Gold deposit interest rates surges on high demand

Local banks are on a race to hike gold deposit interest rates up to 2% per annum to cope with new regulations and boost up lending, the local news wire Sai Gon Tiep Thi (SGTT) reported September 17.

Local banks are on a race to hike gold deposit interest rates up to 2% per annum to cope with new regulations and boost up lending, the local news wire Sai Gon Tiep Thi (SGTT) reported September 17.

As stipulated in Circular 13, local banks are requested to keep a maximum of 80% loan to deposit ratio (LDR) by October 1, which put pressure on banks to either cut lending or increase deposits.

As a solution, local lenders are luring gold investors to increase their commercial funds to maintain 80% of LDR without having to slash their outstanding loans.

Appetite for gold loans from both retail borrowers and bankers are mounting in recent times, said Bui Tan Tai, Deputy General Director of Asia Commercial Bank (ACB), resulting in the race to hike gold deposit interest rates by local lenders. For example, Eximbank raised gold deposit interest rates three times within a month to current 1% per annum while ACB raised twice to 1.1% per annum from previous 0%- 0.05% p.a.

Retail borrowers switch to gold with the bias that gold prices has limited room to surge further in the remaining months of the year after rising 9.87% year –to-date, said Trinh Van Phuoc, Eximbank’s CEO.

Phuoc also added that Eximbank’s customers’ gold demand rose 20% from previous month and he estimated that under current market conditions, gold deposit interest rates could hit 2% p.a.

Phuoc calculated that with interest rates of between 3-4% per annum for gold and 14-17% negotiable interest rate for dong loans, borrowers have incentives to borrow gold to convert into dong rather than borrowing dong, especially after a recent dong devaluation.

He added that positive market sentiment also picked up on the investors’ belief that the dong will be kept stable until the year-end and hardly impact on gold prices in the coming time.

Though some bankers admitted that they earned much from lending physical gold others are still skeptical with gold loans as risks of default are high if gold prices soar, said a banker.

However, the rush to hoard gold of the public and export gold of enterprises had negative impacts on the national forex reserves and balance of dollar supply-demand at certain time, Bui Kien Thanh, senior economist concerned.

Earlier when global world prices surged on June 21, local enterprises exported tons of gold, pulling dollar prices down VND15 per dollar, then their similar moves on August 20 also reduced dollar prices by VND30.

In the first six months of this year, Vietnam exported roughly 36 tons of gold, equivalent to $3.6 billion. Nguyen Cong Tuong, SJC company said that even interest rates on gold export are flat, local enterprises still maintain exporting gold to enjoy the exchange spread or raise their dollar reserve. – Stoxplus.com

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