The IMF has forecast that total credit growth this year would reach 14 per cent.

Former minister of Trade Trruong Dinh Tuyen told a conference here this week that to spur credit growth and help small- and medium-sized enterprises access loans, credit insurance funds needed to be activated. Reform of the banking system also needed to be hastened, with priority given to reducing bad debt levels and ensuring liquidity.

When liquidity improved, Vietnam would be able to focus on boosting economic growth rather than on curbing inflation, Tuyen said.

Central Institute for Economic Management deputy director Vo Tri Thanh said many positive factors helped boost the economy during the first quarter, including lower inflation and interest rates, a firm balance of payments and a significant increase in reserves.

But many potential risks still loomed, he said, with the biggest challenge coming in part from the bad debts in the banking system. The average bank’s bad debt ratio now ranged from 3.1 to 3.6 per cent. Such a figure now accounts for about 12-13 per cent of total outstanding loans in the entire banking system.

Meanwhile, Thanh said, the banking system would need another $5-6 billion to reform and modernise operations.

The government might support businesses by helping them access credit more easily, rescheduling their debts, lowering corporate income tax rates, supporting agricultural and rural areas and encouraging domestic consumption, he added.

The State Bank of Vietnam has already moved to ask commercial banks to reschedule loans that have become overdue because of negative economic conditions. The restructuring of loans would be done in accordance with SBV Decision No 783/2005/QD-NHNN of May 2005, which allows commercial banks to restructure borrowers’ repayment schedules based on their financial capacity.

The central bank has also requested that commercial banks actively work with borrowers in difficulties to help them access new credit and gradually restore, maintain and expand production.

During the first quarter of this year, the nation’s economy grew at about a 4-per-cent annual pace, off from the 6-6.5 per cent target set by the government. Meanwhile, production has stagnated, causing inventories to pile up and forcing about 12,000 businesses into bankruptcy.

Vietnam Investment Review - April 28, 2012