Nguyen Thi Hong, SBV Deputy Governor, revealed this at a conference held in Hanoi on August 29 that reviewed eight months of Vietnamese banking sector operations.

Hong explained that credit growth in August was 3.68% higher than that in July but remained lower than that in the same period last year. She said this growth rate was below expectations in light of the Government's target of 12 to 14% growth in credit for 2014.

The SBV Deputy Governor said she expected credit growth to reach 10% by year-end but expressed hopes that it would exceed this figure.

As of August 21, the total means of payment rose by 8.86% while deposit growth rate went up by 8.21%, with deposit in dong rising 8.77% and deposit in foreign currency going up by 4.2% compared with the same period last year. The liquidity of credit institutions remained abundant and the interest rate of the inter-bank market was stabilised at a low level.

Hong said the lending rate of credit institutions was expected to decline by 0.5 to 1.5% in 2014.

Currently, credit institutions have adjusted the interest rate of old loans. As of August 14, outstanding loans in dong with an interest rate of more than 15% accounted for 4.45% of the total number of loans, while outstanding loans with an interest rate of more than 13% accounted for 12.45%.

Hong also revealed that Vietnamese commercial banks' bad debt ratio rose to 4.84% by late June 2014, representing a 3.61% increase from that of the same period last year.

She attributed the increase to sluggish production and business, resulting in a delay in debt payments for a number of businesses, and the implementation of new debt regulations in SBV's Circular No 09/2014/TT-NHNN on the classification of bank risk.

The circular, which deals with the classification of bank assets, the setting up of risk provisions and the manner by which provisions against credit risks are to be deployed, will force an increase in risk provisioning, Hong said.

It will also allow the banks to continue restructuring existing loans and retain them in the same debt group until April 1, 2015, instead of reclassifying them by using more rigorous standards by June 1, 2014, as previously planned.

At the conference, the Chairman of the Vietnam Asset Management Company (VAMC) told reporters that since October 2013, his company had purchased VND58.9 trillion (US$2.8 billion) worth of bad debts from 35 credit institutions.

In 2014 alone, VAMC purchased bad debts worth VND19.6 trillion, but this indicated a decline in the number of such purchases.

The VAMC Chairman explained that the purchase of bad debts formed part of a roadmap and plan to restructure the non-performing loans (NPLs) of credit institutions. He added that VAMC had to consider the quality of bad debts before making the purchase.