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Interest rate rise effective in slowing loan growth, data shows   2008-06-22 - Reuters

Outstanding bank loans in Vietnam are likely to be 20 percent higher at the end of the first half than a year earlier, but monthly loan growth will slow to 1.22 percent in June, a central bank newspaper said on Friday.

The figures suggest the central bank has had some success in bringing down rampant credit growth in an overheating economy in which the annual inflation rate has soared to 25 percent.

"Outstanding loans rising 19.99 percent is still higher than growth in the same period last year but it is on a gradual falling trend," the Banking Times newspaper, run by the State Bank of Vietnam, quoted a central bank report as saying.

Credit growth in May compared with April was 2.25 percent, down from 3.36 percent in April and 3.78 percent in March, State Bank of Vietnam Governor Nguyen Van Giau told the National Assembly in May.

The report did not give loan values but central bank figures released in late May suggested outstanding loans at the end of June would reach VND1,290 trillion (US$78.4 billion).

The central bank did not give the credit growth for the first half of 2007 but loans surged 54 percent in the whole of 2007, so the 20 percent growth so far this year shows a dramatic fall after the central bank’s three rate increases this year.

"This does suggest a moderation in growth, basically," said CSFB economist Joseph Lau, noting that average monthly credit growth was 3.5 percent in the first five months of 2008.

"So, if June is sustained, then it does at least suggest some degree of moderation and some impact from the tightening measures you saw both in March and in May," he said.

"But the key, I guess, is whether or not this is sustained through the second half." The central bank has drained money from the banking system through market operations and by raising banks' obligatory reserves.

It also raised interest rates in January, May and earlier this month, aiming to restrict lending growth to 30 percent this year.

In the second half of 2008 the central bank would "further implement the monetary tightening policy with flexibility to contribute to controlling inflation and stabilizing the money markets and the macroeconomics at the same time," it said in an action plan.

The plan was discussed at a central bank meeting on Thursday before Governor Giau joined Finance Minister Vu Van Ninh to brief international investors and analysts on measures to tackle inflation, a weakening currency and a growing trade deficit in a video conference organized by Credit Suisse.

At the conference the central bank said Vietnam had adequate resources to fill any external financing gaps.

Vietnam has net foreign reserves of $20.7 billion, a senior Finance Ministry official told Reuters on Thursday.

That is little changed from the figure of $20 billion given by the central bank for the end of 2007, which was nearly double the $12 billion at the end of 2006.

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