Commercial banks buy gold above market price

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"The move is being seen as a temporary measure to tackle difficulties in raising capital and helping banks maintain short-term liquidity," said a senior official of a HCM City-based commercial bank, who asked to remain anonymous.

Commercial banks have been struggling to attract deposits at a time when high inflation has made bank deposits unattractive to investors. Many banks have had to offer interest as high as 18-19 per cent per year on Vietnamese dong in order to entice depositors.

Eximbank announced last Wednesday that it would buy gold at a price of VND100,000 per tael, or 0.15 per cent, higher than market value for customers who agreed to deposit the proceeds for a term of one to three months.

VietA Bank has launched a programme under which it would buy at a price 0.4 per cent higher than the market quotation for existing customers and 0.35 per cent higher for new customers wanting to sell gold and deposit the proceeds with the bank. The bank continues to offer certificates of deposit for gold with interest ranging from 0.5-1 per cent per year.

Reports from Sacombank's business division showed that, last Wednesday and Thursday, the amount of gold bought from customers rose 20-30 per cent to reach a total 5,800 taels.

The State Bank of Viet Nam stopped accepting deposits of gold or lending against gold, effective May 1. "Since then, dong deposits have increased," said Ton Vinh Quyen, who works in the gold division at Sacombank.

The Government was expected to soon designate one major gold bullion trader on the market in place of the nine currently operating, including commercial banks and jewellery dealers.

"Allowing only one gold trader means the market will be pulled back to the monopoly of ten years ago," said Vu Minh Chau, general director of Bao Tin Minh Chau Gold and Jewelry Co, a leading Ha Noi gold bullion trader.

Only one trader might not be enough to meet market demand, Chau said.

Chau noted that, ten years ago, when there was only one gold trader on the market, the gap between buy/sell prices was 1-3 per cent. That has since narrowed to just 0.3-0.4 per cent now that the market has more competition.

"When many enterprises join the gold market, customers will benefit," he said.

While the final decision of the Government has not yet been made, the State Bank measure has had a strong impact on gold bullion trading, with trading at Bao Tin Minh Chau down as much as 60 per cent.