B. Oyungerel: No bank has the right to take additional interest from borrowers
Commercial banks transfer the loans of citizens, who received mortgage loans at 8 percent, to the Mongolian Mortgage Corporation. Every bank is implementing this transfer using its own method. B. Oyungerel, Director of Retail Banking Division, is interviewed about how XacBank performed the transfer of these loans.
Hello. How are you? Lately, there is information going on that commercial banks have temporarily stopped issuing 8(+1) percent mortgage loans. Does XacBank issue loans?
Hello. XacBank continues to issue 8(+1) percent mortgage loans under the “Program on the Development of the Sustainable System of Mortgage Financing” implemented by the Government of Mongolia together with the Mongolbank through its branches and sub-offices nationwide. Since the start of the program implementation and over the past 6 months, a total of 1,190 households have purchased their homes and 1,584 households’ existing mortgage loans issued by the bank from its own funds have been transferred into the program loans.
According to such housing system, commercial banks have to transfer people’s loans to the Mongolian Mortgage Corporation. In connection with this, there was information about the modification of the loan agreements of some people. Could you please provide more details on this?
According to the new housing system based on the secondary mortgage market, commercial banks sell in packages the 8(+1) interest mortgage loans issued by the bank itself or transferred to such loan to the Mongolian Mortgage Corporation in exchange of securities. The securities then become the financing source for the next rounds of funding. According to this system, XacBank transfers the mortgage loans to MMC that met the requirements.
One specific of the 8(+1) interest mortgage loans is that as soon as the commercial banks transfer these loans to the MMC, the loans will be written off from their balance sheet and recorded off balance. In connection to this, commercial banks are taking various measures depending on their general system. With respect to our bank, we had to change the loan account numbers which required amendments to the loan agreements. This is not a complete change of the loan agreement as some people have said.
What changes are stipulated in the amendment clauses?
As mentioned before, the loan agreement accounts are changing. In addition to this, the principal portion of the loan repayments has been changed to have the same amount repaid every month.
Why are you changing people’s loan monthly repayment amount to be same every month? Are there changes in the 8 percent mortgage loan procedure?
The loan principal and interest payment shall be paid fully by repaying an equal amount each month for the duration of the loan. It is presented in the Procedure on Mortgage Loan Activities of Mongolbank as “Full Payout” loans. The 8 percent mortgage loans are implemented in the scope of the Procedure on Mortgage Financing approved by the Governor of Mongolbank. According to paragraph 3.1.7 of this procedure, under the sub-program, the mortgage loans of this procedure are defined as a loan that is “Fully repaid with fixed payment of interest”. According to this paragraph, there is an amending clause into the agreement but no amendments in the 8 percent mortgage loan procedure itself.
So monthly interest payment becomes the same amount, does it mean that there will not be any interest discounts? Is this true?
Because the monthly interest payment becomes the same amount each month, it doesn’t mean that one can’t benefit from interest discounts. Let me explain it with an example; let’s assume that there is a person who has a loan repayment schedule of 500 thousand Togrog per month. Out of this 500 thousand Togrog, 150 thousand is for the main principal payment and the remaining 350 thousand is for the interest payment. If this person makes a prepayment then there will not be any change in their monthly loan repayment amount, but there will be a change in the total payment structure. In this example, after the prepayment, the payment structure will look like this 200 thousand Togrog is a principal payment and 300 thousand Togrog will be an interest payment.
Then people talk about the interest difference. How do you explain this?
Let me explain this by taking another example. For example, there is a person who has a loan repayment scheduled on November 25, 2013. This person will have next loan repayment due on December 25. However, on December 23 his/her loan was transferred to the MMC. In this case, this person will have accumulated interest until December 23. In other words, for the person whose loan repayment is scheduled for 25th but was transferred on 23rd, then the remaining 2 days interest will be deducted from the principal amount. There is no opportunity for the bank’s system to double the interest payment or deduct more interest from the clients. Banks have a strictly controlled system.
In that case, did you receive comments and complaints from people about the interest difference? How do your customers feel about it?
We have informed our clients in advance, those whose loans are transferred to the MMC after meeting the criteria and about the amendment clauses in their agreement. Our customers have been signing the amendment agreements after clarifying any questions that they may have from their branches or settlement centers, or calling our information hotline 1888. As of today, we haven’t received any official complaints.
Thank you for your interview with us.
