Significant challenges remain for the banking industry to reach the annual credit growth target this year, despite certain improvement in lending situation, State Bank of Viet Nam (SBV) officials said.

SBV Governor Nguyen Van Binh has reported to the National Assembly that lending across the nation grew 7.89 per cent in the first ten months, while the target for 2013 was 11-12 per cent.

The director of the central bank's Credit Department, Nguyen Viet Manh, said that total outstanding loans reaching over VND3,290 trillion (US$156.67 billion) at the end of August was considerable progress compared with about VND3,092 trillion ($147.24 billion) recorded at the end of last year.

"We have regulated money in circulation at reasonable levels, while having capital reserves prepared for lending expansion by year-end without affecting money supply plans," said Binh, adding that agricultural loans were increasing notably with a variety of preferential packages offered in this area.

The central bank estimated lending in agriculture and rural areas to have grown 15 per cent this year to September, doubling the general credit growth in the economy for the period.

However, export lending expanded slowly at 3.61 per cent in the first half, compared with 17.1 per cent reached at the end of last year.

An unnamed economist told Dau tu Chung khoan (Securities Investment) that, in order for the nation to fulfill the annual credit growth target, credit institutions would have to lend about VND100 trillion ($4.76 billion) between now and the end of the year.

Manh said lenders now needed to focus finances more on prioritised sectors and continue to review customers' capacity and economic areas' recovering ability to provide them with suitable support.

They should hasten implementation of the Government's VND30 trillion ($1.43 billion) property bailout, while the central bank actively considered allowing banks to raise credit quotas following their proposals.

The issue was, the anonymous economist said, whether the economy could absorb a large capital inflow in a short period of time, while any hurry in pumping money into the economy now could trigger bad debt, surge risks and worsen credit quality.

SBV Monetary Policy Department director Nguyen Thi Hong said factors long hindering credit growth still remained, including lenders' caution in the face of high bad debts, weak demand and the low capacity of businesses accessing markets.

"Shortcomings have been accumulated for years and the economy is hitting snags," she said.

Source: VNS