VINACHEM

Gold speculation is popular in the country, namely in Ho Chi Minh which accounts for nearly 76% of the national total. Banks mobilise capital in the public’s gold to sell for Dong in order to settle liquidity problems.

Back in April we wrote about Vietnam and gold investment, a brief look at the Vietnamese government’s attempts to ‘stabilize’ the economy through a series of restrictions on the gold market.

These restrictions included banning gold as a medium of exchange and issuing 7 ‘solutions’ which were designed to reduce ‘goldization’ the practice of replacing the dong with gold in transactions.

As many readers already know, Vietnam has a huge affinity with gold. So much so that house prices are priced in both dong and gold. According to Ronald Stoerferle’s ‘In Gold We Trust’ 2012 report, ‘Overall gold demand amounts to roughly 3.1%of GDP’ Stoerferle also notes that by comparison it is less than 0.5% in China.

These moves by the government aren’t so much to change the behaviour of citizens but also their psyche. Further measures have been put into place in the last month in order to reduce the dependency on gold.

Ban on gold mobilisation and gold lending
To ‘prevent gold speculation’ the State Bank of Vietnam (SBV) has issued a directive ordering credit institutions to halt gold mobilisation and lending in gold from November 25 2012.

Gold speculation is popular in the country, namely in Ho Chi Minh which accounts for nearly 76% of the national total. Banks mobilise capital in the public’s gold to sell for Dong in order to settle liquidity problems.

Prior to July, commercial banks reportedly rushed to raise gold deposit interest rates in an effort to improve their liquidity – they used mobilized gold in order to borrow on the interbank market. However, according to reports, it is now easier to do this without mobilizing gold as bank liquidity has been improved. Therefore banks no longer have to mobilize gold.

In line with the directive, credit institutions will only issue short-term gold certificates, for those depositing physical gold bullion, to pay customers upon request, these will terminate on the 25 November.

Gold and inflation
Gold controls such as those mentioned above and in our previous research has come into force in order to try and control inflation of the dong. In the last year inflation has reached highs of 17%. Resolution 11, brought in to force in March 2011 in order to reduce inflation in the country, has included a series of measures in order to gain tighter controls on money, credit and the budget deficit.

One of the measures implemented by the central bank saw the interest rate on dollar deposits reduced to 3% whilst the 14% rate was maintained for Dong deposits.

Last month, this tactic was carried through to the gold market where the lowering of interest rates on gold deposits has been the first step by banks to stop mobilizing gold and reduce the attractiveness of storing gold with a bank. They of course hope this will slow down gold investment.

The Vietnamese Business Times outlined:
- Saigon Bank, which previously offered very high interest rates of up to 4.6 per cent per annum to attract deposits, has slashed the interest rates to 2.2 per cent at the highest, which is applied to 6-9 month term deposits. Meanwhile, the interest rate of 2 per cent is being applied to other kinds of deposits.

- Nam A Bank, which once paid 4 per cent per annum to gold depositors, now pays 1.8 per cent per annum for 1-3 month term deposits, and 2 per cent for longer term deposits.

- At ACB, the gold deposit interest rate has dropped to 0.9 per cent per annum at the highest, while the depositors at the bank last month received approximately 2 per cent.

- Viet A’s and Eximbank’s interest rates have been hovering around 0.6-0.9 per cent.