Vietnam has made remarkable progress in economic development and financial market expansion, positioning itself as a key player in Southeast Asia.
However, it remains classified as a frontier market, which limits its access to global institutional capital. Vietnam has been tipped to move to emerging status by the end of 2025, and given Australia’s strong financial system and deep-rooted economic ties with Vietnam, it can play a crucial role in accelerating Vietnam’s financial sector development.
In this short, sharp review, AVPI Fellow Dr My Nguyen, Associate Professor of Finance and the Deputy Head of Finance Department at RMIT University, discusses how through strategic collaboration, both nations can unlock new economic opportunities, reinforcing their financial partnership and contributing to regional economic stability.
Key Takeaways
- A robust and well-regulated banking system is fundamental to achieving emerging market status. Vietnam’s banking sector, however, faces challenges such as high non-performing loans (NPLs), capital adequacy issues, and underdeveloped risk management frameworks.
- Australia, with its strong financial regulatory system, can support Vietnam in enhancing banking supervision, strengthening interbank and wholesale funding markets, and improving credit assessment tools.
- Australian banking authorities can collaborate with Vietnamese regulators to enhance financial stability and provide training and capacity-building initiatives to strengthen Vietnam’s regulatory framework.
- Vietnam’s banking sector heavily relies on short-term deposits for funding, making it vulnerable to liquidity risks. Australian banks have well-established interbank lending and wholesale funding markets, which could help Vietnamese banks diversify their funding sources.
- Australian banks have robust cybersecurity frameworks that leverage AI and machine learning to detect fraud and monitor threats, which can be adopted by Vietnamese banks to improve their digital banking resilience and protect against growing cyber risks.
- Vietnam’s transition to an emerging market is a critical step toward deeper financial integration and economic expansion, positioning itself as an attractive investment destination.
Emerging vs. Frontier Markets
Check out MSCI’s Market Classification to get a better idea of how equity markets are assessed and categorised according to common characteristics. Criteria such as economic development, size and liquidity requirements, and market accessibility determine how a country’s equity market is assigned a status of developed, frontier, emerging or standalone.
