Vietnam tells banks to halt 'unhealthy' loans given at low rates

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Vietnam's central bank, which wants commercial banks to step up their lending, said some are making loans at interest rates lower than what they pay for deposits, and it warned them to stop the "unhealthy" practice.

"Several credit institutions have accepted to lend at rates below the deposit rate, which is a sign of unhealthy financial business that may bring risks to the banks," the State Bank of Vietnam said in a statement on Wednesday. It did not name any lenders.

The practice has come to light after the banking sector reported loans as of Nov. 30 were only 7.54 percent higher than at the end of 2012. That shows credit is expanding this year at well below the central bank's projection of 10-12 percent and the International Monetary Fund's forecast, given in August, of 12.4 percent.

In 2012, credit expanded 8.7 percent, according to the IMF.

In its statement, the central bank also called on banks to lower both their deposit and lending rates, in line with their financial health. "Liquidity at credit institutions has improved significantly in recent months," it said.

Banks are offering between 6.5 percent and 8.5 percent a year for dong deposits with terms ranging from six months to more than one year, the central bank said in a separate report.

Vietnam has been counting on faster lending to help expand the Southeast Asian nation's economy this year at 5.4 percent, compared with 5.25 percent in 2012.

The government has projected economic growth of 5.8 percent in 2014.

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