International Finance

Vietnam central bank to control commercial bank phantom loans

Customers can use the balance of their savings accounts as collaterals to clear this type of loans

The State Bank of Vietnam has informed local commercial banks to tighten loans using savings books as collaterals to secure the country’s banking system. These loans use balance of the savings accounts as collaterals. 

The warning was issued after several banks in the country offered this type of loans to customers, a local media report said. However, customers failed to present capital use schemes that is required according to a State Bank of Vietnam circular.

Banking expert Nguyễn Trí Hieu told the local media that, “This form of lending is called ‘phantom loan’ and many developed countries in the world forbid such loans as it could distort total assets of bank.”

Customers who have long-term savings books often request this type of loans because it allows them to maintain their accounts until the maturity date. This way, they will continue to earn high interest rates for the savings — in case they require capital before the maturity date. 

According to the terms of the State Bank of Vietnam, savings accounts that close before the maturity date will receive below 1 percent interest rate, similar to demand savings. For long-term savings, the interest rates are much higher ranging between 7 percent and 8 percent annually depending on the bank. 

The State Bank of Vietnam’s notice clearly stated that local commercial banks not adhering to the rules will face serious consequences. It wants financial institutions in the country to abandon unhealthy practices that might hurt the monetary market in the long run. 

Earlier this month, the central bank announced that the official interest rates will be reduced to 6 percent annually from the current 6.25 percent. It also emphasised on the fact that Vietnam’s inflation rate is under control and the monetary and foreign exchange markets will stabilise. 

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