Foreign exchange and gold trading are considered as one of the non-credit income sources to compensate for the bank’s profits in the context of declining revenue from main activities.
The semi-annual financial statements of banks in 2020 show that interest income has decreased or slightly increased, while the profit from foreign exchange trading has still grown sharply.
For instance, at Vietnam Export Import Commercial Joint Stock Bank (Eximbank), profit from forex trading increased by 26 percent to 166 billion dong in second quarter of 2020, while in the same quarter, profit only recorded 20 billion dong.
In the first six months of this year, Eximbank’s net profit from forex trading reached more than 219 billion dong compared to the same period last year (155 billion dong).
Meanwhile, the bank’s net interest income (NII) in the second quarter of 2020 decreased by nine percent over the same period; the investment securities trading also decreased by 43%.
However, due to the second quarter of 2020, Eximbank set aside up to 255 billion dong for risk provision while 36 billion dong was reversed during the same period last year.
As a result, the bank’s profit before tax in the second quarter of 2020 was only 94 billion dong, down by 77 percent over the same period. The six-month accumulated pre-tax profit reached 552 billion dong, down 27.6 percent over the same period.
Similarly, in the second quarter of 2020, Asia Commercial Joint Stock Bank (ACB) saw a profit of 153 billion dong in foreign exchange trading, an increase of 122 percent compared to the same period last year.
In the first six months, ACB recorded 295 billion dong from forex trading, up 98 percent over the same period. Securities trading had a profit of 662 billion dong while the same period saw a loss of eight billion dong.
Although six months’ risk provisioning of ACB was 6.5 times higher than the same period last year to 532 billion dong; service profit was less satisfactory, down 10.6 percent to 797 billion dong; NII reached 6.531 trillion, up 13.4 percent year-on-year. However, ACB still achieved 3.819 trillion dong in pre-tax profit in the first half of this year, up 5.4 percent over the same period.
Sacombank’s net profit from forex trading also had positive results in the second quarter of 2020, reaching VND 166 billion, up 54 percent over the same period in 2019.
Meanwhile, other businesses of Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) in this quarter were less positive: profit from service activities decreased by six percent to 697 billion dong; investment securities trading lost 50 billion dong; interest from other activities (mainly from debt settlement) was only 110 billion dong, down 74 percent over the same period.
Tien Phong Commercial Joint Stock Bank (TPBank) interest income increased strongly by 25%, forex trading by 9.6 times and other activities by 3.9 times, contributed 34 percent increase in pre-tax profit over the same period, to more than 1.025 trillion.
With major banks with advantages in forex trading such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), they also recorded positive profits in the second quarter and accumulated in the first six months of this year.
Specifically, Vietcombank’s net profit from forex trading in the second quarter of 2020 was 821 billion dong, up 17.5 percent over the same period and accumulated the first six months reached 1.928 trillion dong, up 18.4 percent over the same period.
At Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), recorded a profit of 644 billion dong from foreign exchange trading in the second quarter of 2020, an increase of 77 percent compared to the same quarter last year; accumulated first six months recorded an increase of 33%.
However, in the foreign exchange business of banks, which grew strongly in the first half of this year, partly from gold bars trading activities in the domestic market with banks licensed to trade gold.
ACB financial statements indicate that every month, gold is revalued at the spot exchange rate at the end of the month. Monthly revaluation differences are recognised in the foreign exchange difference on the separate balance sheet at the end of each month and transferred to the separate income statement at the end of the annual accounting period.
Although Eximbank did not elaborate on forex trading activities in the first half of this year, Eximbank is considered strong bank in forex and gold trading in previous years.
Recently, gold has been considered a store of value for investors, investment funds and speculators in the context of a global economic slowdown caused by the Covid-19 pandemic and conflict between US and China. Those events have pushed gold prices soaring, exceeded $2,000 per ounce.
This has made a positive contribution to the foreign exchange business of banks in the first half of this year while traditional lending activities have declined due to epidemics. The exchange rate has been flexibly and stable by the State Bank of Vietnam (SBV) for many years.
According to Circular 16/2012/TT-NHNN of the SBV guiding the implementation of Decree 24/2012/ND-CP on the management of gold bar trading activities, from the beginning of 2013, all enterprises and credit institutions must be licensed by the SBV for gold bars trading.
According to Decree 24, the condition to trade gold bars with businesses is to have a minimum authorised capital of 100 billion dong, has gold trading with more than two-year experience, and have paid a gold business tax of over 500 million in two years. with the network in at least three provinces and cities directly under the Central government.
For credit institutions, the condition to trade gold bars is to have a charter capital of 3 trillion dong, register for gold business and have a network of five provinces or more directly under the Central government.
The SBV has licensed a total of 22 banks and 16 businesses to trade gold bars. The total number of points that people can trade in gold bars is nearly 2,500 points (2,497 points) across the country.
Before implementing the licensing and organising the gold bars trading system according to Decree 24, SBV conducted a survey and reassessment of the gold trading network nationwide.
If there were about 12,000 gold trading points in the past, the survey results of SBV have narrowed to 8,000 gold trading points, belonging to different sectors.
The most recent time, SBV issued Circular 29/2019/TT-NHNN amending and supplementing Circular 16/2012/TT-NHNN guiding Decree No. 24/2012/ND-CP of the government on management of gold trading activity.
Circular 29 also states that: on a quarterly basis, businesses and credit institutions that are issued with a business license to buy and sell gold bars adjust trading location of gold bars, including: changing, adding, their names and addresses, terminating business operations, or reporting to the SBV in accordance with regulations at this circular.
