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LAW ON DEPOSITS, LOANS AND BANKING TRANSACTIONS 2001

LAW ON DEPOSITS, LOANS AND BANKING TRANSACTIONS

Chapter One

General Provisions

Article 1. Purpose of the Law

Article 2. Legislation on deposits, loans and banking transactions

1. The legislation on deposits, loans and banking transactions is comprised of the Constitution of Mongolia, the Civil Law, the Banking Law, this law, and other laws and regulations which are consistent with them.

2. If the provisions of the international treaties to which Mongolia is a signatory are inconsistent with them, then the provisions of the international treaties shall prevail.

Chapter Two

Article 3. Deposits

1. A deposit of funds (hereinafter referred to as a "deposit") means Mongolian and foreign currency deposited with a bank (hereinafter referred to as "depository") by citizens and legal persons of Mongolia and foreign countries, and by stateless persons (hereinafter referred to as "depositor") according to the deposit agreement.

2. A depository shall provide accurate information to the depositors on its operations at the time it enters to deposit agreement with depositors.

3. A depository shall disclose to the public the interests rates, terms for which deposits shall be accepted and shall receive deposits from a depositor if a depositor accepts the conditions of the deposit agreement.

4. This law shall regulate the operations of banks related to deposits.

Article 4. Deposit agreements

1. In accordance with the provisions of article 364 of the Civil Law, a bank shall pursuant to a deposit agreement have a duty to safeguard and pay out deposits and interest to depositors or to a person duly authorised by the depositor.

2. The term of the deposit, the calculation of balances and interest on deposits, the cancellation of the deposit agreement and the liabilities of the parties to the agreement in the case of non-compliance with its conditions shall be set out in the deposit agreement.

3. Deposit agreements shall be made in written form and may be in the form of the safe deposit book or account certificate in accordance with article 364 of the Civil Law of Mongolia.

Article 5. Terms of the deposit agreement

1. Deposit agreements may be established for a definite or an indefinite period of time in accordance with article 365 of the Civil Law.

2. Deposits for a definite period of time shall be called fixed term deposits and deposits for an indefinite period of time shall be called non-fixed term deposits.

3. If a deposit agreement has been established for a non-fixed term, the depository has a duty to pay out deposits and interest at the request of the depositor.

4. If a deposit agreement is established for a fixed term, the depository has a duty on the expiration of the term to pay out the deposit and interest at the first request of the depositor.

5. If a depositor does not withdraw a fixed term deposit once the term has expired as provided in the deposit agreement or has not requested an extension of the term, the deposit shall be deemed a non-fixed term deposit and interest shall be payable at the interest rate for non-fixed term deposits. A deposit agreement may be extended for a specific period of time after the expiration of a fixed term if it is stipulated in the original deposit agreement.

6. The depository shall not have the right to unilaterally change or cancell a fixed term deposit before the term has expired.

7. The term of a deposit agreement shall commence on the day the deposit is entered into the books of a bank and shall terminate on the day upon which the deposit shall be paid out.

8. If a fixed term deposit agreement is cancelled at the request of the depositor prior to the expiration of the fixed term, the interest payable on the deposit may be reduced from the rate stipulated in the deposit agreement, depending upon the duration for which the deposit has been held.

9. In the event the depository fails to fulfil its duties as provided in paragraphs 3, 4 and 6 of this article thereby causing loss to a depositor, a depositor shall have the right to compensation of loss and default interest in accordance with the deposit agreement.

Article 6. Interest on deposits

1. Deposits shall be interest bearing.

2. The rate of interest payable on a fixed term deposit shall remain the same as agreed until expiration of the term of the deposit agreement.

3. If the interest rate set out in the deposit agreement is fixed, interest on funds added to the term deposit shall be at the fixed rate. If additional funds are deposited following to a change in the interest rate, a new deposit agreement shall be entered into.

4. If the interest rate payable on a non-fixed term deposit is changed by the depository, the interest rate set out in the deposit agreement for a non-fixed term deposit shall be deemed to be changed and interest at the new rate shall be payable one month following public disclosure of the new interest rate. In case of disagreement with the aforesaid condition a depositor may cancel the agreement.

5. The Mongolbank shall approve the methodology for the calculation of the interest rate on deposits.

Article 7. Rights and duties of depositors and depository

1. A depositor:

1) may choose the manner in which he/she wishes to spend its deposits;

2) shall receive interest on its deposits;

3) may check account activity and balances;

4) shall not withdraw fixed term deposits during the fixed term as specified in the deposit agreement or if the depositor in unavoidable circumstances must make a withdrawal, he/she shall request the withdrawal of a fixed term deposit in writing and any changes to the deposit agreement shall be agreed upon by parties;

5) may own deposits jointly with the bank and make the bank trustee of the deposit;

6) may gift deposits and make deposits testamentary property;

7) may bring a claim for compensation for loss suffered as a result of the failure of a bank to fulfill its duties properly to concerning authorities or to the court; and

8) shall exercise any other rights and duties agreed upon by parties.

2. A bank:

1) shall open accounts in the name of depositor and provide a certificate security;

2) shall make withdrawal from deposits at the demand and consent of the depositor only;

3) shall pay out deposits at the request of the depositor and pay interest in accordance with the deposit agreement;

4) shall calculate correctly and pay interest on deposits;

5) shall keep the details of the accounts of depositors confidential;

6) shall pay compensation for loss to depositors suffered as a result of its failure to perform its duties; and

7) shall exercise any other rights and duties agreed upon by the parties

3. The bank shall guarantee the entire amount of deposits placed in circulation for its own purposes.

Article 8. Types of deposit accounts

1. A bank shall establish deposit accounts for all citizens and legal persons who make deposits. If depositor received a certificate or other security bank may refrain from opening deposit account.

2. Unless otherwise provided by law or in the deposit agreement, a bank shall, in safeguarding deposits, establish a bank account, make payments at the demand of depositors and pay interest on the balance of that account.

Article 9. Safety of deposits

Article 10. Withdrawals by trustees

1. Trustees as agents may make deposits and withdrawals on behalf of depositors.

2. Banks shall make transaction on request of trustee on the basis of valid trust documents provided in article 61 of the Civil Law of Mongolia, the passport of the trustee and any other similar documents.

Article 11. Withdrawal of deposits for inheritance and legacy

1. When a depositor dies and the death event has been publicly announced, a bank shall provide deposits to beneficiaries fully empowered to inherit by law or pursuant to a valid will or shall renew the deposit agreement in the names of the beneficiaries.

2. When a bank transfers deposits in accordance with paragraph 1 of this article, proof of the right to inherit and the passport of the beneficiary or other similar documents shall be required.

3. If no transfer to the beneficiary is made, withdrawals of deposits which constitute testamentary property shall be prohibited.

Chapter Three

Article 12. The opening and closing of accounts

1. Citizens and legal persons shall have the right in accordance with the regulations to open accounts at banks and to have transactions carried out on their behalf. To open an account legal persons shall provide the following documents:

1) an application;

2) a certified copy of certificates registered in the State Registry of Mongolia;

3) the names of the officers who shall administer and expend funds and samples of the signatures for the execution of transaction documents. The samples of the signatures shall be certified by a notary, and

4) a seal and a stamp.

2. The citizen shall bring the following documents in order to open an account:

1) an application; and

2) a statement as to who shall administer and expend funds and an sample of the signature for the execution of transaction documents. The example of the signature shall be certified by a notary.

3. When the bank has received the abovementioned documents, it shall open an account within 10 days or if there are concerns about the documents set out in paragraphs 1 and 2 of this article, shall decline to open an account.

4. The bank can close the account in the following cases:

1) written request of the customer to close his/her account;

2) terms provided in the contract made with the customer are accomplished;

3) other basis provided in the legislation. /The paragraph 4 was added by the Law of February 2, 2001/

Article 13. Types of transactions

1. Monetary deposits, account deposits, withdrawals and loans made through the agency of banks may be in cash and non-cash forms.

2. Cash deposits and withdrawals of Mongolian and foreign currency through the agency of banks shall be considered as cash transactions. Deposits and withdrawals through transaction documents shall be considered as non-cash transactions.

3. The Mongolbank shall establish components of transaction documents.

Article 14. Cash transactions

1. Parties involved in banking transactions shall mutually regulate operations for the purposes of cash transactions through the agency of banks.

2. Parties involved in banking transactions may carry out operations to collect cash in the banks based on mutual agreement.

Article 15. Non-cash transactions

1. Non-cash transactions involving citizens and legal persons shall be performed through the agency of banks.

2. Non-cash transactions shall be performed through payment orders, demands for payment, letters of loan, cheques, bills, loan cards and other transaction documents.

3. The payer and the payee shall choose whether to perform a cash or non-cash transaction. Non-cash transactions in the form of a demand shall only be actioned when the payer's authorised representative has given his/her consent .

Article 16. Parties involved in transactions

Article 17. The performance of transactions through the agency of banks

1. Banks, in performing transactions in which citizens and legal persons are involved, shall verify the components of the transaction documents. The date of the original document, the account numbers of the payee and the payer, their names, the title of the banks serving the payee and payer, the purpose of the transaction, and the amount of money involved in figures and words shall be entered on the transaction document form. It shall be signed and the signature must be certified and in the case of a legal person, the seal or stamp shall be affixed.

2. The bank shall perform transactions in the order in which transactions documents are received.

3. The bank shall effect the transaction on the same day the payer makes payment. The bank shall pay penalties for its failure to observe or fulfil these requirements, and in amount specified in the article 180 of the Civil Law of Mongolia.

4. At the request of the account holder, a bank statement shall be provided by the bank to the account holder.

Article 18. The payee

Article 19. The payer

Chapter Four

Article 20. Bank loans

Article 21. Loan operations

1. The lender shall establish and publicly disclose the conditions on which loan shall be granted such as the purposes for which loan shall be granted, the interest rate, and the term of the loan.

2. The lender shall open a loan account for the borrower and provide a loan on the basis of a loan contract which stipulates the conditions of the loan such as the interest rate on the loan, the term of the loan and the type of loan provided.

3. The lender and the borrower shall agree to the type of loan provided in a loan agreement.

4. When the borrower withdraws the loan from the loan account, the loan shall be considered taken out.

5. The lender, in deciding whether to grant a loan, shall have the right to obtain information from the relevant organisations as to the financial capability of the borrower and any information on any other bank loans the borrower has in its name.

Article 22. The loan agreement

1. In accordance with article 368 of the Civil Law of Mongolia, the bank, pursuant to a loan agreement, shall have the right to transfer of its own funds, or the funds of depositors on a basis set out in law or any regulations to the borrower (citizens, legal persons, and the State) for the ownership or right to posess,use, dispose /pursuant to article 88 of the Civil Law of Mongolia/ for a certain time and the borrower has a duty to repay the principal and interest within a specified time. The loan agreement concluded with the bank shall be in written form.

2. The addresses of the principal places of residence of the borrower and the lender, the credit account number, the purpose of the loan, the amount of the loan, the term of the loan, the interest rate, the security and guarantee set out in the loan agreement and conditions for amendment to the terms of the loan agreement or its cancellation shall be specified in the loan agreement.

3. Expiration of the term of the loan agreement shall provide no basis for releasing the borrower from its obligations to pay the principal loan, interest and default interest if its obligations under the loan agreement have not been performed within the specified time. /This paragraph was re-edited by the Law of January 15, 1998/

4. Lenders may jointly raise capital for loans to finance projects. An agreement shall be signed by the lenders for this purpose.

5. Loans obtained by the Government of Mongolia from foreign countries and international organisations shall be regulated by all applicable legislation other than this law.

6. The loan relationship with respect to foreign capital authorised by the Government or loans made with the funds of international organisations shall be regulated by an agreement between the borrower, the Government and the bank carrying out the transaction.

7. Conditions for the repayment of a loan in lump sum or in instalments may be set out in the loan agreement.

Article 23. Files on loans

1. The lenders shall establish and maintain a file in the name of each borrower.

2. The file shall consist of the following forms:

1) a loan application;

2) a loan agreement;

3) a statement of assets and their value to be offered as security for the loan, certificate of registration in case of immovable property and an analysis of the guarantor of the loan and the guarantee documentation; /This paragraph was re-edited by the Law of January 9, 1997/

4) plans for the project to be financed, and reviews and confirmations of such plans by the appropriate authorities, any amendments made to those plans, any associated documentation, progress reports, contracts, and profitability forecasts;

5) a report of an independent auditor and subscriber;

6) financial statements;

7) documents verifying the use of the loan; and

8) a report on any other bank loans held in the name of the borrower.

3. A summary of information regarding the purpose of the loan, the amount of the loan, and the term of the loan shall be included in the loan application. The loan application shall be signed and in the case of a legal person shall be affixed by the seal or stamp.

4. Officials of the lender bank shall visit the site, and make a complete evaluation of the assets offered as security by the borrower. The valuations made by officials shall be included in the statement of assets. The statement of assets shall be used as a basis for completing full descriptions of the assets, their value and quality, etc., on the document verifying the assets as security.

5. The registration documents of the guarantor of the loan shall include the name and address of the guarantor, the name of the bank holding any accounts of the guarantor and the numbers of those bank accounts. As in the case of the borrower, there shall be an investigation of the financial capability and business activities of the guarantor.

6. The documents which verify the use of the loan shall include details of figures and estimates as to whether or not the loan has been used effectively according to its purpose.

7. The lender shall be prohibited from requiring documents other than those set out in paragraph 2 of this article from the borrower.

Article 24. Interest on loans

1. The cost of repayment of the loan by the borrower calculated at the rate set out in the deposit agreement for the period of time the loan is used shall be the loan interest.

2. Loan interest shall be calculated for the period set in the loan agreement.

3. If the loan is not paid within the time specified in the article 368 of the Civil Law of Mongolia., basic interest and default interest, if the loan agreement provides, shall be payable not exceeding 20 percent of the basic interest until the fulfillment of the loan agreement. / This paragraph was re-edited by the Law of January 15, 1998/

4. The Mongolbank shall determine methods for the calculation of loan interest.

Article 25. Default on loans

1. Loans which are not paid within the specified time in the loan agreement and interest on those loans shall be entered into a special register for defaults on loans.

2. The loan agreement shall include the default interest rate on loans which shall not exceed the rates set out in the article 24(3) of this law.

Article 26. Utilisation of loans

Article 27. Classification of loans

1. The lender, on analysis of the loans it has granted, shall classify loan balances in accordance with instructions confirmed by the Mongolbank.

2. /This paragraph was annulled by the Law of January 15, 1998/

Article 28. Loan guarantees

1. A guarantee shall be given to the lender to insure in case of inability of a borrower to repay the loan and its interest within the specified time in the loan agreement. If a borrower is unable to pay, a third party, the guarantor, shall take up the obligation on behalf of the borrower to repay the loan in whole or in part.

2. The borrower shall make an agreement with the guarantor in accordance with the requirements set out in article 184 of the Civil Law of Mongolia.

3. The guarantor shall carry out its obligations in accordance with the law and the loan agreement and shall bear the same responsibilities as the borrower.

4. The guarantor shall be a person with movable, immovable property who is financially capable of repaying the loan. The bank serving the guarantor and other organisations registered by the State may issue a statement on the financial capability of the guarantor.

5. The guarantee shall terminate in the event that the borrower fulfils its obligations as set out in the loan agreement or in the event of the guarantor fulfiling these obligations on behalf of the borrower.

Article 29. Security for the loan

1. If the borrower is unable to fulfil its obligations as set out in the loan agreement within the specified time, the assets provided as security by the borrower shall guarantee fulfilment of the obligations of the borrower. If the bank considers it reliable, the business income and revenue of the borrower might be taken as a loan collateral based on the contract and guarantee. Procedure on taking the business income and revenue of the borrower as a loan collateral shall be described by the Bank of Mongolia. /The second paragraph was added by the Law of February 2, 2001/

2. The value of the assets to be provided as security for the loan shall be established at the time the loan agreement is made.

3. Assets taken as loan security may comprise of private house, immovable property, goods and other materials which may be realised within a short period of time, jewelry, securities and any assets accepted by the lender which form part of the personal property of the borrower and which are not prohibited by law. Immovable property used for security shall be registered in State registry of Immovable property. /The amendments made by the Law of January9,1997/

4. If the borrower does not fulfil its obligations under the loan agreement in the specified time, the lender shall have the right to sell the assets provided as security for the loan from the day the loan agreement is expired.

5. Arrangements with respect to the storage, protection and transfer of ownership of assets provided as security for a loan shall be regulated in accordance with the law and the loan agreement.

6. The Courts shall determine disputes which arise in the event that assets provided as security for a loan are damaged or destroyed.

Article 30. The repayment of loans

1. The borrower shall have an obligation to repay the loan in accordance with the terms set out in the loan agreement.

2. Unless otherwise provided in the loan agreement, the repayment of loans shall be made without objection from the accounts of the borrower and the guarantor at the time the payment of the loan and its interest on the loan becomes due.

3. If there are insufficient funds in the account of the borrower and the guarantor to repay the loan and its interest the assets provided as security shall be sold in accordance article 29(4) of this law in order to repay the loan. /The paragraphs 2 and 3 were amended by the Law of January 15, 1998/

Chapter Five

Article 31. Liability for breach

1. Person in breach of the Law on Deposits, Loans, and Banking Transactions shall bear criminal and administrative responsibility depending upon culpability, the nature of the offence and the amount of damage caused as a result of the breach.

2. The Ministry of Finance, the auditor of the Mongolbank and of the commercial banks, shall impose the following penalties within the scope of their full powers upon offending person whose infringement of the provisions of the legislation on deposits, loans and banking transactions has not to constitute a criminal offence:

1) for breaches of articles 5(3), 5(4), 5(6), article 6(2) and articles 10 and 11 of this law causing damage to depositors, the damage shall be repaid and a fine of 5,000 to 20,000 togrogs shall be imposed on employees and officials of the bank and 30,000 to 150,000 togrogs on the depository of the account;

2) for breaches of articles 7(2)(2), 7(2)(4), 7(2)(5), 7(2)(6) and 7(2)(7) of this law causing damage to depositors, compensation for the damage shall be paid, and a fine of 10,000 to 30,000 togrogs shall be imposed on employees and officials of the bank and 50,000 to 200,000 togrogs on the depository of the account;

3) for breaches of article 15(3) and articles 17(1), (2) and (3) of this law and where transaction made according to the incomplete transaction documents or the transaction records have been cancelled or an account activity is impeded in some way, a fine of 10,000 to 50,000 togrogs shall be imposed on employees and officials of the bank, and a fine of 100,000 to 250,000 togrogs shall be imposed on banks;

4) if the guarantee and security documentation as provided for in articles 28 and 29 of this law has been completed fraudulently, the loan shall be called in and a fine of 10,000 to 20,000 togrogs shall be imposed on citizens, 20,000 to 30,000 togrogs on officials, and 50,000 to 200,000 togrogs on economic entities and organisations. Chairman of the State Ih Hural of Mongolia N Bagabandi