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Reviewing practices

Released at: 15:10, 19/11/2015

Reviewing practices

Mr. Le Duc Tho, General Director of the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), spoke with VET about green credit and the bank's activities in following government directions to develop green growth.

by Hoai An & Hung Khanh

At the “Solutions for Green Growth” conference held recently, experts suggested that for every 1 per cent of GDP growth there is 3 per cent lost on handling environmental matters. What is your opinion of such views?

 The economic growth model of many developing countries depends on the mining of natural resources and manufacturing and assembling low added value products, which are detrimental to the environment. This also has a negative influence on the sustainability of economic development.

Some countries have seen overheated economic growth, with consequences for the environment that may take hundreds of years to fix, according to many experts. If the environment cannot be protected it is impossible to secure sustainable economic development because the inputs for production come from natural resources. Therefore, we must carefully select a sustainable economic model, protected from overheated growth and with environmental aspects given full consideration. Otherwise, the results of economic growth can never cover environmental damage.

However, the increase in production costs that come with environmental protection presents difficulties for many enterprises. Enterprises have to adapt to standards regarding the environment, with higher costs and longer timeframes in implementing projects or strategies. A general shortage of capital may also be an issue, which will influence macro-economic development as a whole.

In September of 2012 the Prime Minister approved the National Strategy on Green Growth, which focuses of three major missions: reducing greenhouse gases and increasing clean energy and renewable energy; enhancing green production; and improving green living and increasing green consumption.

In order to implement the directions from the government and handle the shortcomings and difficulties facing enterprises in conducting “green business”, on March 24 this year the State Bank of Vietnam (SBV) issued Directive No. 03/CT-NHNN regarding green credit and managing environmental and social risk when granting credit. The granting of credit needs to focus on environmental protection, improving the efficiency of resource and energy use, bolstering environmental quality, and protecting human health while ensuring sustainable development. Credit institutions must review, adjust and perfect their credit structure to match green growth objectives, focus resources on providing credit with preferential policies to business plans and strategies that are environmentally and socially friendly, and support businesses to follow the targets of green growth. VietinBank is one of the leading players in this regard and we are aware of our responsibilities. Right after Directive No. 03 was issued we fully and effectively implemented its articles under the direction of the government and the central bank.

“Under the existing credit appraisal process at VietinBank, we assess a project’s effect on the environment and on society and evaluate the environmental and social risks of a project before granting credit. Documents to be completed for borrowing must include an environmental impact study, otherwise the project will be restricted or rejected from credit granting.”

Mr. Le Duc Tho

What has VietinBank done since Directive 03 was issued?

Shortly after the directive came into effect we conducted a review and verification of each credit granting step and how they measured up against the Directive. We also started an “Action Plan of the Banking Sector to Implement the Strategy for Green Growth to 2020” and deployed it throughout the bank with the following content. 

First, we reviewed, adjusted and perfected mechanisms in the credit granting process to bring them in line with green growth objectives. Specifically, we created a vision for the development of green growth through the establishment of a committee to conduct the plan, perfect the mechanisms needed to follow certain goals, such as checking or updating policies on the management of social and environmental factors when granting credit to suit the new model adopted by VietinBank, creating an annual credit orientation, including environmental management, and introducing environmental evaluation criteria when providing credit.

Second, we enhanced the capacity of our staff to implement green credit, via training and communication, in order to raise awareness among staff about the issues and the need for efficient energy use and saving and the protection of natural resources and the environment.

Meanwhile, within the framework of a cooperative agreement between VietinBank and the International Finance Corporation (IFC), the IFC supported us in building up efficient energy funding strategies and coordinating with a working team to help conduct more training for staff on appraisals, providing credit to green projects or effective energy savings projects, project identification, saving energy at VietinBank, and promoting our image as a “green bank”.

VietinBank is also proactive in approaching international green financing through ministries such as Ministry of Industry and Trade (MoIT) and the Ministry of Finance, as well as the SBV and others, and directly approaching international finance support organizations like the WB, the ADB, and the EIB, and non-government organizations from Switzerland and Sweden. This is also to strengthen cooperation with reputable financial institutions to enhance service quality in the field of green energy and at the same time to take advantage of opportunities to reach partners who are major donors in the field. We also publicized our loan program to provide credit to projects in energy saving and actively sought such customers.

Thirdly, we developed solutions to promote our products on green credit, supported enterprises to implement green growth, and encouraged a focus on credit for projects, business plans, and investment in sectors or fields that can positively influence climate change and those using environmentally-friendly high-technology to contribute to green growth

As a bank with one of the largest credit exposures in the sector, does VietinBank consider environmental protection a factor when providing credit or does it have policies to encourage investors?

As a pillar of the banking sector, VietinBank has fully recognized the importance of green banking and green credit.

In 2011 we issued a social and environmental policy for credit granting. The policy defines an impact assessment for plans and projects regarding the society and environment and offers solutions to overcoming related problems in order to reach the goal of sustainable development. 

Under the existing credit appraisal process at VietinBank, we assess a project’s effect on the environment and on society and evaluate the environmental and social risks of a project before granting credit. Documents to be completed for borrowing must include an environmental impact study, otherwise the project will be restricted or rejected from credit granting.

From the evaluation of the impact of the project on the environment and on society, banks then need to provide measures to manage these projects. The greater the impact of the project on the environment the more management measures are needed and the higher the requirement for customers to adopt solutions. The policy also encourages enterprises to move towards clean and safe production and business.

As a leading bank in providing credit solutions and packages for individual customers and small and medium-sized enterprises (SMEs), we give priority to projects with energy savings or renewable energy and clean technology. 

VietinBank is granting credit to many energy saving and climate change projects with international funds such as the Global Climate Partnership Fund (GCPF) and the Renewable Energy Development Program (REDP) to support enterprises to invest in environmentally-friendly projects and to promote the use of international funds in energy saving and renewable energy projects.

A number of projects causing environmental pollution have been forced to suspend their operations, which poses some risks to banks. What are the environmental risk management activities conducted after credit is granted? 

The environmental problems arising from production and business activities may cause the business to suffer financially and will impact on their reputation and brand value. Such problems not only negatively affect the business but also the financial institutions they work with. Bad debts will arise and the reputation of the credit institutions concerned will also suffer.

To mitigate the risks in granting credit to projects that do not meet environmental protection requirements, VietinBank has put environmental and social risk management within the evaluation and credit granting process. The bank also continues to improve its investment portfolio and credit granting through assessing environmental and social risks. 

It’s also an opportunity to develop banking products and services, such as funding for renewable energy, energy saving projects, and the development of cleaner production technology.
I think it is essential to improve the efficiency of State management in the field of environmental protection and the management of production and business activities, given the consideration over the cost of environmental protection when pursuing profit targets. The Law on Environmental Protection has been issued but efforts must be made to improve implementation, testing and monitoring, and the punishment of violations strengthened to ensure  policy uniformity, fairness, and economic and social sustainability. 

Green credit projects financed by VietinBank

1. Investment project expanding and improving fabric production capacity at the Vinh Phu Textile Joint Stock Company, funded by the Global Climate Partnership Fund (GCPF)
The investor borrowed a medium-term loan to purchase 50 new looms, which have cut energy consumption by 18 per cent compared with old looms.

Economic and social efficiency:
The company's products have a wide presence throughout the domestic market and many countries around the world, such as Germany, the UK, France, the Netherlands, the US, and Japan. These products have received many awards, such as gold and silver medals and other recognition at industrial fairs and fashion fairs in Vietnam over the years. The company has a prestigious reputation in providing military uniforms.

Environmental impact:
The company’s quality management system has received ISO:9001/2000 certification from Bureau Veritas Quality International (BVQI) and the Vietnam Certification Centre (QUACERT). It also has a waste discharge and wastewater treatment system, ensuring the environment will not be affected. 

2. Project improving the blister packaging system at TW1 Pharmaceutical, funded by GCPF
The company has invested in a new system for blister packaging and functional food production.

Economic and social efficiency:
The company is able to supply medicine, disposal equipment, and other health equipment. Through many programs and bidding the company has supplied over 3,000 medical products and devices to hospitals, clinics, and pharmacies, which have contributed to effective treatment provision. With sound quality management systems, in particular a drug quality inspection system equipped with a modern and efficient laboratory, the company is a reliable supplier for different types of customers, including central hospitals, leading specialist hospitals, and State-owned and private pharmaceutical enterprises.

Environmental impact:
The project has met all required standards of the Ministry of Health and provided sufficient information to VietinBank for checks. The emission control system has operated stably and the project is recognized as not having an environmental impact.

3. Socialization project in the fields of investment and development: Management of a water supply system and clean water distribution system in Cu Chi District, Ho Chi Minh City
Investor: Sai Gon Water Infrastructure Corporation (SII)
Project location: Cu Chi district, Ho Chi Minh City
Total investment in the first phase was VND1.658 trillion ($74.3 million). The capital structure is per the table below.

Social efficiency: 
The project created the first water distribution system in Cu Chi district, which previously relied on bore water from wells and other water sources that did not provide clean water.
The project not only reached its commercial goals but also contributed to social security and the basic needs of local people.

(including VAT)
(VND billion)
($ million)
Owner’s equity 412 18.5 25
VietinBank loan 646 28.9 39
Budgeting loan 600 26.9 36
Total  1,658 74.3 100

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