Central bank pulls plug on gold deposits, but not loans

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The State Bank of Vietnam has ordered banks to stop accepting gold deposits, but many banks have unexpired agreements to lend gold, and are frantically seeking guidance from the central bank.

Banks have to have nil gold deposits by June 30, but many have long-term agreements with borrowers to lend gold.

Tuoi Tre newspaper quoted Do Minh Toan, CEO of Asia Commercial Bank, as pointing out at a conference this week that local banks are reducing gold deposits gradually to clear them by the June deadline, but cannot do likewise with loans.

Since the loan contracts are for five to ten years, they would take at least a few years to liquidate, he said.

Now banks try to persuade customers to borrow in dong, but if they fail to do so, they have to buy gold for lending, he said.

ACB has credit agreements for more than 100,000 taels (a tael equals 1.2 ounces), Toan said, adding that the central bank needs to address the issue urgently.

Tran Phuong Binh, CEO of DongA Bank, voiced similar concern, telling the newspaper on the sidelines of the conference that if the central bank does not step in now, banks have to plead with their customers.

But customers would suffer losses since interest rates on dong loans are higher than on gold loans, so it is not easy to convince them to revise the contracts, he said.

There would be further changes in interest rates and gold prices before the contracts expire, he pointed out.

Nguyen Dinh Tung, CEO of Orient Commercial Bank, said banks with contracts for a large amount of gold loans would suffer if customers are not amenable.

The banks would then have to buy gold using dong, and this could potentially cause them massive losses because the lowest deposit interest rate on dong is 8 percent, while gold loans carry just 3 percent interest, he explained.

Truong Van Phuoc, CEO of Eximbank, said since loans are for up to 15 years it would be impossible to force borrowers to pay up their debts in gold immediately.

Eximbank has unexpired gold credits to the tune of one ton, he revealed. 

The central bank's decision is eagerly awaited by banks.

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