Vietnam’s credit quota seen as safeguard for banking discipline

The State Bank of Vietnam (SBV) has set a credit growth target of approximately 15 per cent for 2026. This is not just a numerical objective, but a signal of how the SBV intends to manage capital flows throughout the year.

The credit quota mechanism remains central to this strategy, with allocation based on individual banks' performance ratings and prioritisation for institutions engaged in system restructuring.

Vietnam’s 2026 credit policy emphasises risk control and directing capital towards production, business activities, and priority sectors.

While the economy still requires growth momentum, policy space must be carefully managed to preserve macroeconomic stability. Therefore, the SBV is taking a coordinated approach – setting overall growth orientation, managing the pace over time, and allocating quotas based on bank performance.

Experiences in 2025 showed a misalignment between planned policy and actual credit expansion.

While initial targets aimed to maintain stability, rising growth pressures towards year-end led to significant credit loosening. This helped support demand but increased systemic risk. When credit growth is front-loaded early in the year, it limits flexibility in later quarters and complicates policy management.

Policy implications

Repeated calls from the Prime Minister last year to remove administrative quotas signal a push for more market-based reform and less dependence on direct intervention.

However, removing quotas is complex and requires robust risk monitoring, governance standards, and effective post-control mechanisms.

With credit remaining a key growth driver, administrative tools are still necessary, especially given uneven risk management capacity across banks.

In this context, the credit limit acts as a macroprudential valve, not to restrict capital but to maintain orderly growth and prevent credit booms driven by market sentiment or short-term stimulus.

The 2026 plan reflects a pragmatic approach – retaining quotas as a regulatory tool while enhancing transparency and discipline in allocation. This gradual process supports the long-term reform goal.

The SBV’s decision to regulate quarterly growth stems from the risk that individual bank incentives – such as early disbursement to grow income and market share – could lead to systemic inefficiencies.

When many banks front-load credit right in the first quarter (Q1), most of the annual quota may be consumed early, limiting support in the second half when working capital needs are higher.

Such imbalance weakens policy transmission and affects business operations, especially during peak production and investment periods.

Hence, rules that limit growth in the first quarter and encourage more balanced quarterly distribution are intended not as rigid constraints, but as behavioural corrections to counter seasonal surges.

The drawbacks of early-year credit growth became clear in 2025. Some banks recorded Q1 credit growth of over 5-6 per cent, exceeding 10 per cent by mid-year.

For instance, SHB grew 9 per cent in Q1 and 14 per cent by Q2’s end. VPBank and HDBank posted growth rates of 20 per cent and 18 per cent, respectively, within the first six months of 2025. As a result, these banks had to proceed more cautiously in later quarters, either reducing credit risk appetite or slowing asset expansion.

This created a mismatch between capital demand and supply during key business periods, potentially hindering production and project implementation.

It also affected monetary markets: with quota constraints tightening liquidity, banks prioritised safety, interest rates came under pressure, and market sentiment became more reactive to quota-related information.

In some cases, the SBV had to adjust quotas to meet growth targets, unintentionally reinforcing the belief that early growth would be rewarded with more quotas later. The quarterly discipline introduced for 2026 seeks to break this expectation – forcing credit growth to be based on quality and stable planning, not just speed.

As disclosed, the 2026 quota framework is still built around performance-based scoring. Banks are rated on a scale of one to five, and this score is multiplied by 2.6 per cent to determine the base credit growth quota.

Adjustments are made for any quota overruns from the previous year. In simple terms, a top-rated bank could receive a baseline quota of approximately 13 per cent before further adjustments.

The 2.6 per cent coefficient has raised concerns that the baseline allocation may be tighter than in previous years. However, this formula is not designed to directly aggregate to the 15 per cent system target.

Instead, it enforces operational discipline: banks with strong performance and compliance receive more room to grow, while those that exceeded quotas in the past face restrictions to discourage unsustainable growth cycles.

To reach the 15 per cent system-wide target, the SBV is expected to make flexible adjustments and prioritise allocation during the year.

Banks participating in mandatory acquisitions of underperforming institutions under special supervision may receive preferential quotas. This reflects the SBV’s use of credit room as a policy incentive – rewarding those that contribute to system stability and restructuring efforts.

Performance-based allocation framework

The allocation method is grounded in the regulatory bank rating framework. Previously, Circular 52 established a scoring system using both quantitative and qualitative criteria to assess safety, soundness, and governance capacity.

This approach allowed risk management and compliance levels to be measured and compared – supporting supervisory decisions, including credit quota allocation.

More recently, this framework has been updated via a new circular, which better distinguishes quality tiers and enhances transparency.

It also aligns closely with risk-based supervision and supports the long-term goal of phasing out administrative ceilings.

As the rating system becomes more reliable, the SBV can gradually shift towards standards-based monitoring instead of direct quota assignment.

What makes 2026 notable is not just the 15 per cent growth target- but the regulatory discipline expected in its execution. While robust credit growth remains essential for strong economic expansion, effective regulation is necessary to ensure that credit is absorbed efficiently into the real economy.

Ultimately, the success of this mechanism depends less on announced numbers and more on how consistently the policy is implemented throughout the year.

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