SBV to squeeze local gold investing and trading activities

The official circular on gold market supervision is expected to be issued this week by the State Bank of Vietnam (SBV), aiming to squeeze local gold investing and trading activities, the local newswire VnExpress reported October 25.

The official circular on gold market supervision is expected to be issued this week by the State Bank of Vietnam (SBV), aiming to squeeze local gold investing and trading activities, the local newswire VnExpress reported October 25.

Earlier, a source from the State Bank of Vietnam said the draft circular on gold market supervision has been reviewed by local authorities and approved by the Government.

Accordingly, the country’s central bank is mulling to prevent local commercial bank from exchanging gold deposits into the dong for the lending purposes and put certain limit on both gold deposit and lending activities.

The banks have been allowed to exchange a maximum of 30% of gold deposits to the dong and lend to the public for higher profit margin, the newswire reported, citing that gold deposit interest rates are only near 1% p.a. while lending interest rates are mostly 12% p.a.

Despite huge profits of even 50%, these trading activities may pose many risks to local lenders due to gold price volatility and the banks’ lack of instruments to hedge liquidity and price risks.

The banks’ gold deposit and lending activities may also affect the market’s supply-demand and in turn affect local gold prices.

Worse still, gold price volatility often has a big impact on the forex market and vice versa.

Currently, the gold deposits in the Vietnam’s banking system amounted up to 90 tons, or $4billion. The SBV’s move is expected to release part of the banks’ gold deposits and also help to ease dollar tension. – Stoxplus

Tags: vietnam gold, Vietnam gold market, Vietnam gold prices