Vietnam wins first investment-grade rating, opening door to cheaper funding for growth

VIETNAM’S first investment-grade sovereign rating from a Japanese credit assessor could open a new avenue for financing the country’s ambitious double-digit economic expansion plans.

But analysts say the benefits may be limited until major global rating agencies follow suit.

Rating and Investment Information (R&I) on Thursday (Oct 8) raised Vietnam’s foreign-currency issuer rating to BBB- from BB+, with a stable outlook, making it the first agency to assign the country an investment-grade rating.

The decision reflects optimism about Vietnam’s economic trajectory. The agency expects strong growth to continue following a roughly 9 per cent expansion in the first nine months of 2026, supported by public investment, foreign capital and structural reforms, including the government’s second-generation reform programme known as “Doi Moi 2.0”.

Nguyen Quang Thuan, chairman at Hanoi-based FiinRatings and FiinGroup, said the decision was particularly significant for Japanese institutional investors because R&I is recognised by Japan’s Financial Services Agency as a designated rating agency.

“Institutions whose investment rules require ‘BBB- or higher from at least one designated agency’ can now include Vietnam in their portfolios,” Thuan said in written comments.

“By contrast, institutions applying a ‘lowest rating’ or ‘second-best rating’ rule remain constrained by the Big Three’s BB+ ratings.”

R&I currently assigns more favourable sovereign ratings than global peers to some South-east Asian economies. Vietnam remains below investment grade under the methodologies of S&P, Moody’s and Fitch, or the “Big Three” global rating agencies, which are more widely used by international institutional investors.

The distinction means the upgrade could open some previously restricted funding channels without necessarily triggering a broad reclassification of Vietnamese debt across global investment portfolios.

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Under the Basel III standardised approach, the regulatory risk weight on Vietnam’s foreign-currency government bonds could also fall from 100 per cent to 50 per cent for banks permitted to use R&I’s rating, Thuan added.

Such a reduction would lower the capital required to hold the exposure, potentially making Vietnamese sovereign debt more attractive to qualifying financial institutions.

Tyler Manh Dung Nguyen, chief market strategist at Ho Chi Minh City Securities Corporation, wrote in a note on Thursday that the upgrade could benefit the government and major state-linked companies, including VietinBank, Agribank and Vietnam Electricity, by improving their access to Japanese institutional investors and yen-denominated Samurai bonds.

The upgrade follows a renewed push by Japan, Vietnam’s largest bilateral aid provider, to finance the country’s development. A day earlier, the Japan International Cooperation Agency announced plans to provide Vietnam more than 100 billion yen (US$630 million) in annual official development assistance loans.

A US$1.45 trillion financing challenge

The credit upgrade comes as Vietnam faces an increasingly difficult task of mobilising sufficient capital to meet its economic ambitions.

Maybank Investment Bank Vietnam (MSVN) estimates that the country will require about US$1.45 trillion in total social investment between 2026 and 2030, equivalent to roughly 40 per cent of gross domestic product over the period.

Based on the government’s investment structure, about 53 per cent would come from the private sector, 32 per cent from the state and the remaining 15 per cent from foreign direct investment.

Quan Trong Thanh, head of research at MSVN, said that the government should take the lead in raising offshore capital for major infrastructure projects, while banks should remain the primary financiers of private-sector investment.

“In our view, one sure thing is that Vietnam must mobilise more offshore funds, especially from 2028,” Thanh said in comments shared with The Business Times.

He believes Vietnam must deepen its capital markets, including corporate bond and equity markets, but cautions that market development alone cannot meet the country’s financing requirements within the planned timeframe.

“I don’t think it can develop fast enough to achieve the target to support the national growth plan,” Thanh said.

Some local authorities are already exploring new fundraising mechanisms.

Ho Chi Minh City is seeking feedback on a proposal to issue municipal and project bonds, including foreign-currency debt, through Vietnam’s international financial centre, or VIFC, to fund major infrastructure projects and develop capital-market services.

Thanh welcomed the prospect of local governments becoming more active in raising project financing, but said pricing would ultimately determine whether such instruments could attract investors.

Road to broader investment grade

MSVN has noted that achieving broader investment-grade sovereign status could eventually lower Vietnam’s borrowing costs by 150 to 300 basis points, while helping attract institutional capital from pension funds, insurers and sovereign wealth funds.

It would also signal macro stability, reducing currency volatility and hedging costs, as well as improve individual corporate ratings.

“The most critical is forging a right framework for developmental finance and getting the sovereign-rating upgrade to investment grade sooner that its original plan (2030) in order to structurally bring down its funding costs,” Thanh noted. 

Vietnam’s banks remain the primary financing channel for businesses, even as policymakers seek to develop deeper capital markets.

In its assessment, R&I highlighted the country’s high ratio of outstanding bank loans to GDP, which exceeded 140 per cent at the end of 2025, alongside tight banking-sector liquidity, substantial real estate-related lending and relatively limited capital buffers.

Those weaknesses could make banking reforms important to securing further sovereign upgrades.

The State Bank of Vietnam issued Circular 50 in September, introducing a phased transition towards Basel III-aligned liquidity standards, including the liquidity coverage ratio and net stable funding ratio. Mandatory implementation begins in October 2028.

Thanh described the regulation as “a positive development for Vietnam banking sector’s operation in the long run”, saying it would strengthen liquidity management and “contribute to the attempts in sovereign-rating upgrade.”

He also argued that banks would need to play a more selective role in directing capital into productive investments.

“The role of the banking system in the coming period must extend beyond merely expanding credit,” he added.

“It needs to shift towards enhancing the quality of capital allocation to support the development of strategic industries, and formation of national champions.” THE BUSINESS TIMES