The country’s credit growth is expected to reach 10 percent by year-end, lower than the target of 12-14 percent, said new Deputy Governor of the State Bank of Vietnam (SBV) Nguyen Thi Hong.

Vietnam 's credit is estimated to grow by 4.5 percent and its deposits, by 8.21 percent, by late August, she revealed at a conference held in Hanoi on August 29 that reviewed eight months of the banking sector’s operations.

Hong explained that credit growth in August was 3.68 percent higher than that in July but remained lower than that in the same period last year.

As of August 21, the total means of payment rose by 8.86 percent while deposit growth rate went up by 8.21 percent, with deposit in dong rising 8.77 percent and deposit in foreign currency going up by 4.2 percent compared to the same period last year.

The liquidity of credit institutions remained abundant and the interest rate of the inter-bank market was stabilised at a low level.

Hong said the lending rate of credit institutions was expected to decline by 0.5 to 1.5 percent in 2014.

Currently, credit institutions have adjusted the interest rate of old loans. As of August 14, outstanding loans in dong with an interest rate of more than 15 percent accounted for 4.45 percent of the total number of loans, while outstanding loans with an interest rate of more than 13 percent accounted for 12.45 percent.

The SBV Deputy Governor also revealed that Vietnamese commercial banks' bad debt ratio rose to 4.84 percent by late June 2014, representing a 3.61 percent increase from that of the same period last year.

She attributed the increase to sluggish production and business, resulting in a delay in debt payments for a number of businesses, and the implementation of new debt regulations in SBV's Circular No 09/2014/TT-NHNN on the classification of bank risk.

The circular, which deals with the classification of bank assets, the setting up of risk provisions and the manner by which provisions against credit risks are to be deployed, will force an increase in risk provisioning, according to Hong.

It will also allow the banks to continue restructuring existing loans and retain them in the same debt group until April 1, 2015, instead of reclassifying them by using more rigorous standards by June 1, 2014, as previously planned.

At the conference, the Chairman of the Vietnam Asset Management Company (VAMC) told reporters that since October 2013, his company had purchased 58.9 trillion VND (2.8 billion USD) worth of bad debts from 35 credit institutions.

In 2014 alone, VAMC purchased bad debts worth 19.6 trillion VND, but this indicated a decline in the number of such purchases.

The VAMC Chairman explained that the purchase of bad debts formed part of a roadmap and plan to restructure the non-performing loans of credit institutions. He added that his company has to consider the quality of bad debts before making the purchase.

Explaining why purchased bad debt was lower than total non-performing loans (NPLs) of the banking system, Hong said VAMC is not a "magic wand" to be used in the handling of NPLs.

The SBV Deputy Governor explained that VAMC's handling of NPLs aims to encourage credit institutions to offer more loans and reduce interest rates for lending in order to assist businesses.

Hong said the SBV will continue to boost the process of handling NPLs and ask credit institutions to enhance risk provisioning and use it in handling bad debts.-VNA