March 28 (Bloomberg) -- Vietnam’s growth slowed in the first quarter as the government failed to spur lending to businesses as banks struggled with bad debt.
Gross domestic product rose 4.96 percent in the first three months from the same period a year earlier, the General Statistics Office said in a release in Hanoi today. That compares with a previously reported 6.04 percent pace in the last quarter of 2013 and the median estimate of 5.2 percent in a Bloomberg survey of seven economists.
Vietnam’s policy makers are trying to bolster an economy that the World Bank estimates will grow 5.4 percent this year, slower than a government target of 5.8 percent, and a seventh straight year of growth below 7 percent. The central bank last week cut its policy rates and said it is stepping up efforts to create more favorable conditions for foreign investors, including a plan to auction bad-debt assets of banks.
“The economy is still very sluggish and facing challenges including weak domestic demand and slow bank lending,” said Nguyen Tri Hieu, a Hanoi-based economist at Ocean Commercial Joint-Stock Bank. “It’s hard for banks to accelerate credit growth now due to the burden of bad debt,” he said, adding that exports are a “bright spot” that will drive a recovery.
The dong was little changed at 21,102 per dollar as of 2:40 p.m local time. The benchmark VN Index rose 0.7 percent. It has gained about 17 percent this year, the biggest advance in Asia.
The State Bank of Vietnam last week lowered its discount rate to 4.5 percent from 5 percent and the refinancing rate to 6.5 percent from 7 percent. It reduced the repurchase rate to 5 percent from 5.5 percent.
Lending dropped 1.05 percent as of March 13 from the end of 2013, according to the central bank, and the number of business closures rose 12 percent as of end-February from a year earlier. The government targets credit growth of 12 percent to 14 percent this year.
Prime Minister Nguyen Tan Dung last month asked the monetary authority to step up measures to lower lending rates, as the highest level of bad debt among Southeast Asia’s biggest economies curbed lending. Moody’s Investors Service estimates bad debt comprised at least 15 percent of total loans, an assessment disputed by the central bank, which said non-performing loans had dropped to 3.63 percent at the end of 2013.
Exports rose 14 percent in the first quarter from the same period a year earlier, while imports climbed 12 percent, data earlier today showed. Disbursed foreign investment rose 5.6 percent to $2.85 billion in the first quarter from a year earlier, data showed yesterday.
Fitch Ratings in January revised its outlook on the nation to positive, saying there there has been an improvement in macroeconomic stability and that the economy has begun to recover. Inflation this month eased to 4.39 percent from a year earlier, the slowest pace since November 2009.
Growth quickened in the first quarter compared to a 4.76 percent pace in the same period last year. Industry, which accounted for about 36 percent of GDP, grew 4.9 percent from the same period a year earlier, data showed today. Services, which made up 47 percent of GDP, expanded 6 percent.
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