Vietnams economy has grown at a slower pace this year as the government tightened lending standards in the early months of the year to help control inflation.

Banks battling bad debt also slowed loans to keep their books clean, putting pressure on businesses seeking funds for expansion.

Annualised economic expansion in the three months ending September accelerated to an estimated 5.35 percent, from 4.66 percent in the April-June period, the General Statistics Office said in a report.

"The nine-month economic growth is reasonable under the circumstances. The country has been focusing on fulfilling the 2012 annual targets giving priority to curbing inflation and stabilising the macro economy," the report said.

Inflation this month reached 6.48 percent from a year ago, the highest in three months, and the monthly consumer price index also posted the fastest growth since May 2011, rising 2.2 percent from August, government data showed.

Vietnams economic growth could reach an annual rate of 5.5 percent over the whole of 2012, while annual inflation would be kept at 6 percent, Prime Minister Nguyen Tan Dung was quoted earlier this month as saying.

Fitch Ratings has forecast Vietnams economy will grow about 5 percent this year, compared with 2011s 5.89 percent.

Reuters - September 27, 2012

Vietnam's economic growth accelerates

HANOI—Vietnam's economic growth continued to rebound in the third quarter, as government efforts to revive the economy bear fruit. But authorities will face a delicate task in coming months to maintain robust growth without letting inflation get out of hand.

Vietnam's gross domestic product rose 5.4% in the third quarter, up from 4.7% growth in the second quarter and 4% in the first quarter, the General Statistics Office said on Thursday.

After spending much of 2011 battling high inflation and trade imbalances, the government has taken steps this year to boost growth, such as lowering banks' lending rates and reducing corporate income tax for some businesses.

However, prices in Vietnam have begun rising again, a setback after a series of rate increases had succeeded in curbing runaway inflation. A report earlier this week showed the consumer-price index rose 2.2% in September from the previous month, the fastest pace in 16 months.

The banking system recently has been beset with bad loans and scandals, but economist Le Tham Duong of Ho Chi Minh City Banking University noted that lending has been rising, a sign that companies are expanding operations and production. He warned that bank loans need to be funnelled to projects that add value to the economy, or the expansion in credit will merely fan inflation.

The government said in a statement Thursday that the inflation issue is "complicated" and will be difficult to tame. It said all ministries and localities must continue pursuing the goal of controlling inflation and stabilizing the economy for the rest of the year.

"I think the central bank will keep its policy rates stable until the end of the year, as keeping inflation under control is still one of the government's key tasks for the year," Mr. Duong said.

In contrast, ANZ said in a report Thursday that it expects the State Bank of Vietnam to cut policy rates by another one percentage point in the fourth quarter. The central bank has cut its policy rates by five percentage points this year. Its refinance rate, the rate at which it lends to other banks, currently stands at 10%.

"The latest economic data makes monetary policy decisions more difficult in the months ahead. Spurring bank lending can rejuvenate growth, but this may aggravate an already shifting inflation path," ANZ said.

The government is targeting GDP growth of 6% to 6.5% for this year, but Prime Minister Nguyen Tan Dung earlier this month said he expects growth of 5.5%. The country's GDP growth averaged 7.2% over the past 10 years, and was 5.9% in 2011.

The statistics office said Thursday that GDP grew 4.7% in the January-September period compared with a year earlier. (Vietnam often issues economic data before the end of the reporting period.)

Other economic reports released on Thursday showed Vietnam's industrial production index rose 9.7% in September from a year earlier, up from August's 4.4% rise and its most robust gain since February. Retail sales of goods and services in the first nine months of the year rose 17% from a year earlier. The country posted a trade surplus of $34 million in the January-September period, compared with a deficit of nearly $8.16 billion a year earlier, the statistics office said.

by Vu Trong Khanh - The Wall Street Journal - September 27, 2012