Lenders look for greener finance

Financial institutions in Vietnam are joining the green lending segment with gusto, driven by new regulations and the need to widen their client network. The latest newcomer is HDBank, which just announced that it would launch a loan package worth VND10 trillion ($434.78 million) for hi-tech businesses in agriculture. They can borrow with preferential interest rates that are 1 per cent lower than usual with the repayment period of up to 10 years.

According to HDBank, besides this loan package, the bank also worked with supermarkets and convenience stores nationwide to fund export programmes for Vietnamese produces. Beforehand, the bank already put aside VND7 billion ($304.34 million) for solar energy projects.

Another eager participant is Nam A Bank, which last December signed a partnership contract with the Global Climate Partnership Fund, a public-private partnership initiated by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and KfW Entwicklungsbank, to carry out a green financing project for corporate and individual clients. Interest rates for this project stand between 5 and 6 per cent, which is half of the ordinary rates. Corporate borrowers can use the money to purchase eco-friendly machinery or solar energy panels, while individual clients are expected to buy green products, such as cars that are qualified for Euro 4 technology.

Last year, state-owned BIDV also rolled out a solar energy solution package for its customers and offered a credit programme for borrowers that want to install the rooftop solar power system by SolarGATEs, the subsidiary of SolarBK, a big provider of renewable energy solutions in Vietnam.

With Vietnamese banks stepping up their efforts, foreign lenders are also rolling up their sleeves – as part of their parent companies’ global initiative to achieve sustainable lending. Standard Chartered Bank Vietnam is involved in infrastructure and power financing, including the Mong Duong II independent power producer project. Meanwhile, HSBC Vietnam has supported a number of hydropower projects and is now exploring the possibility of lending to households with solar energy panels.

Solar energy indeed seems to be the most popular segment for Vietnam-based lenders, as other banks are also confident of issuing credit for solar panel developers. Examples include Vietcombank with VND785 billion ($34.1 million) for the BP Solar 1 Factory in the south-central province of Ninh Thuan, Agribank with VND950 billion ($41.3 million) for Long Thanh Solar Energy Plant in the Central Highlands province of Daklak, and VietinBank offering VND1 trillion ($43.47 million) for TTC No.1 Solar Energy Factory in the southern province of Tay Ninh.

Notable names in lending

The sustainable financing move was green-lighted by the State Bank of Vietnam (SBV), which passed the Green Bank Development Project last August. As part of this strategy, by 2025, all banks in Vietnam will implement an internal set of regulations on environmental and social (E&S) risk management, as well as conducting credit risk assessment in lending activities. In the same period, at least 10 to 12 lenders will be required to set up a unit that takes care of E&S risk management, and 60 per cent of banks will have access to green financial resources to re-lend to green projects.

Reports by the SBV showed that some banks in Vietnam have used a separate credit assessment procedure for 24 per cent of green projects. About 26 per cent of financial lenders have built and implemented an E&S management system in their general lending programme, most notably foreign banks such as HSBC and Standard Chartered.

Besides support from the SBV, bankers said that they felt compelled to join sustainable lending to diversify their income source. Last year, the SBV told banks to reduce their credit for real estate developers who are prone to bad debts and property gluts. Specifically, Circular No.16/2018/TT-NHNN which revised Circular No.36/2014/TT-NHNN on regulating prudential ratios for credit institutions and foreign bank branches pointed out that the ratio of short-term funds that banks can use for long-term projects (mostly real estate) will be reduced from 45 to 40 per cent in 2019. This ratio is now suggested to go further down to 30 per cent. To compensate for their potential loss of income, banks are looking to consumers and green finance. Le Quang Quang, deputy CEO of Nam A Bank, said that green credit offers a great economic development incentive, as well as helps the bank solve E&S issues in Vietnam.

Promoting positive results

Oftentimes, green financing programmes in Vietnam receive great support from development agencies, including the International Finance Corporation (IFC). In a recent green finance conference, Kyle Kelhofer, country manager for the IFC in Vietnam, Cambodia and Laos, told VIR that he appreciated Vietnam’s efforts to roll out green finance regulations in phases. When more banks see the benefits of green lending in their own business strategy, they will join forces.

“I commend the Vietnamese regulators for their phased approach. The SBV should continue monitoring green finance progress results, and sharing the successful cases with the sector so that everyone can see the benefits of ­effectively implementing green finance practices,” Kelhofer said.

He believed that different banks will have different strategies in green financing, and it will take them some time to find the right strategy. There is still a long way to go, and banks will have to figure out which client, and which risk management plan is the most suitable for them in this very new segment.

Other experts believed that banks will need more support from the regulators besides the legal framework. Le Kien Nghi, deputy manager at the Large Corporate Clients Department at BIDV, admitted that green financing is challenging because of its long-term nature and different assessment method. Many bankers also said that they have little experience in this segment, and help is needed in terms of E&S standards, staff training, credit assessment procedures, and facilities.

According to economist Bui Quang Tin, these are all long-term investments that will take time, money, and effort for Vietnam-based lenders to roll out. “I believe banks need more guidance and support from the government, because all of this [sustainable lending] is still very new to them and they need funding and time to invest in their own infrastructure for green finance,” said Tin.