Central bank fears instability if banking credit growth cap removed

But Ha Sy Dong, a lawmaker from the central province of Quang Tri, said in the National Assembly Saturday that the central bank should use interest rates to manage credit growth instead of capping it.

The SBV said in a report to the NA that Vietnam’s economy is largely dependent on banks’ funding.

Before 2011 banks were offering high deposit interest rates to mobilize more money for lending, and this led to excessive bad debts, it said.

Many banks were at risk of failing, it said.

A cap on credit growth was introduced in 2011 to ensure stability, and it remains necessary now, it said. "Removing this cap needs to be a gradual process, and should be done cautiously depending on the market situation."

The central bank at the beginning of this year allotted each bank a credit growth limit depending on its performance, and the entire banking system is expected to increase credit by 15%.