Fitch warns 'Vietnam banks at risk' as government accelerates lending

Fitch Ratings has issued a warning about the growing risks facing Vietnam’s banking sector. The agency raised concerns about two critical weaknesses, highlighting the rapid increase in lending and noting that credit growth is far outpacing GDP. This poses a risk to the country's financial stability, especially if the government ends its credit quota system next year.

Fitch Ratings emphasized that the acceleration of credit expansion in Vietnam is raising risks for the financial system. As credit grows rapidly, it increases debt burdens, which are already high. Willie Tanoto, Senior Director of Fitch’s Asia-Pacific Financial Institutions division, noted, “Credit growth is now at a very high level, and it will add to the already substantial debt load.”

Despite Fitch’s neutral-to-positive outlook on Vietnam’s banking sector, Tanoto said his concerns have grown over the past 6-12 months, compared to the previous five years.

Lending drives GDP growth of 8-10%

Previously, Prime Minister Pham Minh Chinh instructed the State Bank of Vietnam to create a roadmap to phase out the credit quota system starting in 2026. This is part of the strategy to achieve 8% GDP growth this year and a 10% average growth over the next five years.

In the first half of 2025, credit in the system rose by 18.1% year-on-year, according to the World Bank. The State Bank of Vietnam forecasts a 19-20% increase in credit for 2025, and Fitch predicts growth of 18% in 2026, even if the credit quota system remains unchanged.

This surge in credit has been a key driver for Vietnam's rapid economic growth, with GDP growth of 8.2% in the third quarter of 2025.

Debt levels significantly above GDP growth

However, Tanoto raised concerns at a seminar in Hanoi, pointing out that credit growth in Vietnam has been outpacing GDP growth for several years, and the credit-to-GDP ratio could reach 145% by the end of 2025.

“This level of debt is highly unusual for a developing market like Vietnam, especially given its per capita income,” Tanoto said. This increase in debt also raises the risk for the financial system, even though the risk remains unclear in the short term.

Despite these risks, Fitch acknowledges Vietnam's many strengths, such as strong medium-term growth prospects, a low public debt ratio compared to countries with similar credit ratings, and a strong external debt structure.

Previously, the State Bank of Vietnam had indicated that it would tighten lending in high-risk sectors and focus on loans to manufacturing, business, targeted industries, and sectors that drive the economy, while expanding consumer loans cautiously and limiting credit flow to risky businesses.

Two chronic weaknesses identified

Tanoto also noted two chronic weaknesses in Vietnam’s banking structure: high risk appetite and low risk reserves. While commercial banks have been profitable, much of their profits have been reinvested in expanding assets, leaving limited room to increase capital. Additionally, most provisions are made at the minimum level required by regulations, with insufficient forward-looking measures compared to other countries in the region.

This is happening while lending continues to grow without signs of slowing down. The government aims for at least 8.4% economic growth in the final quarter of 2025 to achieve its 8% annual growth target for the year, as stated by the Prime Minister last week.

According to World Bank data from September, asset quality in the system remains stable, although non-performing loan ratios at Vietnam’s top 27 commercial banks increased to 3.8% in the first quarter compared to the previous year. The World Bank also warned that there are still underlying risks due to debt relief measures, restructuring efforts, and the declining provision ratio.