VietNamNet Bridge – For a long time, commercial banks absorbed in mobilizing gold and lending in gold, and selling the mobilized gold for money to lend for higher interest rates. The spontaneous activities have generated big consequences that will take a long time to settle.
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Serial mistakes made
A senior official of the State Bank said that the gold market had been floated
until the decree No. 24 came out which tightened the management over the market.
With the loosened management, credit institutions could easily mobilize gold,
lend in gold and invest in gold. It happened that banks tried to mobilize gold
in big quantity just to sell gold for money which they lent to borrowers at high
interest rates.
When the “gold fever” attacked the market, people then rushed to buy gold,
speculators also borrowed money from banks to buy gold. This has driven the cash
flow into the gold market, causing the so called “goldenization” in the national
economy.
In March 2010, the State Bank decided to close down the gold trading floors
after he found the serious risks. In 2011, in a move to fight against the
goldenization, the State Bank requested commercial banks to stop mobilizing and
lending in gold.
In April 2011, the State Bank released the Circular No. 11, telling banks not to
mobilize gold and lend in gold, and not to deposit gold at other credit
institutions. It also decided that the conversion of gold into dong must be
finished prior to June 30, 2011. Bank could only issue short term certificate to
mobilize gold to pay back to depositors. However, no more certificate issuance
would be allowed after May 1, 2012.
The instructions then caused a shock to banks. Many of them, which sold the
mobilized gold for dong before, then hurried to buy gold to pay back to
depositors. The demand for gold increased sharply, thus making the gold market
“scorching hot.”
In an effort to cool the market, the State Bank released the Circular No. 32 in
October 2011, allowing a group of commercial banks, including ACB, Dong A,
Eximbank, Techcombank, Sacombank and the Saigon Jewelry Company (SJC), called
the group G5+1, to open accounts overseas, sell 40 percent of the gold. The move
was explained as aiming to stabilize the market.
To date, the deadline for gold account finalization has been extended three
times by the State Bank, after commercial banks complained that they cannot
fulfill the request on schedule. In the latest decision, the deadline has been
extended to June 30, 2013.
Heavy price paid for loosened management
Tran Thanh Hai, General Director of the Vietnam Gold Business Company (VGB),
noted that by allowing G5+1 to sell 40 percent of the gold balance, the State
Bank then allowed them to make speculation.
At the time when the G5+1 was allowed to buy and sell gold to stabilize the
market, the dong deposit interest rates were sky high at up to 18 percent per
annum. The lending rate jumped to 25-26 percent, and the interbank interest rate
sometimes reached 30 percent per annum.
Meanwhile, the deposit interest rate was 2-3 percent per annum only, which then
prompted banks to mobilize gold and sell the deposited gold for dong to lend in
dong for higher interest rates.
Commercial banks now hurry to seek to purchase gold when the deadline of June 30
nears. They have bought bullion gold in big quantity in the domestic market,
which explains why the domestic price is always higher than the international
price by several million dong per tael.
NLD