Upgrade opens doors, but long-term capital is key

Vietnam is trying to fund a multi-decade infrastructure transformation using a banking system that was primarily designed for short-term commercial lending. Over time, that model naturally hits limits.

- By Thomas Nguyen

Banks fund themselves largely through deposits, including a significant proportion of low-cost current and savings accounts. Using short-term liabilities to fund long-duration infrastructure projects creates a structural duration mismatch. That is not unique to Vietnam, but it becomes more important as the economy scales and infrastructure needs accelerate.

Globally, the natural providers of long-term capital are pension funds, insurance companies, sovereign funds, and asset managers. These institutions manage long-duration liabilities and are therefore structurally better suited to fund infrastructure, energy transition, logistics, transport, and urban development projects.

Vietnam is still early in building that ecosystem. The insurance sector remains relatively small compared to regional peers, which limits the pool of domestically generated long-term institutional capital. In most mature financial systems, insurance companies play a critical role in channeling long-term household savings into productive investment assets.

The government clearly recognises this challenge. One of its most important initiatives is the Vietnam International Financial Centre. If executed successfully, the framework could be transformational because it creates the legal, financial, and regulatory architecture needed to attract global long-term capital into Vietnam.