Vietnam central bank vows to help lenders facing cash crunch

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The State Bank of Vietnam pledged to ensure sufficient funds at banks, seeking to bolster the financial system as the government unveiled a target to boost growth to as much as 7 percent.

The central bank will "closely watch the local money market and commercial banks' operations to provide suitable and timely support to any financial institutions which have a shortage of funds, aiming to ensure liquidity for the entire banking system," the central bank said in a statement on its website late Tuesday.

Vietnam has struggled to regain investor confidence hurt by risks in the banking industry and inflation of more than 20 percent. The nation aims for average annual growth of 6.5 percent to 7 percent in the 2011-2015 period, the National Assembly said in a report released to reporters in Hanoi Wednesday.

"The central bank's move will help calm the market after some concerns about fund availabilities at small banks," said Phan Thi Chinh, deputy chief executive officer at the Bank for Investment and Development of Vietnam. "It's getting more difficult now for small banks to lure depositors given the current economic situation."

The dong slid 0.05 percent to 20,938 per dollar as of 12:25 p.m. Wednesday in Hanoi, according to data compiled by Bloomberg. That was the weakest level since at least 1993, according to Bloomberg data that's available from that year. Vietnam's VN Index of stocks dropped 0.8 percent to 401.15, an eight-week low. The gauge has plunged 17.2 percent this year.

Inflation target

Vietnam's economy may expand 5.8 percent to 6 percent this year, slower than the 6.8 percent gain in 2010, according to government estimates. Consumer prices climbed 22.42 percent in September from a year earlier, compared with 23.02 percent in August.

Policy makers plan to slow annual inflation to between 5 percent and 7 percent in 2015, according to the National Assembly's document. They aim to limit Vietnam's trade deficit to below 10 percent of total exports in 2012, according to the document. These targets are subject to review and require final approval by lawmakers in meetings starting tomorrow.

There are some commercial banks that "have had imbalances between fund sources and the use of funds," the central bank said in its statement. "The State Bank is willing and ready to help the banks" to ensure the currency market's operations, protect depositors and the safety of each bank, it said.

Fund infusion

The State Bank may provide as much as VND15 trillion ($716 million) to help small banks that have insufficient capital, Lao Dong newspaper reported on Sept. 5, citing an unidentified central bank official. About 10 banks may receive funds, and the central bank would require collateral or take a stake in banks that can't provide the collateral, Lao Dong said, without naming any lenders.

"We are outlining some measures to help small banks," Nguyen Toan Thang, a Hanoi-based deputy governor for the central bank, said by telephone on Sept. 5. He declined to confirm the details of the Lao Dong report.

The economy is vulnerable to systemic risk resulting in part from undercapitalized banks, rising debt and deteriorating corporate profits, Credit Suisse Group AG (CSGN) said Aug. 29.

Merging banks is currently an "inevitable trend" to enhance competitiveness, the central bank said in a separate statement late Tuesday. In the 2011-2015 period, "strengthening, reorganizing and restructuring the banking system is an urgent task for the banking industry," the State Bank said.

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