Green growth and sustainable development have become a new trend in the banking sector. Bruce Delteil, managing partner of McKinsey & Company Vietnam, shares his views on how Vietnamese banks can take advantage of the opportunities in these areas.
What is the role of banks in green growth?
Banks will have a crucial role in driving green growth in Vietnam. One of the main roles will be enabling project financing. Billions of dollars worth of investments will flow into the renewable energy sector over the next few years. Banks will help facilitate that flow. This is critical moving forward.
Over the past five years, Vietnam has issued $220–230 million of green bonds. On a cumulative basis, three other countries, namely Indonesia, Thailand, and Malaysia, have issued over $40 billion of green bonds in the same period. The issuance of those bonds is done by banks.
What we've observed in these countries is the setup of a clear regulatory framework that provides the ability to issue those bonds on a larger scale. This has not been at the top of the list of priorities for banks in Vietnam, which are focusing on other essential things.
What can the Vietnamese banking sector do to accelerate green growth?
I think it needs to be part of the priority and strategic agenda of banks moving forward. This means that they will have to build and structure their approach to financing green projects. This will lead to building more ties and relationships with other stakeholders as part of that financial ecosystem, whether those are international banks or investors. Banks should also build capabilities in credit scoring and risk management.
A few large banks in Vietnam have a strong focus on green financing. What we've observed in other countries is that when banks start doing green financing at scale, they increase their share in the portfolio rapidly. We've seen this happen in Indonesia, for example, where one bank started to issue green bonds and the project really took off.
What opportunities can Vietnamese banks tap into?
Besides project financing, there are also additional areas for banks, such as capital markets linked to environmental, social, and corporate governance. In terms of transaction banking, this involves trade finance and how big corporations transact with small- and medium-sized enterprises, and how these transactions are financed by banks.
The overall opportunity for banks lies in what we call revenue pools. This could generate banking revenues of $1.7 billion if Vietnamese banks could embrace this area. Looking at the entire potential of green financing, Vietnamese banks can benefit greatly. It's not only something they need to do for environmental reasons, but it's also something that could benefit them from a revenue perspective. Furthermore, the green transition is also leading to innovation within the banking sector, with new products and services in both retail and corporate banking.
What are your recommendations for Vietnam to achieve its net-zero target by 2050?
It is feasible to achieve net-zero with current technology, but without digital and technical innovation, progress will be slower and more costly. Vietnam can leapfrog in three greentech "game-changer" markets: renewable power, green-tech clusters and cutting-edge green fuels. Among them, renewable power is the foundation for green industrial clusters and green hydrogen.
Accordingly, renewable power maximises current cutting edge clean-tech advances, and digital tools which unlock efficient grids, to provide clean power for Vietnam. Vietnam has unique competitive advantages in renewables. Meanwhile, green tech clusters scale up existing industrial hubs by transitioning established industries into greentech industries (e.g., data centers, green hydrogen, and green commodities based on high-tech manufacturing processes).
Finally, alternate and green fuels produce green hydrogen or ammonia for both domestic use and export to East Asian countries (China, South Korea, and Japan), using electrolyser technology.
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