Absence of legal framework hinders green finance for businesses

However, the absence of a well-defined legal framework is a critical factor limiting businesses' access to these loans with low interest rates.

Commercial banks, especially the group of four large banks including BIDV, Vietinbank, Vietcombank and Agribank, are implementing many green credit programs with total loans of up to tens of thousands of billions of Vietnam dong, mainly on the following areas such as organic agriculture, renewable energy; key projects and works serving socio-economic development, contributing to ensuring national energy security. Many other commercial banks such as HDBank, LPBank, KienlongBank, NamABank also direct green credit flows to key agricultural areas.

According to data from the State Bank, as of the end of February, the total outstanding loans allocated for rice production, processing, and export in the Mekong Delta provinces and cities of Can Tho, Hau Giang, Soc Trang, Bac Lieu, and Vinh Long amounted to approximately VND33,780 billion reflecting an increase of approximately VND300 billion since the beginning of the year. Likewise, the outstanding loans designated for rice procurement in the provinces of Kien Giang, An Giang, Dong Thap, and Ca Mau reached approximately VND44,810 billion.

The State Bank has announced that credit programs designed to support the rice value chain and the 'One Million Hectares of High-Quality and Low-Emission Rice' project are currently being actively implemented by the majority of commercial banks operating within the southern provinces and cities. The State Bank projected a significant increase in the disbursement of these credit facilities in the coming months. In addition, the promotion of lending initiatives for energy sector projects is being actively pursued, reflecting a broader strategy to support key economic sectors.

Vietcombank and Vietnam Electricity Group formalized a credit agreement, wherein Vietcombank committed to providing approximately VND5,472 billion in financing, at preferential interest rates, for the 500kV Lao Cai - Vinh Yen transmission line project on March 10. This infrastructure development initiative is projected to be completed prior to the third quarter of the current year. Upon operationalization, the project is anticipated to yield significant reductions in transmission grid power losses and enhance the overall efficiency of electricity production and distribution.

NamABank Deputy General Director Vo Hoang Hai revealed that this year, the bank will focus on promoting green credit in the aquaculture sector. Currently, the bank has allocated a credit package of VND1,000 billion (US$39.18 million), offering preferential interest rates starting at 6.5 percent per year to support transportation businesses in transitioning from gasoline-powered vehicles to electric vehicles.

According to UOB Vietnam Corporate Banking Director Lim Dyi Chang, the bank aims for 30 percent of its new business loans in 2025 to be green loans, which will offer more favorable terms than traditional loans.

UOB Vietnam provides not only project-based investment loans, but also working capital financing to support green business initiatives, enabling companies to expand their environmentally-friendly operations.

Despite significant growth potential, green lending still faces obstacles for both businesses and banks. Currently, BIDV leads the market in green credit, with a projected portfolio of VND81,000 billion by the end of 2024.

BIDV Capital and Monetary Economics Director Vuong Thanh Long said that this year the bank is implementing policies to gradually reduce funding levels for industries with high carbon emissions such as iron and steel, cement, and fertilizer, while increasing support for green projects with preferential interest rates and exchange rates. BIDV has also published a list of green projects and established priority capital allocation levels specifically for businesses that comply with sustainability standards.

The Government and responsible agencies can help to enhance market efficiency of green credit with timely release of a standardized list of green projects and associated criteria. This action will provide businesses and banks with the necessary clarity to facilitate capital transactions. Subsequently, the Government can leverage budgetary resources to recapitalize financial institutions, thereby creating a system of incentives that reduces the cost of capital for green initiatives.

Meanwhile, Vice Chairman of the Ho Chi Minh City Business Association (HUBA) Dinh Hong Ky said that about 65 percent of businesses have difficulty accessing capital to implement green projects.

A leader of the State Bank of Vietnam's Ho Chi Minh City branch acknowledged that while the demand for green capital is increasing, the allocation of capital to green sectors remains inconsistent. This challenge arises due to the absence of unified standards for a common set of criteria and the lack of specific guidance from relevant ministries and agencies regarding the green classification list. These gaps hinder credit institutions in effectively appraising and monitoring green credit disbursement.