatar district,
Ulaanbaatar 14193, Mongolia
3
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF CAPITRON BANK LLC
Report on Financial Statements
We have audited the accompanying financial statements of Capitron Bank LLC, which comprise the
statement of financial position as at December 31, 2015, and the statement of profit or losses and
other comprehensive income, statement of the changes in equity and cash flow statement for the
year then ended, and a summary of significant accounting policies and other explanatory
information.
Management Responsibility for the Financial Statements
Management of the Bank is responsible for the preparation and fair presentation of these financial
statements in accordance with the accounting manuals for commercial bank approved by Bank of
Mongolia, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial statements, whether due to
fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
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CAPITRON BANK LLC
STATEMENT OF FINANCIAL POSITION

As at 31 December 2015
At 31 Dec At 31 Dec
Notes
2015 2014
MNT’000 MNT’000
ASSETS
Cash on hand, current and savings account in the Central
5 10,204,987 18,548,464
Bank of Mongolia
Mandatory reserves at Bank of Mongolia 6 18,928,497 17,455,879
Other current and savings accounts in the bank /Due
7 10,252,330 4,112,467
from other Banks/
Financial investment (net) 8 32,861,900 11,509,438
Loans and advances to customers (net) 10 89,190,424 118,857,438
Other financial assets (net) 11 2,076,294 3,014,357
Other non-financial assets (net) 12 3,983,935 3,962,752
Intangible Assets (net) 13 1,160,959 1,125,792
Property, plant and equipments (net) 14 13,223,027 5,518,571
TOTAL ASSETS 181,882,353 184,105,158

LIABILITIES AND EQUITY
Equity
Share capital 15 37,800,548 20,500,548
Treasury stock 15 (7,815,548) -
Revaluation surplus 2,828,280 2,828,280
Social development fund 727 727
Retained earnings 16 (14,826,914) (1,961,255)
Total equity 17,987,093 21,368,300
Liabilities
Current accounts from customers 17 23,787,873 27,749,075
Savings accounts from customers 18 91,237,855 78,021,756
Due to other banks and financial institutions 19 8,987,940 19,262,223
Other funds 20 35,914,662 33,924,279
Other financial liabilities 21 3,786,251 3,443,780
Other non-financial liabilities 22 180,679 335,745
Total liabilities 163,895,260 162,736,858

TOTAL LIABILITIES AND EQUITY 181,882,353 184,105,158
The notes set on pages 13-59 form an integral part of these financial statements.
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CAPITRON BANK LLC
STATEMENT OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME
For 2015 For 2014

Notes
MNT’000 MNT’000
Interest income 23 20,102,430 18,912,163

Interest expenses 24 (15,435,823) (13,884,312)
Net interest income 4,666,607 5,027,851
Fees and commission income 25 1,178,408 1,272,852
Income (cost) of currency exchange 26 196,545 578,414
Gain (loss) on currency exchange 27 2,236,664 50,295
Employee related costs 28 (4,652,860) (3,841,616)
General and administrative expenses 29 (3,633,062) (4,043,983)
Other income, (expense) 30 6,688,244 (425,119)
Other gain, (loss) 31 (21,811) 9,739
Profit before loan impairment 6,658,735 (1,371,567)
Loan impairment (loss), recover 32 (9,635,313) (552,084)
Profit /(loss) before tax (2,976,578) (1,923,651)
Income tax (expense), benefit 33 385,303 107,774
Net profit (2,591,275) (1,815,877)
Other comprehensive income
Revaluation surplus - 614,569
Total comprehensive income for the year - 614,569

Total profit or loss and other comprehensive income (2,591,275) (1,201,308)
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CAPITRON BANK LLC
STATEMENT OF CHANGES IN EQUITY

Social
Share Treasury Revaluation Retained
development Subordinate Total
capital Stock surplus earnings
fund loan
MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000

Balance at 01 January 2014 16,000,548 - 2,213,711 727 3,000,000 (145,378) 21,069,608
-
Changes in share capital 4,500,000 4,500,000
Net profit (loss) for the year (1,815,877) (1,815,877)
Changes in subordinate loan (3,000,000) (3,000,000)
Revaluation of intangible assets 614,569 614,569
Balance at 31 December 2014 20,500,548 - 2,828,280 727 - (1,961,255) 21,368,300
Changes in share capital 17,300,000 17,300,000

Net profit (loss) for the year (2,591,275) (2,591,275)
Loss on purchasing treasury stock (7,815,548) (10,274,384) (18,089,932)
Balance at 31 December 2015 37,800,548 (7,815,548) 2,828,280 727 - (14,826,914) 17,987,093
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CAPITRON BANK LLC
STATEMENT OF CASH FLOWS

For 2015 For 2014

MNT’000 MNT’000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit /(loss) before taxation (2,976,578) (1,923,651)
Adjustments for:
Depreciation and amortization 579,012 494,668
Bad debt expense (recovery) 800,976 (48,854)
Loss on selling property, plant and equipment 11,134 (9,740)
Loan impairment provision 9,635,313 552,084
Allowance for revaluation of foreclosed properties 662,154 728,094
Gain on sale of non-monetary investments (379,585) -
Dividends (38,990) -
Reconciliation of fair value of financial assets (2,287,462) -
Operating profit before changes in operating assets and
6,005,974 (207,399)
liabilities
Mandatory reserves at Bank of Mongolia (1,472,619) 252,909
Due from other banks (6,055,663) 9,569,047
Loan and advances 20,031,701 (9,547,452)
Other financial assets 1,680 (758,169)
Other non-financial assets (340,414) (149,360)
Foreclosed properties 46,713 1,936,814
Current account (3,961,202) (26,581,660)
Savings account 13,216,099 11,057,969
Sales of securities on repurchase agreement (2,262,223) (6,118,495)
Liabilities to other banks and financial institutions (8,012,060) (2,045,000)
Other funds 1,990,383 2,924,615
Other financial liabilities (28,426) 9,438
Other non-financial liabilities (155,066) (619,667)
Net changes in operating assets and liabilities 12,998,903 (20,069,011)
19,004,877 (20,276,410)
Income taxes paid (4,332) (26,180)
Interest income (20,102,430) (18,912,163)
Interest received 20,237,837 19,824,977
Interest expenses 15,435,823 13,884,312
Interest paid (15,064,927) (13,101,533)
501,971 1,669,413
Net cash generated from (used in) operating activities 19,506,848 (18,606,997)
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CAPITRON BANK LLC
STATEMENT OF CASH FLOWS

For 2015 For 2014

MNT’000 MNT’000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (9,950,183) (730,169)
Proceeds from sales of PPE - 16,046
Investment in debt instruments (131,171,060) (188,625,842)
Investment in equity instruments (1,600,000) (806,280)
Financial assets matured and disposed 115,745,050 202,387,296
Total cash inflows (outflows) from investing activities (26,976,193) 12,241,051

CASH FLOWS FROM FINANCING ACTIVITIES
Share capital issued 17,300,000 4,500,000
Treasury Stock (18,089,932) -
Subordinate loan repaid - (3,000,000)
Total cash flows from financing activities (789,932) 1,500,000
Net increase /(decrease) in cash and cash equivalents (8,259,277) (4,865,946)

18,464,264 23,330,210
Bank of Mongolia at the beginning of year
10,204,987 18,464,264
Bank of Mongolia at the end of year
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CAPITRON BANK LLC
NOTES TO THE FINANCIAL STATEMENTS

1. REPORTING ENTITY
Capitron Bank LLC (“Bank”) was incorporated to operate in the field of currency exchange and
saving in accordance with resolution No. 1 of shareholders. The Bank was registered to State
Registration Office and was granted Certificate No. 9016001012 with registration No. 2677377 on 14
November 2001.
The Bank was granted special license No. 22 for commercial bank in accordance with Resolution No.
545 of President of Bank of Mongolia on 12 November 2001, thus commercial bank’s operation has
started 16 November 2001.
The effective charter of the Bank was approved in accordance with resolution No.1 of shareholders
meeting on 4 January 2016.
The Bank’s principal activities are as follows:
- Monetary saving;
- Lending services for individuals and entities;
- Settlement services;
- Issuance of guarantees to third parties;
- To purchase, sell, deposit and store foreign currencies;
- International payment and settlements;
- To purchase, sell, deposit and store precious metals and precious stones
- Safe custody of valuable assets;
- Issuance, purchase and sales of securities;
- Financial leasing services;
- Investment and financial consulting;
- Other services not prohibited by laws
The Bank has 9 departments, such as CEO Office, Internal Control Department, Risk Management
and Control Department, Administration Department, Treasury and Trading Department, Accounting
and Control Department, Business Development Department, Business Banking Department, Retail
Banking Department, 8 divisions such as Loan Administration Division, International and Domestic
Settlement Division, Financial Management, E-banking Division, Marketing Division, Information
Technology Division, Special Assets Division, Security and Safety Division, General Affairs Division as
of 31 December 2015. The Bank is providing its service through 31 branch units in Mongolia.
The Bank had a total of 353 employees (in 2013: 337 employees) as of 31 December 2015.
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CAPITRON BANK LLC
NOTES TO THE FINANCIAL STATEMENTS (continued)

2. OPERATING ENVIRONMENT OF THE BANK

2.1 General
Growth in Mongolian economy has been deteriorating in the past consecutive four quarters,
resulting lower economic growth than the potential production level. Mongolian gross domestic
product (GDP) remained lower than potential production level in the past 2 years with negative
production gap. Mining sector is one of the largest contributors to the overall economic growth
taking up to approximately 2.8 percent. But the growth in mining industry contracted by
approximately 1.2 percent in past 2 quarters. Commencement of new mining projects had been
delayed due to continuing decline in commodity prices, hence causing further decline in mining
related investments.
Banks started to attach stricter conditions to new loans in the past 5 quarters, causing decline in
private investments funded by bank loans. Amount of non-mining related investments decreased as
there are less investments funded by Central Budget and Development Bank of Mongolia.
At the end of 2015, total money supply reached MNT 10 trillion with 5.5 percent decrease compared
to 2014 and 2.5 percent increase compared to previous month. 5.5 percent decrease in total money
supply for 2015 is caused by 31.8 percent decline in accounts in foreign currency, 8.1 percent
decline in money outside financial institutions and 6.9 percent decline in accounts in Mongolian
Tugrug. As of 31 December 2015, total money supply comprises of saving accounts denominated in
Mongolian Tugrug (54.1%), saving accounts denominated in foreign currencies (19.4%), current
accounts in Mongolian Tugrug (12.2%), current accounts in foreign currency (9.8%) and money
outside financial institutions (4.5%). Currency in circulation at the end of 2015 amounted
approximately MNT 706.7 billion with 12.7 percent decline compared to prior year figures and 0.5
percent decline compared to prior month figure.
Mongolian prospective economic trend is directly related to effectiveness of economic, financial and
monetary measures undertaken by the Government of Mongolia along with taxation, regulatory and
political developments and reforms.
2.2 Inflation
Annual inflation at national level stood at 1.9 percent at the end of 2015. The inflation indices for
the last five years are given in the table below:
Year ended Inflation
2015 1.90%
2014 11.00%
2013 12.50%
2012 14.00%
2011 10.20%
2.3 Currency transactions
Foreign currencies, in particular the US Dollar and EUR, play a significant role in the underlying
economics of many business transactions in the Mongolia. The table below shows exchange rates of
MNT relative to USD and EUR as set by the Central Bank of Mongolia:
Date USD EUR
At 31 December 2015 1,995.98 2,182.70

At 31 December 2014 1,885.60 2,293.36
At 31 December 2013 1,654.10 2,275.63
At 31 December 2012 1,392.10 1,835.83
At 31 December 2011 1,396.37 1,806.76
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CAPITRON BANK LLC

3. BASIS OF PREPARATION
3.1 General principles
These financial statements of the Bank have been prepared in accordance with Sample Accounting
Manuals for commercial banks, rules, and methods approved by the resolution No. 549 of the
President of Bank of Mongolia in 2003 and other rules, and guidelines for commercial banks. Bank of
Mongolia issues such guidelines in compliance with the International Accounting Standards (IAS)
effective at that date; however, there was no update in consistency with the amendments to the
IAS and IFRS. Thus, financial statements of the Bank do not represent the full set of financial
statements under IFRS. The Bank maintains its accounting based on related laws and regulations of
Mongolia.
3.2 Functional and presentation currency

These financial statements have been presented in Mongolian National Tugrugs (“MNT”), being the
Bank’s functional and presentation currency, and all values are rounded to the nearest thousands,
except otherwise indicated.
3.3 Estimates and assumptions

The preparation of the financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities
as at the date of the financial statements preparation, and the reported amounts of revenues and
expenses during the reporting period. Issues that require management’s estimate and are most
significant for the financial statements are disclosed in Notes 4, Summary of Significant Accounting
Policies.
3.4 Going concern

These financial statements reflect the Bank management’s current assessment of the impact of the
Mongolian business environment on the operation and the financial position of the Bank. The future
economic direction of Mongolia is largely dependent upon the effectiveness of measures undertaken
by the Government and other factors, including regulatory and political developments that are
beyond the Bank’s control. The Bank’s management cannot predict what impact these factors can
have on the Bank’s financial position in future.
These financial statements were prepared on a going concern assumption. The Bank’s liquidity
position described in Note 36 indicates that the Bank has sufficient liquid assets to cover its current
liabilities.
For timely management of the liquidity risks, the Bank regularly monitors external factors that
could influence the Bank’s liquidity level and forecasts cash flows. For the medium and long-term
liquidity risk management, the Bank analyses maturity mismatches of assets and liabilities. To
reduce its risk exposure the Bank sets liquidity gap limits. These limits set are periodically reviewed
due to the changing external and internal environment.
To maintain the required liquidity level the Bank can attract additional funds from the Central Bank
of Mongolia and from the interbank market. Diversification of liquidity sources allows to minimise
the Bank’s dependence on any liquidity source and to ensure the full repayment of its liabilities. A
sufficient current liquidity cushion accumulated by the Bank and the available sources of additional
fund-raising allow the Bank to continue its operations as a going concern on a long-term basis.
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CAPITRON BANK LLC

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies were adopted in preparation of these financial
statements of the Bank:
4.1 Cash and cash equivalents
Cash and cash equivalents are assets, which can be converted into cash within a day and consist of
cash on hand, balances on correspondent and current accounts of the Bank, overnight deposits, cash
deposits with other commercial banks and cash on broker accounts. All short-term interbank
placements (other than overnight deposits) are included in due from other banks. Amounts, which
relate to funds that are of a restricted nature, are excluded from cash and cash equivalents. Cash
and cash equivalents exclude mandatory cash balances with the Central Bank of Mongolia.
4.2 Mandatory cash balances with the Central Bank of Mongolia
Mandatory cash balances with the Central Bank of Mongolia represent mandatory reserve deposits
with Central Bank of Mongolia, which are not available to finance the Bank’s day-to-day operations.
The mandatory reserve balance is excluded from cash and cash equivalents for the purpose of the
statement of cash flows.
4.3 Financial assets
The Bank classifies its financial assets in the following categories:

− financial assets at fair value through profit or loss;
− loans and receivables (this category includes loans to customers);
− investments held to maturity;
− financial assets available for sale.
The Bank determines the classification of its financial assets at initial recognition. Classification of
financial assets at initial recognition depends on the purpose for which they were acquired and their
characteristics.
(i) Initial recognition of financial assets

The Bank recognises financial assets and financial liabilities in its statement of financial
position when it becomes a party to the contractual obligation of the financial instrument.
Regular way purchases and sales of the financial assets and liabilities are recognised using
settlement date accounting.
All financial assets are initially recognised at fair value plus transaction costs that are directly
attributable to acquisition or issue of the financial asset in the case of a financial asset not at
fair value through profit or loss.
(ii) Fair value measurement

The fair value of financial instruments traded on the active market at the end of the
reporting period is determined based on the market or dealers’ quotations including
transaction costs.
If a quoted market price is not available, the fair value of financial assets and financial
liabilities recorded in the statement of financial position is estimated on the basis of market
quotations for similar financial instruments or using various valuation techniques, including
mathematic models. Inputs for such models are based on observable market data or
judgement. Judgement is based on the time value of money, credit risk level, volatility of the
instrument, market risk level and other applicable factors.
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CAPITRON BANK LLC

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

4.3 Financial assets (continued)
(iii) Amortised cost of financial instruments

The amortised cost of a financial asset or financial liability is the amount at which the
financial asset or financial liability is measured at initial recognition minus principal
repayments, plus or minus the cumulative amortisation using the effective interest method of
any difference between that initial amount and the maturity amount, and minus any
reduction (directly or through the use of an allowance account) for impairment or
uncollectibility.
The effective interest method is a method of calculating the amortised cost of a financial
asset or a financial liability (or group of financial assets or financial liabilities) and of
allocating the interest income or interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when appropriate, a shorter period
to the net carrying amount of the financial asset or financial liability. When calculating the
effective interest rate, the Bank shall estimate cash flows considering all contractual terms of
the financial instrument (for example, prepayment, call and similar options) but shall not
consider future credit losses. The calculation includes all fees and points paid or received
between parties to the contract that are an integral part of the effective interest rate,
transaction costs, and all other premiums or discounts. There is a presumption that the cash
flows and the expected life of a group of similar financial instruments can be estimated
reliably. However, in those rare cases when it is not possible to estimate reliably the cash
flows or the expected life of a financial instrument (or group of financial instruments), the
Bank shall use the contractual cash flows over the full contractual term of the financial
instrument (or group of financial instruments.
(iv) Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or a group of similar
financial assets) is derecognised where:
− the rights to receive cash flows from the asset have expired;
− the Bank has transferred its rights to receive cash flows from the asset, or retained the
right to receive cash flows from the asset, but has assumed an obligation to pay them
in full without material delay to a third party; and
− the Bank either has transferred substantially all the risks and rewards of the asset, or
has neither transferred nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset. If the transferee has no practical ability to sell
the asset in its entirety to an unrelated third party without needing to impose
additional restrictions on the transfer, the entity has retained control.
Where the Bank has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred
control of the asset, the asset is recognised to the extent of the Bank’s continuing
involvement in the asset. Continuing involvement that takes the form of a guarantee over the
transferred asset is measured at the lower of the original carrying amount of the asset and
the maximum amount of consideration that the Bank could be required to repay.
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CAPITRON BANK LLC


(v) Reclassification of financial assets

The Bank shall not reclassify out of the fair value through profit or loss category a derivative
financial instrument while it is held or issued or any financial instrument classified at initial
recognition as at fair value through profit or loss.
Financial assets available for sale may be reclassified into loans and receivables if the Bank
has a positive intention and the ability to hold these financial assets for the foreseeable
future or until maturity.
If financial assets are reclassified into loans and receivables or investments held to maturity,
the fair value on the date of reclassification would become the new cost of these financial
assets. Subsequently these assets are measured at amortised cost using the effective interest
rate method.
If, as a result of a change in intention or ability, it is no longer appropriate to classify an
investment as held to maturity, it shall be reclassified as financial assets available for sale
and measured again at fair value. Unrealised gains and losses arising from changes in the fair
value of financial assets available for sale are recorded in the statement of comprehensive
income as other comprehensive income.
The Bank shall not classify any financial assets as investments held to maturity if the Bank
has, during the current financial year or during the two preceding financial years, sold or
reclassified more than an insignificant amount of held-to-maturity investments before
maturity (more than insignificant in relation to the total amount of held-to-maturity
investments) other than sales or reclassifications that:
− are so close to maturity or the financial asset's call date (for example, less than three
months before maturity) that changes in the market rate of interest would not have a
significant effect on the financial asset's fair value;
− occur after the entity has collected substantially all of the financial asset's original
principal through scheduled payments or prepayments; or
− are attributable to an isolated event that is beyond the entity's control, is non-
recurring and could not have been reasonably anticipated by the entity.
Whenever sales or reclassifications of more than an insignificant amount of held-to-maturity

investments do not meet any of the conditions of the classification, any remaining held-to-
maturity investments shall be reclassified as available for sale.
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CAPITRON BANK LLC

(vi) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include trading securities and other
financial assets at fair value through profit or loss.
Trading securities represent securities acquired principally for the purpose of generating a
profit from short-term fluctuations in price or trader’s margin, or securities included in a
portfolio where a pattern of short-term trading exists. The Bank classifies securities as
trading securities when it intends to sell them within a short period of time after purchase.
Trading securities are not reclassified out of this category except for rare circumstances
arising from a single event that is unusual and highly unlikely to reoccur in the near term.
Trading securities are recognised at fair value. Interest earned on trading securities is
reflected as interest income in the statement of income. Dividends are recognised in the
statement of income as dividends received when the Bank’s right to receive dividends is
established and dividends are likely to be received. All other elements of the changes in the
fair value and gains or losses on derecognition are recorded in the statement of income as
gains less losses arising from financial assets at fair value through profit or loss in the period
in which they arise.
Derivative financial instruments including futures, currency exchange contracts and interest
rate swaps with positive fair value other than derivative instruments designated and effective
as hedges are initially recorded in the statement of financial position as other assets at cost
(including transaction costs) and subsequently remeasured at their fair value. Fair values are
obtained from quoted market prices or using the spot rate at the year-end as the basis
depending on the type of transaction.
Changes in the fair value of derivative financial instruments are included in gains less losses
arising from financial assets at fair value through profit or loss or in gains less losses from
dealing in foreign currency or precious metals depending on the type of transaction.
Other financial assets at fair value through profit or loss include securities that were initially
classified in this category provided one of the following criteria was met:
− the designation eliminates or significantly reduces the inconsistent treatment that
would otherwise arise from measuring assets and recognising gains and losses on them
on a different basis; or
− a group of financial assets and/or financial liabilities is managed and its performance is
evaluated on a fair value basis, in accordance with a documented risk management and
investment strategy and information about this basis is regularly disclosed and revised
by the Bank’s management.
Recognition and measurement of financial assets designated in this category is in compliance
with the accounting policies in respect of trading securities presented above.
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CAPITRON BANK LLC

4.4 Due from other banks
In the normal course of business, the Bank places funds for various periods of time with other banks.
Amounts due from other banks with a fixed maturity term are not intended for immediate or short-
term trading and are measured at amortised cost using the effective interest method. Those that do
not have fixed maturities are carried at amortised cost calculated based on expected maturity. Due
from other banks are carried net of any allowance for impairment.
4.5 Loans to customers
This category includes non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market, other than:
− those that the entity intends to sell immediately or in the near term, which shall be
classified as held for trading, and those that the entity upon initial recognition designates as
at fair value through profit or loss;
− those that the entity upon initial recognition designates as available for sale;
− those for which the holder may not recover substantially all of its initial investment, other
than because of credit deterioration, which shall be classified as available for sale.
Loans to customers are initially recorded at cost, which is the fair value of the consideration given.
Subsequently, they are carried at amortised cost using the effective interest method less provision
for loan impairment.
Loans to customers are recorded when cash is advanced to borrowers. The accrued interests on
loans are presented in the financial statements as a part of loan principals.
4.6 Investments held to maturity
This category of financial assets represents non-derivative financial assets with fixed or
determinable payments and fixed maturity that the Bank has the positive intention and ability to
hold to maturity. The Bank’s management determines the appropriate classification of financial
assets at the time of purchase.
The Bank assesses its intention and ability to hold its held-to-maturity financial assets to maturity
not only when those financial assets are initially recognised, but also on each closing date.
Initially, investments held to maturity are recorded at fair value (which includes transaction costs)
and are subsequently carried at amortised cost. Gains and losses on investments held to maturity
are recognised in the statement of comprehensive income when such assets are impaired, as well as
through the amortisation process.
If the Bank sells a significant portion of its portfolio of investments held to maturity before their
maturity the remaining financial assets from this category shall be reclassified as financial assets
available for sale.
Interest earned on investments held to maturity is recognised in the statement of comprehensive

income as interest income.
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CAPITRON BANK LLC

4.7 Financial assets available for sale
Financial assets available for sale are non-derivative financial assets not included into any of the
above categories.
Financial assets available for sale are initially recognised at fair value plus transaction costs that are
directly attributable to acquisition or issue of the financial asset. Financial assets available for sale
are subsequently remeasured to fair value based on quoted bid prices. Certain financial assets
available for sale for which there is no available independent quotation have been fair valued by
the Bank’s management on the basis of results of recent sales of similar financial assets to
unrelated third parties or determined on the basis of indicative quotations for purchase/sale of
each type of securities published by information agencies or provided by professional securities
market participants. If there is no active market and it is impossible to determine the fair value of
equity securities using reliable methods, investments are recognised at acquisition cost.
Unrealised gains and losses arising from changes in the fair value of financial assets available for
sale are recognised in the statement of comprehensive income as other comprehensive income.
When financial assets available for sale are disposed of, the related accumulated unrealised gains and
losses previously recognised as other comprehensive income are reclassified to the statement of
comprehensive income as gains less losses arising from financial assets available for sale. Disposals of
financial assets available for sale are recorded using the FIFO method.
Interest earned on debt securities available for sale is determined using the effective interest
method and reflected in the statement of comprehensive income as interest income. Dividends
received on equity investments available for sale are recorded in the statement of comprehensive
income when the Bank’s right to receive dividends is established and dividends are likely to be
received.
4.8 Promissory notes purchased
Promissory notes purchased are included in financial assets available for sale, investments held to
maturity, due from other banks or loans to customers, depending on their economic substance and
are subsequently accounted for in accordance with the accounting policies for these categories of
assets.
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CAPITRON BANK LLC


4.9 Impairment of financial assets
The Bank assesses on the closing date whether there is any objective evidence that the value of a
financial asset item or group of items has been impaired. Impairment losses are recognised in the
statement of comprehensive income as they are incurred as a result of one or more events that
occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has
an impact on the amount or timing of the estimated future cash flows of the financial asset or group
of financial assets that can be reliably estimated. If the Bank determines that no objective evidence
of impairment exists for an individually assessed financial asset, it includes the asset in a group of
financial assets with similar credit risk characteristics and collectively assesses them for
impairment.
(i) Impairment of due from other banks and loans to customers

For amounts due from other banks and loans to customers carried at amortised cost, the Bank first
assesses whether objective evidence of impairment exists individually for financial assets that are
individually significant or collectively for financial assets that are not individually significant.
Objective evidence that due from other banks and loans to customers is impaired includes
observable data about the following events in respect of individually significant financial assets:
− default in any payments due;
− significant financial difficulty of the borrower supported by financial information at the
Bank’s disposal;
− worsening national or local economic environment affecting the borrower;
− breach of contract, such as a default or delinquency in interest or principal payments;
− the lender, for economic or legal reasons relating to the borrower's financial difficulty,
granting to the borrower a concession that the lender would not otherwise consider.
(i) Impairment of due from other banks and loans to customers
If there is objective evidence that an impairment loss has been incurred, the amount of the
loss is measured as the difference between the asset's carrying amount and the present value
of estimated future cash flows (excluding future expected credit losses that have not yet
been incurred). The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the statement of profit or loss and other
comprehensive income.
The calculation of the present value of the estimated future cash flows of a collateralized
financial asset reflects the cash flows that may result from foreclosure less costs for obtaining
and selling the collateral.
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4.9 Impairment of financial assets (continued)
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
improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by
adjusting the allowance account in the statement of profit or loss and other comprehensive income.
Uncollectible assets are written off against the related allowance for impairment after all the
necessary procedures to recover the asset in full or in part have been completed and the final
amount of the loss has been determined. The carrying amount of impaired financial assets is not
reduced directly.
In accordance with Mongolian legislation, in case of a write-off of the uncollectible loan and
relating interest, the Bank shall take necessary and adequate steps, envisaged by law, standard
business practice or agreement, to collect this outstanding loan.
(ii) Impairment of investments held to maturity

The Bank assesses whether objective evidence of impairment exists individually for investments
held to maturity. If there is objective evidence that an impairment loss has been incurred, the
amount of the loss is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows. The carrying amount of the asset is reduced and the
amount of the loss is recognised in the statement of comprehensive income. If, in the next year, the
amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously recognised impairment loss is
recognised as income in the statement of comprehensive income.
(iii) Impairment of financial assets available for sale

The Bank assesses at the end of each reporting period whether there is objective evidence that a
financial investment or a group of investments available for sale is impaired.
In case of equity investments classified as available for sale, objective evidence of impairment
would include significant financial difficulty of the issuer supported by available information. To
assess whether there is any indication of impairment the Bank shall analyse the issuer’s activities
taking into account the influence of economic factors, including consequences of changes in the
technical, market, economic or legal environment in which the issuer operates. The Bank also
assesses other factors such as volatility of price per share.
Cumulative loss measured as a difference between the acquisition cost and the current fair value,
less any impairment loss on that asset previously recognised through the profit and loss accounts, is
transferred from other comprehensive income to the profit and loss accounts. Impairment losses on
equity instruments are not reversed through the profit and loss account: increases in the fair value
after impairment are recognised directly in other comprehensive income.
In case of unquoted debt instruments not carried at fair value, classified as available for sale,
impairment is assessed based on the same criteria as those for financial assets carried at amortised
cost. Interest income is based on the reduced carrying amount and is accrued using the rate of
interest used to discount future cash flows for the purpose of measuring the impairment loss. The
interest income is recorded within interest income in the statement of comprehensive income.
If in the subsequent year the fair value of a debt instrument increases, and such increase can be
objectively related to the event occurring after the impairment loss was recognised in the
statement of comprehensive income, the impairment loss is reversed and the related recovery is
recorded in the statement of comprehensive income.
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CAPITRON BANK LLC

4.10 Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit or loss, or
financial liabilities carried at amortised cost.
Initially, a financial liability shall be measured by the Bank at its fair value plus, in the case of a
financial liability not at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial liability.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled
or expires.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognised in the statement of
comprehensive income.
4.11 Financial liabilities carries at amortised cost
Financial liabilities carried at amortised cost include due to other banks, customer accounts, debt
securities issued and other borrowed funds.
Due to other banks Dues to other banks are recorded when money or other assets are advanced to
the Bank by counterparty banks.
Customer accounts Customer accounts are non-derivative financial liabilities to individuals, state
or corporate customers in respect of settlement accounts and deposits.
Debt securities issued Debt securities issued include promissory notes issued by the Bank. If the
Bank purchases its own debt securities issued, 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 other operating income as gain from retirement of debt.
Other borrowed funds Other borrowed funds include subordinated loans received by the Bank and
are recorded as cash is advanced to the Bank.
4.12 Repurchase and reserve repurchase agreements
Sale and repurchase agreements (“repo” agreements) are treated as secured financing transactions.
Securities sold under sale and repurchase agreements are not derecognised, and the securities are
not reclassified. The corresponding liability is presented within due to other banks or customer
accounts.
Securities purchased under agreements to resell (“reverse repo” agreements) are recorded as due
from other banks or loans to customers, as appropriate. The difference between the sale and
repurchase price is treated as interest income in the statement of comprehensive income and
accrued over the life of repo agreements using the effective interest rate method.
Securities lent by the Bank to counterparties continue as a loan for fixed compensation to be
recognised in the Bank’s financial statements as securities. Securities borrowed for fixed
compensation are not recorded in the Bank’s financial statements except when they are sold to
third parties. In such cases, the financial result from sale and purchase of such securities is
recognised in the statement of comprehensive income within gains less losses arising from financial
assets at fair value through profit or loss. The obligation to return the securities is recorded as
financial liabilities at fair value through profit or loss.
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CAPITRON BANK LLC

4.13 Offsetting
Financial assets and liabilities are offset and the net amount is reported in the statement of
financial position only when there is a legally enforceable right to offset the recognised amounts,
and there is an intention to either settle on a net basis, or to realise the asset and settle the
liability simultaneously.
4.14 Property, plant and equipment
Property, plant and equipment are stated at cost or revaluation amount less accumulated
depreciation and provision for impairment losses.
The bank determines whether there is any indication of impairment of property, plant, and
equipment as of each reporting date. If there is an indication of impairment, the recoverable
amount is estimated based on the greater of fair value of an asset less costs to sell and asset's value
in use. When the carrying amount of property, plant, and equipment exceeds the recoverable
amount, the carrying amount is reduced to the asset's recoverable amount, and the difference is
recognized as an impairment loss in the statement of comprehensive income.
The gain or loss on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and equipment,
and are recognised in statement of comprehensive income.
Maintenance costs are recognized as expenses in the statement of comprehensive income when it is
incurred.
Construction in progress is reported as cost less provision for impairment. When the construction
work finishes, property, plant, and equipment are reclassified by its carrying amount. Construction
in progress shall not depreciate until the asset is ready for use.
Depreciation
Depreciation of premises and equipment commences from the date the assets are ready for use.
Depreciation is charged on a straight-line basis over the estimated useful lives of the assets:
− Buildings – 40 years;
− Motor vehicles – 10 years;
− Equipment and computers – from 3 years to 10 years;
− Furniture – 10 years.
Land has an indefinite useful life and is not depreciated.
At the end of the service life, the residual value of an asset is the estimated amount that the Bank
would currently obtain from disposal of the asset less the estimated costs of disposal, if the asset
were already of the age and in the condition expected at the end of its useful life. The assets'
residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
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4.15 Intangible assets
An intangible asset is an identifiable non-monetary asset without physical substance. Intangible

asset is recognised if:
– the asset is expected to generate future economic benefits for the Bank;
– the cost of the asset can be measured reliably;
– the asset is capable of being separated or divided from the Bank and sold, transferred,
licensed, rented or exchanged, either individually or together with a related contract or
liability.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets
with finite lives are amortised over the useful economic lives and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. Amortisation periods and methods
for intangible assets with finite useful lives are reviewed at least at each financial year-end.
Intangible assets with indefinite useful lives are not amortised, but tested for impairment annually
either individually or at the cash-generating unit level. The useful life of an intangible asset with an
indefinite life is reviewed annually to determine whether indefinite life assessment continues to be
supportable.
4.16 Operating leases
Operating lease – the Bank as lessee

Leases of property under which the risks and rewards of ownership are effectively retained with the
lessor are classified as operating leases. Lease payments under operating lease are recognised as
expenses on a straight-line basis over the lease term and included into operating expenses in the
statement of comprehensive income.
Operating lease – the Bank as lessor

The Bank presents assets subject to operating leases in the statement of financial position according
to the nature of the asset. Lease income from operating leases is recognised in the statement of
comprehensive income on a straight-line basis over the lease term as other operating income. The
aggregate cost of incentives provided to lessees is recognised as a reduction of rental income over
the lease term on a straight-line basis. Initial direct costs incurred specifically to earn revenues
from an operating lease are added to the carrying amount of the leased asset and recognised as an
expense over the lease term on the same basis as the lease income.
4.17 Share capital
Ordinary shares and non-cumulative, non-redeemable preference shares are classified as share
capital. The share capital is stated at original cost. Non-monetary contributions to the share capital
are recorded at fair value of contributed assets at the date the contributions are made.
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CAPITRON BANK LLC


4.18 Treasury stock
The total costs reacquiring equity instruments are accounted for as a deduction from equity, net of
any related income tax effect. Reacquired equity instruments should be classified as treasury stock
and be presented in the statement of financial position as a deduction from equity. No gain or loss
should be recognized in the income statement on the sale, issuance, or cancellation of treasury
stock, and consideration received should be presented in the financial statements as a change in
equity.
4.19 Share premium
Share premium represents the excess of contributions over the nominal value of the shares issued.
4.20 Dividends
Dividends are recognised as a liability and deducted from shareholders’ equity at the end of the
reporting period only if they are declared before or on the reporting date. Information on dividends
that are declared after the reporting date is disclosed in the subsequent events note. Net profit of
the reporting year reflected in the statutory financial statements is the basis for payment of
dividends and other appropriations.
After approval of dividends by the General Shareholders’ Meeting they are recognised in the
financial statements as distributed profits.
4.21 Contingent assets and liabilities
Contingent assets are not recognised in the statement of financial position but disclosed in the
financial statements when an inflow of economic benefits is probable.
Contingent liabilities are not recognised in the statement of financial position but disclosed in the
financial statements unless the possibility of any outflow in settlement is remote.
4.22 Credit related commitments
The Bank enters into credit related commitments, including guarantees and commitments to extend
credits. Guarantees represent irrevocable assurances of the Bank to make payments in the event
that a customer cannot meet its obligations to third parties and carry the same credit risk as loans.
Commitments to extend credit represent unused portions of authorisations to extend credit in the
form of loans or guarantees. With respect to credit risk on commitments to extend credit, the Bank
is potentially exposed to loss in an amount equal to the total unused commitments. However, the
likely amount of loss is less than the total unused commitments since most commitments to extend
credit are contingent upon customers maintaining specific credit standards.
Credit related commitments are initially recognised at their fair value. Subsequently, they are
analysed at the end of each reporting period and adjusted to reflect the current best estimate. The
best estimate of the expenditure required to settle the present obligation is the amount that the
Bank would rationally pay to settle the obligation at the end of the reporting period or to transfer it
to a third party at that time.
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4.23 Provisions
Provisions are recognised when the Bank has a present legal or constructive obligation as a result of
past events, and it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the amount of the obligation can be
made.
4.24 Таxation
The income tax charge/recovery comprises current tax and deferred tax and is recorded in the
statement of comprehensive income except if it is recorded directly in other comprehensive income
because it relates to transactions that are also recorded directly in other comprehensive income.
Income tax expense is recorded in the financial statements in accordance with the applicable
legislation of Mongolia. Current tax is calculated on the basis of the taxable profit for the year,
using the tax rates enacted during the reporting period.
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 or prior periods. Tax amounts are based on
estimates if financial statements are authorised prior to filing relevant tax returns.
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.
Deferred tax balances are measured at tax rates enacted or substantively enacted at the end of the
reporting period that 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 and liabilities are offset if
there is a legally enforceable right to set off current tax assets against current tax liabilities and
deferred taxes refer to the same tax authority. Deferred tax assets for deductible temporary
differences and tax loss carry-forwards are recorded to the extent that it is probable that future
taxable profit will be available against which the deductions can be utilised. Judgment is required
to determine the amount of deferred tax assets that may be recognised in financial statements
based on probable periods and amounts of future taxable profits and future tax planning strategies.
Mongolia also has various other taxes, which are assessed on the Bank’s activities. These taxes are
recorded within operating expenses in the statement of comprehensive income.
4.25 Employee benefits and social contributions
(i) Short term benefits
Wages, salaries and other salary related expenses are recognised as an expense in the year in
which the associated services are rendered by employees of the Bank. Short term accumulating
compensated absences such as paid annual leave are recognised when services are rendered by
employees that increase their entitlement to future compensated absences, and short term
non-accumulating compensated absences such as sick leave are recognised when absences
occur.
(ii) Defined contribution plans
As required by law, companies in Mongolia make contributions to the government pension

scheme, Social and Health Fund. Such contributions are recognised as an expense in profit or
loss as incurred.
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CAPITRON BANK LLC

4.26 Income and expense recognition
(i) Interest and similar income and expenses

Interest income and expense are recorded in the statement of comprehensive income for all debt
instruments on an accrual basis using the effective interest method. The effective interest method
is a method of calculating the amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the financial instrument to the net carrying amount of the financial asset or
financial liability. When calculating the effective interest rate, the Bank estimates cash flows
considering all contractual terms of the financial instrument, but does not consider future credit
losses. The calculation includes all commissions and fees paid or received by the parties to the
contract that are an integral part of the effective interest rate, transaction costs, and all other
premiums or discounts.
Interest income includes coupons earned on fixed-income financial assets and accrued discount and
premium on promissory notes and other discounted instruments. When loans become doubtful of
collection, they are written down to their recoverable amounts and interest income is thereafter
recognised based on the rate of interest that was used to discount the future cash flows for the
purpose of measuring the recoverable amount.
(ii) Fee and commission income

Fees, commissions and other income and expense items are recorded on an accrual basis after the
service is provided. Loan origination fees for loans that are not yet provided, but are probable of
being drawn down, are recognised within other assets and are subsequently taken into account in
calculation of effective yield on the loan. Fees and commissions arising from negotiating a
transaction for a third party, such as the acquisition of loans, shares and other securities or the
purchase or sale of businesses, are recorded on completion of the transaction in the statement of
comprehensive income. Investment portfolio and other advisory service fees are recognised based
on the applicable service contracts.
Fees earned for the provision of services over a period of time are accrued over that period. These
fees include commission income and asset management, custody and other management and
advisory fees.
Loan commitment fees for loans that are likely to be drawn down and other credit related fees are
deferred (together with any incremental costs) and recognised as an adjustment to the effective
interest rate on the loan. When it is unlikely that a loan will be drawn down, the loan commitment
fees are recognised over the commitment period on a straight-line basis.
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4.27 Foreign currency and precious metals
Transactions in foreign currencies are translated into the functional currency using the exchange
rate effective at the date of transactions issued by the Central Bank. Monetary assets and liabilities
represented in foreign currencies are translated into the reporting currency at the year-end rate of
Central Bank. Unrealized gain or loss on foreign exchange and precious metals are recorded by
unrealized gain less unrealized loss on foreign exchange and precious metals in statement of
comprehensive income. Non-monetary assets and liabilities that are measured in terms of historical
cost in foreign currency are translated using the exchange rates of Central Bank as the dates of the
initial transactions. Non-monetary items that are denominated in foreign currencies are translated
using the exchange rates at the date when the fair value was determined.
Gold, silver and other precious metals are recorded in trading rate issued by the Central Bank.
The changes in trading rate of Central Bank is recorded as exchange rate difference, unrealized gain
from foreign exchange and precious metals less unrealized loss on foreign exchange and precious
metals, in the statement of comprehensive income. Precious metals are recorded under other
assets.
Gains from or losses on acquisition and disposal of foreign currencies and precious metals are
determined by the difference in book value and disposal amount of the date of transaction.
5. CASH ON HAND, CURRENT AND SAVINGS ACCOUNT IN THE CENTRAL BANK OF

MONGOLIA
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Cash on hand 4,787,772 6,455,553

Precious metals - 84,200
Current account with Bank of Mongolia 24,345,712 29,464,590
Less: Minimum reserve at the Bank of Mongolia-not
(18,928,497) (17,455,879)
available to finance the Bank’s day to day operations
10,204,987 18,548,464
6. MANDATORY RESERVES AT BANK OF MONGOLIA
Current accounts with the Bank of Mongolia are maintained in accordance with the regulations of
Bank of Mongolia. The mandatory reserve with Bank of Mongolia are determined at not less than
12.0% (2014: 12.0%) of customer deposits for periods of 2 weeks.
The average obligatory reserve required by the Bank of Mongolia for the 2 weeks period between 23
December 2015 and 5 January 2016 was MNT 14,398,173.99 thousand (2014: MNT 13,347,176.57
thousand) for local currency and MNT4,530,324.24 thousand (2014: MNT4,108,701.8 thousand) for
foreign currency both maintained on current accounts with the Bank of Mongolia.
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CAPITRON BANK LLC

7. OTHER CURRENT AND SAVINGS ACCOUNTS IN THE BANK /DUE FROM OTHER
BANKS/
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Current account balances-domestic banks 159,287 1,417,765
Current account balances-foreign banks 1,988,186 299,982
Savings deposits- domestic banks 8,104,849 2,394,712
Other /Mongolian Securities Clearing House and Central Depository/ 8 8
10,252,330 4,112,467
8. FINANCIAL INVESTMENTS
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Short-term investment:
Government securities 6,000,000 -
Central Bank securities 10,000,000 -
Unamortized premium/ (discount) on securities (417,490) -
15,582,510 -
Long-term investment:
Government securities 2,500,000 2,700,000
MIC Bond 1,089,000 1,045,500
Investment in limited companies 11,156,376 7,757,376
Investment in listed companies 239,990
Fair value reconciliation 2,287,462
Unamortized premium/ (discount) on securities 6,562 6,562
17,279,390 11,509,438
32,861,900 11,509,438
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CAPITRON BANK LLC

8. FINANCIAL INVESTMENTS (CONTINUED)
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Investment in debt instruments:
Government bond 8,500,000 2,700,000
Central Bank bond 10,000,000 -
MIC bond 1,089,000 1,045,500
Unamortized premium/ (discount) on securities (410,929) 6,562
19,178,071 3,752,062
Investment in equity instruments:
Investment in limited companies 11,156,376 7,757,376
Investment in listed companies 239,990 -
Fair value reconciliation 2,287,463 -
13,683,829 7,757,376
32,861,900 11,509,438
Investment in debt instruments represents investment made with long and short term Mongolian
Government bonds, short term treasury bills of Central Bank, long term MIC bonds.
Investment in equity instruments represents investment made with shares of limited companies and
companies listed Mongolian Stock Exchange.
The changes in the portfolio of debt instruments during the year ended 31 December 2015, 2014 are
as follows:
For 2015 For 2014

MNT’000 MNT’000
Carrying amount as of 1 January 3,745,500 17,539,900
Unamortized premium/ (discount) on securities 6,562 (26,384)
Fair value as of 1 January 3,752,062 17,513,516
Acquisition 130,027,500 170,491,500
Repaid (114,184,000) (184,285,900)
Carrying amount as of 31 December 19,589,000 3,745,500
Unamortized premium/ (discount) on securities (410,929) 6,562
Fair value as of 31 December 19,178,071 3,752,062
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CAPITRON BANK LLC

8. FINANCIAL INVESTMENTS (CONTINUED)

The changes in the portfolio of equity instruments during the year ended 31 December 2015, 2014
are as follows:
For 2015 For 2014

MNT’000 MNT’000
Carrying amount as of 1 January 7,757,376 6,951,096

Fair value reconciliation -
Fair value as of 1 January 7,757,376 6,951,096
Additions:
Acquired 1,600,000 806,280
Acquires as Dividend 38,990
Reclassified 2,000,000 -
Carrying amount as of 31 December 11,396,366 7,757,376

Fair value reconciliation 2,287,463 -
Fair value as of 31 December 13,683,829 7,757,376
9. REPO AGREEMENT
In accordance with the repo agreements, Central Bank bonds amounting to MNT 59.8 billion (2014:
MNT 2.2 billion) was traded in 2015 and there weren't any outstanding balances of repo agreement
at the end of the reporting period.
10. LOANS AND ADVANCES TO CUSTOMERS-NET

Loan classification and provision for loan losses:
At 31 December 2015
Provision for
Loan Net loan
loan losses
MNT’000 MNT’000 MNT’000
Performing 81,599,761 (460,744) 81,139,017
Overdue loan 3,101,813 (155,091) 2,946,722
Substandard 3,528,154 (882,038) 2,646,115
Doubtful 4,917,140 (2,458,570) 2,458,570
Bad loan 15,066,221 (15,066,221) -
Total 108,213,088 (19,022,664) 89,190,424
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CAPITRON BANK LLC

10. LOANS AND ADVANCES TO CUSTOMERS-NET (continued)

Loan classification and provision for loan losses (continued):
At 31 December 2014
Provision
Loan for Net loan
loan losses
MNT’000 MNT’000 MNT’000
Performing 111,301,393 (173,204) 111,128,189
Overdue loan 2,719,782 (135,989) 2,583,793
Substandard 3,933,693 (983,423) 2,950,270
Doubtful 4,390,373 (2,195,186) 2,195,186
Bad loan 6,015,429 (6,015,429) -
Total 128,360,670 (9,503,232) 118,857,438
The following table shows the movement on provision for loan losses for the reporting period.
For 2015 For 2014

MNT’000 MNT’000
Opening balance (9,503,232) (8,958,202)
Charges for the year (46,680,411) (552,084)
Recoveries 37,160,978 7,054
Closing balance (19,022,664) (9,503,232)
Loan portfolio as per segment:
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Listed Companies /Joint Stock Companies/ 340,119 1,851,085
Limited Liability Companies 47,954,506 62,292,856
cooperatives 53,117 55,000
Partnerships 156,916 213,661
Non-Banking Financial Institutions 90,789 97,222
Domestic entities out of UB - 4,054,040
Individuals 59,092,690 59,562,317
Other 125,521 43,003
Credit card 399,431 191,485
108,213,088 128,360,670
Provision for loan losses (19,022,664) (9,503,232)
Net value of loan and advances 89,190,424 118,857,438
34
CAPITRON BANK LLC

10. LOANS AND ADVANCES TO CUSTOMERS (continued)

Economic sector concentrations within the Bank’s loan portfolio are as follows:
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
A. Agriculture, forestry, fishing, hunting 8,319,799 11,046,445
B. Mining & Exploration 3,224,487 8,262,973
C. Manufacturing 17,247,422 28,258,502
D. Electricity, gas, steam, ventilation supplies 3,501,428 3,429,703
E. Water supply, wastewater and solid waste management 176,232 87,869
F. Construction 14,748,142 9,324,617
G. Wholesale and retail trade; auto vehicles maintenance
13,299,811 18,081,121
services
H. Transportation and warehouse activities 2,585,762 2,619,693
I. Housing and meal providing services 2,338,382 2,665,477
J. Information and communications 182,857 124,336
K. Financial and insurance activities 291,217 629,088
L. Real estate activities 18,508,763 19,423,940
M. Professional, scientific and technical activities 34,656 34,656
N. Administrative and public activities 74,240 228,418
O. Public management, Defense, mandatory social security 19,909 51,171
P. Education 411,157 435,602
Q. Healthcare and Social activities 1,746,044 1,303,318
R. Art, entertainment 447,723 381,428
S. Other services 4,031,811 4,959,390
T. Family business, family production for own use 16,623,813 16,821,438
U. Other (outstanding balance of credit card) 399,433 191,485
108,213,088 128,360,670
Provision for Loan losses (19,022,664) (9,503,232)
Loans to customers (Net) 89,190,424 118,857,438
35
CAPITRON BANK LLC

11. OTHER FINANCIAL ASSETS-NET
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Accumulated interest receivables (Securities) 14,450 12,677
Accumulated interest receivables (Loan) 1,617,024 1,789,351
Accumulated interest receivables (other banks and
356,421 312,947
financial institutions)
Accumulated interest receivables (Other) 84,031 92,359
Receivables from others 1,136,933 1,138,613
3,208,859 3,345,947
Bad debt allowance (1,132,565) (331,590)
2,076,294 3,014,357
12. OTHER NON-FINANCIAL ASSETS-NET
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Prepayments 1,009,323 652,192
Deferred tax assets 523,589 133,954
Material 188,802 205,974
Foreclosed properties 4,766,336 4,813,048
Other 1,928 1,473
6,489,978 5,806,641
Foreclosed properties impairment (2,506,043) (1,843,889)
3,983,935 3,962,752
36
CAPITRON BANK LLC

13. INTANGIBLE ASSETS-NET
At 31 Dec 2015 At 31 Dec 2014

Land Land
Software possession Total Software possession Total
right right
MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000
Cost
Balance at 01 January 1,216,246 315,360 1,531,606 490,252 315,360 805,612
Added 115,976 115,976 111,425 111,425

Disposal - -
Revaluation - 614,569 614,569
Balance at 31 December 1,332,222 315,360 1,647,582 1,216,246 315,360 1,531,606
Accumulated amortization
Balance at 01 January 405,814 - 405,814 326,996 - 326,996
Charge for the year 80,809 80,809 78,818 78,818
Balance at 31 December 486,623 - 486,623 405,814 - 405,814

Net book value
Balance at 31 December 845,599 315,360 1,160,959 810,432 315,360 1,125,792
37
CAPITRON BANK LLC

14. PROPERTY, PLANT AND EQUIPMENTS-NET
Furniture Computers & Construction

Buildings Vehicles Equipments Total
& Fixture equipments in progress
Cost
Balance at 01 January 2014 4,445,880 748,807 217,791 444,823 992,603 698,019 7,547,923
Acquisitions 271,643 61,900 22,693 40,584 221,926 - 618,746

Reclassified - - (20,420) 3,986 16,436 - 2
Disposal - (54,672) - - - - (54,672)
Written-offs - - (27,194) (15,749) (144,980) - (187,923)
Balance at 31 December 2014 4,717,523 756,035 192,870 473,644 1,085,985 698,019 7,924,076
Acquisitions 9,582,312 46,831 27,659 7,108 170,298 - 9,834,208

Transferred to investments (1,150,000) - - - - (698,019) (1,848,019)
Written-offs - (2,178) (27,906) (25,452) (148,267) - (203,803)
Balance at 31 December 2015 13,149,835 800,688 192,623 455,300 1,108,016 - 15,706,462
38
CAPITRON BANK LLC

14. PROPERTY, PLANT AND EQUIPMENTS-NET (continued)
Computers
Furniture Construction
Buildings Vehicles Equipments & Total
& Fixture in progress
equipments
Accumulated depreciation
Balance at 01 January 2014 829,486 290,525 122,885 286,487 696,556 - 2,225,939
Charge for the year 113,977 69,965 3,917 34,996 192,996 - 415,851
Disposal - (54,672) - - - - (54,672)
Written-offs - - (22,439) (14,213) (144,961) - (181,613)
Balance at 31 December 2014 943,463 305,818 104,363 307,270 744,591 - 2,405,505
Charge for the year 178,416 63,156 16,905 28,241 211,486 - 498,204
Transferred of investments (227,604) - - - - - (227,604)
Written-offs - (2,178) (20,476) (23,173) (146,843) - (192,670)
Balance at 31 December 2015 894,275 366,796 100,792 312,338 809,234 - 2,483,435
Net book value

Balance at 01 January 2014 3,616,394 458,282 94,906 158,336 296,047 698,019 5,321,984
Balance at 31 December 2014 3,774,060 450,217 88,507 166,374 341,394 698,019 5,518,571
Balance at 31 December 2015 12,255,560 433,892 91,831 142,962 298,782 - 13,223,027
39
CAPITRON BANK LLC

15. SHARE CAPITAL

The share capital of “Capitron Bank” LLC comprises of 37,800 ordinary shares at par value of
MNT1,000,000 each as at 31 December 2015.
For 2015 For 2014

Amount Number of Amount Number of
MNT’000 shares MNT’000 shares
Outstanding shares at 01 January 20,500,548 20500 16,000,548 16000

Shares issued 17,300,000 17300 4,500,000 4500
Treasury Stock (7,815,548) (7815) - -
Outstanding shares at 31 December 29,985,000 29985 20,500,548 20500
The ownership of Bank’s total issued shares:
At 31 Dec 2015 At 31 Dec 2014

Shareholder Number of ordinary Number of ordinary
Shares % Shares %
Erdenebayar.D 16785 44.40% 12685 61.88%
Munkhsaikhan.P - - 3796 18.52%
Medree.B - - 4019 19.60%
Munkhsaikhan.D 6700 17.72% - -
Bat-erdene.D 6500 17.20% - -
Capitron Bank LLC (treasury stock) 7815 20.68% - -
37800 100.00% 20500 100.00%
The Bank has reacquired its own 7815 shares (20.68 percent of total issued shares) in accordance
with agreements “Share purchase agreement”, “Agreement to sign over”, “Settlement agreement”
signed with shareholders, Munkhsaikhan. P, Medree. B on 26 November 2015.
16. RETAINED EARNINGS/(LOSSES)

Only the retained earnings presented in the Bank’s financial statements can be allocated to the
shareholders as a dividend in accordance with Mongolian Laws. The Bank had retained losses of
MNT14,826,914 thousand for the year ended 31 December 2015 (in 2014: MNT1,961,255 thousand).
40
CAPITRON BANK LLC

17. CURRENT ACCOUNTS FROM CUSTOMERS

At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
State entities 1,662,644 631,066
Private sector 8,030,625 10,219,773
Foreign residents and non-residents 1,175 1,192
Financial institutions 82,578 137,431
Individuals 2,988,064 2,316,824
State treasury and local treasury institutions 10,822,466 13,448,870
Other 200,321 993,919
23,787,873 27,749,075
18. CUSTOMER SAVINGS FROM CUSTOMERS
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Time deposits - MNT 57,302,114 44,270,324
Time deposits - foreign currency 26,019,881 20,459,609
Demand deposits - MNT 4,842,665 8,347,943
Demand deposits – foreign currency 3,073,195 4,943,880
91,237,855 78,021,756
19. DUE TO OTHER BANKS AND FINANCIAL INSTITUTIONS
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Due to other commercial banks 8,987,940 17,000,000
Securities sold on repo agreement - 2,262,223
8,987,940 19,262,223
41
CAPITRON BANK LLC

20. OTHER FUNDS
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Other funds from Savings Insurance Corporation (a) 9,900,131 -
Other funds as deposit (b) 541,058 807,395
Borrowed funds under projects (c) 25,473,473 33,116,884
35,914,662 33,924,279
(a) Other funds from Savings Insurance Corporation:
It indicates loan funds placed at the Central Bank from the Savings Insurance Corporation to
participate in the trading of securities in accordance with the agreement No.08 made between
Capitron Bank LLC and Savings Insurance Corporation on 28 September 2015.
(b) Other funds as placed as deposit:
It represents the balance of funds placed in the Bank by customers who received covered
guarantee, escrow account as of reporting date.
(c) Borrowed funds under projects
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Funds from JICA 14,476,476 17,514,421
Funds from Supporting SME Project 6,653,005 10,949,304
Funds from Government 888 project 4,343,992 4,653,159
25,473,473 33,116,884
Funds under projects by currency:
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Funds under projects (MNT) 21,647,893 26,891,258

Funds under projects (USD) 3,825,580 6,225,626
25,473,473 33,116,884
42
CAPITRON BANK LLC

20. OTHER FUNDS (continued)

At 31 Dec At 31 Dec
2015 2014
Projects MNT’000 MNT’000
Funds from TSL project for SME development and
(i) 14,476,476 17,514,421
Environmental protection
Funds from SME development fund for the development
(ii) 6,622,125 10,895,647
of SMEs
Funds from project leather production (iii) 30,880 53,657
Funds from project to support export and substituting
(iv) 4,343,992 4,653,159
imported products
25,473,473 33,116,884
(i) Loan fund for Small and Medium Enterprise Development and Environmental Protection
According to the Agreement between the Covernment of Mongolia and Japan Bank for International
Cooperation and in connection with the “Small and Medium Enterprise Development and
Environmental Protection” project, the Ministry of Finance and Capitron Bank concluded “On-
lending credit agreement” in September 8, 2006 in order to utilize certain amounts of MON-P7 loan
of the Japan Bank for International Cooperation.
Sub loan shall be granted to SME borrowers for the purpose of financing projects to develop Small
and Medium enterprices and to protect the environment, such as decreasing air pollution, replacing
or renovating coal oven, coal refining. Sub loan shall be amounting between USD 10,000 to USD
600,000 and interest rate shall be agreed by the appendix of the contract.
Interest shall be accrued for the loan balance and interest rate shall be reconsidered every 6
months. Sub loan maturity shall be 3 – 10 years and maximum grace period is i) for 3 years maturity
loan (up to 1 year) ii) for 4 – 7 maturity loan (up to 2 years) iii) for 8-10 years maturity loan (up to 3
years) respectively.
43
CAPITRON BANK LLC

(ii) Small and Medium Enterprises Development Fund
The loan agreement No.11/63 was entered between the Ministry of Food, Agriculture and Light
Industry and Capitron Bank LLC on 02 June 2011 for the purpose of implementation of “Directions to
develop the local manufacturing” and ”Program for Development of Industrial sector in Mongolia”
approved by the Government of Mongolia.
The purpose of this agreement is to create the financing mechanism for manufacturing and services
based on the opportunities and resources to develop SMEs in local areas, to enhance the suitable
and favourable financial environment with the involvement of government organizations and to
cooperate on appropriate disbursement of accumulated in special-purpose fund in order to enhance
the maximum economic growth, to increase employment in provinces and to improve the living
standards.
The amount of sub-loan to individual borrower should be equivalent to amount approved by the
project selection commission and the sub-loan bear the interest at the rate of 8 percent per annum
and the term of sub-loan should be up to 5 years. No commission is charged on sub-loan and the
maximum grace period is 1 year.
The amendment No.11/88 to the agreement between Ministry of Food, Agriculture and Light
Industry and Capitron Bank LLC was made in July 2011, to revise interest rate to be 7 percent p.a.
and minimum grace period to be 1 year instead of maximum grace period 1 year.
(iii) Loan funds to purchase leather for deep-processing, to produce finished goods, and for
upgrading equipments
The loan agreement No.3 ASH-S 2015-84 between Development Bank of Mongolia and Capitron bank
on 02 November 2015 in order to promote purchase of leather for deep-processing, to produce
finished goods, and for upgrading equipments on Mongolian territory in accordance with Resolution
No.74 of Mongolian Parliament in 2012. The loan to be provided by the Bank is for a period of up to
5 years and annual interest rate of 5 percent. Sub loan shall credited for up to 5 years with 7
percent per annum maximum.
44
CAPITRON BANK LLC


(iv) Small and Medium Enterprises Development Fund (SME Fund) to promote export or
substituting imported products
According to the Government of Mongolia resolution No. 239 in 2013 and resolution No. 176 in 2014,
the Trilateral loan agreement No.3 – JD-S-2014-112 between Development Bank of Mongolia, SME
Fund and Capitron Bank were signed on 26 August 2014 to finance projects to promote export and
substitute import with domestic products from funds raised by trading Government securities.
The sub-loan provided by Capitron Bank LLC must up to MNT 2 billion, bearing an interest rate at 5
percent per annum, for a period up to 5 years.
The loan agreement No. Z-J-S-2014-102 between Capitron Bank LLC and Development Bank of
Mongolia was signed on 24 July 2014 to finance projects up to MNT 2 billion to promote export,
substitute import with domestic products and small and medium-sized enterprise in accordance with
resolution No. 239 in 2013 and resolution No. 176 in 2014 of Mongolian Government. The loan will
be funded by proceeds from Government bonds, Bonds of Development Bank of Mongolia and credit
line of Development bank in Export-import bank. Loan shall be credited for a term of up to 5 years
with interest of 9 percent per annum maximum and sub loan’s maturity shall be up to 5 years.
21. OTHER FINANCIAL LIABILITIES

At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Accrued interest payable (current) 462 -
Accrued interest payable (savings) 3,442,906 2,787,340
Accrued interest payable (other) 74,527 359,659
Interbank payable 32,633 1,301
Trade payables 235,723 295,480
3,786,251 3,443,780
22. OTHER NON-FINANCIAL LIABILITIES

At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Withholding tax payable – savings interest 18,734 25,654
Money transfer payable 30 30
Other payables 161,915 310,061
180,679 335,745
45
CAPITRON BANK LLC

23. INTEREST AND SIMILAR INCOME

For 2015 For 2014
MNT’000 MNT’000
Interest income-Loan 18,218,940 17,773,734

Interest income-Securities 929,255 875,812
Interest income-Other 954,235 262,617
20,102,430 18,912,163
24. INTEREST AND SIMILAR EXPENSES

For 2015 For 2014
MNT’000 MNT’000
Interest expenses-Current accounts (1,520,231) (2,489,785)

Interest expenses-Savings (12,688,899) (9,831,381)
Interest expenses-Loan (115,593) (467,432)
Interest expenses-Other (1,111,100) (1,095,714)
(15,435,823) (13,884,312)
25. FEES AND COMMISSION INCOME
For 2015 For 2014

MNT’000 MNT’000
Card services revenue 123,047 89,132
Account service fees and commissions 58,188 62,975
Other services revenue 997,173 1,120,745
1,178,408 1,272,852
26. INCOME /(EXPENSE) FROM CURRENCY EXCHANGE
For 2015 For 2014

MNT’000 MNT’000
Income from currency exchange 505,246 675,116
Income from trade of securities - 131,889
Expense from currency exchange (193,417) (221,590)
Expense from trade of securities (115,284) (7,001)
196,545 578,414
46
CAPITRON BANK LLC

27. GAIN/ (LOSS) ON FOREIGN CURRENCY EXCHANGE
For 2015 For 2014

MNT’000 MNT’000
Gain on foreign currency exchange 86,933,964 84,901,390

Loss on foreign currency exchange (86,984,762) (84,851,095)
Fair value gain or loss on securities 2,287,462 -
2,236,664 50,295
28. EMPLOYEE RELATED EXPENSES

For 2015 For 2014
MNT’000 MNT’000
Employee salary (4,117,508) (3,408,917)
Remuneration and other benefit to employees - -
Bonus to employees - -
Social welfare to employees (31,788) (22,153)
Social insurance expenses (457,180) (379,069)
Training expenses (34,858) (19,810)
Other expenses (11,526) (11,667)
(4,652,860) (3,841,616)
29. GENERAL AND ADMINISTRATIVE EXPENSES

For 2015 For 2014
MNT’000 MNT’000
Rental expenses (914,791) (860,200)
Depreciation and amortization (579,012) (494,868)
Communications (341,060) (313,612)
Insurance (336,241) (771,097)
Bank service expenses (194,356) (151,051)
Security and guarding expenses (179,058) (154,238)
Marketing and advertising expenses (163,908) (252,546)
Maintenance (142,450) (169,593)
Stationary (132,930) (101,158)
Transportation and fuel (126,994) (147,402)
Cleaning (94,348) (91,250)
Utilities (83,331) (70,952)
Maintenance to automatization (81,209) (80,178)
Safety and securities (61,365) (57,645)
Business trip (58,201) (49,477)
Other expenses (143,808) (278,716)
(3,633,062) (4,043,983)
47
CAPITRON BANK LLC

30. OTHER INCOME, (EXPENSES)

For 2015 For 2014
MNT’000 MNT’000
Rental income 14,820 -
Dividend income 43,322 -
Repayment of off-balance receivables 7,656,612 120,324
Other income 530,408 296,922
8,245,162 417,246
Impairment for foreclosed properties (662,154) (728,094)

Bad debt provision (800,976) -
Entertainment expenses – guests, clients (36,988) (21,572)
Entertainment – local (56,236) (90,501)
Donations - (1,175)
Penalties - -
Other non-operating expenses (564) (1,023)
(1,556,918) (842,365)
6,688,244 (425,119)
31. OTHER GAINS, (LOSSES)
For 2015 For 2014

MNT’000 MNT’000
Gain on sales of properties 210,870 75,046

Loss on sales of properties (232,681) (65,307)
(21,811) 9,739
32. PROVISION/(RECOVERY) FOR LOAN IMPAIRMENT

Provisions for loan impairment represent the amount of contingent impairment losses of recovering
overdue and substandard loans.
For 2015 For 2014

MNT’000 MNT’000
Provision for loan losses (9,635,313) (552,084)
(9,635,313) (552,084)
48
CAPITRON BANK LLC

33. INCOME TAX EXPENSES
The Company is taxable under the Law of Mongolia on Taxes and has an obligation to pay corporate
income taxes on the basis of its income and expenses adjusted for items that are not assessable or
deductible for income tax purposes. The income tax rates for profits of the company are 10% for the
first MNT3 billions of taxable income, and 25% on the excess of taxable income over MNT3 billion.
The calculation of corporate income tax expenses for the year ended 31 December 2015 is as
follows:
For 2015 For 2014

MNT’000 MNT’000
Adjustment for effective tax rate:
Profit /(loss) before tax (2,976,578) (1,923,651)
Tax at income tax rate of 25 percent (2014: 25%) - -

Tax effect of tax rate above 10 percent (2014: 10%) on the
- -
portion of taxable income up to MNT3 billion
Tax effect of non-deductible expenses - -
Effect of tax fee income - -
Tax effect of tax loss bought forward - -
Taxation of income from foreign countries - -
Corporate income tax expense - -
Tax at special rate (4,332) (26,180)

Deferred tax (assets)/benefits 389,635 133,954
Income tax (expenses)/ benefits 385,303 107,774
49
CAPITRON BANK LLC

34. CONTINGENT LIABILITIES AND COMMITMENTS
To meet the financial needs of customers, the Bank enters into various irrevocable commitments
and contingent liabilities. Even though these obligations may not be recognised on the statement of
financial position, they do contain credit risk and are therefore part of the overall risk of the Bank.
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Financial guarantees 59,417 78,169
Tender guarantees 147,472 72,934
Performance guarantees 318,169 612,167
525,059 763,270
Documentary credits and guarantees (including standby letters of credit) commit the Bank to make
payments on behalf of customers in the event of a specific act, generally related to the import or
export of goods. Guarantees and standby letters of credit carry the same risk as loans even though
they are of a contingent nature. No material losses are anticipated as a result of these transactions.
35. RELATED PARTIES
For the purposes of these financial statements, parties are considered to be related as defined by
Article 3.1.2 of Mongolian law on Banking. In considering each possible related party relationship,
attention is directed to the economic substance of the relationship, not merely the legal form.
In the normal course of business the Bank enters into transactions with its major shareholders,
directors and other related parties. These transactions include settlements, issuance of loans,
deposit taking, guarantees, trade finance and foreign currency transactions. According to the Bank’s
policy the terms of related party transactions are equivalent to those that prevail in arm’s length
transactions.
50
CAPITRON BANK LLC

35. RELATED PARTIES (continue)
The outstanding balances of transactions with related parties at the year-end of 2015 and 2014 are
shown in the following table:
At 31 Dec At 31 Dec
Due from /(due to) related parties
2015 2014
MNT’000 MNT’000
Amount due from related parties 2,733,155 370,630
Amount due to related parties (13,683,828) (6,951,096)
Significant transactions entered between related parties are as follows:
For 2015 For 2014

MNT’000 MNT’000
Loan credited to related parties 2,733,155 370,630
Other transactions 21,315,000 8,185
Key management (executive director, CFO and COO) compensation is presented below:
For 2015 For 2014

Expense Expense
MNT’000 MNT’000
- Salary 166,000 112,305

- Social and health insurance 18,260 12,354
Total 184,261 124,658
Members of Board of Directors compensation is presented below:
For 2015 For 2014

Expense Expense
MNT’000 MNT’000
- Salary 75,155 72,000

- Social and health insurance 8,267 7,920
Total 83,422 79,920
51
CAPITRON BANK LLC

36. RISK MANAGEMENT

The risk management function within the Bank is carried out in respect of financial risks (credit,
market, currency, liquidity and interest rate), operational and legal risks. The primary objectives of
the financial risk management function are to establish risk limits, and then ensure that exposure to
risks stays within these limits. The assessment of exposure to risks also serves as a basis for optimal
distribution of risk-adjusted capital, transaction pricing and business performance assessment. The
operational and legal risk management functions are intended to ensure proper functioning of
internal policies and procedures to minimise operational and legal risks.
a. Credit risk
The Bank takes on exposure to credit risk which is the risk that counterparty will be unable to pay
amounts in full when due. The Bank controls the credit risk it undertakes by placing limits on the
amount of risk accepted in relation to one borrower, or group of related borrowers. Such risks are
monitored by the Bank on a regular basis, the limits being subject to a monthly or quarterly review.
Limits on the level of credit risk by product, borrowers and industry segments are approved by the
Credit Committee.
The amount of loans and similar assets granted to one borrower and his/her related parties, and the
amount of loans and similar assets granted to related parties and employees of the Bank are set and
monitored by the Central Bank of Mongolia.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and principal repayment obligations and by changing these lending limits
where appropriate. Exposure to credit risk is also managed by obtaining property and securities
collateral and corporate and personal guarantees. The Bank’s maximum exposure to credit risk is
primarily reflected in the carrying amount of financial assets in the statement of financial position.
The impact of possible netting of assets and liabilities to reduce potential credit exposure is not
significant.
Credit risk for off-balance sheet financial instruments is defined as the possibility of sustaining a
loss as a result of another party to a financial instrument failing to perform in accordance with the
terms of the contract. The Bank uses the same credit policies for contingent liabilities as it does for
on-balance sheet financial instruments through established transaction approvals, risk control limits
and monitoring procedures.
The Bank performs the loan maturity analysis and subsequent monitoring of overdue balances.
The Bank is exposed to early redemption risk as a result of lending at fixed or variable interest
rates, including mortgage loans that give the borrower the right of early redemption. The financial
result and the Bank’s equity for the current year and at the end of the reporting period would not
greatly depend on the rate fluctuations in case of early redemption because such loans are carried
at amortised cost whereas the amount to be early redeemed corresponds or nearly corresponds to
the amortised cost of loans to customers.
52
CAPITRON BANK LLC

36. RISK MANAGEMENT (continued)
b. Market risk
The Bank takes on exposure to market risk arising from open positions in interest rate, currency and
equity instruments, all of which are exposed to general and specific market movements. The Asset
and Liability committee sets acceptable risk limits and monitors them on a daily basis. However, the
use of this approach does not prevent losses beyond these limits in the event of more significant
market movements.
The objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimising the return on the risk accepted.
c. Currency risk
The Bank has an independent unit responsible for handling risk management issues. This unit
generated a system that estimates the losses arising from market risks on daily basis in accordance
with mathematical and statistical special models and report it to the management.
Legal documents and limitations on foreign currency risk management
Foreign currency risk arises when the Bank incurs losses from the fluctuations of exchange rate
between tugrugs and foreign currencies. The Bank's Risk Management Department's main
responsibility is to signal, determine, monitor, limit, and reduce the contingent loss arising from
foreign currency exchange risk. Risk Management Department had generated a system that
undertakes step-by-step measures within the scope of these responsibilities and report it to the
management.
As per Central Banks’s requirement, the currency position of each currency shall not be exceeded
15 percent and total currency position shall not be exceeded 40 percent of own equity respectively.
The Bank’s total currency position was 13.31 percent of own equity by reporting date.
Objectives and limitations of the VaR Methodology
Contingent losses of the changes in bank's exchange rate is estimated using the "Maximum risk
approach" in accordance with the "Regulation for setting and monitoring the prudential ratios of
banking operations" of Bank of Mongolia and the model is chosen as a result of backtesting using the
comparison of EGARCH model suitable for the bank's range of open position and feature with Delta
Normal, Moving Average, Monte Carlo simulation, and Historical simulation. Even though positions
may change throughout the day, the VaR only represents the risk of the portfolios at the close of
each business day, and it does not account for any losses that may occur beyond the 99% confidence
level.
Moreover, VaR estimates the ineffective movement changes of bank's foreign currency portfolio
with certain scope of period and certain probability in order to determine the financial risk of the
bank.
To determine the reliability of the VaR models, actual outcomes are monitored regularly to backtest
the validity of the assumptions and the parameters used in the VaR calculation. In other words, the
difference between EGARCH model's VaR estimation and reality is backtested, categorized, and
monitored in accordance with the appendix 12 of "Regulation for determining the indicator of
appropriate ratio of Banking operations, and its Control".
Foreign currency risk positions are also subject to regular stress tests to ensure that the Bank would
withstand an extreme market event. In particular, when stress conditions occur, contingent loss is
calculated using the "Extreme market event" in order to prevent exchange risk.
53
CAPITRON BANK LLC

c. Currency risk (continued)

VaR assumptions
The VaR that the Bank measures is an estimate, using a confidence level of 99%, of the potential
loss that is not expected to be exceeded if the current foreign currency open positions were to be
held unchanged for one day. The use of a 99% confidence level means that, within a one-day
horizon, losses exceeding the VaR figure should occur, on average, not more than once every
hundred days.
Since VaR is an integral part of the Bank’s foreign currency risk management, VaR limits have been
established for all foreign currency open positions and exposures are reviewed daily against the
limits by management.
The results estimated using the VAR methodology of the Bank is as follows:
Historical Simulation
MNT’000
2015 – 31st December 10,142
2015 – Daily average 4,370
2015 – Highest 22,533
2015 – Lowest 123
2014 – 31st December 10,464
2014 – Daily average 10,614
2014 – Highest 59,651
2014 – Lowest 334
54
CAPITRON BANK LLC

d. Liquidity risk
Liquidity risk is defined as the risk of failure to repay or execute the financial assets and liabilities
after the maturity period. The Bank is exposed to risk via daily calls from customers on its available
cash resources from customer accounts, maturing deposits, loan draw-downs and guarantees.
The Bank is interested in collecting stable funds such as assets due to other banks, savings and loans
of legal entities and individuals. Moreover, the Bank invests in diversified asset portfolios for the
purpose of paying non-estimated demand of payments quickly and without any difficulties.
As the part of its main function to reduce liquidity risks Capitron Bank prepares risk conclusion and
recommendations based on margin and risk analysis, assessment and researches the report on risk
assessment and recommendations based on the analyses, assessment and surveys required for
interest rate risk management, monitors the implementation of strategic liquidity limits, reports to
Asset and Liability Management Committee and takes appropriate measures and creates the suitable
risk management system.
The Bank assesses the liquidity risk in compliance with recommendations and guidelines of the Bank
of Mongolia and International organizations, sets and monitors the quantitative limits by calculating
the weighted average maturities difference of assets and liabilities (duration time bucket analysis),
liquidity sensitivity GAP analysis, and dynamic analysis on forecasting cash inflows and outflows.
To manage its liquidity, the Bank is required to analyse the level of liquid assets needed to settle
the liabilities on their maturity by providing access to various sources of financing, drawing up plans
to solve the problems with financing and exercising control over compliance of the liquidity ratios
with the laws and regulations.
The Bank calculates liquidity ratios on a daily basis in accordance with the requirements of the Bank
of Mongolia. The ratio during the year was as follows:
For 2015 For 2014
31st December 37.88% 20.80%

Yearly average 24.42% 22.92%
Highest 39.05% 28.92%
Lowest 15.78% 16.81%
55
CAPITRON BANK LLC


d. Liquidity (continued)
The table below shows the liabilities as at 31 December 2014 and 2015 by their remaining
contractual maturity. Foreign currency payments are translated using the Central Bank of Mongolia
exchange rates effective at the end of the reporting period.
The table below shows the maturity analysis of financial instruments as at 31 December 2015:
Less than Three months Over one

Total
three months to one year year
MNT’000 MNT’000 MNT’000 MNT’000
Assets
Cash on hand 4,787,772 - - 4,787,772
Mandatory cash balances with the Bank
24,345,713 - - 24,345,713
of Mongolia
Due from other bank, and financial
10,252,330 - - 10,252,330
institutions
Central Bank securities 9,900,131 - - 9,900,131
Loans to banks and financial institutions - - - -
Other loans 6,551,880 21,882,820 60,755,724 89,190,424
Assets on operational lease - - - -
Bonds and other securities 998,514 4,683,865 17,279,390 22,961,769
Other Assets * 20,444,215 - - 20,444,215
TOTAL FINANCIAL ASSETS 77,280,555 26,566,685 78,035,114 181,882,354
Liabilities
Due to Bank of Mongolia - - - -
Due to other banks, and financial
8,987,940 - - 8,987,940
institutions
Current accounts 23,787,873 - - 23,787,873
Savings 30,847,137 48,377,061 12,013,657 91,237,855
Promissory notes, and securities issued
- - - -
by the Bank
Other payables * 39,881,592 - - 39,881,592
TOTAL FINANCIAL LIABILITIES 103,504,542 48,377,061 12,013,657 163,895,260
Net financial assets /(financial
(26,223,987) (21,810,376) 66,021,457 17,987,094
liabilities)
The cash inflow and outflow of assets and liabilities and maturities coordination is considered as
important part of the Bank’s risk management. The Bank management undertakes weighted average
maturity analysis that weighs the discounted future value on the basis of cash inflows and outflows.
The Central Bank requires commercial banks to keep its quick ratios at 25 percent minimum and
Bank’s quick ratio was 35.54 percent as of reporting date.
56
CAPITRON BANK LLC

e. Interest rate risk

The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest
rates on its financial positions and cash flows. Interest margins may increase as a result of such
changes but may decrease or create losses in the event of unexpected movements in interest rates.
The Bank is exposed to interest rate risk, principally as a result of lending at fixed interest rates, in
amounts and for periods, which differ from those of term borrowings at fixed interest rates.
Capitron Bank, for undertaking the reduction of interest rate risks, prepares the report on risk
assessment and recommendations based on the analyses, assessment and survey on margin of
interest rate risk management and monitor the implementation of interest rate risk strategically
restrictions. The reports are discussed at Asset and Liability Management Committee to control over
the implementation of recommendations.
As the part of its main function to reduce interest rate risks Capitron Bank prepares risk conclusion
and recommendations based on margin and risk analysis, assessment and researches the report on
risk assessment and recommendations based on the analyses, assessment and surveys required for
interest rate risk management, monitors the implementation of strategic interest rate limits,
reports to Asset and Liability Management Committee and takes appropriate measures and creates
the suitable risk management system.
In order to evaluate and estimate the interest risk in accordance with recommendations of the Bank
of Mongolia and Basel requirements, the Bank regularly performs the assessment, analysis and
researches on the identification of interest rate sensitive assets and liabilities, interest GAP
analysis, cash inflows and outflows forecasts, interest sensitivity scenario analysis, weighted
average interest rate and margin sensitivity analysis, and the duration time bucket analysis.
Results of interest sensitivity scenario analysis are summarized below:
Sensitivity of net
At 31 December 2015 Change in basis points
interest income
percent, (%)
Total loan interest income Loan interest rate decreases by 1 unit percentage -21.19%
Total funds interest expenses Total interest rate increases by 1 unit percentage -37.89%
Current account interest
expenses
Current accounts interest rate increases by 1 unit % -12.02%
Savings account interest expenses Savings interest rate increases by 1 unit percentage -21.05%
At 31 December 2014
Total loan interest income Loan interest rate increases by 1 unit percentage -20.35%
Total funds interest expenses Total interest rate decreases by 1 unit percentage -34.39%
Current account interest
expenses
Current accounts interest rate decreases by 1 unit % -18.21%
Savings account interest expenses Savings interest rate decreases by 1 unit percentage -16.27%
Based on the interest rate sensitivity scenario analysis, when interest income rate is unchanged for
the reporting period, after 1% increase in interest rate for current accounts, considered as the
volatile source of funding, the net interest income is expected to fall for 12.02%. However, the
analysis shows that in case of 1% increase of interest rate for total liabilities, the net interest
income declines by 21.5% respectively.
57
CAPITRON BANK LLC

f. Capital adequacy
The Bank pursues the following objectives in its capital management: to strictly follow the capital
adequacy requirements established by the Central Bank of Mongolia, to maintain the Bank’s
activities on going concern basis. However the Bank’s risk weighted capital ratio was 6.18% in July
2015 at minimum (in June: 7.07%, in August: 6.38%) which resulted breach of requirements set by
Central Bank to keep this ratio at 12% minimum. The ratio was 15.12 percent as of reporting date.
The control over compliance with the capital adequacy ratio set by the Central Bank of Mongolia is
exercised daily on the basis of estimated and actual data as well as on the basis of monthly reports
that contain corresponding calculations that are controlled by the management of the Bank and
Chief Financial Officer.
The Bank is keen on maintaining the necessary capital level in order to preserve the confidence of
creditors, investors and the market as a whole as well as to develop the future activities of the
Bank. In accordance with the current capital requirements and prudential ratios set by the Central
Bank of Mongolia, the banks should maintain the ratio of capital to risk weighted assets (capital
adequacy ratio) above the prescribed minimum level.
The table below shows the regulatory capital structure based on the Bank’s reports prepared in
accordance with the requirements of the Mongolian legislation:
At 31 Dec At 31 Dec
2015 2014
Tier 1 Capital to risk weighted asset ratio 12.74% 13.74%

Total capital to risk weighted asset ratio 15.12% 15.84%
At 31 Dec At 31 Dec
2015 2014
MNT’000 MNT’000
Tier I Capital
Ordinary shares 37,800,548 20,500,548
Treasury stock (7,815,548) -
Retained earnings (14,826,914) (1,961,255)
Total Tier I Capital 15,158,086 18,539,293
Tier II Capital 2,829,006 2,829,006
Total capital/capital base 17,987,092 21,368,299
58
CAPITRON BANK LLC

f. Capital adequacy (continued)

The breakdown of risk-weighted assets into the various categories of risk weights as at 31 December
was as follows:
At 31 Dec 2015 At 31 Dec 2014

Assets Assets
Risk weighted Risk weighted
Risk rate /On and off /On and off
assets assets
balance/ balance /
MNT’000 MNT’000 MNT’000 MNT’000
0% 52,311,695 - 42,130,136 -
20% 1,990,657 398,131 305,450 61,090
50% 12,723,683 6,361,841 16,012,474 8,006,237
70% 26,961,167 18,872,817 40,202,812 28,141,968
100% 85,272,639 85,272,639 83,995,073 83,995,073
120% 1,608,821 1,930,585 - -
150% 1,013,690 1,520,535 1,459,215 2,188,822
181,882,352 114,356,549 184,105,158 122,393,190
37. COMPARATIVE FIGURES

Certain corresponding figures have been reclassified to conform to the current year’s presentation.
38. SUBSEQUENTS EVENTS
There were no significant events which have material effect on the financial statements, occurred
between the end of the reporting year and date when financial statements are authorized for issue.
39. TRANSLATION OF REPORT

These financial statements are also prepared in the Mongolian language. In the event of
discrepancies or contradictions between the English version and the Mongolian version, the
Mongolian version will prevail.
59

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CAPITRON BANK

Limited Liability Company

Statement of Management responsibilities 4

Independent Auditor’s Report 5

Statement of Financial Position 8

Statement of Profit or Loss and Other

Statement of Changes in Equity 10

Statement of Cash Flows 11

Notes to the financial statements 13

Shareholders Erdenebayar D. 44.38%

Board of the Directors Ganbold G. Chairman of the Board

Address CAPITRON BANK LLC

Auditor BDO AUDIT LLC

TO THE SHAREHOLDERS OF CAPITRON BANK LLC

Report on Financial Statements

Management Responsibility for the Financial Statements

STATEMENT OF FINANCIAL POSITION

TOTAL ASSETS 181,882,353 184,105,158

Total liabilities 163,895,260 162,736,858

STATEMENT OF PROFIT OR LOSS AND

For 2015 For 2014

Interest income 23 20,102,430 18,912,163

Total comprehensive income for the year - 614,569

STATEMENT OF CHANGES IN EQUITY

MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000

Balance at 31 December 2014 20,500,548 - 2,828,280 727 - (1,961,255) 21,368,300

Changes in share capital 17,300,000 17,300,000

Balance at 31 December 2015 37,800,548 (7,815,548) 2,828,280 727 - (14,826,914) 17,987,093

STATEMENT OF CASH FLOWS

For 2015 For 2014

STATEMENT OF CASH FLOWS

For 2015 For 2014

Total cash inflows (outflows) from investing activities (26,976,193) 12,241,051

Net increase /(decrease) in cash and cash equivalents (8,259,277) (4,865,946)

NOTES TO THE FINANCIAL STATEMENTS

The Bank’s principal activities are as follows:

NOTES TO THE FINANCIAL STATEMENTS (continued)

2. OPERATING ENVIRONMENT OF THE BANK

2.3 Currency transactions

Date USD EUR

At 31 December 2015 1,995.98 2,182.70

NOTES TO THE FINANCIAL STATEMENTS (continued)

3.2 Functional and presentation currency

3.3 Estimates and assumptions

3.4 Going concern

NOTES TO THE FINANCIAL STATEMENTS (continued)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4.1 Cash and cash equivalents

4.2 Mandatory cash balances with the Central Bank of Mongolia

4.3 Financial assets

The Bank classifies its financial assets in the following categories:

(i) Initial recognition of financial assets

(ii) Fair value measurement

NOTES TO THE FINANCIAL STATEMENTS (continued)

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(iii) Amortised cost of financial instruments

(iv) Derecognition of financial assets