Rapid expansion in credit may strain liquidity and potentially raise interest rates, cautions an economist.
In recent developments, Vietnam's financial system is grappling with significant liquidity pressure as credit growth surges, posing risks to the overall stability of the economy.
The new law on digital assets in Vietnam, which is being implemented in several localities including Haiphong, Danang, Nha Trang, and Ho Chi Minh City, is expected to attract global capital. This move, coupled with Vietnam's ranking as the seventh-largest crypto owner globally, with around 17 million individuals holding digital assets, could provide a much-needed boost to the economy.
However, the surge in credit growth presents considerable liquidity pressure risks. Tightening liquidity due to weak deposit growth, narrowing interest rate differentials, and limited monetary policy space are some of the factors contributing to these pressures. Credit expansion remains concentrated in sectors like real estate that exhibit structural vulnerabilities, raising the risk of asset quality deterioration and non-performing loans (NPLs).
Increasing competition, higher operational costs, tighter regulations, and the need for digital transformation elevate banking system risks and may constrain profitability and sustainable liquidity buffers. External vulnerabilities and FX volatility, driven by global uncertainties, USD strength, and trade tensions, create broader macro-financial risks that can limit foreign capital inflows and elevate funding risks or liquidity mismatches.
The State Bank of Vietnam (SBV) is focusing on exchange rate stability and inflation control by managing money supply and closely monitoring commercial banks' lending practices based on key safety indicators such as the capital adequacy ratio (CAR), loan-to-deposit gaps, and non-performing loan levels. The minimum CAR requirement will be raised to 10.5% by 2030 under Circular No.14/2025/TT-NHNN, a significant step towards Basel III compliance. Maintaining control over the CAR is essential for controlling lending expansion in the future.
The surge in credit growth is driven by revitalized real estate projects under Resolution No.171/2024/QH15. Many banks have reported profits so far this year, with non-credit-related income rising, especially from payment services and foreign exchange operations. Export-import credit has surged due to a race to meet upcoming US tariff policy. If the US Federal Reserve lowers its federal fund rate, the US dollar will weaken, easing exchange rate pressures for Vietnam.
Rapid credit expansion has resulted in strong profits across the banking sector. The average CAR for Vietnamese banks is currently about 12.3%, which is above the regulatory minimum of 8%, but still falls short of the ASEAN-5 and Asia-Pacific regional averages. It is expected that full-year credit growth will be around 19-20% or possibly higher.
In positive news, the government has increased bond issuance, contributing to credit growth. The Vietnam Blockchain Association has rebranded to the Vietnam Blockchain and Digital Assets Association, reflecting the growing focus on digital assets in Vietnam's economy. The surge in consumer spending on summer tourism indicates a promising outlook for the domestic economy.
In conclusion, the Vietnamese financial system faces liquidity pressure from the imbalance between surging credit demand and weak deposit mobilisation, complicated by structural and external risks limiting policy flexibility and increasing credit and market risks. The system’s resilience will depend on effective liquidity management, credit risk control, and policy measures balancing growth support with financial stability.
The new focus on digital assets in Vietnam, with the implementation of the new law in several localities and the country's high ranking as a global crypto owner, could potentially attract global business capital and provide a boost to the economy. In the realm of traditional finance, the surge in credit growth and the associated liquidity pressure pose risks to the overall stability of the business sector, leading to concerns about asset quality deterioration and non-performing loans (NPLs).
