The mechanism of controlling credit growth through administrative quotas has led to suboptimal capital allocation in the economy via the commercial banking system. It neither prioritizes nor incentivizes well-performing banks while failing to limit underperforming ones. Removing credit growth ceilings is necessary, said Ph.D. Le Dat Chi, Head of the Finance Department at the School of Business, University of Economics Ho Chi Minh City, in an interview with The Saigon Times. Why should credit growth limits be removed? The Saigon Times: Prime Minister Pham Minh Chinh recently instructed the State Bank of Vietnam (SBV) to study the possibility of removing the credit growth cap and shift to market-based management using a set of credit safety control criteria. What are your thoughts on this directive? Ph.D. Le Dat Chi: The loan growth limit is an administrative tool the SBV has applied since 2011. Its continued use has created an “ask-and-give” mechanism, where commercial banks are assigned a credit growth limit at the beginning of each year. Once a bank reaches this ceiling, it must request an extra quota from the SBV to continue lending. This leads to a situation where credit growth is not based on the bank’s own management efforts. […]
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