SHARPLY RISING LENDING INTEREST RATES: THE ERA OF “CHEAP MONEY” IS GRADUALLY COMING TO AN END

According to the latest report from Mirae Asset, the average lending interest rate across 12 commercial banks increased by approximately 170 basis points (equivalent to 1.7%) by the end of Q1/2026 compared to the low recorded in mid-2025. This development indicates that interest rates are reversing course quite rapidly, despite the market having maintained a cheap-money policy less than a year earlier to support the post-COVID-19 economic recovery process.

Lending rates rise faster than deposit rates

According to Mirae Asset, the upward trend in interest rates became increasingly evident from late 2025, as a series of banks simultaneously raised deposit rates to improve liquidity and meet the recovering demand for credit.

What stands out is that lending rates have risen much faster than funding costs. Specifically, while deposit rates increased by only around 100–125 basis points (1–1.25%), lending rates surged by as much as 170 basis points (1.7%), exceeding the market’s initial expectations by approximately 50–70 basis points (0.5–0.7%).

According to analysts, current developments reflect stronger-than-expected pressure on funding costs as well as banks’ growing need to preserve profit margins. At the same time, this has heightened concerns over the possibility of a broad-based interest rate hike cycle if appropriate regulatory measures are not implemented.

Against this backdrop, the State Bank of Vietnam’s move to signal interest rate stabilization from early April 2026 is viewed as a necessary step to limit the risk of localized fluctuations at certain banks spreading across the broader financial system.

According to Mirae Asset, regulators are adopting a more flexible approach, allowing the market to self-adjust during a period of rising capital pressure in late 2025, while also avoiding overly aggressive intervention that could disrupt market sentiment and expectations.

Analysts believe the regulator’s message suggests that the current interest rate environment is relatively aligned with macroeconomic conditions, and that more time is needed to assess real-world impacts before considering further easing measures or allowing rates to move entirely according to market mechanisms.

The era of “cheap money” is gradually ending

According to the report, the rebound in deposit rates is seen as a necessary adjustment to strengthen liquidity and create a more stable foundation for credit growth in the coming period.

In addition to domestic liquidity pressures, the market is also being affected by external factors such as exchange rate volatility and global monetary policies. According to Mirae Asset, the possibility that the Federal Reserve may maintain higher interest rates for longer than expected, combined with geopolitical instability in the Middle East, continues to keep pressure on exchange rates elevated.

Since late 2025, deposit rates have increased significantly and gradually returned to levels comparable to the period of rate cuts implemented to support the post-pandemic economic recovery. This development suggests that liquidity within the banking system is no longer as abundant as before.

As of the end of March 2026, total deposit growth across the banking system reached only around 0.8%, considerably lower than credit growth of approximately 2.4%. This gap reflects ongoing liquidity pressure, particularly among banks with rapid credit expansion.

According to Mirae Asset, deposit rates currently remain about 10–30 basis points below the market’s previous expectations, indicating there is still room for further modest increases if credit demand continues to improve in the second half of the year.

Rising borrowing costs amid slowing real estate credit

Higher interest rates are having a clear impact on home loan demand as well as credit flows into the real estate market.

According to Mirae Asset, retail credit and personal loans are beginning to slow as housing prices remain elevated, market liquidity weakens, and borrowing costs rise sharply within a short period of time.

On the other hand, banks are also becoming more cautious toward sectors considered higher risk, with real estate continuing to face tighter credit controls.

Funding cost pressure is not only appearing in bank lending channels but is also increasingly visible in the corporate bond market. In Q1/2026, real estate companies issued approximately VND11.2 trillion worth of bonds, with common interest rates ranging from 11–14.5%, significantly higher than the previous 8–12% range.

According to analysts, this indicates that real estate firms are being forced to accept higher interest rates in order to access capital, as both banks and bond investors adopt a more defensive and cautious stance toward market risks.

Banks tighten risk management, prioritize systemic safety

Alongside rising interest rates, credit management policies are also undergoing noticeable changes.

According to Mirae Asset, by the end of Q1/2026, total outstanding credit across the banking system had reached nearly VND19.2 quadrillion, up 3.18% compared to the end of 2025. Although lower than the same period last year, this growth rate still exceeded the initial credit growth quotas assigned to many banks.

Among listed banks, credit growth reached around 3.6%, with several lenders posting notable increases, including VPBank up 10.3%, HDBank up 8%, Vietcombank up 4.8%, and MBBank up 3.3%.

However, unlike previous years, credit limits are now being allocated more evenly by quarter rather than being loosened aggressively at the beginning of the year. This suggests that regulators are prioritizing a balance between economic growth objectives and inflation control, exchange rate stability, and overall banking system liquidity.

Mirae Asset continues to maintain its 2026 credit growth forecast at 14.5%, slightly below the initial target guidance.

Bad debts show signs of rising again

The report also indicates that asset quality at many banks is facing significant pressure amid rapidly rising funding costs and slowing credit expansion.

The non-performing loan (NPL) ratio among listed banks rose to 2.01% in Q1/2026, while the NPL coverage ratio declined to approximately 79.5% — the lowest level recorded in many years.

According to Mirae Asset, banks will likely need to accelerate loan-loss provisioning in the coming period, especially as corporate borrowers and the real estate sector account for an increasingly larger share of total credit exposure.

Nevertheless, the securities firm believes that the State Bank of Vietnam’s move to stabilize interest rates from early April will help reduce the risk of additional bad debts emerging in the short term.

In this new environment, Mirae Asset believes the banking sector is entering a phase of system-wide restructuring, where the focus is no longer on rapid growth but instead on stability, safety, and long-term sustainable development.

Source: CafeLand