Dr. Nguyen Quoc Hung, Vice Chairman and Secretary-General of the Vietnam Banks Association (VNBA)

Removing credit ceilings is a necessary step towards a market-driven mechanism, but it must be done cautiously and with a clear roadmap. Three key questions are to be addressed: (i) When is the right time to remove the cap?; (ii) Which institutions should be prioritized?; and (iii) What conditions are needed to safeguard system stability?

First, banks must reassess their internal risk management. While many claim compliance with Basel II or even Basel III, the reliability of these self-declared indicators is questionable without independent verification.

Second, capital adequacy ratios (CAR) and risk evaluation, especially for volatile sectors like real estate and securities, must be scrutinized. Inaccurate risk classification could distort the CAR, giving a false sense of security.

Third, many foreign banks in Vietnam maintain CARs above 20 per cent, reflecting strong resilience. In contrast, most local banks hover around 10-12 per cent, or even lower, leaving them vulnerable to shocks.

The State Bank of Vietnam (SBV)’s Circular No. 14/2025/TT-NHNN, dated June 30, 2025, sets out strict requirements for capital buffers. Once credit limits are lifted, commercial banks must independently calculate and bear full responsibility for their own capital safety. Any violations will trigger early warning systems and sanctions. Overall, while liberalization is the right direction, it must be backed by a robust foundation and a tightly controlled, phased approach, balancing system safety with capital demand to sustain growth.

On another note, unrestricted lending could fuel riskier investments, especially in banks’ affiliated “backyards”. This threatens transparency and systemic stability.

The Law on Credit Institutions 2024 (amended) tackles this through: (i) the disclosure of related parties; (ii) ownership and investment control mechanisms between shareholders and credit institutions; and (iii) a roadmap to handle violations. This marks a key step to prevent manipulation by major shareholders or hidden affiliates.

The SBV has already uncovered signs of cross-ownership and shadow companies through inspections. But resolving this requires clear criteria and a step-by-step process. Loopholes are still being exploited through subsidiaries acting as “fronts”.

One decisive solution is tight coordination between inspection, supervision, and internal auditing. The banking sector is already advancing on a roadmap to limit and eventually eliminate cross-ownership and shadow lending, improving transparency and long-term resilience.

Dr. Nguyen Tu Anh, PhD, Vin University

To fully eliminate credit ceilings, the State Bank of Vietnam (SBV) must enhance its capacity to manage monetary policy based on market signals, truly acting as the “house” of the money market.

The most important requirement is ensuring the SBV’s independence in setting monetary policy goals and defining its own mandates, similar to the model used in many countries. If the SBV is bound by administrative directives, such as lowering interest rates to a specific level while also keeping inflation within a certain range without credit quotas as a buffer, it faces an extremely difficult balancing act.

For the SBV to craft and implement an independent monetary policy, the government must clearly define the scope of the central bank’s autonomy in both policy formulation and execution.

Internally, the SBV also needs clarity on its policy targets. What are we pursuing: interest rates, credit growth, or exchange rate stability? In my view, Vietnam currently leans towards exchange rate stability. We don’t actively manage interest rates as a formal target, nor do we maintain a clear credit target framework.

Therefore, if credit quotas are abolished, thus removing credit targeting, the SBV must choose between two remaining anchors: targeting either the exchange rate or interest rates.

Many countries today adopt interest rate targeting. In this model, the SBV could apply tools similar to those used by major central banks. For example, the US Federal Reserve uses interest rate targets as its primary tool and flexibly adjusts open market operations to keep rates within a specified range.

If the SBV adopts interest rate targeting, it can still manage exchange rate fluctuations. However, continuing to prioritize exchange rate stability as the top goal could create multiple risks, as it would mean pursuing two or three objectives simultaneously, something extremely difficult to manage in practice.

In reality, some SBV interventions cannot be made public. If, for instance, the market learns that a certain bank is receiving early intervention, the disclosure alone could undermine the effectiveness of the response. This underscores the need for the SBV to proactively detect warning signs and intervene early, discreetly, precisely, and decisively.

To do so, the SBV should build an intelligent governance system using real-time data and develop a technically competent team. This is key to ensuring the SBV’s independence. When every decision, analysis, and recommendation is grounded in scientific evidence and transparent data, no administrative or vested-interest pressure can override it.

Mr. Nguyen Quang Thuan, Chairman of FiinGroup

With 17 years of experience in banking analysis and credit rating, I believe a market-based credit mechanism should only be implemented once five key conditions are met:

First, interest rate policy must be reinforced to ensure the flexibility and autonomy of monetary policy. Past crises have shown that without effective control tools, removing credit limits can trigger unhealthy competition among weaker banks, pushing interest rates higher in a bid to attract deposits at all costs, leading to macro-economic instability. Therefore, the State Bank of Vietnam (SBV) must strengthen its interest rate management tools.

Second, credit institutions need to improve their financial capacity, especially capital buffers. The average capital adequacy ratio (CAR) is relatively thin at the moment, at around 12.5 per cent, which is inadequate to absorb internal and external shocks, particularly as growth pressures mount. However, the SBV’s issuance of Circular No. 14/2025/TT-NHNN, along with risk management under standardized or internal approaches, is a positive step. Banks that adopt Basel III early under this circular could be considered for more flexible credit quota allocations in the future.

Third, enhancing the risk monitoring and early warning systems is essential for any transition to a market-based credit regime. In addition to regular stress testing, the SBV’s information technology (IT) infrastructure must evolve toward real-time analysis and early warning capabilities. This would help detect credit risks in sectors like real estate, corporate bonds, or related-party lending. While the SBV currently conducts forecasts and analysis, a more systemic warning mechanism would enable the entire sector to respond proactively.

Fourth, the disclosure standards of commercial banks must be raised. Financial indicators, particularly compliance with Basel II or III, should be validated by independent auditors rather than relying solely on internal reports. Transparent and regular disclosure not only supports the SBV’s operations but also builds trust among markets, investors, and international and domestic rating agencies.

Fifth, a more strategic condition is the development of alternative capital channels such as corporate bonds and long-term equity financing. Vietnam’s capital market must be more balanced, to reduce pressure on the banking system. At present, bank credit remains the main capital channel, while the other two remain underdeveloped. A more robust bond and equity market could enable annual credit growth of 16-20 per cent while supporting long-term funding for major infrastructure projects like the North-South railway and expressways.

High growth can be achieved, but not at the expense of systemic stability, something neither the government nor the banking sector wants. That said, over the past two decades, Vietnam’s banking system has made notable progress in maintaining liquidity and controlling bad debt; an achievement not many countries can claim. The biggest weakness remains a thin capital buffer amid rising credit demand. If this is addressed, and credit is steered towards retail and small and medium-sized enterprises (SMEs) through technology, selective credit quota liberalization could be considered, as risks would then be more evenly distributed.

Dr. Pham Xuan Hoe, General Secretary of the Vietnam Financial Leasing Association

The move towards removing credit ceilings is a necessary step to strengthen market mechanisms and improve economic regulation. However, if the State Bank of Vietnam (SBV) is to manage monetary policy independently in a credit ceiling-free environment, three key conditions must be met.

First, Vietnam’s monetary policy currently pursues dual objectives: price stability and output growth. This makes a full shift to an interest rate-based regime more complex. For the SBV to adopt a pure interest rate targeting framework, it must have relative independence in setting monetary policy goals. Although the Law on the State Bank provides for this independence, in practice the SBV remains a government body, which creates institutional constraints. This limits its autonomy, especially in a time of heightened economic pressure.

Second, effective interest rate policy requires robust open market operations (OMO). Tools such as government bonds, central bank bills, and short-term discount instruments like seven-day or overnight repos, as well as derivatives for discounting, must become more widely used. For example, if the SBV can control overnight and seven-day interest rates on the open market, it can more precisely guide monetary policy.

Third, Vietnam still lacks a standardized yield curve, which is an essential tool for the SBV to anchor interest rate targets. Without it, the central bank has limited means to communicate or influence rate expectations across maturities.

Therefore, if the SBV chooses to adopt an interest rate targeting regime, exchange rate and capital flow management must be flexible, with priority given to two of the three policy goals to ensure macro-economic stability.

In practice, while Vietnam’s credit growth reached over 6 per cent in the first quarter of 2025, M2 money supply rose by only 3.5 per cent. This results in a low money multiplier of just 0.67 times; well below the norm. It suggests that money is not cycling back into the banking system and may be leaking into the informal sector or being hoarded.

Why is M2 growth so subdued? Besides the slow velocity of money, Vietnam’s balance of payments points to several capital outflows. FDI firms have repatriated profits, FII investors have pulled out of the stock market, and even domestic financial institutions have increased outward forex transfers. Smuggling of fuel and gold across borders has further worsened the situation by draining foreign currency out of the system, reducing liquidity.

That said, slow M2 growth also helps ease inflationary pressure. In my view, the SBV still has room to maneuver. The balance of payments remained in surplus in the first half, supporting forex reserves and exchange rate stability. Despite external volatility, the SBV’s flexible approach and solid macro fundamentals should allow it to manage inflation and the exchange rate effectively.

Mr. Nguyen Quang Ngoc, Deputy Head of the Credit Policy Department, Bank for Agriculture and Rural Development (Agribank)

With its extensive nationwide network, Agribank has been proactively managing credit limits and credit quality through a combination of tools built around two key pillars: (i) customer risk assessment and (ii) internal control mechanisms.

On the customer side, the bank applies a client classification system to support credit appraisal and decision-making. Its credit appraisal process is separated into independent stages - from customer engagement to evaluation and final approval - to ensure transparency and accountability.

Internally, Agribank strictly adheres to the State Bank of Vietnam (SBV)’s capital adequacy requirements. The newly-issued Circular No. 14/2025/TT-NHNN, effective September 15, 2025, introduces detailed standards for Tier 1 capital and new capital buffers, including a 2.5 per cent Capital Conservation Buffer and a Countercyclical Capital Buffer.

As Vietnam moves towards lifting credit ceilings, risks of overheating and rising bad debts become more pronounced. To manage this, Agribank focuses on maintaining a healthy balance between credit growth and quality. It has developed forecasting models, credit growth scenarios, and sector-based lending plans aligned with national development priorities.

In a no-ceiling environment, banks like Agribank will no longer receive quota-based credit growth guidance from the SBV. Instead, they must independently build annual credit plans based on their capital strength and risk management capacity. For example, if a customer borrows for business but diverts funds to real estate, it can distort credit risk assessments. Without strong post-lending monitoring, such misallocations could compromise capital adequacy.

To address this, Agribank has strengthened internal control at both the branch and headquarter levels. Post-lending checks are conducted daily at branches, while regional compliance teams at headquarters oversee the entire network. The bank is also advancing its risk management with information technology (IT) solutions and has upgraded its internal credit rating system, especially for small and medium-sized enterprises (SMEs), using both standard and advanced methodologies. This enables more granular analysis of each borrower and loan.

Mr. Nguyen Hoang Linh, Head of Research, Vietcombank Fund Management (VCBF)

From a market participant’s perspective, we are concerned that lifting the credit ceiling may increase the economy’s reliance on credit. Vietnam is currently facing risks from tariffs and rising global protectionism, so investment will be a critical pillar of growth, especially if the country aims to achieve 9-10 per cent annual growth in the years ahead or even double-digit growth, as the government targets.

To meet these goals, Vietnam must continue to boost investment, with total capital investment reaching around 40 per cent of GDP, up from the current 30 per cent. Our estimates suggest that to sustain growth of 9 per cent or more, total social investment will need to reach nearly VND9,000 trillion ($346.15 billion) by 2030, implying strong demand for medium and long-term capital.

However, this capital demand remains heavily reliant on the banking sector, while the corporate bond and equity markets have yet to fulfill their role in mobilizing long-term capital for the economy. This poses a significant risk to the stability of Vietnam’s commercial banking system.

Since 2023, the size of Vietnam’s corporate bond market has hovered around 10 per cent of GDP; well below regional peers. One of the key reasons for this underdevelopment, in our view, is the limited participation of institutional investors such as insurance companies and investment funds, largely due to persistent regulatory barriers.

For example, under current rules, insurance companies are not allowed to invest in privately-issued corporate bonds used for debt restructuring. At VCBF, we manage a bond fund, but legal limits only allow us to allocate up to 10 per cent of our portfolio to privately-issued bonds. Meanwhile, the supply of publicly-offered bonds remains scarce, creating substantial challenges in executing an effective investment strategy.

We recommend revising the current 10 per cent cap on private bond holdings for investment funds to a more realistic level aligned with market conditions.

In addition, institutional reforms are needed to encourage more public bond issuance. Many businesses still avoid public offerings due to overly complex and time-consuming listing procedures, which can take six months to a year. This remains a major hurdle to developing the public bond market.

We therefore propose streamlining the issuance process by integrating the offering and listing steps to reduce processing times. If the timeframe can be shortened from several months to a few weeks, it will likely boost issuance volume and improve market transparency.

Furthermore, with several major national infrastructure projects on the horizon, such as the North-South high-speed railway project, with estimated investment of $6-7 billion, the scale of capital needed will exceed what domestic financial institutions can mobilize.

To enable Vietnamese enterprises to tap international capital markets, one of the most crucial steps is to upgrade the country’s credit rating to investment grade. Vietnam is currently rated BB+; still in the non-investment grade category. A higher rating would significantly lower international funding costs for Vietnamese companies and improve their access to long-term capital at more reasonable rates, essential for implementing large-scale infrastructure projects in the future.