What is driving the surge in credit growth, and how sustainable is this trend for the rest of the year?

According to figures released by the State Bank of Vietnam (SBV), credit growth in the first seven months of 2025 reached a relatively high level – up 10.3 per cent since the outset of the year and up 19.7 per cent on-year. Historically, the second half of the year (H2) often sees credit growth double that of the first half, so it’s reasonable to expect full-year growth of around 19-20 per cent, or possibly even higher.

There are several key drivers behind this surge in credit growth:

First, a series of long-stalled real estate projects have been revitalised under Resolution No.171/2024/QH15 of the National Assembly. This resolution, which came into effect on April 1, allows a pilot mechanism for implementing commercial housing projects through land-use right agreements or existing land ownership. It is currently being implemented in several localities, including Haiphong, Danang, Nha Trang, and Ho Chi Minh City.

Second, the government has ramped up bond issuance. Commercial banks – primarily the main buyers of government bonds – include these purchases in their credit growth figures as per current regulation.

Third, export-import credit has surged due to a race to meet upcoming US tariff policy. As export-import activity picks up pace, so too does related credit demand.

Fourth, there has been a slight uptick in consumer spending on summer tourism.

This rapid credit expansion has also fuelled strong profits across the banking sector. Of 27 banks, 23 have reported profits so far this year – many of which had previously posted low earnings. A closer look at banks’ profit structures shows that non-credit-related income has also risen, especially from payment services and foreign exchange operations.

With credit growth set to accelerate towards year-end, what are the risks of liquidity pressure in the financial system?

Liquidity pressures may emerge due to competition from multiple investment channels. Beyond rising real estate prices, the stock market is up, and gold prices have spiked – prompting some individuals to withdraw deposits from banks to chase higher returns elsewhere.

Globally, credit absorption is largely driven by two main channels – government bonds and real estate – and Vietnam is no exception.

People tend to view real estate, especially housing, as the largest and safest asset class. In 2024, while global GDP was around $120 trillion, the total capitalisation of the global real estate market reached approximately $350 trillion – nearly three times GDP. Similarly, Vietnam’s real estate market capitalisation is estimated at $1.5 trillion, also roughly three times the country’s GDP.

Notably, there has been an increasing shift among Vietnamese investors towards cryptocurrencies and tokenised assets. Our research indicates that many Vietnamese are putting money into legitimate, well-originated digital assets, rather than speculative or obscure cryptocurrencies.

This suggests these investors are intentional and long-term in their approach, considering digital assets as a regular investment class. Consequently, deposit interest rates are unlikely to fall further.

According to data from Triple-A, a global crypto ownership and blockchain data platform, Vietnam currently ranks seventh globally in terms of crypto ownership, with around 17 million individuals holding digital assets.

Between 2023 and 2024, Vietnam attracted roughly $105 billion in blockchain-related capital inflows, generating nearly $1.2 billion in profits in 2023. The country also leads the world in the proportion of freelancers owning crypto assets.

Although there may be episodes of tight liquidity, I believe that overall, liquidity stress will remain manageable throughout the year. Overnight interbank rates are expected to stay relatively stable around 4.5 per cent, and key policy rates—including the refinancing and rediscount rates—are unlikely to change.

Do you think rising capital demand will push interest rates higher later this year?

Yes, I do. When the government steps up capital mobilisation through bond issuance – particularly for strategic projects in energy and transportation – alongside a recovering real estate market, upward pressure on interest rates becomes unavoidable.

As interest rates rise or fetch high, the VND tends to appreciate. If the US Federal Reserve lowers its federal fund rate, the US dollar will weaken, easing exchange rate pressures for Vietnam. This in turn can help reduce inflationary pressures domestically this year.

At this stage, the SBV’s monetary policy is on the right track, with a clear focus on maintaining the stability of the VND and the exchange rate. These are crucial levers for keeping inflation and macroeconomic fundamentals stable.

That said, if credit growth surpasses 20 per cent this year as forecasted, it may contribute to inflationary pressures in subsequent years, with a lag of about one year.

The SBV, therefore, should strengthen its focus on exchange rate stability and inflation control by managing money supply and closely monitoring commercial banks’ lending practices based on key safety indicators such as the capital adequacy ratio (CAR), loan-to-deposit gaps, and non-performing loan levels.

I want to once again stress that exchange rates and interest rates are fundamentally tied to money supply. When money supply increases, interest rates fall and the exchange rate rises. Conversely, when money supply tightens, interest rates increase and the exchange rate declines.

Beyond rapid credit growth, how do you assess current credit quality?

I believe maintaining control over the CAR is essential. In the future, CAR will likely replace credit growth quotas as the primary tool for controlling lending expansion.

Vietnamese banks currently have an average CAR of about 12.3 per cent, which is well above the regulatory minimum of 8 per cent. This, however, still falls short of the ASEAN-5 average and the broader Asia-Pacific regional average of around 13.1 per cent.

The recent issuance of Circular No.14/2025/TT-NHNN is a major step closer to Basel III compliance. Under this regulation, the minimum CAR requirement shall be raised to 10.5 per cent by 2030.

Circular 14 paves the way for the adoption of market-based credit mechanisms, a necessary condition for a more efficient and secure financial system as Vietnam integrates deeper into the global economy.