The “green” credit has grown surprisingly at the end of 2018, with the highest growth rate of up to 30%, surpassing other priority areas such as rural agriculture (15.5%), Small and Medium-sized Enteprizes (SME) (13.5%) and exports (3.5%). Outstanding loans to green projects at the end of third quarter of 2018 were estimated to reach more than 235,717 billion dong. This shows that the capital from banks flows more and more into green projects.
Basically, “green” loans are used to finance projects involving environmental factors, such as climate change, resource efficiency and energy saving.
In fact, authority agencies encourage credit institutions to go green actively. Last July, the State Bank of Vietnam (SBV) approved the Project “Development of green banks in Vietnam”. The number is clearly stated: 60 percent of banks will have access to green capital by 2025.
Credit institutions also pay more attention to the green factor in credit granting activities. SBV’s statistics shows that about 24 percent of green projects are currently developed by the banks for credit appraisal process, 17 credit institutions have developed procedures to assess environmental and social risks in their internal regulations. Noticeably, some banks attach the environmental factor to their marketing strategies and development orientation.
In fact, the “green” policy has been issued by SBV since 2015. Accordingly, credit-granting activities of banks must be in line with green growth goals, focusing on environmental protection, resource efficiency and protection of human health. However, the development of green credit has so far been difficult. Specifically, the banks have not balanced the capital flow, because most projects need large capital and the payback period is relatively long. In addition, specific guidelines or incentive mechanisms have not been available yet, so both borrowers and lenders are not interested.
However, in the past one year, green credit has seen many significant changes, as more and more banks join, access to cheap capital from international financial institutions, contributing to attract more green projects.
The most attractive factor of green credit programmes is low and fixed interest rates throughout the loan period. The recent noticeable deal is the handshake of Nam A Joint Stock Commercial Bank (Nam A Bank) and the Global Climate Partnership Fund (GCPF) to fund for businesses and individuals in the implementation of green projects. Accordingly, the corporate and individual lending rates introduced by the bank are about seven percent per year for short-term loans and 7.5 percent for medium and long-term loans.
In addition to attractive interest rates, the conditions of green credit are more extended than the previous understanding, in a multidisciplinary and diversified direction.
The former concept of “green” is often understood as environmental-related projects, much linked to financing renewable energy projects and clean energy. These projects often have large scale, long payback period, so few credit institutions are affordable.
However, up to now, green projects are understood in a much broader sense. Small-scale projects, these days, can also access lower-cost capital more easily.
For businesses, green projects can be environmentally friendly products. Funds for energy-saving equipment, and buildings that use resources more efficiently than traditional ones may be considered for low cost capital.
Meanwhile, individual customers can request credit when buying electric cars, sedan cars with fuel consumption below 5.44 litres per 100km; purchasing equipment with three-star or higher energy labels. These products are environmentally friendly, contributing to energy savings. Interest rates will also be more attractive to customers who buy or build houses with green and clean energy.
Besides, not all green factors will be approved for funding as the banks also have certain criteria. Nam A Bank representative said that borrowers must also meet certain criteria, such as having a good credit history, profitable business, and at least one-year experience in the field of green technology.
In general, opportunities to bring cheap capital flows are also accompanied by challenges. Borrowers have to prove the green element in the project, show their management capacity and experience. This also poses a common challenge for businesses to innovate, improve competitiveness and good corporate governance.
Banks are devoting resources when meeting a suitable demand. This resource is getting more and more from international financial institutions, willing to finance banks in line with the common goal of helping the economy become “greener”.
It can be said that green capital financing has become a trend, especially when environmental issues, climate change and more efficient use of resources are increasingly being valued in developing countries like Vietnam. Although the original idea was a preferential source of funding for projects, the meaning of green will spread more, bringing environmental and social-friendly products to support the growth target that the government aims for.
