Easing interest rates in Vietnam: Boosting stock market, reducing pressure on banks

Developing the stock market and attracting international capital are seen as important ways to ease pressure on the banking system and create more room for interest rate cuts.

However, amid sharp fluctuations in global capital flows, this is no easy task.

Huge capital needs call for stock market development to ease pressure on banks 

Dr. Can Van Luc, chief economist at BIDV and a member of the National Financial and Monetary Policy Advisory Council, said Vietnam needs investment capital equivalent to around 40 percent of its GDP to sustain high economic growth, with an average annual increase of 14 percent.

Accordingly, investment capital needs for the 2026-30 period are estimated at nearly US$1.5 trillion, equivalent to $280-300 billion a year.

The state budget can meet only around 20-22 percent of this demand, meaning most of the remaining resources must be mobilized from domestic and international private sectors.

One notable issue, Luc said, is that the current capital supply structure remains heavily dependent on the banking system, with credit representing around 51 percent of the economy's total capital.

Meanwhile, the stock market and corporate bond market contribute only around 13-14 percent, with their combined share rising to around 23 percent when government bonds are included.

Outstanding credit currently stands at the equivalent of 144 percent of GDP. Dr. Luc warned that if credit continues to grow by 15 percent annually while GDP expands by 10 percent, the credit-to-GDP ratio could reach around 180 percent by 2030.

In addition, credit growth has consistently outpaced deposit growth since 2021, widening the gap between outstanding loans and deposits in the banking system to nearly VND2 quadrillion ($77.38 billion). This has increased pressure on banks to mobilize funds, affecting their ability to lower lending rates.

According to Dr. Luc, Vietnam needs to further develop its stock and corporate bond markets, particularly their capacity to raise medium- and long-term capital, to meet growing investment needs and ease pressure on the banking system.

At the same time, the country needs to continue improving conditions to pursue an upgrade of its stock market under MSCI criteria, attract more foreign capital, and strive to achieve investment-grade sovereign credit ratings before 2030.

Global capital available, attracting it to Vietnam no easy task

Given the country's substantial investment needs, attracting international capital through the stock market is an important priority.

However, geopolitical instability, energy prices, and an uncertain monetary policy outlook are causing global capital flows to fluctuate, posing greater challenges for emerging markets.

According to VNDIRECT Securities' September 2026 report, global equity exchange-traded funds attracted net inflows of $127 billion, down seven percent from the previous month.

Bond ETFs, by contrast, recorded net inflows of $78.8 billion, up 40 percent and the highest level since the beginning of the year.

Capital flows into emerging markets also showed clear divergence.

In September, China equity ETFs attracted net inflows of more than $5.1 billion, reversing net outflows of nearly $18 billion in August.

India attracted net inflows of more than $2.2 billion, while Taiwan continued to see net outflows of around $265 million.

In Vietnam, Hoang Viet Phuong, director of research and investment advisory at VNDIRECT, said foreign investors had reduced their net selling in August and returned to net buying in the week before the market upgrade announcement by FTSE Russell. However, they stepped up net selling again in the final week of September.

For September as a whole, foreign investors recorded net sales of more than VND4.8 trillion ($185.8 million) on the Ho Chi Minh Stock Exchange, nearly three times the previous month's figure and marking the ninth consecutive month of net selling.

In the first nine months of 2026, cumulative net foreign selling exceeded VND97.8 trillion ($3.78 billion), equivalent to the same period last year.

"Continued net selling by foreign investors is putting further pressure on market sentiment," Phuong said.

The CEO of a securities company said it was necessary to distinguish between passive investment flows arising from portfolio rebalancing and active investment flows based on assessments of investment prospects.

Passive capital flows may be allocated according to an index adjustment schedule, but the actual amounts depend on each fund's portfolio, weighting and criteria.

Active investment funds, meanwhile, can choose among multiple markets. Vietnam must therefore compete directly with other destinations in the region in terms of expected returns, market accessibility, and risk levels.

One issue that needs further improvement, according to the executive, is foreign investors' access to the market. Factors such as foreign ownership limits at certain companies, access to stocks of sufficient size, trading and settlement procedures, and foreign exchange risk management conditions can all affect investment decisions.

For international investors, stock returns are not the only consideration. Trading costs, currency convertibility, liquidity, and the risks associated with withdrawing capital are also factored into portfolio allocation decisions.