Central bank to maintain 14% credit growth cap
The State Bank of Vietnam will maintain the banking system's credit growth cap for this year at 14% because lifting it would impact industry liquidity and interest rates, says its deputy governor.
“14% is already higher than the 12.17% and 13.61% in 2020 and 2021, respectively,” Pham Thanh Ha said Sunday at a socio-economic forum in Hanoi.
“In the context of the world’s tightened financial markets and high inflationary pressure, the State Bank tries to keep credit growth cap higher than two years ago to aid economic recovery,” the deputy governor said.
Ha added that this solution has proved to be efficient in stabilizing the monetary and foreign exchange markets, contributing to controlling inflation.
Before 2011, credit growth was as high as over 30%, but in the past 10 years, the central bank has managed it at 12-14%, contributing to macroeconomic stability.

Pham Thanh Ha, State Bank of Vietnam's Deputy Governor. Photo courtesy of Vietnamnet newspaper.
The banking system’s current credit growth is over 10%, a rapid increase compared to the same period for many years.
The relatively slow pace of the local corporate bond market and public investment has exerted big pressure on credit growth this year. But Ha affirmed that the State Bank would still maintain the target at 14%.
He said the central bank had faced many difficulties in stabilizing the monetary market and interest rates in the face of unpredictable, complicated and unprecedented turbulence in the world.
The country’s consumer price index increased by 2.58% in the first eight months of the year, but inflation pressure in the coming time is expected to be big, it argued.
Over the past eight months, the State Bank has used many solutions to stabilize the monetary market and interest rates to avoid being caught up in the spiral of devaluation of local currencies like many other countries, and to keep the dong stable.
“Currently, the capital utilization ratio of banks is 100%, which means all mobilized capital has been used up for lending. If the credit growth cap is raised by several percentage points, interest rates will increase,” Ha said.
According to the deputy governor, credit growth pressure has always been high in recent years as credit growth has always been higher than economic growth.
He said that in the past 10 years, the economic scale increased 2.7 times, while the credit scale rose 4.4 times. That means the credit to GDP ratio increased from 80% to over 124%.
For economic growth, Ha argued, many different capital sources are needed, not only the banking industry, but also others like the capital market, public investment, and foreign investment.
“The State Bank will consider using other measures to manage credit, but the credit growth limit cannot be removed in the short term,” he asserted.
In its latest World Economic Outlook Update released on September 6, the IMF said that fiscal policy should take the lead in aiding recovery in Vietnam, yet flexibly adjusted to evolving economic conditions.
“Second, the central bank should focus on rising inflationary risks, and communicate that it’s ready to act as needed and remains committed to meeting its inflation target,” it noted.
In late July, the Ho Chi Minh City Real Estate Association had proposed that the central bank raise its credit growth cap for the year to 15-16% from the current 14%.
There are concerns among developers and traders that banking credit to real estate has been narrowed down, while the corporate bond market tightened up following the cancellation of Tan Hoang Minh's nine bond issuances in early April due to its provision of “untrue information”.
In early August, State Bank Governor Nguyen Thi Hong had stated that the central would stick to its 14% credit growth cap for this year over inflation risk concerns.
Truong Van Phuoc, former acting chairman of the National Financial Supervisory Commission, suggested that the State Bank should operate monetary policy more flexibly, focus capital flows on production, and limit capital pouring into risky areas so as to "control bank capital more closely for the medium and long term.”
At the socio-economic forum on Sunday, Andreas Hauskrecht, a professor at the U.S.’s Indiana University, said that the Federal Reserve’s interest rate hike policy could create a recession in the U.S. that would affect the Vietnamese economy, especially the VND/USD exchange rate.
He forecast that the Vietnamese dong would rise sharply against the Euro and other currencies. Vietnam would then face payment problems, affecting import and export values the most.
“But Vietnam should not devalue the dong, nor raise interest rates because that can cause financial instability. Instead, the country should use prudent and safe financial instruments,” said Hauskrecht.
In the past few days, the USD in the banking system has surged sharply after the State Bank’s central exchange rate was listed at VND23,283, up VND50 compared to the beginning of the week. With a variation of 3%, banks can quote the rate at VND23,584-23,981 per dollar.
Truong Van Phuoc, former acting chairman of the National Financial Supervisory Commission, agreed that Vietnam needs to continue maintaining exchange rate stability and not let the dong depreciate because the rate was still a tool to fight inflation. “The State Bank should consider raising the ceiling deposit interest rate to stabilize the VND/USD rate,” he argued.
Vo Tri Thanh, former director of the Central Institute for Economic Management (CIEM), warned that capital flight would be strong if the exchange rate was loosened further. “Credit growth of 14% is reasonable in both the short and long term. If it is loosened, the pressure on interest rates and exchange rates would be great, creating risks of capital flight,” he commented.
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