Motorcycle production at Piaggio Vietnam in Binh Xuyen Industrial Park, Vinh Phuc province, northern Vietnam. Photo courtesy of Nhan dan (People) newspaper.

The SBV, Vietnam's central bank, has maintained its policy refinancing and discount rates at 4.5% and 3%, respectively, unchanged and at historically low levels since June 2023.

This accommodative stance supported the economic rebound, with a real policy rate close to zero, the WB noted in its report released on Monday.

The SBV has also used a series of other instruments to support its mandate, such as open market operations (purchase of repo and issuances of SBV bills, whose rates affect overnight interbank rates), caps on deposits and lending interest rates, and credit growth indicative ceilings to banks, and foreign exchange interventions.

"Credit growth surpassed the SBV-targeted 16%. This surge in banking credit, which grew 18.1% year-on-year in H1/2025, was largely attributed to the SBV front-loading credit quotas to banks."

Credit primarily went to real estate, manufacturing, and trade. This boost in lending tightened liquidity, pushing the loan-to-deposit ratio to more than 100% in many banks, according to the WB.

Banks tapped heavily into the bond markets to secure medium- and long-term funding amid low deposit rates. They issued nearly VND177 trillion ($4.5 billion) in bonds, 2.4 times more than in the same period in 2024 - and accounting for 77% of total corporate bond issuances during H1/2025.

The credit-to-GDP ratio was estimated at 134% by end-2024, compared to 90% by end-2015.

Asset quality relatively stable

"Reported asset quality appeared relatively stable, but underlying risks persist due to loan for bearance, restructuring, and declining loan-loss coverage," the WB report stressed.

The non-performing loan (NPL) ratio of 27 major commercial banks was estimated to have increased to 3.8% in Q1/2025 from 3.6% in Q4/2024, while systemwide NPLs were evaluated to have risen from 5% in 2024 to 5.3% (on-balance sheet) by February 2025.

Adjusted NPLs, including debt from Vietnam Asset Management Company (VAMC) and other potential baddebts, was estimated at 6.6% by end-2024, according to the bank.

The expiration of Circular No.02/2023 in December 2024 that allowed banks to reschedule loan payments, while avoiding downgrading loan classifications, is expected to force banks to recognize restructured loan risks, potentially driving up NPLs in 2025.

Additionally, increased credit growth targets can lead to compromised credit quality and an increase in newly-created NPLs in the medium term if banks relax lending standards, it added.

The banking sector sees falling reserve buffers as collateral driven risk management takes hold. The loan loss reserves/NPLs ratio has nearly halved over the past three years, indicating a significant decline in the banking sector’s loss-absorbing capacity.

Net export contributions to GDP growth likely to drop

The WB predicted Vietnam’s GDP growth will moderate to 6.6% in 2025. After strong growth momentum in H1/2025, the Vietnamese economy is expected to cool in the remainder of the year as overall export growth normalizes.

"Our baseline projection assumes reduced net export contributions to GDP growth. However, the outlook remains heavily dependent on further trade developments."

The Vietnamese government targets a GDP growth rate of 8.3-8.5% for 2025 and double-digit expansion for 2026-2030. According to the Prime Minister’s Policy Advisory Council", the target is "appropriate" given the favorable macroeconomic conditions and structural reforms.

It noted that macroeconomic stability remains intact, with credit growth aligned with GDP expansion, capital flows favoring production sectors, and public debt-to-GDP ratio within safe limits.

New growth drivers such as institutional reforms, anti-waste initiatives, improved business climate, increased R&D spending, digital and green transformation, and tech-driven innovation could add 1 to 1.5 percentage points to annual GDP growth, the council noted.

However, it warned of risks in key financial sectors including exchange rates, gold prices, securities, and real estate, urging the government to pair aggressive growth efforts with prudent risk management and a continued focus on growth quality and macroeconomic stability.

Fiscal policy to take the lead in supporting medium-term growth

The WB argued that fiscal policy should continue to take the lead in supporting medium-term growth and resilience, given limited monetary policy space due to persistent interest rate differentials and exchange rate pressures.

"Vietnam’s low public debt allows for increased investment, particularly to close infrastructure gaps in energy, logistics and transport, with an emphasis on efficient public investment management and prudent debt and risk oversight," it wrote.

Strengthening financial sectorstability remains vital. This can be achieved by requiring improved capital adequacy, enhancing prudential supervision, and stronger legal mandates for the SBV, especially regarding group supervision and crisis management.

"Additionally, accelerating structural reforms to improve backbone services, promote green growth, build human capital, and diversify trade will help mitigate global risks and foster resilient, long-term economic growth. Integrating domestic private firms more deeply into global supply chains and encouraging technological adoption will further support private sector development," the bank added.

Pham Thanh Ha, SBV Deputy Governor, on Saturday stated that credit has increased by 11.8% against the end of 2024.

"Lending recorded positive growth compared to the previous years. In the year to end-August, outstanding credit in the whole economy reached VND17,460 trillion ($661.36 billion), up 11.8% against end-2024," he told a government press meeting.

The lending interest rate level continued to decrease. By end-August, the average lending interest rate had decreased by about 0.6 percentage points/year against the end of 2024, Ha noted.

"The SBV will continue to direct banks to continue reducing costs and enhancing digital transformation to create conditions for further reduction of lending interest rates to support businesses and people."

He said since the beginning of the year, foreign currency liquidity has been ensured, fully meeting the legitimate needs of the economy.

As of end-August, the USD had appreciated by about 3.4% against the Vietnamese dong (VND) compared to the end of last year.

Vietnam's economic growth rate reached 7.52% in the first six months of the year, a record high in the period 2011-2025, the General Statistics Office reported.