Promoting effective green credit

In recent times, although commercial banks have promoted green credit lending (loans provided by credit institutions for business, production, investment, and consumption needs that do not pose risks to the environment and ecosystem), there are still many concerns about the criteria for classifying green projects. Therefore, the recently revised Green Banking Development Plan in Vietnam is expected to create favorable conditions for credit institutions to promote green credit more effectively.

Less than 5% achieved.

Green growth and sustainable development are inevitable trends and goals that all countries are striving for, including Vietnam – one of the countries facing numerous environmental issues and heavily impacted by climate change. However, as of early 2024, green credit outstanding was estimated at 500 trillion VND, accounting for only about 4.5% of total bank credit outstanding. Compared to expectations, this figure remains quite modest.

Production line at the factory of OPC Pharmaceutical Joint Stock Company - a green enterprise in Tan Uyen City, Binh Duong Province. Photo: HOANG HUNG

Despite support from the Government and ministries, over the past seven years (2017-2023), green credit outstanding in the banking system has grown at an average rate of approximately 22% per year. Many credit institutions have developed green credit packages and programs tailored to their specific business operations and green transformation needs, but green lending and green development still face several obstacles.

Specifically, there is currently no green classification system – a basis for the State Bank of Vietnam (SBV) to assess the effectiveness of solutions in credit policies contributing to the national green growth target. This is also an important basis for credit institutions to determine investment levels and scales, and to develop and implement appropriate banking policies, products, and services. In particular, the implementation of green credit faces many obstacles, such as the lack of a legal framework and policies related to the implementation of green finance and sustainable finance.

To remove the aforementioned barriers, in early August 2024, the State Bank of Vietnam (SBV) issued Decision 1663/2024 amending and supplementing several articles of Decision 1604/2018 of the SBV Governor approving the Green Banking Development Scheme in Vietnam. In this decision, the SBV added and revised several contents related to the development of green banking, green credit, and the specific tasks of relevant organizations and units.

Sharing his views on this matter, Mr. Nguyen Duc Lenh, Deputy Director of the State Bank of Vietnam's Ho Chi Minh City branch, stated that the amendments and additions related to credit institutions and the orientation towards facilitating access to green capital for the development of green projects are necessary and meaningful.

“This revision makes the content of Decision 1663/2024 comprehensive in terms of policy and policy direction. Accordingly, the requirement to develop green banking and green credit is not only the task of commercial banks but also the task of all credit institutions, including non-bank credit institutions such as finance companies, leasing companies, and people's credit funds. This helps to enhance the sense of responsibility and proactiveness of the entire credit institution system in developing green credit. This is the basis and starting point for implementing green credit activities, expanding and growing green credit for each credit institution,” Mr. Nguyen Duc Le emphasized.

In fact, an increasing number of credit institutions are now implementing environmental and social risk management in their lending activities, gradually approaching international standards in this area. Therefore, the State Bank of Vietnam's revision and supplementation of specific and comprehensive regulations for the Green Banking Development Plan is a necessary step to enable the entire system to participate in promoting sustainable financing activities.

Complete the legal framework soon.

Many commercial bank leaders say that banks are currently ready to lend to green projects and are eager to find suitable customers. However, to expand lending, credit institutions are also very concerned about the criteria for classifying green projects and the sources of funding for lending.

Mr. Pham Nhu Anh, General Director of MB Bank, said that the proportion of green credit in MB Bank's total credit volume is high, at about 11% in 2023. The bank also focuses on developing policies for diverse green products, in line with national green industry criteria and easily accessible to businesses.

“Currently, preferential interest rates for green credit are 0.5%-2% lower than regular rates, but not many businesses have been able to access this credit source. Because there is no clear legal framework for the national green classification system for granting green credit, MB is temporarily using the ESG standard (a set of standards to measure factors related to sustainable development and the impact of businesses on the community), which is a reduction of greenhouse gas emissions of 20% or more. At the same time, we are applying standards across industries and sectors to assess green businesses for granting green credit,” Mr. Anh said.

Similarly, UOB Bank (Singapore)'s green trade finance portfolio across the region has reached SGD 44.5 billion (nearly USD 33 billion). Of this, Vietnam has 24 projects that have received green credit from the bank. In April 2024, UOB Vietnam signed a green trade finance agreement with Betrimex, an agricultural company. To reach this cooperation agreement, Betrimex had to overcome UOB Vietnam's very rigorous green credit approval process.

Production line at Vinamilk Dairy Joint Stock Company - a green enterprise in Ben Cat, Binh Duong province. Photo: HOANG HUNG

Mr. Lim Dyi Chang, Senior Director of Corporate Banking at UOB Vietnam, stated that one of the criteria when reviewing loan applications is that borrowers have measures to reduce carbon emissions by 14%-16%.

“Finding the right projects to fund for green development is not easy. Besides requiring businesses to adhere to global ESG standards, we will base our decision on factors such as human resources, the impact of the business on the environment, and whether it benefits both direct and indirect stakeholders,” said Mr. Lim Dyi Chang.

It is evident that building and updating a portfolio of green projects is one of the biggest challenges currently faced by credit institutions in implementing green credit. Most institutions, when providing green credit, base their decisions on the requirements of the international financial institutions that financed the green credit and the regulations set by the banks themselves.

Therefore, Decision 1663/2024, which adds the regulation that "the State Bank of Vietnam periodically updates the list of green projects," simultaneously sets out specific responsibilities for regulatory agencies, such as: issuing guidelines on green credit and environmental risk management; issuing guidelines for preparing reports on green credit after relevant reports from the Government and ministries are issued; developing reference materials for credit institutions on green credit; managing environmental and social risks… creates a unified legal basis for credit institutions to implement in practice.

* Dr. Can Van Luc, Chief Economist of BIDV:

To secure investment capital for green development sectors, Vietnam needs to mobilize approximately US$368-380 billion between now and 2040, equivalent to US$20 billion per year. Therefore, a complete legal framework will open up opportunities for the credit institution system to fully exploit the potential in the green sector.

This involves proactively diversifying sources of funding for the green sector, while also investing more deeply in designing specific green credit products and green bonds, instead of classifying them solely based on the intended use of capital and industry as guided by the State Bank of Vietnam.

* Dr. Nguyen Tri Hieu, expert in finance and banking:

To address the obstacles in providing credit for green projects, the State Bank of Vietnam needs to issue clear regulations on the proportion of green credit in banks' credit portfolios. Specifically, each bank should allocate 10%-20% of its credit portfolio to support environmental projects that meet green credit criteria. This regulation would compel banks to arrange funding and find projects that meet the criteria.

Furthermore, the green bond market needs to be developed. Banks and large enterprises can participate in the issuance and trading of green bonds. Government guarantees are also crucial to promote the development of this type of bond. Finally, banks need to comply with the regulations of the State Bank of Vietnam and actively participate in promoting green credit. This requires a specific roadmap and commitment from all stakeholders.

HANH NHUNG

Source: https://www.sggp.org.vn/thuc-day-tin-dung-xanh-hieu-qua-post755826.html