Banks could lower gold interest rates

Lenders have responded to the new limitation on gold lending and borrowing, by saying they would consider lowering gold deposit rates. Truong Van Phuoc, general director of Vietnam Export Import Commercial Bank, told the Daily that his bank would consider decreasing gold deposit interest rates, as the outlet for gold lending had been restricted by Circular 22. The circular issued by the State Bank of Vietnam that took effect last Friday bans banks from lending gold for trading and speculating. In addition, banks now cannot convert 30% of their gold deposits in local currency funds for making loans like earlier. Therefore, the outlet for gold has been considerably restricted. Nguyen Thi Kim Xuyen, deputy general director of DongA Commercial Bank, said the bank would keep a close eye on what other banks were doing before revising down its deposit rates for gold. Currently gold deposit rates at most banks range from 1% to 1.5% per year. In March and April this year when banks were banned from trading gold on foreign exchanges, deposit rates for the yellow metal dipped to 0.1%. However, to meet the capital requirement regulated in Circular 13, banks had to increase rates in gold to 1%-1.5% per year again. There are concerns that people will rush to withdraw gold from banks if the deposit rates drop, but lenders said it would be unlikely as it was safer for people to keep gold in banks, even at low rates. “When the gold deposit rate was very low in March and April, people did not withdraw their gold,” Phuoc of Eximbank and Xuyen of DongA Bank said. Circular 22 placed the gold market under the management of the central bank, so experts expect the market to stabilize, leading to more stability for the foreign exchange market. Le Tham Duong, head of the Trading Faculty of the HCMC Banking University, said the new circular was aimed at stricter management of banks’ operations, supplementing Circular 13 on safety ratios that took effect in early October. “Circular 22 also shows the Government’s official view on gold that is just asset for reserve, not an instrument for payment,” Duong added. Given the possibility of lower deposit rates for gold or even bank fees for gold deposits, people would steer away from gold and switch to holding Vietnam dong for reserve, Duong said. By limiting speculation, the difference between the local and global gold prices would narrow, settling the unofficial dollar price and the foreign exchange market in the long-term view, Duong added. Although the new circular is going to upset the gold market, it would bring stability to the foreign market in long term, Duong added. Local gold rose to a new record high late last week on the global price spike. Saigon Jewelry Co. (SJC) quoted its selling price late Saturday at VND33.4 million per tael, increasing VND370,000 per tael from the previous day. A tael equals to 1.2 troy ounces. Unlike before, the local price has matched the global level since Circular 22 was announced. However, the dollar selling price on the unofficial market strongly rose late last week to VND20,400 on selling.