Credit growth limits still appropriate in current Vietnam context: lawyer

Applying credit growth limits is necessary in Vietnam as businesses and the economy still rely too much on bank credit, said lawyer Truong Thanh Duc, CEO of ANVI law firm.

What is your view on the State Bank of Vietnam’s use of credit growth limits to operate monetary policy - an issue of great concern in the financial market?
The State Bank of Vietnam (SBV) has many tools to manage credit growth and quality. However, I think that setting credit growth limits, also called “credit room”, over the past decade was inevitable for the following three reasons:
Firstly, businesses and the economy have relied too much on bank credit, so it is necessary to limit credit growth, especially when for many years international financial institutions have continuously warned of high and risky credit growth in Vietnam.
Secondly, the State Bank of Vietnam (SBV) has the full legal basis to operate monetary policy using credit growth limits. Among the regulations is Article 10 on "Tools for implementing national monetary policy" of the Law on the State Bank of Vietnam 2010. Accordingly, the SBV governor has the right to decide on the use of six tools to implement national monetary policy, including refinancing, interest rates, exchange rates, reserve requirements, open market operations, and other tools and measures in line with government regulations.
The government's decrees regulating the functions, tasks, power and organizational structure of the SBV, such as Clause 4, Article 2 of Decree No. 102/2022/ND-CP, allow the SBV to use "other tools and measures" to implement national monetary policy.
Thirdly, although the allocation of credit quotas is administrative and shows shortcomings, it is consistent with reality and the context of the Vietnamese banking market, which has its own characteristics and requirements, very different from other countries, especially developed countries.
There are many specific tools aimed at credit room, with reserve requirements being a standard and effective tool according to international practice. It is true that by using this tool, the SBV can easily tighten and loosen credit growth. For many years, our required reserves have been at 1-3%, depending on the nature of each bank. Just increasing this ratio by a few percent will immediately squeeze credit growth and vice versa.
However, this "blockbuster" tool has its "destructive power", causing the risk of great turmoil, strong fluctuations, instability, and failure to achieve the goal of restructuring and stabilizing the banking system. Increasing the required reserve ratio will hike the capital cost of commercial banks, pushing up interest rates, greatly affecting the banks themselves, as well as businesses and the economy. In addition, banks that still have many limitations, are facing difficulties or are in the recovery stage will not be able to withstand this pressure. Even strong banks that are supporting weak banks have been hit.
A strict policy is not suitable for the operation of a multi-target monetary policy like in Vietnam. For example, in 2023, with the same goal of controlling inflation, while the whole world increased interest rates many times, we made multiple rate cuts. Operating policy tools according to international standards is very easy, but the difficult part is how to implement them synchronously and coping with the negative effects and consequences they bring.
You mentioned the "Vietnamese context" and multi-target monetary policy. How are they related to monetary policy dictated by credit growth limits?
To achieve economic growth goals, it is necessary to set corresponding credit growth targets and reduce interest rates. But the number one responsibility of the SBV, like other central banks, is to simultaneously stabilize the value of the local currency and curb inflation. To do this, it has to reduce credit growth and hike interest rates. Choosing one goal is not easy and choosing two goals at the same time always requires double efforts and can lead to contradictions and conflicts.
There are many other factors that affect credit growth, which is always coupled with risks. When credit demand increases sharply, we’re not happy about the limits, but when demand is low we view the limits as excessive. The flow of bank credit is like that of vehicles on the highway. Although the road is very big and beautiful, with few vehicles, we are still not allowed to go beyond the speed limit. In case of congestion, we must accept running below the speed limit. We cannot request removing the maximum and minimum speed limits.
Some people have called for the criteria for credit quota allocations at banks be made public, helping to make this information transparent. What do you think about this proposal?
That's really open, transparent, and clear, but even as an outsider, I find it not that simple. If a bank is ranked A it's given a credit growth quota 20%, while a bank ranked C is allowed gredit growth of 5%. Other banks are not allocated a credit quota because they are too risky or weak. However, this stops people from using these banks, posing a potential risk of affecting the system's safety.
Therefore, doing so is only reasonable if it does not pose significant risks. In other words, it will only be done when the people are ready to accept the information and the state is willing to bankrupt any bank if it cannot pay its due debt. Now, the Law on Credit Institutions only allows banks to go bankrupt after they have tried to resolve their debts over many years.
This is considered a long-term goal, but with the current state of the economy and the banking system, it is not easy and simple, and is causing a headache for regulators.
In the end, sooner or later there will come a time to abolish credit limits, but we never plan to remove them completely; they will be replaced by another more appropriate and effective measure.
If we want to achieve the goal of development coupled with macroeconomic stability, we must still closely adhere to the provisions of the Law on the State Bank of Vietnam, ensuring that the top goal is "to stabilize the value of the local currency", and the second is "to ensure the safety of banking operations and the system of credit institutions".
In early December, Deputy Prime Minister Le Minh Khai requested the Government Inspectorate to inspect the SBV’s management of credit growth in 2022 and 2023.
It would focus in particular on the central bank’s implementation of assigned functions and tasks in managing credit growth; building, allocating and administering credit growth quotas; and management and supervision of credit growth in the period.
The inspectorate has been asked to submit the results of its investigation in January 2024.
Vietnam’s banking system credit grew 11.09% in 2023 through December 21, up from 7.39% recorded in early November, according to the General Statistics Office (GSO).
The figure showed a significant improvement despite being much lower than the target of 14%, it said, adding capital mobilization by credit institutions increased by 10.85%.
- Read More
Southern Vietnam province Kien Giang seeks private investment for 40 key projects
The Mekong Deleta province of Kien Giang has announced a list of 40 projects calling for private investment in 2025, with total capital of over VND226.7 trillion ($8.7 billion).
Industries - Mon, June 16, 2025 | 11:45 pm GMT+7
ASEAN poised for greater role in global economy
ASEAN could emerge as the world's fourth-largest economy in the coming decades but the regional bloc must accelerate integration, strengthen institutions, and adapt to global shifts to realize this potential, experts have said.
Southeast Asia - Mon, June 16, 2025 | 11:34 pm GMT+7
Indonesia prioritizes private investment in infrastructure projects
Indonesian President Prabowo Subianto has emphasised that Indonesia will facilitate greater participation of both domestic and international private companies in infrastructure development, aiming to ensure equitable growth opportunities and advance the country’s “Golden Indonesia 2045” vision.
Southeast Asia - Mon, June 16, 2025 | 11:30 pm GMT+7
Honda Vietnam reports strong growth in motorcycle and car sales
Honda Vietnam (HVN) recorded significant sales growth in both motorcycle and automobile segments in May 2025, with year-on-year increases of 8.2% and 25.9%, respectively.
Companies - Mon, June 16, 2025 | 11:24 pm GMT+7
Vietnam’s rice export prices fall nearly 19% despite growing volume
Vietnam’s rice industry is facing a steep drop in export prices, even as shipment volumes climb, underscoring the challenges of a volatile global grain market.
Companies - Mon, June 16, 2025 | 11:20 pm GMT+7
Vietnam Airlines invests $69 mln in 2 projects at Long Thanh airport
National flag carrier Vietnam Airlines on Sunday kicked off construction on an in-flight catering facility and an aircraft maintenance complex at the under-construction Long Thanh International Airport in southern Vietnam, with a total investment of nearly VND1.8 trillion ($69 million).
Infrastructure - Mon, June 16, 2025 | 9:41 pm GMT+7
Prime Minister okays 1,881-hectare free trade zone in central Vietnam
Prime Minister Pham Minh Chinh has approved the establishment of Danang Free Trade Zone (FTZ), which will cover approximately 1,881 hectares across seven non-contiguous locations.
Economy - Mon, June 16, 2025 | 9:25 pm GMT+7
Vietnam parliament passes historic revised law on local government organisation, establishing two-tier model
The National Assembly, Vietnam's legislature, on Monday endorsed the revised Law on Local Government Organization, with 100% of the 466 members present voting in favor.
Politics - Mon, June 16, 2025 | 5:01 pm GMT+7
Vietnamese fruit and vegetable export to EU grows 33% in 4 months
Vietnamese fruits and vegetables such as mangoes, pistachios, pineapples, and coconuts are gaining popularity in the European market, with export revenues rising sharply in Jan-April by as much as 41% to 200% year-on-year.
Economy - Mon, June 16, 2025 | 4:19 pm GMT+7
Vietnam's oil shipping major PVTrans to pay record high dividend
PetroVietnam Transportation Corporation (PVTrans), a subsidiary of state-owned Petrovietnam, will issue nearly 113.9 million shares to pay 2024 dividends, raising its charter capital to VND4,699 billion (over $180 million).
Companies - Mon, June 16, 2025 | 3:51 pm GMT+7
How retail giant Aeon Mall rapidly expands presence in Vietnam
Japanese retailer Aeon Mall has employed a consistent strategy to expand its footprint across Vietnam: partnering with domestic companies that possess land funds earmarked for commercial real estate development.
Real Estate - Mon, June 16, 2025 | 12:10 pm GMT+7
Two Vietnamese stocks face bourse delisting for information disclosure violations
Nam Song Hau Trading and Investing Petroleum JSC (PSH) and Koji Asset Investment JSC (KPF) are facing mandatory delisting from the Ho Chi Minh Stock Exchange (HoSE) due to serious breaches of information disclosure regulations.
Finance - Mon, June 16, 2025 | 9:20 am GMT+7
MBBank offers free app for business households' sales management, electronic invoice issuance
MBBank (MB) is offering its mSeller application for free – a solution to support sales management and issuance of electronic invoices exclusively for business households, small traders, and micro-sized enterprises.
Companies - Mon, June 16, 2025 | 9:05 am GMT+7
How to invest in a volatile Vietnamese stock market
After a strong recovery from the market bottom of 2025 on April 9, the VN-Index has entered a correction phase, with six out of eight sessions showing declines between June 4 and Friday, June 13.
Finance - Mon, June 16, 2025 | 8:00 am GMT+7
Third round of Vietnam-US reciprocal trade pact talks sees 'significant progress'
The third technical round of negotiations for a reciprocal trade agreement between Vietnam and the U.S. has concluded in Washington, D.C., with "significant progress made and gaps narrowed in all areas of negotiation," according to Vietnam’s Ministry of Industry and Trade.
Economy - Sun, June 15, 2025 | 9:57 pm GMT+7
HCMC seeks to expand infrastructure cooperation with Guangdong-Hong Kong-Macao Greater Bay Area
Ho Chi Minh City is aiming to expand cooperation with the Guangdong-Hong Kong-Macao Greater Bay Area (China) in infrastructure, one of the city’s key sectors following its merger with Binh Duong and Ba Ria-Vung Tau provinces.
Economy - Sun, June 15, 2025 | 8:00 pm GMT+7
- Infographics
-
Vietnam PM urges world's food industry leader JBS S.A to invest in livestock farming, meat processing
-
Pakistani, Indian sugar bans won't affect Vietnam market: association
-
Wood pellet exports down but Japan buys more
-
Additional capital of FDI companies up 93% on-year
-
FDI capital expansion surges 66% in first half
-
Vietnam GDP grows 6.42% in six months