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Focused credit

Released at: 23:58, 25/11/2015

Focused credit

Mr. Nguyen Tien Dong, Head of the SBV's Credit Department, tells VET about the important role credit plays in implementing green growth strategies.

by Hoai Nguyen

 What has been done over recent years to promote “green credit”? 

Since 2012 the State Bank of Vietnam (SBV) has directed credit institutions to extend credit relating to efficient and safe operations and determined five priority areas, including projects to support green growth, to meet capital requirements for production and business in high technology and support industries. 

The central bank recently issued Directive No. 03/CT-NHNN on March 24, 2015 on promoting green growth and managing environmental and social risks in granting credit. This is a strategic and systematic document aimed at helping the banking sector become involved more deeply with the national green growth strategy.

The SBV also proposed the government issue Decree No. 55/2015/ND-CP to replace Decree No. 41/2010/ND on credit policy for agriculture to help the sector create high added value and secure sustainable development.

To implement the directions from the government on encouraging large-scale production using high-technology, the SBV cooperated with relevant ministries in the issue of Decision No. 1050/QD-NHNN on loans for agricultural production. Enterprises can now take out unsecured loans at lower interest rates, of 1-1.5 per cent per annum. 

In particular, on October 1 the SBV revised and amended Circular No. 06/2009/TT-NHNN dated April 4, 2009, which enables poor households to plant forests with support for 50 per cent of interest rates on loans. 

 To what extent is the banking sector aware of environmental and social risks?

In recent years it’s been determined that environmental and social risks impact negatively on credit quality. Many projects and schemes become inefficient and even incur losses due to problems relating to environmental and social risks. These risks may cause heavy losses in finance, legal liabilities, declining reputation, and shrinking competitive capacity.
Business activities can be interrupted and even discontinued, with enterprises being subject to fines and customer boycotts in the worst cases. These issues not only affect the business but also create a bad debt for the bank.

Many banks have considered the issue recently and made it part of their lending criteria. Some, though, still focus too much on profit and underestimate the role of environmental and social risks.

 What has been done to promote green credit?

Risk to society and the environment are now part of appraisals in permitting investment and granting credit. In this way banks focus on investing capital in effective enterprises and projects to ensure economic development, environmental protection, and social security. Bad debts will be minimized and many banks will have more opportunities to develop financial products supporting projects in renewable energy, energy saving, and cleaner production technologies. 

In Directive No. 03, the SBV set very clear requirements that, from 2015, the granting of credit in the banking sector must focus on environmental factors as well as environmental and social risk management. 

 What are the main elements of the green credit policy in the long term?

Communications about green credit and the objectives of the national strategy for green growth is the first activity to be undertaken and must be paid due attention by the sector.
In parallel, we will review, adjust and complete banking and credit systems so they match green growth objectives. We will also enhance capacity, including seeking support mechanisms, increasing capital, and improving professional abilities among bank staff in appraising green projects.

In addition, we aim to develop solutions to promote green banking and credit to help enterprises implement green growth strategies.

The SBV has also asked foreign credit institutions and banks in Vietnam to implement environmental and social risk management when granting credit.

Of course, enterprises and banks engaged in the field will benefit from preferential rates, loan procedures, etc.

 What are your expectations regarding cooperation from relevant ministries to promote green credit?

I think the Ministry of Planning and Investment should soon issue specific criteria for defining green growth programs and projects. Banks would then be able to allocate the right proportion of credit to green investment.

Other ministries need to have incentives policies on taxes, prices and rents for enterprises investing in green projects. On this basis, credit institutions and banks can concentrate their credit.

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