At a press conference on July 8 to announce the results of monetary policy management in the first half of 2025, the State Bank of Vietnam (SBV) reported that credit growth stood at 9.9 per cent as of the end of June compared to the end of 2024, meaning approximately VND1,550 trillion ($59.6 billion) in new credit was pumped into the economy during the six-month period.

Despite this strong credit growth, money velocity remained low, at only 0.6 to 0.7-times, which has raised concerns that capital may not be flowing into the real economy but circulating within the banking system, potentially increasing the risk of inflation and asset bubbles.

To achieve the 2025 credit growth target of around 16 per cent, the banking system is expected to inject an additional VND954 trillion ($36.69 billion) into the economy during the second half of the year. One key question now is where this flow of capital will be directed to stimulate economic growth while keeping inflation and asset bubbles in check.

Controlling money velocity

Mr. Nguyen Phi Lan, Director General of the Forecasting, Statistics - Monetary and Financial Stabilization Department at the SBV, pointed out that Vietnam’s money velocity averaged 2.9-times a year during the 1995-2005 period, with an average inflation rate of 8.4 per cent. From 2006 to 2013, velocity dropped to an average of 1.1-times a year, while inflation rose to an average of 11.18 per cent.

According to Mr. Lan, from 2014 onwards, Vietnam’s money velocity has stayed below 1 and remained relatively stable, supporting controlled inflation, macro-economic stability, and business growth. Money velocity stood at 0.68-times last year, while economic growth reached 7.09 per cent and inflation was 3.6 per cent. “Vietnam’s money velocity is currently 0.68-times a year, which is higher than China and Japan, with 0.4, and close to Thailand’s 0.7,” he noted.

The current credit structure, he continued, is generally aligned with the economy’s structure and meets the needs of both individuals and businesses. As of June 30, 2025, Vietnam’s total outstanding credit stood at VND17,200 trillion ($661.54 billion).

Mr. Pham Chi Quang, Director General of the Monetary Policy Department at the SBV, said inflation remained under control in the first half of 2025, with the Consumer Price Index (CPI) rising 3.27 per cent year-on-year and core inflation 3.16 per cent. Despite the strong credit growth, the central bank remains vigilant. “Even though a large volume of credit has been injected into the economy, inflation remains well-contained,” he explained. “However, we are not complacent. If conditions permit, meaning that inflation is under control, credit flows to priority sectors, bad debts remain manageable, and financial institutions maintain adequate liquidity, the SBV will consider adjusting credit growth limits for banks.”

Trade-offs in removing credit growth limits

The SBV, Mr. Quang continued, is currently studying a roadmap to eliminate credit growth limits for commercial banks, following the government’s direction. However, analysts caution that given Vietnam’s current economic structure, the country must proceed carefully, as removing credit ceilings may require trade-offs in macro-economic stability. “In developed countries, the absence of credit ceilings is entirely normal and reasonable because their financial systems are supported by solid foundations that allow them to operate safely and effectively without rigid administrative tools,” Dr. Ngo Minh Hai, Vice President of the Ho Chi Minh City University of Economics and Finance, said in an interview with Vietnam Economic Times / VnEconomy.

He emphasized that central banks in developed economies such as the US (the Fed), Europe (the ECB), and the UK (the BoE) are fully independent from their respective governments. Their sole focus is on maintaining monetary stability, controlling inflation, and ensuring the soundness of the financial system, they do not directly support economic growth. He also pointed out three macro-economic issues that Vietnam would have to confront if it were to remove the credit growth ceiling at this time.

First, to meet high growth targets in 2025 and beyond, the government must accelerate public investment. Once injected, public capital creates ripple effects, such as increasing demand, supporting jobs, spurring private investment, and boosting overall growth, thereby raising credit demand. However, the impact depends heavily on how effectively capital is allocated. Without close oversight, inefficient spending may lead to low returns, rising public debt, and inflationary pressure.

At the same time, the government has tasked the SBV with achieving 16 per cent credit growth while keeping interest rates low, the highest credit expansion target in a decade. With both public and private sectors increasing spending and lending, the economy is being “double-pumped”. In such a context, fully removing the credit ceiling, though administrative, could accelerate capital flows to an unsustainable pace, pushing inflation beyond control. Coordinating money supply becomes especially sensitive in Vietnam, where capital markets remain underdeveloped and bank credit dominates.

Second, the SBV continues to manage the exchange rate under a partially controlled regime. The exchange rate affects not only trade and investment but also import prices, foreign debt obligations, and market sentiment. If the VND depreciates sharply, it could trigger imported inflation, fiscal pressure, declining trust in the currency, and even capital flight. The credit ceiling serves as a valve to regulate monetary inflows. Removing it while aiming to stabilize the exchange rate would force the SBV to either draw down reserves or lose inflation control; both of which are risky outcomes. Until Vietnam is ready to float the exchange rate fully, credit ceilings remain necessary.

Third, Vietnam’s capital market is still shallow and lacks adequate risk management tools like derivatives, forex hedging, or interest rate swaps. Without them, sudden inflows or outflows of capital leave banks and businesses exposed.

From a financial safety standpoint, experts argue that lifting credit quotas at this time would create multiple risks. According to Dr. Hai, the modern banking system functions on the assumption that depositors will not withdraw all their money at once and borrowers will repay on time. “The entire modern banking model is based on financial leverage,” Dr. Hai explained. “With only one unit of equity, a bank can raise another 8-9 units from depositors and the capital market, allowing it to issue loans worth many times more than its actual capital. This means banks never have enough actual assets to cover all deposits and loans.”

Because the system relies heavily on leverage and trust, it is highly sensitive to shocks, such as rising non-performing loans (NPLs) due to overheating credit growth, economic downturns that impair borrowers’ ability to repay, or panic withdrawals if public confidence falters. Just one bank facing a liquidity crisis could trigger a systemic collapse.

He further noted that Vietnamese commercial banks operate with significantly higher leverage ratios compared to their global counterparts, as reflected in low capital adequacy, particularly among smaller banks. Banks in the US, Europe, and Japan have diversified revenue sources that are not overly reliant on lending. Their income streams include asset management, insurance, investment services, forex trading, payment processing, digital banking, and business advisory. In many major institutions, credit contributes less than 40 per cent of total income.

Additionally, commercial banks in developed countries often possess advanced risk management capabilities. They adhere to Basel III standards and employ internal models, credit ratings, and rigorous stress testing, which allows them to allocate credit based on actual risk assessments and market efficiency, making credit ceilings unnecessary.

Given Vietnam’s macro-economic context, financial market immaturity, and a banking system still operating on high leverage and depositor trust, experts agree that although credit ceilings are an administrative measure, they remain necessary to maintain monetary stability, control bad debt, and protect systemic safety at this stage.