Removing credit limits - a roadmap is needed.

The hot topic in recent days has been whether or not to immediately abolish the maximum credit limit (credit room) for banks. Given the volatile global and domestic economic conditions, ending the application of credit rooms requires a phased approach.

14 years of implementing credit limits.

Customers conducting transactions at Tien Phong Commercial Joint Stock Bank. Photo by Nguyen Quang.

In Official Dispatch No. 104/CD-TTg on strengthening the effectiveness of monetary and fiscal policy management (dated July 6, 2025), the Prime Minister requested the State Bank of Vietnam to strive for credit growth of approximately 16% for the whole year compared to 2024 and to move towards managing credit growth using market-based tools and abolishing quotas by 2026. The State Bank of Vietnam is urged to promptly review, analyze, and assess the impact, study international experience, and urgently consider removing administrative tools in managing credit growth through allocating credit growth targets to each credit institution...

To date, the State Bank of Vietnam has applied credit limit tools for credit institutions for 14 years, starting in 2011 when inflation rose to 18.13% as a consequence of loose monetary policy and a trade deficit, with continuously increasing government spending leading to increased aggregate demand. Prior to that, from 2005 to 2010, Vietnam's money supply and credit outstanding experienced rapid growth, averaging 30% per year. The large amount of money in circulation, coupled with a lack of corresponding domestic product growth, resulted in high inflation. After tightening monetary and fiscal policies, inflation decreased sharply, reaching 0.6% in 2015, and from 2020 to the present, it has been maintained within the range of 1.84-3.24%. The positive credit growth expected in 2025, after a long period of impact from the Covid-19 pandemic, has led many to consider abolishing credit limits.

According to experts, credit limits for banks are likened to a "valve" controlling the money supply to the economy . Looking back, when credit growth was "hot," sometimes exceeding 30%, it caused many negative consequences and risks for the banking system in particular, and the economy in general. When banks raced to increase credit, they lent "easily," leading to an increase in bad debts. In reality, the banking sector has spent a long time dealing with the burden of bad debts, so the credit "valve" has proven effective in clearing the "clot" of bad debts. Credit growth in recent years has been controlled at around 12-14%, ensuring the safety of the banking system and promoting economic development.

Nguyen Duc Huong, former Chairman of the Board of Directors of Loc Phat Commercial Joint Stock Bank (LPBank), believes that the State Bank of Vietnam's application of credit limits has helped the State Bank manage credit growth flexibly, with specific and clear criteria for allocating credit to banks such as size and asset quality. Previously, credit limits were truly effective, contributing to stabilizing the monetary market, "cooling down" interest rate wars, and bringing sustainable health to banks, which are considered the backbone of the economy. Furthermore, credit limits also helped authorities control the amount of money circulating in the economy, thereby proactively controlling inflation and contributing to the stability of the currency's value.

It remains an effective tool.

According to the State Bank of Vietnam's leadership, although credit limits are applied, the State Bank flexibly manages this tool based on the actual domestic economic situation, as well as considering developments in the global economy. For example, in 2024, instead of granting credit in installments as in previous years, the State Bank assigned the entire credit growth target to banks at the beginning of the year, based on their financial health scores, allowing banks to proactively plan their credit activities. However, this is not a rigid target; the regulatory body continuously adjusts it based on the health of the economy and the banks themselves. In fact, the State Bank has twice increased credit limits in 2024 for banks with good growth rates and reduced limits for banks that did not meet growth targets.

To achieve a GDP growth target of over 8% in 2025, the State Bank of Vietnam has set a credit growth target of 16%, corresponding to an additional money supply of 2.5 trillion VND. As of June 30th, the outstanding credit balance of the banking system exceeded 17.2 trillion VND, an increase of 9.9% compared to the end of 2024, and a 19.32% increase compared to the same period in 2024, the highest credit growth rate since 2023.

Many argue that, given the current economic climate heavily reliant on bank financing, credit limits remain an effective tool for controlling the money supply. However, in the long term, credit limits could be abandoned and other tools used, but only when market conditions are mature and monetary policy no longer needs to simultaneously achieve multiple objectives as it does now.

The State Bank of Vietnam's implementation of a roadmap to restrict and eventually eliminate the allocation of credit growth targets to individual credit institutions is considered necessary in the current context. However, the State Bank needs to carefully analyze the factors to find a balance between benefits and risks. Removing credit limits requires conditions such as macroeconomic stability, controlled inflation, and the overall health of the banking system.

Pham Chi Quang, Director of the Monetary Policy Department of the State Bank of Vietnam:
There is no permanent solution.

During the period of loose monetary policy (2005-2010), credit growth accelerated rapidly, reaching up to 54% at times, pushing many credit institutions to the brink of bankruptcy. Therefore, to prevent the collapse of the credit system, the State Bank of Vietnam developed a credit growth limit policy, which played a positive role in promoting sustainable economic growth and controlling inflation. However, no solution is permanent. The State Bank of Vietnam recognized that this administrative solution needed to be changed.

In 2025, the State Bank of Vietnam removed credit limits for foreign banks, non-bank credit institutions, etc., leaving them applicable only to commercial banks. This is one phase in the roadmap for removing credit limits. The State Bank of Vietnam will develop solutions appropriate to Vietnam's actual conditions to both stabilize the macroeconomy and control inflation. The State Bank of Vietnam will conduct thorough research and evaluation of policies to remove credit limits.

Associate Professor Dr. Nguyen Huu Huan - University of Economics Ho Chi Minh City:
Credit management based on room limits is no longer appropriate.

Credit management through the allocation of credit limits has been in place for a long time. Therefore, the State Bank of Vietnam should also consider abandoning it, because although managing credit limits is effective, it is an administrative measure and no longer appropriate. However, the historical lesson of rapid credit growth from 2007 to 2010 leading to high inflation remains relevant, and the State Bank of Vietnam had to use credit limits to regulate the flow of money into the market.

Vietnam's current monetary policy is multi-objective, aiming to promote economic growth, stabilize the exchange rate, and control inflation. Given the volatility of the money market, when implementing credit growth restrictions, the State Bank of Vietnam needs to apply quantitative models, utilize data, and employ Artificial Intelligence (AI) technology for analysis to effectively manage the situation. Otherwise, it could easily lead to economic shocks similar to those experienced in 2008, when inflation surged due to excessive credit easing.

Economist, Dr. Le Hong Phong, former General Director of LPBank:
It's time to consider abolishing credit limits.

Credit growth is on the right track and is projected to continue strongly in the remaining months of the year. Therefore, the State Bank of Vietnam's consideration of removing credit limits in the near future is appropriate.

Previously, the annual allocation of credit limits based on a fixed percentage sometimes led to underutilization. Some banks, unable to fully utilize their credit limits, had to find ways to meet their targets by the end of the year to qualify for a higher or equal credit limit from the State Bank of Vietnam in the following year. Eliminating credit limits will address this uneven utilization of credit limits.

When credit limits are reached, banks will base their decisions on the scale and growth rate of loan portfolios on their financial capacity, risk management capabilities, and business strategies. Consequently, capital will flow into sectors with high demand and significant growth potential, such as manufacturing, exports, high-tech agriculture, clean energy, and infrastructure.

Thanh Nga wrote

Source: https://hanoimoi.vn/bo-room-tin-dung-can-co-lo-trinh-708467.html