Vietnam eases bank safeguards to boost growth
Vietnam loosens bank safeguards as policymakers aim to keep credit flowing to priority sectors and major projects, hoping to hit double‑digit growth targets for this year and next.
Banking reforms aim to sustain growth.
Proposed cap increase could free short‑term funding
The State Bank of Vietnam (SBV) has opened a public comment period on a draft rule that would raise the cap on short‑term funding used for medium‑and long‑term lending from 30 percent to 40 percent. The current limit, in place since October 2023, reversed a multi‑year tightening that had lowered the ceiling from 40 percent to 34 percent.
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Analysts at Ho Chi Minh City Securities Corporation called the move “a direct liquidity and credit‑support signal for banks.” Restoring the 40 percent ceiling would let lenders allocate more short‑term deposits to longer‑tenor loans, potentially supporting real estate, infrastructure, manufacturing and household mortgages. “The trade‑off is liquidity risk,” they noted, pointing out that Vietnam’s banking system still relies heavily on short‑term deposits while much of the economy’s borrowing demand is longer term.
Targeted carve‑outs for strategic projects
The SBV has carved out loans for social housing, industrial parks and export processing zones from the 2026 real‑estate credit‑growth limits, easing funding constraints for lenders.
Expert views
Analysts warned that the measures highlight Vietnam’s reliance on domestic banks to finance growth. They noted that alternatives such as deep local capital markets or affordable international borrowing remain limited for many borrowers. “The regulators also continue to set precedents for how prudential settings can be flexible to achieve broader economic outcomes, which does not help to build confidence in prudential supervision,” one analyst said.
Liquidity stress persists despite easing
System‑wide liquidity is already under pressure. By the end of May, credit had grown 5.71 percent from the start of 2026, while deposits rose only 2.98 percent. The gap between outstanding credit and Market 1 deposits—funding from households and companies—was estimated at more than 2,500 trillion dong (about US$122.5 billion). This pushed the year‑to‑May Market 1 LDR ratio to roughly 115 percent, up from 109 percent at the end of 2025 and 106 percent at the end of 2024.
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The imbalance stems from accelerating credit demand for medium‑and long‑term loans, while deposit growth lags due to a large state budget surplus and rising cash circulation pulling money out of the banking system. The SBV also faces limited capacity to inject large‑scale VND liquidity because of pressure on foreign‑exchange reserves, the currency and inflation, which hit a six‑year high in April.
Fiscal policy becomes the main liquidity anchor
With monetary tools constrained, fiscal policy is the primary lever to release liquidity. Public investment disbursement had reached just over 245 trillion dong by June 11, equivalent to only 24.2 percent of the 2026 plan of more than 1,000 trillion dong. Meanwhile, the state budget surplus stood near 495 trillion dong.
Viet Dragon Securities Corporation warned that the SBV’s intervention measures only address symptoms and do not resolve the fundamental supply‑demand imbalance in the system. “The only liquidity anchor left is faster public investment disbursement, to reverse the state budget surplus and return money to the banking system,” the firm said.
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Implications for sovereign credit rating
Vietnam’s high leverage—over 150 percent of GDP, roughly three times the median for sovereigns in the same rating category—adds pressure on its credit profile. Analysts said the SBV will have increasingly narrower space to loosen monetary settings without jeopardising financial stability. Persistent high credit growth without robust prudential guardrails could raise the risk of credit misallocation, asset bubbles and liquidity stress.
“In the event of an economic shock that causes banking system risks to crystallise, Vietnam’s economic prospects may substantially weaken, which would weigh on the sovereign rating,” an analyst added.
Outlook for regulatory reform
Analysts noted that despite short‑term easing, Vietnam is moving toward a more modern regulatory framework closer to Basel III standards. Whether the latest easing is viewed positively will depend on whether the final rules come with clear guidance and a credible roadmap. “Without that, the easing could be seen as a step backward in Vietnam’s effort to improve financial governance and strengthen its sovereign credit profile,” they concluded.
