Workers at a textile export company in Ninh Binh Province. A report by the Viet Nam Institute for Economic and Policy Research says significant recovery was seen in import-export activities, with an 8.3 per cent increase in export turnover helping bring about a trade surplus. — VNA/VNS Photo Danh Lam

These figures were revealed in a report tabled at a conference yesterday by Nguyen Duc Thanh, director of the Viet Nam Institute for Economic and Policy Research (VEPR).

The positive third quarter growth also means that inflation would reach the five per cent target set by the National Assembly for the year, the report says.

The VEPR estimates third quarter GDP growth at 6.4 per cent, lifting the growth rate for the first nine months of the year to 5.9 per cent.

It says the manufacturing and processing sectors were key drivers of economic recovery seen in the third quarter, posting growth rates of 6.4 per cent and 11.22 per cent respectively in the third quarter and first nine months of the year.

A decline in mineral exploitation has negatively impacted industrial growth in particular, the report says.

According to the General Statistics Office, the agricultural sector continues to do badly. The sector, which typically accounts for 11-13 per cent of the national GDP, grew a measly 0.05 per cent in the first nine months, contributing just 0.01 per cent to the national economy.

Growth in the forestry and fisheries sectors was also less than in the same period last year.

As of September, the agriculture, forestry and fisheries sectors had grown by just 0.65 per cent, the lowest in the last six years.

Business activities also declined slightly, compared to the last quarter, but there were some positive signs, the report says.

The number of newly-registered businesses as well as the amount of registered capital has increased. However, the number of employees in newly-established businesses has dropped against the same period last year due to lay-offs in the mineral exploitation sector.

The report says significant recovery was seen in import-export activities, with an 8.3 per cent increase in export turnover helping bring about a trade surplus.

Overspending

Low revenues hampered the State Budget and overspending was unavoidable, the report says.

"The target of keeping overspending below 5 per cent will not be reached," Thanh said.

Despite many difficulties, the Government was keeping its 6.7 per cent growth target for 2016 unchanged, he noted.

"To reach this target, economic growth in the final quarter should show a year-on-year increase of 8.3 per cent.

"However, the Government should focus more on the quality of economic development, and revise the target to 6.3 or 6.5 per cent," Thanh told the conference.

He said insistence on high economic growth might inflame macroeconomic instabilities and inflict "much heavier costs".

Other experts at the conference also said that Viet Nam should lower its economic growth target to avoid macro-economic instability. Inflation would be unavoidable in the coming months, they noted, with healthcare costs set to rise in 16 cities and provinces.

Moreover, in the world market, energy prices had recovered while food prices were still unknown. These factors have exerted pressure on Vietnamese prices, pushing inflation to the 5 per cent target.

The VEPR recommended caution in policy making, especially in monetary and credit policies.

"In the coming time, the Government should apply a master plan for trimming the administrative apparatus as well as regular spending by State agencies," Thanh said.

Alongside efforts to improve the current business environment, commercial banks should reduce lending rates to motivate businesses, facilitating stable economic growth, he added.

Higher credit growth

Credit should grow faster in the last quarter so that growth target of 18-20 per cent set for the year can be reached, National Financial Supervisory Commission (NFSC) experts suggested.

In its latest report, the commission said that in the first eight months of the year, credit rose by 10.2 per cent compared with the end of 2015 to reach VND4.9 quadrillion (US$219.7 billion). Of the total, outstanding loans contributed 90 per cent and corporate bonds added 10 per cent.

In terms of credit structure, lending in Vietnamese dong accounted for 91.2 per cent of the total credit, while medium and long-term credit made up 55.9 per cent. However, the growth pace of medium and long-term loans witnessed a slowdown. From January to August, loans increased by 11 per cent, 7.7 percentage points lower than the same period last year.

The report also revealed that the proportion of credit contribution was little changed from the end of 2015. Loans for real estate investment and business increased by 5.4 per cent, accounting for 8.5 per cent of total credit in the first eight months of the year, while they made up 8.9 per cent for the entire previous year.

Meanwhile, consumer credit increased by 28.7 per cent compared with the end of 2015, accounting for 11.3 per cent of total credit (9.7 per cent in 2015). Consumer credit focused primarily on home repairs, purchase of houses, equipment and utensils, and transportation.

Outstanding loans to other activities and the services industry accounted for the largest credit, at 36.6 per cent and 22.2 per cent respectively, followed by the trade sector and the agriculture, forestry and fisheries sector.

According to reports from the credit institution, the non-performing loan ratio is below three per cent. However, bad debt is distributed unevenly, concentrated in a number of credit institutions with weak financial capacity. The NFSC's analysis said bad debt of 19 credit institutions accounted for 55.1 per cent of total NPL systems.

NFSC analysts said settlement of bad debts at credit institutions over the past years was slow due to the credit institutions' limited ability in assessing risks, which led to inadequate provisions for loans, and due to difficulties in the sale of mortgaged assets.

According to the report, the liquidity of the banking sector has been kept stable. By the end of August, the funds mobilised from economic organisations and residents reached VND5.8 quadrillion, up 11.4 per cent, 3.4 percentage point higher than the same period last year.

The deposits are estimated to increase by over 12 per cent by the end of September. The loan to deposit ratio averaged 84.7 per cent, nearly equal to the figure for the whole of 2015.

In early September, a number of commercial banks in the sector continued to increase long-term deposit rates by between 0.3 and 0.5 percentage points to attract customers and achieve business targets by the end of the quarter.

Meanwhile, on September 26, some large commercial banks reduced interest rates by 0.3 to 0.5 percentage points for short-term deposits and a number of state-owned banks also reduced lending rates for priority subjects until the end of 2016.

"Typically, in the last quarter, bank credit is often promoted to achieve annual targets. Reducing lending rates in the peak season is a positive signal," analysts said.

For the foreign exchange market, the report also said in the past nine months, this market is relatively stable. However, experts from the commission still emphasised the need to keep a close watch on the exchange rate in the remaining months as the FED will likely raise interest rates once this year and many major economies around the world continue to maintain easing measures, boosting money supply. — VNS