Jewelry firms face difficulties after gold loans ban

Since May 1, commercial banks cannot lend gold even for jewelry production under new regulation of the central bank that may put jewelry companies in jeopardy.

The boss of a large jewelry company said the firm usually accepted loans in gold from banks to produce jewelry – and capital from banks accounted for a considerable proportion of the company’s total capital.

He said the State Bank of Vietnam’s ban will hit jewelry companies hard.

The regulation has also been applied for contracts that have already been signed but not yet disbursed or partly disbursed.

Nguyen Thi Cuc, deputy general director of Phu Nhuan Jewelry Co. (PNJ), told the Daily that the new regulation will have a huge impact on jewelry companies.

She said for gold jewelry, companies had to invest huge capital to produce the jewelry and then put the goods in stores to wait for customers to purchase. Therefore, borrowing gold with a low rate was a good choice for jewelry companies, she added.

However, given the new regulation, jewelry companies have to find other ways to do business as Cuc said PNJ had to rebalance its total capital and will have to find other capital sources.

The general director of a joint-stock bank in HCMC’s District 1 said that jewelry companies now had to borrow capital in Vietnam dong and then buy gold to produce jewelry.

However, the high lending rate in dong which is currently 20percent per year would be beyond a lot of companies as well as the fact it is not so easy to borrow Vietnam dong, the source said.

As banks cannot give loans in gold, most lenders have cut their deposit rate in gold to lower than 1percent per year. The State Bank of Vietnam will still allow banks to mobilize gold via issuing certificates of deposit from now to May 1 next year.

Nguyen Thi Kim Xuyen, deputy general director of DongA Commercial Bank, said that gold mobilized at a low rate still can help banks to ensure liquidity. The bank from Wednesday began decreasing gold deposit rates by between 0.2percent and 0.4percent per year and customers cannot withdraw early.

Banks also cannot convert capital in gold to Vietnam dong for lending so banks’ operational effectiveness will be impacted in the future, especially banks that were strong in gold-related operations.

Truong Van Phuoc, CEO of Eximbank, in the bank’s general meeting last month said the bank now managed 13 tons of gold from individual customers and other sources. Of which, seven tons have been lent while the remaining six was still in the bank’s stock, he added.

Meanwhile, Ly Xuan Hai, CEO of Asia Commercial Bank, said with the central bank’s ban on lending and trading gold an amount of gold would be in stock. Gold accounts for about 15-20 percent of the bank’s total assets. – SGT

Posted by VBN on May 6 2011. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry