Business Council of Mongolia

Source: Udriin Sonin                            Date: 30 July, 2010

An iconic fixture in the banking and financial world of Mongolia, Mr. Peter Morrow, Chief Executive Officer of Khan Bank, will be laying down office soon,  staying on as a Director of the bank for at least two more years. In a broad-ranging interview, Mr. Morrow answers questions on his many years in the country, the changes he has been witness to (and, in come cases, initiated), and on what he sees lying ahead. A selection of the questions and Mr. Morrow’s answers follows.

What was Mongolia like when you came here ten years ago?

When I came Ulaanbaatar was like an old socialist city with much air pollution and little infrastructure. There have been a lot of improvements in the 10 years since. The last two years have been difficult but Mongolia has grown rapidly. The city has changed. It now has lots of money, cars, more buildings and bustles with activity.

Why did you choose to work in Mongolia?  It was not common then for a foreigner to come and run a Mongolian bank?

I saw the offer as a career opportunity and challenge and accepted a two-year contract.  My appointment was under an agreement between the Government of Mongolia, the Bank of Mongolia, USAID and the World Bank to bring in a foreign management team and an independent Board of Directors for the Agricultural Bank. The Bank of Mongolia was particularly keen to have a foreigner with experience in dealing with problem banks and someone who would be free from political interference.

What did you do earlier?

I had worked for the Export and Import Bank, a U.S. Government bank in Washington, DC and also for commercial banks for many years. I was running a consulting company when I came here. If I hadn’t come here, I would still be doing consultancy work.

You became CEO when it was almost certain Khan Bank would go bankrupt. What was the first thing you did to turn the bank around?

When I came the bank was not lending money. It actually had very little work. So the first task was to increase business, to start giving loans, bringing in more deposits, and start expanding normal banking activities. The customers were there but we did not offer the products they wanted to buy. We started with credit to traders and small business people and eventually developed loan products for herders, salaried people, State employees, pensioners and many other types of borrowers. These loan products began to bring in interest income and as the bank grew and prospered the profits could be reinvested in technology, branch expansion and giving higher salary to employees.

Is it true that you were once offered a pair of shoes as collateral for a loan, as the borrower knew no better about banking practices?

Basically we started from scratch, introducing new procedures and policies, refusing bribes and issuing credit strictly on commercial, and not personal, considerations. We made everyone welcome. The old practices were dumped. When we started, the Agricultural Bank was in a very poor condition. The heating did not work, the roofs leaked, and of course the salary was very, very low. The monthly average salary of the Agricultural Bank’s small soum office employees was MNT 30,000 or MNT 40,000. We focused on changing all this.

You have traveled a lot in the country, even more than many Mongolians.

Sure, I’ve been to all provinces many times, and I’ve probably been to 275 soums out of the total 330 or so. I usually take 3-4 business trips every year. We try to go for a week every time and drive from one aimags center to another, passing through as many soums as possible. I was in Bayan-Ulgii 9 times last summer.

Opinion is mixed about your bank’s loans to herders.  Some say Khan Bank exploited them, while many herders claim they survived because of the bank loans. When did the bank begin the program?

Herders did not use banks until 2002.  That’s why Khan Bank designed a loan product only for herders. We required them all to open a current account which they could use to receive their meat and cashmere income and also to repay loans. Before that all trade was in cash. We changed the whole economy of herding from a cash economy to one that deals through the banking system. Much of the reporting in the mass media is based on wrong information and is simply not true. Our herder loans contributed to the improvement of herders’ livelihood. Some 40% of the loans are used for educational purposes, tuition fees and other necessities. They also help in other ways to improve the herders’ life.  For instance, in 2002, 14 percent of herder families had generators for electricity; in 2009 the figure was 75 percent. Herders bought not just generators, but also electrical appliances, satellite dishes, and DVD players.

These loans were usually repaid on time, with very few herders defaulting. We almost never foreclosed and took animals. Cashmere and meat prices were very low in 2008 and 2009, and then came the worst zud in many years. We worked closely with borrowers, restructured every possible loan and made sure that they made it through the winter. We waived penalties in many cases and did not demand money we were entitled to. More than 90% of our herder loans are current. The bank is disbursing fresh herder loans and the portfolio is growing. Actually very few herders have blamed Khan Bank for anything. This was all propaganda by people who are against us. In February, when the zud was at its worst, I went out myself to the most difficult soums out in the west and everywhere I went herders were grateful about the bank.  I would say herder loans are one of our best products. They constitute 5-6% of our total loan portfolio.

Did you ever feel frustrated enough to think of going back home? And what has been your biggest success?

I never felt like giving up. Certainly things did not go well always. The first years were difficult, as Mongolians came to terms with a new system with its new rules and we were sometimes frustrated by the time it took to adjust but never did I consider going away. For me, Mongolia has been and is a great place to live in.

Will you continue living in Mongolia?

Yes. My home is in Arizona, and I make 2-3 brief visits there every year.  I am also married to a Mongolian woman, so one can say that Mongolia is my second home.

I see in your office many Buddhist religious items. Aren’t you a Christian?

A Tibetan friend once told me anybody doing the right things is a Buddhist. I was raised in the Christian tradition but I don’t practice Christianity. I do derive a great deal of satisfaction and comfort from Buddhism. I have many Buddhist friends. Gurudeva Rinpoche was one of my closest friends. I take particular interest in Danzanravjaa and have visited Khamriin Hiid on several occasions and written articles on Danzanravjaa.

How long have you been interested in paintings?

I come from a family that favored music more than the visual arts. When I came here I found there were artists doing very interesting work, but they had very few buyers.  So we started the Khan Bank collection in 2002 to make the place look nicer, to improve the work environment of our employees and to allow our customers to see something interesting when they visit the bank and also as an example for other companies to do the same and put more money into the art community. I was one of the founders of the Arts Council in 2002 and I still serve as their Vice Chairman.

Are you the owner of this Bank?

I’m the Executive Director of Khan Bank and hold about 1% of its shares. Most of our shareholders are Japanese, Americans and Mongolian and international investors.

Why have you decided to resign? Is the next CEO going to be a foreigner?

I came for two years and have stayed on for ten. That is long enough. I always wanted to retire after ten years and I think it’s time for somebody new to take over and take Khan Bank to new heights. My contract expires early in August. My successor as CEO will be an Englishman. However, I shall stay with Khan Bank for at least two more years, as a member of the Board of Directors. I shall work closely with my successor during the transition period. Apart from pursuing personal interests, I shall be kept busy in other ways also. I’m on the board of the Mongolian Stock Exchange, some companies and NGOs in Mongolia.

What do you think of the Government guarantee on citizens’ savings?

This law was passed after Anod Bank and Zoos Bank failed. Similar measures were taken in many countries. The guarantee has enabled banks to increase their deposits gradually whilst reducing the interest rate of loans and deposits. In Khan Bank, we have reduced deposit interest rates four times since last fall but still have faced no drop in our cash flow.