The pick-up in lending is partly reflective of the central bank's efforts to free up liquidity – in July it lifted the 2015 credit growth ceiling for several major banks. The State Bank of Viet Nam has said credit growth could surpass the 13-15 percent annual target set early this year and top 16.5 per cent.
Growth had been 14.2 per cent last year.
The stronger than expected GDP growth in the third quarter, coupled with the nascent pick-up in bank lending and domestic demand, has prompted HSBC to raise its 2015 GDP forecast to 6.6 per cent from the earlier 6.3 per cent.
It also raised its 2016 GDP forecast to 6.7 from 6.5 per cent.
The report said price pressures remain subdued for now despite the acceleration in growth. In fact, headline inflation slowed to zero percent in September from 0.6 per cent in August.
A 13.1 per cent year-on-year fall in the transportation component shaved 1.1 percentage point off headline CPI growth. But core inflation too remains subdued, slowing to 1.6 per cent y-o-y in September from 2.4 per cent previously. Food inflation has also continued to drift lower, falling 0.3 ppts to 0.7 per cent y-o-y.
With oil prices expected to stay subdued and the dong unlikely to be devalued further, near-term price pressures remain weak, allowing the SBV to keep the OMO (open market operations) rate steady at 5 per cent.
However, the central bank will want to remain vigilant: with strong growth likely to continue in the quarters ahead, the report sees inflation bottoming out in the fourth quarter and then rebounding to 3.3 per cent y-o-y by the end of 2016's first half. The figure may rise to 5.2 per cent y-o-y by next year end.
Another reason that the next move from the central bank will likely be a hike, and not a cut, is the trade deficit. The combination of slowing exports and recovering domestic demand has meant that Viet Nam's trade balance has fallen back into deficit.
Though not yet alarming, what is worrying is that the deterioration has been driven by a widening deficit in the domestic sector. As opposed to foreign-invested firms, whose imports are used as inputs for Vietnamese shipments abroad, domestic firms primarily import to serve domestic consumption.
In the past the trade deficit of domestic firms, especially the State-owned enterprises, has widened on the back of credit-fuelled consumption and investment, putting pressure on the currency and posing challenges to the economy.
But for now Viet Nam's macro risks are limited, given the central bank's prudent management of monetary policy.
