(Tiểu luận) financial management report topic current status and recommendations for green credit development of commercial banks in vietnam

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION -000 FINANCIAL MANAGEMENT REPORT Topic: Current status and recommendations for green credit development of commercial banks in Vietnam - Course: KETE307.1 - Lecturer: Mrs Tăng Thị Thanh Thủy - Group: - Member: Lương Thúy An 2013250002 Nguyễn Phương Anh 2112250009 Vũ Quỳnh Chi 2012250020 Nguyễn Hà Linh 2113250019 Vũ Thị Quỳnh Nga 2014250208 Đỗ Ngơ Ngọc Quỳnh 2112250081 Hồng Thị Phương Thủy 2012250069 Nguyễn Thu Trang 2013250030 Hanoi, March 11th 2023 TABLE OF CONTENTS ABSTRACT I INTRODUCTION II LITERATURE REVIEW Green credit definition The importance of green credit 2.1 Impacts on the environment 2.2 Impacts on the economy III Current situation of green credit in Vietnam Current status of green credit growth Policies of the government on green credit 11 Barrier to the implementation of the green credit 13 3.1 In terms of legal regulations 13 3.2 In terms of the banks 14 3.3 In terms of enterprises 14 IV CASE STUDY 15 Introduction to BIDV 15 Legal basis for green credit in BIDV 17 Some achievements of BIDV 18 Challenges 20 Recommendations 21 V RECOMMENDATIONS 22 Government 22 Commercial banks 26 Borrowers 27 CONCLUSION 28 REFERENCES 29 ABSTRACT Green credit is now a trend in the global banking and finance industry and more Vietnamese banks are following suit Although there have been positive signs, the development of this field in Vietnam has not reached the pace expected The development of green banking activities at Vietnamese credit institutions has been facing many difficulties and challenges Hence, this paper examines the literature on green credit and has fundamental ideas of the current status of green credit in Vietnam’s commercial banks in recent years through qualitative and quantitative methods Based on the findings, this paper attributes constructive recommendations for the green credit development of commercial banks in Vietnam Keywords: green credit, green bank, credit institution, green field, green credit framework I INTRODUCTION Green credit as a global trend has played an important role over recent years in promoting sustainable socio-economic development and realizing all countries’ green growth strategies With regard to Vietnam, following the government’s development orientation shown in the introduction of Directive 03/CT-NHNN on promoting green credit growth and managing environmental and social risks in operations providing credit, green credit has constantly enjoyed special attention and resources from local banks The Vietnamese government’s increasing support and gradual policy reform in recent years have boosted green projects in different sectors across the country The State Bank of Vietnam (SBV) said that the country currently has 31 financial institutions involved in green credit, with a total credit of more than $12.4 billion, mainly on green agriculture and renewable energy Eco-friendly credit and green bond issuance have received great attention as these debt instruments could promote a lower-carbon and a more resilient economy According to SSI Research, the bond value mobilized for solar power projects climbed to $1.3 billion in 2020, a 254 per cent jump on-year However, due to limited experience and skill in appraising such projects, banks in Vietnam remain hesitant to finance green initiatives (Luu Huong, 2021) Stemming from the above reasons, the research team found it necessary to study the topic: “Current status and recommendations for green credit development of commercial banks in Vietnam” It aims to take a closer look at the current status of green credit in Vietnam and find out the recent challenges they are facing, then come up with some relative suggestions for the better growth of green credit in Vietnam Specifically, to achieve the research objectives, the paper would be implemented with the following missions: Firstly, it builds a theoretical basis for green credit Secondly, it evaluates the current situation of green credit in Vietnam Thirdly, it offers some recommendations for banks, the Vietnam government and borrowers II LITERATURE REVIEW Green credit definition Green credit is largely defined by the “green” component, which has been analyzed by Omair Awadh A green system must provide a practical framework, gradually developing into a sustainable future of an environment-friendly economy (Omair Awadh, 2017) Green credit has been known as a vital part of the Green Finance Ecosystem, supporting the “green” industry Therefore, green credit is the process of banks not only considering the economic benefits (making revenue), but also keeping in mind the significant value of the environment (Thompson and Cowton, 2004) To explain more, the primary goal of green credit is to encourage projects and activities that have a positive impact on the environment, while also providing financial returns to investors Article of the Green Credit Guidelines has listed the types of projects that are funded by green credit which include energy conservation, environmental preservation, and sustainable development (GSIA, 2014) The Green Credit Statistics reported by China Banking Regulatory Commission specify major investments in green credit in the upcoming year They are natural resource preservation, ecological restoration, disaster prevention, resource recycling, waste disposal, pollution prevention and treatment, access to clean water, energyefficient building, etc (UNEP, 2016) Financial institutions that offer green credit may also incentivize their clients to adopt environmentally sustainable practices by offering preferential interest rates, longer loan terms, or other financial benefits The positive effect of interest and loan incentives on the growth of customers investing in green credit has been proven by the result of Chinese’s “Discounted Green Loans” policy (People’s Bank of China and the UNEP, 2015) All of these green investments will contribute to the future of a holistic, coordinated, and sustainable economy; that will simultaneously bring inclusive growth to society and a healthy, unstained environment The importance of green credit The authors will focus on two large elements of green credit's impact: on the environment and on the economy 2.1 Impacts on the environment There are several ways in which green credit can have a positive impact on the environment As mentioned above, green credit encourages investment in sustainable projects Wen stated in her 2016 report that the old model of credit causes more capital-intensive, energy-intensive, and high-value industries to appear (Wen, 2016) The more capital and energy invested in the industry, the more resources are taken away from the environment, and the more waste the industry produces Green credit can provide financial support to projects that promote sustainable development, such as renewable energy, clean technology, sustainable agriculture, and conservation initiatives By providing funding for these types of projects, green credit can help to accelerate the transition to a more sustainable economy Green credit also reduces greenhouse gas emissions and CO2 concentration Researchers found out that green has a practical impact on reducing CO2 content in the air, and by that, reducing the intensity of energy use and greenhouse gas emissions (Xiu, J.; Liu, HY and Zang XQ., 2015) Green credit can help to reduce greenhouse gas emissions by promoting the use of renewable energy sources, such as wind and solar power, and by supporting energy efficiency initiatives This can help to mitigate the impacts of climate change and reduce the overall carbon footprint of the economy Another positive outcome of green credit is to encourage sustainable practices from companies and motivate green innovations Green credit encourages companies to adopt more sustainable practices by providing financial incentives for initiatives such as reducing waste, improving water efficiency, and promoting sustainable supply chains A study of Chinese A-share listed industrial firms demonstrates how the green credit policy can stimulate company innovation while also promoting corporate green innovation by limiting the financing options available to businesses that produce significant amounts of pollution (Gao, D.; Mo, X.; Duan, K and Li, Y., 2022) By promoting sustainable development, green credit can help to ensure that economic growth is balanced with environmental protection and social equity, creating a more resilient and sustainable future for all 2.2 Impacts on the economy Inevitably, the global industry and Vietnam's financial industry will move to green credit due to the need for innovative and sustainable production Green credit brings great benefits in environmental protection and economic development tasks, improving people's living standards Document continues below Discover more from: trị rủi ro Quản tài TCH409 Trường Đại học… 202 documents Go to course phân tích cấu sử 19 dụng vốn công… Quản trị rủi ro tài… 100% (7) [Chương I]Các nguồn 20 tài trợ dài hạn của… Quản trị rủi ro tài… 100% (5) QUẢN TRỊ CHIẾN 19 67 LƯỢC Quản trị rủi ro tài… 100% (3) Chủ đề Quản trị vốn lưu động Quản trị rủi ro tài… 100% (3) QUẢN TRỊ TÀI Chính 108 QTTC In terms of the economy, green credit is an important solution, Quản trị helping to 100% (2) rủi ro tài… minimize negative impacts from life and production processes on the environment and society, contributing to the sustainable development of the economy It benefits mostly in three aspects of commercial banks including credit risk, Quan tri khung reputational risk, and legal risk 64 hoang truyen thong trị specific, they In the first place, green credits constrain credit risk or toQuản be more 100% (2) rủi ro tài… reduce bad debts and enhance commercial banks' financial stability Cui, Y et al found that green loans were less risky than no-green loans and thus reduced a bank’s non-performing loan ratio (Cui, Y et al., 2008) Yin et al showed that green lending increased the non-state-owned banks’ profitability and reduced their risk (Yin, W et al., 2021) The green principles improve the level of banks’ risk management, safeguard the safety of bank funds, and enhance the banks’ capacity to seize opportunities for differentiated competition (Zhang, B.; Yang, Y and Bi, J., 2011) Next, green credit protects commercial banks' reputations in the market because the social environment helps the community Green credits are a powerful tool for commercial banks to demonstrate their commitment to sustainability and social responsibility By investing in environmentally friendly projects, banks can build trust with customers and stakeholders while also contributing to the well-being of the community This can lead to increased financial stability and long-term profitability for the bank (Scholtens and Dam, 2007) Last but not least, green credit reduces legal conflicts when projects pose a danger to the social environment As the economy now pays more attention to the environment, the Green Credit Policy was published Nowadays, all enterprises need approval and acceptance from competent authorities, to make sure there are no environmental violations A company which can not pass the requirements technically must stop their business, due to the green credit policy Green credits provide a way for companies to offset their negative impact on the environment by investing in environmentally friendly projects, which can help to mitigate the harm caused by their operations By doing so, companies can avoid legal conflicts and demonstrate their commitment to sustainability All in all, developing green credit can achieve a win in pollution control and economic growth, which can promote green sustainable development generally The impact of green credit gradually grows over time as a result of implementing complementary policies with significant incentives III Current situation of green credit in Vietnam Current status of green credit growth Acknowledging the importance of green credit, The State Bank of Vietnam issued Directive No.03/CT-NHNN on 24/03/2015, pushing commercial banks to promote and provide green credit to projects with a clear focus on protecting the environment, and encouraging businesses to be environmentally friendly As a result, in recent years, “green credit” has become a more familiar term to the financial banking industry and has shown considerable growth During the 2015-2019 period, the green credit balance in Vietnam was increasing steadily over the years and had hit 317.600 billion dongs by June 2019 (a 29% increase compared to the end of 2018) Graph 1: Green credit balance growth 2015-2019 (Source: Credit Department of Economic Sectors, State Bank of Vietnam) However, in terms of scale, the green credit balance at this point still fell short compared to the total credit balance, despite having doubled the amount of green credit measured in 2015 By 2019, the green credit balance increased and was equal to 4.1% of the total credit balance Graph 2: Proportion of green credit balance compared to total credit balance (Source: Credit Department of Economic Sectors, State Bank of Vietnam)