The nation's banking system saw credit growth of 3.34 percent credit in the first quarter, the State Bank of Vietnam announced yesterday, placing the official figure at a much higher level than the Ministry of Planning and Investment estimate of 2.95 percent released on Wednesday.

The growth rate came despite high interest rates on loans denominated in Vie t Nam dong, currently ranging at 16-20 percent per year at most banks since the State Bank recently deregulated interest rates on medium and long-term loans.

State Bank Governor Nguyen Van Giau told reporters yesterday in Hanoi that the central bank would support commercial banks with more capital in order to keep interest rates in check and reduce the pressure of high interest costs on inflation.

"Some people criticised me because the central bank had not injected enough money into the market, creating a situation of low liquidity and slow economic growth in the first quarter," Giau said.

In late 2009, during a liquidity crisis in the commercial banking system, the State social insurance fund disbursed 60 trillion dong ($3.15 billion), and, in early 2010, the central bank loaned another 70 trillion dong ($3.68 billion) to commercial banks.

"If the central bank had pumped in more capital, inflation in the first quarter would have exceeded 4.12 percent," Giau said.

"The State Bank will carry out measures to hold the line on negotiated interest rates in accordance with the market system in order to control inflation at less than 7 percent and achieve a growth rate of 6.5 percent."

Total deposits at commercial banks grew by 3.8 percent during the first quarter, although deposits by individuals grew by a more impressive 9.2 percent during the period, Gill u also noted yesterday.

Foreign exchange rates also stabilised during the quarter, he said, praising the efforts' of State-owned enterprises and banks to improve dollar liquidity. One US dollar was currently trading stably at around 19,000 dong, he said.

Meanwhile, the central bank was considering a suspension on further lending in gold due to the high risks involved, Giau said.

(Source: Intellasia)