Vietnam Prime Minister requests early removal of credit growth limits

Prime Minister Pham Minh Chinh on Thursday instructed Vietnam's central bank to urgently consider removing the administrative tool of setting credit growth quotas for individual banks, and shift toward a market-based control mechanism.

The implementation, along with a set of credit safety criteria, must be reported to him within July, the PM told the first meeting between the government and 34 newly-formed provinces and cities following their mergers on Tuesday.

He also requested that the central bank (State Bank of Vietnam or SBV) ensure a reasonable overall credit growth rate of 16%.

In addition, the SBV is tasked with directing commercial banks to reduce lending interest rates, stabilize the monetary and foreign exchange markets, and submit the draft amended Decree 24 on gold market management within July.

The mechanism of setting credit growth quotas has been maintained by the SBV for over a decade to control lending quality and serve macroeconomic goals such as interest rates, money supply, and inflation.

However, in recent times, many experts have argued that this tool has become outdated and fostered an "ask-give" mechanism.

The central bank is currently implementing a roadmap to gradually reduce and ultimately eliminate the allocation of credit growth quotas for each bank.

Last year, the regulator removed credit growth "caps" for foreign bank branches. For the remaining credit institutions, it is reviewing and taking steps to gradually phase out this mechanism.

However, the SBV remains concerned that completely removing the annual credit growth quotas could lead to a renewed race among banks to raise deposit and lending interest rates and increase bad debt levels, as seen prior to 2011.

It targeted an annual credit growth of around 16% for the banking system in 2025. This figure was announced on December 30, 2024, and individual credit growth targets were assigned to commercial banks early in the year to help them proactively plan their operations.

The SBV stated it will closely monitor macroeconomic developments, especially inflation and capital supply, and will adjust credit growth targets flexibly and promptly without requiring banks to submit adjustment requests.

According to the SBV, as of June 26, total outstanding loans across the banking system had reached over VND16.9 quadrillion ($645.81 billion). This represented an increase of 8.3% compared to the end of last year and 18.87% year-on-year, the highest credit growth in the past two years.

Since the beginning of the year, the central bank has maintained its key policy interest rates, keeping the overall interest rate environment stable. Currently, the average lending rate stands at 6.38% per year, down approximately 0.6 percentage points from the end of 2024.

In 2024, Vietnam's credit growth reached 15.08%, with total credit balance of VND15,616 trillion ($605.3 billion) by the end of the year.