Should credit limits be raised for large projects?

Relaxing credit limits for large, important projects in Hanoi will not lead to a significant increase in credit growth.

Maximum loan amount of 38% of capital is available for a single customer.

According to the draft amendment to Decision 09/2024 of the Prime Minister on the conditions and procedures for requesting approval of the maximum credit limit exceeding the limit of credit institutions and branches of foreign banks, the State Bank of Vietnam (SBV) adds a condition for consideration: customers must have capital needs to invest in large and important projects in Hanoi that have been approved by the People's Council and the Chairman of the People's Committee as stipulated in Resolution No. 258/2025/QH15 of the National Assembly (Resolution on piloting some specific mechanisms and policies to implement large and important projects in the capital). For the aforementioned projects in the capital, the maximum credit limit proposed for a single customer shall not exceed 38%, and for a customer and their related parties, it shall not exceed 52% of the equity capital of the commercial bank or branch of a foreign bank.

The State Bank of Vietnam has proposed raising the credit ceiling for large projects in Hanoi.

Photo: Ngoc Thang

According to the State Bank of Vietnam's explanation, the reason for clearly defining the maximum credit limit for a single customer, or a customer and related parties, is consistent with the regulations in the Law on Credit Institutions as well as international practices and experience. This regulation aims to reduce the risk of credit concentration at banks, while ensuring that credit capital is allocated to many customers, limiting the concentration of credit capital only in large customers or groups of customers. For large capital needs, banks can choose to increase their own capital or provide syndicated loans with other banks. When syndicated, banks can meet much higher limits than normal limits; at the same time, syndicated loans will also ensure greater system safety compared to non-synergistic lending because the banks jointly appraise, jointly decide on lending to customers, and jointly bear responsibility for the loan.

In addition, in recent times, the Prime Minister has allowed banks to extend credit beyond the limit to implement many important national projects with significant socio -economic implications, such as the Son La hydropower project, the Lai Chau hydropower project, the Vinh Tan 4 thermal power plant… and most recently, the Quang Trach 1 thermal power plant project. Upon review, the Quang Trach 1 thermal power plant project is a nationally important project that has received the highest credit extension approval from the Prime Minister to date, with the maximum credit extension exceeding the limit for Vietnam Electricity Group (EVN) at 38% of its own capital, and for EVN and related parties at 52% of their own capital.

Dr. Nguyen Tri Hieu, a financial expert, believes that historically, national key projects and projects with significant socio-economic importance aimed at fulfilling socio-economic development tasks have been granted credit exceeding the prescribed limits. Therefore, expanding credit for large projects in Hanoi is also consistent with the above criteria. Most importantly, banks themselves decide to lend based on an assessment of the customer's ability to repay the loan, as well as evaluating the efficiency of capital utilization and the feasibility of the project. However, he suggests that commercial banks should be encouraged to lend through syndicated loans with other banks to minimize risks for the banks themselves if they lend excessively large amounts to a single customer.

Prioritize capital flows into production investment activities.

Against the backdrop of the government promoting infrastructure projects and large-scale credit programs to boost high economic growth, bank capital is being strongly directed towards priority sectors. Raising the credit ceiling for large projects in Hanoi is considered by some experts to potentially benefit the leading banks in terms of credit growth (room) this year. Conversely, some also express concerns that this could negatively impact their credit limits this year.

While supporting the lifting of lending caps for large, key projects, Dr. Nguyen Tri Hieu cautioned against raising this growth ceiling further, given the increasing inflationary pressure following the outbreak of conflict in the Middle East, which has driven energy prices soaring. The 15% credit growth ceiling for this year will still help achieve the 10% GDP growth target set by the Government if capital flows are prioritized for production and business activities. Therefore, it is crucial that the State Bank of Vietnam manages its operations based on the overall credit growth ceiling for the entire sector, in line with the set targets.

"Credit limits should be removed for each bank to allow them more autonomy in lending and risk management based on other criteria such as loan-to-deposit ratio, ratio of short-term capital to medium- and long-term loans, etc. This would also encourage banks to maximize their potential and engage in healthy competition," Dr. Hieu suggested.

Dr. Huynh Thanh Dien, from Nguyen Tat Thanh University, supports the State Bank of Vietnam's decision to raise the credit ceiling for large projects in Hanoi. He argues that limiting the loan amount at a bank for a customer and related parties is merely a "safeguard" to mitigate risk. Meanwhile, there are many conditions attached when reviewing a loan application, such as the capital utilization plan, the project's effectiveness, and the customer's repayment capacity. This does not affect the overall credit growth of the entire sector. However, he believes that the most important thing is to promote the flow of capital from banks into priority sectors and boost investment and production activities; a credit growth rate of around 15% for the entire sector would still be sufficient to support the country's economic growth.

"Factors impacting inflation this year are increasing sharply, so credit policy must be flexibly controlled, supporting economic growth while simultaneously curbing inflation. The government must combine fiscal policies such as increasing public investment, creating a favorable business environment, and ensuring efficient capital absorption so that the economy can still achieve high growth in line with the set targets," Dr. Huynh Thanh Dien further shared.

Encourage the use of capital through bonds.

Large projects should be encouraged to use borrowed capital through bond issuance rather than borrowing heavily from commercial banks. For example, bonds for capital city projects (specifically linked to individual projects) could be issued under strict supervision by state agencies. This would increase investor confidence and attract capital at a lower cost than using bank loans. Furthermore, for some necessary projects, the state could even guarantee payment when issuing bonds. This would contribute to mobilizing capital from the public for economic development. If large projects have state guarantees, the cost of capital will be lower than borrowing from banks, because banks, as businesses, have expenses and profit margins after raising capital from the public and lending it out.

Dr. Huynh Thanh Dien (Nguyen Tat Thanh University)

Source: https://thanhnien.vn/co-nen-noi-tran-tin-dung-cho-cac-du-an-lon-185260319181413663.htm