GREEN BANK IN VIETNAM: LEVEL OF DEVELOPMENT AND DETERMINANTS45409

Green financial system in Vietnam - Challenges and impacts on the economy GREEN BANK IN VIETNAM: LEVEL OF DEVELOPMENT AND DETERMINANTS Tran Thi Thanh Tu*, Ngo Anh Phuong, Nguyen Thi Nhung University of Economics and Business - VNU ABSTRACT Using primary data collected from surveys sent to managers and experts in bank industry, and also based on Kaeufer’s model of Green Bank with five levels in 2010, the research show that actually, green bank in Vietnam is at level Systematic business practices This means that social and green principles and practices are the basis for the majority of banks’ products The main focus of the bank is the green impact of every business activity by emphasizing the four levels: people/places, processes, principles, and purpose Moreover, based on Exploratory Factor Analysis (EFA), the authors find out the most important and significant determinants including employees’ performance and knowledge of managers about developing green bank In other words, banks should play the proactive roles in the current stage In addition, it is very necessary to have some “demand” factors like demand of firms on green investment or support from Government in terms of policies for the development of green banks in Vietnam Keywords: Green Bank, Green Finance, Determinants for development of green bank INTRODUCTION Vietnam is considered as one of countries that are significantly affected by climate change According to Ministry of Planning and Investment, to achieve objectives proposed by green development project, Vietnam will be in the need of 30 billion USD (Trọng Triết, 2015) This becomes a big challenge as the national budget and the support for international fund are limited Therefore, in order to develop towards sustainable green growth, a developing country like Vietnam should consider banking system and finances institutions as principal subjects, playing a crucial role in the green finance campaign Accordingly, banking system and financial institutions will decide to offer * Corresponding author Email address: tuttt@vnu.edu.vn 26 Vietnam National University - University of Economics and Business capital to “green” projects that focus on promoting social economics development, and will play an important role in supporting a stable economic development Green finance is an effective solution for environmentally friendly investment project Banks and financial institutions also can stay away from environment and social risk by offering green finance products and services As a role of lender, banks contain a huge part in direct the investment fund into environmentally friendly projects However, it is quite difficult for most of Vietnamese firms always to approach capital offered by banks This issue has reduced firms’ motivation to innovate technologies for improving production performance and decreasing negative impacts on environment One of the basic causes lead to that situation is the lack of green products and services product In practice, the matter of Green Bank has just been mentioned for years, but has been introduced since 2011 in Vietnam According to the National strategy on green growth for the period 2011- 2020 with vision to 2050 approved by the Prime Minister on September 2012, “Green Finance” and “Green Bank” are actually a part of “Green Growth” However, this definition is still unfamiliar with some banks and financial institutions actually This paper aims to measure the development level of green bank in Vietnam by using Kaeufer’s model of Green Bank with five levels and simultaneously, evaluate determinants affecting the development of green banks in Vietnam Based on empirical results and discussions, this article proposes some recommendations in attempt to develop green bank in the upcoming time in Vietnam The research includes parts: following the introduction, the second part provides literature review about principal definitions of green bank, methods measuring development level, as well as factors promoting the growth of green banks The research methodology will be presented in the third part Empirical result will be presented in the fourth part The fifth part is for discussion and the final part sums up with the conclusions and recommendation for developing green banks in Vietnam GREEN BANK AND FACTORS AFFECTING DEVELOPMENT 2.1 Green Bank: Concept and level of development After the global financial crisis in 2008, all countries in the world had to look back on their organization and operating models in the financial system The issues of sustainable development, social, ethical and environmental responsibility are all reviewed under a higher point of view Green bank emerges as an ideal model for future banks, which is the foundation for moving towards a sustainable green economy However, up to now, there has not been any theorical framework mentioning green banks Green bank is defined in different ways In a broad sense, a green bank is understood as a sustainable bank whereby investment decisions are made in a way of bringing benefices to consumers, economy, society and environment In other word, there is a close relationship between the bank and economic, social and environmental factors A bank can only develop sustainably if its benefits are tied to that of society and environment In a narrow sense, green banks refersto business activities that encourage 27 Green financial system in Vietnam - Challenges and impacts on the economy environmental activities and reduce carbon emissions, such as: Encourage customers to use green products and services, apply environmental standards when approving loans or providing preferential credits for projects reducing CO2 or renewable energy projects, etc (UN ESCAP, 2012) Thus, a bank is considered as a green bank when it provides services associated with environmental commitments or investments in green and clean production For instant, green banks offer alternative financial services such as loans for green car, mortgages for energy efficiency, venture capital for alternative energy, eco - savings deposits and green credit cards, etc According to Drobnjaković (2013), these services represent innovative financial products However, there are other definitions of green bank SOGESID (2012) assumes that green bank is a normal bank that supplies outstanding services for investors and consumers and also enforce programs supporting community and environment Green banks are not basic business working for Corporate Social Responsibility (CSR), not fully a basic business for profit But they are the new combination guarantying the harmony and the stability among economic - social - environmental interests Green banks help pushing the social responsibilities by focusing on environmentally friendly factors of projects and their impacts on the environment in the future of the project before approving credits Therefore, green banks can help changing the goals of banks from “profit” to “profit with responsibilities” (Bihari, 2011) Green banks can exist under any form of bank as long as they ensure environmental profits for the country Lalon (2015) indicates that a normal bank will become a green bank when re-orienting the core activities along with the improvement of the environment Singh and Singh (2012) assumed that green bank is similar to normal bank, but the difference is that green bank consider all the social and ecological factors with the aim of protecting the environment and conserving the nature Green bank is the combination of improving operations, techniques and changing the consumers’ habit in the banking business services According to banking experts, green bank is a sustainable development, an ethic loan, and contributes to conserve the nature and improve effective usage of energy As a result, green bank is also named as an ethical bank or a sustainable bank Kaeufer (2010) suggested different grade of development of green bank under the view of providing banking services So, there are levels: Level (Unfocused corporate activities): At this level banks involve themselves in green banking activities by sponsoring green events and public works which are not considered their main activities Level (Isolated business practices): Banks separate green banking activities from their conventional banking activities However, the percentage of green banking practices is rather small Level (Systematic business practices): At this level social and green principles and practices are the basis for the majority of banks’ products The main focus of the bank is the green impact of every business activity by emphasizing the four levels: people/places, processes, principles, and purpose 28 Vietnam National University - University of Economics and Business Level (Strategic ecosystem innovation): By actively balancing strategic ecosystems, green banking activities are not limited to the scope of the banking sector, but they spread across the network, alliance, community dialogue, or the whole ecosystem to achieve sustainable development Level (intentional ecosystem innovation): Banks perform similar green banking activities as they at level 4, but at level 5, a socially responsible and green bank intends to address the ecosystem actively It is obviously seen that only at levels and 5, banks can present its green long-term business strategy, by meeting both social and environmental standards and ensuring sustainable development as well as having spillover effects on other economic sectors in the green growth model 2.2 Determinants affecting the development of green bank Green banking model is developed in association with the concept of sustainable development In general, the bank can be considered environmentally friendly financial institutions because most bank activities have clear environment and social goals However, sustainable development objectives can be strongly influenced by the customers, such as: steel firms, cement firm, chemical fertilizer firms, textile firms, etc., which dramatically produce or discharge carbon, causing environment pollution As a result, banks play a crucial moderator role between economic development and environment protection by encouraging environmentally friendly investments and social responsibilities activities Many researches bring up factors influencing the development of green bank Hoen (2014) mentioned that group of factors related to policies related to finance, green finance issued by, Government and local agencies has a great impact on the development of green banking These factors include: politics risk, unclear intellectual property policies, lack of economic management tools UNEP (2012a) pointed out the risks that investors need to face when participating in green projects such as: (i) Macroeconomic risks (Inflation/ interest rates); (ii) Environmental risks (Financial risks stemming from current environmental regulations and uncertainty about possible future regulations); (iii) Legal risks (Risks of future regulations, or renegotiation of contracts will change benefits of parties); (iv) Political risk (Political violence, possession or conversion) Besides, Adelphi (2016) shows that the growth of bank in the green area is affected by demand and green investment strategy of the companies According to Barner and Han (2013), the bank scale and ownership are the core factors helping the bank to get vision and then making plan to activate green development Moreover, establishing green bank strategies plays a vital role for developing products and services supporting commercial development with environment beneficial, so indirectly helps banks to achieve their objectives and social responsibilities (Ritu, 2014) Peter et al (2005) assumed that the bank staff’s ability of evaluating green projects is very important because its impacts on financing projects Sometimes, financial 29 Green financial system in Vietnam - Challenges and impacts on the economy institutions like green banks don’t have enough knowledge to estimate if loans for green technology activities make sense or not as well as to investigate their impacts on the environment (Adelphi, 2016) In addition, Fukuhara (2016) assume that developing countries don’t have enough long-term financial resources to develop green finance or green banks Investment costs, scale, and payback period of projects are considered as barriers for development of green bank (Peter et al., 2015) In fact, green project requires a large and long funding to solve problems of expected returns and risks as well as issues related to amount of money and investment duration Hee (2010) gives four components influencing green finance development, including: financing green businesses and technologies, developing green financial products and green investors; considering environmental impacts on lending decision-making, investigating effectiveness of the markets of products that cause environmental waste Eyraud et al (2013) shows that GDP per capita, long-term nominal interest rate, relative international prices of crude oil, preferential prices for clean energy (feed-intariffs), mechanisms for pricing carbon as well as population, are factors promoting economic growth, thereby green investment through a solid financial system Barner and Han (2013) argue that in the banking sector, environmental factors that banks consider during loan decision making, market oversight and risk management processes, will promote environmentally responsible investment and encouraging firms to use low-carbon technology Other factors such as rankings, size and ownership of the bank are also the key factors that help banks to have a good vision and then create a plan to develop green bank Romano et al (2017) focus on environmental, social and economic factors to analyze the impact of green policies on renewable investments in both developed and developing countries They show that effects of the same policy will be different in countries with different development levels Government intervention should be obligatory for developing countries, while developed countries often have more appropriate measures and policies in managing environmental issues and always assign public organisations to be responsible for policy strategy management The environmental factor is measured by the amount of greenhouse gas (CO2) emissions from energy consumption, which is an indicator of environmental degradation due to economic development It also presents the energy intensity, or vice versa, the amount of energy needed to produce a unit of GDP Socio-economic factors are measured by Foreign Direct Investment (FDI), gross domestic product (GDP), electricity consumption (lncons), electricity price (lnprice) and net imports (Netimports) Beck and Levine (2004) examine these factors from the perspective of green financial intermediaries, through green credit - ratio of green loans to the private sector to GDP, as private credit reflects the resources allocated to private companies through financial intermediaries According the report of Association for Sustainable & Responsible Investment in Asia (ASrIA), the lack of agreement and associating policies becomes a prominent issue in Southeast Asian countries (Indonesia, Philippines, Vietnam, Malaysia, Cambodia) For example, the lack of financial policies or regulations has reduced the progress in renewable energy targets in the Philippines, or the overlapping and unclear institutional regulations and legal frameworks hamper the growth in Vietnam 30 Vietnam National University - University of Economics and Business In developing countries, because capital markets are still very limited, it is difficult for the private sector to access credits Fukuhara (2016) argues that the lack of longterm financing is the reason that many developing countries are facing in developing green finance: (i) Lack of capital and/or inappropriate financial conditions; (ii) Lack of tools and the weakness of local financial institutions; (iii) Lack of knowledge on green energy and insufficient information to carefully analyze green projects; (iv) High mortgage requirements The research summarizes determinants affecting the development of green bank in Table as below Table Determinants for the development of green bank Group of factors Government’s support policies Macro factors Factors Researches Regulations about intellectual copy- Hoen (2014) and Fukuhara (2016); rights, environment UNEP (2009) Domestic financial management tools Hoen (2014) and Fukuhara (2016) Political risks Hoen (2014) and Fukuhara (2016); UNEP (2009) GDP per capita Eyraud et al (2013); Romano et al (2017) Long-term nominal interest rate Eyraud et al (2013) Relative international prices of crude Eyraud et al (2013) oil Preferential prices for clean energy Eyraud et al (2013) Mechanisms of pricing carbon Eyraud et al (2013) Population Eyraud et al (2013) Demand or strategies of business on Adelphi (2016) grreen investment Firms’ demand on Long-term capital Fukuhara (2016) green investment Projects’ investment costs, scale, and Peter et al 2015 payback period Financial performance of bank Scale of bank Barner and Han (2013) Ownership Barner and Han (2013) Bank Directors’ Bank strategies Knowledge Ritu (2014) Performance of Ability of evaluating green projects bank employees Peter et al (2005); Adelphi, 2016 Source: Authors 31 Green financial system in Vietnam - Challenges and impacts on the economy RESEARCH METHODOLOGY 3.1 Developing Questionnaire The research aims to: (i) Evaluate the current development level of green bank in Vietnam; (ii) Determine factors affecting the development of green bank in Vietnam Questionnaires are designed with Likert scale from to 5, and then, are sent to manager working for commercial banks, experts, policies makers in the bank sector For the first goal, the article totally based on Kaeufer research (2010) to develop questionnaires So, the research rank green banks with levels [Appendix 1] And for factors influencing to the development of green bank in Vietnam, the research chooses factor groups, based on literature reviews and deep interview with experts - Government support policies for developing green bank (F1): sub-factors from F1_1 to F1_7 - Macro factors (F2): sub- factors from F2_1 to F2_7 - Firms’ demand on green investment (F3): 10 sub- factors from F3_1 to F3_10 - Bank’s financial performance (F4): sub-factors from F4_1 to F4_7 - Bank managers’ knowledge about green bank development (F5): 11 sub-factors from F5_1 to F5_7 - Employees’ performance (F6): sub-factors from F6_1 to F6_7 The first factors are grouped into outside banking factors while the next factors are inside banking factors All factors are developed into sub-factors and mentioned in Appendix In order to make sure the effectiveness of questionnaire, the authors did pilot testing Questionnaires were distributed to 20 managers in both commercial banks that are located in Hanoi and Ho Chi Minh City The principal objective of pilot testing is to ask respondents if they understand the questionnaire, if there have any comments about both contents and format of survey or any suggestions in order to make survey clearer and more significant Based on the sample group’s feedback about how they understand and what they still concern about questions, … etc., the authors made necessary adjustments and amendments in order to make sure that the question had face validity After that, the authors used google forms and distributed questions to managers in commercial banks in Vietnam As results, the research receives 128 valid answers from managers, expert, policy makers that has an average of more than 12 years working in bank sector 3.2 Research Model - Evaluate development level of green bank in Vietnam To evaluate the development level of green bank in Vietnam, the authors used the survey result to calculate the median for each development level 32 Vietnam National University - University of Economics and Business - Determine factors affecting the development of green bank in Vietnam There are hypotheses as bellow + Hypothesis H1: Government support policies for developing green bank (F1) have a positive influence on the development of green banks + Hypothesis H2: Macro factors (F2) have a positive influence on the development of green banks + Hypothesis H3: Firms’ demand on green investment (F3) has a positive influence on the development of green banks + Hypothesis H4: Bank’s financial performance (F4) has a positive influence on the development of green banks + Hypothesis H5: Bank managers’ knowledge about green bank development (F5) has a positive influence on the development of green banks + Hypothesis H6: Employees’ performance (F6) has a positive influence on the development of green banks Figure 1: Model for studying factors affecting the development of green bank in Vietnam Source Authors In terms of research model, author use Exploratory Factor Analysis (EFA) in SPSS 20 in order to determine factors affecting the development of green bank in Vietnam First of all, data have to be examined by Cronbach’ Alpha in SPSS Cronbach’ Alpha is considered to be a measure of scale reliability (Amit, 2010) A reliability coefficient of 0.70 is considered “acceptable” Simultaneously, data must have Corrected ItemTotal Correlation equal or bigger than 0.3 In particular, in case the previous condition is satisfied but Cronbach Alpha if Item Deleted is bigger than Cronbach’ Alpha, data should be verified carefully 33 Green financial system in Vietnam - Challenges and impacts on the economy After testing Cronbach’s Alpha in SPSS, the research only keeps appropriate factors by removing unsuitable variables from data Suitable variables are introduced in SPSS to test EFA Analysis results can be interpreted as bellow: + The Kaiser Meyer Olkin (KMO) measuring the sampling adequacy should be close than 0.5 for a satisfactory factor analysis to proceed + Bartlett’s test is another indication of the strength of the relationship among variables This ratio should be less than 0.05 to reject the null hypothesis In other words, correlation matrix is not an identity matrix + Eigenvalue actually reflects the number of extracted factors whose sum should be equal to number of items which are subjected to factor analysis. Factors with Eigenvalue bigger than will be kept in analysis model Total Variance Explained bigger than 50% indicate the appropriateness of EFA model Factor Loading indicates the correlation between the observation variable and the factor The higher the factor loading is, the greater the correlation between the observation variable and the factor is and vice versa Because of sample of 153, the authors use factor loading of 0.5 The next step of research is to compute variables in appropriate groups before correlation analysis Correlation is a bivariate analysis that measures the strength of association between two variables and the direction of the relationship.  In terms of the strength of relationship, the value of the correlation coefficient varies between +1 and -1  In this research, the authors use Pearson correlation to measure the degree of the relationship between linearly related variables Finally, the regression analysis is used in order to estimate the relationship between a dependent variable and independent variables This analysis allows to determine which is the most important independent variable that has the highest impact on the firms’ decision - making of choosing bank EMPIRICAL RESULTS 4.1 Development level of green banking in Vietnam Level Level Level Level Figure Development level of green bank in Vietnam Source Authors 34 Level Vietnam National University - University of Economics and Business Figure shows evaluation of experts, bank managers about the development level of green bank in Vietnam Most of people accepts with the idea that green bank in Vietnam is currently at level with the highest score of 3.95 This means that: Systematic business practices This means that social and green principles and practices are the basis for the majority of banks’ products The main focus of the bank is the green impact of every business activity by emphasizing the four levels: people/places, processes, principles, and purpose However, it is clearly seen that that there is not much different between each level and the score of all level under (acceptance level) in Likert scale Figure Score for each criterion in level Source Authors The score of each criterion in level are shown in figure Criterion L3_5 about “reducing the amount of paper and energy at office” reaches the highest score (4.08) The second place is criterion L3_9 “using energy saving equipment” L3_11 “policies about reducing use of energy and waste” stands at the third place and is the final criterion having score more than The 03 criteria having the lowest point (lower than 3.90) include L3_6 - “equipping solar energy”, L3_3 “follow the environment standards in all business transaction”, and L3_12 “giving discount on payment through internet” The details of each criterion are mentioned in Appendix 4.2 Factors affecting green bank development in Vietnam - Analyze the reliability of the scale Appendix provides results of the reliability test by using the Cronbach’ Alpha confidence factor The results show that: - Factor F1 - Government policies: Cronbach’ Alpha coefficient is 0.924, greater than 0.8 and less than 1, confirming that the measurement scale is good The correlation coefficient of the total variables for all seven sub-factors is greater than 0.3 The Cronbach’ Alpha if item deleted value of the factor F1_3 reaches 0.930, which is greater than the value of 0.924 This means that variable F1_3 needs to be removed from the next model However, the authors found that the F1_3 variable "policy supporting application of technology in banks to evaluate green investments/ 35 Green financial system in Vietnam - Challenges and impacts on the economy F5_2 F6_5 F6_6 F6_2 F6_1 F5_11 F6_4 F2_3 F1_5 F1_4 F1_3 F1_2 F4_4 F4_2 F4_7 F4_3 F4_5 F4_6 F2_7 F2_2 F2_1 F6_3 601 Component 742 672 671 649 646 633 589 523 846 738 712 661 535 539 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations Source: The authors calculating based on SPSS 792 786 738 693 660 603 515 862 830 749 Table shows the rotation matrix It is obviously seen that factors F1_1, F2_3, F1_2 and F4_5 receive the values ​​of both groups However, each of the above observed variables uploaded in both of the above two factors has a difference in load factor of less than 0.3 In addition, factor F2_6 has no factor load factor greater than 0.5 Therefore, the authors group of the above factors (including: F1_1, F1_2, F2_3, F2_6 and F4_5) The remaining factors are divided into groups, including: - Group is called Factors_1, including the following factors: F1_6, F1_7, F3_1, F3_2, F3_4, F3_5, F3_6, F3_7, F3_8, F3_9, F3_10 - Group called Factors_2, including the following factors: F2_5, F5_1, F5_2, F5_4, F5_5, F5_6, F5_7, F5_8, F5_9 - Group called Factors_3, including the following factors: F5_11, F6_1, F6_2, F6_4, F6_5, F6_6 - Group is called Factors_4, including the following factors: F1_3, F1_4 and F1_5 - Group is called Factors_5, including the following factors: F2_7, F4_2, F4_3, F4_4, F4_6 and F4_7 - Group is called Factors_6, including the following factors: F2_1 and F2_2 - Group is called Factors_7, including factor F6_3 38 Vietnam National University - University of Economics and Business Table Correlation between dependencies and independent variables Level Level Factors_1 Factors_2 Factors_3 Factors_4 Factors_5 Factors_6 Factors_7 Pearson Correlation 761** 797** 819** 564** 427** 168 295** 000 000 000 000 000 057 001 128 128 128 128 128 128 128 128 Pearson Correlation 761** 784** 687** 576** 374** 068 111 Sig (2-tailed) 000 000 000 000 000 445 212 N 128 128 128 128 128 128 128 128 Pearson Correlation 797** 784** 764** 424** 480** 062 169 Sig (2-tailed) 000 000 000 000 000 484 057 N 128 128 128 128 128 128 128 128 Pearson Correlation 819** 687** 764** 517** 447** 177* 445** Sig (2-tailed) 000 000 000 000 000 046 000 N 128 128 128 128 128 128 128 128 Pearson Correlation 564** 576** 424** 517** 192* 148 306** Sig (2-tailed) 000 000 000 000 030 096 000 N 128 128 128 128 128 128 128 128 Pearson Correlation 427** 374** 480** 447** 192* 211* 204* Sig (2-tailed) 000 000 000 000 030 017 021 N 128 128 128 128 128 128 128 128 Pearson Correlation 168 068 062 177* 148 211* 170 Sig (2-tailed) 057 445 484 046 096 017 N 128 128 128 128 128 128 128 128 Pearson Correlation 295** 111 169 445** 306** 204* 170 Sig (2-tailed) 001 212 057 000 000 021 056 N 128 128 128 128 128 128 128 Sig (2-tailed) Factors_6 Factors_5 Factors_4 Factors_3 Factors_2 Factors_1 N Factors_7 056 128 ** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed) Source: The authors calculating based on SPSS 39 Green financial system in Vietnam - Challenges and impacts on the economy Table shows that there is no linear correlation between the Level and Factors variables because the sig between these two variables is greater than 0.05 (reaching a value of 0.057) Therefore, the Factors_6 variable should be removed from the research model The Sig value between the Level dependent variable and the remaining groups of factors is less than 0.05, representing a linear relationship between the Level dependent variable and the group of independent variables In addition, the Pearson coefficient between these variables is positive, indicating a positive relationship This means that the value of the independent variables increases, the value of the dependent variable Level also increases Table Model Summary Model R R Square Adjusted R Square 880a 774 Std Error of the Estimate Durbin-Watson 2615 2.038 763 a Predictors: (Constant), Factors_7, Factors_1, Factors_5, Factors_4, Factors_3, Factors_2 b Dependent Variable: Level Source: The authors calculating based on SPSS Table shows the adjusted R square is 0.763, corresponding to 76.3% It means that the independent variables in the research model affect 76.3% of the change in the dependent variable The remaining 23.7% is due to the control/influence of non-model variables that the study has not found yet or due to random errors Besides, the Durbin-Watson coefficient reaches 2,038, revolving around the value of less than 4, satisfying the condition that there is no autocorrelation phenomenon In addition, the Sig value of the F-test reaches 0.000 less than the value of 0.05, representing the overal research model [Table 6] Table ANOVA Model Sum of Squares df Mean Square F Sig Regression 28.416 4.736 69.259 000b Residual 8.274 121 068 Total 36.690 127 a Dependent Variable: Level b Predictors: (Constant), Factors_7, Factors_1, Factors_5, Factors_4, Factors_3, Factors_2 Source: The authors calculating based on SPSS Table shows that the Sig values of Factors_1 to Factors_4 vare less than 0.05 while the Sig values of Factors_5 and Factors_7 are greater than 0.05 Therefore, Factors_5 and Factors_7 need to be excluded from the research model In addition, the VIF of all independent variables is less than 10, so it can be concluded that there is no strong correlation between the independent variables Considering the standardized coefficient beta, the standardized beta of Factors_3 has the highest value of 0.400, followed by Factors_2, Factors_1 and finally Factors_4 40 Vietnam National University - University of Economics and Business Table Coefficients Model Unstandardized Coefficients B Std Error (Constant) 826 237 Factors_1 134 059 Factors_2 217 Factors_3 Standardized Coefficients t Sig Beta Collinearity Statistics Tolerance VIF 3.491 001 182 2.285 024 293 3.415 064 286 3.391 001 261 3.825 303 062 400 4.919 000 282 3.541 Factors_4 090 040 126 2.236 027 589 1.697 Factors_5 018 053 017 332 741 744 1.344 Factors_7 007 049 007 136 892 675 1.482 a Dependent Variable: Level Source: The authors calculating based on SPSS DISCUSSION In terms of development level of green bank, empirical results show that Vietnamese banks are currently at level - Systematic business practices This means that social and green principles and practices are the basis for the majority of banks’ products The main focus of the bank is the green impact of every business activity by emphasizing the four levels: people/places, processes, principles, and purpose However, the score is less than - a low level, showing that experts and bank manager have not fully agreed with the development level of green bank in Vietnam This is totally consistent with what is happening in Vietnam banking system Actually, in Vietnam there is no bank that is considered as a real green bank Most of banks only offer green banking service or giving loan with environmental commitment A lot of Vietnam commercial bank provide internet banking services (Internet banking, SMS banking, Mobile banking…) besides traditional services In credit activities, they have already focused on environment factors Although bank credits play an important role for developing green bank in Vietnam, they have not been widely developed and in particular, not been strategized in commercial banks Current regulations have not been sufficient and clear enough for developing green bank in Vietnam Some international financial institutions like World Bank, Asian development bank have constructed the principle concepts like Equator Principle, to ensure that environment and social standards is compulsory for their investment projects Equator Principle is a set of voluntary standards built on the basis of reference to existing standards and demands of financial investors This set of standards is intended for financial institutions to identify, assess and manage social and environmental risks in the process of sponsoring projects In order to introduce environmental and social risk management into credit approval of financial institutions, State bank of Vietnam (SBV) has collaborated with 41 Green financial system in Vietnam - Challenges and impacts on the economy International Finance Corporation (IFC) to build tools evaluating the environmental and social risk in 10 specific industries (such as: agriculture, chemistry, construction and infrastructure, energy, food processing, textile, oil and gas, waste treatment, mine exploitation and mineral substance products) and published the handbook “Evaluating the environment and social risks” in 2017 to support the credit activities in the whole banking system Therefore, some of commercial bank has applied standards of IFC and Equator Principles in order to build their own standard In 2012, Sacombank was the first joint stock commercial Bank in Vietnam to apply Environmental and Social Management System (ESMS) to enhance the management of environmental and social impacts in credit activities, based on international standards like UN Environment Programme Finance Initiative (UNEP FI) and Equator Principles as well as IFC Sacombank also created an ESMS Group to directly training its staff to assessment and take part in the process of evaluating effects on environment and society In addition, Sacombank has also issued environment policies with a list of 12 excluded sectors that this bank will not give credits based on evaluation about environmental social risk In 2016, Techcombank and Vietinbank built their own internal management system for environment risks Techcombank put the green credit into performance by collaboration with international organizations like IFC to get fund for energy saving projects and clean production of medium and small business in Vietnam Moreover, Techcombank with ACB, VIB also play a role of supporting financial evaluation and giving credits at Green Credit Trust Fund (GCTF), created by The State Secretariat for Economic Affairs (SECO), for domestic projects like projects of clean technology or projects of developing products having positive impacts on the community However, factors relating to environment - social risk has been integrated with the project valuation For example, BIDV does not accept giving credit to unplanned projects Vietcombank only accept giving credit for projects that are already approved to have environmentally positive impacts, simultaneously, requires project owner to provide related information about technology and environment While green credit has just stayed at the first steps, the green domestic activities is being pushed to develop by the banks in the meantime, for instance internet banking, or specialized program about green bank In 2012, Lienviet Post Bank deployed green bank program with the objectives of making environment protection become frequent and long-term activities for stable development The program includes main activities such as building green offices, exchanging reusable paper for green trees, building green branches for customers’ smile, to give a happy and friendly image of bank In 2013, Sacombank brought up the guideline of reducing the negative effect on environment by strictly controlling costs and effectively using the existing sources like electronic saving lights, energy savings stationery, modern communication tools … etc In terms of determinants, the empirical results shows that Factors_3 in general and factor “employees’ performance” in particular, has the most influence on the development of green bank in Vietnam (with standardized beta of 0.400) 42 Vietnam National University - University of Economics and Business (i) Employees have been professionally training about green bank; (ii) Employees have the ability to use green technologies (equipment, system solutions and energy-saving operations (ATM, ); (iii) Employees handle operations promptly and accurately; (iv) Employees understand the importance of green bank development; (v) Employees pay attention to save energy, natural resources and protect the environment (restrict printing or using materials and resources extravagantly) There is sub-factor related to “bank managers’ knowledge about green bank” Banks provide awards/support policies for branches = developing green bank The importance of this factor continues to be affirmed in research as the evidence proves the beta of Factors_3 of 0.286 Factors_2 includes most factors related to the awareness of bank managers (08 factors) and factors F2_5 about the development of modern technology in the 4.0 industry This result is completely compatible with the research of Peter et al (2005), Ritu (2014) and Adelphi (2016) Next to these factors mentioned above, this is the “firms’ demand for green investment” with the standardized beta of 0.182 and “Government policies” at 0.126 Research cannot find out the relationship between “Bank’s financial performance”/“macro factors” and the development level of green bank in Vietnam Overall, the factors “employees’ performance” have the largest impacts on the green bank development in Vietnam The second place is “bank managers’ knowledge about green bank” “Firms’ demand on green investment” stays in the third place and the last one is “Government policies” Empirical results give an idea about the active role of the bank in constructing and developing green bank in Vietnam The bank should be aware that the development of green bank is a significant trend in the current and future stage Developing green bank requires employer and employees’ full awareness It should begin by strategizing activities and training employees so that they have enough performance to meet requirements of green bank development In an objective view, “firms’ demand” for green development is highly crucial Acknowledging the importance of environment and natural resources protection will push firms towards green production instead of running after profit that creates high carbon emissions and pollutes the environment Thus, improving firms’ knowledge about green production is a must-do task in Vietnam Moreover, in the relationship between “supplies” or green banks and “demand” or green firms, the role of Government is truly important The government policies should encourage green business/ projects On the other hand, it is necessary to have enough legal framework for green banks CONCLUSION In this study, the authors have ranked the levels of green bank and mentioned 43 Green financial system in Vietnam - Challenges and impacts on the economy determinants influencing the development of green bank in Vietnam Empirical evidences strongly insist on the role of some factors, including “performance of employees”, “knowledge of bank chief about developing green bank”, “demand of firms on green investment”, and especially the role of Government on “promulgating supportive policies” Based on these research results, the authors propose some recommendations in attempt to develop green bank in Vietnam in the upcoming time However, the study will be more persuasive and complete if the sample date is bigger and each factor is studied in more detail REFERENCE [1] Adelphi (2016), Green Finance in Asia: Five new country studies show opportunities for small businesses Retrieved from https://www.adelphi.de/en/news/green-financeasia-five-new-country-studies-show-opportunities-small-businesses [2] Antonio A Romano, Giuseppe Scandurra, Alfonso Carfora Mate Fodor, 2017, ‘Renewable investments: The impact of green policies in developing and developed countries”, Science Direct,  Volume 68, Part 1, February 2017, Pages 738-747 [3] Bihari, S, 2011, "Green banking-towards socially responsible banking in India”, International Journal of Business Insights and Transformation, 4(1), 84-87 [4] Eyraud, L., Clements, B & Wane, A, 2013, “Green investment: Trends and determinants”, Sciencedirect [5] Hoen, H.V (2014), Globalization and institutional change: are emerging market economies in Europe and Asia converging? Economics, Management and Financial Markets, 44-66 [6] John Barner Tingcun Han, 2013, “Exploring Green Finance Incentive in China, Final report, w.w.w.pwccn.com [7] Kaeufer, 2010,“Banking as a Vehicle for Socio-economic Development and Change: Case Studies of Socially Responsible and Green Banks [8] Lalon.R.M.(2015), Green Banking: Going Green, International Journal of Economics, Finance and Management Sciences Vol 3, No 1, 2015, pp 34-42 doi: 10.11648/j ijefm.20150301.15 [9] Maja Drobnjaković, 2013, “Green banking: Ngân hàng xanh”, Journal of Economic Development, Environment and People [10] Ritu (2014), Green Banking: Opportunities and Challenges, International Jourrnal of Informative & Futuristic Research, 34-37 [11] Singh, H & Singh, BP (2012) An Effective & Resourceful Contribution of Green Banking towards Sustainability, International Journal of Advances in Engineering Science and Technology, vol 1, no 2, pp 41-45 [12] SOGESID S (2012), The evolution of the Sustainable Development concept, http:// www.sogesid.it/english_site/Sustainable_Development.html [13] UNEP (2012a), Measuring Progress towards an Inclusive Green Economy, Geneva, Switzerland: UNEP [14] UN ESCAP (2012), Green Finance, 44 Vietnam National University - University of Economics and Business Appendix Detailed questionnaire about Green Banking development level Level Level Criteria Using electronic reports L1_1 Providing e-banking services to query account information, conduct transfer and payment transactions via the Internet L1_2 Sponsoring activities to save energy L1_3 Funding for environmental activities L1_4 Funding for raising environmental awareness activities in the community L1_5 Funding for poverty reduction activities L1_6 Sponsor for a gratitude activity L1_7 Funding for rural transport development L1_8 Support the poor, people in remote areas, ethnic minorities L1_9 Funding for activities to minimize damage to natural disasters and diseases L1_10 Training staff on appraisal, assessment and management of environmental Level risks in credit operations Level Symbol L2_1 Preferential lending to green infrastructure development projects L2_2 Preferential lending for new and renewable energy production projects L2_3 Preferential lending for projects using green technology with less energy consumption L2_4 Preferential lending for waste treatment and recycling projects L2_5 Preferential lending for organic agricultural development projects L2_6 Preferential lending to rural areas L2_7 Preferential lending to health development projects L2_8 Preferential lending to educational activities L2_9 Preferential lending to land reclamation projects L2_10 Providing loans to businesses producing environmentally friendly products L3_1 Guarantee of loans used to fund green technology and green products L3_2 Ensure compliance with environmental regulations in all business transactions L3_3 Training staffs on energy saving L3_4 Minimize paper usage and waste resources in the office, for meetings L3_5 Installation of solar systems L3_6 Electronic waste management L3_7 Reduce, reuse and recycle for all tangible resources L3_8 Use energy-saving devices L3_9 Carry out green shopping activities in the bank L3_10 Policies to reduce energy use and minimize waste L3_11 Offer discounts on bill payment through electronic channels L3_12 Implement energy saving measures at all branches L3_13 45 Green financial system in Vietnam - Challenges and impacts on the economy Level Level Level Criteria Develop a green credit strategy L4_1 Building a bank's environmental and social risk management system L4_2 Applying environmental management standards to banking and credit proposals L4_3 Building a green shopping system L4_4 Develop a strategy for green bank headquarters L4_5 Develop green investment fund L4_6 Establish green investment fund to invest in green businesses L4_7 Establish insurance products for green businesses L4_8 Preferential policies for cardholders, savings accounts with environmentally friendly activities L4_9 Preferential loan policy for individual customers when buying eco-friendly products L4_10 Implementing environmental and social risks management in all credit activities of banks L5_1 Providing green credit products in the whole bank system L5_2 Do green shopping in banks throughout the bank system L5_3 Invest in green industries using green investment funds L5_4 Release insurance products for green businesses L5_5 Investing in businesses and organizations using green investment funds L5_6 Joining the United Nations Global Compact L5_7 Participating in the Financial Initiative for Environment Protection Program of the United Nations L5_8 Implement financial institutions on the basis of Equator principles L5_9 Source Authors 46 Symbol Vietnam National University - University of Economics and Business Appendix Detailed questionnaires about the influencing factors to the green banking development in Vietnam Factors Government policies Macro factors Firms’ demand for green investment Elements Symbol Policies to encourage banks to grant preferential credit to enterprises investing in energy-saving projects from the state bank F1_1 Develop a legal framework for green banking development F1_2 Policy to support the application of technology in banks to evaluate green investments/projects F1_3 State Bank’s guidance on Green banking development F1_4 Organize training to improve the capacity of commercial banks and financial institutions in green financial - credit activities F1_5 Green bank development needs to be included in the national green growth strategy F1_6 Policies to support the development of green banking services from the state bank F1_7 GDP growth rate F2_1 The level of stability of prices F2_2 Exchange rate stability F2_3 Low unemployment rate F2_4 The development of modern technologies in the industrial context 4.0 F2_5 The stability of the political and legal environment F2_6 The level of integration into the world economy F2_7 Less polluting technology investment F3_1 Use green equipment F3_2 Implementing social responsibility for the environment F3_3 Use green ingredients F3_4 Invest in creating clean energy F3_5 Invest in technologies to prevent pollution, minimize waste, and manage pollution F3_6 Producing green products F3_7 Protect the health and safety of workers F3_8 Invest in environmental projects (reuse, agriculture, technology, scrap, ) F3_9 Invest in building green headquarters F3_10 47 Green financial system in Vietnam - Challenges and impacts on the economy Factors Financial performance Bank managers’ knowledge about green bank Employees’ performance Source: Author 48 Elements Symbol Large equity F4_1 Profitability F4_2 Ensure capital adequacy level F4_3 Ensure liquidity F4_4 Scale and growth rate of total assets F4_5 Quality of total assets F4_6 Quality of financial operations management F4_7 Developing green banks associated with the use of online payment services F5_1 Developing green banks associated with environmental protection projects or supporting the community F5_2 Development of green banks associated with the construction of green headquarters F5_3 Developing green banks associated with the use of modern technology platforms F5_4 Developing green banks associated with the use of green equipment in banks F5_5 Developing green banks contributes to raising the standards in business as well as the community responsibilities of banks, organizations and enterprises F5_6 Developing green banks is associated with creating green development strategies of banks F5_7 Developing green banks is associated with developing green development strategies of the banking industry F5_8 Prioritize training and training for employees on environmental protection and the use of green technology F5_9 Periodically assessing environmental impacts in the operation of banks F5_10 Bank has reward / support policies for green banks development branches F5_11 Employees are trained in green banking professional skills F6_1 Employees have the ability to use green technologies (equipment, system solutions and energy-saving operations (ATM, ) F6_2 Employees have the ability to evaluate and appraise green projects F6_3 Employees handle professional operations promptly and accurately F6_4 Employees are aware of the importance of green bank development F6_5 Employees consciously use energy efficiently, save energy, natural resources and protect the environment (limit printing, saving materials and resources) F6_6 Source Authors based on survey Appendix Detailed scores of evaluating criteria about the green banking development in Vietnam Vietnam National University - University of Economics and Business 49 Green financial system in Vietnam - Challenges and impacts on the economy Appendix Testing results of Cronbach’Alpha on SPSS 20 Variable F1 - Government policies supporting green banking development Reliability Statistics Cronbach's Alpha N of Items 924 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted 24.52 24.45 24.41 24.49 24.51 24.39 24.28 18.425 17.855 20.780 17.323 18.236 18.681 18.692 801 867 563 810 737 804 762 909 902 930 908 916 909 913 F1_1 F1_2 F1_3 F1_4 F1_5 F1_6 F1_7 Variable F2 - Macro factors affect the development of green banks Reliability Statistics Cronbach's Alpha N of Items 769 Item-Total Statistics F2_1 F2_2 F2_3 F2_4 F2_5 F2_6 F2_7 Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted 23.55 23.63 23.70 23.80 23.39 23.52 23.42 7.777 7.402 6.623 7.875 6.980 6.409 7.899 450 527 646 314 449 660 412 749 735 706 776 753 701 756 Variable F3 - Demand for green investment of firms Reliability Statistics Cronbach's Alpha N of Items 973 10 Item-Total Statistics F3_1 F3_2 F3_3 F3_4 F3_5 F3_6 F3_7 F3_8 F3_9 F3_10 50 Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted 36.84 36.91 36.70 36.99 36.94 36.89 36.92 36.75 36.88 37.03 40.968 40.763 45.549 41.457 40.988 40.917 40.797 40.724 41.144 41.353 861 883 589 895 929 929 913 900 925 876 970 970 978 969 968 968 969 969 968 970 Vietnam National University - University of Economics and Business Variable F4 - Financial capacity of the bank Reliability Statistics Cronbach's Alpha N of Items 879 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted 22.61 22.55 22.48 22.38 22.73 22.66 22.34 11.484 11.116 9.259 10.520 9.397 9.739 10.794 490 604 747 612 831 728 641 881 869 851 868 838 853 865 F4_1 F4_2 F4_3 F4_4 F4_5 F4_6 F4_7 Variable F5 - Awareness of the bank director about green banking development Reliability Statistics Cronbach's Alpha N of Items 941 11 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted 39.28 39.11 39.26 39.16 39.20 39.13 39.07 39.09 39.16 39.25 39.15 37.416 37.752 42.949 37.062 37.481 38.069 38.176 37.991 37.619 43.984 38.773 784 826 421 872 848 873 820 847 817 300 712 934 932 946 930 931 931 933 931 933 950 937 F5_1 F5_2 F5_3 F5_4 F5_5 F5_6 F5_7 F5_8 F5_9 F5_10 F5_11 Variable F6 - Capacity of employees Reliability Statistics Cronbach's Alpha N of Items 913 Item-Total Statistics F6_1 F6_2 F6_3 F6_4 F6_5 F6_6 Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted 19.60 19.69 19.48 19.66 19.55 19.45 10.462 10.091 12.803 10.605 9.777 9.950 746 862 452 744 886 842 899 882 932 899 878 884 51 Green financial system in Vietnam - Challenges and impacts on the economy Appendix Total Variance Explained Component Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings Total % of Variance Cumulative % Total % of Variance Cumulative % Total % of Variance Cumulative % 21.437 49.854 49.854 21.437 49.854 49.854 9.943 23.123 23.123 3.763 8.750 58.605 3.763 8.750 58.605 7.236 16.827 39.950 2.941 6.839 65.443 2.941 6.839 65.443 5.640 13.116 53.067 2.101 4.887 70.330 2.101 4.887 70.330 4.136 9.617 62.684 1.850 4.302 74.632 1.850 4.302 74.632 3.839 8.927 71.611 1.307 3.040 77.672 1.307 3.040 77.672 2.301 5.351 76.962 1.245 2.896 80.569 1.245 2.896 80.569 1.551 3.606 80.569 988 2.299 82.867 888 2.066 84.933 10 734 1.707 86.640 11 673 1.565 88.205 12 509 1.184 89.390 13 498 1.158 90.548 14 487 1.133 91.681 15 407 948 92.629 16 353 821 93.449 17 304 708 94.157 18 278 645 94.803 19 250 582 95.385 20 246 572 95.957 21 222 517 96.474 22 216 503 96.976 23 170 395 97.371 24 156 363 97.734 25 136 317 98.051 26 124 289 98.340 27 118 275 98.615 28 106 247 98.862 29 077 178 99.040 30 069 160 99.200 31 058 134 99.334 32 051 119 99.453 33 043 100 99.553 34 038 087 99.640 35 032 075 99.716 36 025 059 99.775 37 023 052 99.827 38 019 044 99.871 39 017 039 99.910 40 015 034 99.944 41 010 024 99.968 42 008 019 99.987 43 006 013 100.000 Extraction Method: Principal Component Analysis Source: Authors calculated based on SPSS 52 ... creating green development strategies of banks F5_7 Developing green banks is associated with developing green development strategies of the banking industry F5_8 Prioritize training and training... four components influencing green finance development, including: financing green businesses and technologies, developing green financial products and green investors; considering environmental... discussion and the final part sums up with the conclusions and recommendation for developing green banks in Vietnam GREEN BANK AND FACTORS AFFECTING DEVELOPMENT 2.1 Green Bank: Concept and level of development