Selective easing to support GDP growth targets

 Shift in priority from stability to selective easing

Recent policy moves and our general view

Due to tight system liquidity, the SBV appeared to prioritize system stability in 4Q25 and 1Q26. Key measures included assigning lower credit growth targets for 2025, imposing 1Q26 credit growth limits, and setting a real estate credit growth cap. A draft circular – to tighten liquidity prudential ratios and lay out a roadmap to Basel III liquidity management standards – was also introduced to gather feedback from market participants, which we previously commented in our report A stricter liquidity framework emerges.

However, over the past two months, with the new Government in place, high GDP growth targets have been re-emphasized. Authorities have introduced several measures to support economic growth and banking system liquidity, reflecting a shift toward selective easing and greater policy flexibility. We note the following key dates/events:

• 15 May: The SBV issued Circular 08, adding back 20% of State Treasury term deposits to the LDR calculation. This reversed the previous regulation under Circular 22/2019 and Circular 26/2022, which had excluded all State Treasury deposits from 1 January 2026. The treatment of State Treasury term deposits from 15 May 2026 is therefore the same as in 2025.
• 30 May: The SBV issued guidance on 2026 credit growth, excluding loans to social housing and industrial park projects from the real estate lending growth cap set at the beginning of the year.
• 22 June:
  • The SBV issued Circular 25, revising the LDR calculation for the second time in 2026. The circular maintains the 20% add-back for State Treasury term deposits while giving the SBV Governor flexibility to adjust this ratio. The SBV also raised the short-term funding used for medium- and long-term loans ratio from 30% to 40%, reversing the earlier roadmap that reduced the ratio from 40% to 30% during FY20–FY23.
  • The SBV also issued Dispatch no. 5386 allowing credit granted to 18 selected private-sector infrastructure projects developed by Vingroup (VIC; not rated), Sun Group (private/unlisted), and Masterise (private/unlisted) to be excluded from banks’ annual credit growth limits set by the SBV.
• 27 June: The Government issued Resolution No. 168, tasking the SBV and the MOF with coordinating the management of State Treasury deposits at commercial banks to supplement banking system liquidity. The resolution also gives the MOF authority to raise State Treasury deposits at commercial banks above the current cap of 50% of temporary idle Treasury funds.

We view these moves as selective easing measures aimed at supporting key Government priorities and initiatives to achieve GDP growth targets, rather than a broad-based expansion. The impact is likely to vary across banks, with those more exposed to, or better positioned to participate in, the targeted projects likely to benefit more than others.

Short-term sentiment could be positive as more funding flows into the economy. Selected banks could see higher credit growth, better funding support, and potentially stronger bottom-line growth. However, broader spillover effects and longer-term credit risks will depend on the efficiency and economic viability of these targeted projects and should be monitored closely.

We discuss these points in more detail below.

Extending credit to selected RE segments and infrastructure projects

Social housing and industrial parks excluded from RE credit growth limit

The first measure is the exclusion of loans to social housing and industrial park projects from the real estate credit growth cap. This cap is set at no higher than each bank’s average credit growth and does not apply to banks assigned to support “zero-dong” banks. We view this more as a clarification by the SBV, given that social housing and industrial parks have long been policy priorities, rather than a material shift in the SBV’s stance.

Impact: this should encourage credit flows into priority sectors, but it does not expand individual banks’ overall credit growth targets or the system-wide credit growth target.

Credit extension to 18 infrastructure projects

The second and more recent and significant decision is the exclusion of credit extended to 18 designated national strategic projects, grouped under four major project clusters, from banks’ credit growth quotas. These projects are linked to Sun Group, including APEC-related infrastructure and selected PPP projects; Vingroup and VinSpeed, including two high-speed railway projects; and Masterise Group, including Gia Binh International Airport. Total credit demand for these projects is estimated at VND752tn over eight years, concentrated mainly in the first three years, which accounts for 85% of total funding demand over the cycle. For FY26, total funding needs are estimated at VND210tn, equivalent to around 1.1% of system credit at end-FY25.

Impact: This should increase credit growth headroom for banks lending to these projects and effectively raise the banking system’s credit growth capacity for 2026.

Liquidity support and more relaxed and flexible liquidity management

To support the banking system’s ability to provide credit to these prioritized infrastructure projects amid tight liquidity conditions, authorities have introduced the following key amendments.

• Relaxing liquidity management by raising SML cap: The SBV raised the SML ratio from 30% to 40%, even though most banks have not yet reached the previous cap. We see this as both an easing measure and a preparatory step to allow banks to participate in long-term infrastructure projects. Compared with earlier market rumors that credit to these projects could be excluded from the SML calculation, setting the cap at 40% suggests that the SBV still wants to retain a prudential guardrail rather than allow an open-ended exemption.
• Supporting the banking system’s deposit base: By allowing 20% of State Treasury term deposits to be included in the LDR calculation, granting the SBV Governor flexibility to adjust this proportion, and signaling the Government’s intention to place more State Treasury deposits at commercial banks, we view these measures as steps to deploy state funds more efficiently, support banks financing key projects, and improve money circulation.

However, we also note the following:

• The SBV regulation does not mention any dedicated funding support for these projects, implying that banks remain responsible for fund mobilization.
• Responsibility for controlling credit flows and credit risk rests with banks. Banks must ensure that disbursements are used for the approved projects, that total credit granted does not exceed the projects’ capital needs, and that periodic reports are submitted to the SBV.
• The SBV encourages syndicated lending for large projects. For exposure to a single borrower or related parties, banks must continue to follow the relevant regulatory cap (unchanged) and need PM approval if limits are exceeded. 

Overall, we believe this SBV move should be viewed as part of the Government’s broader action plan to accelerate key projects, which are expected to be major drivers of GDP growth this year and in the coming years.

Implications for the banking system

Selective beneficiaries from SML ratio relaxation

Circular 25/2026/TT-NHNN raises the SML ratio to 40% from 30%, effective in July. This effectively reverses the previous decade-long regulatory roadmap, under which the cap was gradually lowered from 60% to 30% over FY15-FY23.

System-wide, the SML ratio stood at around 28% as of November 2024 (more updated data was not available from the SBV), with SOCBs at 24% and private banks at 40% (likely skewed by the SCB case). Among our 14 covered banks, the average was 24.8% at end-FY25, comfortably below the previous 30% cap. Covered SOCBs averaged 25.2%, while private banks stood at 24.7%.

Key implications:

• Eases funding pressure: Reduces the need for costly long-term deposit mobilization amid tight liquidity and elevated rates.
• Expands lending capacity: Supports banks’ ability to finance long-duration infrastructure and real estate projects.
• Significant headroom: We estimate the new cap could increase medium- and long-term lending capacity by VND1,300tn (from VND670tn) across our coverage universe.

However, the impact is likely to be selective. Banks actively participating in targeted projects or with higher real estate exposure are best positioned to utilize the additional headroom. Others are likely to remain cautious, prioritizing balance sheet stability and alignment with Basel III requirements, particularly the minimum 100% net stable funding ratio.

Scenarios on potential funding support

Under Resolution 168/2026/NQ-CP, the Government has authorized the MOF to determine the ceiling for placing temporarily idle State Treasury funds at commercial banks, potentially above the current 50% cap. With total State Treasury balances currently estimated at around VND1,500tn and deposits at commercial banks already close to the existing limit, including around VND720tn held at the Big 4 banks, raising the cap could provide meaningful liquidity support to the banking system.

Key implications:

• Every 10ppt increase in the cap could release around VND150tn into the banking system. This is equivalent to ~0.9% of the system deposit base and ~5.7% of the credit-deposit gap (as of end-June).
• For LDR calculation, each 10ppt increase could add:
  • ~VND30tn under the current 20% inclusion rule, or
  • up to ~VND150tn if full inclusion is allowed by the SBV.

As discussed above, these measures appear designed to support banks in mobilizing funding for key projects. We see two potential deployment channels:

• First scenario: The MOF could continue to place deposits mainly at SOCBs, which could then provide funding support to banks participating in these projects, either through interbank funding or other funding channels.
• Second scenario: The MOF could place funds directly at banks in proportion to their lending commitments to these projects. This would help participating banks secure sufficient funding under current tight liquidity conditions. In this case, banks involved in key projects could see both higher credit growth and better funding support.

In both cases, we do not expect a one-off, massive liquidity injection. Instead, support is more likely to be intermittent and case-by-case. This could help ensure that key projects have sufficient funding to proceed, while limiting the impact on broader macro variables such as FX and inflation.

Separately, recent media reports suggest the SBV is considering refinancing loans for social housing and key projects. While similar in structure to the second scenario, this approach would rely on SBV funding rather than State Treasury funds. We view this as less preferable, as it would inject new liquidity into the system rather than recycle existing idle funds, potentially increasing pressure on FX and inflation.

Outlook for interest rates

Deposit growth has shown signs of improvement, with monthly deposit inflows accelerating since late March, suggesting that funding conditions have become more favorable than in the first two months of the year. This likely reflects improved deposit attractiveness following recent rate hikes, as well as a reversal of cash outflows from the banking system. According to CTG (Buy, TP VND34,400) management, after substantial cash withdrawals of around VND500-600 trillion between late 2025 and early 2026, conditions began to improve in April, with an estimated VND60-70 trillion flowing back into the banking system.

However, while the credit-deposit gap has shown some signs of easing, it remains elevated at around VND2,600tn. Potential funding support from State Treasury deposits could help reduce the gap but is unlikely to fully resolve the system-wide funding pressure. In addition, credit demand remains strong. The proposed support measures appear targeted mainly at selected key projects, while broader credit demand across the economy still needs to be funded. Competition for funding also remains intense, with large real estate developers issuing corporate bonds at relatively high yields, which could limit the scope for a meaningful decline in deposit rates (see our recent report Corp. bond market in May: Softer issuance activity in a high-yield environment).

We therefore expect interest rates to stabilize at current levels. In a more favorable scenario, if funding support is sufficiently large, rates could decline mildly over the next one to two quarters. However, a more sustainable decline would require further evidence, including consecutive q/q narrowing of the credit-deposit gap and a more favorable balance of payments, which would help stabilize the FX rate when the VND-USD interest rate differential narrows.

Impacts on covered banks

We believe the impact on banks will be selective rather than broad-based. The regulatory changes are likely to be utilized mainly by banks involved in selected projects, banks with a clear infrastructure lending focus, or those with high exposure to the real estate sector that can utilize the higher SML ceiling. These could include NVB (not rated); linked to Sun Group; TCB (Buy, TP VND44,500), linked to Masterise/Vingroup and with significant real estate exposure; SOCBs; and MBB (Buy, TP VND31,800), with infrastructure lending in focus. Other beneficiaries could include STB (Reduce, TP VND61,000); LPB (Sell, TP: VND24,900), which appears to be increasing cooperation with Vingroup; and other banks with close ties to major real estate conglomerates, such as VPB (Buy, TP: VND36,800) and HDB (Buy, TP: VND33,000).

In the short term, the policy changes could support sentiment toward selected banks, as they may create room for higher credit growth and potential funding support. Banks participating in key projects could also see some relief from the higher SML ratio threshold, and the potential increase in State Treasury deposits placed directly.

However, we do not view the measures as uniformly positive for all banks. The actual impact will depend on each bank’s role in the selected projects, its funding position, balance-sheet capacity, concentration risk, and ability to manage long-term asset quality. While selected banks may see higher credit growth, they will also bear the credit risk, as the SBV does not appear to transfer project risk away from banks.

For banks less involved in these projects, we expect limited direct impact, unless they participate in syndicated loans when key participating banks approach single-borrower limits (currently 13%, declining to 10% by 2029) or related-party exposure limits (currently 21% of equity, declining to 15% by 2029). In our base case, these banks are likely to remain focused on their core segments, funding stability, and prudential requirements, particularly Basel III preparation and the minimum NSFR. Overall, we view the policy moves as supportive for selected lending activities, selected banks, and near-term liquidity, but not as a broad-based easing cycle for the sector.

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