Strong credit growth demands smarter allocation: Expert

THE HANOI TIMES — Local experts have stressed the need to balance credit expansion with lending safety amid the economy’s growing capital demand. Dr. Nguyen Duc Do, Vice Director of the Institute of Economics and Finance at the Academy of Finance, spoke with The Hanoi Times about the issue. 

With credit up 13.37% to VND17.71 quadrillion in 2024 and full-year growth projected at 19–20%, how do you view this surge?

Credit expansion since early this year reflects the government’s effort to direct capital into various sectors to help businesses recover and boost production. The economy has responded positively, with GDP growth reaching 8.23% in the third quarter and expected to surpass 8% for the year.

Credit in Vietnam’s banking system has grown impressively, increasing 13.4% compared to the end of 2024, showing strong capital demand and effective monetary policy management.

Credit demand has risen alongside policies to spur growth and investment. Does the 134% credit-to-GDP ratio, among the highest in the region, raise any concerns?

Vietnam aims for high GDP growth not only this year but in the coming period. Monetary policy has been highly supportive with strong credit expansion, lower interest rates and ample liquidity.

Still, improving the capital base of banks is essential. More importantly, credit expansion must go hand in hand with lending safety. Capital should be prioritized for production, innovation and science and technology to drive green and sustainable growth. Loans in priority sectors with lower risk weights will help banks optimize capital efficiency.

Macroeconomic indicators remain stable, with exchange rates under control and inflation within the target range. Yet if the current pace continues, careful monitoring of inflation and exchange rate signals is needed to respond promptly.

It is also crucial to continue monitoring bad-loan risks and maintain credit discipline to safeguard system stability. Authorities should focus on detecting cross-ownership and preventing the misuse of short-term capital for long-term lending.

How do you view the current real estate credit situation?

The real estate sector’s reliance on banks is understandable since bonds and stocks have yet to become reliable long-term funding channels. Rising outstanding loans show strong market demand but also potential risks if not tightly controlled. The market remains imbalanced, with distorted segment growth and soaring prices beyond affordability.

The prime minister’s recent directive on tightening real estate credit and curbing speculative capital flows is timely. To mitigate future risks, the State Bank of Vietnam (SBV) has required commercial banks to comply strictly with financial safety ratios as outlined in Circular No. 14/2025/TT-NHNN. The circular introduces differentiated risk-weighting rules across sectors.

For real estate lending, risk coefficients vary: 20–50% for social housing loans and 60–150% for commercial housing, depending on borrowers’ repayment capacity.

These measures compel banks to carefully consider credit policies to avoid excessive exposure and ensure capital safety. High-risk weights for speculative property purchases or secondary homes will redirect capital toward productive sectors. A national database should also be developed to curb speculation and price inflation.

In parallel, credit packages should target real housing demand, such as social and low-income housing, to support sustainable growth.

What is your view about the need to tighten control over bad debts and bank ownership structures?

Bad debts remain a concern as Circular 02/2023, which allowed loan restructuring and maintained debt classifications for struggling borrowers, expired on January 1, 2025. Once this grace period ends, restructured loans must be reclassified, which could push more into the non-performing category.

To address this, authorities should combine credit control with bad-debt resolution and accelerate the restructuring of weak banks to build a healthier system.

Under the Law on Credit Institutions, effective since July 1, 2024, banks must publicly disclose shareholders owning at least 1% of charter capital.

While transparency helps limit cross-ownership, its real impact remains modest if loopholes persist. Stronger investigation and enforcement are needed to identify and penalize violations. Ultimately, effective supervision and transparency will determine the success of these new regulations.

What is the outlook for exchange rates and interest rates in Vietnam following the US Federal Reserve's interest rate cut?

Exchange rate pressure remains significant. As of September 30, the VND had depreciated 3.5% against the USD, even though the dollar weakened globally against major currencies such as the euro (-11.6%), yen, baht and Singapore dollar.

The VND’s depreciation, despite a weaker USD, reflects domestic pressures including a narrowing trade surplus, capital outflows and rising foreign-currency demand. The trade surplus in September fell 23.4% from the previous month and 20.4% year on year for the first nine months. This could increase the exchange rate and balance-of-payments pressure in the final quarter, when foreign-currency demand typically peaks for imports and payments.

When adjusting interest rates, the SBV will consider three main factors: exchange rate stability, inflation control and growth support. While exchange rate pressure remains, it has eased compared to earlier periods. As of September 10, average lending rates for new loans stood at 6.52% per year, down 0.41 percentage points from the end of 2024.

The Fed’s rate cut has eased pressure on the exchange rate, giving the SBV more room to support short-term interest rates, especially in the interbank market. This may slightly reduce borrowing costs for businesses and households, though medium and long-term rates are likely to remain under pressure.

Maintaining current interest rates is considered reasonable to support growth. For this scenario to hold, Vietnam needs to sustain its trade surplus, maintain stable FDI inflows and secure strong remittance inflows toward year-end to ensure foreign-currency liquidity.

Thank you for your time!