By Stuart Grudgings

(Reuters) - When one of Vietnam's richest and best-connected bankers was arrested in August, a move that sent the country's stock market tumbling, a little-known blog broke the news hours ahead of state media.

It was the first sign that the Quan Lam Bao website could be a window into mounting leadership tensions as the Communist country wrestles with the deep economic woes that have shattered its image as one of Asia's hottest emerging markets.

The site, whose name means "officials doing journalism", has become one of the country's most-visited as it piles often-savage criticism on Prime Minister Nguyen Tan Dung, accusing him of greed, cronyism and economic mismanagement.

Some of the attacks posted on the site and two other blogs had to come from party insiders, according to a party member who declined to be identified and several academics who follow Vietnam's secretive politics. They say the sites reflect intense infighting over how to deal with the country's debt-ridden banks and state firms.

Under mounting criticism for failing to adapt to the globalised market economy, Hanoi's top leaders began a summit last week - only days after ratings agency Moody's downgraded Vietnam's sovereign credit on concern its debt-swamped banks may require a large bailout.

Many observers expect President Truong Tan Sang to try to wrest back more control of policy from Dung, a former central bank governor accused by critics of having cozy ties with wealthy businessmen and who has been closely associated with missteps at financially-strapped state firms.

"They have to make some tough decisions," Adam McCarty, chief economist at the Mekong Economics consultancy, said of the Communist leadership. "They've run out of wiggle room."

"Some rich people and rich groups are going to have to write off a lot of assets and a lot of wealth. The struggle is over exactly who," said McCarty, who's based in Vietnam.

DECAY OF POLITICAL MORALITY?

Sang has taken a public stand against cronyism. Before the current meeting of the Central Committee, the party's most powerful body, he blamed a decay of political morality for Vietnam's problems. But analysts see the rivalry between Sang and Dung as largely a power play, and doubt that either is prepared to make the tough economic reforms Vietnam needs.

Crucially, there has been no discernable drive to end the banking system's glaring lack of transparency. It's unclear how solvent banks are, who owns them and how much of their lending goes to insiders for their own businesses.

"Without reinforcing transparency and banking discipline, banking reform will be a wild-goose chase," said Cao Sy Kiem, a former central bank governor who is now a member of the National Monetary and Fiscal Advisory Council.

The Moody's downgrade was the latest blow for a former economic star of Southeast Asia in the wake of a credit binge that has turned sour, leaving huge debts and imbalances.

Fueled by reforms first launched in the 1980s, economic growth hit 8.5 percent in 2007. But the government now expects the economy to expand only 5.2 percent this year - well below its earlier target of 6.0-6.5 percent. While much of Southeast Asia is attracting significantly higher levels of foreign direct investment, Vietnam in the first nine months drew 1.2 percent less than a year ago.

SLUMPING REAL ESTATE

The country's banks are heavily exposed to a slumping real-estate sector and indebted state firms. Total bad debts are estimated at up to $15.6 billion based on the central bank's most recent figures. Analysts believe the real figure is much higher.

Cleaning up the bad loans will require some form of bailout, but a $5 billion debt resolution plan by the central bank and a separate plan by the Finance Ministry appear to have stalled.

One sign of worsening problems at banks is their failure to pass on the benefits of the central bank's five interest rate cuts this year to companies. Rather than disburse fresh funds and risk adding to their debt pile, banks appear to be rationing funds for the growing prospect of a rainy day.

Banks' deposits rose 11 percent in the first eight months of this year while credit rose just 1.4 percent from a year earlier -- a shock for an economy whose expansion was driven by double-digit annual credit growth over the past decade.

"It's very difficult to get loans at the moment. It's the most difficult time in years," said Tong Trong Nghia, director of a furniture-making company that employs 70 people in Bac Ninh province, 30 km (18 miles) east of Hanoi.

Nghia said his output had plunged 40 percent this year and that production at many businesses had come to a standstill.

An imminent full-blown banking crisis is unlikely but slow-burn stagnation is a danger without bold reforms to deal with the bad debts and shed light on the banking system's real state.

POLITICAL CRACKS?

Authorities did take dramatic action with their August swoop on Nguyen Duc Kien, the wealthy founder of Asia Commercial Bank. But his arrest on fraud charges appears to have been a one-off move and possibly reflected the intensifying leadership tensions.

Political analysts say Kien is close to Dung, and see his arrest as an attempt to undermine the prime minister, whose power expanded after getting his post in 2006.

The emergence of Quan Lam Bao and the two other highly critical blogs - Dan Lam Bao and Bien Dong - have added to the political intrigue.

Despite being condemned publicly by Dung in September as "a wicked plot by enemy forces," the three sites continue to publish, heightening suspicions that Dung's rivals in the Communist Party could be involved.

That would be a supreme irony in a country where bloggers face long jail sentences for questioning the government.

Quan Lam Bao is thick with innuendo and insider terminology, referring to Dung as "3D", a "monster" and "the nurse" - the last a reference to his role during the Vietnam War.

Several posts have blasted Dung for supporting failing banks and state enterprises.

"Vietnamese people can clearly see that the Politburo has made serious mistakes as it tolerated 3D," said one post last week, adding that he had "become a monster that no one can control."

(Additional reporting by John Ruwitch in Shanghai; Editing by Jason Szep and Richard Borsuk)