by THANH LIEM 27/05/2024, 02:38

Vietnam needs a legal framework for green finance

A national green categorization that is compatible with international practice is required to support green financial markets, including green bonds. Furthermore, measures to facilitate the green transition, as well as to boost green credit and finance, are needed.

 

By the end of 2023, the outstanding green credit will only be VND 620.984 billion, accounting for about 4.5% of the total outstanding loans in the Vietnamese economy

>> A boost needed for green credit

Difficult access to green capital

According to the World Bank, by 2040, Vietnam would need $368-380 billion (equal to 6.8% of GDP per year) to achieve net zero emissions by 2050. However, speaking at a recent conference on environmental, social, and governance (ESG) norms, several business leaders expressed concern that access to green capital is difficult since Vietnam's commercial banks are uninterested in funding such projects.

Indeed, according to SBV statistics, despite an average green credit growth rate of about 22% per year from 2017 to now, by the end of 2023, the outstanding green credit will only be VND 620.984 billion, accounting for about 4.5% of the total outstanding loans in the Vietnamese economy, far from the target of 10% by 2025.

The growth of green credit remains rather modest, according to a leader of the SBV Department of Credit for Economic Sectors, because there is no classification of green sectors of other ministries and sectors, making it impossible to identify and statistically provide adequate green credit resources from the banking sector for the economy.

Green lending, according to bank experts, also confronts difficulties since green initiatives are generally long-term and need big capital investments. For example, renewable energy projects need significant investment and are fraught with risk. Moreover, there are limit ed policies to support banks' green lending. Furthermore, banking authorities' expertise and experience in assessing and approving loans relating to social and environmental concerns are lacking...

>> Promoting green credit and green bonds for a sustainable future

Meanwhile, the issuing of green bonds is quite limit ed. According to the new data, just 19 green bonds were issued between 2019 and 2023, with a total value of roughly $1.16 billion, which is quite modest in comparison to the average annual capital requirement of nearly $20 billion to satisfy green transition objectives.

Green credit structure

How hard is it?

According to economists, the most significant barrier to the green credit  and  bonds is an inadequate regulatory framework, particularly a lack of legislation, environmental requirements, and green categorization at the national level.

As a result, a standard regulation on national green categorization is required, commensurate with international practice. This allows banks to analyze each client separately for green loans while providing appropriate funds for green projects.

While Associate Prof. Dr. Nguyen Huu Huan of Ho Chi Minh City University of Economics suggested that the SBV examine several incentives such as length, interest rate, and priorities when determining the credit room for commercial banks.

Credit institutions must develop separate green credit policies and strategies, diversify their product offerings, incorporate environmental risks into risk management frameworks, create synchronous social and environmental data systems for information dissemination, increase staff capacity, and implement climate-resistant models...

"In the long run, we need to design regulations to encourage the growth of the capital market, the green bond market, to implement green projects, and reduce dependence on bank credit capital," Huan added.

In this regard, Dr. Can Van Luc, Chief Economist of BIDV, stated that the legal framework for green financial markets needs to be perfected; there are policies to attract capital for green investment; there is a need to simplify procedures and encourage domestic organizations to participate in the process of validation, certification of green projects and green bonds...