Banks spur green credit for sustainable development

November 26, 2019 | 15:00
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Economic development has improved living standards – at times at the expense of the environment. As green development is becoming an imperative, financial institutions – particularly banks – are earning high regard with their green credit approach.
banks spur green credit for sustainable development
Banks spur green credit for sustainable development

Sustainable development has been one of the major policies of the Party and the state in recent years, aided by requirements which mandate the close and harmonious combination of economic development and the protection of natural resources and the environment. This aims to form solid fundaments for future generations.

The local banking sector is not an outsider to this journey. As the capital channel feeding the local economy, banks hold a substantial role in upholding economic growth and spurring national development through the granting of credit. Besides, as the state budget is limited, capital from the private sector and from banks will take a decisive role.

At the same time, green credit is gaining traction in many countries, especially developed nations, where renewable energy projects and eco-friendly technologies were prioritised for use, gearing towards achieving economic growth targets closely attached to caring for the environment.

To businesses and each local resident, green credit is one of the important measures helping to minimise the impacts of their production and business activities on the surrounding environment. At the same time, this credit line helps banks drive down bad debts, strengthen financial stability, and take better care of the environment.

Along with that, green credit is an inevitable trend in the global financial sector. In Vietnam, finance and banking play a crucial role in driving Vietnam’s green growth and sustainable development agenda. Financial institutions (FIs) act as important chains in the government’s action plan.

Particularly, Directive No.03/CT-NHNN dated March 24, 2015 of the State Bank of Vietnam (SBV) has mandated banks to accelerate the granting of green credit to projects that have clear objectives on environmental protection or promote eco-friendly business activities.

In early 2017, the SBV enacted Directive No.01/CT-NHNN emphasising the implementation of the banking sector’s action plan to implement the national green growth strategy towards 2020.

Expanding business to save the environment

In light of the SBV’s directives and leveraging upbeat potential for green investment financing, many banks have embedded promoting green credit into their development strategies and made it their long-term development vision.

According to Nguyen Quoc Hung, general director of the SBV’s Department of Credits for Economic Sectors, by the end of June 2019, total outstanding loan balances for green projects came to about VND317.6 trillion ($13.8 billion), showing a 32 per cent jump against 2018. Of this, medium- and long-term loans accounted for 76 per cent. The interest rate offered to green projects goes from 5 to 8 per cent per annum for short-term and is 9-12 per cent for medium- and long-term loans.

The loans focus on green agriculture which accounts for 45 per cent of the total outstanding green credit, renewable and eco-friendly power projects retain 17 per cent, while sustainable water resource management in urban and rural areas makes up 11 per cent, and sustainable silviculture holds 5 per cent.

In addition, the SBV’s recent survey among FIs in the field of green growth and green credit shows a marked improvement in these organisations’ awareness of green credit.

Particularly, 19 FIs have crafted strategies on environmental and social risk management, 13 have integrated social and environmental risk management into their green credit evaluation process, and 10 have developed products and services catering to green projects and dedicated part of their mobilised sources to feeding these green projects (mainly medium- and long-term funding with preferential interest rates). Additionally, 17 FIs have been using the handbook on assessing environmental and social risks for the 10 most vulnerable economic sectors. The handbook was published in last August under a co-operation between the SBV and the International Finance Corporation. Several local banks have introduced numerous incentives to grant green credit to help companies expand production and business, as well as stimulate eco-friendly consumer demand.

Nam A Bank ramps up provision of green credit packages

For instance, Ho Chi Minh City-based Nam A Bank is the first non-state-owned commercial bank in Vietnam to have signed a co-operation agreement with the Global Climate Partnership Fund (GCPF) and one of the local banks piloting green credit.

The bank’s approach fully aligns with the green bank development orientations of the government and the central bank and is in line with the project on green bank development in Vietnam drawn up in Decision No.1604/QD-NHNN dated August 7, 2018. Under the programme, Nam A Bank has granted medium- and long-term green credit packages to projects designed to curtail carbon emissions and projects agreeing to reduce their energy consumption by 20 per cent.

Particularly, for corporate customers, Nam A Bank grants green credit for investments into machinery and equipment, working capital supplementation to feed the production and trading of environmentally friendly items and equipment, or investments into solar energy projects.

Meanwhile, for retail customers, Nam A Bank provides consumer lending for vehicle purchases, house repair or building with the condition that these purchases cause no harm to the environment. For example, to receive green credit, the car to be purchased must satisfying at least Euro 4 emissions standards.

For agricultural and rural development, Nam A Bank grants green credit for equipment purchases to feed production that is energy efficient and does no harm to people’s health and the environment.

Notably, Nam A Bank has deployed the “I choose living green” project advocating environmental protection. This large-scale community project was organised throughout 2019 with the prime target of inspiring local people to live green by conserving energy and using clean and renewable energy and eco-friendly technologies and equipment.

A Nam A Bank representative said, “In our business development strategy, Nam A Bank works tirelessly for its sustainable development targets which are closely linked to the environment. We trust these activities will create practical values in connecting banks with customers and the community to join hands for environmental protection, thereby driving national development in a sustainable manner.”

By Minh Ngoc

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