Eliminating credit room - need a roadmap

14 years of applying credit room

Customers transact at Tien Phong Commercial Joint Stock Bank. *Photo by Nguyen Quang*

In Official Dispatch No. 104/CD-TTg on enhancing the effectiveness of monetary and fiscal policy management (dated July 6, 2025), the Prime Minister requested the State Bank to strive for a full-year credit growth of about 16% compared to 2024 and by 2026, manage credit growth according to market tools and remove quotas. The State Bank urgently reviews, analyzes, assesses impacts, studies international experience, and urgently considers removing administrative tools in managing credit growth through allocating credit growth targets to each credit institution...

Up to now, the State Bank has applied the credit limit tool for credit institutions for 14 years, since 2011 when inflation increased to 18.13% due to the consequences of loose monetary policy and trade deficit, government spending increased continuously leading to increased aggregate demand. Previously, from 2005 to 2010, Vietnam's money supply and credit balance grew rapidly, with an average growth rate of 30%/year, the amount of money in circulation was large while the amount of domestic products did not increase correspondingly, leading to high inflation. After tightening monetary and fiscal policies, inflation decreased sharply, in 2015 to 0.6% and from 2020 to now, inflation has been maintained in the range of 1.84-3.24%. Positive credit growth results in 2025 after a long period of being affected by the Covid-19 pandemic have made many people interested in removing credit limits.

According to experts, the credit room for banks is like a "valve" that controls the money supply to the economy . Because looking back at the past, when credit growth was "hot", there were times when it exceeded 30%, causing many consequences and risks to the banking system in particular, as well as the economy in general. When banks raced to increase credit growth, they would lend "easy", causing bad debt to increase. In fact, the banking industry has spent a long time dealing with the burden of bad debt, so the credit "valve" has been effective in releasing the "blood clot" of bad debt, with credit growth in recent years being controlled to only about 12-14%, ensuring the safety of the banking system, as well as promoting economic development.

Former Chairman of the Board of Directors of Loc Phat Joint Stock Commercial Bank (LPBank) Nguyen Duc Huong said that the State Bank's application of credit room has helped the State Bank manage credit growth flexibly, with specific and clear criteria in allocating credit to banks such as scale, asset quality, etc. Previously, the credit room was actually effective, contributing to stabilizing the monetary market, "cooling down" interest rate races, bringing sustainable health to banks, which are considered the backbone of the economy. Not to mention, the credit room also helps authorities control the amount of money circulating in the economy, thereby proactively controlling inflation, contributing to stabilizing the value of money.

Still an effective tool

According to the State Bank's leaders, although applying the credit room, the State Bank flexibly manages this tool based on the actual domestic economic situation, as well as considering the developments of the global economy. For example, in 2024, instead of granting in batches like previous years, the State Bank assigned the entire credit growth target to banks from the beginning of the year, based on the financial health score, from which banks proactively made credit plans. However, this is not a hard target that the management agency continuously adjusted based on the health of the economy, as well as the banks themselves. In fact, the State Bank has twice loosened the credit room in 2024 for banks with good growth or reduced the room for banks that do not guarantee growth.

To achieve the GDP growth target of over 8% in 2025, the State Bank has set a credit growth target of 16%, equivalent to an additional amount of VND 2.5 million billion. As of June 30, the banking system's outstanding credit balance exceeded VND 17.2 million billion, up 9.9% compared to the end of 2024, up 19.32% compared to the same period in 2024, the highest credit growth since 2023.

Many opinions believe that, at this time, with the characteristics of the economy depending largely on capital from banks, the credit room is still an effective tool to control money supply. However, in the long term, it is possible to abandon the credit limit tool and use other tools, but this can only be done when market conditions are ripe and when monetary policy no longer has to achieve multiple goals at the same time as it does now.

The State Bank's implementation of a roadmap to limit and eventually eliminate the allocation of credit growth targets for each credit institution is considered necessary in the current context. However, the State Bank needs to carefully analyze the factors to find a balance between benefits and risks. Because, to remove the credit room, conditions such as a stable macro economy, controlled inflation, and the health of the banking system are required.

Head of the State Bank's Monetary Policy Department Pham Chi Quang:
There is no permanent solution.

During the period of loose monetary policy (2005-2010), credit growth increased rapidly, at times up to 54%, causing many credit institutions to be on the brink of bankruptcy. Therefore, to maintain the credit system from collapsing, the State Bank has built a credit room policy and this plays a positive role in helping to sustain economic growth and control inflation. However, there is no permanent solution. The State Bank recognizes that this is an administrative solution that needs to be changed.

In 2025, the State Bank will remove the credit room for foreign banks, non-bank credit institutions..., only applying to commercial banks. This is a stage in the removal roadmap. The State Bank will have solutions suitable to the actual conditions of Vietnam to both stabilize the macro economy and control inflation. The State Bank will carefully study and evaluate policies to remove the credit room.

Associate Professor, Dr. Nguyen Huu Huan - University of Economics, Ho Chi Minh City:
Credit management by room is no longer suitable.

Credit management by granting credit limits has been maintained for a long time. Therefore, the State Bank should also consider abandoning it, because although credit room management is effective, it is an administrative measure and is no longer appropriate. However, the historical lesson of hot credit growth from 2007 to 2010 leading to high inflation is still there and the State Bank had to use credit room to regulate the flow of money into the market.

Vietnam's monetary policy is currently multi-targeted, promoting economic growth, stabilizing exchange rates, but still controlling inflation. The currency market is volatile, so when removing the credit room, the State Bank needs to apply quantitative models, use data and use Artificial Intelligence (AI) technology for analysis to be able to manage. Otherwise, shocks to the economy like in 2008, inflation increased sharply due to excessive credit loosening.

Economist, Dr. Le Hong Phong, former General Director of LPBank:
Time to consider removing credit room

Credit is growing in the right direction and is expected to continue to increase strongly in the last months of the year. Therefore, it is appropriate for the State Bank to consider removing the credit room in the near future.

Previously, the annual credit room allocation at a certain rate sometimes led to the situation of not using up the limit. Some banks, because they did not use up their credit room, had to find every way to meet the target at the end of the year to qualify for the State Bank to grant the following year a credit room equal to or higher than the previous year. Eliminating the credit room will overcome the situation of uneven room usage.

When there is no more credit room, banks will base on their financial capacity, risk management ability and business strategy to decide the scale and growth rate of outstanding loans. From there, capital will flow into areas with high demand and great growth potential such as manufacturing, export, high-tech agriculture, clean energy, infrastructure...

Thanh Nga recorded

Source: https://hanoimoi.vn/bo-room-tin-dung-can-co-lo-trinh-708467.html