The State Bank
of Vietnam
has decided that from May 1, 2011, commercial banks have to stop lending in
gold, including the lending to fund the jewelry manufacturing. Jewelry
companies have complained that the new decision has put big difficulties on
them.

On April
29, 2011, Governor of the State Bank of Vietnam released a legal document,
stipulating that commercial banks must stop lending capital in gold from May 1,
2011.

Credit
institutions now are not allowed to lend in gold to clients and other credit
institutions. They are now allowed to make disbursement for the credit
contracts which have been signed between banks and clients, but banks have not
been disbursed. Credit institutions are not allowed to deposit gold at other
credit institutions. In general, they cannot provide credit in gold under any
forms.

Regarding
the capital mobilization in gold, commercial banks now are not allowed to
mobilize capital in gold, while they are only allowed to issue short term
certificates in gold in order to pay to clients, while the gold amounts in bank
coffers are not big enough to pay. However, the certificate issue must be
stopped by May 1, 2012, or one year earlier than the previously set deadline.

A manager
of a big jewelry company said that the company had been borrowing gold from
banks to make jewelries to sell on the domestic market, and that the loans from
banks had been accounting for a big proportion in the total capital needed by
the company. Therefore, he believes that the new decision by the central bank
to stop providing loans to fund the jewelry processing will cause big
difficulties to jewelry companies.

Nguyen Thi
Cuc, Deputy General Director of the Phu Nhuan Jewelry Company PNJ also said the
new decision will have impacts on the company’s operation. In general, jewelry
companies have to “bury” capital for a long time at jewelry products, because
it always takes a long time to display the products after the processing at
shops for sale. Therefore, jewelry companies need to borrow gold from banks. In
general, the gold capital had been lent at “reasonable” interest rates.

Cuc said
that as the central bank has prohibited commercial banks to lend in gold, PNJ
will have no other choice than arranging capital itself to maintain its
business.

General
Director of a joint stock bank whose headquarter is located in district 1 in HCM City,
said that since jewelry companies cannot borrow in gold any more, they will
have to borrow in dong and then use the dong to borrow gold to process. In this
case, the production costs will be higher, because the dong lending interest
rate is now relatively high, hovering around 20 percent per annum. Even if
jewelry companies accept the high interest rate, they will still find it uneasy
to access loans.

Since banks
now cannot lend in gold, they all have slashed the gold deposit interest rates
to very low levels at less than one percent per annum. The capital mobilization
in gold through deposit certificate issue will still be allowed until May 1,
2012.

According
to Nguyen Thi Kim Xuyen, Deputy General Director of Dong A Bank, the volume of
gold mobilized these days from the public at a very low interest rate alone can
help ensure the liquidity for banks. Xuyen also said recently, when the gold
deposit interest rates have been going down, a lot of people have sold gold on
their accounts to the bank to get dong.

Dong A now
is offering the interest rates of 0.2-0.4 percent per annum for gold deposits,
while clients are not allowed to withdraw deposits before they become mature.
The low interest rates have been applied since May 4.

As banks
also cannot sell gold for dong now, the banks which once had advantages in gold
trading, will see their operation affected, because gold will be kept in
coffers.

Truong Van
Phuoc, General Director of Eximbank, said on April 23, that the bank was
managing the volume of 13 tons of gold, of which 7 tons had been lent.

Source: TBKTSG