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HA NOI (Biz Hub) — State Bank of Viet Nam's Governor Nguyen Van Binh is planning a more flexible monetary policy in the second half of this year to achieve credit growth of 12 to 14 per cent by year-end.

At a conference held by the central bank yesterday, Binh announced this year's first half credit growth of 3.52 per cent, which was largely due to a 12.03 per cent growth in foreign credit and 2.17 per cent growth in dong credit.

The low credit growth, which has stirred concerns in recent weeks, was blamed on weak capital absorption capacity of the economy, unsolved budget debts and the process of handling collaterals along with the loan underwriting mechanism for enterprises.

In H2, Ha Noi will focus on managing bad debts, raising total demand and facilitating market recovery.

Policy makers said that credit demand in the second half was always twice than that of the first half. They expressed optimistic provisionary views over the entire year's target of 12 to 14 per cent credit growth.

Earlier, a report by the Monetary Policy Department showed that roughly 87 to 90 per cent of capital sources in banks flew into Government bonds and State Treasury bills.

The central bank yesterday said that the bond and bill purchases would help credit institutions raise liquidity provision. However, they warned that the holding may probably cause some difficulty if banks were not active in balancing tenures.

In terms of credit structures in H1, credit increased 10 per cent for exports, 5.8 per cent for auxiliary industries and 13 per cent for hi-tech applied production firms. Meanwhile, small and medium sized enterprises showed a 2 per cent increase in credit.

As of May, 2014, loans allocated for agriculture and rural areas were up 2.56 per cent against the end of 2013.

Dong liquidity was secured. Loan-to-deposit ratio (LTD) in the dong came down to 87.4 per cent from 92.5 per cent in December last. [The LTD ratio accesses a bank's liquidity. If the ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen fund requirements and if the ratio is too low, banks may not be earning as much as they could be.]

By the end of June, the foreign exchange reserves were US$35 billion. The central bank said the dollarisation in the economy was dwindling.

The ratio of dollar deposit-to-total money supply was 11.4 per cent, slightly down from 12.4 per cent by the end of last year. — VNS