The State Bank of Vietnam has increased this year's credit-growth targets for a number of commercial banks, hoping to spur lending to struggling enterprises dealing with high inventories and sluggish markets.

The adjustment followed State Bank Governor Nguyen Van Binh's announcement on August 16 that credit institutions will be urged to help boost the nation's economic growth in the second half of the year.

Of the nation's 62 credit institutions, 23 want to increase their credit growth quotas. The State Bank has agreed to increase the quotas for 10 banks with lending totals in the first half of the year outpacing quotas.

Earlier this year, the State Bank divided banks into four groups depending upon their performance in the previous year. Banks were allocated credit growth quotas according to their group designations. Group 1 (healthy banks) were given a target of 17 percent, while Group 2 (average banks) received a target of 15 percent, Group 3 (below-average banks) a target of 8 percent. Group 4 (weak banks) were not allocated a credit growth quota.

In the first half of this year, however, credit in the commercial banking sector grew by an average of just 1.51 percent over the previous year, with 69 credit institutions seeing credit decline while 57 others saw growth.

To increase enterprises' access to credit, interest rates have also been lowered. The proportion of outstanding loans in Vietnamese dong with interest rates in excess of 15 percent per year has fallen to about 29 percent of total lending, a decrease of 60 percent since the State Bank asked commercial banks a few weeks ago to reduce interest rates on outstanding loans to below 15 per cent.

A number of enterprises have remained reluctant, however, to take out additional loans.

"Low interest rates are no longer a vital factor in attracting enterprises," Eximbank general director Truong Van Phuoc told the newspaper Nguoi Lao Dong (The Labourer). "Low purchasing power has made them cautious."

According to Phuoc, interest costs currently accounted for 24 percent of business expenditures.

The sharp decrease in lending rates has failed to encourage businesses to increase borrowing because purchasing power in the market remained depressed, economists agreed. As of the end of July, outstanding loans at commercial banks had risen only 0.57 percent over the end of last year, despite lending interest rates falling from an average of 17-18 percent to 10-15 percent.

Many economists have called for new policies to stimulate consumer demand.-VNA