Removing credit room: Opportunities and challenges for Vietnam's economy

When removing the credit limit, we must be flexible with tools like required reserves, interest rates, refinancing, exchange rates, etc. to both supply capital and control inflation.

The Prime Minister has directed the State Bank of Vietnam to urgently consider removing credit limits to improve the efficiency of capital supply to the economy . This will replace administrative tools with a set of criteria for controlling credit safety. Banks will be able to be more proactive in allocating capital, promoting sustainable development. This new policy promises to bring many benefits to businesses and the economy.

Learn about the causes and the most effective ways to overcome credit card overstay issues.

According to data from the State Bank of Vietnam, as of the end of June 2025, outstanding loans in the entire system reached over 16.9 million billion VND, an increase of 8.3% compared to the end of 2024. The credit structure is considered appropriate, meeting the borrowing needs of individuals and businesses. Some experts assess that credit growth is on the right track and predicts further acceleration in the remaining months of the year thanks to the peak business season and stable interest rates. Therefore, the State Bank of Vietnam's decision to abolish credit limits in the near future is considered appropriate.

Senior leaders of Vietnam Industrial and Commercial Bank ( VietinBank ) shared that, in reality, the practice of allocating credit limits annually at a fixed rate sometimes leads to situations where the entire limit is not utilized.

In the final months of the year, banks sometimes have to find ways to "persuade" customers to borrow more to meet their targets, thereby ensuring they meet the conditions for the State Bank to allocate credit limits for the following year at or above the previous year. Therefore, eliminating credit limits would address the uneven use of these limits, where some banks have already "run out of credit" and cannot continue lending, while others have not used up their quotas.

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

"Commercial banks cannot chase after achievements by excessively increasing credit growth because the State Bank of Vietnam is still closely monitoring the outstanding loans of each bank. If any bank experiences 'rapid' credit growth, the regulatory authority will take measures to cool it down to ensure operational safety and prevent risks from spreading to the entire system," the VietinBank leader emphasized.

Removing credit limits will make lending more flexible, regulating the supply and demand of capital naturally; capital will circulate faster, meeting the needs of investment and production. Photo: TAN THANH

Close monitoring is required.

Dr. Le Dat Chi, Head of the Finance Department at the University of Economics Ho Chi Minh City, believes that abolishing the credit limit mechanism will significantly reduce administrative procedures for applying for and adjusting credit limits, saving time and resources for both the State Bank and commercial banks. This will make credit operations more flexible, regulate capital supply and demand naturally, and allow capital to circulate faster, meeting investment and production needs.

"This will support economic growth drivers, with GDP expected to increase by around 8% in 2025. However, with freer credit, banks will be forced to improve their project appraisal capabilities, risk management, and credit quality control to avoid bad debts."

"The State Bank would then focus on indirect tools such as interest rates and reserve requirements to control total credit, instead of directly intervening in individual banks," Mr. Chi said, while noting that the State Bank needs to closely monitor to prevent credit from "flowing" into high-risk sectors such as real estate and securities.

However, some experts believe that removing credit limits should be done cautiously. Dr. Le Duy Binh, CEO of Economica Vietnam, commented that credit limits are essentially a "valve" controlling the money supply. If they are completely removed before the capital market develops synchronously, the risk of excessive credit growth could recur.

He cited Vietnam's credit-to-GDP ratio of approximately 134%, a very high level compared to the region and the world. "When credit grows much faster than GDP, it leads to a decline in credit quality, an increase in bad debts, and potential risks for the banking system as well as the economy," he analyzed.

At a recent National Assembly forum, State Bank Governor Nguyen Thi Hong also pointed out that domestic capital sources are still heavily dependent on the banking system. The credit outstanding/GDP ratio at the end of 2024 reached 134%, and if it continues to increase, it will pose risks to the banking system and have negative consequences for the economy, making it difficult to achieve the goal of both high and sustainable economic growth.

In fact, the lesson learned from the rapid credit growth of 2007-2010, which led to high inflation, remains a concern. Without effective credit control mechanisms, the market could witness a new interest rate race as banks aggressively push deposits and loans at all costs, raising deposit interest rates to 13%-14% per year and lending rates to 18%-20% per year.

Associate Professor Nguyen Huu Huan from the University of Economics Ho Chi Minh City argues that credit management based on limits, which has been in place for 14 years, should be considered for removal as it is no longer appropriate. However, Vietnam's current monetary policy aims for multiple objectives – promoting economic growth, stabilizing the exchange rate, and controlling inflation. In contrast, in the US and Europe, economic growth is primarily achieved through fiscal policy, while monetary policy focuses on controlling inflation.

"If the State Bank of Vietnam removes the room now, it needs to apply a quantitative model, using data and artificial intelligence for analysis and management to avoid shocks to the economy like in 2008 - sharp inflation due to excessive credit easing," said Associate Professor Huan.

Credit must be proportionate to the size of GDP.

Experts emphasize that if credit limits are removed, the State Bank of Vietnam needs to flexibly manage other tools such as the reserve requirement ratio, interest rates, refinancing, exchange rates, etc., to both meet capital needs and keep inflation under control. "The regulatory body needs to ensure that total outstanding credit increases in line with the size of GDP and the annual economic growth rate, while simultaneously improving credit quality and ensuring the safe operation of the banking system," stressed Dr. Le Duy Binh.

Source: https://nld.com.vn/bo-room-tin-dung-co-hoi-kem-thach-thuc-196250707214637569.htm