VIETNAM - Fearing weak liquidity, banks seek permission to export gold

by lexie Tue Feb 07, 2012 5:31 pm

February 7, 2012

Fearing weak liquidity, banks seek permission to export gold

Some commercial banks which are holding big amounts of gold, have proposed to allow them to export gold in order to improve the liquidity.

Among the heavy tasks the State Bank of Vietnam has to fulfill this year, improving the liquidity has been highlighted as the priority.

“It’s necessary to ease the interest rates, or it will be impossible to increase the asset market, which will make it unrealistic to equitize state owned enterprises and settle banks’ bad debts,” this is the new year’s message released by the National Finance Supervision Council amid the fear about the liquidity.

Worries get bigger day after day

In fact, the pressure on banks’ liquidity was realized by the State Bank of Vietnam right in June 2011, when banks only could mobilize short term capital, but had to provide long term loans of up to five or 10 years.

The problem was so serious that commercial banks borrowed capital on the interbank market and could not pay back on schedule. Nguyen Hoa Binh, President of Vietcombank, said that the bank’s decision to require collaterals for the loans in the market was an absurdity. However, Binh said that the bank needs to do that to prevent risks in the context of capital thirst.

Vietcombank was considered the “pioneer” on the market, which has been followed by a lot of other banks. Borrowers had to have mortgaged assets to borrow money – the thing that could show the worry about the liquidity became most than ever problematic.

According to Chair of the National Finance Supervision Council, risks are getting higher, which can be seen most clearly on the interbank market.

The liquidity problems not only can be seen in long term, but also in short term capital, which has made it very difficult for banks to collect debts, thus leasing to the increases of bad debts. As a result, the interest rates still have not been eased, even though the inflation has been put under control.

Analysts have also pointed out that the CAR (capital adequacy ratio) is decreasing sharply. It was 11.97 percent in June 2011, or 0.16 percentage points lower than that in December 2010.

As a result, the number of banks which cannot satisfy the requirements on CAR has increased rapidly. According to the National Finance Supervision Council, by June 30, 2011, only two out of 47 banks could not meet the CAR standard, while the figure rose to 17 by September 2011.

What to do?

Le Xuan Nghia, Deputy President of the National Finance Supervision Council, said that it is necessary to take actions right now to help improve the liquidity of the whole banking system – the biggest problem now of the macro economy.

Nghia believes that in the immediate time, the State Bank needs to pump money to help improve the liquidity for some banks. Of course, it is necessary to be sure that the money will be used for the right purpose – to help improve the liquidity, not for other purposes.

The second solution Nghia has suggested is to increase the compulsory reserve ratio to acceptable levels, which allows to transfer capital from the banks with profuse capital to the needed banks. At present, big banks do not want to lend to small banks because of the fear that small banks cannot pay debts. Meanwhile, small banks do not have assets to mortgage for the loans.

If the problem cannot be settled, the banks with liquidity problem will have to borrow money on the market at the high interest rates of 19-20 percent

The third solution is that the State Bank should allow some banks which are thought to hold more than 100 tons of gold, to export gold on accounts. Analysts believe that banks just need to sell one percent of the gold they have via accounts to be able to help improve liquidity.

http://www.vietfinancenews.com/2012/02/fearing-weak-liquidity-banks-seek.html#more