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Banking & Finance

Greater counsel

Released at: 10:51, 25/11/2015

Greater counsel

Guidance has been coming for banks to place more emphasis on the development of green credit.

by Ngo Hai

Despite being a new concept in Vietnam it’s generally agreed among experts that green credit has major potential in the country and is an inevitable trend for local banks to develop sustainably given the increasing environmental and social risks. 

Some ten domestic banks are already involved in providing credit to projects in energy savings, renewable energy, and green technology, including VietinBank, ACB, Sacombank, Techcombank, VIB, and ABBank.

All ten have committed to following criteria on environmental and social issues from international organization working in Vietnam, such as the World Bank (WB), the International Finance Corporation (IFC), and Asian Development Bank (ADB), that projects using funds from these organizations must abide by. Via the Green Credit Trust Fund (GCTF), which started in Vietnam in 2007, these banks have begun to provide credit guarantees to environmentally-friendly projects. Most projects on the list for receiving consideration in credit are guaranteed 50 per cent and being repaid about 25 per cent when the project finishes and is transferred to operating parties.

Mr. Nguyen Tien Dong, Director of the Credit Department at the State Bank of Vietnam (SBV), said that over the last few years the country’s banking sector has paid greater attention to environmental and social risks in providing credit as these can impact on their business performance. The number of projects and businesses that are damaged by environmental and social risks has been on the rise and banks have been giving greater consideration to such factors when providing credit. The banks have been also been determined to develop green credit products, prioritizing projects and business strategies that make positive environmental and social contributions.

“This is an opportunity for both local and international banks,” Mr. Dong added.

In the view of a commercial bank that has been developing green credit products, Mr. Nguyen Viet Duc, Deputy Director of the Risk Management Department at ABBank, told VET that it is paying major attention to such factors to develop comprehensively and sustainably. ABBank has basically completed a risk management system relating to environment and social factors, which will become part of its business activities and credit process, and has comprehensively applied general risk management. ABBank has also assigned its staff to report regularly to ensure environmental and social factors are being fully considered. 

Mr. Nigel Piper, Chief Risk Officer at ANZ Vietnam, said the bank has always had a high level of awareness and provides credit responsibly. ANZ believes that it needs to avoid projects with a negative impact on the environment and society. If such impacts are impossible to avoid, the bank tries to mitigate the negative impacts as much as possible. On that basis, ANZ realizes its commitments by setting standards, procedures, and internal policies on environment and social protection when funding. Its external activities also focus on sustainable development, the local community, and assisting customers to find solutions for sustainable development. ANZ has been the only bank in Vietnam to support carbon reduction projects, providing 1 million energy saving light bulbs to 570,000 farmers in the Mekong Delta to help cut emissions by 23,000 tons each year.

“Green credit is not only a good field to make a profit in but is also a means for banks to express their corporate social responsibility.”
Mr. Nguyen Tri Hieu

Local banking expert Mr. Nguyen Tri Hieu said that green credit is not only a good field to make a profit in but is also a means for banks to express their corporate social responsibility. Although the concept is still relatively new in Vietnam, Mr. Hieu believes that the trend towards comprehensive and sustainable development will only become stronger in the future and be supported by policies from the government.
Encouragement mechanisms 

According to Mr. Pham Hoang Mai, Director General of the Department of Science, Education, and Natural Resources and Environment at the Ministry of Industry and Trade, to reduce environmental waste by 8-10 per cent each year Vietnam will need $30 billion in capital, of which 30 per cent will come from State budget and the remainder from the private sector. Given the limitations on the State budget, to reach green development targets Mr. Mai said the role of the banking sector in providing capital is extremely important.

Even though there are many banks developing green credit packages, it’s not necessarily reflected in their credit portfolios. Mr. Hieu said banks are still mindful of profit and the potential for bad debts, with environmental and social responsibility taking a back seat.

Agreeing, Mr. Dong said the disregard for environmental and social risk management, especially when providing credit, will have negative consequence for banks in their operations, their opportunities to enter new markets, and the possibility of attracting capital both internationally and locally.

“Banks not handling environment and social risk management properly face the possibility of losing capital and even their reputation and brand when action is taken against projects they financed that damage the environment,” he said.

Some of the difficulties in providing green credit, he went on, include the complex terminology used in assessment criteria and decisions on credit to worthy projects taking too much time. He therefore proposed that the Ministry of Planning and Investment and other relevant ministries complete a specific set of criteria for green growth. There should also be more advantages provided to green projects, such as tax and fee reductions to those using technological innovation and applying green growth strategies, and environmentally-friendly projects in, for example, wind power, solar power, and other renewable energy.

According to experts from the IFC, banks should consider environment and social risk management as an integral part of their risk management structure and view green credit as a competitive advantage. Banks can improve their credit portfolio through the evaluation of risks in a systematic manner when making credit determinations. In this way they can focus on investing in companies and projects with financial performance and environmental and social positives. This would also help financial institutions protect their portfolios through minimizing dubious loans, strengthening their financial stability and protecting their reputation and brand.

To promote green credit growth and environmental and social risk management, earlier this year the SBV issued Directive No. 03, directing its Credit Department to cooperate with other units to promote credit growth in line with targets set in the National Strategy on Green Growth approved for the 2014-2020 period. The Directive is seen as a necessary step in the context of green credit being in its infancy in Vietnam.

Mr. Lakhdeep Babra, Manager of the Environment, Social and Governance Department - Asia Pacific at the IFC, said the issuance of Directive No. 03 expresses a strong commitment by the central bank in its efforts to promote green credit. The new Directive will create a platform that allows all banks in Vietnam to base risk management on environmental and social factors.

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