Vietnam's Credit Expansion and Systemic Risk in Banking: A Delicate Balancing Act for Foreign Investors

Vietnam's banking sector is navigating a high-stakes tightrope. Credit growth is surging at a blistering pace-on track to hit 18–20% in 2025-while non-performing loan (NPL) ratios show modest declines, and regulators scramble to contain systemic risks. For foreign investors, the question is whether this rapid expansion is a harbinger of long-term stability or a recipe for instability. The answer lies in dissecting the interplay between aggressive lending, regulatory interventions, and macroeconomic pressures.

Credit Growth: A Double-Edged Sword

Vietnam's credit expansion has accelerated to unprecedented levels. By Q3 2025, total customer lending from 27 listed banks had grown 15% year-on-year, reaching over VNĐ13.6 quadrillion, according to Vietnam News. This growth is concentrated in high-risk sectors: property loans surged 19%, while credit for technology projects and supporting industries jumped 24%, as reported by Bloomberg. Such velocity is a testament to the State Bank of Vietnam's (SBV) proactive approach, which raised credit growth targets for institutions without formal requests, as noted in Vietnam Bankers Association. Yet, this exuberance raises red flags. Rapid credit growth often precedes asset bubbles, particularly in markets where regulatory frameworks are still maturing.

NPLs: A Modest Decline, But Risks Linger

The banking sector's NPL ratios have shown slight improvement. For instance, Nam A Bank's NPL ratio fell to 2.73% in Q3 2025, down from 2.85% in June, according to Vietnam News, while VPBank maintained its ratio below 3%, as noted in the same report. ICBC's NPL ratio, a bellwether for global banks, dropped to 1.33% in Q3 2025, as reported in Futunn. However, these figures mask unevenness: VietABank's NPL ratio rose to 1.79% by September, according to Vietnam News, and KienlongBank's 2% threshold remains precarious. The SBV has responded by mandating banks with NPL ratios above 3% to offload bad debts to the Vietnam Asset Management Company (VAMC), as noted in Vietnam News. This is a critical intervention, but it also signals that the system is not entirely self-correcting.

Regulatory Measures: A Race Against Time

The SBV has deployed a dual strategy to manage risks. Circular No. 14/2025, introduced in June 2025, aligns capital adequacy standards with Basel III, imposing stricter capital buffers and quality requirements, as reported in Lexology. Simultaneously, the central bank has slashed interest rates and streamlined credit processes to boost liquidity, as noted in Vietnam Bankers Association. These measures are laudable but come with trade-offs. Lower rates could incentivize riskier lending, while capital buffers may strain smaller banks' profitability. The SBV's coordination with fiscal policies to curb inflation-now at 3.38% in September 2025, according to Trading Economics-adds another layer of complexity.

Macroeconomic Headwinds: Inflation, Exchange Rates, and Global Tensions

Vietnam's economic resilience is being tested. The VND has depreciated over 10% against the USD since 2022, according to OECD, forcing the SBV to spend USD 9.4 billion in 2024 to stabilize the currency, as noted in the OECD report. Meanwhile, inflation, though easing to 3.25% in October 2025, according to Trading Economics, remains a drag on consumer spending. Compounding these challenges, the World Bank warns that U.S. trade tariffs could disrupt Vietnam's export-driven growth, indirectly threatening financial stability, as reported in DW. For foreign investors, these factors underscore the fragility of Vietnam's economic model.

Implications for Foreign Investors

For those eyeing Vietnam's banking sector, the calculus is nuanced. On one hand, the SBV's regulatory rigor and the decline in NPLs suggest a system capable of withstanding moderate shocks. On the other, the rapid credit growth and macroeconomic vulnerabilities create a volatile backdrop. Foreign investors should prioritize banks with robust capital buffers (e.g., VPBank, KienlongBank) and avoid those with NPL ratios near the 3% threshold. Additionally, exposure to sectors like technology and manufacturing-where credit is being directed-could offer growth opportunities, provided geopolitical risks are hedged.

Conclusion

Vietnam's banking sector is at a crossroads. The SBV's interventions have bought time, but the sustainability of this credit boom hinges on its ability to balance growth with prudence. For foreign investors, the key is to remain agile-capitalizing on the country's dynamism while hedging against its inherent risks. As the World Bank notes, Vietnam's GDP growth is projected to hit 6.8% by year-end, as reported in DW, but the real test will be whether this momentum translates into a stable, inclusive financial ecosystem.