Interest Rate Cut Room Narrows as Vietnam Credit Growth Outpaces Deposits

Overview

Vietnam’s banking system is experiencing reduced capacity for further interest rate cuts as credit growth continues to outpace deposit mobilization, pressuring liquidity. According to the General Statistics Office, as of June 26, 2026, credit growth reached 7.41% while deposits grew only 5.02%, widening the gap to over 2.3 percentage points. This trend is expected to keep interest rates at current levels for the remainder of 2026, with only targeted reductions in priority sectors.

Key Facts

• Credit growth as of June 26, 2026: 7.41% vs. deposit growth of 5.02% (source: General Statistics Office).
• System-wide loan-to-deposit ratio (LDR) stands at approximately 111-112%.
• Average annual credit growth has exceeded deposit growth by about 3.8% over the past five years (per SBV official Pham Chi Quang).
• SBV Governor Pham Duc An acknowledged that interest rate management has been “relatively difficult” due to high capital demand and limited deposit mobilization.
• About 80% of banking system funding is short-term, while corporate demand for medium- and long-term loans is rising.
• SBV is coordinating with the Ministry of Finance to explore foreign capital mobilization and may expand foreign currency lending to importers.
• ACB closed at VND 23,000 on July 21, 2026, flat on the day; BID closed at VND 37,000 on July 20.

What Happened

According to the General Statistics Office’s socio-economic report for the first half of 2026, credit growth of 7.41% significantly outpaced deposit growth of 5.02%, widening the funding gap. SBV official Pham Chi Quang noted that this trend has persisted for about five years, with credit averaging 3.8 percentage points higher than deposits annually. The system’s LDR now exceeds 111%, meaning banks lend VND 112 for every VND 100 in deposits, with the shortfall covered by other sources.

At a recent government-business conference, SBV Governor Pham Duc An stated that interest rate management has been challenging due to strong credit demand and limited deposit growth. He emphasized that when capital is scarce, interest rates naturally rise, affecting both deposit and lending rates. To mitigate upward pressure, the SBV is controlling competition in deposit rates and studying foreign capital mobilization, including potentially expanding foreign currency lending to importers.

Market Context

ACB (HOSE) and BID (HOSE) are among the banks most exposed to interest rate trends. ACB’s stock closed flat at VND 23,000 on July 21, while BID closed at VND 37,000 on July 20. The banking sector has been under pressure as the SBV’s ability to cut rates diminishes, potentially compressing net interest margins. The broader market has been cautious amid mixed economic signals, with credit growth supporting earnings but liquidity constraints limiting upside.

Strategic Significance

The narrowing room for rate cuts signals that the SBV is prioritizing credit growth to support economic expansion over further monetary easing. For banks like ACB and BID, this means lending rates may remain elevated, supporting net interest income, but deposit costs could rise as competition for funds intensifies. The high LDR and short-term funding structure pose structural risks, making banks more sensitive to liquidity shocks. The SBV’s efforts to attract foreign capital and expand foreign currency lending could provide alternative funding sources, but execution remains uncertain.

What to Watch

• SBV policy meeting minutes for any change in interest rate guidance.
• Monthly credit and deposit growth data for the remainder of 2026.
• ACB and BID Q3 2026 earnings reports for net interest margin trends.
• Any announcements on foreign capital mobilization or foreign currency lending expansion.
• System LDR trends and potential regulatory caps on loan-to-deposit ratios.