Many Monetary Policies Begin to Take Effect

On May 2, 2012, the Circular No.07/2012/TT-NHNN of the State Bank of Vietnam (SBV) stipulating the foreign currency position of credit institutions and foreign bank branches in Vietnam licensed to engage in forex operations came into force.

 

Under the new ruling, banks will not be allowed to exceed a foreign currency position of 20 percent of their own capital instead of the previous 30 percent. The most important content of the circular is the foreign currency position limit calculated by the ratio of the total positive or negative foreign currency position over the credit institution's registered capital. Accordingly, the total positive foreign currency position of credit institutions should not exceed 20 percent of the own capital of credit institutions, and the total negative foreign currency position at the end of working day of credit institutions should not exceed 20 percent of the own capital of credit institutions.

 

This regulation was made after about a year since the Prime Minister gave opinion about this matter to match the reality and inhibit dollar hoarding.

 

On the last two days of April, the USD/VND was quite volatile. Commercial banks increased ask rate by 30 - 40 dong per dollar and bid rate by 60-70 dong. This development was attributed to the buying of some credit institutions in order to satisfy the above regulation.

 

This regulation took effect on the same day as the Circular 03/2012/TT-NHNN on foreign currency lending for resident borrowers. According to this ruling, the group of foreign currency borrowers is narrowed because this disordered and pressurised USD/VND exchange rates although this capital flow for business and exporters was considerable.

 

Specifically, the new mechanism crossed off many foreign currency borrowers, even exporters borrowing foreign currency to convert into Vietnamese dong to fund domestic business operations. And, credit institutions licensed to provide foreign exchange activities can only consider providing short-term, medium-term and long-term foreign currency loans to make payment for the import of goods and services to overseas parties. However, borrowers must demonstrate they will have sufficient foreign currency to repay loans. In some cases, the lending is only allowable at the permit of the central bank.

 

The State Bank’s Circular No. 11/2011/TT-NHNN also took effect on May 2. According to this regulation, credit institutions are not allowed to extend gold loans to customers and other credit institutions (including the signed gold loan contracts with non-disbursement or partial disbursement). The issuance of short-term gold-denominated certificates by credit institutions should be terminated by May 1, 2012.

 

Recently, some banks started to keep interest-bearing gold. When the gold mobilisation service is prohibited, they open the gold keeping service which yields relatively high interest rate of 3.5 percent - 4.6 percent per annum.

 

Meanwhile, there is a concern that whether the group of five banks allowed taking part in gold market stabilisation is excluded from this ruling because they have to mobilise gold from the public and supply a part for the purpose when it is necessary. If they are imposed the ban like other credit institutions, they will have no gold to stabilise the market.

 

With regard to this matter, the State Bank has recently told those five commercial banks to report on their network operations to prepare for the implementation of gold market regulations and policies. Possibly, they will be selected to be agents to mobilise and trade gold in accordance with the new decree.

 

The decree on management of gold business activities comes into force on May 25. This important legal document makes basic changes to gold production and business in the coming time.

 

According this edict, the State will hold the monopoly in producing gold bullion and exporting and importing gold raw materials for gold bar production. Buying and selling of gold bars of institutions and individuals will be done at credit institutions and enterprises that have license from the central bank for trading gold bullion.

 

The central bank is preparing for instructions to the implementation of this decree.