Does Credit Growth Weaken Stability? Evidence and Policy Implications in Vietnam

This paper examines the bidirectional dynamics between credit growth and banking stability in the context of Vietnam, where the financial system is dominated by banks and the macroprudential framework is strongly strengthened over the period 2008–2024. Using a quarterly panel dataset of 29 Vietnamese commercial banks (Q1/2008–Q4/2024) and a Panel VAR (PVAR) model to handle endogeneity, the study quantifies the time-varying responses of credit growth (CRE) and the stability indicator Z-score to structural shocks. The main results show that: (i) a positive shock to banking stability increases credit in a statistically significant and persistent manner across multiple quarters; (ii) a credit growth shock does not have a significant impact on Z-score in the short–medium horizon; and (iii) the forecast variance decomposition (FEVD) shows asymmetry: Z-score variation is largely “autogenerated”, while CRE variation is increasingly explained by stability shocks (approximately 9–10% in the 10th quarter). Granger causality tests confirm a unidirectional relationship from stability to credit. The findings imply a “stability-first, credit-quality-later” policy priority order: strengthening capital and earnings quality, cross-cyclical provisioning discipline, and maintaining macroprudential tools that help expand credit supply sustainably without sacrificing systemic safety. The study contributes quantitative evidence in emerging markets, complementing the international literature that often emphasizes the credit-to-crisis channel, and suggests extensions to nonlinearities/thresholds and bank-specific heterogeneity.