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Ahead in green lending

Released at: 08:19, 20/05/2018

Ahead in green lending

Mr. Kyle Kelhofer

Vietnam is moving in the right direction in terms of promoting green lending, Mr. Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia and Laos, told VET.

How do you view the implementation of green finance in Vietnam?

The recently-released International Finance Corporation (IFC)-supported Sustainable Banking Network global progress report put Vietnam among the leading performers in advancing sustainable finance, up there with China, Bangladesh, Indonesia, and Mongolia in Asia. National policies in these five countries require banks assess and report on environmental and social (E&S) risks in their lending operations and put market incentives in place for them to lend to green projects. 

Vietnam has gotten off to a good start via the issue of the Directive on Promoting Green Credit Growth and Environmental and Social Risks Management in Credit Granting Activities, in 2015, and Decision No. 1552, issued on August 6, 2015, on the issuance of an action plan for the banking sector to implement the National Strategy on Green Growth towards 2020. In an environment where the State Bank of Vietnam (SBV) has many priorities they need to focus on, their effort on green finance so far should be congratulated.

As Vietnam’s capital market continues to develop, we will see more and more green initiatives in the country. To date, the introduction of environmental, social, and corporate governance (ESG) reporting in addition to financial reporting for listed companies is quite an achievement given that Vietnam is in the early stages of capital market development. There should be a point in time when green bonds are introduced, and ESG reporting needs to be more sophisticated. The concept of green bonds is quite simple: any corporate or bank that has projects or a pool of assets that have an environmental purpose can sell bonds, the proceeds of which are spent on those green stamp assets. And what’s nice is that from a lender’s perspective, green assets probably mean lower risks, as green bonds can be marketed as premium products because many investors are increasingly required to invest in social and sustainable products in order to meet their social and sustainability guidelines or criteria in their investment strategies. The next big step would be bringing green bonds to the market here in Vietnam. Corporates or banks who wish to issue green bonds should prepare for it. 

Green bonds have emerged as a hot green topic these days. What are the benefits for Vietnam in issuing green bonds?

Issuing green bonds in Vietnam would be of benefit for two reasons. First, if you are the first commercial bank to issue green bonds, that’s a way you differentiate yourself from the competition. Green bonds will help banks be more progressive, more sophisticated, and more sensitive to everybody. It is a great opportunity not only for clients in Vietnam but for financing entities and partners, as they are able to work with a bank that is sufficiently sophisticated to properly classify green assets and issue green bonds. Second, there are funds out there in the international market that are keen on investing in green instruments.

It is definitely possible that there will be one or two issuances of green bonds in Vietnam within the next six to twelve months. The introduction of green bonds is a milestone in promoting green assets and green business opportunities. More importantly, it is how Vietnam can leverage another financial tool to lower the cost of capital. We all want to have our loans cost less, and not only to attract both foreign and domestic investment. The premise is that green assets tend to perform better and people generally prefer them over other assets. If local companies can gain leverage with green bond capital, that will be a key achievement for Vietnam. It is a good stamp of approval for the sophistication of Vietnam’s economy and its business climate, given it’s a rapidly-emerging market.

How have local banks handled the advent of green finance? 

Different banks are seeing green finance opportunities at different speeds. Some banks are moving faster with gender financing while others are pursuing small and medium-sized enterprise (SME) financing targets. These are perfectly reasonable, because Vietnamese banks are busy catching up with both growth opportunities and risk management, and the economy has indeed experienced a recent crisis. It takes time to find the right people and the right expertise for banks to ramp up green finance. This is why the mentioned Directive asks banks to strategically look at their current portfolio through the lens of ESG risks. Different banks are exploring and capturing green finance opportunities at different speeds and that is quite normal. The question today is whether everyone in the sector will be on the same page in five years from now. 

On a side note, I commend Vietnamese regulators for their phase-to-phase approach, rather than from Day 1 setting it as a mandatory requirement to kick-start green finance development and having people do what they don’t really want to do. Rather, there has been a sharing of information and reporting on the business case of green finance, so that people can see the benefits and after that they kind of want to become involved. The real opportunity for the SBV is to continue reporting on the results of green finance and share successful cases so that everyone can see the benefits of effectively implementing green finance practices.

In many countries and in many sectors, “green” is a philosophy. Whether getting more solar panels on roofs or supplying clean water, green banking is actually good business too, as we have seen in a number of recent research studies and public data. Projects and corporates that have good environmental and social practices or have green practices turn out to be a better credit risk.

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