Fixings for two-week lending rates rose by 0.58 percentage point to 10.86 percent on Monday from last Friday. That marked the biggest rate increase in loan periods up to three months, Reuters data shows.

Overnight loan rates rose to 9.46 percent on Monday from 8.97 percent last Friday and 8.23 percent a week ago.

Preparations kick off about a week before the start of the Lunar New Year, of Tet in Vietnam, which falls on Feb. 14 this year.

Corporate demand for cash to repay debt and pay bonuses, as well as increased consumer demand for the holiday, put pressure on banks to produce short-term funds.

But some were feeling limits on their ability to raise funds since lending rates in Vietnam are capped as 12.5 percent and major banks have imposed a limit on deposit rates at 10.5 percent.

In addition, a lower national credit growth target suggested higher lending rates, which would in turn make it difficult for businesses to secure funds, Nguyen Huu Thanh, chairman of Ho Chi Minh City-based HDBank was quoted as saying in Monday's Lao Dong newspaper.

Chief Executive of Hanoi-based lender VIB, An Thanh Son, took a different view. He said banks enjoyed strong profit growth last year so funds were sufficient to meet customer's credit demand even though the credit target for the whole year had been cut.

The newspaper quoted Son as saying VIB's deposits grew 45 percent in 2009, faster than a 38 percent expansion in its loans.

The central bank said banks in Hanoi lent VND368.71 trillion last year, up 38.9 percent from the previous year but which was smaller than their deposits of VND591.15 trillion, up 27.98 percent from 2008.

The banks operating in Hanoi, where a fifth of Vietnam's loans are made, have projected that credit will grow between 25 percent and 27 percent this year, a central bank statement issued late last week said.