Reshaping capital flows to unlock Vietnam's next growth engine

That message emerged consistently from experts speaking at the panel discussion on finding opportunities in a new era of growth, held as part of the Restructuring Capital Channels seminar organised by Vietnam Investment Review on July 15 in Hanoi.

With investment demand expected to rise sharply in the coming years, they agreed that Vietnam can no longer rely primarily on bank lending. Instead, the capital market must assume a much larger role in mobilising long-term funding, broadening investment products, diversifying the investor base and improving capital allocation.

Experts shared insights on reshaping Vietnam's capital markets during the panel discussion. Photo: Chi Cuong

One priority is strengthening the stock market's ability to attract long-term domestic and foreign capital.

Nguyen The Minh, head of Investment Banking and member of the Executive Board at ABS Securities, said that expanding passive investment products, particularly exchange-traded funds (ETFs), should be high on the agenda.

"Without ETFs, foreign investors simply cannot invest effectively. That's why I believe ETFs are an essential investment product," Minh said.

Alongside product innovation, Minh believes Vietnam should establish a more robust framework for assessing corporate transparency.

"We already have ESG indices, but we could also develop indices based on investor relations ratings. Such benchmarks would provide institutional and foreign investors with an objective measure of corporate transparency before making investment decisions," he said.

Looking ahead, he proposed allowing fund management companies to develop proprietary indices and launch ETFs based on those benchmarks, rather than relying solely on exchange-developed indices.

As retail investors increasingly prioritise investment efficiency over frequent trading, ETFs are expected to become an increasingly important vehicle for channelling long-term capital into the market.

While the equity market requires broader investment products, experts argued that the corporate bond market faces a different challenge: restructuring its investor base.

Nguyen Thi Trieu, CEO of Blue Bridge Investment Partners, said that although the market has recovered significantly from its recent downturn, its underlying structure has changed little.

Around 80 per cent of corporate bond issuance continues to come from banks and real estate developers, while banks remain the dominant investors. "In essence, today's corporate bond market remains a funding channel for the banking system," Trieu said.

“As long as banks remain both the largest issuers and buyers, the market will struggle to reduce the economy's dependence on bank credit. Instead, both issuers and investors must become more diversified, while capital should increasingly be directed towards sectors capable of generating sustainable long-term economic value,” Trieu added.

She welcomed ongoing efforts to establish a legal framework for public-private partnership (PPP) project bonds, describing infrastructure financing as one of Vietnam's most pressing investment needs. However, she cautioned that infrastructure projects typically generate relatively modest returns while requiring investment horizons stretching over several decades.

"If PPP bond issues still require bank guarantees, we ultimately return to the same dependence on the banking system," said Trieu.

Rather than encouraging greater participation from retail investors, Trieu believes priority should be given to developing a much deeper institutional investor base.

"Individual investors should not be encouraged to buy corporate bonds directly. These products are designed for professional investors capable of properly assessing corporate credit risk," she added.

Among Vietnam's available pools of long-term capital, she identified insurance companies as one of the country's most underutilised funding sources.

With liabilities typically extending 20-30 years, insurers are naturally suited to investing in infrastructure assets and long-dated corporate bonds. Unlocking this capital, however, will require effective credit enhancement mechanisms that provide sufficient protection for institutional investors.

Meanwhile, Duong Kim Anh, director of Investment at Vietcombank Fund Management, said that transformation begins with changing investor behaviour.

"The most important change is moving investors from speculation to investment. As long as the market is viewed primarily as a place for short-term speculation, it will be difficult to build the stable, long-term capital base that the economy requires," she said.

Although securities firms, fund managers and fintech companies have invested heavily in financial education, investor interest in long-term investment products remains limited compared to direct stock trading.

Yet the bottleneck no longer lies in the availability of investment products, but in their distribution to a wider investor base. She suggested that commercial banks could become a critical channel alongside digital investment platforms.

"In many developed markets, banks provide customers with a comprehensive financial ecosystem covering deposits, insurance and investment products. In Vietnam, however, mutual fund distribution through banks remains relatively limited," said Anh.

Allowing qualified banks to distribute fund certificates would improve accessibility while strengthening investor confidence through an additional layer of due diligence. “Nevertheless, any expansion must be accompanied by stronger governance standards, professional advisory practices and tighter supervision, drawing lessons from Vietnam's bancassurance market,” she warned.

Nguyen Anh Khoa, director of Analysis at Agribank Securities, cautioned against expecting banks to expand lending to the securities sector. Vietnam's stock market remains young, corporate quality varies widely, and share prices often diverge from intrinsic values, making prudent risk management essential when extending credit linked to listed securities.

“When banks assess collateral, value listed shares or forecast corporate cash flows, numerous uncertainties come into play. Effective risk management is therefore essential when extending credit related to securities investments,” Khoa said.

He added that a clearer division of responsibilities between banks and securities firms would better align Vietnam with international practice, allowing banks to focus on lending while securities firms specialise in advisory services, underwriting and capital raising.

Khoa also said Vietnam's credit-to-GDP ratio of around 140-145 per cent should be viewed in the context of the country's open economy, where import-export turnover equals roughly 200 per cent of GDP and naturally creates strong financing demand. Nevertheless, the economy remains heavily reliant on bank credit because capital markets are still underdeveloped. Corporate bonds account for only around 10 per cent of GDP, while stock market capitalisation stands at about 80 per cent. New capital raised through the equity and bond markets in the first half of the year amounted to 1-2 per cent of GDP.

“Over the next five years, banks will remain the primary source of financing. However, both the equity and bond markets must develop much faster to gradually share that responsibility,” Khoa said.

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Dragon Capital: Vietnam has 3–5 years to cut bank reliance Vietnam has a three-to-five-year window to reduce its reliance on bank credit, making the restructuring of its capital channels an urgent priority, according to Dragon Capital.