HANOI(BullionStreet): Banks in Vietnam were told by the central bank to settle or reduce sharply outstanding loans against gold by June 2013.

However, analysts said it will take nearly four years to clear all the outstanding loans in gold as most of the credit contracts were signed before the Gold Decree were all long term up to ten years.

Since the central bank has set up the deadline in June 2013, banks would have to convert the gold outstanding loans into VND outstanding loans.

If not, banks would have to use their dong to buy gold for lending. Analysts added that on an average most banks in Vietnam keep about 100,000 taels of gold against loans.

Banks may have to negotiate with clients to convert the current gold outstanding loans to Vietnam dong. However, it would be not an easy task, they added.

Customers would have to suffer, because the dong interest rates would be higher than the gold interest rates.

In this case, banks would have to think of the solutions to minimize the losses for clients by offering lower lending interest rates, or selling gold at preferential prices to the clients who agree to convert gold outstanding loans into dong.

They said banks would suffer if customers didn't t agree to convert gold loans into VND loans They added that since banks cannot mobilize deposits in gold they would have to use their Vietnam dong to buy the amounts of gold equal to the gold outstanding loans.

If so, banks would have to suffer loss, because the VND interest rate is now at 8 percent per annum, while gold lending interest rate just three percent. Besides, they would also face the high risk of the gold price fluctuations.