Risk management: identify and assess climate change risks, therefore banks can takesteps to mitigate these risks and ensure the long-term sustainability of their lending andinvestment ac
Liturature review
Definition and frameworks to calculate sustainable development of economy
The "E" in ESG refers to environmental criteria, encompassing the energy consumption, waste output, resource requirements, and the impact on living beings, including carbon emissions and climate change The "S" stands for social criteria, which focuses on the relationships and reputation a company builds within its communities, addressing labor relations and promoting diversity and inclusion Lastly, the "G" represents governance, which involves the internal practices and controls that a company implements to ensure effective decision-making, legal compliance, and stakeholder satisfaction The GRI Standards are grounded in the Triple Bottom Line, providing insights into a company's economic, social, and environmental performance through specific sustainability indicators.
6 indices, environmental standard – 8 indices and social standard – 19 ones (Vera Samarina, Tatiana Skufina, and Aleksandr Samarin, 2020)
To sum up, this research would consider that sustainable economic development involves balancing economic growth with social and environmental considerations, while ensuring intergenerational equity.
Role of commercial banks in promoting sustainable development (NCKH)
Lala, Stone (2023) states that commercial banks can help promoting sustainable development in four methods:
Investing in renewable energy projects, including wind and solar power, is essential for reducing dependence on fossil fuels and fostering the growth of the renewable energy sector.
Innovation: develop new financial products and services such as green bonds and other financial instruments to finance sustainable projects.
2 achieving the Sustainable Development Goals (SDGs) as outlined in the tasks assigned to the banking sector in the National Action Plan for Implementing the 2030 Agenda for Sustainable Development.
Ryszawska (2018) highlights the crucial role of digital banks in fostering a sustainable economy through advancements in climate, green, and carbon finance Traditional banks are evolving to embrace digital innovation, promoting decentralized and sustainable practices in production and consumption Additionally, banks are instrumental in financing renewable energy production, waste recycling, greenhouse gas emission reduction, and the development of modern technologies that enhance energy efficiency, as well as supporting sustainable transportation, supply chains, and consumption.
Standard Bank Limited has categorized green banking products into several items to emphasize diversification and promote sustainable development.
1 Renewable energy a Solar energy: solar home system, solar micro/mini grid, solar iIrrigation pumping system, surface water purification plant using solar pump, solar photovoltaic (PV) assembly plant, … b Bio-gas: organic manure from slurry, mid range bio-gas plant, biomass based large scale bio-gas plant, poultry & dairy based large scale bio-gas Plant c Hydro-power: hydropower (Pico, Micro & Mini) d Wind-power: wind energy driven power plant
2 Energy efficiency: substitution of conventional lighting system, electronic material,boiler with energy efficient alternatives on the basis of Energy Audit; auto sensor power switch assembly plant, energy efficient Improved Cook Stove (ICS)/ICSRenewable/Hybrid Cook Stove Assembly Plant
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3 Recycling & Recyclable Initiatives: PET Bottle Recycling Plant, Plastic Waste Recycling Plant (PVC/PP/LDPE/HDPE,PS), Wastage Paper Recycling Plant for Production of recycled paper, plate, mug, glass, Recyclable Baggage Manufacturing Plant
In summary, numerous studies indicate that commercial banks play a vital role in fostering sustainable development They contribute to the economy's sustainability by improving comprehensive financial services, providing green loans, and mobilizing funds for economic growth.
Liturature Sustainable developed activites of Vietnam commercial banks
Green banks development
Commercial banks are actively working to advance and expand green banking through the development of innovative policies that support sustainable growth Key initiatives encompass environmental considerations in credit assessment, the implementation of green credit and green bond programs, and active participation in community social activities focused on environmental sustainability.
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2.1.1 Environmental policy in credit appraisal
Before 2015, Vietnam lacked environmental safety policies for credit granting, although some banks had begun to develop environmental and social risk management policies Recognizing the significance of environmental risk management, the State Bank of Vietnam has implemented various measures to promote sustainable finance and guide the growth of green credit while managing environmental and social risks in credit activities Currently, several commercial banks have established and refined their internal Environmental and Social Management Systems (ESMS) to assess environmental and social impacts during the credit appraisal process.
Here is a rewritten paragraph that conveys the same meaning while complying with SEO rules:"Despite integrating environmental and social risk assessment requirements into their project approval processes, most banks fall short of fully implementing these systems in their credit granting activities Moreover, commercial banks' sustainable development reports reveal a lack of significant environmental impacts on their product supply chains, with no recorded complaints or loan closures due to environmental concerns This suggests that many banks are not comprehensively assessing environmental and social risks during the credit granting process, nor are they adequately monitoring these risks after capital transactions with customers."
The Federal Economic Department (SECO) aims to support domestic enterprises by providing financial assistance for clean technology investment projects Additionally, it encourages the development of investment products that offer environmental benefits to the community.
Recent survey results from the State Bank reveal that 19 credit institutions have implemented environmental and social risk management strategies, with 13 integrating these risks into their green credit processes Additionally, 10 institutions have developed specific banking credit products for green initiatives, while 17 utilize environmental and social risk assessment handbooks To further support eco-friendly lending, preferential policies such as low-interest rates and compensation for interest rate differences have been established Furthermore, commercial banks that maintain a significant proportion of green credit loans are prioritized for access to preferential loans from international organizations and development partners.
Banks Loan purposes Loan rate Tenor
Clean energy, green agriculture and projects to reduce pollution and treat waste
Medium and long term: 8,7%/year in the first 3 years From 4th year: 12 months saving + 4% margin
VietinBank Energy saving and efficiency projects under
EIB environmental credit program, GCPF credit program, REDP renewable energy projects
Medium and long term: 8,1%/year
Sacombank Development strategies, production processes or
Medium and long term: 8,5%/year in
7 loan use purposes that no risk to environment, contributing to protect the common ecosystem the 1st year From the following years: 9,5%
Environment friendly investment The projects promote reduction of CO2 emissions, and save 20% energy
8,8%/year in the first 24 months Incentive package:
MBBank Renewable energy industry, green building products, lending for projects on waste treatment
Medium and long term: Apply loan margin 2,8%/year (normally margin 3%/year)
HDBank Renewable energy and high tech agriculture projects
Approval depends on each case
SHB Projects for renewable energy and clean energy
Preferential interest rates from 1% - 1,5% compared to market interest rates
Commercial banks have made significant strides in developing internal regulations for environmental and social risk management in lending activities, yielding promising results As of 2022, outstanding credit for green projects has reached approximately VND 500,000 billion, accounting for around 4.2% of the economy's total outstanding debt, with a focus on renewable energy and clean energy, which comprise 47%, followed by green agriculture at over 30% Notably, credit institutions have actively assessed environmental and social risks, resulting in outstanding loans of over VND 2.2 million billion across more than 1.1 million loans.
Here is a rewritten paragraph that complies with SEO rules:"Despite a significant demand for environmental, social, and governance (ESG) projects and investment opportunities, Vietnam has only issued $216 million in green bonds over the past five years Interestingly, a substantial 57% of the proceeds from these bond issuances have been channeled towards renewable energy, a key sector of interest in Vietnam, alongside water, waste, and agriculture."
The green bond market in Vietnam is still in its infancy, characterized by uncertainty in its scale, types, and foundational supply and demand There is a significant lack of information and awareness among investors and the broader market regarding green bonds Currently, the majority of green bonds issued are local government bonds aimed at financing green projects, while Vietnamese commercial banks are just beginning to develop related products and services Notably, 40% of these banks do not include any green investment projects in their portfolios.
Digital banks development
The COVID-19 pandemic in 2020 marked a significant turning point for digital payments, with online transaction values surging nearly 50% and mobile payments skyrocketing by almost 160% compared to the same period in 2019 As people adapted to social isolation, electronic payment activities saw a substantial increase in frequency, value, and transaction volume This shift led to a lasting impact, with individuals becoming accustomed to the convenience of digital payments, ultimately resulting in a notable decline in cash payments even after the pandemic subsided.
Vietnam's commercial banks are rapidly evolving to meet market demands, with many developing their own digital banking applications Notable examples include Vietcombank's VCB Digibank and BIDV's Smart Banking, which replace traditional Internet and Mobile Banking services, allowing customers to easily monitor transactions and account balances, as well as manage online savings Additionally, banks are enhancing partnerships with Fintech companies to deliver diverse digital products and services across multi-channel platforms, ensuring a comprehensive customer experience Collaborations, such as Techcombank with Fastcash, VIB with Weezi Digital, and VietinBank with ON Company, have led to the emergence of innovative digital solutions like Mobile Wallets, Peer-to-Peer Transfers, and mobile payments.
VPBank, TPBank, and MSB are among the financial institutions collaborating with Gobear Joint Stock Company, which also partners with BaovietBank, Citibank, DongA Bank, Eximbank, and HD Bank Additionally, the company has established relationships with various financial partners, including FE Credit, Techcombank, Manulife, UOB, Shinhan Bank, BIDV, and Sacombank Overall, P2P lending companies are increasingly connecting with multiple banks and financial institutions to enhance their services.
HSBC made history in 2019 by successfully facilitating a letter of credit transaction on a blockchain platform between Duy Tan Plastic Manufacturing Joint Stock Company of Vietnam and INEOS Styrolution Korea Company of Korea Leveraging the Voltron platform, the transaction was seamlessly executed from start to finish on a single shared application, streamlining the trade finance process By providing a unified and simplified channel, Voltron aims to support the digitalization of trade finance, covering the entire lifecycle from letter of credit issuance to document presentation and exchange.
According to the General Statistics Office, Vietnam has a large population, reaching 98.51 million people in 2021, with a relatively high young population (50.5
Assessment of the activity of Commercial Bank
Assessment of the activity of Green Bank
According to statistics from the State Bank, as of December 2021, there are about
Although green banking is strongly promoted and developed, it still has some weaknesses that need to be improved.
To foster genuine motivation for commercial banks to engage in NHX development, ongoing research and the implementation of effective measures are essential Central banks worldwide have adopted various strategies to promote green credit and establish green banks, including lowering mandatory reserves in line with green lending levels and increasing total outstanding loans for banks with significant green loan portfolios Additionally, offering reduced funding interest rates to banks that perform thorough environmental risk assessments and imposing stricter reserve ratio and liquidity requirements on banks financing environmentally harmful projects are effective practices These approaches provide valuable insights for Vietnam to consider.
To boost demand for TDX, governments can implement policies that facilitate business access, such as offering preferential interest rates, taxes, and fees, as well as streamlining loan procedures and collateral requirements Simultaneously, reforming administrative procedures and creating a transparent investment environment can help mitigate the risks associated with green projects, ultimately encouraging businesses to invest in sustainable initiatives.
Assessment of the activity of Digital Bank
According to statistics from the Vietnam Banking Association, by the end of April
In 2021, the financial landscape saw 79 institutions offering online payment services and 49 organizations facilitating mobile payments The country boasted a robust network of 271,000 POS terminals and 19,000 ATMs Notably, internet transactions surged by 65.9% in volume and 31.2% in value compared to the previous year, highlighting the growing trend in mobile payment adoption.
QR codes also experienced growth impression
In Vietnam, the total number of activated e-wallets saw a significant increase of 10.37% compared to 2021, particularly during the pandemic Mobile banking experienced remarkable growth, with a staggering 200% increase, and the daily transaction value on mobile platforms reached an impressive 300 billion VND This exceptional growth highlights the rapid advancement of digital banking in Vietnam.
Besides the above opportunities and advantages, the transformation and development of digital banking in Vietnam still faces many difficulties and challenges, specifically as follows:
Firstly, technology investment costs are high
Digital banking technology evolves rapidly, necessitating frequent upgrades and maintenance to meet customer demands and remain competitive This poses significant challenges for banks, particularly small and medium-sized institutions, as substantial investments in technology are required, yet these innovations can quickly become obsolete, demanding ongoing resource allocation for updates.
Second, the legal framework is still slow compared to the speed of technological development
Third, information security in Vietnam is still poor
The banking industry remains a prime target for tech-savvy criminals, with digital payment-related fraud cases growing increasingly complex Hackers are employing sophisticated tactics to deceive users into divulging sensitive security information, such as passwords and OTP codes, or accessing counterfeit banking pages, ultimately leading to asset takeover.
Fourth, the habit of using cash is still popular
Fifth, limitations in information technology human resources
Solutions to promote digital banking development in Vietnam
In the coming time, in order to promote the development of digital banking in Vietnam, it is necessary to focus on the following solutions:
Firstly, continue to improve the legal framework system
To foster the growth of digital products in banks, it is crucial to continually review and refine the legal framework governing digital technology development, thereby establishing a solid foundation for innovation A key aspect of this endeavor is the creation of secure and safe information and customer data management systems, which is vital for the banking and financial sector Furthermore, completing the national database and implementing a comprehensive data-sharing framework with third parties will facilitate the adoption of 4.0 Industrial Revolution technologies, ultimately driving the modernization and advancement of the banking industry.
To enhance banking operations, it is essential to promote the application of science and technology by investing in the development of advanced technological infrastructure and fostering a modern environment This includes facilitating technology transfer from developed nations to establish a robust foundation for innovative banking solutions Prioritizing investments in long-lasting technologies will enhance customer confidence in services while strengthening risk management for digital banking and ensuring the security of information and assets Collaborating with fintech companies can lead to the creation of transformative business models that leverage digital technology for increased convenience and cost savings Additionally, it is crucial to focus on staff training and educate consumers to adapt to new cashless usage habits.