HANOI, VIETNAM – The State Bank of Vietnam (SBV), the country's central bank, is developing a roadmap to pilot the removal of its long-standing credit growth quotas for commercial banks, with the trial phase expected to begin in 2026. This landmark move signals a significant shift away from administrative monetary controls towards more market-based principles, aiming to enhance the flexibility and transparency of Vietnam's rapidly evolving banking sector.
Understanding the "Credit Room" System
For over a decade, the "credit room" or credit growth quota has been a primary tool for the SBV to manage the national economy. Each year, the central bank assigns a specific credit growth limit to every commercial bank, dictating the maximum percentage by which they can expand their loan portfolios.
This top-down administrative measure was initially implemented to control inflation, manage the overall money supply, and direct capital towards priority sectors such as agriculture, exports, and small-to-medium enterprises (SMEs). While effective in curbing runaway credit growth and maintaining macroeconomic stability during certain periods, the system has faced growing criticism for its rigidity. Economists and financial institutions have argued that the quota system stifles healthy competition, creates uncertainty for banks in their business planning, and can sometimes lead to an inefficient allocation of capital.
The Roadmap to a More Flexible Market
The new plan proposes a phased approach to dismantling this system. Instead of a sudden, market-wide removal, the SBV will first implement a pilot program starting in 2026.
The core objective of this reform is to empower commercial banks with greater autonomy. By removing the pre-determined lending caps, banks will be able to make credit decisions based on their own risk appetite, capital adequacy, liquidity, and customer demand. This is expected to foster a more competitive environment where well-managed banks with strong governance and healthy balance sheets can thrive and expand their operations more freely.
In place of the administrative quotas, the SBV will transition towards managing the money supply through indirect, market-based instruments, which are standard practice for central banks globally. These tools include:
- Open Market Operations (OMO): Buying and selling valuable papers to inject or withdraw liquidity from the system.
- Policy Interest Rates: Adjusting key rates like the refinancing rate and discount rate to influence the cost of borrowing for commercial banks.
- Reserve Requirements: Mandating the percentage of deposits that banks must hold in reserve rather than lend out.
Implications and Expectations
The move is widely seen as a crucial step in modernizing Vietnam's financial landscape and aligning it with international standards.
- For Commercial Banks: The removal of credit quotas will be a welcome change for strong, well-capitalized banks, allowing them to pursue more dynamic growth strategies. However, it will also place greater responsibility on their risk management frameworks. Weaker banks may face increased pressure in a more competitive market.
- For the Economy: A more efficient allocation of capital is expected, as loans will flow based on market viability rather than administrative limits. However, regulators will need to remain vigilant to prevent excessive credit growth that could fuel asset bubbles or threaten financial stability.
- For Monetary Policy: This reform represents a significant maturation of the SBV's regulatory approach, moving from direct control to indirect influence, which enhances the central bank's credibility and the overall sophistication of its monetary policy framework.
As the 2026 start date approaches, the financial community will be closely watching for further details on which banks will be selected for the pilot program and the specific criteria they must meet. The successful implementation of this reform is considered vital for the long-term health and sustainable growth of the Vietnamese economy.
