When money is no longer cheap

Rising interest rates are no longer seen as a short-term phenomenon but a structural trend, according to many financial institutions and economists, as Vietnam enters a new interest-rate regime with limited room for easing.

A new interest-rate floor takes shape

After a volatile 2025, Vietnam’s dong-denominated interest rates are settling at a noticeably higher level than in 2023-2024. Entering early 2026, both domestic and global factors suggest limited scope for rate cuts, with the possibility of further increases at certain points to address liquidity and exchange-rate pressures.

Many banks and securities firms agree that 2026 will not be a cycle of “cheap money”.

UOB expects the State Bank of Vietnam (SBV) to keep its refinancing rate unchanged at 4.5% throughout 2026, citing persistent inflationary and exchange-rate pressures. Twelve-month deposit rates are forecast to rise by around 0.5 percentage points from end-2025 levels.

From a domestic perspective, BSC Securities said the central bank may retain some flexibility should exchange-rate pressures ease in the second half of the year. However, deposit rates are still expected to rise by 0.5-1 percentage point as money supply growth (M2) lags well behind credit demand.

Vietcombank Fund Management (VCBF) said the SBV is likely to prioritize targeted liquidity injections rather than cutting policy rates, while deposit rates will need to remain elevated to retain funds, particularly as the system-wide current account savings account (CASA) ratio has fallen sharply.

Alongside persistently high deposit rates, lending rates have come under clear upward pressure since late 2025, driven by rising funding costs as CASA ratios decline and competition for medium- and long-term deposits intensifies.

Market data show that new lending rates for standard corporate borrowers have commonly risen to 8.5-10% per year, well above levels seen in the first half of 2025. For medium- and long-term loans - especially in higher-risk sectors such as commercial real estate, construction and project investment - banks are offering rates of 10-12% or higher, particularly for highly leveraged firms or those with unstable cash flows.

The U.S. Federal Reserve’s policy meeting on January 27-28, 2026 marked a key turning point, as the Fed held its benchmark rate at 3.5-3.75%, pausing the easing cycle that began in September 2025.

The decision reflected U.S. inflation proving more persistent than expected despite cooling labor markets. The pause has kept the dollar index (DXY) elevated, adding pressure on emerging-market currencies, including the Vietnamese dong.

UOB economists said that under such conditions, Vietnam has virtually no room to cut policy rates in 2026 if it wants to maintain USD/VND stability.

Domestic liquidity strains add pressure

Beyond external factors, internal stresses within Vietnam’s banking system are also limiting the scope for lower rates.

By the end of 2025, the gap between credit and deposits had widened to around VND1,600 trillion ($61.52 billion), reflecting a growing mismatch as loan demand rebounded while savings shifted to alternative investment channels.

As a result, the sector-wide loan-to-deposit ratio reached a record 111%, forcing banks to compete aggressively on deposit rates to secure funding. The CASA ratio fell below 22%, significantly raising funding costs.

In December 2025, the SBV injected more than VND400 trillion ($15.38 billion) net via open market operations (OMO) to cool interbank rates, which had climbed to 7.5-7.8% at year-end. By late January 2026, longer-tenor interbank rates at times exceeded 8%, indicating that shortages of medium- and long-term funding remain unresolved.

Can Van Luc, chief economist at state-controlled BIDV bank, said the rise in interest rates is no longer cyclical but structural. He pointed to the prolonged gap between credit growth- around 18.5% in 2025 - and deposit growth, which has forced banks to maintain higher rates to attract funds.

Lending rates for high-risk sectors such as commercial real estate could remain at 10-12% in 2026, as these sectors no longer qualify as credit priorities, he added.

From an international perspective, Nguyen Xuan Thanh of Fulbright University Vietnam described the Fed’s pause as a “mild shock” for emerging markets. USD/VND pressures are likely to re-emerge in the first quarter of 2026, placing the SBV in a difficult position between defending the currency and supporting growth.

Signals from the SBV in January 2026 suggest a shift in policy priorities. Pham Chi Quang, head of the SBV's monetary policy department, said the 2026 credit growth target is expected to be around 15%, well below nearly 19% in 2025.

This reflects a move away from growth-at-all-costs toward a balance between economic expansion and inflation control, implying the central bank will no longer inject liquidity aggressively to push rates lower.

As of February 2026, 12-month deposit rates are forecast to range between 6.5% and 7.5%, with an upward bias. The USD/VND exchange rate is expected to trade between 25,500 and 25,800, while credit growth remains capped at 15%.

A recent 2026 outlook report by FiinGroup said Vietnam’s public debt indicators remain relatively safe, leaving some room for fiscal policy. However, the banking system remains the economy’s main funding channel, particularly for small and medium-sized enterprises, making growth heavily dependent on credit expansion.

That credit-driven growth model is approaching its limits. If credit growth of around 16% per year is maintained to support GDP growth of 8-10%, the credit-to-GDP ratio would exceed 180% by the end of the decade and approach or surpass 200% after 2030 - well above safe thresholds for an emerging economy, increasing risks to financial stability and banking system resilience.

With capital adequacy (CAR) under pressure, asset risks accumulating and inflation control becoming more critical, continued reliance on bank credit to drive growth is no longer sustainable. This underscores the need for a fundamental shift toward alternative funding channels in the next phase of economic development.