Realizing the potential of Viet Nam’s capital markets is a central goal of the Sustainable Finance Facility (SFF). The SFF, supported by the Swiss development agency’s State Secretariate for Economic Affairs (SECO), helps governments in developing and emerging economies create conditions for enabling and mobilizing private capital, especially for sectors that require long-term financial investments, to tackle pressing global challenges.
The World Bank’s work in Viet Nam takes place against the backdrop of relative macroeconomic stability but significant challenges to creating a vibrant capital market that can channel savings into productive, sustainable enterprises. Stable frameworks for institutional investors, government capacity for sound regulation, and demonstration transactions will be essential to unlocking Viet Nam’s promise.
To that end, the World Bank, under the SFF, supports major projects, vital technical assistance, and important research in the Southeast Asian nation. The largest domestic institutional investor, the Viet Nam Social Security Fund, now faces the challenge of diversifying its portfolio to anchor a more active bond market. A test for SFF work in Viet Nam – the first green and sustainability bonds issued by a commercial bank in the country – demonstrated great promise.
Viet Nam already has decent economic growth and fiscal stability, but the country needs financing for long-term projects, especially in infrastructure, for sustainable development. At most, the government can only provide two-thirds of the US$25 billion per year (7 percent of GDP) the country needs. The remainder must come from private-sector banks and, for longer-term financing, capital markets.
Viet Nam is behind most ASEAN-5 countries in some areas of capital market development. Domestic enterprises face constricted access to foreign capital and the domestic investor base is still developing. The right reforms to promote corporate bond and equity market development, including an Emerging Market upgrade of the stock market, could bring more than US$78 billion in new funding and investment in a 6-8-year horizon, primarily for the corporate sector.
New Dynamism of the Viet Nam Social Security Fund
The Viet Nam Social Security Fund (VSS) is the colossus among institutional investors, with assets of more than 10 percent of GDP, giving it a central role in overall capital market development. The World Bank is providing VSS with extensive capacity-building and technical assistance to manage the risks of a more diversified portfolio and of working with external asset management companies.
Before the new Law on Social Insurance, revised with the assistance of World Bank experts, the VSS could only buy government bonds. The effect, a common challenge in developing countries, has been to distort the overall bond market by driving interest rates far below where risk calculations would otherwise set them. The corporate bond market, in turn, lacks a standard reference price.
Now, VSS can support improving the domestic bond market’s pricing by starting to purchase international bonds. Within the boundaries of the 2024 law, the World Bank is providing technical assistance in designing the regulations. This assistance includes advice on a new risk-management framework that accounts for a more diversified set of holdings than only government bonds and on working with external asset management companies, both domestic and international.
For example, the new law allows the VSS to purchase international government bonds, but under a very broad definition. Regulations will define a more precise investment policy, such as the issuing countries and bond ratings. The VSS may also start investing in infrastructure development projects to support Viet Nam’s ambitions of double-digit economic growth between 2026 and 2030. These essential first steps will help the VSS diversify away from the government bond market while also facilitating more realistic pricing.
BIDV Green and Sustainability Bonds
The World Bank provided technical assistance to the state-owned Bank for Investment and Development of Vietnam (BIDV) to issue its inaugural, US$104 million green bond and US$120 million sustainability bond in 2023 and 2024, respectively. These transactions are the first senior, unsecured, and unguaranteed green and sustainability bonds issued by a local commercial bank in Vietnam. Other banks, such as Vietcombank, HDBank and SeABank, have since issued green bonds as a result.
As the oldest financial institution in Viet Nam and one of the top three hundred largest banks in the world, BIDV is focusing on tailoring green financial products and services as well as adjusting its structure and organizational model towards green banking, a priority goal in its business strategy through 2030.
A green bond is a fixed income instrument in which the proceeds are earmarked for projects that generate positive environmental impact. Crucially, green bonds are well established and well understood by the mainstream financial markets, which help issuers attract capital for projects consistent with investors’ environmental, social, and governance priorities.
Globally, accumulated sustainable bond issuance reached about US$5.97 trillion in Q3 2024 following several years of rapid growth. Annual issuance of green, social, sustainability, and energy transition bonds broke the US$1 trillion barrier in 2021 and show no sign of slowing. But the world still needs US$2.4 trillion of investment in developing economies (outside China) to complete the energy transition and adapt to climate change.
Previous World Bank technical assistance included helping BIDV understand international best practices and develop a roadmap and action plan, reviewing BIDV’s green bond framework, and assisting with an independent external review by Moody’s. The World Bank is now assisting BIDV in evaluating its success in allocating the proceeds of bond issuance and the impact of the projects financed.
BIDV has highlighted 13 categories of projects eligible for financing with green bond proceeds, including renewable energy, clean energy, construction, agriculture, sustainable water management in urban and rural areas, waste treatment and pollution prevention, natural environment protection and restoration, and natural disaster risk management, prevention, and response.
Kickstarting Corporate Bond Markets
With World Bank assistance under the SFF, Viet Nam has largely recovered from corporate bond turmoil that set back the market’s growth.
In the ten years up to 2022, the government bond market grew from 15 to 23 percent of GDP and the corporate bond market jumped from 2 to 15 percent. After a period of turmoil, the listed market started growing rapidly, significantly exceeding its less than 10 percent share in previous years. That said, Viet Nam’s corporate bond market lags behind ASEAN peers such as Malaysia and Thailand, an indicator of great potential for future growth.
