Better legal framework for green credit needed

Green credit balance at 4.2 percent of the economy’s total

According to statistics from the State Bank of Vietnam (SBV), during the 2017-2022 period, the credit balance of the banking system for Vietnam’s green fields has an average growth rate of more than 23 percent per year. By June 30, 2023, green credit balance had accounted for about 4.2 percent of the economy’s total credit balance.

By June 30, 2023, green credit outstanding balance reached nearly VND528.3 trillion - photo: LPBank

Among the 12 areas that the SBV guides credit institutions to offer green credit, outstanding loans focus mainly on renewable energy /clean energy sectors (45 percent), and green agriculture (31percent). Credit institutions have enhanced the assessment of environmental and social risks in credit-granting activities.

Nguyen Chi Hieu, Director of ESG consulting of KPMG in Vietnam and Cambodia, cited that at COP26, the Vietnamese Government committed to reduce total greenhouse gas emissions by nine percent by 2030; gradually eliminate coal fuel for electricity production by 2040; and finally, achieve zero net emissions by 2050. “This is an opportunity for banks to participate in the green capital market,” Hieu emphasized.

Outstanding loans of green credit focus mainly on renewable and clean energy - photo: OCB

To meet those targets, it is estimated that Vietnam will need about US$368-380 billion or 6.8 percent of GDP each year until 2040 for transition to a green economy and cope with impacts of climate change.

Dao Minh Tu - Deputy Governor of the SBV, said that there are now 43 organizations offering green credit. The goal is that by 2025, 100 percent of credit institutions will have participated in green credit activities. As green credit growth in Vietnam remains limited, the target is that the rate will have reached 25 percent by the end of 2025, and up to 30 to 35 percent by the end of 2030.

More mechanisms needed

According to experts, building infrastructure to develop green credit is considered the key for a strong green finance in Vietnam. Representatives of some private commercial banks assessed that currently Vietnam does not have a specific basis for identifying and classifying green projects and, therefore, commercial banks have difficulties in selecting, appraising, evaluating and monitoring when offering green credit.

In this regard, Nguyen Chi Hieu also pointed out five main difficulties that banks need to deal with. First, it is the quality of staff in appraisal work; second, the bank’s internal process when classifying green credit; third, integrating environmental, social, and governance risks into the bank’s overall risk framework; fourth, inflating green projects which will cause damage to banks; fifth, the data system on the society, environment which is not consistent.

To develop green credit, bank experts proposed that the Government, ministries, and sectors soon complete the legal framework for a sustainable finance sector in general and green credit in particular; and develop a roadmap to implement support mechanisms for green industries (taxes, fees, capital, markets, planning, development strategies, and more) of each industry/field in a synchronous way to attract and use the green credit capital effectively.