UPDATE 2-Vietnam's growth pace rising in Q3 - state media

Fri Sep 7, 2012 11:29am IST

* Q3 GDP may rise to 5.5-5.6 pct y/y-newspaper

* Vietnam is "tackling" economic challenges-Fitch

* Inflation projected at 7 pct in 2012-govt (Adds Fitch Ratings report, comments)

By Ho Binh Minh

HANOI, Sept 7 (Reuters) - Vietnam's economic growth could accelerate to 5.5-5.6 percent in the third quarter from a year earlier and be 5.1 percent for the full year, state media said.

Also on Friday, Fitch Ratings said Vietnam is "tackling" its economic challenges. It also sees the economy as growing about 5 percent this year, compared with 2011's 5.89 percent.

Vietnam's economy has been growing at a slower pace this year as the government shifted its policy to tightening lending in the early months of the year to help control inflation. Banks battling bad debt also slowed loans to keep their books clean, putting pressure on businesses seeking funds for expansion.

In the first quarter, growth was 4 percent from a year earlier, and in the second quarter, the pace rose to 4.66 percent.

"While demand in the economy has yet to become strong, there have been positive moves," the official Vietnam Economic Times newspaper cited Planning and Investment Ministry assessments as saying.

President Truong Tan Sang told a business forum that's part of the Asia-Pacific Economic Cooperation summit in Russia: "We are striving to stabilise the macro economy, maintaining reasonable growth and implementing a master plan to restructure the economy."

In its report, Fitch said Vietnam "is tackling the challenges of greater inflation pressures, a fragile balance of payments position and a weak banking sector with greater vigor."

It noted that Vietnam's foreign exchange reserves increased to $20.8 billion at the end of May from $14.1 billion in December 2011.

August's inflation slowed to an annual rate of 5.04 percent, the lowest since December 2009, the government said.

BANKING SECTOR CONCERNS

Fitch said the banking sector "remains a large source of risk given the rising non-performing loan ratio."

It gave no value for bad debt. The central bank estimated bad debt to account for 8.6 percent of total loans at the end of March, doubling the previously published figures. Last month, the central bank allowed lenders to raise their credit growth targets to up to 27 percent from a cap of 17 percent in a bid to boost lending and spur economic expansion.

State budget disbursement could have jumped to 24-25 trillion dong ($1.15-$1.2 billion) in August from an average 16-18 trillion dong per month in the first half, the Vietnam Economic Times said.

Domestic consumption could recover slightly by the year-end, supported by credit expansion in the economy, HSBC said in a report on Tuesday.

Core inflation in August was 0.65 percent against July, up from 0.6 percent in July and 0.1 percent in June, and the monthly inflation rate could be high in the last months of this year, the report cited government data as saying.

The National Financial Supervisory Committee forecast Vietnam's annual inflation this year at 6 percent, below a government's revised target of 7 percent, the newspaper said.

Consumer prices in 2011 jumped nearly 19 percent, compared with 9.19 percent the previous year.

Vietnam's average consumer price index growth could ease to 8.4 percent this year after a rise of 8.6 percent in 2011, the HSBC report said. (Editing by Kim Coghill and Richard Borsuk)