Reporter: Vietnam’s outstanding credit has frequently exceeded the safety threshold recommended by the International Monetary Fund (IMF) for many years, reaching 134% of GDP by the end of 2024. How do you assess this situation?

Prof. Dr. To Trung Thanh: For many years, Vietnam has maintained high GDP growth, ranking among the fastest-growing economies in the region and the world. However, behind these positive figures lies a reality that deserves attention. Vietnam’s growth model relies primarily on expanding inputs, particularly investment and credit, while lacking a role for science, technology, and innovation. This issue has long been raised, but the growth model has seen little improvement.

To support high economic growth, credit typically grows rapidly. By the end of 2024, economy-wide outstanding credit reached VND 15.6 quadrillion, equivalent to 134% of GDP, far exceeding the IMF’s recommended safety threshold. In the first five months of 2025, economy-wide outstanding credit is estimated to have increased by 6.52%, far above the rate in the same period a year earlier (2.41%). This reflects two major issues in the economy’s growth.

First, the business sector, particularly the domestic private sector, relies heavily on credit financing because it lacks other channels for accessing medium- and long-term capital.

Second, the banking system remains responsible for “shouldering” growth through credit. However, the financial and banking system has yet to achieve sustainable soundness: the capital adequacy ratio (CAR) remains low, asset quality shows signs of deterioration, nonperforming loans are rising, and liquidity pressures persist across the system… Continuing to expand credit rapidly and lower interest rates to support growth could come at the cost of macroeconomic instability.

Both issues result in an unsustainable, risk-prone growth model.

Reporter: With capital demand typically rising sharply in the second half of the year and liquidity pressures becoming a major bottleneck, could you clarify the risks to macroeconomic stability when the banking system still has to supply medium- and long-term capital while relying primarily on short-term funding or even demand deposits?

Prof. Dr. To Trung Thanh: Excessive reliance on bank credit leads to many risks. The first is a mismatch between funding and lending maturities, also known as maturity risk. Banks primarily raise short-term funding, including demand deposits, while most outstanding loans are medium- and long-term. Currently, about 55% of total credit is medium- and long-term, while 80% of funding comes from short-term or demand deposits. This leaves the system vulnerable to liquidity shocks, particularly when market confidence is affected.

Second is the risk of nonperforming loans. When credit grows rapidly but investment efficiency has not improved, the potential nonperforming loan ratio rises, threatening the stability of the financial and monetary system. Pressure for high credit growth to support economic growth may lead to greater “relaxation of credit standards,” resulting in poor-quality loans. In addition, Vietnamese banks’ nonperforming loan coverage ratio fell from 150% in 2022 to about 83% in mid-2025. This indicates that room to respond to credit risk is increasingly limited.

Third, the risk of macroeconomic instability is becoming increasingly apparent. Sharp increases in credit and the money supply, while capital use remains inefficient, will put substantial pressure on inflation; asset prices, particularly real estate prices, tend to be pushed higher; and the U.S. dollar exchange rate also faces mounting pressure. If not brought under control promptly, this financial and macroeconomic instability will spread and negatively affect the real economy.

Reporter: Given the high growth target and substantial capital requirements for long-term projects, do you believe continued credit expansion remains a sustainable path, considering capital absorption capacity, investment efficiency, and the banking system’s resilience?

Prof. Dr. To Trung Thanh: With other resources still limited, continued credit expansion is inevitable as the economy needs to recover and grow rapidly. Given the risks outlined above, credit expansion must proceed cautiously, minimize risks, and rest on fundamental principles: the economy’s actual capacity to absorb capital; the quality of credit flows; and the resilience of the banking system.

Current credit measures are primarily short-term. Credit expansion is truly sustainable only when integrated into an overall strategy for developing financial markets and restructuring the economic growth model.

To meet the economy’s medium- and long-term capital needs, Vietnam must simultaneously develop two key channels: the corporate bond market and the stock market. Both have considerable potential to share the burden of capital provision with the banking system while laying a foundation for dynamic business sector development. Increasing these channels’ share of capital provision will also help create a more balanced financial structure with healthier development.

Reporter: Thank you!