In practice, the lending resources of the credit institutions are usually short-term mobilized capital, while green projects have long return over investment (ROI) periods and require large investment costs. This makes it difficult for the banks to balance their capital and ensure the ratio of short-term capital for medium and long-term loans. Therefore, it is necessary to continue to unlock other capital resources apart from the bank credit channel in order to meet the demands for green growth.
Deputy Governor Pham Thanh Ha speaks at the Workshop
This was one of the ideas exchanged at the Workshop on the Role of financial institutions in supporting sustainable development, which was co-organized by the State Bank of Vietnam (SBV) and the Asian Development Bank (ADB) on October 6, 2022.
Loan outstanding for green credit increases by 25% p.a
In his opening speech at the Workshop, Mr. Pham Thanh Ha, SBV Deputy Governor, said that green growth, sustainable development, circular economy and the reduction of the use of fossil materials, and the increase of the proportion of renewable energy in the economic development are the trends and orientations of many countries around the world, especially for developing countries like Vietnam, to respond effectively to the negative impacts of climate change.
The SBV Deputy Governor mentioned that, right after COP26, with the strong leadership of the Prime Minister, the National Steering Committee for implementing Vietnam's commitments at COP26 was established with the participation of many Ministries and state agencies, including the SBV.
Following the directions of the Prime Minister, the SBV has actively implemented multiple actions to achieve the goal of promoting green growth, such as the approval of the Scheme on Green Bank Development in Vietnam, the development of the Action Plan for implementing the National Green Growth Strategy,… promulgated various documents to encourage the credit institutions to focus their resources on green areas, environmentally-friendly industries and fields, etc.; conducted solution packages to manage and monitor the environmental and social risks in the credit granting activities.
Mr. Andrew Jeffries, ADB Country Director for Vietnam, speaks at the Workshop
Mr. Andrew Jeffries, Country Director of the ADB for Vietnam, said that in the recent years, the ADB has actively supported Vietnam to build an effective financial system for green finance, and develop specific guidelines on the issuance of green bonds. In practice, Vietnam needs to mobilize a lot of capital resources to achieve the goal of “net zero" by 2050 as committed at COP26. Therefore, in the coming time, the ADB would continue to support the goal of sustainable growth in Vietnam, work closely with the SBV and other stakeholders participating in the green financial market in order to facilitate the growth of this market.
With the efforts of both the regulators and the international partners, Ms. Bui Thuy Hang, Deputy Director General of the Monetary Policy Department, shared that in the period of 2017 - 2021, the average growth rate of the loan outstanding for green credit had been above 25% p.a. As of June 30, 2022, the loan outstanding for green projects had reached more than VND 474 trillion, accounting for 4.1% of the total loan outstanding of the whole economy, an increase of 7.08% as compared to that in 2021, mainly focusing on renewable energy, clean energy (47%), green agriculture (32%), etc.
Ms. Bui Thuy Hang, Deputy Director General of the Monetary Policy Department, speaks at the Workshop
Green bond development – additional channel of capital mobilization
However, according to Ms. Hang, there are still many limitations and difficulties, for example there are currently no national regulations on the criteria and the portfolio of green projects for the credit institutions to decide on credit granting for the next period. The credit granting to green projects requires intensive technical knowledge on the environment, which makes it difficult for credit officers to appraise and evaluate the viability of the projects, and the debt service coverage ratios of the customers.
Moreover, there are still obstacles in monitoring and managing the risks when granting credit due to the lack of regulations, criteria and standards to measure the environmental impacts.
In addition, the investment in green sectors and areas, especially the field of renewable energy and green buildings, often has a long repayment period and requires large investment costs while the lending resources of the credit institutions are usually short-term mobilized capital and loans. As a result, the credit institutions have difficulties in balancing their capital resources and ensuring the ratio of short-term capital for medium- and long-term loans in accordance with the regulations.
Therefore, it is necessary to formulate guidelines on the green portfolios and criteria for identifying green projects in line with the division of Vietnam's economic sub-sectors, helping the credit institutions to have the foundation for their appraisal, assessment and monitoring upon granting green credit; develop a roadmap to implement appropriate mechanisms and policies to support the green projects in each sector or area in a synchronous manner in order to attract and promote the effectiveness of green credit. At the same time, it is necessary to study and formulate mechanisms and policies to support the development of the capital market, the green bond market, and create more channels for capital mobilization for investors to access more resources to implement their green projects.
The participants at the Workshop
Toward the end of the Workshop, SBV Deputy Governor Pham Thanh Ha asserted that, in the period of 2021-2030, the Government would focus on promoting the resources from commercial loans and private investment, such as green credit and green corporate bonds. Therefore, it is necessary to have appropriate regulations and standards for the suppliers and issuers of green bonds to promote the mobilization of financial resources for green investment through the issuance of green bonds.
In addition, the SBV Deputy Governor also affirmed that in the coming time, the SBV would continue to review, adjust and improve the banking system in line with the green growth objectives; build a green bank development model; promulgate preferential credit policies for green investment projects as assigned by the Prime Minister in the "National Strategy on Green Growth in the 2021-2030 period, Vision to 2050" with the goal of green growth, contributing to the promotion of the socio-economic development.
Le Hang