Vietnam’s Credit Growth Reaches New Heights
Vietnam’s credit growth has reached one of its highest levels in years, pushing the country’s credit-to-GDP ratio to the highest among lower-middle-income economies, according to the central bank. The outstanding credit across the banking system had risen 17.87% by December 24 compared to the beginning of the year, reaching VND18,400 trillion ($700 billion).
Credit Flows and Economic Growth
Credit flows have been directed mainly toward production and business activities, particularly priority sectors and key growth drivers in line with government policy. For the full year, credit expansion could reach about 19%, the highest level in many years. This is a very high growth rate, and the SBV has repeatedly reported this to higher authorities. Vietnam’s credit-to-GDP ratio has climbed to 146%, the highest among lower-middle-income countries.
Challenges Facing Banks
Banks face structural risks, as around 80% of their funding is short-term while about half of lending is medium- to long-term, creating a persistent mismatch and posing major challenges for risk management. Credit growth of nearly 18% has also outpaced deposit growth of around 14%, putting pressure on system liquidity, especially ahead of the Lunar New Year when seasonal demand for funds typically rises. Banks are also facing intense competition from other investment channels, making it harder to mobilize deposits to meet credit demand.
Monetary Policy Tools
In response, the central bank has deployed a range of monetary policy tools, including open market operations (OMO) and a new foreign-exchange swap mechanism, to ensure system liquidity. The National Assembly, Vietnam’s legislature, on November 12 approved a resolution setting an economic expansion target of at least 10% for 2026 and inflation controlled at around 4.5%. The government aims to enlarge the national economy by 8.3-8.5% for 2025.
Driving Forces of Economic Growth
Driving forces of the high economic growth are export, FDI inflows, public investment expansion, and domestic consumption. The National Financial and Monetary Policy Advisory Council has recommended that the Government refrain from expanding monetary policy in 2026, adopt a more cautious approach, and coordinate monetary and fiscal policies in a balanced manner. Experts warned that 2026 would remain challenging, with significant capital pressures and risks related to interest rates, bad debts, exchange rates, and corporate bonds.
Gold Bar Production and Trading
At the same briefing on Monday, Dao Xuan Tuan, head of the SBV’s foreign exchange management department, provided an update on licensing for gold bar production. Under current regulations, the central bank reviews and grants licences before December 15 each year. So far, it has received nine applications from eligible commercial banks and enterprises seeking licences to produce gold bars. The central bank is coordinating with relevant ministries and agencies to conduct assessments.
Inflation Rate and Monetary Policy
In a report released on December 22, Singaporean bank UOB noted that Vietnam’s inflation rate has yet to show a meaningful slowdown. Year-to-date headline inflation rate hit 3.3% in October, vs average of 3.6% in 2024 and 3.26% in 2023. Main drivers continue to be costs of housing & construction materials and health care. Combined with the potential for decent growth prospects going into 2026 and persistent VND weakness, these factors would constrain the SBV’s ability to ease policy.
Conclusion
In conclusion, Vietnam’s credit growth has reached new heights, posing both opportunities and challenges for the country’s economy. While high credit growth can drive economic expansion, it also increases the risk of inflation and puts pressure on system liquidity. The central bank must carefully manage monetary policy to ensure stability and sustainability. With the government’s aim to enlarge the national economy by 8.3-8.5% for 2025 and the National Assembly’s resolution to set an economic expansion target of at least 10% for 2026, Vietnam is poised for significant economic growth, but it must be balanced with caution and prudent risk management.
