The State Bank of Vietnam has told commercial banks to settle outstanding gold loans early in a push to wipe the slate clean by the end of this year.

The government is eager to prevent gold hoarding, a common habit among Vietnamese, to boost liquidity in the fragile economy.

Banks must actively negotiate with customers to either convert gold loans to dong loans or repay them ahead of schedule, the central bank said.

Nguyen Hoang Minh, deputy director of the central bank's Ho Chi Minh City branch, said commercial banks in the city were yet to settle 150,000 taels of gold loans (roughly 7 tonnes).

Despite this, some industry insiders have claimed the amount of gold being kept in Ho Chi Minh City banks is more than 45 tonnes.

Banks reported only managing to cut two tonnes worth of outstanding gold loans since early July, but claimed they were in active negotiations over converting more into VND credits.

Southern Bank, Sacombank, ACB, Eximbank, and VietA Bank are among the institutions with outstanding gold credits.

According to bankers, difficulties had arisen as gold lending contracts are primarily long-term, while customers were understandably reluctant repay loans early.

Gold lending contracts typically have terms of 10-15 years, while borrowers are resisting making the switch from gold loans to dong loans as they are subject to higher interest rates.

In addition, many gold borrowers have found themselves in financial difficulty resulting from the commodity's sharp price rise in recent years.

Meanwhile, local lenders have all closed their position on gold deposits, having settled deposit accounts worth 100 tonnes of gold by June 30, 2013.

To date, the SBV has licensed 12 banks to provide asset-keeping services for precious commodities such as gold.

Unlicensed banks cannot provide gold-keeping services to new customers, but can keep gold for existing clients who have yet to withdraw.

The banks licensed to perform asset-keeping services are: Vietcombank, Vietinbank, BIDV, Agribank, MHB, AB Bank, VietCapital Bank, BaoViet Bank, TienPhong Bank, Lienviet Post Bank, ACB, and MB.-VNA