2016 Audited Financial Report

CAPITRON BANK
Limited Liability Company
FINANCIAL STATEMENTS
for the year ended 31 December 2016
together with Auditor’s report
Content
Page No.
Corporate Information 3-4
Statement of Management Responsibility 5
Independent Auditor’s Report 6-11
Financial Statements
Statement of Financial Position 12
Comprehensive Income Statement 13
Statement of Comprehensive Income Statement 14
Statement of Cash Flow 15-16
Notes to Financial Statements

Reporting Entity 17
Preparation Basis 18
Summary of Significant Accounting Policies 19-33
New Standards, Amendments and Interpretations not Yet
34-37
Effective
Financial Statement Disclosures 38-59
Risk Management 60-67
Additional Disclosures of Financial Statements 67
2
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 D.Erdenebayar 41.96%

D.Munkhsaikhan 41.79%
D.Bat-Erdene 16.25%
The Board of T.Ganbold Chairman

Directors D.Narankhuu Member of the board of directors
G.Munkhbileg Member of the board of directors
G.Ganchimeg Member of the board of directors
Independent member of the board of
Ts.Darkhanbaatar
directors
Chief Executive Officers

L.Ariunaa Chief Executive Officer
Ch.Enkhbat First Deputy Chief Executive
B.Uurtsaihbaatar Deputy Chief Executive Officer
3
CAPITRON BANK LLC
Corporate Information (continued)
Executive Management
Team Head of financial management and
B.Altankhuyag
monitoring division
Kh.Gerelmaa Head of administration division
B.Erdenetsetseg Head of risk management division
D.Zorigt Head of corporate banking division
J.Munkh-Itgelt Head of retail banking division
B.Bat-Enkh Head of treasury division
Head of business development
M.Battulga
department
Address CAPITRON BANK LLC

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

Room 1502, Level 15
Union Building-B
UNESCO Street, Narnii Zam-62
Sukhbaatar-1
Ulaanbaatar, Mongolia
4
Statement of Management’s Responsibilities
for the preparation and approval of financial statements
The following statement, which should be read in conjunction with the independent auditor’s opinion
stated in the independent auditor’s report is made with a view to distinguish the respective
responsibilities of the management of Capitron Bank LLC (the “Bank”) and those of the independent
auditor in relation to the Bank’s financial statements for the year ended 31 December 2016.
The management of Capitron Bank are responsible for the preparation of the financial statements in
accordance with International Financial Reporting Standards (“IFRS”). We acknowledge our
responsibilities mentioned above and we confirm that we have prepared these financial statements
fairly in accordance with IFRS and the accounting law, regulations and guidelines that are effect in
Mongolia.
In preparing these financial statements, the Directors are responsible for:

 Selecting suitable accounting principles and applying them consistently;
 Making judgments and estimates that are reasonable and prudent;
 Stating whether rules and guidelines issued by the Bank of Mongolia have been followed,
subject to any material departures disclosed and explained in the financial statements;
 Preparing the financial statements on a going concern basis, unless it is inappropriate to
presume that the Bank will continue in business for the foreseeable future.
The Directors is also responsible for:

 Designing, implementing and maintaining an effective and sound system of internal controls
throughout the Bank;
 Maintaining statutory accounting records in compliance with legislation and accounting
guidelines issued by the Central Bank of Mongolia and Ministry of Finance of Mongolia;
 Taking such steps as are reasonably available to them to safeguard the assets of the Bank;
and;
 Detecting and preventing fraud and other irregularities.
On behalf of the Bank’s management, the financial statements for the year ended 31 December 2016
were authorised for issue on 31 March 2017.
5
INDEPENDENT AUDITOR’S REPORT
To Shareholders of “Capitron Bank” LLC
Report on Financial Statements
Auditor’s opinion
We have audited the accompanying financial In our opinion, the accompanying financial
statements of “Capitron Bank” LLC, which comprise: statements present fairly, in all material
 the statement of financial position as at respects, the financial position of “Capitron
December 31, 2016; Bank” LLC as at 31 December 2016, and its
financial performance and its cash flows for
 the statement of profit or losses and other the year then ended in accordance with
comprehensive income, statement of the
International Financial Reporting Standards
changes in equity and cash flow statement
(IFRS).
for the year then ended; and
 a summary of significant accounting policies
and other explanatory information.
Basis for opinion

We have conducted our audit in accordance with International Standards on Auditing (ISA). Our
responsibility under those standards is noted in the Auditor’s Responsibility. We are independent
complying with Code of Ethics for Professional Accountants and Interpretations (CEPAI) issued by
International Ethic Standard Board for Accountants (IESBA) and ethic requirements of financial
statement that required to fulfil in Mongolia, and fulfilled our responsibility under CEPAI and those
ethic requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
6
INDEPENDENT AUDITOR’S REPORT (continued)
Key Audit Matters
A commercial bank as a public interest entity conducts its business in regulated market and is
required to comply with the Low on Commercial Bank and the regulations and guidelines approved
by the Central Bank of Mongolia. In accordance with the resolution No.A35/20 on Approval of a new
set of accounting material jointly issued by the President of the Central Bank of Mongolia and the
Minister of Finance dated 06 February 2015, the accounting guidelines for commercial banks are
approved and adopted commencing from 01 January 2016. As the new accounting guidelines are
effective, the following matters are considered as key audit matters:
Loan impairment provision:

The provision for impairment loss of loans to customers is considered to be a matter of most
significance as it requires the application of judgment and use of subjective assumptions by
management. The Bank estimates and provides the provision of credit loss (impairment loss) on
monthly basis in compliance with the regulation on “Classification of assets, provisioning for loss
risk of assets and use of provision” approved by the joint resolution of the President of the Central
Bank of Mongolia and the Minister of Finance and the Bank carries out the qualitative assessment
of loans at the end of the year. Estimation of loan impairment loss is based on the various analysis
of factors and assumptions, including borrowers’ creditworthiness, expected future cash flows,
market factors and valuation of collateral.
For the purpose of estimating the loan impairment loss in accordance with IFRS (IAS 39), all loans
and advances are classified into 2 main groups:
 loans under specific individual assessment
 loans under collective assessment
Audit response:
We have tested the operating effectiveness of key controls over and system relating to calculation
impairment for individual and collective assessment of loans. For individual assessment of loans we
also reviewed on a sample basis the calculation of expected cash flow and valuation of collateral
used at the end of the year. For collective assessment of loans we tested the reasonableness and
reliability of key inputs used in calculation of impairment.
Moreover, we have assessed operating effectiveness of key controls over and system relating to
respective disclosures to the financial statements.
Reliability of data processing

The bank is highly depended on process and infrastructure of information technology due to its
business features. In the scope of our audit procedures, we tested and assessed the security
audited security and safety of information technology and the general control over major processes.
Audit response:
We tested the reliability of data generating process and security and safety of information
technology.
7
Other information
Management has an obligation on other information. Other information is comprised from annual
reports but financial statement and our report are not included.
Our opinion expressed on the financial statements is separate from other information so that we
cannot provide any assurance on other information.
Our responsibility related to other information is to read other information thus considering
whether its impact on the financial statement derives other material misstatements and can have
an impact on our knowledge.
If we conclude those other information contain material misstatements based on our work
performed, it is required to report this actual situation. During the audit, we did not found the
situation.
Management and Governance Responsibility for The Financial

Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with the International Financial Reporting Standards (“IFRS”). These responsibilities
include implementing and maintaining an 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, choosing and using an appropriate accounting policies and making
accounting estimates that are appropriate for the circumstances.
Management is responsible for taking a consideration on ongoing concern and evaluating the
company’s capability from the ongoing perspective, if necessary, disclosing notes to the ongoing
concern and using the ongoing concern basis in accounting unless there is no potential option to
avoid liquidation or planning to discontinue the company’s main activity.
A governing body of the company is responsible for controlling financial statement preparation
process.
8
Auditor’s Responsibility for The Financial Statements
Our assignment is to obtain reasonable assurance about whether the financial statements are free
from material misstatement and express our opinion on a financial statement by issuing an auditor’s
report. Although reasonable assurance is a high degree assurance, it is not guaranteed that we
always detect existing material misstatements by our audit engagement in accordance to ISA.
Material misstatement can be arisen from fraud and error and it is considered as material if it, in
individually or aggregated, present in the financial statements then the financial statements may
affect the economic decisions of the users of financial statements.
Detailed information of auditor’s responsibility for the financial statements is stated in the
Appendix. This detail information is an integrated part of the auditor’s report.
9
ADDITIONAL REPORT OF INDEPENDENT AUDITORS
Report on compliance with regulatory requirements

We have audited the accompanying financial statements of "Capitron Bank" LLC (the "Bank"), which
comprise of the statement of financial position as at 31 December 2016 and the statement of profit
or loss and comprehensive income, statement of changes in equity and statement of cash flows for
the year then ended, and other explanatory notes to the financial statements and a summary of
significant accounting policies, and issued our report.
We have performed audit procedures to identify any instances of non-compliance with other
regulations approved by Bank of Mongolia in the course of our auditing of financial statements. We
have not found any evidence of non-compliance with those requirements.
10
APPENDIX OF INDEPENDENT AUDITOR’S REPORT
Management and Governance Responsibility for The Financial Statements
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
 Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control.
 Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
 Conclude on the appropriateness of management’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
11
CAPITRON BANK LLC
STATEMENT OF FINANCIAL POSITION

as at 31 December 2016
At 31 Dec At 31 Dec
Notes
2016 2015
MNT’000 MNT’000
ASSETS
Cash on hand, current and savings account in the 6
151,895,581 31,713,869
Central Bank of Mongolia
Mandatory reserves at Bank of Mongolia 7 29,149,821 18,928,497
Financial investment (net) 8 10,089,599 22,060,250
Loans and advances to customers (net) 9 173,861,315 93,076,235
Other financial assets (net) 10 17,564,423 5,939,465
Other non-financial assets (net) 11 5,540,526 4,946,746
Intangible Assets (net) 12 1,438,981 1,160,959
Property, plant and equipment (net) 13 21,723,432 13,288,296
TOTAL ASSETS 411,263,678 191,114,317
LIABILITIES AND EQUITY

Liabilities
Current accounts from customers 14 95,285,084 23,705,757
Savings accounts from customers 15 183,339,207 100,409,676
Due to other banks and financial institutions 16 56,884,170 9,343,838
Other funds 17 41,060,720 35,922,051
Other financial liabilities 18 2,678,520 268,386
Other non-financial liabilities 19 141,954 335,255
Total liabilities 379,389,655 169,984,963

Equity
Share capital 20 40,000,000 37,800,548
Treasury stock - (7,815,548)
Revaluation reserve 2,828,280 2,828,280
Social development fund 727 727
Retained earnings 21 (10,954,984) (11,684,653)
Total equity 31,874,023 21,129,354

TOTAL LIABILITIES AND EQUITY 411,263,678 191,114,317
The notes set on pages 17-67 form an integral part of these financial statements.
12
CAPITRON BANK LLC
STATEMENT OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME
For 2016 For 2015

Notes MNT’000 MNT’000
Interest income 22 27,684,122 21,444,270

Interest expenses 23 (20,542,288) (15,435,823)
Net interest income 7,141,834 6,008,447
Fees and commission income 24 912,847 984,052
Income (cost) of currency exchange 25 1,220,821 196,545
Gain (loss) on currency exchange 26 1,547,268 2,236,664
Non-operating income 27 3,985,598 8,271,732
Employee related costs 28 (5,712,987) (4,618,002)
Other operating income 29 (4,418,529) (3,346,929)
Non-operating expenses 30 (583,062) (269,047)
Profit before loan impairment 4,093,790 9,463,462
Loan impairment (loss), recovery 31 (3,359,041) (11,375,476)

Profit /(loss) before tax 734,749 (1,912,014)
Income tax (expense), benefit 32 (5,080) 1,348,114
Net profit 729,669 (563,900)
13
CAPITRON BANK LLC
STATEMENT OF CHANGES IN EQUITY

Social
Treasury Revaluation Retained
Share capital development Total
Stock reserve earnings
fund
MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000
Balance at 01 January 2015 20,500,548 - 2,828,280 727 (846,368) 22,483,187
Changes in share capital 17,300,000 - - - - 17,300,000

Net profit (loss) for the year - - - - (563,900) (563,900)
Loss on purchasing treasury stock - (7,815,548) - - (10,274,385) (18,089,932)
Balance at 31 December 2015 37,800,548 (7,815,548) 2,828,280 727 (11,684,653) 21,129,354
Changes in share capital 2,199,452 - - - - 2,199,452

Net profit (loss) for the year - - - - 729,669 729,669
Treasury stock - 7,815,548 - - - 7,815,548
Balance at 31 December 2016 40,000,000 - 2,828,280 727 (10,954,984) 31,874,022
14
CAPITRON BANK LLC
STATEMENT OF CASH FLOWS

For 2016 For 2015

MNT’000 MNT’000
CASH FLOWS FROM OPERATING ACTIVITIES

Profit /(loss) before taxation 734,749 (1,912,014)
Adjustments for:
Depreciation and amortization 565,164 513,743
Bad debt expense (recovery) 19,760 800,976
Loss on selling property, plant and equipment (6,080) 11,134
Credit risk fund expenses (recover) (2,483,823) 9,796,466
Reconciliation of other owner occupied assets (recover) (1,658,690) 662,154
Non-monetary investment income - (379,585)
Dividend through shares - (38,990)
Deferred tax loss (gain) - 1,352,446
Reconciliation of fair value of financial assets (42,124) (2,287,462)
Operating profit before changes in operating assets and

(2,871,044) 8,518,868
liabilities
Mandatory reserves at Bank of Mongolia (10,186,556) (1,472,619)

Changes in investment- Commercial securities 972,605 (2,861,964)
Changes in investment- Held for maturity (66,200) (43,500)
Changes in investment- Investment in Associate 11,093,430 (3,220,415)
Loan and advances (76,387,698) 20,147,582
Other financial assets (11,644,719) (5,476,503)
Other non-financial assets 1,064,910 (2,018,862)
Current account 71,579,327 (3,905,887)
Savings account with no time limit 3,905,077 989,649
Savings account with a time limit 76,293,566 20,477,062
Current and savings in other banks and financial institutions 10,586,589 (3,382,428)
Liabilities to other banks and financial institutions 36,909,406 (7,000,000)
Other funds 5,084,270 (271,840)
Other financial liabilities 2,402,634 (28,396)
Other non-financial liabilities (193,300) 220,479
Net changes in operating assets and liabilities 121,413,341 12,152,358
118,542,297 20,671,226
Income taxes paid (5,080) (4,332)
Interest income (27,684,122) (21,444,270)
Interest received 25,748,736 20,594,259
Interest expenses 20,542,288 15,435,823
Interest paid (17,712,665) (15,375,451)
889,157 (793,971)
Net cash generated from (used in) operating activities 119,431,454 19,877,255
15
CAPITRON BANK LLC
STATEMENT OF CASH FLOWS

For 2016 For 2015

MNT’000 MNT’000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (9,275,742) (9,950,184)

Sales of property, plant and equipment 11,000 -
Total cash inflows (outflows) from investing activities (9,264,742) (9,950,184)
CASH FLOWS FROM FINANCING ACTIVITIES
Share capital issued 10,015,000 17,300,000

Treasury Stock - (18,089,932)
Total cash flows from financing activities 10,015,000 (789,932)
Net increase /(decrease) in cash and cash equivalents 120,181,712 9,137,139

Cash on hand, current and savings account in the Central
31,713,869 22,576,730
Bank of Mongolia at the beginning of year
Cash on hand, current and savings account in the Central
151,895,581 31,713,869
Bank of Mongolia at the end of year
16
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
As of 31 December 2016, the Bank is structured through 8 divisions including Internal Audit Division,
Risk Management Division, Administration Division, Treasury Division, Financial Management and
Monitoring Division, Operations Division, Corporate Banking Division, Retail Banking Division and along
with 7 departments including Business Development Department, E-banking Department, Settlement
Department, Information Technology Department, Special Assets Department, Security and Safety
Department, Property Management and Service Department. The Bank is providing its service through
36 branch units (of which 17 branches, 13 settlement centers and 6 retail cash units) in Mongolia.
The Bank had a total of 401 employees (in 2015: 353 employees) as of 31 December 2016.
17
CAPITRON BANK LLC
NOTES TO THE FINANCIAL STATEMENTS (continued)

2. BASIS OF PREPARATION
2.1 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.
The 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.
2.2 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.
2.3 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.
2.4 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.
18
CAPITRON BANK LLC

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies were adopted in preparation of these financial
statements of the Bank:
3.1 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.
3.2 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.
3.3 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.
19
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.
20
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. Unrealized 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.
21
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.
22
CAPITRON BANK LLC

3.4 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.
3.5 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.
3.6 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.
23
CAPITRON BANK LLC

3.7 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.
3.8 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.
24
CAPITRON BANK LLC


3.9 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.
25
CAPITRON BANK LLC


3.10 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.
26
CAPITRON BANK LLC

3.11 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.
3.12 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.
3.13 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.
27
CAPITRON BANK LLC

3.14 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.
3.15 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.
28
CAPITRON BANK LLC

3.16 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.
3.17 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.
3.18 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.
29
CAPITRON BANK LLC


3.19 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.
3.20 Share premium
Share premium represents the excess of contributions over the nominal value of the shares issued.
3.21 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.
3.22 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.
3.23 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.
30
CAPITRON BANK LLC


3.24 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.
3.25 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 .
3.26 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.
31
CAPITRON BANK LLC

3.27 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.
32
CAPITRON BANK LLC

3.28 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.
33
CAPITRON BANK LLC

5. NEW STANDARDS, INTERPRETATIONS AND AMENDMENTS NOT YET EFFECTIVE

a) New standards, interpretations, and amendments effective for annual periods beginning
on or after 1 January 2016
The following new standards, amendments and interpretations, which have not been applied
in these financial statements, that will or may have an effect on the Company’s future financial
statements are:
New IFRSs for 31 December 2016 year ends-

IFRS Effective date
IFRSs, IFRICs and Amendments
Amendments to IFRS 10 (i) The amendments clarify that so long as the Mandotory adoption
Consolidated Financial entity’s ultimate (or intermediate) parent for periods begining
Statements, IFRS 12 produces financial statements that are in on or after 1 January
Disclosure of Interests in compliance with IFRS 10 (including an 2016. Early adoption
Other Entities and IAS 28 investment entity that accounts for its permitted.
Investment in Associates interests in all of its subsidiaries at fair value
and Joint ventures rather than consolidating them), the
exemption is available to the intermediate
parent entity from presenting its own
consolidated financial statements.
(ii) The amendments clarify that an investment
entity parent consolidates a subsidiary only
when
- The subsidiary is not itself an
investment entity
- The subsidiary’s main purpose is to
provide services that relate to the
investment entity’s investment
activities
(iii) The amendments clarify that an investment
entity that prepares financial statements in
which all of its subsidiaries are measured at
fair value through profit or loss is required
to present the disclosures to investment
entities as required by IFRS12
(iv) The amendments clarify that for an entity
that is not itself an investment entity but
has an interest in an associate or joint
venture that is an investment entity, the
non-investment entity may, when applying
the equity method, retain the fair value
measurement applied by the investment
entity associate or joint venture to account
for its own interests in its subsidiaries.
Amendments to IFRS 11 The amendments require an entity to apply all Mandotory adoption
Joint Arrangements of the principles of IFRS 3 Business for periods begining
Combinations when it acquires an interest in a on or after 1 January
joint operation that constitutes a business as 2016. Early adoption
defined by IFRS 3. permitted.
The amendments also include two new
illustrative examples.
34
CAPITRON BANK LLC


(continued)

IFRS Effective date
IFRS 14 regulatory Mandotory adoption
Deferral Accounts The scope of IFRS 14 is narrow, with this for periods begining
extending to cover only those enitites that: on or after 1 January
- Are first time adopters of IFRS 2016. Early adoption
- Conduct rate regulated activities permitted.
- Recognize associated assets and/or
liabilities in accordance with their
current national GAAP.
Entities within the scope of IFRS 14 would be
afforded an option to apply their previous local
GAAP accounting policies for the recognition,
measurement and impairment of assets and
liabilities arising from rate regulation, which
would be termed regulatory deferral account
balances. Any regulatory deferral account
balances, and their associated effect on profit
or loss, would be recognised and presented
separately from other items in the primary
financial statements.
Amendments to IAS 1 Disclosure Initiative Mandotory adoption
Presentation of Financial The amendments made to IAS 1 include: for periods begining
Statements - Materiality on or after 1 January
- Line items in primary financial 2016. Early adoption
statements permitted.
- Notes to the financial statements
- Accounting policies
In addition, the following amendments to IAS
1were made which arose from a submission
received by the IFRS Interpretations
Committee:
- Equity accounted investments
Amendments to IAS 16 Clarification of Acceptable Methods of Mandotory adoption
Property, Plant and Depreciation and Amortization for periods begining
Equipment and IAS 38 IAS 16 has been amended to prohibit use of on or after 1 January
Intangible Assets revenue- based methods of depreciation for 2016. Early adoption
items of property, plant and equipment. permitted.
IAS 38 has been amended to incorporate a

rebuttable presumption that amortization
based on revenue is not appropriate. The
presumption can be rebutted if either:
- The intangible asset is expressed as
measure of revenue; or
- Revenue and the consumption of the
economic benefits of the intangible
assets are highly correlated.
35
CAPITRON BANK LLC


(continued)

IFRS Effective date
Amendments to IAS 16 Agriculture: Bearer Plants Mandotory adoption
Property, Plant and The amendments extend the scope of IAS 16 to for periods begining
Equipment and IAS 41 include bearer plants and define a bearer plant on or after 1 January
Agriculture as a living plant that: 2016. Early adoption
- Is used in the production process of permitted.
agricultural produce
- Is expected to bear produce for more
than one period; and
- Has a remote likelihood of being sold
The changes made result in bearer plants being
accounted for in accordance with IAS 16 using
either:
- Cost model, or
- The revaluation model
Bearer plants are no longer within the scope of
IAS41. However, the agricultural produce of
bearer plants remains within the scope of IAS
41. The amendments include the following
transitional reliefs for the purposes of first
time application:
- Deemed cost exemption
- Disclosures
Amendments to IAS 27 Equity Method in Separate Financial Mandotory adoption
Separate Financial Statements for periods begining
Statements The amendments include the introduction of an on or after 1 January
option for an entity to account for its 2016. Early adoption
investments in subsidiaries, joint ventures, and permitted.
associates using the equity method in its EU endorsement
separate financial statements. The accounting status: endorsed on
approach that is selected is required to be 18 December 2015.
applied for each category of investment.
A consequential amendment was also made to
IAS 28 Investment in Associates and Joint
Ventures, to avoid a potential conflict with
IFRS 10 Consolidated Financial Statements for
partial sell downs
IFRS 5 Non-current assets Changes in methods of disposal Mandotory adoption
Held for Sale and The amendment clarifies that the for periods begining
Discontinued Operations reclassification of an asset or disposal group on or after 1 January
(amended as part of from being held for sale to being held for 2016. Early adoption
Annual Improvements to distribution to owners, or vice versa is permitted.
IFRSs 2012-2014 cycle) considered to be a continuation of the original EU endorsement
plan of disposal. status: endorsed on
15 December 2015.
36
CAPITRON BANK LLC


(continued)

IFRS Effective date
IFRS 7 Financial The amendments to IFRS 7 dealt with two
instruments: Disclosures aspects: servicing of contracts and the Mandotory adoption
(amended as part of applicability in interim financial statements of for periods begining
Annual Improvements to the offsetting amendments made to IFRS 7 in on or after 1 January
IFRSs 2012-2014 cycle) December 2011. 2016. Early adoption
(i) Servicing contracts permitted.
The IASB clarified the circumstances in which EU endorsement
an entity has continuing involvement from the status: endorsed on
servicing of a transferred asset. 15 December 2015.
The amendment is required to be applied
retrospectively in accordance with IAS 8.
However, the amendment does not need to be
applied for any period beginning before the
annual period in which the entity first applies
the amendments.
(ii) Applicability of offsetting in condensed
interim financial statements
A further amendment to IFRS 7 has clarified
that the application of the amendment
Offsetting Financial Assets and Financial
Liabilities issued in December 2011 is not
explicitly required for all interim periods.
IAS 19 Employee benefits Discount rate-regional market issue Mandotory adoption

(amended as part of The guidance in IAS 19 has been clarified and for periods begining
Annual Improvements to requires that high quality corporate bonds used on or after 1 January
IFRSs 2012-2014 Cycle) to determine the discount rate for the 2016. Early adoption
accounting of employee benefits need to be permitted.
denominated in the same currency as the EU endorsement
related benefits that will be paid to the status: endorsed on
employee. 15 December 2015.
Amendments to IAS 34 Disclosure of information ‘elsewhere in the Mandotory adoption
Interim Financial interim financial report’ for periods begining
Reporting on or after 1 January
IAS 34 requires certain disclosures to be
presented in the notes to the interim financial 2016. Early adoption
report, unless they are presented elsewhere in permitted.
the interim financial report (such as a front end EU endorsement
management report).
status: endorsed on
If the disclosures are presented ‘elsewhere’ in 15 December 2015.
the interim financial report, such as in the
management commentary or the risk report of
an entity, a cross reference must be made from
the notes to the interim financial statements
to where the disclosures have been made.
37
CAPITRON BANK LLC


(continued)
b) New standards, interpretations, and amendments effective for annual periods beginning
on or after 1 January 2017
New accounting and

IFRS Effective date
pronouncements
IFRS 9 (2014) IFRS 9 Financial Instruments (2014) is the standard that Mandatory
replaces IAS 39 Financial Instruments: Recognition and adoption for
Issued: July 2014 Measurement. It incorporates the final requirements periods beginning
on all three phases of the financial instruments project on or after 1
– classification and measurement, impairment and January 2018.
hedge accounting. Early adoption
The Classification of financial assets are as follows: permitted.
 Amortised cost;
 Fair value through Other Comprehensive
Income –FVTOCI
 Fair value through Profit or Loss- FVTPL
(residual caterogry) and
 Fair Value through Other Comprehensive
Income –FVTOCI (optional for some
investments in equity instruments).
The classification of financial liabilities are as follows:
 Amortised cost
 Fair value through Profit or Loss
IFRS 15 IFRS 15 Revenue from Contracts with Customers Mandatory
supersedes IAS 18 Revenue, IAS 11 Construction adoption for
Issued: May 2014 Contracts and related interpretations (IFRIC 13 periods beginning
Customer Loyalty Programmes, IFRIC 15 Agreements on or after 1
for the Construction of Real Estate, IFRIC 18 Transfers January 2018.
of Assets from Customers and SIC 31 Revenue – Barter Early adoption
Transactions Involving Advertising Services). permitted.
The objective of this standard is that an entity
recognise revenue to depict the transfer of promised
goods or services to customers in an amount that
reflects the consideration to which the entity expects
to be entitled in exchange for those goods or service.
The standard requires the application of the following
five steps:
1. Identify the contract
2. Identify the performance obligation(s)
3. Determine the transaction price
4. Allocate the transaction price to each
performance obligation
5. Recognise revenue when each performance
obligation is satisfied.
38
CAPITRON BANK LLC


(continued)
b) New standards, interpretations, and amendments effective for annual periods beginning on or
after 1 January 2017
New accounting and

IFRS Effective date
pronouncements
IFRS 15 In September 2015, the IASB issued an amendment to Mandatory
Amendments IFRS 15 to defer its effective date by one year to 1 adoption for
January 2018. Further, in April 2016, the IASB issued periods beginning
Issued: April 2016 the following clarifications to the standard: on or after 1
-Identification of performance obligations January 2018.
-Principal vs agent considerations Early adoption
-Licensing agreements permitted.
-Transitional relief
IFRS 16 IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining Mandatory

whether an Arrangement contains a Lease, SIC-15 adoption for
Issued: January Operating Leases – Incentives and SIC-27 Evaluating the periods beginning
2016 Substance of the Transactions Involving the Legal form on or after 1
of Lease. January 2019.
The major changes are lessees, with IFRS 16 setting out Early adoption
a single model for which eliminates the distinction permitted, but
between operating and finance leases, and results in only if IFRS 15 has
the statement of financial position reflecting a ‘right also been adopted.
of use’ asset and a corresponding liability for most
lease contracts.
These amendments aim to improve disclosures about
an entity’s debt. Disclosures are required to enable
users of financial statement to evaluate changes in
liabilities arising from financing activities, including
both changes arising from cash flows and non- cash Mandatory
changes. The reconciliation would include: adoption for
 Opening balance periods beginning
Amendment to IAS
 Movements in the period including: on or after 1
7- Disclosure
- Changes from financing cash flows January 2017.
Initiative
- Changes arising from obtaining or losing Early adoption
control of subsidiaries or other permitted
businesses,
- Other non-cash exchanges (e.g changes in
foreign exchange rates, new finance
leases and change in fair value),
 Closing balance.
Amendment to IAS The amendment to IAS 12 clarifies the accounting for Mandatory
12 deferred tax assets related to debt instruments adoption for
measured at fair value but are not deemed to be periods beginning
Issued: January impaired. Deductible temporary differences arise on or after 1
2016 from unrealized losses on debt instruments measured January 2017.
at fair value. Early adoption
permitted
39
CAPITRON BANK LLC


(continued)
b) New standards, interpretations, and amendments effective for annual periods beginning on or
after 1 January 2017
New accounting and

IFRS Effective date
pronouncements
Amendment to IAS 28 permits an investment in an associate or joint Mandatory adoption
AS 28 venture to be measured at fair value through profit or for periods
loss, instead of the equity method being applied, if the beginning on or
Issued: December investment is held directly or indirectly through a after 1 January
2016 venture capital organization, unit trust or similar 2018. Early
entities. adoption permitted
Amendment to This amendment clarifies that a transfer of a property Mandatory adoption

IAS 40 to, or from, investment property is made when, and only for periods
when, there is change in use. It also clarifies that the beginning on or
Issued: December transfers included in IAS 40.57 are examples of evidence after 1 January
2016 that may support a change in use and not the only 2018. Early
possible circumstances in which there is a change in use. adoption permitted
IFRS 1 A number of short-term exemptions in IFRS 1 First Time Mandatory adoption

Amendment to IFRS Adoption of International Financial Reporting Standards for periods
were deleted. The relief provided by these exemptions beginning on or
Issued: December were no longer applicable. after 1 January
2016 2018. Early
adoption
permitted.
IFRS 2 These amendments address the classification and Mandatory adoption
Amendment to measurement of share-based payment transactions for a for periods
IFRS 2 number of situations where existing guidance is not beginning on or
clear. after 1 January
Issued: June 2016 2018. Early
adoption
permitted.
40
CAPITRON BANK LLC


(continued)
New accounting and

IFRS Effective date
pronouncements
Amendment to The amendment permits either the deferral of the Mandatory adoption
IFRS 4 adoption of IFRS 9 for entities whose predominant for periods
activity is issuing insurance contracts or an approach beginning on or
Issued: September which moves the additional volatility created by having after 1 January
2016 non-aligned effective dates from profit or loss to other 2018. Early
comprehensive income. adoption
permitted.
Amendments to The amendments clarify the accounting for transactions Mandatory effective
IFRS 10 and IAS 28 where a parent loses control of a subsidiary, that does date deferred
not constitute a business as defined in IFRS 3 Business indefinitely.
Issued: September Combinations, by selling all or part of its interest in that
2014 subsidiary to an associate or a joint venture that is
accounted for using the equity method.
Amendment to The scope of IFRS 12 was clarified to make it clear that Mandatory adoption
IFRS 12 the disclosure requirements in this Standard, except for for periods
those paragraphs B10 – B16, apply to interests beginning on or
Issued: December irrespective of whether they are classified as held for after 1 January
2016 sale, as held for distribution to owners or as 2017. Early
discontinued operations in accordance with IFRS 5. adoption
permitted.
41
CAPITRON BANK LLC

6. CASH AND CASH EQUIVALENTS
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Cash at hand 11,699,132 4,787,772

Cash at bank and financial institutes (up to 3 months) 102,746,536 15,669,545
Cash equivalents 37,019,313 10,900,131
Accrued interest receivable at cash 430,600 356,421
151,895,581 31,713,869
7. MANDOTARY 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 21
December 2016 and 3 January 2017 was MNT 21,473,880 thousand (2015: MNT 14,398,173.09
thousand) for local currency and MNT14,868,812 thousand (2015: MNT4,530,324.24 thousand) for
foreign currency both maintained on current accounts with the Bank of Mongolia.
8. FINANCIAL INVESTMENT
A. Securities with fair value through trading or profit
and loss
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Debt securities
Government securities (within 3-6 months) 1,000,000 -
Government securities (within 3-12 months) 4,000,000 5,000,000
Government securities (within 1-5 years) 1,500,000 2,500,000
Unamortized premium/ (discount) on securities (283,664) (311,059)
Accrued interest receivable on government securities 69,036 84,031
6,285,372 7,272,972
Equity securities
Financial institute 2,569,576 2,527,452
2,569,576 2,527,452
Total 8,854,948 9,800,424
42
CAPITRON BANK LLC

8. FINANCIAL INVESTMENT (CONTINUED)
A. Securities with fair value through trading or profit and loss (continued)
Investment portfolio changes in securities with fair value through trading or profit and loss (debt
securities) for the ending year of 31 December 2015 and 2016 are as follow:
2016 2015
MNT’000 MNT’000
Book value at 1 January 7,500,000 2,700,000

Unamortized premium/ (discount) (311,059) 6,562
Accrued interest receivables 84,031 92,359
Fair value at 1 January 7,272,972 2,798,921
Added 180,580,618 5,000,000

Written off (181,580,618) (200,000)
Book value at 31 December 6,500,000 7,500,000

Unamortized premium/ (discount) (283,664) (311,059)
Accrued interest receivables 69,036 84,031
Fair value at 31 December 6,285,372 7,272,972
Investment portfolio changes in securities with fair value through trading or profit and loss (equity
securities) for the ending year of 31 December 2015 and 2016 are as follow:
2016 2015
MNT’000 MNT’000
Listed in stock exchange 239,990 201,000

Book value at 1 January 239,990 201,000
Fair value adjustment 2,287,462 -
Fair value at 1 January 2,527,452 201,000
Added:
Dividend through shares - 38,990
Total addition - 38,990
Written off:
Listed in stock exchange - -
Unlisted in stock exchange - -
Total written off - -
Book value at 31 December 2,527,452 239,990
Fair value adjustment 42,124 2,287,462
Fair value at 31 December 2,569,576 2,527,452
43
CAPITRON BANK LLC

B. Available for sale

At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Unlisted shares in stock exchange 62,946 62,946

Fair value adjustment - -
62,946 62,946
C. Held to maturity securities

At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Secured securities 1,155,200 1,089,000

Accrued interest receivable 16,504 14,450
1,171,704 1,103,450
Investment portfolio changes in held to maturity securities for the ending year of 31 December 2015
and 2016 are as follow:
2016 2015
MNT’000 MNT’000
Book value at 1 January 1,089,000 1,045,500

Interest receivable 14,450 12,677
Diluted cost at 1 January 1,103,450 1,058,177
Added 663,062 43,500

Written off (596,862) -
Book value at 31 December 1,155,200.00 1,089,000

Interest receivable 16,504 14,450
Diluted cost at 31 December 1,171,704 1,103,450
44
CAPITRON BANK LLC

D. Investment in associate, mutual controlled entity

and subsidiaries
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Investment in mutual controlled entity - 11,093,430
- 11,093,430
Investment portfolio changes in investment in mutual controlled entity for the ending year of 31
December 2015 and 2016 are as follow:
2016 2015
MNT’000 MNT’000
7,493,430
Book value at 1 January 11,093,430
Fair value adjustment -
Fair value at 1 January 11,093,430 7,493,430
Added 290,757 3,600,000

Written off 11,384,187 -
Book value at 31 December - 11,093,430

Fair value adjustment -
Fair value at 31 December - 11,093,430
9. LOAN AND ADVANCE TO CUSTOMER

Loan and loan valuation:
31 December 2016
Number Loan CRF Net loan
per MNT’000 MNT’000 MNT’000
Collective assessment 6356 177,121,422 (19,894,864) 157,226,558

Individual assessment 4 8,090,166 (1,736,926) 6,353,240
Total 6360 185,211,588 (21,631,790) 163,579,798
Deferred payment of loan (610,802)
Accrued interest receivable 10,892,319
Total net loan 173,861,315
45
CAPITRON BANK LLC

9. LOAN AND ADVANCES TO CUSTOMER (continued)

Loan and loan valuation (continued):
31 December 2015
Number Loan CRF Net loan
per MNT’000 MNT’000 MNT’000
Collective assessment 4,938 99,581,641 (16,758,174) 82,823,467

Individual assessment 6 8,631,447 (7,357,439) 1,274,008
Total 4,944 108,213,088 (24,115,613) 84,097,475
Accrued interest receivable 8,978,760
Total net loan 93,076,235
Credit risk fund:
Balance of loan portfolio of Capitron bank was MNT184 billion provided to 6360 borrowers at 31
December 2016. Capitron bank evaluate and estimate loan impairments on threshold of MNT1.5 billion
(MNT1 billion in 2015) under IFRS and rules approved by the Central Bank of Mongolia. 22.46% of total
balance of loan portfolio was loans more than MNT1.5 billion. 95.13% of credit loss provision
established under IFRS was on the basis of collective assessment of impairment and another risk fund
of 4.87% was on the basis of individual assessment of impairment.
46
CAPITRON BANK LLC

9. LOAN AND ADVANCES TO CUSTOMER (continued)

Economic sector concentrations within the Bank’s loan portfolio are as follows:
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
A. Agriculture, forestry, fishing, hunting 7,179,394 8,319,799

B. Mining & Exploration 12,314,523 3,224,487
C. Manufacturing 21,393,698 17,247,422
D. Electricity, gas, steam, ventilation supplies 3,439,646 3,501,428
E. Water supply, wastewater and solid waste management 228,557 176,232
F. Construction 18,246,042 14,748,142
G. Wholesale and retail trade; auto vehicles maintenance
22,770,737 13,299,811
services
H. Transportation and warehouse activities 6,619,165 2,585,762
I. Housing and meal providing services 6,762,833 2,338,382
J. Information and communications 148,667 182,857
K. Financial and insurance activities 80,240 291,217
L. Real estate activities 46,177,148 18,508,763
M. Professional, scientific and technical activities 64,800 34,656
N. Administrative and public activities - 74,240
O. Public management, Defense, mandatory social security 74,577 19,909
P. Education 5,469,889 411,157
Q. Healthcare and Social activities 2,919,873 1,746,044
R. Art, entertainment 434,072 447,723
S. Other services 7,962,308 4,031,811
T. Family business, family production for own use 22,500,079 16,623,813
U. Other (outstanding balance of credit card) 425,341 399,431
185,211,589 108,213,088
47
CAPITRON BANK LLC

10. OTHER FINANCIAL ASSETS
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Receivable from others-Entities 17,795,684 311,028

Receivable from others-Retail 120,340 25,487
Receivable from others-Domestic banks 800,688 800,417
Receivable from others-Other 37 5,935,098
18,716,749 7,072,030
Bad debt allowance (1,152,326) (1,132,565)
17,564,423 5,939,465
11. OTHER NON-FINANCIAL ASSETS
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Prepayments 1,138,781 1,009,322

Inventories, valuable items 266,595 188,802
Foreclosed properties 1,899,436 4,624,103
Foreclosed moveable properties 258,302 142,233
Other payment 1,338,365 1,929
Deferred tax assets 1,486,400 1,486,400
6,387,879 7,452,789
Foreclosed properties impairment (847,353) (2,506,043)
5,540,526 4,946,746
48
CAPITRON BANK LLC

12. INTAGIBLE ASSETS-NET
- 31 December 2016 31 December 2015

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 1 January 941,334 315,360 1,256,694 1,216,246 315,360 1,531,606
Acquisition 267,105 105,161 372,266 115,976 - 115,976

Disposal - - - - - -
Revaluation additional - - - - - -
Balance at 31 December 1,208,439 420,521 1,628,960 1,332,222 315,360 1,647,582
Accumulated depreciation
Balance at 1 January 95,736 - 95,736 405,814 - 405,814
Amortization for the period 94,243 - 94,243 80,809 - 80,809
Balance at 31 December 189,979 189,979 486,623 - 486,623
Net book value

Balance at 31 December 1,018,460 420,521 1,438,981 845,599 315,360 1,160,959
49
CAPITRON BANK LLC

13. PROPERTY, PLANT AND EQUIPMENT-NET
Fixed
Computers
Furniture Construction assets
Buildings Vehicles Equipment & Total
& Fixture in progress finance
equipment
(advance)
MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000
Cost
Balance at 1 January 2015 4,717,523 756,035 192,870 473,644 1,085,985 698,019 - 7,924,076
Acquisition 9,582,312 46,831 27,659 7,108 170,298 - - 9,834,208
Sale - - - - - - - -
Disposal (2,178) (27,906) (25,453) (148,267) - (203,804)
Transfer (1,150,000) - - - - (698,019) - (1,848,019)
Balance at 31 December 2015 13,149,835 800,688 192,623 455,299 1,108,016 - - 15,706,461
-
Acquisition 1,368,814 288,900 46,651 108,467 1,055,191 - 13,007,500 15,875,523
Capitalization 35,453 - - - - - - 35,453
Sale - - - - - - - -
Disposal (7,000,000) (37,269) (24,430) (10,876) (106,561) - - (7,179,136)
Revaluation surplus - - - - - - - -
Reclassification - - - - - - - -
Balance at 31 December 2016 7,554,102 1,052,319 214,844 552,890 2,056,646 - 13,007,500 24,438,301
50
CAPITRON BANK LLC

13. PROPERTY, PLANT AND EQUIPMENT-NET (continued)
Computers Fixed assets

Furniture Construction
Buildings Vehicles Equipment & finance Total
& Fixture in progress
equipment (advance)
MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000 MNT’000

Accumulated depreciation
Balance at 1 January 2015 943,463 305,818 104,363 307,270 744,591 - - 2,405,505
Charge for the year 113,146 63,156 16,905 28,241 211,485 432,933
Sale - - - - - - - -
Disposal - (2,178) (20,476) (23,173) (146,842) - - (192,669)
Reclassification (227,604) - - - - - - (227,604)
Balance at 31 December 2015 829,005 366,796 100,792 312,338 809,234 - - 2,418,165
Charge for the year 89,631 73,025 14,418 25,965 267,882 - - 470,921
Charge for the year 45,306 - - - - - - 45,306
Sale - - - - - - -
Disposal (45,306) (37,269) (21,819) (8,796) (106,332) - - (219,522)
Revaluation surplus - - - - - - - -
Reclassification - - - - - - - -
Balance at 31 December 2016 918,636 402,552 93,391 329,506 970,784 - - 2,714,869
-
Net book value -
Balance at 1 January 2015 3,774,060 450,217 88,507 166,374 341,394 698,019 - 5,518,571
Balance at 31 December 2015 12,320,830 433,892 91,831 142,961 298,783 - - 13,288,296
Balance at 31 December 2016 6,635,466 649,767 121,453 223,384 1,085,862 - 13,007,500 21,723,432
51
CAPITRON BANK LLC

14. CURRENT ACCOUNT FROM CUSTOMER

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Government organizations 79,008,380 12,485,110

Business entities 11,485,995 8,030,625
Retail 4,463,796 2,988,064
Other 326,913 201,496
Interest liabilities (current account) - 462
95,285,084 23,705,757
15. SAVING FROM CUSTOMER
At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Time deposit- MNT 93,123,381 57,140,333

Time deposit- Foreign currency 66,330,399 26,019,881
Demand deposit - MNT 11,438,600 10,768,134
Demand deposit – Foreign currency 6,289,789 3,063,177
Accrued interests payable 6,157,038 3,426,151
183,339,207 100,409,676
16. FUND FROM BANK AND FINANCIAL INSTITUTES

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Current account and savings from bank and financial

19,846,535 9,259,946
institutes
Loan from bank and financial institutes 36,909,405 -
Accrued interest payable in fund from bank and financial
128,230 83,892
institutes
56,884,170 9,343,838
52
CAPITRON BANK LLC

17. OTHER LIABILITIES

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Joint lending resources (a) 14,784,971 9,900,131

Securities acquired by repurchase condition (Repo) 2,998,770 -
Other funds as deposit (b) 786,550 541,058
Borrowings under projects (c) 22,428,642 25,473,473
Accumulated interest payable to other fund 61,787 7,389
41,060,720 35,922,051
(a) Joint lending funds from Savings Insurance Corporation:
It indicates amount deposited to 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 2016.
(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) Borrowings under projects

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Borrowings from JICA 15,163,001 14,476,476

Borrowings from supporting SME projects 2,860,256 6,653,005
Borrowings from Government 888 project 1,782,441 4,343,992
Borrowings from student loan 1,000,000 -
Other borrowings 1,622,944 -
22,428,642 25,473,473
Borrowings under projects by currencies:

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Borrowings under projects /MNT/ 19,654,663 21,647,893

Borrowings under projects /USD/ 2,773,979 3,825,580
22,428,642 25,473,473
53
CAPITRON BANK LLC

17. OTHER LIABILITIES (continued)

Funds under projects by project:
At 31 At 31
December December
2016 2015
Projects MNT’000 MNT’000
Funds from TSL project for SME development and

(i) 15,163,001 14,476,476
Environmental protection
Funds from SME development fund for the
(ii) 2,852,416 6,622,125
development of SMEs
Funds from project leather production (iii) 7,840 30,880
Funds from supporting export and substituting import
(iv) 1,782,441 4,343,992
project
Fund from student loan (v) 1,000,000 -
Fund from MIC (vi) 1,622,944 -
22,428,642 25,473,473
(i) Loan fund for Small and Medium Enterprise Development and Environmental Protection
According to the Agreement between the Government 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 enterprises 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.
54
CAPITRON BANK LLC

17. OTHER LIABILITIES (continued)

(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
favorable 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 equipment
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 equipment 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-loans shall be provided for up to 5 years with 7 percent
per annum as maximum.
(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 borrowing
bears the interest at the rate of 5 percent per annum and has a term of 5 years. The sub-loans being
on-lent by the Capitron Bank LLC must up to MNT 2 billion, bearing an interest rate at & percent per
annum, for a period up to 5 years.
(v) Fund from student development project
According to 5.4.13, 6.4.6, 16.4 article of "Law of Government Specific Fund", 9.3 article of “Law of
Higher Education Financing and Social Guarantee of Student” and Resolution No 111 of Government
at the date of 5 October 2016, the loan agreement No.6/003-1 was entered between Capitron Bank
and Education Loan Fund for implementing student development loan at 30 November 2016. Loan
fund consists of interest reducing loan, short-term loan and long-term loan and interest rate is 2 per
cent not depending on a type of loan. The interest of loan to student is 5 per cent annum.
55
CAPITRON BANK LLC

The maturity of interest reducing loan and short-term loan is not exceed from 12 months, while long-
term loan maturity shall be within 10 years.
17. OTHER LIABILITES (continued)
(vi) Other fund
General Agreement of Property Acquisition through Mortgage No.002, Mortgage Loan Acquisition
additional agreement No.002-05 based on Mortgage Loan Service Agreement UG-002 were entered
between Mongolia Mortgage Corporation LLC and Capitron Bank on 29 September 2011 and 17 June
2016 respectively. Direct intermediate interest rate to customer is 14.75%. Agreement term is up to
30 June 2019 and counterparties can agreed upon whether term will be extended.
18. OTHER FINANCIAL LIABILITES

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Payables to others 899,433 235,723

Inter-bank and inter-branch payables 1,779,087 32,663
2,678,520 268,386
19. OTHER NON-FINANCIAL LIABILITIES

At 31 At 31
December December
2016 2015
MNT’000 MNT’000
Other taxes and charges payable 43,585 173,340

Other non-financial liabilities 98,369 161,915
141,954 335,255
20. SHARE CAPITAL

The share capital of “Capitron Bank” LLC at 31 December 2016 comprises of 40,000 shares at MNT
1,000,000 per share. Percentage of each shareholder is presented as follow:
31 December 2016 31 December 2015

Shareholders Amount Amount
Number % Number %
D.Erdenebayar 16,785 41.96% 16,785 44.40%
D.Munkhsaikhan 16,715 41.79% 6,700 17.72%
D.Bat-Erdene 6,500 16.25% 6,500 17.20%
Capitron bank (treasury share) - - 7,815 20.68%
40,000 100.00% 37,800 100.00%
56
CAPITRON BANK LLC

21. RETAINIED 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
MNT10,954,984 thousand for the year ended 31 December 2016 (in 2015: MNT11,684,653 thousand).
22. INTEREST INCOME

2016 2015
MNT’000 MNT’000
Interest income- on deposits to banks and financial

1,668,989 954,234
institutions
Interest income- Securities 2,581,603 929,255
Interest income- Loan 23,433,530 19,560,781
27,684,122 21,444,270
23. INTEREST EXPENSES

2016 2015
MNT’000 MNT’000
Interest expense-Current account (1,142,606) (1,520,231)

Interest expense-Savings (17,388,765) (12,688,899)
Interest expense-Borrowings (619,140) (115,593)
Interest expense-other (1,391,777) (1,111,100)
(20,542,288) (15,435,823)
24. FEES AND COMMISSION INCOME/(EXPENSE)
2016 2015
MNT’000 MNT’000
Loan service fees and commission income 113,389 378,304

Account service fees and commissions 76,292 58,556
Card service commission income 251,681 65,249
Electron bank service commission income 88,019 68,062
Other service commission and fees 766,834 608,236
Card services fee (164,134) (95,467)
Other services revenue (219,234) (98,888)
912,847 984,052
57
CAPITRON BANK LLC

25. INCOME/(EXPENSE) FROM CURRENCY EXCHANGE
2016 2015
MNT’000 MNT’000
Income from currency exchange 2,587,861 505,246

Income from trade of securities 106,438 -
Expense on currency exchange (1,211,749) (193,417)
Expense on trade of securities (261,729) (115,284)
1,220,821 196,545
26. GAIN/(LOSS) ON FOREIGN CURRENCY EXCHANGE

2016 2015
MNT’000 MNT’000
Gain on foreign currency exchange 161,146,616 86,933,964

Gain on foreign currency exchange-Securities 42,124 2,287,462
Loss on foreign currency exchange (159,641,472) (86,984,762)
1,547,268 2,236,664
27. NON-OPERATING INCOME
2016 2015
MNT’000 MNT’000
Rental income from property, plant and equipment 5,700 14,820

Dividends 50,801 43,322
Income from off-balance payment 25,038 7,656,612
Gain from property, plant and equipment disposal 364,093 26,570
Other non-operating income 3,539,766 530,408
3,985,598 8,271,732
28. EMPLOYEE RELATED EXPENSES

2016 2015
MNT’000 MNT’000
Employee salary (5,038,477) (4,117,508)

Bonus to employees (56,551) -
Social welfare to employees (52,368) (31,788)
Social insurance expenses (558,789) (457,180)
Other expenses (6,802) (11,526)
58
CAPITRON BANK LLC

(5,712,987) (4,618,002)
29. OTHER OPERATING EXPENSES

2016 2015
MNT’000 MNT’000
Payment to loan and other payables (147,195) (45,175)

Professional service fee (544,101) (376,841)
Marketing and advertising expenses (314,288) (163,908)
Depreciation and amortization (565,164) (513,743)
Rental expenses (1,017,904) (914,791)
Utilities (134,047) (83,331)
Maintenance and Disposal expenses of property, plant
(386,949) (142,450)
and equipment
Software and automation expenses (81,484) (81,209)
Stationary (182,544) (132,930)
Safety and securities (210,489) (179,058)
Communications (401,981) (341,060)
Transportation and fuel (128,513) (126,994)
Cash collecting expenses (16,824) (6,548)
Business trip (96,986) (58,199)
Cleaning & sanitation (106,717) (94,348)
Other operating expenses (83,343) (86,344)
(4,418,529) (3,346,929)
30. NON-OPERATING EXPENSES
2016 2015
MNT’000 MNT’000
Entertainment expenses – guests, clients (119,219) (93,224)

Donation (25,000) -
Recover tax expense (65,513)
Penalty (14,410) -
Disposal of property, plant and equipment (334,394) (48,382)
Other (90,039) (61,928)
(583,062) (269,047)
31. PROVISION/(RECOVERY) FOR LOAN IMPAIRMENT
2016 2015
MNT’000 MNT’000
Provision for loan impairment (3,332,593) (9,912,346)

Provision for foreclosed properties - (662,154)
Provision for receivable impairment (26,448) (800,976)
59
CAPITRON BANK LLC

(3,359,041) (11,375,476)
60
CAPITRON BANK LLC

32. INCOME TAX EXPENSE
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 2016 is as follows:
2016 2015
MNT’000 MNT’000
Profit before taxation 734,749 (1,912,014)
Tax permanent difference 508,876 2,171,725

Non-deductible expense 2,382,943 3,110,001
Tax-free income (1,495,073) (684,083)
Taxable income (50,801) (43,322)
Income levied on specific rate (328,193) (210,870)
Tax temporary difference (1,547,268) (2,236,664)

Taxable temporary difference 159,641,472 86,984,762
Tax deductible difference (161,188,740) (89,221,426)
Taxable income/(loss) levied on common rate (303,643) (1,976,953)
Effective tax rate 10% 10%
Tax at common rate - -

Carried forward tax - 1,352,446
Tax at specific rate (5,080) (4,332)
Tax expense for the year (5.080) 1,348,114

Tax expense in the comprehensive income statement (5,080) 1,348,114
61
CAPITRON BANK LLC

33. 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 At
December December
2016 2015
MNT’000 MNT’000
Import guarantees 5,944 -

Prepayment guarantees 243,024 59,417
Tender guarantees 309,240 147,472
Performance guarantees 1,704,564 318,170
2,262,772 525,059
Letter of 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.
34. 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.
62
CAPITRON BANK LLC

34. RELATED PARTIES (continued)

The outstanding balances of transactions with related parties at the year-end of 2016 and 2015 are
shown in the following table:
At 31 At 31
Due from /(due to) related parties: December December
2016 2015
MNT’000 MNT’000
Amount due from related parties 1,203,034 2,733,155

Total 1,203,034 2,733,155
At 31 At 31
December December
2016 2015
MNT’000 MNT’000
(1,612,161) (13,683,828)
Amount due to related parties
Total (1,612,161) (13,683,828)
2016 2015
Compensation to related parties: MNT’000 MNT’000
- Salary (393,724) (241,155)

- Social and health insurance (18,955) (26,527)
Total (412,679) (267,682)
63
CAPITRON BANK LLC

35. 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.
64
CAPITRON BANK LLC

36. RISK MANAGEMENT (continued)
b. Foreign currency risk

The bank has a separate function targeting its risk management which estimates potential losses
derived from market risks by using specific statistical model on daily basis and reports information
related to market risk 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.
65
CAPITRON BANK LLC

c. Foreign currency risk (continued)

VaR restriction
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
EGARCH
Simulation
MNT’000 MNT’000
2016- At 31 December 38,648 69,691

2016- Yearly average 32,092 27,806
2016- Highest 184,610 170,632
2016- Lowest 1,497 1,755
2015- At 31 December 9,800 10,142

2015- Yearly average 5,248 4,370
2015- Highest 22,104 22,533
2015- Lowest 276 123
66
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:
2016 2015
At 31 December 49.21% 37.88%

Yearly average 40.97% 24.42%
Highest 51.95% 39.05%
Lowest 28.95% 15.78%
67
CAPITRON BANK LLC


d. liquidity risk (continued)
The table below shows the liabilities as at 31 December 2016 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 2016:
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 11,699,132 - - 11,699,132
Mandatory cash balances with the Bank
78,757,262 - - 78,757,262
of Mongolia
Due from other bank, and financial
43,104,328 - - 43,104,328
institutions
Central Bank securities 32,212,511 - - 32,212,511
Loans to banks and financial
10,000,000 - - 10,000,000
institutions
Other loans 10,720,172 29,774,934 123,084,693 163,579,799
Assets on operational lease - - - -
Bonds and other securities 5,769,971 3,746,605 5,294,285 14,810,861
Other Assets * 57,099,786 - - 57,099,786
128,378,97
TOTAL FINANCIAL ASSETS 249,363,162 33,521,539 411,263,678
8
Liabilities
Due to Bank of Mongolia - 25,936,204 - 25,936,204
Due to other banks, and financial
23,031,727 - - 23,031,727
institutions
Current accounts 95,285,084 - - 95,285,084
Savings 30,094,836 128,754,135 18,333,198 177,182,168
Promissory notes, and securities issued
- - - -
by the Bank
Other payables * 57,954,472 - - 57,954,472
TOTAL FINANCIAL LIABILITIES 206,366,119 154,690,339 18,333,198 379,389,655
Net financial assets /(financial (121,168,800 110,045,78
42,997,042 31,874,023
liabilities) ) 0
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 49.00 percent as of reporting date.
68
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
At 31 December 2016 Change in basis points net interest
income
percent, (%)
Loan interest rate decreases by 1 unit
Total loan interest income
percentage
-22.42%
Total interest rate increases by 1 unit
Total funds interest expenses -31.09%
percentage
Current accounts interest rate increases by 1
Current account interest expenses -7.05%
unit %
Savings interest rate increases by 1 unit
Savings account interest expenses
percentage
-21.03%
At 31 December 2015
Loan interest rate increases by 1 unit
Total loan interest income -21.19%
percentage
Total interest rate decreases by 1 unit
Total funds interest expenses -37.89%
percentage
Current accounts interest rate decreases by 1
Current account interest expenses
unit %
-12.02%
Savings interest rate decreases by 1 unit
Savings account interest expenses
percentage
-21.05%
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 7.05%. However, the analysis shows
that in case of 1% increase of interest rate for total liabilities, the net interest income declines by
31.09% respectively.
69
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
2016 2015
Tier 1 Capital to risk weighted asset ratio 12.27% 14.36%

Total capital to risk weighted asset ratio 13.47% 16.56%
At 31 Dec At 31 Dec
2016 2015
MNT’000 MNT’000
Tier I Capital
Ordinary shares 40,000,000 37,800,548
Treasury stock - (7,815,548)
Retained earnings (10,954,985) (11,684,653)
Total Tier I Capital 29,045,015 18,300,347
Tier II Capital 2,829,006 2,829,006
Total capital/capital base 31,874,021 21,129,353
70
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 2016 At 31 Dec 2015

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% 134,416,952 - 52,311,695 -
20% 25,917,560 5,183,512 1,990,657 398,131
50% 37,539,018 18,769,509 12,723,683 6,361,841
70% 41,736,529 29,215,570 26,961,167 18,872,817
100% 159,136,463 159,136,463 94,504,603 94,504,603
120% 12,517,156 15,020,587 1,608,821 1,930,585
150% - - 1,013,690 1,520,535
411,263,678 227,325,642 191,114,317 123,588,514
37. COMPARATIVE FIGURES

Certain corresponding figures have been reclassified to conform to the current year’s presentation
38. EVENTS AFTER THE REPORTING DATE
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.
71

2016 Audited Financial Report

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2016 Audited Financial Report

Uploaded by

Copyright:

Available Formats

CAPITRON BANK

Limited Liability Company

Statement of Management Responsibility 5

Independent Auditor’s Report 6-11

Notes to Financial Statements

Shareholders D.Erdenebayar 41.96%

The Board of T.Ganbold Chairman

Chief Executive Officers

Address CAPITRON BANK LLC

Auditor BDO Audit LLC

In preparing these financial statements, the Directors are responsible for:

The Directors is also responsible for:

Report on Financial Statements

Basis for opinion

Loan impairment provision:

Reliability of data processing

Management and Governance Responsibility for The Financial

Report on compliance with regulatory requirements

Management and Governance Responsibility for The Financial Statements

STATEMENT OF FINANCIAL POSITION

TOTAL ASSETS 411,263,678 191,114,317

LIABILITIES AND EQUITY

Total liabilities 379,389,655 169,984,963

Total equity 31,874,023 21,129,354

STATEMENT OF PROFIT OR LOSS AND

For 2016 For 2015

Interest income 22 27,684,122 21,444,270

Profit before loan impairment 4,093,790 9,463,462

Loan impairment (loss), recovery 31 (3,359,041) (11,375,476)

Income tax (expense), benefit 32 (5,080) 1,348,114

Net profit 729,669 (563,900)

STATEMENT OF CHANGES IN EQUITY

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

Balance at 01 January 2015 20,500,548 - 2,828,280 727 (846,368) 22,483,187

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 (11,684,653) 21,129,354

Changes in share capital 2,199,452 - - - - 2,199,452

Balance at 31 December 2016 40,000,000 - 2,828,280 727 (10,954,984) 31,874,022

STATEMENT OF CASH FLOWS

For 2016 For 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Operating profit before changes in operating assets and

Mandatory reserves at Bank of Mongolia (10,186,556) (1,472,619)

Net changes in operating assets and liabilities 121,413,341 12,152,358

STATEMENT OF CASH FLOWS

For 2016 For 2015

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (9,275,742) (9,950,184)

Total cash inflows (outflows) from investing activities (9,264,742) (9,950,184)

CASH FLOWS FROM FINANCING ACTIVITIES

Share capital issued 10,015,000 17,300,000

Total cash flows from financing activities 10,015,000 (789,932)

Net increase /(decrease) in cash and cash equivalents 120,181,712 9,137,139

NOTES TO THE FINANCIAL STATEMENTS

The Bank’s principal activities are as follows:

NOTES TO THE FINANCIAL STATEMENTS (continued)

2.2 Functional and presentation currency

2.3 Estimates and assumptions

2.4 Going concern

NOTES TO THE FINANCIAL STATEMENTS (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Cash and cash equivalents