Banks in trouble over outstanding gold loans
Updated : 01/23/2013 12:26 GMT + 7
While gold owners are no longer able to store their precious metal at banks for safety and interest, the credit institutions themselves are in trouble over a huge amount of outstanding long-term loans in gold.
Banks must settle all of their gold bullion deposits by June 30, while most of the lending in gold is under a term of five to ten years, they said at a meeting on Tuesday.
“Customers cannot repay their five-year loans in gold with us from now to June,” said Do Minh Toan, CEO of ACB.
Toan said it may take a bank three to four years to fully settle the outstanding loan.
“Hence, banks may have to ask their gold borrowers to convert their loan into Vietnamese dong, or earmark money to buy back the gold,” he added.
The State Bank of Vietnam should provide advice on this issue soon, he urged, adding that ACB’s outstanding gold loans are over 100,000 taels.
Dong A Bank CEO Tran Phuong Binh also said his bank has considered negotiating with borrowers to change from gold loans to VND loans.
“But it’s not easy to persuade customers, as their loans are not due while the interest rate on VND lending is much higher than gold,” he said.
“Moreover, gold bullion is now far more expensive than when the customers borrowed from banks.”
Meanwhile, Eximbank CEO Truong Van Phuoc said only the central bank can determine what to do with the outstanding gold loans by the end of June.
“The central bank should handle this issue soon as banks have signed contracts with gold borrowers for 10 to 15 years, and they cannot ask customers to pay them back right away,” he said.
Eximbank has 26,000 taels in outstanding gold loans, equal to one ton of gold, he added.
In response, Nguyen Quang Huy, head of the SBV’s Foreign Currency Management Agency, said the central bank is still considering possible solutions to help banks clear their gold deposits.
Many problems have emerged after the gold bullion trading network was narrowed down on January 15.
Customers are currently only allowed to trade gold bullion at licensed facilities, including branches of some banks.
But several banks complained at the Tuesday meeting that they are struggling to trade gold.
Most are concerned that their employees may fail to detect fake gold bullion since they are not experienced in the business.
Banks have also stopped mobilizing gold deposits, and they now charge fees for gold-keeping services, leaving many owners with no choice but to keep their gold at home.