Investing
Expert assesses credit-related development challenges
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| Phan Duy Hung |
From 2020 until present, the ratio of outstanding credit balance to GDP in Vietnam has always exceeded 110 per cent and steadily increased. What is your assessment of this?
The increasing ratio of total credit over GDP nominal shows a strong relationship between credit growth and economic growth in Vietnam.
This means that domestic businesses depend mainly on funding from banks to operate. It will take a long time for domestic businesses to accumulate capital and strengthen their balance sheets.
An excessively high credit-to-GDP ratio may pose risks such as increased bad debts, the risk of high inflation and the risk of financial and real estate asset bubbles.
Examples of high credit growth that led to higher inflation were the 2007-2008 and 2009–2011 periods. The problem was that domestic businesses could not absorb a large amount of funding from loans for business expansion but used it to speculate on real estate and financial assets. That led to the financial asset bubble with high inflation.
Current credit policies are geared towards supporting high GDP growth. What are the potential risks of this approach?
The first challenge lies in the structural maturity mismatch in the banking sector. While banks are primarily funded by short-term deposits, we are seeing robust demand for longer-term corporate lending, particularly with increased public disbursement.
Liquidity issues in the banking system have been a growing concern, particularly for small banks. As loan growth increases, we expect deposit competition to intensify, and small banks that rely heavily on short-term market funds and have weak liquid asset buffers to be vulnerable to higher funding costs and liquidity challenges
Added to this, Vietnam’s credit market remains highly bank-centric. Bank loans are the dominant financing channel, whereas long-term funding from corporate bond market accounts for less than 10 per cent of GDP. This is significantly lower than regional peers such as Singapore, Thailand, and Malaysia, where corporate bonds contribute over 15 per cent of GDP. A more diversified funding base with growing domestic corporate bond market would help ease some of the liquidity pressures for banks.
The rapid credit expansion into higher-risk sectors, such as real estate and construction, as well as governance risks continues to be key concerns for banks’ asset quality. Over the past three years, credit exposures to these sectors have grown at a compound annual rate of 18 per cent, significantly outpacing overall sector credit growth of 13-14 per cent.
In addition, many banks have close linkages to corporate groups, particularly in real estate. As we have learned from recent incidents, these governance issues begin when certain individuals who hold influential positions in banks and corporate groups – either as shareholders or board members – manage to direct bank resources for their own personal interests.
These close linkages create significant operational risks for banks and amplify their vulnerability to large corporate failures, entailing shifts in market sentiment and runs on their customer deposits.
How does high credit growth, as a tool for stimulating economic expansion, impact inflation? What is the risk outlook for inflation this year?
Higher credit growth is typically reflected by an increasing money supply in the economy, making credit more accessible.
As a result, consumers and businesses are more likely to borrow and spend. More money to the market can also lead to higher prices for investment assets such as real estate and stocks. This situation creates a wealth effect, where people feel richer and spend more, further increasing demand. This increased demand for goods and services can drive up prices, leading to inflation.
We view inflation to be manageable in 2025 due to the strict control of the SBV over banks and a stable commodity market. SBV Governor Nguyen Thi Hong stated at the government standing conference on February 11 that the central bank would closely monitor credit growth trends, if inflation is kept at a low level, it will adjust the credit growth target upwards, and vice versa.
The official target for 2025 from National Assembly is an average consumer price index increase of 4.5 per cent, higher than in 2023 when it stood at 3 per cent. This is a signal that the authorities accept higher inflation at an acceptable threshold and are aware of the risk from a higher credit growth target.
Additionally, the stable trend of global commodity prices (such as crude oil, fertilisers, metal, and rice) in the fourth quarter of 2024 and early 2025 will support the stable cost of manufacturing production and balance the risk of increasing credit.
At a government press conference in January, SBV Deputy Governor Dao Minh Tu revealed that average credit growth of 2 per cent contributes to a 1 per cent increase in GDP. How can Vietnam sustain economic growth without relying too heavily on monetary policy?
Increasing credit aims to support domestic businesses, helping them recover and grow post-pandemic. To limit the spillover effect of more money in the market, credit needs to be directed towards productive sectors that can stimulate economic growth.
After various policy changes in 2024, the government’s priority in 2025 will focus more on public investment to stimulate the economy. We view public spending, FDI, and exports as key to maintaining Vietnam’s robust economic outlook and momentum to achieve the National Assembly’s 2025 GDP growth target.
The event presented key topics including international standards and technological solutions for carbon emissions’ management, environmental, social, and governance policy evaluation based on global standards, and the application of technology in optimising operational costs.
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| ACCA event highlights technology’s role in sustainability practices |
The conference served as a platform for future-oriented businesses to share their successes and challenges while fostering collaboration among those committed to sustainability.
During the conference, Ren Varma, ACCA’s head of Mainland Southeast Asia, delivered in-depth insights into ACCA’s role in supporting businesses in building sustainable development capabilities.
Citing 2024 trade figures, Varma noted that Vietnam’s import-export turnover maintained unprecedented levels over the past 40 years, supported by the enforcement of over 17 trade agreements.
Vietnam-EU trade exceeded $67 billion, with numerous domestic enterprises integrating into European and global supply chains.
“Implementing sustainability reporting is imperative for Vietnamese firms participating in global supply chains to comply with Europe’s mandatory sustainability disclosure regulations. The key challenge is how businesses can effectively implement sustainability reporting with existing resources while meeting international standards,” said Varma.
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| Ren Varma, head of Mainland Southeast Asia, ACCA. Photo: ACCA Vietnam |
Representatives from various other organisations, such as VACPA, FPT, Unilever, HDBank, PwC, and the University of Economics in Ho Chi Minh City shared their experiences in leveraging technology for sustainability.
These real-world case studies enabled participants to gain practical insights into how best to apply technology to sustainable management, while understanding the essential competencies required for effective implementation.
At the event, experts reaffirmed their commitment to enhancing capabilities and professional expertise in achieving national sustainable development goals and the target of Net-Zero by 2050.
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| Photo: ACCA Vietnam |
ACCA pledged its continued support by launching the Professional Diploma in Sustainability (ProDipSust) across more than 180 countries, including Vietnam. This initiative aims to equip professionals with the necessary expertise to implement sustainable business practices.
ProDipSust not only provides in-depth knowledge on sustainability but also guides businesses on practical applications, from understanding international frameworks and regulations to strategic management, sustainability reporting, and assurance.
Recognised as a globally standardised knowledge framework, this diploma plays a crucial role in strengthening corporate sustainability governance, ensuring transparency, and complying with international standards.
Beyond offering training programmes, ACCA actively collaborates with leading organisations to drive sustainable development initiatives.
Beyond offering training activities, ACCA collaborates with major organisations to drive sustainability initiatives. In this seminar, ACCA Vietnam, in partnership with VACPA and PwC Vietnam, established a highly practical forum to help Vietnamese firms align with international standards and devise effective sustainability strategies.
Ren Varma underscored the critical role of finance and accounting professionals in advancing sustainable development, saying, “Financial expertise is not just about financial reporting, it plays a fundamental role in shaping sustainable strategies. Finance professionals are responsible for integrating sustainability initiatives into business models, accurately measuring their impact, and transparently communicating them to stakeholders. ACCA’s certification serves as a vital tool for businesses and individuals to enhance their expertise in this field.”
“With a strong commitment to fostering sustainability competencies, ACCA will continue to support businesses and financial professionals on their journey towards a responsible and sustainable economy,” he added.
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Ho Chi Minh City has announced plans to develop infrastructure along the Saigon River towards the East Sea. Photo: Le Toan |
Talking with VIR on March 4, Doan Manh Thang, director of water and resilience at Royal HaskoningDHV Vietnam, said the Saigon River has great potential but has not been exploited properly. The plan will map out a waterway from Cu Chi to the city centre.
Royal HaskoningDHV is the leader of a consortium that includes Boston Consulting Group, Roland Berger, the Ministry of Construction, and ACUD Consult that has been tasked with developing this plan which was approved by the prime minister on December 31, 2024.
The plan aims to develop Ho Chi Minh City into a hub of high-quality human resources, modern services, and advanced industries, pioneering in the green economy, the digital economy, and a digital society. It will also maintain its position as Vietnam’s leading centre for economy, finance, commerce, culture, education, and science and technology, with deep international integration.
“We can build service areas such as marinas and commercial centres along the river, alongside green spaces,” Thang said.
Moreover, a metro line from the city centre to Can Gio Island could act as the driving force for the city to reach double-digit growth, he confirmed.
Can Gio Port, meanwhile, is strategically located opposite Cai Mep-Thi Vai Port – the largest international port in Vietnam. However, it is only operating at 50 per cent capacity. The government has decided to upgrade Can Gio Port to become an international transit centre, with an estimated investment of $4 billion. The port is expected to handle 10 per cent of Vietnam’s imports and exports, of which 90 per cent will be international transshipment.
According to Phan Van Mai, newly appointed Chairman of the National Assembly’s Economic and Financial Committee and former Chairman of Ho Chi Minh City People’s Committee, the city will strive for regional GDP growth of 8.5-9.0 per year until 2030.
“To effectively implement the plan, the city needs to mobilise resources, attract investment, develop human resources, and apply science and technology, innovation, digital transformation, and environmental protection,” Mai said.
Meanwhile, Thang said that the biggest bottleneck in implementing this plan is the lack of mechanisms to entice capital.
“Public investment is the seed capital to stimulate investment from other economic sectors. In fact, many investors are interested, but the mechanisms for investment must be more detailed,” he said.
A resolution issued in June 2023 grants special mechanisms for the development of Ho Chi Minh City. Meanwhile, in February 2025, the National Assembly issued another resolution for Hanoi and Ho Chi Minh City to invest and develop metro systems. On that basis, Ho Chi Minh City will invest simultaneously and complete seven routes with a total length of 355km within 10 years.
“Initially, the state will have to spend money because it will be difficult to attract investment, but when it starts to take shape, private investors will be looking to spend money to build infrastructure. This would remove the bottleneck, but still requires appropriate policies,” Thang said.
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| Thu Thiem New Urban Area – the new financial and economic hub of Ho Chi Minh City. Photo: Le Toan |
In total, 11 plots covering 9.2 hectares in the Number 1 Functional Area will be used for the project in Thu Duc city.
The location was reported to the local Department of Telecommunications on March 11 to set up a plan to develop telecommunications and digital infrastructure for the centre.
Thu Thiem New Urban Area was approved in 1996 covering 930 hectares on the east bank of the Saigon River and opposite District 1. When completed, the area will have a population of 200,000 people.
The area will be divided into a central core, a northern residential area, a residential area along Mai Chi Tho Avenue, an eastern residential area, and a southern zone.
On January 4, Prime Minister Pham Minh Chinh chaired a conference to announce an action plan to implement a regional and international financial centre in Ho Chi Minh City.
At the conference, PM Chinh said that Ho Chi Minh City is located at the head of Southeast Asia, making it convenient for trade and financial connections with major markets such as China, Japan, South Korea, and ASEAN. Building a financial centre there will help reduce costs and transaction times for traders.
To accelerate the project, early this year, Ho Chi Minh City established a steering committee for the construction and development of the centre with 29 members. The establishment of the international financial centre is expected to create a foundation for the future growth of Ho Chi Minh City. This is also an opportunity for the city to attract international investors and increase foreign investment in various sectors.
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Ho Chi Minh City looks to develop potential of Saigon River
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