Prime Minister Le Minh Hung is scheduled to meet representatives of the banking sector and businesses today, August 13.

One requirement repeatedly emphasized by the Government in recent months is to continue reducing the cost of capital and achieve meaningful cuts in lending rates. The State Bank of Vietnam (SBV) has been tasked with managing monetary policy proactively and flexibly to facilitate lower rates, while credit institutions have been asked to cut costs, improve productivity and reduce intermediary expenses.

The task is becoming increasingly important as high interest rates remain an obstacle for businesses while the demand for capital needed to pursue double-digit economic growth continues to rise.

Credit is growing faster than deposits

By July 31, outstanding credit across the economy had reached nearly VND20.3 quadrillion, up 8.98% from the end of 2025, according to the SBV.

SBV officials said demand for capital, particularly medium- and long-term financing for major projects, is substantial. Yet funding mobilized by credit institutions is predominantly short term and is growing more slowly than credit.

This is putting increasing pressure on interest rates and making the task of simultaneously supporting economic growth and maintaining macroeconomic stability more difficult.

Credit has been outpacing deposit growth for years. According to Pham Chi Quang, Director General of the SBV’s Monetary Policy Department, average credit growth exceeded deposit growth by 3.8 percentage points between 2021 and 2025.

By mid-June this year, credit was still growing around two percentage points faster than deposits. The banking system’s loan-to-deposit ratio, or LDR, had risen to approximately 112-114%.

The SBV maintains that liquidity in the banking system remains ample and that banks’ ability to meet payment obligations is secure. But having sufficient immediate liquidity does not necessarily mean that long-term funding is equally abundant or inexpensive.

The faster credit grows relative to deposits, the more aggressively banks must compete for funding. That makes it difficult for the cost of their funding to fall as quickly as the lending rates the Government wants to bring down.

To increase banks’ capacity to supply capital, the SBV has adjusted several regulations. The proportion of State Treasury deposits that can be included in calculating LDR has been raised to 50%, while the maximum share of short-term funding that banks may use for medium- and long-term lending has been increased to 40%.

These adjustments could enable the banking system to meet an additional VND1.7 quadrillion in financing demand from 35 key projects.

However, greater lending capacity does not mean that the banking system’s supply of long-term capital has increased by a corresponding amount. Using more short-term funding for medium- and long-term loans also increases maturity-mismatch pressure on banks.

Where will VND38.5 quadrillion come from?

From the North-South high-speed railway and new railway lines to metro systems, ring roads, expressways, power projects, nuclear power plants, airports, seaports and thousands of real estate developments, numerous large projects have either been approved or included in approved master plans.

A preliminary calculation of the capital required for major announced projects and programs puts the figure at approximately $670-690 billion.

This is not an amount that needs to be raised within a single period. Rather, it illustrates the sheer scale of the projects now being implemented or planned.

Vietnam’s total social investment requirement for 2026-2030 is considerably larger, at around VND38.5 quadrillion, equivalent to nearly $1.5 trillion and more than double the figure for the previous five years. According to the Ministry of Finance, the investment-to-GDP ratio will need to rise from around 33% to approximately 40%.

Much of the financing demand for major projects has yet to reach its peak, even though pressure on bank funding has already emerged.

Fitch Ratings forecasts that bank credit in Vietnam could reach around 155% of GDP in 2026, three times the 52% median for BB-rated economies. It has warned that prolonged high credit growth could lead to capital misallocation, inflate asset prices and encourage speculation.

The question, therefore, is not simply how to reduce interest rates. It is also where VND38.5 quadrillion will come from, over what maturities and at what cost.

Who pays for lower interest rates?

Cost cutting, digital transformation and productivity improvements can give banks additional room to lower lending rates, but they are unlikely to fully offset rising funding costs.

Banks can also reduce their profit margins to share some of the burden with businesses. But commercial banks are businesses themselves: they must remain profitable, preserve capital, make provisions for risks and maintain depositors’ confidence.

Preferential credit packages therefore raise a practical question: who absorbs the cost of the interest-rate reduction?

If the State wants to support particular sectors in pursuit of development objectives, interest subsidies or credit guarantees could be considered. Such measures, however, must target the right beneficiaries and be implemented under effective controls.

Full transparency over borrowing costs, rather than simply publishing headline interest rates, could also help businesses choose better sources of financing while strengthening competition among banks.

But a broader question remains: where will cheap capital come from?

Finding more sources of long-term capital

The SBV can continue supporting liquidity to create conditions for lower interest rates, but it cannot loosen monetary policy too aggressively when average CPI in the first seven months has risen 4.39% and the exchange rate remains under pressure.

Injecting too much money into the economy could simply shift pressure from interest rates to inflation, the exchange rate or asset prices. Lowering interest rates must therefore go hand in hand with maintaining inflation control, exchange-rate stability and broader macroeconomic balances.

The portion of financing demand that banks cannot reasonably meet needs to be mobilized increasingly through other channels.

Outstanding government bonds currently equal nearly 22% of GDP, while idle State Treasury cash exceeds VND1.4 quadrillion.

Those Treasury balances cannot simply be invested or lent directly to businesses. But their scale illustrates why public cash-flow management and coordination between fiscal and monetary policy will become increasingly important as the economy’s financing needs grow.

Capital markets also need to play a larger role.

Infrastructure projects with lifespans stretching across decades should rely more heavily on government bonds and other sources of long-term financing. Businesses need to raise more equity, issue bonds and tap capital markets rather than relying too heavily on bank credit. Public funds can also serve as seed capital to crowd in additional private investment.

A railway, power plant or metro system requiring financing over several decades should not have to compete excessively for the same pool of capital as a manufacturer seeking a one-year loan to purchase raw materials, pay wages and expand orders.

The nearly $1.5 trillion in investment required over five years shows that Vietnam’s demand for capital will remain enormous.

Banks will continue to play a vital role, but projects with lifespans measured in decades also need financing with matching maturities.

As those sources of long-term capital expand, pressure on bank credit could ease. That, in turn, would create more favorable conditions for interest rates to settle at a lower level.

Tu Giang