For many years, the State Bank of Vietnam (SBV) has utilized credit room as a regulatory “valve” to manage the flow of capital and control the rate at which money is injected into the economy, thereby ensuring macroeconomic stability. However, this administrative mechanism has largely fulfilled its historical mission and is now revealing numerous shortcomings.
According to Assoc Prof Dr Dinh Trong Thinh from the Academy of Finance, credit room should only be viewed as a temporary administrative tool. “Prolonged maintenance distorts the natural flow of credit, diminishes market principles, and stifles the competitive drive among banks”, he argued.
Echoing this stance, Dr Nguyen Tri Hieu analyzed that a credit room system weakens a bank’s internal motivation for reform. When a bank can simply “request” a higher quota instead of having to improve its risk management capabilities to achieve sustainable growth, the policy inadvertently stifles the impetus for enhancing operational quality.
General Secretary Nguyen Quoc Hung of the Vietnam Banks Association deemed the abolition of credit room an essential step, signifying a transition in monetary policy from an administrative approach to one that is more market-based, transparent, and modern.
“This reform will promote healthy competition in capital provision, compelling weaker banks to innovate in order to survive”, he stated. “For businesses and citizens, it helps minimize the risk of sudden disruptions to their capital supply, thereby supporting the recovery of investment and consumption.”
From the perspective of commercial banks, Le Thanh Tung, a Board Member at VietinBank, noted, “The SBV is amending regulations to help commercial banks approach international risk management standards like Basel III, which would require them to increase capital correspondingly if they wish to expand their lending. The banks are prepared to comply.”
Deputy General Director Tran Hoai Phuong of HDBank added that in an economy requiring a breakthrough, strong credit growth is vital. He believes abolishing credit room will create a positive psychological effect, empowering banks to be more proactive and making capital more accessible for businesses.
Director Pham Chi Quang of the SBV’s Monetary Policy Department provided historical context. The credit room mechanism was first applied in 2012 to rein in “hot” credit growth, which in some prior years had exceeded 54 percent. This runaway growth pushed many credit institutions to the brink of illiquidity, compelling the SBV to use administrative measures to curb unhealthy interest rate competition and prevent systemic risk.
As stated by Dr Vo Tri Thanh, President of the Institute for Brand and Competitiveness Strategy, eliminating administrative tools in credit management is not merely a technical policy adjustment but a significant leap forward in financial and banking institutional reform. It helps unleash capital flows, enhances the financial system’s competitiveness, attracts foreign investment, and bolsters national prestige.
However, the effective replacement of credit quotas hinges on having a smart surveillance system with interconnected data and early risk-warning capabilities.
More recently, the SBV has started adjusting its credit allocation. Since early 2024, it has assigned credit targets with greater control. As of the beginning of this year, credit room was completely removed for foreign banks and non-bank financial institutions, with the system now only applying to domestic commercial banks.
“Moving forward, the SBV will meticulously study and evaluate the policy’s impact to report to the Government on a roadmap toward the complete abolition of credit quotas”, said Director Pham Chi Quang. “The SBV will formulate a comprehensive management policy tailored to Vietnam’s unique conditions, ensuring the banking system’s autonomy while effectively controlling inflation and maintaining economic security.”
International organizations, including the International Monetary Fund (IMF), have recommended that should credit quotas be abolished, the SBV must adopt a more proactive stance in managing interest rates. This transition requires the synchronization of multiple factors, including the legal framework, supervisory capacity, financial safety standards, and the development of alternative capital channels.
Dr Can Van Luc, Chief Economist at BIDV, added that the SBV can still effectively control credit growth via the Capital Adequacy Ratio (CAR), which requires banks to increase their equity in proportion to any desired increase in lending.
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