As Vietnam pursues ambitious double-digit growth targets in the coming years, the State Bank of Vietnam’s continued push for commercial banks to lower deposit and lending rates appears almost unavoidable.

In less than two months, the central bank has issued a series of directives, convened meetings across the banking system, and ordered inspections and strict penalties for banks raising deposit rates against official guidance.

On March 30, 2026, the State Bank issued Directive No. 2342 requesting credit institutions to stabilize market interest rates. Then, on April 9, it held a system-wide meeting with banks, calling for lower deposit and lending rates to support businesses and households.

After some banks began raising deposit rates again, the central bank tightened monetary discipline further. On May 14, Directive No. 3972 ordered inspections into the implementation of lower interest rates at commercial bank branches. Just one week later, on May 21, Directive No. 4190 reiterated the need for strict compliance and disciplinary action against violators.

The pace and intensity of these moves reflect the regulator’s strong determination to maintain stable capital costs for the economy.

The reason is clear.

In an economy where total credit has already reached roughly 150% of GDP, interest rates function as the “input cost” for almost all investment and production activities. As Vietnam targets double-digit growth, demand for capital to expand investment and production capacity is expected to rise sharply.

A large amount of money is now tied up in financial assets and real estate instead of flowing back strongly into production and consumption. Photo: Nam Khanh

Against this backdrop, keeping interest rates stable has become a key condition for reducing borrowing costs and sustaining economic momentum.

Yet beneath the goal of maintaining low rates lies considerable liquidity pressure within the banking system.

According to a State Bank representative, by the end of April 2026, total outstanding credit had surpassed VND19.4 quadrillion ($746 billion), up more than 18% year-on-year.

SSI Research estimates the real loan-to-deposit ratio (LDR) has climbed to around 112%, far above the 85% threshold. In other words, the gap between lending and deposits has widened to roughly VND2 quadrillion ($77 billion).

Even the country’s Big4 state-owned banks are approaching regulatory liquidity limits.

What is particularly notable is that most bank funding remains short-term, while demand for medium- and long-term loans - especially for real estate and infrastructure - continues to surge. This has made the financial system far more sensitive to interest-rate fluctuations.

These figures show how stretched liquidity has become as banks struggle to meet massive capital demand in an economy where credit continues to grow faster than deposits.

That is also why the State Bank has repeatedly injected liquidity through open market operations (OMO), supporting the banking system with Vietnamese dong liquidity while urging banks to keep rates low instead of reigniting a deposit-rate race.

But perhaps the more troubling issue is not the central bank’s effort to preserve low interest rates, but the fact that capital flows are still tilting heavily toward assets rather than productive sectors.

In its latest Vietnam economic update, the World Bank noted that real estate credit surged 42% in 2025 - far outpacing overall credit growth across the banking system. About 25.5% of total outstanding loans are now concentrated in real estate, with roughly half of that going to property developers.

Meanwhile, credit growth for manufacturing and agriculture stood at just 12.1% and 9.1%, respectively.

In other words, capital is flowing disproportionately into asset accumulation rather than sectors generating real economic value.

Vietnam is currently experiencing an unprecedented wave of “mega-urbanization.” In 2025 alone, 27 mega urban projects were launched, implemented, or approved, with total investment reaching around $115 billion.

According to the Ministry of Construction, by the end of 2025 Vietnam had around 5.9 million housing units tied to real estate projects, with total investment capital amounting to VND7.42 quadrillion ($285 billion). That figure significantly exceeds the country’s total social investment for the entire year.

This partly reflects the immense scale of Vietnam’s urbanization and asset accumulation process. But it also raises major questions about how efficiently capital is being allocated within the economy.

A vast amount of money is currently parked in financial assets and real estate rather than circulating back into production and consumption as strongly as before.

That is the central paradox of today’s economy: credit growth remains extremely high, yet the productive sector still struggles to access capital, while housing prices in major cities increasingly exceed the purchasing power of younger generations.

In reality, this is also the biggest challenge facing Vietnam’s growth-model transition.

The economy is attempting to shift away from a model driven heavily by credit, assets, and exports toward one based more on productivity, technology, and domestic private-sector development.

But this transition is unfolding precisely when Vietnam must sustain very high growth, undertake massive infrastructure investment, and navigate growing geopolitical uncertainty.

That is why monetary policy now resembles a high-wire balancing act.

If interest rates rise sharply again, pressure would immediately hit businesses, asset markets, and the banking system itself.

But if cheap money is maintained for too long, capital could continue flooding into land and speculative assets, making the economy even more dependent on credit and real estate.

At the same time, there is limited room left for deep rate cuts compared to previous periods, as exchange-rate pressures persist while global US dollar interest rates remain elevated and the VND-USD rate differential narrows.

Still, maintaining high growth cannot come at the expense of macroeconomic stability. Amid ongoing exchange-rate pressure and global volatility, preserving monetary stability and strengthening financial-system resilience remain essential foundations for long-term growth.

Perhaps the biggest question now is no longer whether the economy has enough cheap money, but whether the financial system can effectively channel that money into sectors that generate productivity and real wealth.

Over the long term, Vietnam will struggle to rely primarily on bank credit to finance all of its growth needs.

Developing deeper capital markets - especially the corporate bond market and upgrading the stock market - will be crucial to easing pressure on banks while creating more long-term financing for production, technology, and innovation.

Another important direction is designing mechanisms that channel low-cost capital more effectively into social housing, affordable housing, and productive industries rather than speculative assets.

Programs such as social-housing credit packages and the government’s plan to develop one million affordable housing units reflect efforts to redirect capital toward genuine economic demand.

As Vietnam pursues exceptionally high growth targets, the State Bank’s efforts to stabilize interest rates may be unavoidable.

But over the longer term, the bigger challenge will be ensuring that cheap capital flows more meaningfully into technology, production, and sectors that create real economic value.

Tu Giang