Credit quota reform and tighter capital rules may widen gap among banks

Credit quota reform and tighter capital rules may widen gap among banks

Plans to gradually remove long-standing credit growth quotas while introducing Basel III capital rules could reshape the banking system and widen the gap between stronger and weaker lenders, according to S&P Global Ratings.

In a report released this month, S&P stated that the State Bank of Vietnam’s (SBV) plans to test the removal of credit limits by 2026 marks a shift from administrative control towards market-based discipline. Banks with strong balance sheets would be allowed to expand lending based on real capacity rather than assigned quotas.

For more than a decade, credit quotas have acted as both a ceiling and a floor. Removing this tool would align Việt Nam’s framework more closely with international practice and support a more private-sector-led growth model.

However, S&P described the move as a “double-edged sword”.

Việt Nam’s credit-to-GDP ratio has exceeded 140 per cent, among the highest in its income group. Allowing banks to grow loans more freely could increase leverage and systemic risk, especially after past failures linked to rapid expansion and weak governance, such as the collapse of Saigon Commercial Bank in 2024.

S&P said Basel III under Circular 14/2025 will act as a new “speed limit”. Capital adequacy ratios will rise from 8.625 per cent to 10.5 per cent over four years, with stricter buffers and more risk-sensitive calculations. Full compliance is required from 2030.

Uneven impact

Large, well-capitalised joint-stock banks are better placed to meet the new standards and benefit from freer lending. Smaller Tier-2 banks may face tighter capital constraints and slower growth. Even State-owned commercial banks operate close to minimum capital levels, which could limit their ability to support strong credit demand.

S&P noted banks are raising capital through Tier-2 bond issuance and by seeking foreign investors. According to FiinRatings data cited by S&P, about VNĐ273 trillion worth of bonds were issued in the first eight months of 2025, with VNĐ360 trillion expected for the year. Foreign ownership caps of 30 per cent, however, restrict equity mobilisation.

Over time, S&P expects consolidation, with stronger banks gaining market share while weaker ones are absorbed through mergers and acquisitions.

While S&P highlights the structural implications, domestic research points to why the transition must be gradual.

SSI Research said the credit quota, introduced in 2011 after a period of overheating credit and high inflation, helped stabilise the system. In the next phase, however, the tool may no longer suit the goal of improving capital allocation. SSI expects the SBV to ease reliance on quotas from 2026 while keeping selective measures to guide credit into priority sectors and control risks.

SSI forecasts credit growth at 17.6 per cent in 2026, lower than 18.8 per cent in 2025 but healthier in structure. More even lending during the year could reduce the usual year-end surge that strains liquidity and pushes up deposit rates.

Recent data also supports such caution.

By end-2025, GDP grew 8.02 per cent while credit expanded 19 per cent. Deposits rose only 14.1 per cent, creating funding pressure and requiring frequent SBV intervention. Around 80 per cent of deposits are short-term, while nearly half of loans are medium- and long-term, increasing liquidity risks when credit grows too quickly.

SBV Governor Nguyễn Thị Hồng has noted that Việt Nam’s credit-to-GDP ratio is already very high, leaving limited room for expansion without affecting system safety.

For 2026, the SBV introduced a new formula to calculate maximum system credit and restricted banks from using more than 25 per cent of annual credit allowance in the first quarter. Real estate lending is also capped within each bank’s overall growth pace. The official credit growth orientation is around 15 per cent, adjustable depending on conditions.

Yuanta Vietnam Securities estimates that to achieve GDP growth above 10 per cent, credit growth would need to exceed 16 per cent. This suggests bank credit is no longer expected to be the main growth driver, with greater reliance on fiscal policy, public investment and capital markets.

Experts stress that removing the quota requires strict conditions. Dr Nguyễn Đức Độ of the Academy of Finance said the tool can only be withdrawn safely when inflation, bad debts and interest rate competition are well controlled.

In a recent meeting with SBV, Phùng Thị Bình, deputy general director of Agribank, said lending must reflect banks’ financial strength and the economy’s ability to absorb capital.

Analysts agree the question is no longer whether the mechanism will change, but how carefully Việt Nam can shift from administrative control to market discipline while maintaining financial stability. 

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