Vietnam limits lending growth to curb bad debt, funding shortage

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Vietnam's central bank is limiting commercial lenders' loan growth in a move targeted at easing funding shortage, minimizing bad debt and boosting investor confidence.

Three groups of lenders will have credit growth capped at 8 percent, 15 percent and 17 percent this year, while a fourth group is not allowed to increase credit at all, according to a statement posted on Monday on the State Bank of Vietnam's website. The regulation will help ensure "efficient and safe" banking operations, the bank said.

Vietnam's banks are highly exposed to external shocks because of weaknesses in the financial system and corporate dependence on cheap dollar loans, Moody's Investors Service said this month. The country's lenders remain vulnerable to a sharp increase in bad loans, according to a Capital Economics report in January.

"It's a step in the right direction," Karolyn Seet, a Singapore-based assistant vice president at Moody's, said of the new regulations. "With the curb in loan growth, it will help liquidity problems at some banks. Some are growing their lending at high rates but they're not growing their funding sources at the same rates."

The new regulations will enable the central bank to control or minimize non-performing loans at weaker banks, Seet said. This is the first time the central bank has stopped some banks from expanding lending at all, she said.

The central bank is also capping loans to "discouraged sectors" including stock and real estate investments at 16 percent of each bank's total lending, it said. Lenders were instructed to "reduce interest rates to levels that are suitable to the macroeconomic situation," according to the statement.

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