Vietnam’s banking sector is under mounting pressure to finance aggressive national growth targets, a mandate that is rapidly creating a systemic funding imbalance and forcing a sustained pivot to debt markets, according to a recent report.

The Vietnamese government’s push for banks to support “double-digit GDP growth targets” over 2026-30 is expected to accelerate lending, with average credit growth for rated banks projected to exceed 20% in 2026, finds the report by Moody’s Ratings.

This pace of credit expansion, which already expanded at an average annual rate of 16% over 2022-25, is more than double the country’s 6% real GDP growth over the same period.

While most private sector banks anticipate seeing credit growth above 25%, large state-owned banks are likely constrained to around 15% growth due to low capitalization, which limits their ability to expand balance sheets.

As deposit growth continues to lag this expansion, the report points out, banks’ modest funding profiles are straining. The system-wide loan-to-deposit ratio in Vietnam, Moody’s estimates, will remain the highest in the Association of Southeast Nations ( Asean ) region, at around 110%.

To bridge this accelerating funding gap, banks are aggressively turning to the capital markets. Bond issuances have picked up significantly since 2024, Moody’s says, following quieter periods in 2022 and 2023 driven by tighter regulatory constraints and a loss of investor confidence stemming from real estate bond defaults.

The volume of bonds issued by banks in Vietnam increased to 257 trillion Vietnamese dong ( US$9.75 billion ) for the first nine months of 2025, according to the report’s analysis, and issuance is expected to remain strong in 2026 to support funding needs.

Liquidity divide intensifies risks for smaller lenders

Vietnamese banks' funding profiles are already weaker than Asean peers, Moody’s notes, a condition exacerbated by the current growth push. The proportion of traditional deposits as a source of total liabilities has declined to 73% as of June 2025, down from 76% in December 2023, as reliance on market funding increases.

This is compounded by a high reliance on term deposits, which reflects broader consumer behaviour where cash remains the preferred medium of transaction. Since depositors are highly sensitive to interest rate movements, banks may incur higher funding costs when expanding their deposit bases.

Concurrently, increased reliance on short-term interbank markets, which accounted for 17% of total liabilities in June 2025, poses higher refinancing risks. These short-term borrowings have historically led to spikes in funding costs during periods of market stress, such as the 2022 liquidity crunch.

The banking sector’s competitive and fragmented nature has created a sharp two-tiered cost structure. Major state-owned banks like Vietcomban, Moody’s says, registered a cost of funding around 2.3% in the first half of 2025.

In contrast, smaller private banks like VietA and BVBank faced costs as high as 5.1% to 5.2%, signalling their greater vulnerability in competing for deposits. Unlike banks with a larger franchise, smaller banks often cannot pass on increased funding costs to borrowers.

While bonds offer a more stable, longer-tenured funding source, Vietnam’s strict public offering regulations mean most are held by institutional investors through private placements, potentially increasing concentration risks. In times of market stress, sudden sales by major investors, the report adds, could drive bond prices down sharply, making subsequent issuance more expensive.

Vietnamese banks’ holdings of high-quality liquid assets, the report notes, are modest compared with Asean peers, the Moody’s study also shows. providing limited buffers against funding risks. For acquiring banks involved in the mandatory transfer of troubled "zero dong" banks, liquidity buffers are expected to decline materially over the next 12 to 18 months due to the central bank reducing their reserve ratio requirement by 50%.

Strong profitability, central bank oversight offer mitigants

Despite these funding pressures, the sector’s strong underlying profitability and decisive State Bank of Vietnam intervention are expected to maintain stable credit profiles.

The system has sustained robust performance, the report says, with return on tangible assets averaging 1.4% over the past three years, supported by strong pre-provision income, a figure exceeding most regional peers.

The impact on net interest margin is expected to be limited, as the central bank will likely maintain interest rates. Crucially, the State Bank of Vietnam acts as a powerful backstop, Moody’s writes, mitigating the risk of a cost-of-funding spiral by "closely monitoring and directing banks to keep interest rates low”.

New State Bank of Vietnam regulations introduced in June 2025 further require banks in the nation to gradually build an additional capital conservation buffer of 2% by January 1 2030, the credit ratings agency points out, a measure seen as supportive of overall credit profiles and stable capitalization.