The rapid credit growth rate of the banking system is increasing risks and this level may be even greater as the Government prepares to lift the credit ceiling for many years, Fitch Ratings warned.
Credit growth will continue to accelerate which is already very high leading to a huge financial leverage level, said Mr. bra brace Tanoto, Senior Director of Fitch Ratings, Asia-Pacific financial institutions. He said that the outlook for the banking industry is currently assessed by Fitch as central to positive, but he personally was much more concerned in the past 6,12 months than in the past 5 years.
Prime Minister Pham Minh Chinh recently requested the State Bank to develop a roadmap to eliminate credit growth limits for banks from 2026. This move is part of a bid to achieve the growth target of 8% this year and maintain the rate of 10% per year for the next 5 years.
According to the World Bank, credit increased by 18.1% in the first half of the year. The State Bank estimates that total credit in 2025 can increase by 19%20%. Fitch also forecasts credit growth of about 18% next year, even as the policy on limits remains unchanged.
The "hot" credit expansion rate has contributed to making Vietnam one of the fastest growing economies in the world, with an increase of 8.2% in the third quarter compared to the same period. However, at a forum in Hanoi, Mr. Tanoto noted that credit has increased faster than GDP for many consecutive years and the credit density could reach 145% of GDP by the end of this year a leverage level that is considered unusual for a developing economy like Vietnam. This makes the system more vulnerable, although the risk is unlikely to appear in the short term.
However, Fitch believes that Vietnam still has many bright spots: Positive medium-term growth prospects, lower debt levels than the countries in the same ranking, and a relatively favorable foreign debt structure.
The State Bank, in recent statements, said it will continue to control credit flows into high-risk areas.
Ms. Pham Thi Thanh Tung - Deputy Director of the Credit Department - said that the management agency requires credit institutions to prioritize capital for production - business, priority sectors and growth drivers, while expanding consumer lending and strictly controlling capital flows into risky industries.
The system's asset quality is generally stable, with the bad debt ratio of 27 major banks increasing to 3.8% in the first quarter, according to the World Bank's September report. However, the report also warns that potential risks still exist due to debt extension, restructuring and reduced reserve ratio.
Mr. Tanoto commented that Vietnamese banks still have two structural weaknesses: High-risk appetite and thin capital buffer. Although profits are stable, most of them are retained to nurture rapid asset growth, limiting the ability to increase capital buffer. Risk reserves are also considered not enough to predict, as many banks still only meet the minimum level.
Credit is unlikely to slow down in the coming time. To achieve the growth target of more than 8% in 2025, the economy needs to increase by at least 8.4% in the fourth quarter of this year.
