Autonomy and stability balanced via credit reform

Autonomy and stability balanced via credit reform

The State Bank of Vietnam is setting out a roadmap towards removing credit growth ceilings, accompanied by efforts to enhance the autonomy of credit institutions.

On July 8, the State Bank of Vietnam (SBV) reported that total outstanding credit to the economy had reached over $688 billion as of June 30, up 9.9 per cent from the end of 2024 and about 19.4 per cent on-year. Credit flows have been primarily directed towards prioritised sectors such as agriculture, small- and medium-sized enterprises, and high-tech businesses.

Earlier in the month, the prime minister tasked the SBV with urgently reviewing the removal of the credit growth quota mechanism in favour of a market-based approach.

The SBV is expected to shift towards risk-based regulation, building a credit safety criteria framework and finalising necessary preparations within July. By 2026, credit growth should be fully governed by market tools, eliminating administrative quotas.

Experts agree that now is an opportune time to transition, as banks have strengthened their risk governance capacity. Eliminating credit quotas, as directed by the government, would enhance autonomy, transparency, and competitiveness across the banking system. Credit oversight would then rely on clear financial criteria rather than administrative mandates.

Nguyen Quoc Hung, vice chairman and general secretary of the Vietnam Banks Association, supports this shift, especially as many large banks have already implemented Basel III standards.

“Banks will be able to lend proactively based on their capital mobilisation capacity and market credit demand,” he said. “This avoids situations where capital is available but cannot be disbursed due to quota restrictions. To ensure credit safety, banks must independently set risk thresholds to secure loan recovery and capital safety.”

Hung emphasised the need for the SBV to define specific safety indicators for monitoring credit expansion.

“Take, for instance, the safe lending limit for real estate or the permissible ratio of short-term funding used for long-term lending,” he suggested. “The goal is to safeguard both individual institutions and the broader financial system.”

Hung also urged private sector enterprises to seize the opportunities provided by Resolution No.68-NQ/TW, calling it a much-needed boost.

“The resolution encourages commercial credit allocation, promotes green finance and supply chain financing, and endorses lending based on cash flow and intangible assets, paving the way for digital credit-scoring models. These changes reduce reliance on collateral and align better with smaller and tech-based service companies,” Hung said.

The resolution also supports interest rate subsidies for green and circular projects, and opens pathways for credit guarantee mechanisms to lower risk weightings and ultimately reduce borrowing costs.

On directing capital to priority sectors, particularly private enterprises, exporters, startups, and innovation-driven firms, Nguyen Phi Lan, director general of the Forecasting and Statistics at the Monetary and Financial Stabilisation Department under the SBV noted that nearly 100 credit institutions have active outstanding loans to the private sector. Approximately 209,000 smaller businesses currently have loans from these institutions, predominantly commercial banks.

“This proves that credit flows are reaching all segments of the business community and the economy,” Lan said. “It not only reflects the dynamism of the private sector but also demonstrates the banking industry’s commitment to supporting business recovery and development.”

A highlight is the strong response to the $20 billion credit package, with 21 commercial banks having registered to participate. Four major state-owned banks committed over $2.4 billion each, while 12 large joint-stock banks pledged over $800 million each, and smaller banks registered approximately $160 million per institution.

“This reflects the banking industry’s unwavering commitment to the business sector, ensuring systemic safety while actively providing practical credit packages to fuel economic recovery. It’s part of the industry’s ongoing effort to implement Resolution 68 by ensuring stable, efficient, and sustainable capital flows for Vietnam’s enterprises,” added Lan.

However, some experts remain cautious, suggesting a phased approach is necessary. The idea of abolishing credit quotas has been discussed for years, but Vietnam’s heavy reliance on bank credit means quotas are still a useful monetary tool.

Dr. Le Duy Binh, managing director of Economica Vietnam, warned that lifting credit caps without safeguards could lead to overheating, as witnessed in previous cycles. “Rapid credit growth, far outpacing GDP expansion, can deteriorate credit quality, increase bad debts, and destabilise the banking system and broader economy. International organisations have raised concerns that Vietnam’s credit-to-GDP ratio has already reached a high 134 per cent,” he said.

“In the absence of quotas, a lending race among banks may ensue, driving deposit competition and pushing interest rates to unsustainable levels, as seen when deposit rates once climbed to 13-14 per cent annually,” added Binh.

Economist Dr. Chau Dinh Linh echoed the sentiment that removing quotas is directionally correct, but emphasised careful timing.

“Before eliminating quotas, three prerequisites must be met: macroeconomic stability and inflation under control; a uniformly strong banking system meeting Basel II and III standards; and strengthened supervisory capacity at the SBV,” he noted. “A more developed and diversified capital market is also needed to ease the burden of long-term capital provision on banks.”

Autonomy and stability balanced via credit reform, Source: freepik.com/ AI-generated

Pham Chi Quang, director general, Monetary Policy Department State Bank of Vietnam

Since 2012, the State Bank of Vietnam (SBV) has implemented a policy of assigning credit growth quotas to individual credit institutions in order to maintain macroeconomic stability, control inflation, and ensure the safety of the banking system. In practice, this quota-based mechanism has proven effective, making a positive contribution to macroeconomic stability and the safe, sustainable recovery of the banking sector, while restoring public and market confidence in the financial system.

In 2025, the SBV granted greater autonomy to foreign banks, joint-venture banks, cooperative banks, and non-bank credit institutions, allowing them to self-manage their credit growth. As of now, only domestic commercial banks remain subject to SBV-assigned credit growth ceilings for 2025, which are determined based on each bank’s internal rating score.

The removal of this quota-based credit control measure must be undertaken cautiously, with the introduction of highly feasible alternative policies that are appropriate to Vietnam’s specific conditions. The goal is to continue supporting economic growth, ensure inflation control, maintain macroeconomic stability, and uphold the safety of the financial system.

Le Thanh Tung, board member VietinBank

The government’s gradual shift of credit growth management towards a more market-based mechanism is aligned with international practices. The SBV has is already actively studying and planning a step-by-step transition away from the current quota-based regime.

The SBV is continuing to review and upgrade these regulatory frameworks in accordance with Basel III standards. This marks a significant step forward and reflects the use of internationally recognised toolkits adopted by central banks and financial supervisory authorities to ensure that commercial banks strengthen both their mobilised capital and Tier 1 capital in proportion to their outstanding credit exposures. The ultimate goal is to safeguard the stability and resilience of the banking system.

By completing and coordinating the use of monetary policy tools, risk management frameworks, and supervisory mechanisms in line with international norms, the SBV will be well-positioned to support the shift towards market-based credit growth management as directed by the government. As a commercial bank, we are fully committed to complying with all SBV directives and regulations.

Phung Thi Binh, deputy general director, Agribank

According to the SBV, the annual credit growth quota policy is now only applied to domestic commercial banks and is gradually being phased out. This roadmap, as outlined by the SBV, is considered appropriate.

For commercial banks in general, and Agribank in particular, mobilising capital and extending credit are core business activities. Each year, credit institutions must develop a business plan, including credit growth targets. These targets must align with three key factors: the financial capacity of the credit institution; the economy’s capacity to absorb capital, in support of overall economic development; and the institution’s risk tolerance.

In addition, credit growth planning must comply with SBV regulations, including capital adequacy and prudential ratios, capital adequacy assessment requirements, international risk management standards such as Basel II and Basel III, and the SBV’s risk governance requirements.

Nguyen Minh Hanh, research head, Saigon-Hanoi Securities

The most fundamental rationale for Vietnam to move towards abolishing credit growth ceilings lies in the broader trend of marketisation in monetary policy management. The application of credit limits, essentially a temporary and administrative tool, was suitable during the early stages of Vietnam’s economic transition, when the financial market was underdeveloped and required tight oversight.

However, as Vietnam’s financial system becomes increasingly sophisticated and deeply integrated into global markets, the need for greater transparency, autonomy, and healthy competition in credit allocation has grown more urgent. The use of administratively assigned credit quotas is gradually becoming outdated and misaligned with evolving demands.

Instead, credit growth should be determined based on the actual financial strength of each bank, particularly their capital adequacy ratio and the quality of their risk-weighted assets.

To ensure the new mechanism functions sustainably, it must be accompanied by a transparent and standardised monitoring system, along with the development of a secondary market for distressed asset resolution to support effective capital recovery. This transition presents a clear opportunity for private Tier-2 banks that have invested in capital management and risk automation.

VIR