China's Record Oil Imports Signal Strategic Stockpiling

Dark Current

Data Interpretation

Economic

Energy

Commodity

Summary:

China's record oil imports, fueled by strategic stockpiling, challenge demand decline theories and bolster global prices.

China's crude oil imports surged to an all-time high last year, with official statistics showing an average daily intake of 11.55 million barrels. This amounted to a total of 557.73 million tons for the year, marking a 4.4% increase from 2024.

The momentum continued into the final month of the year, as December imports also set a new record. The daily average for the month hit 13.18 million barrels, for a total of 55.97 million tons.

Record Imports Challenge Demand Slowdown Narrative

These record-breaking figures cast doubt on the narrative that China's oil demand is entering a permanent decline driven by the electrification of its transport sector.

However, a significant portion of these imports did not fuel the economy directly but instead flowed into the country's growing strategic and commercial stockpiles. Despite this, China's strong purchasing activity has provided crucial support for global oil prices, helping to counteract production hikes from OPEC+ and persistent concerns over the global demand outlook amid uncertain U.S. trade policies.

The Real Driver: A Massive Stockpiling Strategy

The scale of China's oil stockpiling became particularly clear starting in March 2025. Frederic Lasserre, global head of research and analysis at commodity trading firm Gunvor, highlighted an "impressive rate of stockpiling, like close to one million barrels per day" around that time.

Lasserre anticipates that China will continue building its crude reserves well into 2026. He noted that the country's storage facilities are only about 60% full, suggesting significant capacity remains for further inventory accumulation.

Building for the Future: Expanding Storage Capacity

To support this long-term strategy, China is aggressively building out its storage infrastructure. A total of 11 new storage sites are planned for construction across the country over 2025 and 2026.

Key details on the expansion include:

• Total New Capacity: The new sites will add a combined storage capacity of approximately 169 million barrels.

• Import Equivalence: This volume is equal to roughly two weeks' worth of China's crude oil imports.

• Historical Context: This follows the addition of between 180 and 190 million barrels of new storage capacity between 2020 and 2024, according to data from Vortexa and Kpler.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Gerik

Forex

Economic

Election Speculation And Renewed Pressure On The Yen

The Japanese yen fell to its weakest level in a year and a half on Wednesday, reflecting heightened investor sensitivity to domestic political uncertainty. Reports suggesting that Prime Minister Sanae Takaichi may call a snap lower house election on February 8 revived expectations of potential fiscal expansion, a scenario that often coincides with concerns over higher government spending and increased debt issuance.

During trading, the yen declined as much as 0.2 percent to 159.45 per dollar, marking its weakest point since July 2024. Although the currency later recovered modestly, it remained under pressure, last trading near 159.215 per dollar. The movement underscores how political developments can influence currency markets through expectations about fiscal direction rather than immediate policy actions, a relationship that is primarily correlational but reinforced by market precedent.

Bond Auction Signals Investor Caution

Pressure on the yen intensified following a lackluster auction of five-year Japanese government bonds. Demand at the auction was described as cautious, with investors seeking higher yields and refraining from aggressive positioning. According to Mizuho’s chief desk strategist Shoki Omori, bidding reflected unease linked to possible dissolution of the lower house, concerns about fiscal expansion, and elevated market volatility.

The subdued response to the bond sale suggests investor hesitation toward increased government borrowing, especially in an environment where fiscal policy uncertainty is rising. While weak auction demand does not automatically translate into currency depreciation, it often coincides with softer sentiment toward government assets, reinforcing downward pressure on the yen through correlated risk perceptions.

Approaching Intervention Territory

As the yen edges closer to the psychologically significant level of 160 per dollar, market participants are increasingly alert to the possibility of intervention by Japanese authorities. Analysts at DBS noted that while verbal warnings remain the primary defensive tool, the absence of clear guidance regarding the timing or scale of any intervention continues to sustain speculative pressure against the currency.

This dynamic illustrates how uncertainty itself can amplify currency weakness. Without explicit signals from policymakers, traders tend to test perceived tolerance levels, particularly when momentum favors further depreciation.

US Dollar Stability And Federal Reserve Expectations

The yen’s weakness unfolded alongside relative stability in the US dollar, which held near a one-month high. US inflation data for December showed consumer prices rising 0.3 percent month-on-month, broadly in line with expectations. This reinforced market consensus that the Federal Reserve will keep interest rates unchanged at its next meeting later in January.

Fed funds futures now imply a 98.3 percent probability that rates will remain on hold, up from 95.6 percent the previous day. Support for Federal Reserve independence from global central bankers and senior Wall Street executives further stabilized dollar sentiment, even amid political rhetoric questioning the institution’s autonomy. Analysts emphasized that as long as inflation remains contained, indirect challenges to Fed independence are unlikely to trigger major market disruption, reflecting a causal link between inflation control and policy credibility.

Global Currency And Risk Asset Movements

Elsewhere in currency markets, volatility remained subdued during early Asian trading. The US dollar index was steady at 99.154, while the dollar traded flat against the offshore Chinese yuan at 6.9752, following data showing China ended the year with a record trade surplus of nearly 1.2 trillion dollars.

The Australian and New Zealand dollars both gained around 0.2 percent, while the euro remained flat and sterling edged slightly higher. In digital asset markets, risk appetite appeared firmer. Bitcoin rose 1.4 percent to 95,390.91 dollars, its highest level in two months, while ether surged 4.2 percent to 3,342.43 dollars, the strongest level since mid-December.

Overall, the yen’s decline highlights the sensitivity of foreign exchange markets to political and fiscal expectations. While no immediate policy shifts have occurred, speculation around elections, fiscal expansion, and bond market demand has combined to weaken sentiment toward the currency. Whether this pressure persists will depend less on short-term headlines and more on how clearly Japanese authorities communicate their fiscal and monetary intentions in the weeks ahead.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

A Regulatory Shift Toward Stricter Risk Containment

Chinese regulators have moved to tighten risk management in domestic equity markets by increasing the minimum margin financing ratio to 100 percent. Under the new rule, investors must now provide collateral equal to the full value of securities purchased with borrowed funds, compared with the previous threshold of 80 percent. The policy applies uniformly across the Shenzhen, Shanghai, and Beijing stock exchanges, highlighting a coordinated regulatory response rather than a localized adjustment.

This decision reflects regulators’ growing sensitivity to leverage accumulation during periods of rising market optimism. By raising the margin requirement, authorities effectively reduce the scale of positions investors can take without committing additional capital. The mechanism is direct in design, as higher collateral requirements mechanically constrain borrowing capacity and reduce leverage embedded in equity trading.

Leverage Dynamics And Market Behavior

The higher margin threshold does not eliminate margin trading activity among local funds and retail investors. Instead, it limits the extent to which investors can amplify exposure using borrowed money. As a result, speculative positioning becomes more capital-intensive, particularly for investors who rely heavily on leverage to enhance returns.

Regulators have historically adjusted margin financing rules during phases of accelerated buying or when signs of excessive risk-taking emerge. In this case, the timing coincides with a strong start to the year for Chinese equities, supported by renewed risk appetite linked to the country’s technological progress. Margin loans had increased sharply, and trading turnover reached record levels, indicating a strong correlation between rising optimism and expanding leverage.

Immediate Market Reaction And Investor Sentiment

The announcement triggered a swift market response. Chinese equities reversed earlier gains, with the CSI 300 Index erasing a 1.2 percent advance after markets reopened from the mid-day break. This reaction suggests that a portion of the recent rally had been supported by leverage-sensitive positioning rather than purely long-term capital allocation.

The link between the policy change and the market pullback is primarily causal in structure, as the sudden tightening of margin rules directly altered trading constraints and investor expectations. However, the magnitude of the decline also reflects broader sentiment dynamics, as markets recalibrate assumptions about regulatory tolerance for rapid asset price appreciation.

Balancing Market Growth And Financial Stability

The move underscores a familiar tension in China’s capital market governance. Authorities aim to support healthy market development while preventing destabilizing leverage cycles. Raising the margin financing ratio does not signal a rejection of equity market growth, but rather a recalibration of the conditions under which that growth occurs.

By requiring full funding for leveraged purchases, regulators reinforce the principle that market participation should be backed by genuine capital commitment. This approach seeks to temper short-term speculative surges without undermining the structural role of equities in capital formation. In doing so, policymakers continue to prioritize financial stability as a core objective, even during periods of improving market confidence.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

John Adams

Commodity

Political

Remarks of Officials

Forex

Economic

Central Bank

Daily News

The Bank of Thailand (BOT) expects the nation's economic growth to turn positive in the fourth quarter of 2025, but the central bank must be careful about deploying further interest rate cuts, according to Deputy Governor Piti Disyatat.

"We expect the fourth quarter (gross domestic product) to be positive quarter-on-quarter," Piti stated, highlighting that this metric offers a clear view of near-term momentum. He affirmed that Thailand is on track to meet its annual growth forecast of 2.2% for 2025.

Bank of Thailand Deputy Governor Piti Disyatat discusses the nation's economic outlook and the central bank's policy constraints.

If this forecast holds, Southeast Asia's second-largest economy would sidestep a technical recession after contracting by 0.6% in the third quarter—its first decline in 11 quarters. The BOT projects growth will moderate to 1.5% this year before accelerating to 2.3% in 2027.

Inflation and Monetary Policy Outlook

Piti also anticipates that headline inflation will return to positive territory by March or April of this year. This follows a period of deflation, with annual headline inflation remaining negative for eight consecutive months through November. According to a Reuters poll, Thailand's December annual inflation is expected to be minus 0.34%. The central bank has forecast an average inflation rate of negative 0.1% for 2025, rising to 0.3% in 2026.

In response to economic conditions, the BOT has been active, lowering its key interest rate five times since October 2024. These moves brought the rate down by a total of 125 basis points to 1.25%. Market participants, according to LSEG data, are pricing in at least one more rate cut in February.

However, Piti signaled a more cautious approach ahead. "We are already running low on the policy space (and) have to be very judicious in using that room when the impact is most needed," he said. He assured that the BOT would use its "remaining ammunition" to counter potential shocks from tightening global financial conditions, deteriorating global markets, or a further slowdown in domestic demand.

Managing Baht Volatility and Gold Trading

A volatile Thai baht has compounded the country's economic challenges. The currency surged 8% in 2025, making it Asia's second-best performer but adding to headwinds for the economy. Other significant pressures include:

• U.S. tariffs

• Thailand's high household debt

• A border conflict with Cambodia

• Political uncertainty ahead of a February election

The baht's sharp movements prompted the central bank to intervene heavily in the currency market during the second half of 2025. Piti clarified that the BOT does not target specific baht levels. "Our main focus is to make sure (baht) volatility is not excessive and doesn't get too driven by non-fundamental factors," he explained.

To further manage the currency, the finance ministry is considering a tax on online gold transactions and measures to limit trading volumes by major players. While traders have opposed these steps, fearing they could diminish Thailand's role as a gold trading hub, Piti framed the objective differently.

"It's not like we're trying to kill off all gold trade. We just try to reduce the amount of gold trading that is excessive in baht," he said. The central bank's goal is to encourage dollar-denominated gold trading to lessen the impact on the local currency. The BOT estimates that gold transactions by large traders will be equivalent to 50% of the country's 2025 GDP.

This focus on gold comes after the precious metal rallied 64% in 2025—its largest annual increase in 46 years—driven by geopolitical tensions and expectations of U.S. rate cuts. Market analysts now foresee gold potentially reaching $5,000 per ounce in 2026.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Short-Term Volatility And The Broader FDI Picture

Although global financial conditions became more volatile in the second half of 2025, Vietnam’s ability to attract international investment is expected to remain broadly intact in 2026. Speaking at the Data Talk program on macroeconomic trends for 2025–2026, Tran Ngoc Bau, CEO of WiGroup, emphasized that Vietnam’s FDI outlook continues to follow a positive trajectory rather than a cyclical downturn.

According to his assessment, foreign capital flows into Vietnam can be broadly separated into two distinct categories. One group consists of short-term, opportunity-driven capital that seeks interest rate differentials and rapid returns. The other represents long-term investment capital that evaluates structural factors such as economic growth potential, political stability, and Vietnam’s evolving position within regional and global production networks.

Speculative Capital And The Normalization Of Risk Factors

For speculative capital, the most significant risks in recent periods stemmed from negative interest rate differentials and heightened domestic and geopolitical uncertainties. These conditions contributed to capital volatility during 2025. However, moving into 2026, these pressures are widely viewed as having eased. As risk perceptions stabilize, the probability of a gradual return of short-term capital improves, although such flows remain inherently sensitive to global financial conditions. The relationship here is largely correlational, shaped by shifting risk sentiment rather than structural policy changes.

In contrast, long-term investment capital continues to view Vietnam as a compelling destination. Political stability, consistent economic growth prospects, broad social consensus around development goals, and tax incentive policies form the core of this appeal. Tran Ngoc Bau stressed that the slowdown in registered FDI observed in the latter half of 2025 should be interpreted as a temporary adjustment rather than a weakening of Vietnam’s competitive position. Over the medium to long term, Vietnam’s capacity to attract global capital remains firmly in place.

This perspective highlights an important distinction between cyclical investment pauses and structural investment decisions. While registration volumes may fluctuate, the underlying commitment of multinational firms tends to follow longer planning horizons linked to production capacity, market access, and supply chain resilience.

Geopolitical Realignment And Supply Chain Shifts

Reinforcing this view, Nguyen Duc Hai, Senior Investment Director at Manulife Investments Vietnam, pointed to global geopolitical dynamics as a decisive factor shaping capital flows. Increasing polarization and strategic separation between the United States and China are accelerating supply chain realignment. As firms seek to diversify manufacturing bases and reduce concentration risks, Vietnam has emerged as a strategically attractive alternative.

In this context, Vietnam’s relevance is not solely derived from cost competitiveness. It is increasingly connected to the demand structure of major economies, particularly as the United States looks to secure alternative supply sources to meet large import needs. The link between geopolitical fragmentation and supply chain relocation reflects a causal mechanism, as strategic policy shifts directly influence corporate investment decisions.

Institutional Credibility And Trade Integration

Beyond supply chain positioning, Nguyen Duc Hai emphasized Vietnam’s cooperative stance toward international partners. Compliance with evolving US regulations, gradual market liberalization, and improvements in export transparency have strengthened institutional credibility. These elements contribute to investor confidence by reducing regulatory uncertainty and enhancing predictability in cross-border trade relationships.

Vietnam’s commitment to free trade further reinforces this credibility. With a network of 17 signed free trade agreements, the country stands out in the region for its depth of trade integration. This framework expands market access for investors and lowers structural barriers to cross-border production and distribution.

Market Access, Demographics, And Investment Horizons

From an investor perspective, the decision to allocate capital to Vietnam extends beyond domestic market size. The country’s manufacturing capacity and high degree of integration into global trade networks allow firms to access international markets efficiently. Complementing this is a young demographic profile and a sizable labor force expected to remain available over the next 10 to 15 years. These factors collectively strengthen Vietnam’s long-term investment appeal, with their influence operating through correlation with productivity and scalability rather than immediate output gains.

Based on these conditions, Nguyen Duc Hai concluded that long-term investment flows, particularly FDI, retain substantial growth potential. Short-term speculative capital may continue to experience sharp fluctuations, but it is not a strategic priority for Vietnam due to its potential impact on exchange rate volatility and financial market stability. The policy preference for stable, long-term capital reflects a causal relationship with macroeconomic resilience, as sustained investment supports productive capacity without amplifying financial fragility.

Overall, Vietnam’s FDI outlook for 2026 remains anchored by structural strengths rather than short-term market movements, positioning the country as a continued beneficiary of long-horizon global capital reallocation.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Income Growth, Inflation Expectations, And The Role Of Savings

With Vietnam’s GDP per capita estimated at around USD 5,000 in 2025 and projected to reach USD 5,400 to 5,500 as the country approaches upper-middle-income status, concerns about inflationary pressure have become more pronounced. This raises a fundamental question for households: whether bank deposits can still preserve purchasing power or whether inflation gradually erodes real value.

In this context, the function of savings differs markedly across income groups. According to financial and banking expert Pham Xuan Hoe, for individuals with substantial wealth, bank deposits are often a temporary parking place rather than a long-term investment strategy. These funds tend to rotate into tangible assets that offer higher potential returns and stronger value retention. This relationship reflects correlation rather than inevitability, shaped by both risk tolerance and access to investment opportunities.

For low- to middle-income and upper-middle-income households, however, bank deposits remain a rational choice when real interest rates are positive. If inflation stands at approximately 6 percent and deposit rates reach 8 percent, the resulting real return of about 2 percent allows households to accumulate assets gradually and plan for long-term needs. For retirees, bank deposits play an even more essential role, supporting daily expenses while providing psychological reassurance through stable and predictable income streams.

Positive Real Interest Rates And Household Financial Behavior

The effectiveness of savings as a financial channel depends on individual objectives rather than a universal benchmark. When interest rates rise and maintain positive real returns, bank deposits continue to function as a viable financial instrument, even if they cannot compete with higher-risk investment channels in terms of absolute returns. The relationship between interest rates and savings behavior here is primarily correlational, shaped by expectations of inflation, income stability, and life-cycle considerations.

This dynamic has become increasingly visible as competition for deposits intensified in the final months of 2025 and into early 2026. Rising credit demand and liquidity needs have driven banks to adjust deposit rates aggressively.

Escalating Deposit Rates And Liquidity Competition

ABBANK recently raised savings rates by between 0.4 and 1.2 percentage points per year across various tenors. Notably, a rate of 9.65 percent per year is now offered for 13-month deposits of at least VND 1,500 billion, subject to approval by the bank’s chief executive. For maturities below six months, rates range from 3.8 to 4 percent, while deposits of six months jump to 6.3 percent per year.

Bac A Bank also increased deposit rates by approximately 0.3 percentage points per year. Deposits exceeding VND 1 billion earn 4.75 percent annually for maturities under six months, 7 percent for terms above six months, and up to 7.1 percent for maturities between 18 and 36 months.

Several other banks are offering notably high rates for large deposits. PVcombank provides 9 percent per year for 12 to 13-month deposits of at least VND 2,000 billion. MSB offers 8 percent per year for 12-month deposits starting from VND 500 billion. HDBank pays 8.1 percent for 13-month deposits and 7.7 percent for 12-month deposits at the same threshold, while Vikki Bank offers 8.4 percent for deposits from VND 999 billion with maturities of at least 13 months. For maturities under six months, many banks have pushed rates to the regulatory ceiling of 4.75 percent per year.

While these figures highlight intense competition among banks, experts caution that persistently rising deposit rates also reflect deeper structural issues related to the economy’s funding base and the efficiency of mobilizing household savings.

Rethinking Capital Mobilization And Foreign Currency Savings

From this perspective, Pham Xuan Hoe argues that policymakers, including the Government, the Ministry of Finance, and the State Bank, should reassess how domestic savings are mobilized, particularly foreign currency holdings. Although dollarization in Vietnam has declined to around 6 to 7 percent, the pursuit of ambitious growth targets approaching 10 percent may require accepting certain trade-offs.

Allowing limited interest payments on foreign currency deposits such as USD or euro, for example capped at around 0.7 percent per year, could encourage households to bring stored foreign currency into the banking system. This approach would expand available resources for the economy while delivering direct benefits to depositors. The relationship between such incentives and increased foreign currency inflows is causal in design, as the interest mechanism directly alters depositor behavior by changing opportunity costs.

Issuing Domestic Foreign-Currency Government Bonds

Beyond deposit policies, Pham Xuan Hoe proposes that the Government consider issuing foreign-currency-denominated bonds domestically. In this structure, banks that pay interest on foreign currency deposits could channel these funds into government bonds. Even a modest interest rate of around 0.5 percent per year would represent an attractive funding option, particularly given that fiscal space for public debt remains available.

This approach shifts the funding source from external borrowing to domestic households, mediated through commercial banks or investment funds. By borrowing from citizens rather than international markets, the Government can mobilize idle resources, reduce exposure to external shocks, and reinforce financial system stability. The expected stabilization effect arises from a causal mechanism, as domestic funding typically carries lower rollover and currency risks than external debt.

Ultimately, the proposal underscores a broader strategic challenge. As Vietnam aims for higher growth, the question is not only how much capital is mobilized, but also where it comes from and how it is structured. Leveraging domestic foreign currency savings through carefully designed incentives and instruments may offer a path to support growth while maintaining macro-financial balance, provided that policy trade-offs are managed with discipline and transparency.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Gerik

Economic

Escalating Deposit Rates Signal Intensifying Funding Pressure

Entering 2026, the upward trend in deposit interest rates shows no sign of cooling. The increase is no longer limited to a few institutions but has spread across the system, from state-owned banks to joint-stock commercial lenders. This broad-based adjustment reflects intensifying competition for liquidity, suggesting that banks are under growing pressure to secure stable funding sources.

Among state-owned commercial banks, all four institutions with government capital, Agribank, Vietcombank, VietinBank, and BIDV, had raised deposit rates to a higher common level by January 8. This synchronized movement indicates a system-wide recalibration rather than isolated policy choices by individual banks.

Under current State Bank regulations, the interest rate ceiling for deposits with maturities from one to five months remains at 4.75 percent per year. While this level was rarely applied three months earlier, it has now become widespread. Nine banks, including BVBank, OCB, PGBank, VIB, PVCombank, Sacombank, TPBank, VCBNeo, and VPBank, are applying the ceiling across all maturities from one to five months. Nam A Bank has joined this trend at the two-month tenor, bringing the number of banks applying the ceiling to ten. At the three-month maturity, thirteen banks are now offering the maximum rate, including Techcombank, LPBank, and MBV alongside the earlier group. For four- and five-month terms, NCB has also adopted the ceiling, further reinforcing the uniformity of pricing at the short end of the curve.

Early-Year Adjustments And The Cost Of Capital

Beyond the short-term maturities, several banks have continued to adjust deposit rates since the beginning of the year. VPBank, MSB, and ABBank have increased rates, with typical adjustments ranging from 0.2 to 0.4 percentage points per year. These increases are concentrated mainly in medium- and long-term tenors, reflecting banks’ efforts to stabilize funding structures amid rising uncertainty.

As funding costs rise, lending rates are unlikely to remain unchanged. From a market mechanism perspective, higher input costs tend to be transmitted into lending prices as banks seek to preserve interest margins. Although the timing and magnitude of these adjustments may differ across institutions, the underlying pressure on lending rates is structural rather than temporary.

Weak Credit Absorption And The Growing Risk Of Bad Debt

The challenge becomes more acute when higher lending rates interact with an economy whose purchasing power and credit absorption capacity have not recovered proportionally. In this environment, even modest increases in borrowing costs can place additional strain on corporate and household balance sheets. The relationship between higher lending rates and rising non-performing loans is not automatic, but the correlation becomes stronger when borrowers already operate with thin margins and elevated leverage.

At the talk show titled “Rising Interest Rates Suppress Production: Will The Real Estate Bubble Return?”, banking expert Pham Xuan Hoe, former Deputy Director of the Banking Strategy Institute, emphasized that bad debt risks remain persistent and increasingly visible. According to his assessment, non-performing loans continued to rise throughout 2025, particularly from June onward. At the same time, the banking system’s provisioning coverage ratio has declined to around 80 percent, down from levels exceeding 100 percent previously. This reduction indicates a thinner buffer against credit losses and heightens systemic vulnerability.

Real Estate Leverage As A Structural Source Of Risk

One of the most significant sources of potential bad debt, according to Pham Xuan Hoe, lies in the real estate sector and its sophisticated financing practices. He described how developers establish multiple subsidiaries to repeatedly transfer projects at inflated prices, thereby increasing collateral values and expanding borrowing capacity.

In a typical scenario, one subsidiary may borrow approximately 50 billion VND to conduct land clearance. After completing initial procedures, the project is transferred to another entity at a much higher valuation, for example from 60 billion VND to 200 billion VND. Once legal documentation is finalized, banks may extend additional credit based on the higher valuation. When this process is repeated in an environment of continuously rising prices, financial risk accumulates rapidly. The link between inflated valuations and credit expansion here is correlational, but the repeated recycling of leverage creates conditions where losses can quickly propagate if prices reverse.

Even more dangerous is lending to affiliated or “backyard” enterprises. Pham Xuan Hoe pointed to the SCB and Van Thinh Phat case as a clear illustration of systemic risk when confidence among depositors and bond investors collapses. When SCB lost its ability to meet obligations, the consequences extended far beyond a single institution, forcing economy-wide liquidity support and emergency measures to stabilize public trust.

When Property Markets Deflate

If the real estate bubble deflates, the two most severely affected groups are banks and small-scale speculators holding land plots. Falling prices trap these investors in illiquid positions, making it difficult to exit and leading to a rapid expansion of bad debt. In such conditions, if inflation edges higher while non-performing loans increase, policy tightening becomes unavoidable. This dynamic has already begun to emerge, with some commercial banks tightening real estate lending standards.

To address bad debt risks and improve the effectiveness of credit allocation, Pham Xuan Hoe proposed two key policy directions. The first involves raising the risk weighting applied to real estate lending, for example from 150 percent to 200 percent, to redirect capital toward productive and cash-generating business activities. The second focuses on stricter financial assessment of real estate developers. Minimum quick ratios should reach at least 0.8, and total debt relative to equity should not exceed four to five times. Beyond this threshold, lending should be halted. Implementing such measures would require coordination between the Ministry of Finance and the State Bank.

From a broader economic perspective, real estate must ultimately serve housing needs or generate real cash flows. Yet many villas along Thang Long Boulevard or in Me Linh remain vacant, tying up capital without contributing to economic output. This idle capital does not create social value and increases financial fragility.

Debt-Fueled Land Banks And Systemic Exposure

Another critical issue concerns the actual land banks held by developers, which warrants closer scrutiny from the Ministry of Construction. Much of this land has been accumulated using bank loans or bond financing. While financially sound and transparent firms with credit ratings may still access bond markets, current bond yields of 11 to 12 percent are already very high. By the end of 2025, real estate inventories had reached substantial levels. When firms become trapped in highly leveraged positions without viable exit options, banking sector balance sheets inevitably absorb the consequences.

In practice, when real estate markets encounter distress, banks and speculators bear the greatest risks, while large developers may be relatively insulated. Pham Xuan Hoe summarized this imbalance with a stark industry saying: if a bank lends 10 while a firm contributes 90, the bank is the creditor, but if a firm contributes only 10 and the bank lends 90, the bank effectively becomes the debtor, standing while lending and kneeling when collecting repayments.

Looking ahead, if monetary policy is loosened in 2026 to pursue double-digit growth targets, the possibility that liquidity will once again flow disproportionately into real estate is a serious concern. Without stronger safeguards, such an outcome would deepen existing vulnerabilities rather than support sustainable growth.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites