A staff member at the Vietnam International Bank conducts a transaction for customers. The State Bank of Viet Nam said it will closely monitor lending activities at commercial banks. — VNA/VNS Photo Tran Viet

HA NOI (Biz Hub)— The State Bank of Viet Nam this week instructed its municipal and provincial branches nationwide to closely monitor and inspect consumer loans from commercial banks.

The move is expected to ensure consumer-lending operations comply with applicable regulations and protect the rights of borrowers.

Accordingly, branches, transaction offices and the service introduction points of credit institutions must publish detailed interest rate information applicable to each product group and each loan product.

Additionally, the SBV branches, in collaboration with the banking supervisory agency, must strictly handle violations detected through inspecting and monitoring the activities of credit institutions in the respective areas.

The move was made after experts recently said that some banks had loosened their lending conditions for consumer loans to boost lending since deposits continue to rise amid slow credit growth. Some even offered consumer loans without mortgages or collateral.

According to the SBV, total deposits rose 9.48 per cent in the first seven months of the year, while lending increased only 4.91 per cent.

Additionally, the credit growth target of 12 per cent set by the central bank for 2013 has also made many banks seek ways to loosen their lending conditions. Previously, banks applied strict requirements to their lending conditions for consumer loans in order to limit risks and avoid bad debts.

A foreign invested bank is offering borrowers loans as high as VND500 million (US$23,800), with interest rates at about 1.75 per cent per month, on gradually decreased outstanding loans (equaling to 0.97 per cent per month on fixed lending interest rate) without mortgages or collateral.

Another commercial banks is also trying to attract borrowers by giving shopping vouchers worth up to VND1 million ($47.6) and an interest rate of 1.5 percent per month (18 per cent per year), if they apply for 60-month consumer loans.

Experts said it was clear that lowering the credit standards may put banks into risk, which also significantly affects the credit quality of the entire banking system.

Bad debts were on the rise, if banks try to achieve credit growth at any cost, it would create bad consequences for the entire banking system, as well as the economy, expert warned. — VNS