Banks roll out green credits for eco-friendly approach

Banks roll out green credits for eco-friendly approach

The Vietnamese government’s increasing support and gradual policy reform in recent years have boosted green projects in different sectors across the country.

According to Stephanie Betant, country head of Wholesale Banking at HSBC Vietnam, there is a momentum building up worldwide of environmental and climate risks being regarded and managed alongside any other financial risks – and as a result, the demand for green credit rises.

The State Bank of Vietnam (SBV) said that the country currently has 31 financial institutions involved in green credit, with total credit of more than VND285 trillion ($12.4 billion), mainly on green agriculture and renewable energy.

Eco-friendly credit and green bond issuance have received great attention as these debt instruments could promote a lower-carbon and a more resilient economy. According to SSI Research, the bond value mobilised for solar power projects climbed to VND29.9 trillion ($1.3 billion) in 2020, a 254 per cent jump on-year.

In terms of credit sources, by the end of 2020, banks had poured VND84 trillion ($3.65 billion) into renewable energies, mostly lending to solar power projects. That is because solar power is deemed a renewable energy that is stimulated for investment and development, Betant explained. Credit channelling into solar projects just accounts for 1 per cent of banks’ total outstanding loan balance.

Last November, HSBC Vietnam inked an agreement with Vietnam-based REE Corporation to provide a 7-year term loan worth nearly $28.7 million to develop a rooftop solar project. Previously, the bank signed a green credit agreement to finance Duy Tan Plastics Recycling Factory.

“Green investment, like new technologies, usually require a long payback period, a large sum of capital, and strong expertise to ensure that those projects meet all green criteria from starting point to product commercialisation,” said Betant. “While some of these projects have a longer tenure, particularly in renewable energy, the green lending framework is an expertise that is developed in addition to our existing commercial lending know-how. Internationally, and when the policies allow for it, green projects have financing that range between 8-15 years. HSBC Vietnam has recently granted a credit facility up to seven years to finance a rooftop solar project, and the tenure is longer than our current term loan offered to the client.”

Blossoming credit

Early in January, UOB Vietnam rolled out the first two green credit packages in its Smart City Sustainable Finance Framework for two Vietnamese companies, namely Steel Structure JSC (ATAD) and Phan Vu Investment JSC, as part of the bank’s dedicated financing framework to make sustainable finance more accessible.

Harry Loh, CEO of UOB Vietnam said, “The transition from non-renewable energy to renewable energy requires collaborative efforts from all relevant parties. UOB is one of the pioneers in providing green credit in Vietnam as the bank supports the transition to sustainable energy. After green credits granted to ATAD and Phan Vu, we will continue to promote the provision of green and sustainable finance to enable more businesses to thrive, while protecting the environment at the same time.”

Last year, Standard Chartered Bank also sharpened its focus on eco-friendly initiatives by joining other lenders including the Asian Development Bank, Bangkok Bank, Kasikorn Bank, Kiatnakin Bank, and Industrial and Commercial Bank of China to roll out a climate-friendly syndicated loan of $148.8 million for Phu Yen Solar Power Plant.

The project – which is expected to reduce 123,000 tonnes of CO2 per year – is considered the single largest operating solar power plant in the country and one of the largest in Southeast Asia.

The bank has continued to make great strides in financing a green agenda by aligning its goals with international practices on sustainability and joining the globe’s climate commitments.

“Our wide range of network covers the world’s largest and fastest-growing economic zones. We are committed to actively engage with our clients to influence their transition strategies as well as to foster sustainable growth across borders by a number of forthcoming sustainable financing approaches,” said Michele Wee, CEO at Standard Chartered Vietnam.

On the same note, Citibank is also targeting net-zero greenhouse gas emissions by 2030 and to make good on the promise of the Paris Agreement. The global lender is interconnected with many carbon-intensive sectors that continue to help drive global economic development. Citibank Vietnam has recently been committed to net zero by facilitating some low-carbon projects and not financing carbon-intensive projects.

“Vietnam ranks sixth among the most vulnerable countries to climate change, and at the same time, it is a fast-growing emerging economy with a real GDP growth rate of 7 per cent in 2019,” the State Securities Commission (SSC) noted. “To achieve rapid economic development, build resilience, and meet adaptation and mitigation targets, it is fundamental that not only the government but also the corporate community is aligned and well-informed about the debt instruments available and the opportunities that these issuances avail.”

In Vietnam, around 70 per cent of capital needed in the economy is being financed by the banking system. Therefore, this system will need to play an important role in the growth of the country’s green financial market.

So far, the SBV has actively participated in campaigns for a green economy. In 2015, it issued Directive No.03/CT-NHNN on promoting green credit growth and environmental and social risk management in credit granting activities. In response to this directive, several green credit campaigns have been started.

According to the SBV, by the end of June 2019, there were more than 20 credit institutions providing green loans with a lending balance of $3.8 billion, an increase of 32 per cent compared to 2018. Agriculture, renewable, and eco-friendly power projects are among the focus of the loans, accounting for 45 and 17 per cent of the total outstanding green credit, respectively.

Straight priorities

As of October 2020, Vietnam has seen four green debt issuances totalling nearly $284 million, issued by one government-backed entity ($23.4 million in 2016), one municipal government ($3.6 million in 2016) and two green loans ($71 million and $186 million, respectively, both in 2020).

Most of the proceeds (78 per cent) have been used towards renewable energy, which remains the main sector of interest of Vietnamese stakeholders along with waste and agriculture. The confounding factors of climate change, rapid urbanisation, and strong population growth mean that Vietnam needs to prioritise more resilient and sustainable water management, as well as low-carbon transport development, cited from SSC statistics.

According to the International Finance Corporation, Vietnam’s climate-smart business investment potential amounts to an estimated $753 billion between 2016-2030, with the majority ($571 billion) going towards the country’s infrastructure needs by 2030. Potential investment in renewable energy totals $59 billion, with over half of this in solar power and another $19 billion for small hydropower projects. Meanwhile, new green buildings represent an almost $80-billion investment opportunity.

Pham Nhu Anh, head of the Corporate and Investment Banking Division at Military Bank, explained to VIR some major risks associated with the climate-friendly initiative including risks in project appraisal; balancing and meeting the capital needs for projects requirements; collateral; revenue or project efficiency; and challenges stemming from the domestic legal framework.

“Green credit has been a popular field among developed countries yet remains quite new to Vietnam. Considering the green sector as one of the inevitable trends that bring significant benefits to the society, we hope to receive guidance from regulators, the SBV, and the cooperation of credit institutions, as well as the support of customers so as to better fulfil our role in providing green credit,” Anh said.

Betant of HSBC also emphasised, “Fundamentally, green loans can be of any type of loan instrument and they have the same credit risks in comparison. A bank should consider a corporate risk profile as a whole and specific related green project when assessing green credit. In addition, the green element must be clearly designated, following The Green Loan Principles.”

Betant added that it does not mean that HSBC is trying to provide as many green credits as possible. Instead, it tries to raise the bar in selecting projects to finance and strive to look for green ones. “Applying for a green loan with HSBC, besides satisfying the requirements to become HSBC’s corporate clients, a green project needs to go through our strict credit approval and management process of sustainable financing controlled by the HSBC Asia-Pacific Sustainable Loans Committee – the dedicated body of the bank, with rich experience in successfully arranging green financing in different fields right around the world,” she added.