Green credit
- QTH-3Q-19 Bui Hong Hanh
- Mar 29, 2022
- 3 min read
Context
In order to continue implementing "Economic restructuring associated with growth model transformation" towards sustainable development, the government recently issued the National Strategy on Green Growth for the 2021-2030 period, vision 2050. In the Government's action plans, credit institutions are considered an important component to direct investment capital flows into environmentally friendly production activities, reduce risks for the sake of national sustainable development. Therefore, developing green credit has become an indispensable and objective trend of commercial banks, green credit outstanding balance has increased steadily over the years.
Definition of Green credit
Green credits are understood as credits that banks grant to projects that do not pose risks or are intended to protect the environment. In other words, green credits are credit grants in the form of financing, loans or other forms of credit, which take into account environmental impact and promote environmental sustainability.
Green credit is an important policy tool to widely implement green finance and green banking models, towards building and perfecting a green economy. Through the application of environmental standards when providing loans for projects for the environment, green credit reduces pollution emissions, towards a low-carbon economy, sustainable economic development.
In addition, green credit is an inevitable direction of the global financial industry and Vietnam's banking industry in particular. It brings great benefits in environmental protection and economic development tasks, improving people's living standards. Not only bringing benefits to businesses implementing economic development projects, green credit also benefits the sustainable development of the banking system. Specifically, it adopts the reduction of bad debts to enhance financial stability and protect reputation in the market; promote sustainable development and realize Vietnam's green growth strategy.
Drawback of Green credit
According to Dr. Dang Minh Nguyet - Vice Dean of the Faculty of Finance and Banking, University of Commerce, from an internal bank perspective, the cost of lending large green credits and long-term investments, low profit, no standard evaluation process in appraisal. In addition, the size of green credits and the level of risk greatly exceed both the financial capacity as well as the management capacity of commercial banks.
From a management perspective, mechanisms, policies and legal corridors for green credit as well as related to green credit, environmental protection, and sustainable development are still not synchronized. In particular, the policy on green credit lending is considered by most commercial banks to be the biggest barrier, followed by loan security, collateral handling, investment policy, trade finance, etc.
Solution
To promote the development of green credit, it is necessary to focus on implementation, including:
Firstly, the State Bank continues to develop and perfect the legal framework guiding the implementation of green credit for credit institutions. In addition, it is necessary to study and develop an appropriate interest rate policy when granting green credit in the direction of prioritizing interest rate support and conditions for accessing credit capital for environmentally friendly investment projects. Regulations on hedging in TDX projects are also essential.
Second, the State Bank of Vietnam continues to study and complete guidelines for environmental and social risk assessment for a number of industries that do not yet have guidelines in credit granting activities of credit institutions.
Third, develop solutions to concentrate resources to grant credit to projects, production and business plans using advanced scientific and technological achievements, economical and efficient use of energy. Invest in the development of clean energy, renewable energy and use technology to produce environmentally friendly products.
Fourth, continue to mobilize resources to implement green credit policies in Vietnam such as state budget or long-term preferential capital from international financial institutions. At the same time, mobilize capital through the issuance of green bonds to finance large-scale and energy-saving renewable energy projects.
Fifth, businesses need to invest in technological innovation in the direction of green technology, towards the publication of social responsibility reports. Business managers need to raise their own awareness of social and environmental issues, aware of the importance of providing environmentally friendly products that are beneficial to consumers.
Enterprises, when borrowing green credit from banks, need to learn about preferential policies, interest rate support, loan procedures, collateral to increase investment in environmentally friendly projects.
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