Striking a balance between independence and steadiness through credit system amendments
In a significant move towards modernising its monetary policy, Vietnam is set to transition towards market-based credit growth management and risk-based regulation by 2026. This shift, driven by the broader trend of marketisation, is expected to have far-reaching implications for both the banking system and the overall economy.
## Implications for the Banking System
The planned transition promises enhanced autonomy for banks, allowing them to manage their credit growth more autonomously, reducing reliance on administrative credit quotas. This shift encourages banks to adopt more robust risk management practices, improving the overall stability of the banking system.
By focusing on risk-based regulation, banks will need to develop sophisticated systems for assessing and managing credit risks. This focus can potentially lead to increased efficiency in credit allocation, as banks can allocate resources more effectively based on market conditions rather than quotas.
The use of tools like the Capital Adequacy Ratio (CAR) will allow regulators to ensure that banks maintain sufficient capital commensurate with their risk exposure, enhancing financial stability.
## Implications for the Economy
The shift towards market-based credit growth management is expected to support sustainable economic growth by directing credit towards priority sectors such as innovation and the green economy. Flexibility in managing interest rates and exchange rates can help control inflation while supporting economic activities, maintaining a balance between economic growth and financial stability.
The economy is encouraged to diversify funding sources beyond bank credit, reducing dependence on a single capital source, which can mitigate systemic risks and ensure long-term sustainability. The end of credit quotas is expected to increase market competition, potentially leading to lower lending rates and more accessible capital for businesses and individuals, which can boost economic activity.
However, experts warn that lifting credit caps without safeguards could lead to overheating and deteriorate credit quality. To mitigate these risks, the State Bank of Vietnam (SBV) is reviewing and upgrading regulatory frameworks in accordance with Basel III standards and defining specific safety indicators for monitoring credit expansion.
As of June 30, 2025, the total outstanding credit to the economy had reached over $688 billion, according to the SBV. The SBV is also studying and planning a step-by-step transition away from the quota-based credit control regime, only applying it to domestic commercial banks.
A $20 billion credit package has been announced, with 21 commercial banks having registered to participate. The SBV is phasing out the annual credit growth quota policy, and credit growth planning must comply with SBV regulations, including capital adequacy and prudential ratios, international risk management standards, and the SBV's risk governance requirements.
Credit growth has been primarily directed towards sectors such as agriculture, small- and medium-sized enterprises, and high-tech businesses. Economist Dr. Chau Dinh Linh echoed the sentiment that removing quotas is directionally correct, but emphasised careful timing.
Vice Chairman and General Secretary of the Vietnam Banks Association, Nguyen Quoc Hung, supports this shift and emphasises the need for the SBV to define specific safety indicators for monitoring credit expansion. He also urged private sector enterprises to seize the opportunities provided by Resolution No.68-NQ/TW.
In conclusion, these changes are designed to enhance the resilience of Vietnam's banking system and promote sustainable economic growth by leveraging market forces while maintaining prudent regulatory oversight. The transition presents a clear opportunity for private Tier-2 banks that have invested in capital management and risk automation. Experts agree that now is an opportune time to transition, as banks have strengthened their risk governance capacity.
Banks can capitalize on the planned transition by developing sophisticated systems for assessing and managing credit risks, potentially leading to increased efficiency in credit allocation and more accessible capital for businesses (Implications for the Banking System). By removing credit quotas, the economy may experience increased competition among banks, potentially resulting in lower lending rates and providing more accessible capital for businesses and individuals, which can boost economic activity (Implications for the Economy).
