Financial foundation for investment

Vietnam is facing a paradox: while its domestic savings rate ranks among the highest in the region, the efficiency with which those savings are transformed into investment and economic growth remains limited. Experts believe the main cause of this situation lies in an imbalanced financial structure, a lack of depth in the capital market, and low efficiency in capital utilization. Therefore, for “high savings” to be truly converted into “effective investment,” the State needs to create a transparent and competitive institutional environment that allows the market to naturally screen enterprises, thereby forming a healthy and sustainable capital market.

High savings, weak investment

According to several recently-published analytical reports, Vietnam’s total social investment demand during the 2026-2030 period is estimated at $250-260 billion a year. Of this, the private sector is expected to contribute 55-60 per cent, meaning it will need to mobilize roughly $140-155 billion annually. “Vietnam is entering a period that requires significant capital resources to sustain high growth,” said Mr. Nguyen Quang Thuan, Chairman of FiinRatings. “The role and pressure on the banking system will continue to increase if Vietnam’s financial system is not designed to be more balanced and multi-pillared.”

Accordingly, non-bank funding channels need to be developed, including the corporate bond market; equity capital-raising through the stock market, via IPOs; and capital from private equity and venture capital funds.

Dr. Can Van Luc, a Member of the Prime Minister’s Policy Advisory Council, noted that Vietnam possesses many advantages and significant potential in mobilizing resources for high and sustainable growth in the time to come, provided that appropriate approaches and coherent policies are adopted. One notable advantage is the country’s high and stable level of domestic savings. Vietnam’s savings rate currently stands at some 37 per cent of GDP; significantly higher than its total social investment of about 30-31 per cent of GDP and well above that of many ASEAN countries.

According to Dr. Luc, if the financial system and capital markets are designed to be transparent, safe, and diversified in terms of products, these savings could become an important foundation for medium and long-term investment. Over the past decade, the banking system, stock market, bond market, and insurance sector have expanded rapidly. At present, the total assets of Vietnam’s financial sector are estimated at more than 300 per cent of GDP. Nevertheless, enterprises still face difficulties in accessing capital, and the cost of capital remains high. The structure of the financial system is seriously imbalanced, as equity and bond markets lack depth, placing a heavy burden on the banking system.

As a result, he believes the banking sector has to shoulder an excessively large role in supplying capital to the economy. Outstanding bank credit is currently equivalent to about 147 per cent of GDP and could reach 180 per cent by 2030 if current trends continue. In particular, Vietnam’s low efficiency in capital utilization means that large amounts of capital mobilized have not been converted proportionately into economic growth.

Turning savings into capital

Dr. Nguyen Ba Hung, Chief Economist at the Asian Development Bank in Vietnam, said the International Monetary Fund recently conducted a study measuring the impact of policy reforms on Vietnam’s economic growth. “One noteworthy point is that, in terms of long-term impact, capital market reform accounts for nearly half of the contribution to growth,” he explained. “Though capital markets still face many limitations, if reforms are successful in mobilizing medium and long-term capital for investment, this will be the factor with the greatest long-term impact on economic growth.”

According to Dr. Luc, the foundational factor for realizing all resource-mobilization potential is investor and public confidence. When the institutional environment is transparent, policies are stable, fundraising methods align with market principles, and investor rights are protected, domestic and foreign resources will be activated more strongly. This, in turn, will create a solid financial foundation for Vietnam’s high, sustainable, and inclusive growth in the period ahead.

Experts have noted that after a period of overheated growth in the corporate bond and stock markets, which led to “good and bad being mixed together” and eroded investor confidence, regulators have taken strong corrective measures.

However, many believe that developing corporate bond and equity markets should not focus solely on the supply side and improving the quality of instruments, but also on diversifying the demand side, specifically the investor base. “Alongside diversifying the investor base, it is necessary to build a comprehensive ecosystem of financial services such as investment banking, brokerage, advisory, and credit rating services, in order to improve the efficiency of resource allocation,” Mr. Hung proposed.

He also said the State needs to establish an institutional environment that allows for a fair and transparent process of natural market screening. In such an environment, enterprises that operate efficiently, comply with the law, and possess strong technological and governance capabilities will boast the necessary conditions to survive and grow. Conversely, those that are inefficient, violate regulations, or fail to meet governance and technological requirements will be eliminated under market rules. This screening process will not only help restructure the enterprise sector in a healthier direction but also lay the foundation for the sustainable development of the economy in general and the capital market in particular.

In addition, experts recommend that regulators soon establish a legal framework for developing financial intermediaries that provide credit guarantees and bond underwriting, instead of limiting these activities mainly to credit institutions and State-backed guarantee funds as at present.

For equity capital markets, including IPOs, stock market fundraising, and venture capital investment, stronger development is also needed, alongside the goal of upgrading Vietnam’s stock market to emerging market status under FTSE Russell or MSCI classifications.

Moreover, capital structures for large-scale infrastructure projects, such as high-speed rail, should be studied under a project finance approach through build-operate-transfer (BOT) or public-private partnership (PPP) models, rather than relying primarily on bank credit.

Finally, in the context of declining international interest rates, including the Fed Funds Rate, over the next one to two years, Vietnam needs to prepare early and adopt a systemic approach to seize opportunities to attract portfolio investment from international investors at reasonable cost, instead of the high interest rates seen in the recent past.

One of the key solutions to achieving this goal is to promote an upgrade of Vietnam’s sovereign credit rating to investment grade before 2030, in line with the stated roadmap. Achieving this objective would not only have positive impacts on the financial market, but also enable Vietnamese enterprises to expand investment and trade activities at lower capital costs.

According to experts, the spillover effects of upgrading the sovereign credit rating could be even greater and more sustainable than upgrading the stock market itself.