Credit institutions, including foreign bank branches, which have high bad debts or violate the regulations on capital contributions or share purchases from other ventures, will have their credit growth restricted, according to a circular from the State Bank of Vietnam.

Under Circular 10/2012/TT-NHNN, issued by the State Bank on April 17, credit institutions which have had minimum capital adequacy ratios lower than 8 percent for six consecutive months won't be allowed to expand their credit.

Also, commercial banks whose bad debts go above 10 percent of their total outstanding loans for three consecutive months will have their credit growth rates lowered. They will also be barred from expanding their lending operation.

Banks which violate regulations on investment in fixed assets might be applied capital adequacy ratio higher than the regulated rate.

Credit institutions that violate three times in a fiscal year won't be allowed to expand their operations for six months of the following fiscal year.

The circular will come into effect from May 30.

The State Bank reported that credit shrank by 1.96 percent in the first quarter of the year compared with the end of last year.

Of this, the proportion of outstanding loans to discouraged sectors reduced from 11.02 percent at the end of last year to 10.77 percent by the end of February.

By March 26, total money supplies were estimated to have increased by 1.06 percent in comparison with the end of last year.

During the first quarter, total deposits rose by 1.39 percent.

During the same period, the lending interest rates of loans made for agriculture, rural development and exports ranged from 14.5 percent to 16 percent per year. The lowest rate was 13.5 percent applied for corporate customers committed to selling foreign currency revenues to banks.

Rates for the production sector were commonly set from 15 percent to 20 percent per year.

The non-production sector was offered rates from 20 percent to 25 percent.

The overnight interest rate in Vietnamese dong was set at 8-9 percent on the inter-bank market. Meanwhile, one-week, two-week and one-month term rates were 9-10.5 percent, 10-11.5 percent and 12-13 percent, respectively.-VNA