Banks forced to stop the game with gold
VietNamNet Bridge – The State Bank has successfully forced commercial banks to stop the mobilization and lending in gold, which, as described by experts “successfully put down the chaos on the gold market.” However, risks still exist.
July 9 was an important day because it made a great landmark in the central bank’s battle to put down the chaos on the gold market which has been lasting over the last decade. Once banks cannot mobilize and lend in gold, they will not be able to use the mobilized gold for their trade deals and surf on investments to make profits any more.
In fact, the State Bank decided that banks must stop mobilizing and lending in gold on June 30, 2013. However, the one week delay still has satisfied the watchdog agency.
Over the last two weeks, all the gold put into bids by the central bank have been bought by commercial banks, even though the real demand was not high. Meanwhile, the gap between the domestic and the international prices remain large, and it got larger when the State Bank did not invite for bids.
Explaining the big purchases, bankers said that the demand is not too big, but since the supply is unstable, they have to push the sale prices up to “play safe.” Therefore, the domestic gold price is still much higher than the world’s price.
The bankers also complained that they only can seek the supply from the bids to be organized by the State Bank.
Meanwhile, analysts have commented that the actions taken by the gold traders showed that they still have the power to control the market, even though the State Bank now holds the right to conduct the market.
The Decree promulgated in 2012 has given the power to the State Bank to act as the only gold importer, producer and supplier. The watchdog agency has eliminated thousands of bullion gold shops, while only having granted gold trade licenses to 22 banks and 16 financially capable enterprises with an aim to satisfy the people’s demand for buying and selling gold.
Dr. Nguyen Tri Hieu, a well-known banking expert, noted that it would be reasonable for the central bank to allow commercial banks to trade gold in the context of the market disorder. However, as the State Bank has made a big leap in the management of the gold market, it should reconsider this.
“In long term, commercial banks should only take on traditional business types – mobilizing and lending capital,” Hieu said.
Le Xuan Nghia, Head of the Institute for Business Development, did not say exactly that he advocates or protests, but said in other countries in the world, commercial banks are not allowed to trade gold.
“If necessary, gold banks would be established which are independent with commercial banks,” Nghia said.
“Gold trade is a kind of venturous business. If commercial banks are allowed to trade gold, this may lead to the gold transfer from credit to gold, which would erode the depositors’ confidence,” he explained.
General Director of the Vietnam Gold Company Tran Thanh hai also thinks that the central bank should do everything it can to restrict or control the gold trade activities by commercial banks.
Under the current regulation, banks’ gold position must be higher than 2 percent of their stockholder equities. The regulation aims to prevent banks’ speculation activities.