Vietnam central bank to punish lenders that fail to cut credit

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The State Bank of Vietnam said on Tuesday it will double reserve requirements for banks which fail to bring down their credit growth this year, as policymakers try to curb double-digit inflation.

Banks are required to reduce loans for non-production activities to 22 percent of total credit by June 30 and to 16 percent by the end of this year, the central bank said in a directive on its website (www.sbv.gov.vn).

The central bank will double reserve requirements for banks which fail to meet the targets, and restrict their operation in the second half of this year and in 2011, the directive said.

It did not say what percentage of total credit went toward non-production activities now.

Bank reserve requirements range from 1 percent to 3 percent, depending on the type of lenders and loans they offer.

The central bank aims to cut credit growth this year to below 20 percent from an initial target of 23 percent and bring money supply growth to 15-16 percent from 21-24 percent in an effort to contain price pressures.

Credit continued to grow quickly in the past few months even though lending rates soared to 20-24 percent, because much of the funds from such loans flowed into property investment, state-run Tuoi Tre newspaper on Tuesday quoted central bank Deputy Governor Tran Minh Tuan as saying.

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