BEIJING (Commodity Online) : Vietnam’s decision to further tightening gold lending has created mixed reactions within the country.

Analysts said the move by State Bank of Vietnam (SBV) is to further tightening control of local gold market and ensuring safety in bank operations.

The new rule is an attempt to eliminate the role of gold as a means of payment in Vietnam, the central bank said. It noted that the government will, however, continue to recognize the right of citizens to have gold holdings.

The State Bank of Vietnam has asked commercial banks to cease lending gold in May and stop accepting gold deposits two years from now.

Vietnam has already forbidden banks from lending gold for the production and trade of gold bars since October last year. But starting May 1 banks are not allowed to offer gold loans to jewelry makers either.

Banks in Vietnam are offering interest rates of 0.5-1 percent a year on gold deposits. A banker said the rates would fall when banks are banned from lending gold.

The central bank is expected to issue a decree soon that further tightens control over the gold market in Vietnam.

In late October last year, the SBV issued a circular to put restriction on gold deposit and lending activities of local credit institutions, asking local lenders to raise gold deposits only through issuing banknotes instead of raising gold deposits and lend gold only for jewelry production and trade purposes instead of lending for gold bullion processing and trading.

The SBV also banned local banks to convert gold value into the dong, deposit and lend the dong based on gold standard.

Earlier, the central bank announced closures of about 20 local gold exchanges and gold trading at foreign banks’ accounts, added gold import quota to local firms to meet mounting gold demand, and cooperate with local authorities to fight illegal gold import.

As of September 2010, Vietnam had 23 credit institutions that participate in gold deposit and lending activities, and the outstanding gold deposits were VND92.6trillion in the first nine months of the year.

Gold holdings by the public were estimated to be about 400-500 tons then, said Vietnam Gold Association.

Vietnam has been among a handful of countries in which banking sector takes gold deposits - bearing some interest - and lends gold as a lawful monetary means to bank borrowers. However, this practice may soon end with new regulations from the central bank

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