Vietnam State Bank restricts gold loans

31 - 12 - 2010
By Le Nguyen Huy Thuy*

Vietnam is believed to belong to the top five countries with largest gold reserve. The gold market remains, however, very unstable and vulnerable to the ups and downs of the world's gold market. In an effort to tame the country's gold market, change the people's habit of storing gold and reducing the relevant risks in gold transactions,  the State Bank of Vietnam issued Circular No. 22/2010/TT-NHNN ("Circular 22"). Signed and immediately taking effect from 29 October 2010, Circular 22 regulates the capital deposit and lending in gold at credit institutions, by introducing stronger restrictions.

Under Circular 22, all credit institutions may mobilize gold only by granting securities instead of gold saving accounts, which had been the case until 28 October 2010. Furthermore, credit institutions may provide clients with gold loans only for the purpose of manufacturing (processing) and trading gold jewelry. Accordingly, granting loans for manufacturing and trading gold bars is prohibited.

For gold gained from loans until the issuance of Circular 22, credit institutions may not convert gold into cash or other monetary instruments for commercial purposes. In addition, all credit institutions are required to fix interest rates for fund mobilization and loan of gold in accordance with the market demands, borrowers' creditability and demands. Such rates must be publicly listed and adjusted in accordance with other laws and regulations.

Although Circular 22 is not retroactively applicable to gold mobilization or loan transacted before 29 October 2010, it requires that any leftover funds converted from such mobilized gold until the effective date of Circular 22 must be gradually reduced and completely liquidated no later than 30 June 2011.

With the restrictions newly introduced, Circular 22 is hoped to reduce the mobilization and loan of gold, thus remedying a number of shortcomings of gold circulation in Vietnam as well as reducing the risks of liquidity and interest rate faced by credit institutions engaging in gold trading.

The country's gold market, however, has seemingly been paying more attention not to Circular 22, but to other voices. The Vietnam Dong has been continually weakened and gold price in the world's market has been continually on the rise. These appear to keep gold, if not a profitable channel, a safe bay for financial reserve in the country. The restrictions introduced by Circular 22 are obvious; the desired effects are still in doubt. Vietnamese people's billions of US$ in gold appears to be hold, waiting not to be restricted or prohibited, but mobilized.

(*) Please contact the author at or our partners if you wish to have more information or specific advice for the topic of this article.
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