Capital Should Be Prioritized for Production, Innovation, and Science and Technology to Drive Green and Sustainable Growth
THE HANOI TIMES — In a rapidly evolving economic landscape, local experts emphasize the importance of striking a balance between credit expansion and lending safety to meet the increasing capital demand. Dr. Nguyen Duc Do, the Vice Director of the Institute of Economics and Finance at the Academy of Finance, recently shared his insights about Vietnam’s current economic dynamics with The Hanoi Times.
Understanding Vietnam’s Credit Surge
As of 2024, credit in Vietnam surged by 13.37%, reaching VND 17.71 quadrillion, with projections estimating full-year growth at 19–20%. This impressive expansion is a clear reflection of the government’s concerted efforts to channel capital into diverse sectors aimed at revitalizing businesses and enhancing production capabilities.
The economy’s positive response is evident, with GDP growth soaring to 8.23% in the third quarter, expected to exceed 8% by year’s end. Such robust credit growth within the Vietnamese banking system underscores both significant capital demand and the effectiveness of current monetary policies.
The Implications of a High Credit-to-GDP Ratio
Despite encouraging numbers, concerns arise regarding Vietnam’s credit-to-GDP ratio, which stands at a remarkable 134%, one of the highest in the region. Vietnam’s aspirations for sustained GDP growth have resulted in an aggressive monetary policy characterized by ample liquidity and lower interest rates.
Dr. Do notes that while bolstering banks’ capital base is crucial, it’s imperative to ensure that credit expansion aligns with lending safety. Prioritizing capital for sectors that foster production, innovation, and science and technology remains essential to drive green and sustainable growth. By offering loans with lower risk weights in priority sectors, banks can effectively optimize their capital efficiency.
Monitoring Macroeconomic Stability
Macroeconomic indicators such as exchange rates and inflation remain relatively stable under current conditions. However, maintaining vigilance regarding inflation trends and exchange rate stability is essential, as the ongoing credit expansion could trigger adverse effects if not managed prudently. The potential for inflationary pressures necessitates continuous analysis and prompt responses to safeguard the economic environment.
Addressing the Real Estate Credit Landscape
The real estate sector significantly relies on bank financing, a reality that raises concerns, especially since alternative funding channels like bonds and stocks remain underdeveloped. While increasing outstanding loans signals strong market demand, it also introduces risks that warrant careful oversight.
Dr. Do highlights the recent directive from the Prime Minister aimed at tightening real estate credit and curbing speculative capital flows. The State Bank of Vietnam (SBV) has mandated compliance with financial safety ratios as set forth in Circular No. 14/2025/TT-NHNN, which outlines differentiated risk-weighting rules across sectors.
For example, the risk coefficients for social housing loans range from 20–50%, while commercial housing loans can vary between 60–150%, contingent upon the borrowers’ repayment abilities. Such measures compel banks to evaluate credit policies judiciously, minimizing excessive exposure while ensuring capital safety. By implementing high-risk weights for speculative properties, focus can be redirected towards more productive sectors.
The Importance of Bad Debt Control
The specter of bad debts looms large, particularly following the expiration of Circular 02/2023, which allowed loan restructuring and maintained classifications for distressed borrowers. With this grace period concluding on January 1, 2025, there’s a concern that many restructured loans may transition into non-performing status.
To navigate this potential crisis, Dr. Do emphasizes the necessity of combining credit control measures with effective bad-debt resolutions while accelerating the restructuring of financially vulnerable banks. Under the Law on Credit Institutions, effective since July 1, 2024, banks must transparently disclose shareholders owning at least 1% of their charter capital, an effort aimed at curtailing cross-ownership risks. However, enhanced enforcement and investigation efforts remain paramount to ensure these regulations are effectively enacted.
Exchange Rate and Interest Rate Outlook
As of late September, the exchange rate for the Vietnamese Dong (VND) had depreciated by 3.5% against the US dollar, a trend that raises concerns domestically despite a global soften in the dollar’s strength against major currencies. Internal factors such as a narrow trade surplus and rising foreign currency demand further contribute to exchange rate pressures.
In terms of interest rates, the SBV is tasked with navigating a complex landscape, balancing exchange rate stability, inflation control, and growth support. With average lending rates for new loans at 6.52% as of early September, the SBV’s room for maneuver has improved following the US Federal Reserve’s interest rate cut, providing an opportunity to alleviate borrowing costs for businesses and households. Nonetheless, medium to long-term rates may continue to face upward pressure.
Maintaining a stable interest rate environment is deemed essential to support growth; achieving this requires sustained trade surpluses and robust foreign investment, contributing to strong liquidity in the foreign currency market by year-end.
Final Thoughts
Dr. Do’s insights encapsulate the complex dynamics of Vietnam’s financial landscape, highlighting the delicate balance between fostering growth and ensuring systemic stability. As the nation strives for sustainable development through intelligent capital allocation, ongoing vigilance, and strategic policy implementation will play critical roles in shaping Vietnam’s economic future.