Smaller businesses fear tightened credit may stifle growth

The Ministry of Finance has issued government and treasury bonds for various terms to mop up

liquidity. The central bank has stepped up the sale of treasury bills via open market operations.

The State Bank of Viet Nam has generally been moving towards a tight money policy to suck out the liquidity in the economy.

It has ordered banks to scrupulously follow regulations while lending, reduce loans against securities and property and keep the subsidised loans amount within targeted limits.

The SBV has also been closely monitoring economic and monetary changes as well as the effect created from the government's compulsory reserve ratio increase on the lenders.

Economists said reducing broad money supply is a common strategy adopted by central banks during times of inflationary pressure.

However, it would be an impediment to small and medium-sized enterprises trying to mobilise capital for their operations, they said.

Le Phuoc Vu, general director of the steel firm Hoa Sen Group, said if the central bank adopted any measure to reduce liquidity to cope with high inflation, it would result in an increase in both deposit and lending interest rates.

"The lending interest rate hike will pose many difficulties for manufacturers and traders like us particularly during the end of the year when we have various expenses like salary and bonus payments and purchase of raw materials.

"Some payments we can defer by getting credit from suppliers but we still need liquidity for other trading and production activities," Vu said.

"Large companies with solid cash flows will not be affected if banks stop lending but it will be a serious problem for small companies that mainly rely on bank loans," Nguyen Hong Phong, director of the Tien Nong Company, said.