Systemic issues persist in green credit development

This issue was heavily debated during discussions at the National Assembly (NA) late last month, as policymakers and industry stakeholders emphasised the need for stronger support and clearer frameworks to facilitate the transition to green finance.

Le Dao An Xuan, an NA deputy representing the south-central province of Phu Yen, highlighted the pressing need for businesses in various sectors to transition from “brown” to “green” models, especially in the wake of natural disasters and climate change.

“Accessing green capital sources remains too difficult for enterprises. The credit and banking systems seem unable to promptly meet the green transformation needs of businesses,” Xuan noted.

Despite efforts to encourage green financing, enterprises, particularly small and medium-sized ones, often struggle to secure loans for green projects due to high costs and limited support mechanisms.

Governor of the State Bank of Vietnam (SBV) Nguyen Thi Hong detailed the institution’s efforts to promote green credit.

“Based on directives from the Central Committee, NA, and the government, the SBV has issued action plans and policies to encourage credit institutions to prioritise resources for green credit, manage environmental risks, and contribute to green growth goals,” she stated.

The number of credit institutions offering green financing has grown from just five in 2017 to 50 by 2024, with total green credit balances reaching approximately VND650 trillion ($16 billion). Notably, 45 per cent of this amount has been directed toward renewable and clean energy projects, while 30 per cent supports clean and green agriculture.

Additionally, outstanding credit balances assessed for environmental risks now total VND3.2 quadrillion ($130 billion), representing 21 per cent of the total credit balance of the banking system.

However, Governor Hong acknowledged ongoing challenges. “The lack of a unified green taxonomy from relevant ministries and agencies poses significant difficulties. Investments in green sectors such as renewable energy and clean energy require substantial capital and long terms, which complicates lending processes,” she said.

Even established businesses like DEEP C face hurdles in accessing green financing. To develop rooftop solar power projects in industrial parks, DEEP C applied for preferential loans with an interest rate of 3 per cent.

However, the project incurred additional costs, including a 3 per cent bank guarantee fee and over $10,000 in application processing fees, making the total cost higher than standard commercial loans.

Moreover, DEEP C faced limitations in scaling its project due to restrictions imposed by local authorities. For instance, its rooftop solar proposal was capped at 100MW by Haiphong People’s Committee, as the city’s total capacity for solar projects was allocated among multiple industrial parks.

DEEP C’s earlier attempts to secure funding from the World Bank for an ecological industrial park were also unsuccessful, as the project did not meet the $30 million minimum funding threshold.

By the end of June 2024, green credit accounted for just 4.5 per cent of the total outstanding debt in Vietnam’s economy, underscoring the untapped potential in this sector. However, systemic issues persist.

Le Hoang Lan, from the Monetary and Financial Department under the Ministry of Planning and Investment, pointed out that the absence of clear regulations and standards for defining green economic sectors complicates project appraisal and financing.

“Credit institutions face significant risks with green projects due to high investment costs and long payback periods,” Lan said.

He also noted gaps in policy frameworks, emphasising that current guidelines focus primarily on environmental factors while neglecting social and governance aspects, which are critical for sustainable development. “This imbalance impacts the performance and potential of businesses seeking green finance.”

Some enterprises, such as Dogreen, a company specialising in high-tech waste treatment, have opted not to pursue green credit due to unfavourable terms. Nguyen Khanh Nam, CEO of Dogreen said, “Many green projects are not financially viable because of the difficulty in recovering capital and ensuring profitability.”

The sentiment reflects a broader issue: while green credit has been promoted, the associated costs and risks often outweigh the benefits for many businesses.

Governor Hong reaffirmed the SBV’s commitment to green finance, stating that the bank will continue aligning its policies with government directives. “If the prime minister approves a green taxonomy, the SBV will guide credit institutions to carefully allocate green credit and assess environmental risks. We will promptly address any emerging issues,” she said.

Stakeholders highlighted the need for green capital and identified key issues for expanding green credit and finance at a seminar last week.

The recent amendment of the plan on green banking development in Vietnam is expected to create conditions for credit institutions to effectively promote green credit.