High funding demand pushing up interest rates: Vienam central bank governor

Vietnam's central bank is studying measures including expanding access to foreign-currency loans to ease funding pressures as strong credit demand and limited deposit growth have pushed domestic interest rates higher, said State Bank of Vietnam Governor Pham Duc An.

Speaking at a government meeting with the business community on Saturday, An said the banking sector has faced increasing challenges in managing interest rates as the economy's demand for capital continues to outpace the pace of fund mobilization.

"When funding becomes scarce, interest rates rise," An said. "Higher deposit rates translate into higher lending rates, directly affecting businesses and production activities."

The State Bank of Vietnam (SBV) has been working with commercial lenders to discourage excessive competition for deposits through higher interest rates in an effort to keep lending costs at reasonable levels, he added.

The governor said the central bank is also considering widening eligibility for foreign-currency loans, particularly for companies importing machinery and equipment for investment projects.

"If foreign currency is needed to finance imports serving investment purposes, we are studying the possibility of allowing such lending," An said, adding that the policy could be expanded to additional borrowers in the future.

The SBV is also assessing options to mobilize funding from overseas in coordination with the Ministry of Finance, depending on the economy's financing needs.

An highlighted a structural mismatch between banks' funding sources and corporate borrowing demand. Around 80% of bank deposits are short-term, while only about 20% are medium- and long-term funds, despite businesses' strong demand for longer-term financing.

The imbalance requires lenders to balance support for businesses with maintaining the safety and stability of the banking system, he said.

Beyond bank lending, the SBV is seeking to develop additional channels for medium- and long-term financing, including the corporate bond market.

The central bank has submitted proposals to the government to amend the Law on Credit Institutions, allowing commercial banks to provide asset management services to support corporate bond issuance. An said the measure could help capital markets absorb part of businesses' long-term financing needs.

At the same meeting, business representatives urged the government to strengthen fiscal and monetary policies and accelerate the development of green finance.

Nguyen Thi Nga, acting chairwoman of the Vietnam Private Entrepreneurs Association and chairwoman of BRG Group, said outstanding green credit had exceeded VND700 trillion ($26.62 billion), growing by more than 20% annually but accounting for only about 4.3% of total outstanding loans.

She proposed extending a government-funded interest rate subsidy of 2% per year for businesses and households investing in green and circular economy projects, while calling for a unified national green credit classification system and additional policy tools, including preferential refinancing, risk-sharing mechanisms, and measures to mobilize long-term domestic and international capital.

The proposals come as Vietnamese businesses continue to face strong demand for investment capital while the banking system seeks to maintain financial stability and contain borrowing costs.