The central bank has imposed stricter rules for lending, raised interest rates, and increased compulsory bank reserves, on the heels of strengthening economic growth and quickening inflation, the credit-ratings company said in a report released over the weekend.

Vietnam’s economic growth and inflation rates are both at the highest levels in more than a decade.

The measures have increased funding costs as well as competition for customer deposits at banks, according to a report by Ivan Tan, a Singapore-based credit analyst.

Smaller banks in the Southeast Asian country are hurt the most by lower margins that accompany a “deposit war,” S&P said.

“The smaller joint-stock banks, which are at a disadvantage in this environment, may become acquisition targets for the larger players, or you may see the smaller joint-stock banks merge to try to gain critical mass,’’ Tan said in a telephone interview.

The dong Friday gained to the highest in almost two years after the government asked the central bank to allow the currency to strengthen to temper rising consumer prices.

The currency rose to 15,915 against the dollar, according to data compiled by Bloomberg.

In a report released earlier last month HSBC forecast the dongwould rise 1 percent this year and 2 percent in 2009.

“The potential de-dollarization of Vietnamese savings has been something of a hidden dragon,’’ Daniel Hui, a currency strategist at HSBC in Hong Kong, wrote in the report.

“Vietnam is the most dollarized economy in Asia,’’ he added.

Highlighting weakness

“A prolonged liquidity squeeze will exacerbate the inherent structural weakness in Vietnam’s banking system,’’ the S&P note said.

“Considering the size of the economy, there are a large number of joint-stock banks in the country and some of the smaller ones are fairly weak,” Tan said in the interview.

The size of Vietnam’s economy was projected to reach $70 billion by the end of 2007, according to a December report by the International Monetary Fund, twice the 2002 figure.

Inflation quickened to 15.67 percent in February from the same period a year earlier, the fastest in more than 12 years.

Vietnam has 34 joint-stock banks, and seven government-owned lenders, according to the State Bank of Vietnam.

Joint-stock is a term used in Vietnam to refer to companies with more than one shareholder, as opposed to those that are wholly government owned.

The central bank is considering applications for the establishment of 21 new joint-stock banks, the Saigon Times Daily reported February 22.

Joint-stock banks’ share of the credit market in Vietnam rose to 25 percent at the end of 2007 from about 16 percent two years previously, the newspaper said.

S&P, a unit of New York-based McGraw-Hill Cos., did not cite the names of any banks.

Both Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank) and Asia Commercial Bank (ACB), the country’s only two listed banks, said in 2006 they might make acquisitions within the next 10 years.

Source: Bloomberg