The State Bank of Vietnam has loosened the credit growth quotas for 10 local banks in an effort to spur lending, thus helping boost Vietnam’s economic growth in the second half of this year.

SBV has lift the credit growth caps after 23 banks out of the country's 62 credit institutions sought for its approval on the matter.

Among the remainders, 29 banks wanted to keep their credit growth quotas unchanged, while 10 wished to reduce the quotas.

The quotas were lifted for the 10 banks as their lending in H1/2012 outpaced the quotas granted by SBV at the beginning of this year.

In H1/2012, credit growth of the local commercial banking sector was averagely at 1.51 percent over the previous year. Of which 69 credit institutions saw negative credit growth, while the remaining, including foreign banks, saw slight positive growth.

Earlier this year, SBV categorized banks into four groups depending upon their performance in the previous year.

Healthiest banks were allowed to raise the credit growth up to 17 percent, while the cap for average and below-average ones were 15 percent and 8 percent respectively. The weakest banks would see their credit growth unchanged in 2012.

Some 62 credit institutions have by far reported to the central bank H1/2012 performance and plans on credit growth for H2/2012, of which 23 have proposed higher credit growth rate, 29 others would be stick to given rates and the remainders would opt for less ambitious rates.

According to the SBV, if local banks follow the adjusted credit growth caps, the national maximum credit growth will be at 15 percent in 2012, which would be in line with the year target and barely place pressure on inflation.

“The adjusted rates would be rather challenging as credit growth would largely depend on inventory release, market expansion, accessible credit and assistance for eligible corporate borrowers”, SBV said.

As of August 8, credit growth was 1.07 percent from the end of 2011, said To Ngoc Hung, director of the Banking Institute.

Earlier, as of July 25, 2012 credit growth was 0.57 percent from the end of 2011.

Heading for growth

SBV should have specific consideration and calculation so as credit growth to be in line with economic growth target and to avoid causing economic instability, economist Vu Dinh Anh told newswire Lao Dong.

The central bank will be unlikely reach the credit growth target of about 15-17 percent set in early this year in the remaining five months of this year. Even the credit growth target at about 8-10 percent this year, which the central bank has recently adjusted down, is still high, Anh said.

However, regarding the question that should the central bank stimulate credit growth from now until the end of this year, Anh said the credit disbursement will be turbulent if realizing the 8-10 percent credit growth target from in a short time.

It could easily result in the recklessness in credit contracts and increase credit risks and bad debts in the future, coupled with high inflation risk and macroeconomic instability, he said.

If making an average calculation, the credit growth rate has reached about 30 percent annually in recent years, bringing the total credit to over 100 percent of GDP. High credit growth accompanied by inefficient capital allocation is the root of Vietnam constant sky-high inflation.

If the central bank is not careful in handling the credit growth, it is likely that high inflation will return in the fourth quarter of 2012. Consequently, the central bank would be forced to return to the tight credit policy, the consequences would be worse, Anh added.

Therefore, the central bank should have specific consideration and calculation so as credit growth to be in line with economic growth target, but it must be based on efficiency and ensure the major balances of the economy to avoid causing any macroeconomic stability.