Vietnam's Central Bank Policy: Unlocking Banking Sector Opportunities in a Low-Rate Era

Vietnam's State Bank of Vietnam (SBV) has positioned itself as a pivotal force in shaping the country's economic trajectory through a deliberate, low-interest rate policy in 2025. With the key rate held steady at 4.50%—a level expected to dip to 4.00% in 2026 and 3.50% by 2027—the central bank is fostering a fertile ground for credit expansion and economic growth. This strategic approach, however, is not without nuance. Investors must navigate the interplay between accommodative monetary policy, structural reforms, and emerging risks to identify where the greatest opportunities lie.

The Low-Rate Environment: Fueling Growth, Testing Resilience

The SBV's 4.50% benchmark rate is a deliberate departure from historical norms, reflecting a commitment to stimulate a post-pandemic recovery and support the government's ambitious 8.3%-8.5% GDP growth target for 2025. By keeping borrowing costs low, the central bank has enabled businesses and households to access credit at historically favorable terms. As of mid-2025, Vietnam's banking sector reported a 9.9% year-on-year credit growth—a five-year high—driven by reduced lending rates (down 0.64% from late 2024) and targeted credit programs for sectors like social housing, infrastructure, and digital technology.

However, this low-rate environment has also exposed vulnerabilities. The Vietnamese đồng has depreciated against the U.S. dollar, creating pressure on exporters and import-dependent industries. The SBV's flexible exchange rate management aims to balance these dynamics, but investors must monitor how foreign exchange volatility interacts with domestic credit demand.

Strategic Opportunities in Banking and Credit Markets

1. Credit Growth in Priority Sectors

The SBV's emphasis on directing credit to priority sectors—such as manufacturing, green energy, and digital infrastructure—presents a clear opportunity. Banks aligned with these sectors, including HDBank, VPBank, and VIB, are poised to benefit from government-backed loan programs. For instance, digital transformation initiatives under Project 06 and Resolution No. 57-NQ/TW are enabling banks to streamline operations, reduce costs, and offer innovative financial services. By 2025's end, digital banking transactions are projected to account for over 70% of total activity, a trend that enhances operational efficiency and customer retention.

2. Bad Debt Resolution and Legal Reforms

A critical structural reform in 2025 is the legalisation of Resolution 42/2017/QH14, which streamlines the resolution of non-performing loans (NPLs). This framework allows banks to seize collateral assets more efficiently, even in criminal cases, and facilitates the return of assets held in legal disputes. As a result, major banks like Vietcombank (NPL ratio <1%) and ACB (1.26% NPL) have seen significant reductions in bad debt, while weaker institutions like PGBank and LPBank face increased scrutiny.

The SBV's revised Law on Credit Institutions further empowers banks to manage NPLs, including the ability to provide zero-interest loans to distressed institutions and accelerate collateral liquidation. These measures are expected to reduce the sector's overall NPL ratio from 4.3% in early 2025 to below 3% by mid-2026. For investors, this signals a sector-wide improvement in asset quality and profitability.

3. Digital Transformation and Foreign Investment

The SBV's push for digital transformation is not just a cost-cutting measure but a strategic lever to attract foreign capital. By increasing foreign ownership caps to 49% in banks that have acquired weaker institutions (e.g., OceanBank, DongA Bank), Vietnam is opening its banking sector to international expertise and capital. This aligns with the broader goal of integrating into global financial systems and modernizing debt trading markets, which remain underdeveloped.

4. Capital Market Development

The SBV's focus on expanding the role of asset management companies (AMCs) and creating a transparent bad debt trading market is laying the groundwork for a more liquid capital market. While currently, 50% of bad debts are managed internally by banks, the development of a secondary market could attract foreign investors seeking high-yield opportunities in emerging markets.

Risks and the Path Forward

Despite these opportunities, risks persist. Real estate sector overexposure in some banks remains a concern, and the underdeveloped debt trading market limits liquidity. Additionally, the SBV's accommodative policy could exacerbate currency depreciation if U.S. interest rates remain elevated. Investors should also monitor the pace of NPL resolution and the effectiveness of legal reforms in practice.

Investment Advice: Where to Focus

For investors, the Vietnamese banking sector offers a compelling mix of macro-driven growth and structural reform benefits. Key areas to consider include:
- Banks with strong digital infrastructure (e.g., HDBank, VIB) that are leveraging technology to reduce costs and expand market share.
- Institutions undergoing restructuring (e.g., MB, VPBank) that are benefiting from foreign ownership caps and improved governance.
- AMCs and debt trading platforms that stand to gain from the legalisation of Resolution 42 and increased market participation.

While the low-rate environment supports short-term credit growth, long-term success will depend on the SBV's ability to balance inflation control with economic stimulus. For now, Vietnam's banking sector remains a high-conviction opportunity for investors who can navigate its evolving landscape.

In conclusion, Vietnam's central bank is orchestrating a delicate balance between growth and stability. By capitalizing on structural reforms, digital innovation, and targeted credit programs, investors can position themselves to benefit from a sector on the cusp of transformation.