Elimination Strategy Detailed for Ending Credit Limitations
The State Bank of Vietnam (SBV) has been tasked with developing a roadmap for the removal of the credit growth quota mechanism from 2026, marking a significant step towards a more competitive and efficient banking sector in Vietnam.
The elimination of credit ceilings could provide greater flexibility for expansion for banks with robust capital, strong risk management, and high-quality customers. This move could allow banks to lend more proactively, avoiding situations where capital is available but constrained by quota limits.
However, the potential challenges in removing credit growth quotas include increased risks of unchecked lending growth, potential macroeconomic instability, and difficulties in maintaining credit quality and financial stability. Quotas have served as administrative limits to control credit expansion, helping the SBV manage inflation, money supply, and systemic risks.
To address these challenges, the SBV is considering transitioning from administrative quotas to market-driven, risk-based credit allocation mechanisms. This approach would allow banks with strong governance, capital adequacy, and technology capabilities to expand lending more freely.
Enhancing banks’ credit risk control and accelerating non-performing loans (NPL) resolution are also crucial for maintaining a healthy credit environment. Leveraging digital transformation, such as AI, cloud systems, fintech partnerships, can improve credit assessment, streamline loan processing, and enforce prudent lending standards.
The SBV is also focusing on restructuring the credit system, expediting bad debt resolution, enhancing credit quality, preventing new non-performing loans, and managing lending to high-risk sectors.
In 2024, credit growth quotas were allocated to all institutions at the outset of the year. By early 2025, the SBV had lifted requirements for foreign banks, joint-venture banks, and non-bank credit institutions, retaining it only for domestic commercial lenders.
The directive is part of a broader package of measures aimed at stimulating economic growth, containing inflation, safeguarding macroeconomic stability, and ensuring the country's key economic balances.
The pilot programme for abolishing the credit quota system will be limited to credit institutions meeting strict criteria, including sound and efficient operations, strong risk management, compliance with prudential ratios, and consistently high credit quality.
The removal of quotas could place upward pressure on interest rates, making it essential for the SBV to manage rates proactively and conduct a thorough impact assessment before submitting a final roadmap to the government.
Nguyen Quoc Hung, secretary general of the Vietnam Banks Association, believes that the removal of credit growth quotas is appropriate for major banks that have adopted Basel III standards and strengthened their capital bases.
The SBV will work closely with relevant ministries and agencies to track domestic and global economic developments and craft suitable monetary policy scenarios. Each bank is advised to set internal safety ratios, and the SBV is encouraged to develop clear prudential criteria.
Pham Xuan Hoe, general secretary of the Vietnam Financial Leasing Association, suggests that the SBV could deploy mandatory bills, capital adequacy buffers for medium- and long-term lending, and ratios of total mobilised capital to equity to prevent liquidity mismatches.
In summary, the removal of credit growth quotas aims to foster a more competitive, efficient, and market-oriented banking sector in Vietnam. However, it requires strengthening risk management, digital innovation, regulatory oversight, and a gradual shift toward credit allocation based on market discipline rather than administrative limits. This approach supports robust economic expansion while maintaining financial system stability.
Banks with robust capital, strong risk management, and high-quality customers could utilize the elimination of credit ceilings to expand more proactively in their business and finance operations. Conversely, the removal of quotas could potentially lead to increased risks and macroeconomic instability, emphasizing the need for enhancing credit risk control and adopting market-driven, risk-based credit allocation mechanisms.
