Dao Minh Tuan, manager of the debt recovery department at private lender Vietnam International Bank (VIB), said 50 percent of non-performing car loans are because of this.

Borrowers are supposed to get the bank’s permission before pawning a car, but most don’t, which makes it difficult for the bank to repossess the car, he said.

"Pawn shop owners decline to meet our staff while our customers are unreachable. As the banks do not technically own the car, we have trouble recovering the debt."

Since banks normally lend 80-100 percent of the cost of a car, getting the cars back by paying off pawnbrokers would cost too much, he said.

"The last resort would be to sue the customer, but this will take a long time and cause damage to both sides."

Banks also have to pay a commission to car dealers of 0.7-1 percent and offer competitive interest rates of 7-9 percent in the first year. All this means, in a competitive, crowded segment, banks are unable to earn much.

A banking expert who asked not to be named said: "Banks which want to maintain high credit growth often focus on increasing the amount of car loans, not quality."

Those focused on this segment are usually banks which are not competitive in other areas with higher interest rates, such as real estate, the expert said.

The auto loans segment has seen average growth of 38 percent in 2012-2016, according to data from Viet Capital Securities VCSC.