Key concerns emerging in wake of rate hikes

The State Bank of Vietnam (SBV) resumed net liquidity injections of approximately $1.85 billion during the week of January 26-30, as overnight interbank rates began to edge up again. Previously, the overnight rate had maintained a steady downward trend throughout the first three weeks of January, falling by more than five percentage points from the beginning of the month to 2.6 per cent on January 22.

However, the SBV’s substantial net withdrawals of $5.56 billion during the first three weeks of the month exerted pressure on system liquidity, prompting the overnight rate to rebound to 5.6 per cent by month-end. This development underscores the sensitivity of short-term banking system liquidity to regulatory operations, particularly during periods of rising funding demand.

At longer tenors, interbank rates have remained elevated. Rates for maturities ranging from one week to one month are currently fluctuating between 6 per cent and 7.45 per cent. Notably, the six-month tenor has stayed above 7 per cent since December 2025 and is currently at 7.45 per cent, reflecting persistent medium- and long-term funding pressures.

Against this backdrop, deposit rate movements among commercial banks have begun to diverge. After raising deposit rates by as much as 0.7 percentage points per annum last month, Sacombank unexpectedly cut rates across all tenors, becoming the first bank in February to revise its rate schedule. Significantly, it has introduced a tiered savings rate mechanism based on deposit size for the first time, effectively narrowing the pool of customers eligible for the highest rates.

In contrast, ACB continued to increase online deposit rates by 0.1 percentage point at selected tenors, extending a series of flexible upward and downward adjustments in the final week of January. The divergent moves highlight increasingly flexible funding strategies among banks, reflecting differences in liquidity needs and funding structures.

Interest rate developments are not merely a short-term policy matter but are also drawing investor attention on the 2026 outlook.

Interest rates under growing pressure as credit expansion outpaces deposits.

At an investor meeting on February 2, Luu Trung Thai, chairman of MBS's board of directors, noted that deposit rates ticked up slightly at the end of 2025, while lending rates remained stable. Entering 2026, MB expects lending rates to be maintained at reasonable levels, with differentiation across sectors and risk profiles, as higher-risk industries are unlikely to benefit from low borrowing costs.

“Overall, interest rates for the economy will be kept at appropriate levels to support capital mobilisation, encourage investment, and stimulate consumption, which remain key policy priorities of the government. Under the current policy orientation, including in the real estate sector, together with more calibrated credit growth, both deposit and lending rates are likely to remain stable,” Thai said.

Earlier, at an Investor Day event in late January, Le Anh Tuan, CEO of Dragon Capital, said that although inflation in 2025 was contained at 3.5 per cent, interest rates have risen significantly from their trough and are approaching levels seen in 2020-2021. He added that rates in 2026 could peak in the first quarter before stabilising and easing slightly to support growth.

Despite expectations of stable lending rates, money market developments, particularly in the interbank segment, reveal structural constraints within the credit system. According to Tran Thi Kieu Oanh, head of Banking Research at FiinGroup, the banking system remains the primary capital conduit for the economy, especially for small and medium-sized enterprises, making economic growth heavily dependent on credit expansion.

However, Oanh warned that a growth model largely reliant on credit expansion is nearing its safety limits. If credit growth is maintained at around 16 per cent annually to support GDP growth of 8-10 per cent per year, the credit-to-GDP ratio could exceed 180 per cent by the end of the decade.

“After 2030, this ratio could approach or surpass 200 per cent. Such leverage would far exceed the safe threshold for an emerging economy, heightening risks to financial stability and the resilience of the banking system. Amid pressures on capital adequacy ratios, accumulating asset risks, and rising inflation control requirements, continuing to rely on credit expansion to achieve high growth is no longer a sustainable option,” Oanh said.

“This suggests that future growth cannot continue to be primarily financed by bank credit but requires a fundamental shift towards alternative capital channels.”

Oanh noted that credit composition remained heavily skewed towards short-term lending, accounting for more than 55 per cent of total outstanding loans, while the share of medium- and long-term lending has shown little improvement from 2022 through the first half of 2025.

“This reflects a maturity mismatch between medium- and long-term funding needs of the production and investment sectors and the banking system’s funding capacity. Such maturity mismatches are not cyclical but structural constraints of bank-based credit. Therefore, banks are not well suited to shoulder the role of long-term financiers for sustained high growth,” she said.

As Vietnam moves towards a more market-based credit allocation mechanism and gradually reduces the role of administrative credit quotas, the capital adequacy ratio (CAR) is emerging as the core instrument for controlling credit growth.

In practice, with the system-wide CAR hovering close to the regulatory minimum, banks have significantly increased bond issuance from around $7.72 billion in 2023 to roughly $17.04 billion in 2025, while equity capital increases in 2025 reached only around $860 million, concentrated mainly in the fourth quarter. This indicates that room for expanding medium- and long-term credit is currently driven largely by debt funding rather than core equity capital, posing significant challenges to the sustainability of credit growth going forward.

The funding structure of commercial banks reveals similar constraints. Short-term deposits account for nearly 90 per cent of total deposits, while medium- and long-term deposits represent a tiny share with no clear improvement trend.

The ratio of short-term funds used for medium- and long-term lending has approached the SBV’s regulatory ceiling, limiting room for long-term credit expansion from both liquidity and prudential perspectives. Although total credit outstanding continues to grow, its conversion into medium- and long-term funding is constrained by deposit structure rather than by credit demand.

“This indicates that banks can support growth in the short term, but are unlikely to serve as the primary long-term capital pillar for sustained high growth. In this context, diversifying long-term capital mobilisation channels beyond the banking system becomes a necessary condition to support private investment and ease pressure on banks,” Oanh added.

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