Banks in Trouble over Outstanding Gold Loans

According to General Director Phan Huy Khang of Sacombank, the gold loans of the bank remains 30,000 taels, equivalent to roundly 1 tonne of gold, of which the gold loans are in terms of 3 to 5 years. To settle the outstanding gold loans, Sacombank is persuading its customers to switch to cash balance at preferential interest rates. However, the gold loans have lower interest than the VND loans. General Director Khang highlighted that the gold price in the bank is lower than in the market, so borrowers may find difficulties to settle the gold loans. Now, some borrowers have turned to gold-denominated loan payments but they have not settled the outstanding loans in long and medium terms.

 

At the Annual General Meeting of the Southern Bank, General Director Nguyen Van Nhan of the Southern Bank replied to questions from shareholders that at the end of 2012, the outstanding gold loans of the bank accounted for 118,000 taels. The Southern Bank did not choose the gold-denominated loans so it is not on negative payment status and do not need to buy gold to close the payment status. However the gold loans cannot be settled now, so the Southern Bank is taking steps to negotiate with customers to transfer loans to VND.

 

General Director Truong Van Phuoc of Eximbank said that by the end of 2012, the outstanding loans are equivalent to one tonne of gold. He confirmed that an acquisition of 1 ton of gold is not a big issue to the bank, provided that the buying method does not create price volatility.

 

Mr Truong Van Phuoc proposed that the State Bank should resolve the remaining outstanding gold after June 30 because the commercial banks that were lending gold contracted to 10-15 years now cannot force customers to pay gold loans immediately.

 

Agreeing with Phuoc's view, General Director Do Minh Toan of ACB said that by April 25, 2013, ACB had finalised the gold status but the previous outstanding gold loans cannot be settled immediately because all the gold loan contracts previously signed with 5-10 year period and the ACB's outstanding gold loans remain roundly 100,000 taels. Therefore, General Director Toan proposed that the SBV soon to guide commercial banks to implement the settlement of outstanding gold loans after June 30. At first, the bank will continue to negotiate with borrowers to transfer the gold to VND.

 

In 2012, ACB suffered a loss of VND1,863 billion from foreign currency and gold exchanges because ACB had to buy domestic gold at higher price than the world price to offset payment status and settle all the loans at the request of the State Bank. But according to Mr Toan, in the first quarter, the gold trading contributed a relatively large proportion of the total profit of the bank, with 17 percent as of April 15. ACB said it would step up operations with the establishment of a gold company, with a chartered capital of VND100 billion to focus on gold and jewellery production and business. This activity will have contributed to bank profitability since 2014. However, gold loans still make trouble for the bank. According to the General Director of ACB, it will take 3 to 4 years for ACB to settle its outstanding gold loans.

 

Meanwhile, General Director Tran Phuong Binh of Dong A Bank said the current balance of the Bank's gold is around 100,000 and if the State Bank does not give guidelines, it will have to take plans for negotiations with customers to transfer money to VND. However, he stressed that it is hard to work this plan out, because the contracts are due in next few years; besides, the transfer of gold to VND loans may cause a loss to customers because the interest rate of VND loans is higher and the difference between the current gold price and the time of borrowing. According to the CEO of Dong A Bank, if the customer declines to transfer the gold to VND loans, the bank will reduce losses to customers by reducing the lending rate to a certain discount rate the customers agree with the gold-denominated transfer.

 

According to the commercial banks, it would be difficult to settle the gold loans without customer's approval of gold-denominated transfer. Under this circumstance, the banks were forced to take VND loan interests to buy the equivalent amount of gold to settle the gold loans. The lowest VND interest rates are at 7.5 percent per year, while the interest rates of the gold loans only at 3 percent per year, regardless of high risks of gold price volatility.

 

According to Deputy Director Nguyen Hoang Minh at State Bank of Vietnam's Ho Chi Minh City branch, the amount of gold purchased by the commercial banks in Ho Chi Minh City now could cover the payments for customers before the closed date by June 30. Only SCB still has a negative gold status. To improve negative gold status, SCB said that in recent years, the bank bought physical gold to help reduce the risks of price fluctuations and cost savings, and balance the sources. SCB has bought a total of 63,987 taels but by the end of 2012, the SCB still lacks 247, 031 taels, equivalent to 9.5 tons of gold.