FiinGroup expert: 4 conditions must be met to completely remove the credit "room"

Opportunities come with challenges

In a recently issued dispatch, the Prime Minister requested the State Bank to urgently develop a roadmap and pilot the removal of the measure of assigning credit growth targets to be implemented from 2026, in which it is necessary to develop standards and criteria for credit institutions to operate effectively, healthily, have good governance and management capabilities, comply with safety ratios in banking operations and high safety credit quality indexes..., ensuring publicity and transparency.

Previously, Circular No. 14/2025/TT-NHNN issued on June 30, 2025 by the State Bank on regulations on capital safety ratio for commercial banks and foreign bank branches was also considered an important preparatory step by the State Bank for the roadmap to eliminate the credit limit allocation mechanism.

Evaluating this policy, in the Bond Highlights Newsletter No. 8/2025 of the Finance - Investment Newspaper, Ms. Tran Thi Kieu Oanh, Head of Research and Financial Services Consulting, FiinGroup affirmed: “The Prime Minister's direction requesting the State Bank to develop a roadmap to remove the credit quota allocation mechanism, or what we often call the credit room, is an important turning point. We consider this a step in line with international trends. In many other countries, credit growth is based on capital safety standards, broadly speaking, risk management standards and market discipline, not on administrative limits such as credit rooms.”

In fact, in just the first 6 months of 2025, the credit growth of the entire system reached nearly 10%, much higher than the same period of previous years. The State Bank has proactively loosened the room for credit institutions, injected liquidity in the open market, and the issuance of corporate bonds by the banking sector has also helped to supply more abundant capital in the market. However, the mechanism of loosening the room in stages is only a short-term solution. The policy of removing the credit room from 2026 will help allocate credit growth more stably, comprehensively and effectively, reducing dependence on administrative decisions.

Credit accelerated, hitting a half-decade high, targeting 16-18% in 2025.

Ms. Kieu Oanh assessed that removing the credit room will bring both opportunities and challenges. The opportunity here is that banks will rely on their capital capacity and risk management capacity to decide their own growth potential. This means that banks with good capital buffers, high capital management capacity and low capital costs will have many opportunities to break through. On the contrary, banks with thin capital buffers on risky assets, weak management capacity or some banks under special supervision will face certain obstacles.

“In the short term, removing the credit room will certainly create differentiation in the industry. But in my opinion, this is not necessarily negative,” said Ms. Kieu Oanh. Instead, this policy will encourage banks that have not met the standards to increase capital, raise risk standards, promote the attraction of investment capital from foreign institutions, and M&A activities, thereby improving the overall competitiveness of the entire industry.

The challenges of removing the room are not small. Ms. Kieu Oanh said that if credit growth occurs without strong enough monitoring and regulation tools or if credit growth is faster than capital capacity and risk management capacity, the system will face a high rate of bad debt. Some banks may lower lending standards in exchange for growth, capital flows are at risk of flowing into some risky areas, causing inflationary pressure as well as the risk of asset bubbles.

This pressure exists when the average capital adequacy ratio (CAR) of Vietnamese commercial banks is only about 12%, some state-owned commercial banks are only about 10% and much lower than the average of banks in the Asia- Pacific region (18-20%). This gap has created room for growth but is also a great pressure forcing banks to increase capital and increase risk management capacity to ensure system safety in the coming time.

4 conditions to completely remove credit room

Regarding the current industry context, Vietnam is also gradually applying measures such as: Raising capital requirements, sector-specific credit monitoring and early warning mechanisms under the new Law on Credit Institutions, along with Circular 14/2025/TT-NHNN on capital adequacy ratios of commercial banks and foreign bank branches, etc. These measures will help commercial banks get closer to Basel III standards, improve capital quality, enhance risk management capacity and reduce dependence on administrative measures such as credit room.

To completely remove the credit room, FiinGroup experts believe that there are 4 groups of conditions that need to be met.

Firstly, increasing capital and system safety according to Basel III standards, conducting periodic stress tests to check the endurance of commercial banks in the face of major fluctuations.

Second, strengthen credit monitoring by industry and sector and apply early warning and early intervention mechanisms.

Third, standardize information disclosure according to a set of indicators. For example, Capital Adequacy Ratio (CAR), Liquidity Coverage Ratio (LCR), Net Stable Funds Ratio (NSFR), Loan to Deposit Ratio (LDR) and Non-Performing Loan Ratio, and at the same time encourage independent credit ratings.

Fourth, it is very important to develop the capital market, not only the bank credit market but also the bond market, stock market, pension funds, and infrastructure funds to reduce dependence on bank credit.

The removal of special credit rooms needs to be implemented in a roadmap. “Phase 1 can be applied to banks that have met Basel III standards. Phase 2 will gradually expand to the remaining banks and must still be accompanied by strict monitoring mechanisms, while adjusting periodic assessment and regulatory tools to suit market fluctuations,” said Ms. Tran Thi Kieu Oanh.

Source: https://baodautu.vn/chuyen-gia-fiingroup-can-dap-ung-4-dieu-kien-de-do-bo-hoan-toan-room-tin-dung-d375641.html