Circular No. 32/2011/TT-NHNN amending and supplementing certain provisions of Circular No. 11/2011/TT-NHNN dated April 29, 2011, of the State Bank of Vietnam on terminating gold deposit-taking and lending activities by credit institutions.

CIRCULAR

Amending and supplementing certain provisions of Circular No. 11/2011/TT-NHNN dated April 29, 2011 of the State Bank of Vietnam on terminating gold deposits and lending by credit institutions concerning the cessation of gold deposits and lending by credit institutions

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Pursuant to the Law on the State Bank of Vietnam No. 46/2010/QH12 dated June 16, 2010;

Pursuant to the Law on Credit Organizations No. 47/2010/QH12 dated June 16, 2010;

Pursuant to Decree No. 160/2006/NĐ-CP dated December 28, 2006 of the Government detailing the implementation of the Foreign Exchange Law;

Pursuant to Decree No. 96/2008/NĐ-CP dated August 26, 2008 of the Government stipulating the functions, tasks, powers, and organizational structure of the State Bank of Vietnam;

Implementing the guidance of the Prime Minister in Document No. 1006/VPCP-KTTH dated September 8, 2011;

The State Bank of Vietnam (hereinafter referred to as the State Bank) amends and supplements certain provisions of Circular No. 11/2011/TT-NHNN dated April 29, 2011 of the State Bank on terminating gold deposits and lending by credit institutions (hereinafter referred to as Circular 11/2011/TT-NHNN) as follows:

Article 1. Amending and supplementing certain provisions of Circular No. 11/2011/TT-NHNN as follows:

1. Clause 3 shall be amended and supplemented as follows:

"Article 3.
1. Except for the cases provided for in Clause 2 of this Article, credit institutions shall not convert previous gold deposits into Vietnamese dong and other forms of money.
2. Based on the situation of the gold market, the State Bank may consider allowing commercial banks that meet the conditions stipulated in Clause 3 of this Article to convert their retained gold deposits and open gold accounts abroad to hedge against gold price fluctuations. Retained gold is the balance of gold deposits and custody minus the balance of gold loans and deposits with other commercial banks and gold used for other purposes. Based on the situation of the gold market, the State Bank will decide the number of commercial banks allowed to convert retained gold into money and open gold accounts abroad.
3. Commercial banks that the State Bank considers to be eligible to convert retained gold into money and open gold accounts abroad must satisfy the following conditions:
a) Having at least five years of experience in gold trading, gold deposits, and gold lending activities.
b) Having an effective internal control system; having regulations on risk management in the field of gold trading.
c) Operating primarily in centrally-administered cities;
d) Not violating regulations on managing gold trading activities.
4. Commercial banks wishing to convert retained gold and open gold accounts abroad must directly submit or send by post one set of documents to the State Bank (Department of Foreign Exchange Management), including:
a) Application for converting retained gold and opening gold accounts abroad (according to the form in Appendix 1 of this Circular);
b) Plan for converting retained gold into money and opening gold accounts abroad to hedge against gold price fluctuations, including at least the following contents: experience in gold trading activities, procedures for converting retained gold into money and transactions on foreign gold accounts, and a risk monitoring system during the conversion of retained gold into money and opening of foreign gold accounts;
c) Report on gold trading and gold imports in the last six months and the amount of retained gold at the time of application for converting retained gold into money (according to the form in Appendix 2 of this Circular).
5. Based on the application for converting retained gold and opening gold accounts abroad, within a maximum period of three working days from the date of receipt of complete and valid documents, the State Bank will issue a document approving or rejecting the commercial bank's request to convert retained gold into money and open gold accounts abroad. The approval document issued by the State Bank for the commercial bank to convert retained gold into money and open gold accounts abroad specifies clearly the amount of retained gold permitted to be converted.
6. The process of converting retained gold into money and opening gold accounts abroad by commercial banks shall be carried out as follows:
a) Commercial banks are allowed to convert up to 40% of the retained gold into money at the time of submitting the application for converting retained gold and opening gold accounts abroad.
b) Commercial banks must purchase physical gold in the domestic market to replenish the amount of retained gold converted into money according to the State Bank's permission to convert. In case commercial banks encounter difficulties in purchasing physical gold to replenish the converted retained gold in the domestic market, the State Bank will consider allowing gold imports to replenish the converted retained gold.
c) Commercial banks are allowed to open a maximum of two gold accounts abroad. Commercial banks must register these accounts with the State Bank and agree with foreign partners to provide daily detailed transaction statements on the commercial bank's account to the State Bank (Department of Foreign Exchange Management).
d) Commercial banks can only buy gold on foreign accounts after converting retained gold into money and within the volume not exceeding the amount of retained gold converted domestically.
đ) Commercial banks can only sell gold on foreign accounts after purchasing physical gold domestically or importing gold according to the State Bank's permit to replenish the retained gold and convert it into money, and within the volume not exceeding the amount of physical gold purchased domestically or imported.
e) Commercial banks must balance the status of retained gold with gold on foreign accounts at 7:00 AM every day (except Sundays and public holidays);
g) Commercial banks are not allowed to maintain a short position on the two foreign gold accounts.
h) Based on the situation of the gold market and the difference between domestic and international gold prices, the State Bank may require commercial banks to stop converting retained gold into money and close foreign gold accounts. Commercial banks must immediately stop converting retained gold into money upon receiving notification from the State Bank and close foreign gold accounts within two working days from the date of notification.
7. Responsibilities of commercial banks implementing the conversion of gold reserves into money and opening foreign gold trading accounts:
a) Bear full responsibility for the effectiveness and safety of the activities related to converting gold reserves into money and trading gold on foreign accounts of commercial banks.
b) Comply with legal regulations on foreign exchange management, gold trading activities, and provisions set forth in this Circular.
c) Submit daily written reports to the State Bank of Vietnam (Department of Foreign Exchange Management, Department of Monetary Policy) regarding the amount of gold reserves converted into money, the amount of gold repurchased in the domestic market, and transactions on foreign gold accounts from 7:00 AM the previous day to 7:00 AM the reporting day (according to the form attached at Appendix 3 of this Circular).
d) Submit detailed transaction statements of the day on foreign gold accounts to the State Bank of Vietnam (Department of Foreign Exchange Management) daily and be responsible for the accuracy of these statements. d) Submit written reports to the State Bank of Vietnam immediately when 40% of the gold reserves have been converted and when there are changes to foreign gold accounts.

2. Clause 4 shall be amended and supplemented as follows:

a) Supplement Clause 2 of Article 4 as follows:

"c) Conduct inspections and audits of gold buying and selling activities in the domestic market and on foreign gold accounts of commercial banks within their jurisdiction and handle violations according to their authority."

b) Amend Clause 3 of Article 4 as follows:

"For banking inspection agencies: Monitor, inspect, and audit the cessation of gold deposits and lending, the conversion of gold reserves into money, and gold purchases in the domestic market and transactions on foreign gold accounts of commercial banks as stipulated in this Circular; handle violations according to their authority; report and propose solutions to the Governor of the State Bank of Vietnam for difficulties and issues related to these matters."

c) Supplement Article 4 as follows:

"4. For the Department of Foreign Exchange Management: Examine and submit applications for the conversion of gold reserves and the opening of foreign gold accounts of commercial banks to the Governor; monitor fluctuations in the gold market, track and compile reports on the conversion of gold reserves, gold purchases to replenish converted gold reserves, and transactions arising on foreign gold accounts of commercial banks during the period allowed by the State Bank of Vietnam for the conversion of gold reserves and the opening of foreign gold accounts; advise the Governor of the State Bank of Vietnam on implementation plans and handling measures."
5. For the Department of Monetary Policy: Monitor the use of gold reserves by commercial banks.

Article 2. Implementation clause

1. This Circular takes effect from October 6, 2011.

2. The Director of the Office, the Director of Banking Inspection and Supervision, the Heads of the Department of Monetary Policy, the Department of Foreign Exchange Management, the Heads of units under the State Bank of Vietnam, the Governors of the State Bank of Vietnam branches in provinces and centrally administered cities, and the Chairmen of the Boards of Directors, Chairmen of the Boards of Members, and General Directors of commercial banks and related organizations are responsible for implementing this Circular.