The Asian Infrastructure Investment Bank (AIIB) has signed a five-year senior unsecured green loan with Khan Bank JSC to expand access to long-term green financing in Mongolia. AIIB acted as lead arranger and lent USD80 million. The transaction marks AIIB's first nonsovereign-backed financing and its first investment in a financial institution in the member.
Korea Development Bank lent an additional USD20 million as parallel lender, while B-loan participants from Asia committed a further combined USD30 million. The transaction mobilises USD50 million in additional financing and has a dual-currency structure, allowing drawdowns in both US dollars and Mongolian Tugrik (MNT).
ELIGIBLE SECTORS AND EXCLUSIONS
The financing will be channelled through Khan Bank, Mongolia's largest commercial bank, to support eligible green investments. These cover renewable energy, energy efficiency, green buildings, pollution prevention and control, water management and treatment, and clean transport.
Sub-projects exclusively dedicated to coal transportation or coal-fired power plants will be excluded from the project. Sub-projects classified as Category A or Higher Risk Activities under AIIB's Environmental and Social Framework (ESF), and any hydro power plants, are also excluded.
SAFEGUARDS APPLIED TO SUB-PROJECTS
The project is placed in Category FI. AIIB's ESF, including its Environmental and Social Standards and Environmental and Social Exclusion List (ESEL), applies, and Khan Bank will apply the ESEL to all sub-projects under AIIB financing.
Khan Bank has an established Environmental and Social Management System (ESMS) that applies to its loan operations, including the green loan portfolio. It screens sub-projects to avoid impacts on protected areas and key biodiversity zones, using the Integrated Biodiversity Assessment Tool and designated areas in accordance with Mongolian law.
A gender assessment was conducted as part of the due diligence process. Khan Bank's ESMS includes assessments on gender equality, prevention of gender-based violence and workplace sexual harassment, and the bank has a policy on preventing workplace harassment and violence with a dedicated complaint handling procedure.
KHAN BANK'S POSITION IN THE MARKET
Khan Bank represents one-third of Mongolia's banking sector. As of 30 September 2024 it served approximately 82% of the population through 547 branches and nationwide digital channels. It has been listed on the Mongolian Stock Exchange since 2023 and is rated B1 by Moody's and B+ by Fitch.
At the end of 2024, Khan Bank made up 52.6% of the total green loan portfolio of all commercial banks in Mongolia. In 2024 it raised a total of $331.25 million in financing from the international market.
CLIMATE BACKDROP AND SECTOR TARGETS
The project aims to improve access to long-term green financing, contributing to Mongolia's net-zero carbon emissions target and enhancing its climate resilience. "Mongolia is among the top 10 countries most vulnerable to climate change, making climate action a national priority," said Munkhtuya Rentsenbat, Chief Executive Officer of Khan Bank.
Mongolia's Financial Stability Council approved a green taxonomy in 2019 to help identify and classify investments by environmental sustainability, and the banking sector has committed to a green loan target of 10% by 2030. AIIB began operations in 2016, has 111 approved members worldwide, is capitalised at USD100 billion and is AAA-rated by major international credit rating agencies.