Vietnam’s Central Bank to Reform Credit Growth Policy, Phasing Out Annual Limits

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The State Bank of Vietnam (SBV) is set to modernize its operational framework, introducing a roadmap to gradually reduce and ultimately eliminate the allocation of credit growth targets for individual banks.

This strategic shift was announced by Deputy Governor Dao Minh Tu during a high-level conference on February 11, where Prime Minister Pham Minh Chinh met with representatives from commercial banks. The meeting took place in the context of Vietnam’s ambitious economic agenda, targeting GDP growth of over 8% this year, with an eye on sustaining double-digit expansion in the coming period. Given that bank credit remains a crucial driver of economic growth, the new approach is expected to enhance the banking sector’s flexibility and efficiency.

According to Deputy Governor Tu, the SBV will continue its proactive monetary policy management, aligning with fiscal and macroeconomic policies to support growth, maintain macroeconomic stability, and control inflation.

“The State Bank will innovate its management measures, setting a clear roadmap to phase out the allocation of credit growth targets for each bank,” he stated.

For 2025, the SBV has set an overall credit growth limit of approximately 16%, a 0.92 percentage point increase compared to the previous year. However, as part of the transition, credit growth allowances will be adjusted dynamically based on economic conditions rather than requiring written requests from banks. “This approach is designed to stimulate economic growth while ensuring financial stability,” Mr. Tu emphasized.

At a government press conference on February 6, Mr. Tu reiterated that the SBV’s long-term goal is to shift away from directly allocating credit limits and instead manage credit growth at a macro level. This shift will grant banks greater autonomy in lending decisions, provided they comply with regulations on risk control and financial system stability.

A Major Shift from a Decade-Old Policy

The practice of assigning credit growth targets has been in place for over a decade, introduced in 2011 to curb overheating in the banking sector and control double-digit inflation. The credit ceiling mechanism has since been an effective tool for managing loan quality, interest rates, money supply, and inflation.

However, as Vietnam’s banking system aligns more closely with international standards, many experts have called for the removal of credit ceilings. Critics argue that the credit “room” mechanism has discouraged banks from expanding lending to priority sectors, such as consumer finance, which can drive economic activity while maintaining relatively low risks.

Currently, the SBV assigns credit growth quotas to each bank at the start of the year, with periodic adjustments in the middle or end of the year. This process has led to delays in loan disbursement, reducing banks’ agility in meeting market demands.

In 2024, the SBV took an initial step toward reform by eliminating credit ceilings for foreign bank branches. For domestic credit institutions, the central bank is reviewing policies to gradually remove these limits while ensuring stability in interest rates and bad debt levels. The concern remains that an abrupt removal could trigger aggressive competition among banks, leading to excessive interest rate hikes and increased credit risks, similar to the pre-2011 period.

Banking Sector to Drive Economic Growth

At the conference, Prime Minister Pham Minh Chinh acknowledged the fast-changing global economic landscape and the need for Vietnam to proactively adjust its policies. He emphasized that with the country’s high-growth aspirations, the banking system must play a central role in unlocking Vietnam’s economic potential.

He urged bank leaders to analyze both challenges and opportunities, proposing innovative solutions to revitalize traditional growth drivers—investment, exports, and consumption—while fostering new engines of growth.

According to SBV data, Vietnam’s credit growth reached 15.08% in 2024, injecting approximately 2.2 quadrillion VND into the economy, with total loan turnover at 23 quadrillion VND. Lending interest rates declined by 1.24 percentage points, liquidity remained abundant, and the SBV successfully completed the restructuring of four weak banks. Bad debt levels were controlled below the 3% target, contributing to economic stability.

With its latest policy direction, the State Bank of Vietnam is setting the stage for a more flexible, market-driven banking sector. The gradual phasing out of credit growth targets is expected to enhance financial institutions’ autonomy while ensuring robust economic growth and financial stability.

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Source: Vietnam Insider