Deputy governor Dao Minh Tu said an increase of 1.5-2 percentage points of the earlier quota of 14% means another VND240 trillion (US$10.17 billion) would enter the economy.

As of Thursday credit growth for the year was 12.2%, which means 1.8% remains unused, and this would be added to the increased quota, he said.

"This offers banks relatively large room to provide funds to businesses and the economy."

Banks that have liquidity and plans to reduce credit interest rates would get priority, he said.

The central bank sees it needs to impose credit growth restrictions on lenders with high interest rates, he said, adding that banks that have not reached the cap do not need a quota increase for now.

After the central bank on December 5, BIDV has been allowed to lend an additional VND27 trillion, and Vietcombank, VND5 trillion.

Tu said the central bank did not increase the cap earlier since macro indices and liquidity at several banks were not ideal.

The indices started to improve this month and the global impacts on Vietnam have lessened, which is why the central bank is acting now, he explained.

But banks need to actively mobilize deposits to have enough funds to lend, he added.

Several banks and analysts have said however that the increased quota would not result in a major influx of cash into the economy since many lenders have reached or exceeded the safe loan-to-deposit ratio.

Regulations allow banks to lend up to 85 dong out of every 100 they receive, but 16 out of 27 listed banks had reached an LDR of more than 100% by the end of the third quarter.

Source: VNE