Vietnam central bank says will prioritise growth, sees big credit expansion

Vietnam's central bank projects credit growth of 19-20% this year and targets 8.3-8.5% GDP expansion, prioritizing economic growth while maintaining stability amid global uncertainties. Officials are pushing for further cuts to commercial lending rates and plan to tightly control non-performing loans and lending to risky sectors, despite warnings from academics about potential asset price bubbles from rapid credit expansion.

Analysis

Vietnam's central bank is pursuing an aggressively expansionary monetary policy, targeting 19-20% credit growth for the year to fuel ambitious GDP expansion of 8.3%-8.5%, a significant acceleration from the 7.09% growth rate achieved last year. With bank lending already up 13.37% as of September 29, the policy is well underway, supported by central bank calls for further cuts to commercial lending rates. However, this pro-growth stance is tempered with caution. Officials acknowledge unpredictable global risks, including US tariff policy and geopolitical conflicts, as a basis for maintaining stability. Concurrently, the State Bank of Vietnam intends to tightly control lending to risky sectors and prevent a rise in non-performing loans, directly addressing warnings from academics about the potential for asset price bubbles fueled by such breakneck credit expansion. This creates a dual mandate of driving rapid growth while attempting to mitigate the associated financial stability risks.

Key Decisions for Investors

• The central bank's commitment to high credit growth and lower interest rates presents a strong tailwind for the Vietnamese economy, warranting consideration of an overweight allocation to Vietnamese equities, particularly those in credit-sensitive sectors like financials, real estate, and consumer goods.
• Investors must closely monitor non-performing loan (NPL) levels and asset valuation metrics, as the explicit risk of asset bubbles could prompt a sudden tightening of credit controls by the central bank if signs of overheating become apparent.
• For exposure to the financial sector, be selective and favor banks with strong balance sheets and lower exposure to 'risky sectors', as they are better positioned to navigate the dual pressures of maintaining loan quality while facing potential margin compression from centrally-pushed rate cuts.