Central bank to create roadmap for eliminating credit growth quota policy

"The SBV will innovate its credit management measures and create a roadmap to gradually reduce and eventually eliminate the allocation of credit growth quotas for each bank," said SBV Deputy Governor Dao Minh Tu.

The credit growth quota system, which puts a cap on the credit expansion of each bank, has been maintained by the SBV since 2011, when Vietnam’s economy was experiencing hyperinflation stemming from excessive money supply. The tool was used to successfully control the quality of lending and ensure the safety of the banking system and macroeconomic stability.

However, experts said that after over a decade of implementation, this tool is currently inappropriate and hinders people and businesses from accessing bank loans. Due to the quota system, even with a monetary surplus, banks cannot lend if they run out of their allotted credit quota.

According to Le Hoai An, co-founder of the financial data provider Wigroup’s WiResearch, the credit policy was applied due to the characteristics of the Vietnamese economy at the time.

From 2007 to 2010, the economy saw overheating credit growth, with continuous growth exceeding 30-40% per year. This did not create added value for the economy and also led to serious consequences like high inflation and an increasingly bad debt ratio.

Illustrative photo (Photo: diendandoanhnghiep)

However, An said, from 2013 to 2019, with a credit growth rate of only about 14-15% per year, the banking system could still support the economy to achieve a GDP growth rate of about 7%.

“This proves that reasonable credit control does not mean restraining economic growth. On the contrary, it creates conditions for more stable and sustainable development,” An said.

According to An, there has also been a shift in credit flow. Before 2022, the growth rate of retail lending was often higher than that of corporate lending. Meanwhile in 2023, the growth rate of corporate lending was higher than that of retail lending for the first time.

This trend was also seen in 2024 and is expected to continue this year. Therefore, the shift in the credit flow shows the need for more flexibility in allocation, expansion or elimination of the credit growth quota.

The SBV can begin to gradually remove the policy when Vietnam's capital market is more developed, An said.

Test run

Experts suggest the SBV can choose the best commercial bank group to test the removal of the credit growth policy in its initial phase of implementation.

“The SBV can experiment with allowing about the 15-20 best banks to freely increase credit. The remaining banks will still have to apply the credit growth cap,” suggested Dr Nguyen Tu Anh, former Director of the Centre for Economic Information, Analysis and Forecasting under the Central Economic Committee.

However, Anh noted, testing the removal of the credit growth cap needs to be strictly controlled, because when the restriction is removed, the competitive environment between banks will become more intense. This will create motivation and encourage banks that are unable to freely increase credit to improve their governance quality and operational efficiency, so that they can join the group.

For banks that cannot compete, solutions must be considered, such as merging or cooperating with each other to gain competitiveness.

“In a market economy environment, competition is inevitable. Banks that are well-governed, have a good vision and do well will win this game,” Anh said.

Anh proposed that banks must meet certain criteria and conditions to qualify for the pilot programme. This not only creates strong competitive pressure in the banking system, but also promotes better quality banks.

Echoing Anh, An said that when removing the credit growth quota policy, the SBV needs to change the monitoring mechanism by tightening a series of financial indicators for banks, such as capital safety ratio, bad debt coverage ratio and other provisions.

"In particular, the SBV needs to closely monitor the situation to avoid capital flow going astray after removing the policy. If a bank has a lending rate for real estate or risky sectors that exceeds the safety limit, the SBV needs to take timely adjustment measures to ensure the stability of the financial system,” An noted.