The central bank will restrain credit growth this year to no more than 30 percent, under a plan approved by the Government, State Bank of Vietnam Governor Nguyen Van Giau said on June 17.

The cap replaces a 25-percent limit targeted by the Government earlier this year.

Giau said the increase was necessary to stimulate the economy in the context of the global financial crisis. However, he affirmed that the central bank was still keeping strict controls over the money supply to avoid any negative impacts.

In the first five months of the year, credit grew at an average rate of 14 percent over the same period last year. Giau estimated that credit growth in June would be higher than 17 percent, but that the rate would slow in subsequent months of this year.

The rapid credit growth has been driven by the Government decision to subsidise lending interest rates at 4 percent per year, easing credit as part of the economic stimulus package. Giau estimated roughly 314 trillion VND (17.6 million USD) had been lent under the programme through May.

An increase in consumer lending also contributed to lift the credit growth in the first four months. By the end of May, outstanding consumer loans totalled 85 trillion VND, up 11.6 percent over the same period last year, Giau said.

Giau affirmed that bad debts remained under control at 2.62 percent of the total outstanding loans at the end of April, up from 2.17 percent earlier this year. Giau said the State Bank was conducting a comprehensive review of credit performance in 32 cities and provinces nationwide in a move to better control the financial market.

Real estate loans had totalled 151 trillion VND by the end of May, up 9 percent from the beginning of the year, while total outstanding loans against securities collateral had reached nearly 7.2 trillion VND, up 4 percent.

Giau also commented on June 17 about the latest salvos fired by commercial banks in the deposit interest rate wars, with some commercial banks now offering over 10 percent per year on term dong deposits in order to attract capital.

The State Bank would not set a tighter cap on deposit interest rates, Giau said, indicating that the banking association would come up with reasonable rates after discussions among its members./.