From LDR Easing to Interest Rate Divergence: How Is Decision 1743 Changing Banks’ Funding Dynamics?

In the previous analysis, the increase in the proportion of State Treasury (ST) deposits included in the LDR calculation was not merely a technical adjustment, but rather a policy tool to unlock additional lending capacity for state-owned commercial banks. At the same time, the analysis anticipated that the policy would inevitably lead to greater divergence across banking groups, rather than a broad-based decline in interest rates across the market.

This article updates that analytical framework with three new sets of data: the scale of the system-wide credit–deposit gap; the specific transmission mechanism through Funds Transfer Pricing (FTP), which helps explain how the policy feeds through to lending and deposit pricing; and quantitative evidence of increasing divergence in deposit rates, alongside the potential for liquidity pressures to re-emerge toward year-end.

The Scale of the Constraint: The Credit–Deposit Gap Continues to Widen

According to recently released data from the State Bank of Vietnam (SBV), as of the end of June 2026, total credit outstanding across the economy reached approximately VND 19.97 quadrillion, while deposits stood at around VND 17.34 quadrillion, resulting in a credit–deposit gap of approximately VND 2.63 quadrillion. The gap widened by nearly VND 550 trillion in just the first half of the year compared with the end of 2025. By mid-July 2026, system-wide credit outstanding had continued to rise to nearly VND 20.1 quadrillion, equivalent to 7.86% growth from year-end 2025.

From a funding-balance perspective, these figures indicate that the gap between credit growth and deposit mobilization is not only persistent but also continuing to widen at a significant pace. Against this backdrop, while the adjustment to the LDR calculation methodology can create additional lending headroom for the banking system, its impact primarily relieves part of the liquidity constraint rather than addressing the underlying funding imbalance.

In other words, Decision 1743 may expand the system’s lending capacity, but it does not eliminate the structural gap between credit growth and the banking system’s capacity to mobilize deposits.

Quantifying the Additional Lending Headroom: VND 188 Trillion

With the deduction rate reduced from 80% to 50%, meaning the proportion of State Treasury (ST) deposits included in the LDR denominator increases from 20% to 50%, or an additional 30 percentage points, approximately VND 188 trillion in ST deposits is added to the LDR denominator of the four state-owned commercial banks. Applying the widely used 85% LDR threshold, this additional amount could technically create approximately VND 160 trillion in additional lending headroom.

The key point, and one emphasized in the previous analysis, is that the VND 160 trillion does not represent new money injected into the economy. Rather, it is lending headroom generated purely by a change in the measurement methodology. Whether banks can fully utilize this additional headroom will still depend on their actual funding capacity, credit quality, and underlying loan demand, three variables that fall outside the scope of Decision 1743 itself.

Transmission Mechanism

One gap in the previous analysis was the lack of a detailed explanation of how an adjustment to the LDR methodology, essentially an internal prudential metric, can translate into changes in market deposit rates. This transmission mechanism can be understood through Funds Transfer Pricing (FTP), the internal pricing mechanism used by a bank’s head office to buy and sell funds with its branches, thereby influencing incentives for deposit mobilization and lending at the branch level.

The transmission mechanism operates as follows: as LDR headroom expands, the head office faces less pressure to raise long-term funding → the head office lowers its internal transfer price for funds (FTP) across certain maturities → branches have less incentive to offer high negotiated deposit rates to attract large deposits → both posted and negotiated deposit rates at these banks tend to remain relatively lower than those offered by the rest of the market.

Because the FTP mechanism operates internally within each individual bank, the rate-cutting effect is most pronounced among banks whose LDR denominator has actually been expanded namely, the four state-owned commercial banks, which hold 99.59% of State Treasury deposits. This provides the technical basis for explaining why the policy is more likely to result in divergence in deposit rates across banking groups, rather than a broad-based decline in rates across the entire market.

Empirical Evidence: Interest Rate Divergence Is Becoming Increasingly Visible

The deposit rates published in early August 2026 show a significant gap between the two banking groups, consistent with the FTP transmission mechanism outlined above.

Banking Group	Short-Term Deposit Rates	Notes
Four State-Owned Commercial Banks (VCB, BID, CTG, Agribank)	≈ 2.6–2.9% p.a.	Broadly applicable; these banks have benefited from expanded LDR headroom
Joint-Stock Commercial Banks (maturities of 6 months and above)	Significantly higher; negotiated rates of 7.8–9% p.a. in some cases	Rates of 7.8–9% primarily apply to large deposits under specific conditions and do not represent the prevailing market rate

Source: Deposit rate schedules published by banks in early August 2026; compiled by Virtus Prosperity.

A second layer of evidence comes from the interbank interest rate curve, which shows a clear divergence between very short-term liquidity conditions and funding at longer maturities:

Tenor (28/7/2026)	Interbank Interest Rate
Overnight	2.2%/ year
One week	4.55%/ year
Two weeks	5.3%/ year
One month	6.9%/ year

Source: State Bank of Vietnam (SBV), compiled by Virtus Prosperity.

The significant gap between overnight rates and longer-tenor rates suggests that short-term liquidity in the banking system remains relatively abundant, while pressure on term funding persists. Therefore, the decline in overnight rates to relatively low levels should be interpreted with greater caution. These rates reflect immediate liquidity conditions in the interbank market, but do not necessarily indicate that the challenges surrounding medium- and long-term funding have been resolved. As credit demand continues to grow rapidly, the divergence between short-term liquidity conditions and banks’ ability to secure term funding remains an important factor to monitor across the banking system.

Year-End Liquidity Risks

The risk of the State Treasury (ST) withdrawing funds ahead of schedule is a theoretical variable that could reverse the current analytical conclusion. Recent policy developments allow this risk to be translated into a more clearly defined time-bound scenario: Resolution No. 168/NQ-CP (June 27, 2026) sets a full-year economic growth target of at least 10% and calls on ministries and agencies to accelerate public investment disbursement during the remaining months of the year. In practical terms, as the ST transfers funds to pay for projects and contractors in line with this objective, bank deposits held on behalf of the ST would decline accordingly, while the portion of the LDR denominator that was expanded under Decision 1743 would contract by the same proportion.

This risk is likely to coincide with the seasonal year-end increase in corporate credit demand during the peak production and business cycle, creating the potential for two concurrent pressures in Q4 2026 and early 2027: (i) ST funds being withdrawn as public investment disbursement accelerates, and (ii) seasonal growth in credit demand. Banks that have already utilized a substantial portion of their newly expanded LDR headroom to extend loans may be forced to return to the deposit market to replenish funding, potentially intensifying competition for deposits and pushing deposit rates higher—even among the very banks currently benefiting most from the policy. This would represent a reversal of the lower-rate trend observed at the current stage.

This is why the SBV requires banks receiving ST deposits to actively monitor maturity mismatches and maintain sufficient liquidity and payment capacity even in the event of an early withdrawal by the ST. In principle, this requirement indicates that the regulator has already incorporated this scenario into the policy design, rather than overlooking liquidity risk as an unintended consequence.

Joint-Stock Commercial Banks: Diversifying Funding Sources Rather Than Waiting for Indirect Benefits

The earlier analysis assumed that joint-stock commercial banks would benefit primarily through the passive spillover of system-wide liquidity. However, actual developments suggest that some banks in this group are actively adapting rather than simply waiting for such spillover effects. VPBank provides a concrete example: the bank has expanded its multi-channel funding strategy, including certificates of deposit and broader access to international funding channels, to gain greater control over its funding maturity profile rather than relying predominantly on traditional short-term deposits. By the end of the first half of 2026, VPBank’s consolidated total assets exceeded VND 1.5 quadrillion, representing a 19.2% increase from the end of 2025.

From a structural perspective, this behavior is a logical response to the asymmetry created by Decision 1743. Because joint-stock banks do not have direct access to the funding advantage provided by ST deposits, the primary way to reduce reliance on competition for retail deposits is to diversify funding sources through capital-market instruments. This represents a market-driven adjustment arising from the policy itself and further reinforces the view that the funding structures of the two banking groups are likely to diverge over the medium term.

Conclusion

Relative to the analytical framework presented in the previous article, the new data and observations do not alter the core conclusion, but they allow it to be refined in a more precise and cautious manner across three dimensions.

• First, the scale of the technical constraint, represented by the VND 2.63 quadrillion credit–deposit gap, is larger and expanding faster than what can be fully addressed through a single adjustment to the calculation methodology.

• Second, the transmission of the policy into actual interest rates through the FTP mechanism operates selectively among the banking groups that benefit directly from the policy. The resulting effect is therefore greater interest-rate divergence, rather than a broad-based decline in rates across the market, consistent with the initial expectation, but now supported by quantitative evidence.

• Third, year-end liquidity risk is no longer merely a theoretical variable. It has become a time-bound scenario with a clearer basis in Q4 2026 through early 2027, directly linked to the pace of public investment disbursement under Resolution No. 168/NQ-CP.

Overall, Virtus Prosperity believes that Decision 1743 continues to reflect the nature identified in the previous analysis: a targeted instrument designed to ease a technical constraint as part of a broader coordinated fiscal–monetary policy framework supporting the objective of double-digit economic growth. However, its real-world effectiveness will ultimately depend on factors beyond the SBV’s direct control, including the pace of public investment disbursement, each bank’s maturity and liquidity management capabilities, and the seasonal credit cycle. As a result, deposit rates are more likely to remain differentiated rather than converge across banking groups during the remaining quarters of 2026.