VIETNAM Banks getting bore to death with gold

Banks getting bore to death with gold

The tightened regulations on gold mobilization and lending, the new policies on the gold market management, plus the gold price going downward have all made commercial banks get tired of gold.

On June 25, 2012, the State Bank released a document requesting commercial banks to stop mobilizing and lending in gold on schedule following the regulations stipulated in Circular 12 and Instruction No. 05.


Credit institutions only can issue gold short term certificates to make payment to clients. However, this must finish on November 25, 2011, as initially scheduled.


In fact, a lot of commercial banks had slashed the gold deposit mobilization interest rates before the document was released already. The move to lower the interest rates is the first step to be taken by commercial banks to stop mobilizing capital in gold.


Saigon Bank, which previously offered very high interest rates of up to 4.6 percent per annum to attract deposits, has slashed the interest rates to 2.2 percent at the highest, which is applied to 6-9 month term deposits. Meanwhile, the interest rate of 2 percent is being applied to other kinds of deposits.


Nam A Bank, which once paid 4 percent per annum to gold depositors, now pays 1.8 percent per annum for 1-3 month term deposits, and 2 percent for longer term deposits.


At ACB, the gold deposit interest rate has dropped to 0.9 percent per annum at the highest, while the depositors at the bank last month received approximately 2 percent. Viet A’s and Eximbank’s interest rates have been hovering around 0.6-0.9 percent. Meanwhile, many banks do not mobilize long term capital, only accepting 9-month term deposits.


Until last month, banks had rushed to raise the gold deposit interest rates in an effort to improve their liquidity. The banks used the mobilized gold to mortgage for loans on the interbank market. However, since the bank liquidity has been improved and it’s easier to borrow money on the interbank market, banks now do not have to mobilize gold any more.


Besides, commercial banks also need to get ready to stop mobilizing gold as requested by the State Bank of Vietnam.


Explaining the move by commercial banks to “get ahead of the State Bank’s legal document”, analysts have attributed to the low purchasing demand on the gold market. SJC bullion gold last week was traded at 450,000 dong per tael, the sharpest weekly price decrease of SJC branded over the last month.


At present, the gold price in Vietnam is still 2 million dong per tael higher than the international price.


A big gap between the domestic and international prices in the past once made the in-kind gold market scorching hot. However, this has prompted investors to keep bullion gold again.


People fear that once SJC becomes the national bullion gold brand, and the SJC gold price would be announced by the State Bank every day, bullion gold would be put under a strict control like a currency. By that time, the gold circulation on the market would be considered as currency circulation.


This means that people would have the right to keep gold, but not everyone can trade gold. Though people can buy gold, they may find it difficult to sell gold to get dong. This also explains why people keep a glacial attitude to gold.


In case the State Bank issues gold certificates, people would not have in-kind gold, but only have gold certificates, the situation would be even worse, because Vietnamese people still favor to have in-kind gold instead of “paper gold.”

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