Summary of Vietnam‘s Shift Away from Credit Growth Quotas
This document details Vietnam’s plan to remove credit growth quotas imposed on banks as 2011, replacing them with a market-based mechanism to stabilize the macroeconomy and promote a healthier credit system. Here’s a breakdown of the key points:
Why the Change?
Initial Success, Current Inefficiency: The quota system successfully controlled inflation and ensured banking system safety in the past. However, it’s now seen as hindering access to loans for businesses and individuals, creating a restrictive “ask and give” dynamic. Banks with allocated quotas can’t lend even with available funds.
Increased transparency & Health: The goal is to increase transparency and improve the overall health of the credit system by moving to a market-driven approach.
Key Directives from the Prime Minister (PM):
New Classification System: Removal of quotas must be accompanied by a clear system to classify credit institutions based on governance, operational health, and banking safety indicators.
Publicity & Strict Supervision: The managing agency (SBV – State Bank of Vietnam) needs to ensure transparency,publicize information,and implement rigorous inspection and supervision to prevent systemic risks and control inflation.
bad Debt Management: Prioritize restructuring the credit institution system and handling bad debt (2021-25 project). Focus on thorough bad debt resolution, controlling credit in risky areas, and improving credit quality.
Preventing Illegal Activities: Strictly handle violations like manipulation, cross-ownership, and lending to related parties (“backyard” enterprises).
Cost Reduction & Digitalization: Reduce costs, simplify procedures, and promote digital transformation within the banking sector.
Prioritized Lending: focus credit on key areas: investment, export, digital economy, and green economy.
Expedite credit programs: Finalize mechanisms for programs supporting young people buying social housing and the VND 500 trillion package for infrastructure, science, technology, and digital transformation.
Implementation Strategy:
Phased Approach: The SBV is encouraged to test the removal with the 15-20 best-performing banks first, while the remaining banks continue to operate under quotas.
2025 & Beyond:
Adjustable Credit Growth Target: The SBV is instructed to proactively adjust the 2025 credit growth target based on inflation and the GDP growth target of 8.3-8.5%. This adjustment must be public and transparent.
Focus on Key sectors: Continue directing credit towards productive sectors, conventional growth drivers, and new economic areas (science, technology, digital economy, etc.).
* Monetary Policy Preparation: the SBV needs to prepare monetary policies for late 2025 and 2026.
In essence, Vietnam is moving towards a more complex credit management system, aiming to balance economic growth with financial stability and accessibility.The success of this transition hinges on the effective implementation of the new classification system, robust supervision, and a proactive approach to monetary policy.
