Vietnam's outstanding bank loans at end-August were up 22 percent from the end of 2005, a slower growth rate than the near 32 percent rise last year, but rising deposits have helped boost liquidity, the World Bank said.

"The decline in growth has mainly been on account of slower lending by state-owned commercial banks which account for nearly 70 percent of total credit," the World Bank said in a report released on Thursday.

Deposits in Vietnamese banks at end-August rose nearly 40 percent from the end of last year, beating the credit growth, said the report released at a donors' meeting to review Vietnam's performance in the past year.

It gave no values for loans or deposits and also did not mention the latest rate of bad debt in the system.

Vietnam's banking sector includes five state-run commercial banks, more than 30 joint-stock or partly privately-held banks, branches of 33 foreign banks and six joint venture banks.

The World Bank said joint-stock bank loans were nearly 40 percent up in the middle of this year from the end of 2005, while state-run banks managed to raise their loans only by between 15 percent and 16 percent in the same period.

"The slowdown in state-owned commercial banks' credit may well be related to their efforts to curb an increase in non-performing loans and conform to stricter prudential standards that were introduced in 2005," the bank said.

Bad loans

Foreign economists have said up to 15 percent of loans in Vietnam were bad, based on international accounting standards which Vietnam started applying in 2005, while the ratio was 4 percent based on the Vietnamese standards.

"The bad debt ratio is three to five percent only, not that high as per the external estimates," State Bank of Vietnam Deputy Governor Phung Khac Ke told Reuters ahead of the donors' meeting. He did not elaborate.

The central bank estimated the bad debt at VND17.8 trillion ($1.1 billion) or 3.18 percent of loans at the end of 2005, based on international standards. That suggested loans in the system stood at nearly VND560 trillion dong at the end of last year.

Vietnam aimed to curb bad debt at 4 percent of loans by the end of 2006.

The World Bank report noted higher interest rates on deposits following a competition for funds among joint-stock banks, even though the central bank had kept the base rate for Vietnamese dong loans unchanged at 8.25 percent since December 2005.

"With deposit growth far exceeding lending, state-owned commercial banks have experienced a build-up of excess liquidity," it said.

Bankers have said interest rates would rise next year as Vietnam needed more funds to fuel economic growth, one of the world's fastest-growing after China.

Hanoi targets a GDP growth of 8.2 percent to 8.5 percent in 2007 after estimated 8.2 percent growth for this year.

To raise funds, several banks have been selling bonds, expanding their branch networks to reach a greater part of the 84 million population and seeking tie-ups with foreign banks ahead of expected competition next year.

Vietnam will allow larger operations by foreign banks from next April after it joins the World Trade Organization early next year.

Source: Reuters