Dynamic Provisioning: Case of Mongolia

The recent financial crisis has required implementing specific macro approach of financial regulation and supervision. Thus, macro-prudential policy recently attracted considerable attention among global central banks.Therefore this paper provides an investigation of Mongolian financial systemic risk using macro-prudential frame and the way to avoid financial systemic risk.Dynamic provision was determined as a countercyclical macro-prudential tool to avoid systemic risk. Procyclicality, cross- sectional systemic risk analysis, and financial soundness indicators proposed that Mongolian financial system is at credit risk because of large banking sector. After financial crisis, although provision was 389.64 billion tugriks in January of 2010, dynamic provision was calculated as 62.64 billion tugriks that confirmed dynamic provision is countercyclical capital buffering tool.