Gold price drops as Vietnam banks re-open trading

October 9, 2011

Gold price drops as Vietnam banks re-open trading


The State Bank of Viet Nam (SBV) has officially allowed certain banks to re-open their foreign gold trading accounts in a move to narrow the gap between domestic and world prices while stabilising the chaotic domestic market.

From 2004 to the beginning of 2010, 11 commercial banks and eight businesses in Viet Nam were licensed to trade gold on foreign accounts while a number of gold trading floors boomed on the domestic market.


During the period, foreign gold trading activities and domestic gold exchanges were blamed for fluctuations on both the domestic gold market and the economy. Consequently, at the end of last March, the central bank required that commercial banks and credit institutions close their foreign gold accounts and exchanges.


However, the domestic market was confronted with a gold shortage due to the gold import quota which has resulted in a significant gap between domestic and world prices in recent days.


On Thursday, five banks along with the Sai Gon Jewllery Ltd Co (SJC) were granted licenses to sell gold at prices near the world price, resulting in a significant price drop on the domestic market despite an increase on the world market.


At 5pm yesterday, SJC announced buy/sell prices of VND600,000 lower than the previous day, or VND43.4 million (US$2,086) - VND43.85 million (US$2,108) per tael (one tael is equivalent to 1.2 ounces). At the same time, the spot price on the London Bullion Market was US$1,654.30 per ounce.


Experts said that banks trading gold on accounts was only a temporary solution as the market had been thirsty for the promulgation of a comprehensive new decree on gold management.


Meanwhile, a large volume of gold, estimated at around 100 tonnes, remained idle in bank deposits, they said.


On Thursday, the central bank issued Circular 32/2011/TT-NHNH which permits commercial banks and credit institutions to transfer part of the gold deposited in their vaults into Vietnamese dong in an effort to create a larger gold supply to cool down the domestic gold market.


A number of banks quickly announced they would raise their deposit interest rates for gold.


Viet Nam Tin Nghia Bank and Eximbank posted their interest rate for gold certificates from 0.5 per cent to 2.2 per cent and 1.5 per cent per year, respectively.


To closely control gold lending activities, the central bank asked commercial banks and credit institutions to report their gold lending loans to organisations and individuals from January 1, 2011 to October 7, 2011 to the central bank by next Wednesday.


These banks must report their total lending loans, the number of borrowers, loan collections as well as the purpose of the loans. They are also required to take a closer look at the reasons borrowers are taking out loans.


SBV Governor Nguyen Van Binh also asked supervisory teams and SBV provincial branches to closely monitor gold lending activities by commercial banks.


Senior economist Bui Kien Thanh said that citizens should be discouraged from purchasing physical gold as it was not helpful to the economy.


The central bank raised the re-financing interest rate on Thursday to 15 per cent from 14 per cent per year, effective next Monday.


The overnight interest rate on the inter-bank market was also increased from 14 per cent to 16 per cent per year.


The move aims to restrain credit growth to under 16 per cent for the entire year with total money supply growth of 12 per cent as set by the Government at the beginning of the year.


Yesterday, the exchange rate between Vietnamese dong and the US dollar increased by VND5, forcing a number of banks to raise their forex. Vietcombank posted its buy/sell prices at VND 20,856 - VND20,860, VND6 higher than Thursday's rates.


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