Governor Nguyen Thi Hong: Rising Credit-to-GDP Ratio Poses Risks to Banking System and Economy

Speaking during the interrogation session of the Minister of Finance this morning (June 19th), the Governor of the State Bank of Vietnam (SBV), Nguyen Thi Hong, stated that Vietnam’s economic growth currently relies heavily on capital, but the efficiency is not high, as reflected by the high ICOR compared to the region. This indicates that capital utilization needs to be further enhanced.

“Vietnam attracts a lot of foreign investment, but we have not taken advantage of the benefits of capital, technology transfer, management skills, and there is a lack of connection between foreign-invested enterprises and domestic enterprises,” said Hong.

Therefore, the Governor suggested that it is necessary to renew the strategy of attracting FDI in the direction of promoting technology transfer, management, and stronger links with the domestic economy.

Agreeing with the opinion of the Minister of Finance that high economic growth requires both domestic and foreign capital, the Governor said that foreign capital is diverse, including FDI, FII, and foreign loans. With the current public debt and foreign debt targets, Vietnam still has a lot of room to borrow from foreign sources, reducing the dependence of domestic capital on bank credit.

Specifically, according to the Governor, domestic capital is currently heavily dependent on the banking system, including both short-term and medium and long-term capital. By the end of 2024, credit outstanding/GDP had reached 134%, and a further increase would pose risks to the banking system and have adverse effects on the economy, making it difficult to achieve the goal of high and sustainable economic growth.

“This is an issue that ministries and sectors, especially the Ministry of Finance, need to pay attention to in the coming time when balancing capital for high economic growth targets,” the Governor requested.

The leader of the SBV also said that the domestic investment capital demand in the coming time is very large. From now to 2030, the vision to 2045, and especially by 2030, it is expected to implement many projects with large investment capital, for example, building an additional 2,000 km of highways (currently implementing the North-South Expressway project with a large total investment capital), investing in building many airports, seaports, Power Development Plan VIII…

The Governor recommended that, from now on, the ministries and branches need to calculate capital mobilization, borrowing and debt payment capacity, capital allocation schedule, capital reserve… to ensure that it does not create great pressure and macro risks.

Regarding the banking sector, to achieve the GDP target of over 8% this year, the credit growth target set by the SBV for this year is about 16%. The Governor said that this target will be controlled and adjusted to suit the actual situation. The monetary policy will also be flexibly and reasonably operated to contribute to curbing inflation, stabilizing the monetary market, and ensuring the safety of the banking system.

“In the context of a highly open economy, the management of monetary policy has made many efforts in the past time. In the future, the SBV will continue to closely monitor the situation to implement management tools, timing, and dosage reasonably to curb inflation, stabilize the macro economy, stabilize the monetary and foreign exchange market, and ensure the safety of the banking system. This is the fundamental point because if the macro economy, monetary and foreign exchange fluctuate as in the past, it will be very difficult for businesses to develop,” said the Governor.