Commercial banks issue gold deposit certificates, intensively

While gold deposit interest rates offered by many commercial banks are gradually reduced towards zero percent, some other banks are rushing to mobilize capital in gold by issuing gold deposit certificates

While gold deposit interest rates offered by many commercial banks are gradually reduced towards zero percent, some other banks are rushing to mobilize capital in gold by issuing gold deposit certificates which, in the eyes of many experts, is an abnormal thing.

The circular dated April 29, 2011, by the State Bank of Vietnam–stipulates that commercial banks have to stop lending in gold and mobilizing capital in gold, unless they issue short term certificates in order to pay gold as requested by clients.

Observers say many banks have been rushing to issue gold deposit certificates at interest rates recently.

Abnormal thing

Among the banks which are issuing gold deposit certificates, T bank is offering the high interest rate of 2.3 percent per annum for 9-month term and 364 day term deposits. Meanwhile, the 2.2 percent per annum interest rate is being applied to 3 and 6 month term deposits.

Other banks are offering lower interest rates than T, but the rates are still considered high if noting that other banks’ interest rates are marching towards the zero percent level. Southern Bank, for example, is issuing 3-5 month gold deposit certificates, offering the interest rate of 1.3 percent per annum, and issuing 6-11 month certificates with the maximum interest rate of 1.5 percent per annum.

The highest gold interest rate at Dong A bank is 0.4 percent applied to 3-month term deposit, while the highest rate at Asia Commercial Bank ACB is 0.7 percent applied to 11 month term deposits.

When asked why his bank is mobilizing gold at such high interest rates, deputy general director of a bank said that mobilizing capital and lending in gold have been carried out by the bank since 2009, before the State Bank released the Circular No 11.

Regarding the gold interest rates, the bank sets interest rates and makes adjustments on the interest rates based on the actual demand and supply, in order to ensure the optimum business efficiency of the bank. He went on to say that the bank is now mobilizing gold just to pay gold back to clients for the matured deposits, while it is waiting for clients to pay gold back to the bank.

Under the circular No 11, the gold mobilization through certificate issuance will only finish by May 1, 2012.

The fact that some banks offer high interest rates for gold deposit certificates has surprised bankers as well. A director of a big joint stock bank in HCM City said he thinks this is an “abnormal thing” that banks pay such high interest rates for gold deposits, when the market gold interest rates tend to come closer to zero percent.

Mobilizing gold in order to improve liquidity

Before the Circular No 11 came out, commercial banks used some 30 percent of the mobilized gold volume and converted the gold to dong in order to help improve the dong liquidity. Especially, when the gap between the dong and gold interest rates increased, some commercial banks even made an adventurous move by selling gold for dong and lending in dong, which allow bringing higher profits.

However, since the State Bank released the Circular No 11 on tightening the mobilization and lending in gold, banks have been put into dilemma: they have to pay gold back to depositors because short term deposits become matured, while they still cannot take back loans from long term borrowers (the clients borrow gold for 3-7 years).

Is it possible that commercial banks rush to mobilize capital in gold now in order to sell gold for dong to help improve dong liquidity? Answering the question, the banks which are mobilizing gold said that the current gold mobilization does not have any relations with the demand for Vietnam dong. The Circular No 11 stipulates that credit institutions must not convert mobilized gold into dong and they also must not deposit gold or lend in gold to other credit institutions.

Nguyen Hoang Minh, Deputy Director of the HCM City Branch of the State Bank of Vietnam, has affirmed that commercial banks have to ask for the permission from the State Bank for the plan to mobilize gold, and that they will only allowed to mobilize gold in case they need gold to pay matured deposits.

“Any banks, which are discovered as mobilizing gold to sell gold for dong, will be strictly punished,” Minh said. – Vietnamnet

Tags: gold deposit certificates, Vietnam banking industry, Vietnam finance, Vietnam financial