Vietnam renews rate-cut push as more than 10% lending costs challenge growth financing

VIETNAM’S top leaders are stepping up pressure on banks to lower lending rates as rising funding costs complicate the country’s ambitious growth plans.

This comes as the economy continues to expand at a near double-digit pace.

The latest intervention calls for lending rate cuts of 1.5 to two percentage points for businesses in priority sectors, alongside a reduction of at least 0.5 percentage point in deposit rates for maturities of six months or longer.

Banks must “strictly refrain from racing to raise deposit rates or engaging in unhealthy competition that could destabilise financial and monetary security”, the State Bank of Vietnam said in a Sunday (Oct 18) directive.

The measures come after repeated calls for cheaper credit from Vietnam’s leadership, including a Communist Party directive signed by General Secretary and President To Lam on Oct 15 calling for lower lending rates to support businesses and economic growth.

The renewed pressure highlights a growing tension between Vietnam’s drive for rapid expansion and a banking system struggling to mobilise enough funding to sustain lending.

The economy expanded more than 9 per cent in the first nine months of 2026, after accelerating to a near double-digit rate in the third quarter, official statistics showed.

The government is targeting average annual growth of around 10 per cent until the end of 2030, supported by major infrastructure investments and continued credit expansion.

Outstanding bank credit reached about 20.75 quadrillion dong (US$800 billion) as at end-September, up 11.6 per cent in the year to date.

But deposit mobilisation has struggled to keep pace – an imbalance that analysts said has been building since 2024, forcing lenders to offer higher returns to attract funding. 

Some over-the-counter deposit rates have reportedly exceeded 9 per cent, with certain offers reaching 11 per cent.

In its Oct 12 investment outlook, SSI Research estimated deposit rates at about 8.3 per cent among state-owned banks, 8.8 to 9.4 per cent among leading private lenders and as much as 9.8 to 10 per cent at smaller banks, as lenders increasingly sought longer-term funding.

Higher funding costs have filtered through to borrowers, with some floating mortgage rates reaching 12 to 19 per cent.

Tyler Manh Dung Nguyen, chief market strategist at HSC, said in a Monday commentary: “If this persists, we believe the consequences could become increasingly visible in weaker property demand, financial stress among small and medium-sized enterprises, and deterioration in banks’ asset quality, particularly where refinancing becomes difficult.”

Have lending rates peaked?

Major state-owned lenders have begun responding to the government’s latest push.

BIDV introduced preferential loans starting at 6 per cent annually, and Vietcombank pledged to reduce lending rates by at least two percentage points until year-end. Agribank announced reductions of up to two percentage points for eligible borrowers from Oct 19.

Quan Trong Thanh, head of research at Maybank Investment Bank Vietnam, said that the explicit intervention by senior leaders suggests that lending rates have likely peaked.

“We can expect the lending rates to ease gradually. But the easing pace may be unevenly distributed across sectors in the short term,” he added. 

Thanh estimated that a healthier lending-rate environment would be around 7 to 10 per cent, which would require significant improvements in the supply and cost of funding.

HSC takes a more cautious view.

“We would caution against interpreting them as the beginning of a broader easing cycle,” Nguyen said, referring to the preferential lending programmes.

Banks are more likely to offer discounted rates on selected portions of their loan portfolios rather than implement sweeping reductions, potentially squeezing net interest margins without resolving the underlying funding pressures, he said.

“For now, we see little evidence that the structural pressures keeping interest rates elevated have materially improved.”

With credit demand typically increasing towards year-end and ahead of the Lunar New Year holiday, HSC analysts remain unconvinced that lending rates can decline meaningfully before 2027.

Financing the next phase of growth

The deeper challenge extends beyond interest rates to how Vietnam intends to finance its next investment cycle.

Banks remain the dominant financing channel for the economy, even though many of the country’s planned railways, urban infrastructure and other major developments require long-term capital that does not match the shorter maturities of traditional bank deposits.

SSI Research estimates that announced megaprojects alone could absorb at least 30 per cent of net new bank credit between 2026 and 2030, even before factoring in associated supply chain demand or unannounced projects.

That would put further pressure on bank balance sheets and expose the limitations of relying heavily on credit expansion to finance development, with Vietnam’s credit-to-gross domestic product ratio already at 140 to 150 per cent.

As a result, various banks have announced plans to raise capital through equity and debt issuances to maintain credit expansion.

SSI analysts noted that eight banks plan to issue shares worth an estimated 144 trillion dong, with NCB, Vietcombank and BIDV making up nearly two-thirds.

“However, the scale remains modest compared to upcoming requirements,” they added.

Thanh of Maybank called for broader refinancing facilities that would allow commercial banks to access reasonably priced funding for strategic industries and infrastructure.

He also identified an upgrade of Vietnam’s sovereign credit rating to investment grade as another key route to structurally lowering financing costs. He estimated that such an upgrade could reduce external borrowing costs by 1.5 to 2.5 percentage points.

“(Regulators) must forge a financing framework for developmental finance, where the government along with banks must play the leading role in mobilising external funds for development,” Thanh added.

Vietnamese banks are increasingly turning to overseas funding, with 10 lenders securing or pursuing a combined US$6.2 billion in foreign loans in 2026, said SSI Research.

These loans include VPBank’s US$1.4 billion syndicated loan, HDBank’s US$721 million facility and Techcombank’s ongoing US$1.5 billion borrowing.

SSI analysts said that such borrowing provides an alternative source of funding, although foreign-exchange risks and inflationary pressures could limit its benefits.

“Foreign borrowing is a supplementary source, not the main driver,” they noted. 

The brokerage expects deposits to remain the banking system’s primary funding source, with public-investment disbursement providing a secondary boost to liquidity as government spending flows through contractors and eventually back into bank deposits.

A more lasting solution requires deeper capital markets capable of attracting long-term investors, including insurers and pension funds, alongside project bonds and other instruments that shift long-term financing risks away from banks.

“With capital markets still years away from being able to absorb long-term risks, banks will remain the primary source of funding (for Vietnam’s economic growth),” the analysts said.

“They will continue financing projects throughout the construction phase before the loans can be refinanced by long-term investors.”