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Mongolia's banking sector is approaching its most consequential reform moment in a decade. A handful of shareholders have long controlled Mongolia's systemically important banks. A 2021 reform was supposed to change that by the end of 2023. Five years and two missed deadlines later, the concentration it targeted is still largely intact, and Parliament is now considering a third attempt. The draft raises ownership caps, opens the door to multilaterals, and pushes the deadline to 2029, but it leaves the harder questions untouched. We've laid out how Mongolia got here, what the draft proposes, and what it still doesn't fix.

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Mongolia's banking sector has long been defined by concentration. For decades, a handful of shareholders controlled the equity of most commercial banks. In 2021, Parliament set out to change that, rewriting the rules of bank ownership with the goal of dispersing control, strengthening governance, and pulling Mongolia's banks closer to international norms. Five years on, the project remains unfinished, and the law that began the reform is being rewritten to preserve its objectives.

The simple answer is that the law treats five banks as five independent compliance problems, when in practice they are the most important sector with the capacity to disrupt Mongolia's financial stability. Requiring all SIBs to sell stakes in the same period is neither strategic nor commercially sound. Synchronized forced selling does not deconcentrate ownership at fair value.

The transactions themselves are also unworkable in isolation. A controlling shareholder asked to sell down to the statutory cap is disposing of a substantial share of their position into a deadline-driven market that knows they are a forced seller. No rational owner accepts a fire-sale outcome when the penalty for missing the deadline has never been defined.

Even setting price aside, the buyers do not exist at the required scale. Mongolia's domestic capital base cannot absorb the volume of equity that would need to change hands across five SIBs simultaneously. Pension funds, insurers, and local institutions lack the balance sheet. Foreign strategic investors had the capital but no legal pathway to a meaningful stake, since the cap itself made entry uneconomic.

The IPOs were intended to bridge this gap, but the scale was insufficient. Floats of 5.0% to 11.4% of total equity could not meaningfully reduce concentrated positions to the statutory threshold.

Finally, the law set a deadline without consequences. Each missed deadline has been extended, and the market has learned. The rational response to an unenforceable rule is to wait, and the 2024 extension confirmed the lesson.