Banks left with a weighty gold problem

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An ACB representative said restricted gold trading would raise its stockpiled gold volume since gold and foreign currency lending made up around 25 per cent of the bank’s total outstanding loans.

ACB reaped over VND860 billion ($41.5 million) worth in pre-tax profits in the first quarter of 2011 and gold trading contributed 15-20 per cent to the bank’s total incomes in the first quarter.

“The bank’s mobilised gold remains large as the State Bank recently put a cap on gold trading,” said ACB’s general director Ly Xuan Hai.

An Eximbank representative said it would take time for banks to deal with current big gold stockpiles.

Similarly, a senior executive at Sacombank said central bank’s decision forbidding gold depositing and lending would hurt bank’s operations and profit margins.

Sacombank Jewelry Company Limited (SBJ) would focus on jewel trading, said Sacombank’s chairman Dang Van Thanh.

Deputy general director at Phu Nhuan  Jewelry Company Joint Stock (PNJ), a well-known jewel trader in the country, Nguyen Thi Cuc said PNJ, like many other firms on an equal footing, borrowed gold from banks for jewelry manufacturing. Therefore, the new regulations would largely affect jewel businesses.

According to a State Bank report, the gold volume deposited at Hanoi banks made up 11 per cent of the country’s total deposits in gold while corresponding figure for Ho Chi Minh City was 76 per cent.

In light of Decree 11/2011/TT-NHNN dated April 29, 2011, from May 1, 2011 credit organisations will no longer be permitted to receive gold deposits and lending gold. The decree’s major objectives are to curb dolarisation and gold speculation in the economy, stabilise the foreign exchange market and reduce usage of gold as a means of payment.