Policymakers aim to lower capital costs to support businesses, stimulate investment, and drive high growth targets. Meanwhile, commercial banks continuously launch preferential credit packages and pledge to reduce lending rates for various customer segments.

When LDR is stretched to the limit

However, the marketplace is flashing a different signal: cash within the banking system is no longer abundant, while the economy's demand for capital grows heavier.

According to a State Bank of Vietnam representative, by the end of April 2026, the entire system's outstanding credit exceeded VND19.4 quadrillion, up over 18 percent year-on-year. Consequently, the gap between lending and deposits has widened to approximately VND2 quadrillion.

According to SSI Research, the actual loan-to-deposit ratio (LDR) has risen to around 112 percent, far exceeding the 85 percent threshold. Even the Big4 group is approaching the regulatory liquidity limit. That shows cash flow in the system is being stretched to meet the economy’s capital needs.

However, the notable point is that deposits are starting to move out of banks. According to Q1/2026 financial reports, many banks recorded sharp declines in customer deposits. BIDV alone saw deposits fall by more than VND80 trillion in just one quarter, even though deposit rates have edged up in many places.

One reason for this situation, according to Dr. Le Xuan Nghia, a respected economist, relates to the confidence of household businesses.

He explained that many household businesses are now tending to hold cash or withdraw money from banks amid concerns over taxes and policy risks. “In just the first 2 months of 2026, the amount of money withdrawn from the banking system equaled the total for all of 2025. Most of that money belongs to household businesses,” he said.

When money starts leaving the system, banks are forced to increase competition for deposits to maintain liquidity, and the ability to cut lending rates sharply also becomes much harder.

When people start feeling uncertain about the policy environment or the future of the currency they hold, money flows shift very quickly. People hold cash, gold, or seek other assets, while banks must keep deposit rates attractive enough to prevent further outflows.

Monetary policy is running out of room

Meanwhile, the scope to cut interest rates now is limited because exchange rate and inflation pressures remain. The Fed continues to keep rates high, the USD is strengthening, Vietnam has returned to a trade deficit, and CPI has already exceeded the National Assembly’s full-year target.

Therefore, running monetary policy now is almost like walking a tightrope. On one hand, if rates are cut too aggressively, exchange rate and inflation pressures could return. But on the other hand, if rates stay high for too long, businesses will remain in difficulty and aggregate demand will weaken further.

High interest rates have already started impacting the real estate market, with many home loans after promotional periods now at 15–16 percent per year. But this is no longer just a housing market story; it reflects that the economy’s overall cost of capital is high.

The bigger problem is not a few percentage points of interest, but that the economy is living on bank credit.

Credit volume now equates to roughly 150 percent of GDP, while the corporate bond market accounts for a mere 10 percent of GDP, representing only 7-8 percent of total outstanding bank credit.

In developed economies, the capital market shares the funding burden with banks. In Vietnam, every capital requirement eventually funnels back to commercial banks. From real estate and infrastructure to manufacturing, everyone waits for credit, even though roughly 80 percent of mobilized capital is short-term funds used for medium- and long-term loans.

In other words, Vietnamese banks are acting as the entire capital market. After years of pumping credit to ‘buy’ growth, monetary policy has seemingly run out of ammunition.

For years, whenever the economy faced difficulties, the familiar solution was expanding credit, cutting interest rates, and pumping more capital through the banking system. However, with credit already soaring to approximately 150 percent of GDP, the deposit-to-loan gap widening, and deposit flows beginning to shift, the capacity for aggressive monetary easing like before will become far more difficult.

According to Ministry of Finance calculations, total investment capital demand for the 2026–2031 period is estimated at VND38.5 quadrillion, with 2026 alone requiring VND5.1 quadrillion, including an expected VND 1.8 quadrillion in credit.

Tu Giang