As one of the 4 largest state-owned banks in Vietnam, Joint Stock Commercial Bank for Investment and Development of Vietnam is one of the leading banks in exploiting green credit and alw
Urgency of the topic
Global warming is severely impacting our environment, leading to rising temperatures, destructive storms, droughts, warming oceans, melting ice, and food shortages These changes are evident in our daily lives and stem from human activities such as industrialization, deforestation, increased personal transportation, and excessive energy consumption It is our responsibility to seek solutions for a greener, cleaner, and more beautiful Earth for future generations Influential organizations and individuals are raising environmental concerns, prompting many countries, including Vietnam, to enact laws and regulations for environmental protection across various industries, particularly in finance and banking The Vietnamese Government recognizes this urgent issue and emphasizes the need for collective action, prioritizing environmental preservation over short-term economic gains.
Countries like Singapore, the Netherlands, and Sweden serve as successful models in environmental protection In contrast, Vietnam remains a developing nation, facing challenges due to limited financial resources and infrastructure compared to more advanced countries Recent statistics from the energy agency indicate that CO2 emissions in Vietnam have increased from 113 million tons.
From 2010 to 2020, 236 million tons of waste were generated, highlighting a lack of awareness among individuals and businesses regarding environmental issues Many individuals continue to struggle with habits like littering and the use of plastic bags, while businesses face significant costs when investing in advanced technologies and modern production lines, which can impact their profits To address these challenges, it is essential to support the government's "green economy" initiatives.
2 intermediary role of the banking system is also extremely important in providing investment capital with the name "Green Credit"
Green credit is gaining traction globally, playing a vital role in environmental protection efforts It reduces pollution while offering significant advantages to businesses, banks, and the economy Companies benefit from government-backed preferential financing, fostering sustainable development through technological innovation and environmentally friendly products Banks can enhance their market share and public image by engaging in green credit initiatives Additionally, green credit promotes sustainable economic growth, generates new job opportunities, and improves overall quality of life.
Green credit has emerged as a crucial necessity for commercial banks, particularly in Vietnam, where 31 credit institutions have engaged in green credit activities as of June 2023 Despite the growth and implementation of green credit, legal challenges continue to hinder its further development.
The Joint Stock Commercial Bank for Investment and Development of Vietnam, one of the four largest state-owned banks in the country, is a leader in promoting green credit and prioritizes environmental protection This commitment is a key focus for the bank's leadership and aligns with its long-term development goals Given the relevance and novelty of this topic, the author has selected "Green Credit Development Solutions for the Joint Stock Commercial Bank for Investment and Development of Vietnam" as the subject of their thesis research.
Research objectives
The primary goal of this study is to examine and evaluate the green credit initiatives at BIDV from 2021 to 2023 Additionally, it aims to identify strategies to overcome challenges and enhance the development of green credit activities at BIDV in the future.
Systematize the general theory of green credit
Analyzing the current situation of green credit development at Joint Stock Commercial Bank for Investment and Development of Vietnam
Proposing measures to remove difficulties and develop green credit activities at the Joint Stock Commercial Bank for Investment and Development of Vietnam.
Research Questions
(1) What is the current situation of green credit activities at the Joint Stock Commercial Bank for Investment and Development of Vietnam in the period of 2021- 2023?
(2) What solutions to promote the development of green credit activities for the Joint Stock Commercial Bank for Investment and Development of Vietnam in the future?
Subjects and scope of research
Object of study: Green credit activities at commercial banks
Scope of research: Joint Stock Commercial Bank for Investment and Development of Vietnam
Research methodology
The research thesis utilizes secondary data sourced from operational reports, including annual reports, financial statements, and internal documents of the Joint Stock Commercial Bank for Investment and Development of Vietnam, covering the period from 2021 to 2023 Additionally, data from the State Bank of Vietnam and the credit department is incorporated into the analysis.
- Statistical and descriptive methods: exploiting, interpreting data and systematizing them in the form of tables and diagrams to generalize the total object studied over the years
This article discusses the methods of analysis and synthesis, focusing on the evaluation of data and prior research to construct and integrate findings It specifically assesses the green credit activities at BIDV and proposes strategies to enhance green credit initiatives in the future.
Literature review
The urgency and significant benefits of green credit have prompted extensive research globally A notable study by Madhu Aravamuthan, Marina Ruete, and Carlos Dominguez (2015) examines credit enhancement programs from multilateral development banks and international financial institutions, such as the Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD) The paper highlights the challenges stakeholders face in mobilizing and allocating finance for infrastructure and green projects The authors propose measures to enhance the effectiveness of existing credit-enhancing programs, including the formation of a combined group of credit-enhancing investments categorized by risk, which could attract private sector investors similarly to insurance products While this approach requires significant organization and coordination, it has the potential to increase the prevalence of credit enhancement programs Additionally, the EBRD has initiated efforts to pool resources for a financing system aimed at providing risk mitigation guarantees for infrastructure projects.
Xiaoling Song, Xin Deng, and Ruixue Wu (2019) analyzed data from 12 Chinese commercial banks that disclosed green credit information and 7 international banks adhering to the Equator Guidelines from Q1 2008 to Q4 2015 Their theoretical analysis utilized GMM methods to explore how green credit influences bank profitability The findings indicate that compliance with the Equator Principle positively affects the profitability of banks in China, supporting the hypothesis that green credit enhances bank performance.
The profitability of Chinese commercial banks is inversely related to their green credit ratios, while factors such as asset size, management expense ratios, cash ratios, and GDP growth positively influence profitability In contrast, international banks experience negative impacts on profitability from these factors To enhance their performance, Chinese banks should adopt successful practices from international banks that have thrived under the Equatorial Principle, aligning their management strategies with national development goals Additionally, government agencies need to revise laws and regulations governing green credit and establish independent accountability mechanisms to ensure fairness and objectivity in implementation.
A study conducted by Ressita Nugrahaeni and Harjum Muharam (2023) examined the effects of green credit alongside various bank performance indicators (LDR, CAR, ROA, NIM) and bank size on the credit risk of Indonesian commercial banks Analyzing data from 101 banks between 2018 and 2020, the findings revealed that the influence of green loans on bad debt is minimal, primarily due to the low ratio of green loans within the overall bank credit portfolio in Indonesia Consequently, there is a pressing need for enhanced incentives from both the Agency and the Government to motivate commercial banks to boost their green loan offerings.
Farhad Taghizadeh-Hesary and Naoyuki Yoshino (2020) highlight that barriers to the development of green energy projects stem from a lack of long-term financing, low profit margins, various risks, and limited capacity among market participants This paper discusses the challenges associated with green credit and investment in renewable energy, proposing practical solutions such as enhancing the role of public financial institutions and non-bank financial entities like pension funds and insurance companies in long-term green investments Additionally, it suggests implementing spillover taxes to boost the return on green projects, developing green credit guarantee programs to mitigate credit risk, establishing community-based trust funds, and addressing investment risks through targeted financial and policy measures.
6 mitigation The authors also provide a real-life example of the implementation of the proposed tools
In their 2016 study, Tran Thi Thanh Tu and Tran Thi Hoang Yen examined the role of green banks and banking models globally, focusing on their application in Vietnam Their survey of leaders from Vietnamese commercial banks revealed that awareness of green banking concepts is limited, although most banks recognize its benefits The implementation of green banking practices by the State Bank of Vietnam (SBV) is currently basic compared to international standards, and many banks lack developed strategies for green banking The authors recommend enhancing awareness among bank leaders, educating customers on the advantages of green credit, and strengthening policies to support the provision of green banking services to foster a more robust green economy.
A study conducted by Do Hoai Linh et al (2021) analyzed survey data from 531 employees at commercial banks in Vietnam, identifying five key factors influencing the effectiveness of green credit control activities: risk management, group interests, work motivation, and media information Notably, risk management emerged as the most significant factor The authors recommend several solutions for commercial banks, including the establishment of quality information systems to enhance green credit control, ongoing monitoring of internal control systems, boosting employee motivation, implementing regulations for related parties and ultimate owners, and developing policies for the selection and training of qualified personnel.
Also, Le Duc Lu, Khuc The Anh, Bui Kien Trung (2023) focus on evaluating policies of both management agencies and non-bank credit institutions in their
Research involving 1,758 questionnaires reveals that all hypotheses regarding green credit financing are valid, indicating a direct and positive correlation between policy and funding decisions To enhance the capacity of green projects to secure capital, it is essential to obtain initial support from the Government and the State Bank, as well as from ministries in establishing orientations, legal frameworks, and a green bond market Subsequently, non-bank financial institutions are expected to evolve in alignment with the trend towards sustainability.
Nguyen Thi Phuong Lien (2022) examines the current state of green credit in Vietnam, focusing on aspects such as implementation organization, capital sources, product offerings, scale, structure, and growth rate Through a detailed analysis of the challenges faced by commercial banks in developing green credit, the author presents recommendations for banks, investors in green projects, and government agencies These suggestions aim to enhance the development of green credit, ultimately supporting the successful execution of the National Action Plan.
Numerous research articles have explored green credit development; however, they often focus solely on commercial banks in their respective countries, limiting their applicability to Vietnam's context The economic and cultural differences, along with varying experiences in implementing green credit, mean that findings from foreign studies may not serve as effective references for Vietnamese commercial banks For instance, research by Xiaoling Song et al highlights that China's banking sector began publishing green credit data in 2008, significantly earlier than Vietnam Currently, there is a lack of research on green credit activities at the Joint Stock Commercial Bank for Investment and Development of Vietnam, making this a novel area of study Consequently, the topic "Development of Green Credit Activities at Joint Stock Commercial Bank for Investment and Development of Vietnam" aims to establish a theoretical foundation and assess the current situation.
This article discusses the development of green credit activities in commercial banks in Vietnam, with a specific focus on the Joint Stock Commercial Bank for Investment and Development of Vietnam It proposes practical solutions for both the bank and its stakeholders to enhance their contributions to sustainable financing initiatives.
Thesis structure
The content of the Thesis Course consists of the following chapters:
Chapter 1: Theoretical basis of green credit at commercial banks
Chapter 2: Current situation of green credit development at Joint Stock Commercial Bank for Investment and Development of Vietnam
Chapter 3: Green credit development solutions at Joint Stock Commercial Bank for Investment and Development of Vietnam
THEORETICAL BASIS OF GREEN CREDIT AT
Green Credit Overview
1.1.1 Concept of Green Credit a) Green Credit:
The concept of green credit, widely discussed by scholars globally, refers to loans granted for projects that minimize environmental risks and promote resource efficiency According to the International Finance Corporation (IFC), these credits support initiatives such as fuel-saving projects and renewable energy facilities, including wind and solar energy Green credit plays a vital role in fostering sustainable economic development and environmental protection Defined by the green credit principle established in 2018 by the Loan Market Association and the Asia Pacific Loan Market Association, it encompasses financing for renewable energy projects, green transportation, eco-friendly technologies, green buildings, and pollution control measures.
Green credit, as highlighted by Wang et al (2019), is a banking strategy aimed at withholding support from environmentally harmful businesses This approach modifies the long-term and short-term credit ratios for enterprises, ultimately influencing the investment structure and efficiency of heavily polluting industries.
Green credits, as defined by Yao et al (2021), are financial instruments that promote environmentally friendly projects with minimal ecological risk Banks evaluate project-related information during the green credit approval process, ensuring that lending practices align with sustainable financial growth and environmental conservation, ultimately aiding in the protection of the global ecosystem.
Green credit represents a financial innovation that reflects the sustainable development of both the economy and society, aligning with modern financial trends (Sa Xu, 2020) Additionally, Sumei Lua, Shenghui Yu, and Guangzhou Zhou (2021) provide a comprehensive definition of green credit, emphasizing its significance in contemporary finance.
10 one of the important components of environmental policy Studying how to implement green credit policy and evaluating its effectiveness has become an important issue
In Vietnam, green credit refers to financing provided for investment projects that prioritize environmental protection and pose minimal risks As outlined in Article 149 of the Law on Environmental Protection 2020, effective from January 1, 2022, green credit supports projects focused on the efficient use of natural resources, climate change adaptation, waste management, pollution treatment, enhancement of environmental quality, restoration of natural ecosystems, biodiversity conservation, and the creation of additional environmental benefits.
Green credit refers to the lending practices of financial institutions aimed at supporting consumption, investment, and business activities that do not harm the environment, thereby promoting environmental sustainability and ecosystem protection (Thu Ha et al., 2019) Additionally, it encompasses bank financing for small-scale production and business projects that prioritize environmental friendliness (Tran Trong Phong et al., 2016).
Green credit refers to loans provided by banks for environmentally beneficial projects, reflecting a commitment to sustainable development It also involves denying credit to initiatives that harm the environment Thus, fostering green credit is crucial for effectively executing the national green strategy in today's context.
The Green Economy seeks to enhance human and social well-being while minimizing environmental risks and resource depletion It emphasizes reducing the adverse effects of economic activities on the environment, promoting sustainability in all aspects of economic development.
11 activities in the economy that generate profits and these activities need to be environmentally friendly These factors are balanced to satisfy sustainability
Green growth, as defined by the World Bank, is a model that promotes efficient resource use while minimizing pollution and environmental impact In Vietnam, the "National Green Growth Strategy 2011-2020 with a vision to 2050" emphasizes transforming growth models and restructuring the economy to leverage comparative advantages This approach aims to enhance economic efficiency and competitiveness through advanced technology and modern infrastructure, ultimately reducing greenhouse gas emissions, addressing climate change, and contributing to poverty alleviation and sustainable economic growth.
Green finance, as defined by UNEP, focuses on increasing financial flows from public, private, and non-profit sectors to support sustainable development priorities It encompasses financial assistance aimed at promoting green growth by significantly reducing greenhouse gas emissions and environmental pollution (Chowdhury et al., 2013).
Overall, green finance involves engaging traditional capital markets in creating and distributing financial products and services that deliver both investable returns and environmentally positive outcomes
Green banking, as defined by UN ESCAP in 2012, encompasses banking practices that promote environmental sustainability and lower carbon emissions This includes supporting green products and services, implementing environmental criteria for loan approvals, and offering concessional credits for projects aimed at reducing CO2 emissions, all of which contribute to sustainable development.
Green credit, a form of bank lending, shares all the fundamental characteristics of traditional bank credit while offering flexibility to various economic sectors Unlike usury or commercial credit, green credit primarily utilizes borrowed capital from diverse societal sectors rather than being solely bank-owned Additionally, it possesses unique features that differentiate it from other credit types.
Green credits are awarded to production and business projects that do not pose environmental risks, but not all projects with green features qualify; they must meet specific bank criteria Enterprises need to demonstrate effectiveness, transparency, and at least one year of experience in the green sector, along with proof of product output Individual customers must show financial capability, maintain a "clean" record, and have no outstanding bank debts.
Green credit is primarily sourced from capital mobilized by various sectors of society, rather than solely from banks To qualify as green credit, the capital utilized must be green in nature Banks can obtain this green capital through trust contracts with the Central Bank or State Bank, support funds, or by directly issuing green bonds in the market.
The bank's green credit activities require collaboration with various authorities To incentivize investors, the Government offers tax policies and guarantees stable output for businesses investing in environmentally prioritized projects In turn, the bank pledges to provide long-term capital and favorable interest rates.
Factors affecting green credit development at commercial banks
According to the Theory of Reasoned Action (TRA) by Fishbein and Ajzen (1975), economic fluctuations significantly impact various sectors, including banking and green credit A thriving economy leads to increased growth rates and supports sustainable development, resulting in higher demand for loans for green projects Conversely, during economic recessions, businesses tend to limit borrowing due to concerns about their ability to repay loans for these initiatives.
In a market economy, it is essential for all economic sectors to operate within a clear legal framework, as highlighted by Agrawal (2014) Ambiguous and inconsistent laws can hinder banks and their credit activities, making it challenging for them to function effectively Conversely, comprehensive and coherent legal documents provide banks with the confidence to engage in business, serve as a foundation for addressing disputes, and ultimately support the enhancement of green credit initiatives.
Agrawal (2014) highlights that government policies aimed at stimulating demand and encouraging domestic and foreign investment in green projects can significantly boost economic development By easing credit growth, reducing taxes for new companies, and creating jobs, these measures lead to increased GDP and reduced unemployment Consequently, this heightened economic activity enhances the demand for corporate capital, fostering the growth of green credit activities within commercial banks.
Ahmad et al (2013) highlight that competition significantly influences business activities across all sectors, particularly in banking In this sector, factors such as interest rates, product offerings, and credit policies from competing banks directly impact a commercial bank's green credit initiatives The competition among banks is driven by their internal capabilities, necessitating each bank to differentiate itself through unique policies, products, services, and target customer strategies This differentiation plays a crucial role in enhancing the development of green credit for each bank.
The development of green credit in a commercial bank is mainly decided by the bank's own internal resources In particular, there are some key factors such as:
Credit policy of the bank
To foster green credit growth, banks must refine their credit policies and institutions, focusing resources on preferential financing for environmentally friendly projects This includes expanding credit conditions for businesses engaged in sustainable practices and increasing the proportion of green credit within their overall credit structure Additionally, banks should establish standards for evaluating project risk to effectively manage and mitigate risks, ensuring financial safety.
According to Vu Phuong Chi (2018), financial capacity refers to a bank's ability to provide credit to those in need A strong financial capacity enables banks to offer green credit, which is essential for funding significant green projects like electric fuel and advanced manufacturing technologies To enhance their financing capacity, banks should focus on increasing borrowing, boosting mobilization efforts, and actively seeking green international capital through collaboration with ministries, key departments, agencies, and non-governmental organizations.
Mahfuz et al (2016) emphasize the importance of assessing the green credit system by weighing its benefits against costs from a microscopic viewpoint While enterprises primarily aim to maximize profits, some high-profit projects can significantly harm the environment, failing to provide true societal benefits Therefore, developing a green credit model should focus on minimizing the production and consumption of environmentally harmful goods while promoting clean and eco-friendly alternatives.
Professional and ethical qualifications of credit officers
Credit officers play a crucial role in directly engaging with customers and assessing projects, significantly influencing the growth of green credit in banks (Agrawal, 2014) To enhance this impact, banks should invest in training and awareness programs for their staff, improving both their professional skills and understanding of green credit initiatives This approach not only fosters the growth of green credit within the banking sector but also aligns with the government's objectives for sustainable development.
The advancement of science and technology, along with effective management capabilities, plays a crucial role in the development of green credit at commercial banks Implementing green credit projects necessitates the use of advanced technologies and scientific achievements, making the assessment of both technical and environmental factors complex Consequently, banks must continuously enhance their scientific and technological expertise while strengthening management and post-loan supervision to mitigate environmental and social risks.
Criteria for assessing the development of green credit activities at commercial banks 17 1 Qualitative indicators
First, the diversity indicator of green credit products
The variety of green credit products tailored to market demands showcases banks' competitiveness and strategic focus in this sector It is essential for this diversity to align with available banking resources to prevent inefficiencies from overextending resources The current uneven structure of green credit products indicates a bank's emphasis on high-loan offerings, while a more uniform product structure highlights the range of available options As development goals evolve, banks adapt their credit product structures accordingly By continuously enhancing their offerings, banks aim to meet the diverse needs of customers, ultimately expanding their market share.
Second, transparency and stability in green credit policy
This complex indicator cannot be assessed through a single criterion; instead, it requires comparison with the credit policies of other banks Transparency and stability in these policies are essential, as they influence loan interest rates, disbursement commitments, and fees associated with credit records.
Third, the distribution channel system
The bank's distribution channel system reflects the development of retail banking in general and GC activities in particular
Traditional distribution channels are characterized by the number of branches, transaction offices, and subordinate units, as well as their geographical distribution Customers involved in GC projects are numerous but dispersed, with many development fields linked to specific natural conditions and characteristics As customers increasingly seek convenience and wish to save time and travel costs when transacting with banks, the presence of competitors' transaction points becomes a significant factor Consequently, banks with extensive branch networks or transaction points can more easily reach customers across various regions.
Modern distribution channels leverage technology, utilizing devices like computers and smartphones to enhance banking services The advancement of technology has enabled banks to bridge spatial gaps and save time, while also alleviating the pressure on the growth and expansion of the banking system.
Fourth, the growth of market share
Market share is a crucial metric for assessing any business, including banks, as it reflects customer engagement and satisfaction An increase in customers indicates that a bank is performing well and effectively meeting client needs Additionally, many commercial banks are increasingly prioritizing environmental concerns by investing in green credit (GC) projects The GC market share serves as a key indicator of a bank's growth in this area.
(1) Number of green credit borrowers
This indicator measures the number of customers who have taken out loans for eco-friendly projects within a specific timeframe Analyzing this data over the years reveals trends in the growth or decline of loan relationships at commercial banks.
(2) Green credit balance growth rate (%)
This indicator evaluates the growth of green credit over the years, helping to assess lending capacity, identify customers, and measure the effectiveness of the bank's green credit initiatives A higher green credit balance signifies more effective credit activities by the bank, while a lower balance indicates the opposite.
This indicator highlights the green credit structure, emphasizing short, medium, and long-term loan allocations The long-term focus indicates that the bank prioritizes funding for energy and green building projects over agricultural and water management initiatives.
This indicator highlights the primary sectors targeted by the green credit structure, including green agriculture, green industry, waste treatment, and renewable energy, to evaluate the capacity for loan allocation across different industries.
(4) Growth of interest from green credit activities (%)
This indicator evaluates the execution of the bank's financial strategy and its capacity to generate interest from lending in green sectors A higher interest collection rate reflects successful green credit initiatives, significantly enhancing the bank's overall financial performance.
Experience in green credit development and lessons for Vietnamese commercial banks
1.4.1 Experience in green credit development in the world
Research on green credit (GC) activities in Vietnam remains limited, primarily focusing on general assessments of its necessity for the banking system and the broader economy To enhance this sector, it is essential to learn from the experiences of developed countries that have successfully implemented green credit initiatives The development of green credit varies globally, but it can be categorized into two main groups: the experiences of developed and developing nations.
China's "Green Credit" policy, launched in July 2007, aims to incentivize banks to finance environmentally friendly projects and renewable energy initiatives This initiative primarily targets the manufacturing sector and energy efficiency projects, promoting green credit growth across various financial institutions, including policy banks, commercial banks, and rural credit unions The policy supports a green, low-carbon economy by fostering business innovation, enhancing environmental and social risk management, and optimizing credit structures Additionally, 21 major Chinese banks report their green credit activities to the China Banking Regulatory Commission (CBRC) through Green Credit Statistical Forms (GCSF), with reports submitted biannually.
China has seen a notable rise in capital directed towards green projects, achieving impressive initial results However, it took nearly five years to establish detailed guidelines for policy implementation, which were finalized in February 2012 A significant challenge in executing this policy is the absence of a dependable rating system for polluting industries, making it difficult for banks to classify projects, particularly since many of these polluting sectors are also highly profitable.
Since the early 2010s, Korea has emerged as a leader in promoting a green economy and establishing a sustainable financial system, with a particular focus on green credit development as a crucial objective in its medium- and long-term socio-economic development strategy.
In South Korea, government-funded banks are crucial to the green financial system, utilizing three key lending policies: direct loans, re-lending, and green deposit programs The effectiveness of these lending methods is evident as commercial banks excel in monitoring and granting credit to green companies The re-lending mechanism involves the government providing capital to commercial banks via the Korea Financial Corporation (KoFC), which has been designated since 2010 as the primary government-funded organization for green credit initiatives.
Credit guarantees are essential for financing green companies in South Korea, particularly during their early stages, due to the high risks and long-term nature of green credit projects The primary sources of credit guarantees include public institutions, private institutions, and financial instruments like bad debt swaps Notably, the Korea Credit Guarantee Fund (KCGF) and the Korea Technology Guarantee Fund (KTCGF) serve as the two main public credit guarantee providers.
Information asymmetry poses a significant challenge in financing green technologies and companies To address this issue, the Korean government has implemented an effective solution by establishing a green certification system, as outlined in the Framework Law on Low Carbon Production and Green Growth.
The Green Certification Commission (GCC) and the Korea Institute of Technology (KIAT) are the two key entities in the certification system The GCC is responsible for determining the eligibility of applicants for certification, while KIAT serves as an independent evaluator of green technologies, providing assessment results to the GCC.
In early 2013, the Export-Import Bank of Korea (KEXIM) introduced the world's first climate bond valued at 500 million USD with a 5-year tenor These climate bonds facilitate clean-tech projects by offering lower-cost investment capital through green financial securities, appealing to large investors compared to traditional bank grants To further support green initiatives, Korea has established development assistance policies.
The 5-year plan, with a budget of US$83 billion (2% of GDP), aims to reduce greenhouse gas emissions and promote green growth from 2009 to 2013 through strategic policy initiatives and specific goals.
The "Green New Deal" involves a significant investment of 25.3 trillion won ($19.7 billion) aimed at enhancing green cities and expanding railroads and large transportation systems, which has boosted public transportation usage by approximately 55 percent Additionally, the initiative is projected to reduce carbon dioxide emissions by 130 million tons by 2020 through the advancement of green technologies.
The stimulus package "New Green Growth Agreement" announced in January
2019 is worth 50 trillion won (equivalent to 38.5 billion USD) over 4 years for 9 main green projects and some large projects, thereby creating 956,000 new green jobs The
The nine key green projects focus on restoring four major rivers, developing a sustainable transportation system, and creating a comprehensive database for national territory and resources Additionally, they emphasize effective water resource management, the promotion of green vehicles and cleaner energy initiatives, and a Resource Regeneration Program Other important aspects include forest management and biodiversity programs, the establishment of green homes, offices, and schools, as well as the enhancement of green landscapes and infrastructure.
The environmental situation in Bangladesh over the past years has shown signs of increasingly serious degradation, which are soil and air pollution, water scarcity
Bangladesh faces significant challenges from climate change and biodiversity loss, primarily due to rapid population growth, poor land use, inadequate resource management, and uncontrolled waste disposal In response, the Bangladesh Central Bank has launched various green finance initiatives, reflecting its strong commitment to fostering a sustainable and environmentally responsible finance sector These efforts align with global environmental action programs aimed at addressing these pressing threats.
The implementation of the Green Credit (GC) policy in Bangladesh focuses on increasing awareness and dissemination of information The Central Bank of Bangladesh has introduced various policies aimed at enhancing banks' understanding of green investment opportunities and their environmental responsibilities in financial decision-making Key initiatives include the Green Products Refinancing Program, the GC Policy Framework, and the Environmental Risk Management Principles.
In 2009, the Central Bank of Bangladesh initiated a green products refinancing program, establishing a revolving fund of around USD 27 million This program aims to support commercial banks in providing loans for five key green products, including solar projects like solar water pumping stations, solar power plants, solar module assembly plants, as well as biogas and wastewater treatment facilities.
CONCLUSION
Chapter 1 provides a comprehensive overview of the theoretical aspects, characteristics, and significance of green credit within the commercial banking system, highlighting the factors influencing its development in Vietnam As a relatively new concept for Vietnamese banks, it is essential to establish a solid theoretical foundation for green credit Additionally, the chapter examines global experiences in green credit development from countries like China, Korea, Bangladesh, and the Philippines, offering valuable lessons for BIDV The subsequent chapter will focus on the current state of green credit development at the Joint Stock Commercial Bank for Investment and Development of Vietnam.
CURRENT SITUATION OF GREEN CREDIT
Overview of business activities about BIDV
The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) is one of the four largest state-owned joint stock banks in the country, boasting a rich history of over 66 years BIDV has evolved from its origins as a construction bank into a versatile financial institution, gaining a strong reputation both regionally and internationally.
BIDV, established in 1957, has undergone significant transformations, evolving from the Vietnam Construction Bank to the Vietnam Bank for Investment and Construction, and finally becoming the Joint Stock Commercial Bank for Investment and Development of Vietnam The bank has successfully expanded its network both domestically and internationally, with branches in countries such as Laos, Cambodia, Taiwan, Russia, and the Czech Republic.
BIDV's mission is to provide exceptional benefits and services to customers, shareholders, employees, and the community By 2030, the bank aspires to establish itself as the leading digital platform in Vietnam and rank among the top 100 largest banks in Asia.
Areas of activity: BIDV provides a wide range of products and services, including:
- Banking: Providing a full range of modern banking products and services and utilities
- Insurance: Life and non-life insurance products are designed to suit customer needs
- Securities: Services of brokerage, investment, investment consulting and development of dealer system
- Financial investment: Contribute investment capital to key projects of the country, play the leading role in coordination
BIDV's corporate culture is rooted in core values such as Wisdom, Trust, Integrity, Professionalism, and Aspirationality, reflecting the bravery and resilience of its people throughout history To reinforce its commitment to these values, BIDV has developed a Cultural Handbook that distills traditional cultural values and ethical codes into clear standards This handbook serves as a guide for all employees to understand and promote cultural values, practice norms, and adhere to rules, ultimately strengthening BIDV's corporate identity It also represents BIDV's dedication to customers and society by ensuring that employees maintain high moral standards and appropriate behavior in their roles.
The management structure of BIDV is organized as follows:
Image 2.1: Management structure of BIDV
Board of Directors: BIDV's Board of Directors are enthusiastic, talented, strategic visionary, bringing the bank steadily to the shore of success
Tradition Room: BIDV also has a Tradition Room, where images, artifacts and historical documents about the bank's construction and growth journey are stored, clearly reflecting BIDV's identity and heritage
BIDV has received numerous prestigious awards from the Party and State of Vietnam for its significant contributions to the country's development, including the title of Labor Hero Unit during the Doi Moi period, the Order of Ho Chi Minh, and various Labor Medals Additionally, BIDV has been honored with medals from the governments of Laos and Cambodia The bank has also gained recognition from esteemed domestic and international organizations for its excellence in areas such as brand development, information technology, retail banking, capital and currency trading, international payments, economic integration, labor utilization, and social security.
Core values: 5 core values of the Joint Stock Commercial Bank for Investment and Development of Vietnam include:
Image 2.2: Five core value of BIDV
2.1.2 Business Contract results of BIDV in the period of 2021-2023
The Vietnamese banking system, particularly the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), is currently facing significant challenges due to the global recession triggered by Covid-19 Despite the ongoing negative impacts even after the pandemic, BIDV has successfully navigated this tough period With strong leadership and a committed workforce, the bank has not only overcome obstacles but also capitalized on opportunities, achieving notable successes and solidifying its reputation in both domestic and international markets.
Figure 2.1: Scale growth of BIDV, 2021-2023
Source: BIDV's annual consolidated financial statements
Despite the challenges posed by the pandemic, the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) has successfully expanded its scale from 2021 to 2023 During this period, Total Assets grew significantly from VND 1,761,696 billion to VND 2,300,369 billion, marking an impressive increase of 30.6% This growth reflects BIDV's strong performance in Total Customer Deposits and Customer Loans, solidifying its position as a leading bank in Vietnam.
34 the largest asset scale in Vietnam when setting a record as the first bank whose total assets exceeded the mark of more than VND 2 million billion in 2022
Customer deposits surged by 29%, rising from VND1,380,398 billion in 2021 to VND1,704,690 billion in 2023, capturing over 15% of the industry's deposit market share This growth is attributed to the economic downturn, which has left the population seeking safer investment channels despite declining deposit interest rates As the stock market's low liquidity shows signs of improvement, investors appear to be biding their time Bank deposits are increasingly viewed not only as a source of interest income but also as a secure means of wealth preservation BIDV has effectively leveraged this trend, achieving remarkable deposit growth during this period Additionally, outstanding loans have also seen significant growth, increasing from VND1,325,529 billion in 2021 to VND1,737,196 billion in 2023, representing a 12.8% market share within the banking system.
Table 2.1: Credit quality of BIDV, 2021-2023
Source: BIDV's annual consolidated financial statements
Between 2021 and 2023, BIDV's loan/deposit ratio declined from 83.36% to 82.67%, remaining below the State Bank's 85% threshold, indicating an improvement in liquidity quality During the same period, the NPL coverage ratio and NPL ratio exhibited opposing trends, with the NPL coverage ratio decreasing from 219.37% in 2021 to 216.76% in 2022 before experiencing an increase.
BIDV achieved a remarkable 226% increase in bad debt coverage ratio over the course of a year, securing the 2nd position among the TOP 10 banks in 2023, just behind Vietcombank Amid the ongoing economic challenges stemming from the Covid-19 pandemic, BIDV has prudently allocated 100% full risk provision to ensure the stability of its operations Consequently, the non-performing loan (NPL) ratio rose from 0.98% to 1.16%.
In 2022, many businesses struggled financially due to the pandemic and the conclusion of government support packages, complicating the management of bad debts for banks, including the Joint Stock Commercial Bank for Investment and Development of Vietnam However, by 2023, this bad debt rate decreased to 0.96%, likely attributed to a surge in credit balances in the final months of the year.
Figure 2.2: Income growth of BIDV, 2021-2023
Source: BIDV's annual consolidated financial statements
BIDV has consistently achieved income targets that surpass planned goals each year, demonstrating steady growth over time Although non-interest revenue experienced a slight decline in 2022, it rebounded in the subsequent year, contributing to the overall increase in total operating income.
36 income is constantly increasing over time, from VND 62493 billion in 2021 to VND
In 2023, the total income reached VND 73,013 billion, reflecting a growth of 16.83% Net interest income remained a significant component of this total, increasing nearly 20% from VND 46,823 billion to VND 56,136 billion This growth was primarily driven by a substantial rise in interest from foreign exchange trading and investment securities Notably, in the fourth quarter of 2023, the bank achieved a remarkable net profit of VND 3,138 billion from these activities, marking a 73-fold increase compared to the same period last year.
Non-interest income at BIDV is characterized by instability; however, as it serves as a secondary income source, it has a minimal impact on the overall growth of the bank's income Meanwhile, total operating expenses have risen in a controlled manner, increasing from VND 19,465 billion.
BIDV's profit before tax surged to VND 27,589 billion in 2023, marking a remarkable 2.03 times increase over two years and surpassing the initial target by 109% This growth, driven by a 27.6% expansion in the bank's business scale, occurred despite rising operating costs, as evidenced by a decrease in the Cost to Income Ratio (CIR) from 35.4% in 2021 to 32.2% in 2023 Consequently, BIDV has established itself as the second most profitable bank in the industry.
Current situation of Green Credit development at Joint Stock Commercial Bank for
2.2.1 Overview of green credit program at BIDV
BIDV recognizes the critical role of green credit in economic development and has proactively established a clear roadmap for its implementation As the first domestic credit institution to partner with the Ministry of Natural Resources and Environment, BIDV is committed to promoting environmental protection, enhancing ecosystems, and advancing green finance initiatives.
BIDV stands out as a leading bank in promoting green credit, focusing on three key sectors: renewable energy, sustainable agriculture, and clean industrial practices The BIDV Green Credit program specifically targets enterprises operating within these fields.
37 of renewable energy, clean energy, agricultural production and low-carbon industries
As of 31/12/2022, BIDV is a "leader" in the field of green financing, owning more than 1300 customers
BIDV has significantly transformed its green credit activities through strategic orientation and clear action programs Since 2018, the proportion of outstanding loans in BIDV's green sector has steadily increased from 2.65% to 3.87% by September 30, 2022 As of the end of the third quarter of 2022, BIDV has emerged as the market leader in financing green projects, serving 1,231 customers with a total credit commitment exceeding VND 61,700 billion, particularly in the renewable energy sector.
In 2022, BIDV's outstanding hydropower loans are projected to decline significantly to 40.7%, while loans for wind and solar power are expected to rise sharply to 58.3% Additionally, the share of loans for coal-fired thermal power remains low, with a strategic plan in place to phase them out entirely by 2035.
In 2021, BIDV and the French Development Agency (AFD) signed the SUNREF Green Credit Agreement, which has a limit of 100 million USD to support the renewable energy sector This agreement marks the first loan provided to a commercial bank in Vietnam by AFD and is noted as the fastest project the agency has ever executed.
BIDV has launched the Sustainable Finance Project Management Board (PMU) to oversee the implementation of sustainable finance initiatives, manage ESG risks in credit operations, and guide the bank towards becoming a Net-zero institution As one of the first two banks selected for a technical assistance program with the SBV and the German International Cooperation Organization (GIZ), BIDV is working on a Green Bond Framework aligned with Climate Bond Initiative (CBI), ICMA, and ASEAN standards Additionally, the bank has established a Sustainable Loan Framework for green, social, and sustainable linked loans.
By 05/2022, in order to implement cooperation methods to promote green finance development in Vietnam, BIDV is the first commercial bank to cooperate
BIDV has partnered with the Ministry of Natural Resources and Environment to sign a Memorandum of Understanding (MOU) aimed at enhancing sustainable development efforts in Vietnam The bank has also collaborated with international organizations to promote green and sustainable capital deployment In 2018, BIDV secured a US$300 million loan agreement with the Asian Development Bank (ADB) to support small and medium-sized enterprises (SMEs) and contribute to the development of a Green Bond Framework that aligns with the Climate Bond Initiative (CBI), as well as ICMA and ASEAN standards.
2.2.2 Legal Framework on Green Credit and Regulations at BIDV a) Legal framework on green credit:
* Principles of granting green credit in Vietnam:
To effectively utilize borrowed funds, it is essential for enterprises to have a clear and specific loan plan This involves presenting a transparent and feasible roadmap for the project, ensuring that the loan is used for its intended purpose.
Collateral plays a crucial role in securing loans, as it helps prevent customers from breaching loan agreements or facing insolvency In such cases, collateral serves as a safeguard for banks, mitigating the risk of capital loss.
Third, repay capital and interest on time The client is responsible for timely and full payment of the principal amount, full payment of interest charged on the loan amount
Fourth, ensure deadlines Customers must repay according to the specified time specified and agreed in the loan contract with the bank
Fifth, on the environment and society and ecosystem Implemented projects must comply with laws and regulations related to environmental and social issues that do not affect the ecosystem
* Conditions for granting green credit in Vietnam:
Article 154 of Decree 08/2022/NDCP outlines the regulations for investment projects focused on environmental protection, emphasizing those that provide environmental benefits as detailed in Clause 1 of Article 149 and Clause 2 of Article 150.
39 the Law on Environmental Protection and according to the provisions of this Decree, are granted green credits, issuance of green bonds
According to Article 149 of the Law on Environmental Protection 2020, conditions for granting green credits to projects are stipulated to ensure:
Efficient use of natural resources;
Pollution treatment, improvement of environmental quality;
Conservation of nature and biodiversity;
* Policies to support green credit activities of the Goverment:
Vietnam is at the forefront of advancing a green and circular economy The Governor of the State Bank of Vietnam (SBV) has taken significant steps by issuing Directive No 03/CT-NHNN on March 24, 2015, which focuses on promoting green credit growth and managing environmental and social risks in lending activities Additionally, Decision No 1604/QD-NHNN, approved on August 7, 2018, outlines the Green Bank Development Project in Vietnam, further emphasizing the country's commitment to sustainable financial practices.
No 17/2022/TT-NHNN dated 23/12/2022 guiding the implementation of environmental risk management in credit granting activities of credit institutions, Foreign Bank Branches (effective June 1, 2023)
On August 7, 2018, the State Bank of Vietnam (SBV) issued Decision No 1604/QĐ-NHNN, which approved a green banking development scheme aimed at enhancing the banking system's awareness and social responsibility towards environmental protection and climate change The scheme focuses on gradually greening banking activities, directing credit towards environmentally friendly projects, and promoting green manufacturing, services, and renewable energy The overarching goal is to contribute to green growth and sustainable development in Vietnam.
(1) Increase the proportion of credit capital for green sectors/sectors that need more support or priority in the list of green project loans issued by the SBV;
Promote the use of environmentally friendly technology in banking by encouraging customers to adopt sustainable practices Develop innovative electronic transaction channels and payment methods that leverage modern technology to enhance customer experience.
By 2025, the goal is to ensure that all construction banks are regulated to effectively manage socio-economic risks in their credit granting activities This includes mandatory socio-economic risk assessments for all banks during the credit approval process, the application of environmental standards to financed projects, and the integration of environmental risk assessments into the overall credit risk evaluation by banks Additionally, specific regulations at BIDV will support these objectives.
In September 2009, BIDV's General Director signed a decision to implement the "Investment Appraisal Process" across the entire BIDV banking system nationwide This process outlines a specific sequence of content for investment evaluation.
Evaluation of green credit at BIDV
The Joint Stock Commercial Bank for Investment and Development of Vietnam engages in diverse green project lending activities across nine key sectors, including green agriculture, green industry, renewable energy, resource reuse, inorganic product recycling, industrial waste treatment, sustainable water management, green building construction, and environmental protection and energy-saving services This comprehensive approach enables the bank to effectively manage its lending structure, understand the strengths and limitations of each sector, and ensure accurate operational strategies.
BIDV's transparent and stable interest rate policy for green credit enables effective project supervision, reducing risks for banks and minimizing negative environmental impacts associated with projects.
58 customers actively grasp the interest rate situation, feel secure about the investment credit for the project
BIDV's green credit balance is on the rise, with an expected outstanding credit balance for green projects in 2023 reaching VND 98,531 billion, reflecting a significant increase of about 17.61% from 2022 This growth has been facilitated by BIDV's successful mobilization of various capital sources, including funding from the World Bank (WB), Green Energy Development Fund (GIF), Asian Development Bank (ADB), and French Development Agency (AFD).
BIDV has significantly advanced its loan offerings for renewable energy projects, with green credit outstanding consistently representing over 60% of total loans Additionally, the number of renewable energy projects has tripled from 2021 onwards.
In 2023, BIDV experienced a steady increase in outstanding loans for agriculture and the green industry, contributing to the year-on-year growth of its short-term green credit balance The projects financed by BIDV incorporate advanced technology and promote environmentally friendly scientific and technical innovations.
Income from green credit saw remarkable growth, rising from VND 3,111,028 billion in 2021 to VND 4,506,089 billion in 2023 While green credit revenues still represent a small share of total income, this significant increase indicates that green credit is progressively developing and holds the potential to enhance the bank's sustainable revenue.
The demand for credit to fund green investment projects is on the rise, particularly among customers involved in solar power, hydropower, and green agriculture This trend reflects a growing interest from individuals and businesses in securing financing for initiatives that promote environmental protection and enhance quality of life, thereby contributing to sustainable economic development Additionally, this shift bolsters the bank's image and reputation, showcasing its dedication to environmental stewardship and sustainable growth.
With the above results, Joint Stock Commercial Bank for Investment and Development of Vietnam has won a number of prestigious awards such as: "Pioneer
Bank in Green Finance" award by Vietnam Banking Association (VNBA), Best Green Bond Trading Award in Vietnam honored by The Asset,
The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) primarily focuses its green project lending on medium and long-term loans for SMEs and large projects, neglecting individual customers Currently, BIDV has established cooperation agreements to disburse green capital mainly for these larger enterprises In contrast, green credit products for individuals, such as loans for energy-efficient homes and vehicles that utilize environmentally friendly fuel, remain largely underdeveloped.
There is a significant shortage of professionals with expertise in green credit, which impacts the efficiency of risk management at BIDV Currently, the E&G risk management team oversees transparency and stability in green credit policies through centralized management at headquarters However, with only 4-5 experts assessing risks, the team faces potential overload during peak project periods, resulting in time pressure and decreased work efficiency.
BIDV's green credit balance is disproportionately concentrated on energy and agricultural projects, leading to a lack of focus on critical areas like waste treatment, green construction, and environmental protection services As a result, these sectors represent a minor share and have seen a decline from 2021 to 2023.
2.3.3 Causes of restrictions a Objective causes:
The growth of green credit balance at the Joint Stock Commercial Bank for Investment and Development of Vietnam from 2021 to 2023 is significantly influenced by economic development.
The economic landscape over the next three years presents a complex scenario with significant barriers to green investment Following a period of robust growth from 2021 to mid-2022, the economy has struggled to maintain momentum, facing challenges such as slowing growth, rising inflation, and geopolitical tensions by the end of 2022 and into 2023 These factors have adversely impacted the banking sector, particularly BIDV, which is experiencing increased bad debts and low liquidity, leading to restrictions on lending.
Currently, there is a lack of legal documents and comprehensive guidelines for environmental risk management in green credit implementation Regulations in the green sector are inconsistent across the banking system, varying by each commercial bank's division The Law on Credit Institutions 2010 allows lending for green projects based on general lending principles, yet it does not provide specific regulations for individual projects Consequently, the green investment sector is devoid of a robust legal framework and tools to assess environmental impact criteria, making compliance with stringent environmental protection conditions essential, and complicating the loan process compared to traditional projects.
Between 2021 and 2022, the Government implemented policies to promote investment and shift the growth model towards sustainable practices Key measures included allocating at least 1% of the total government budget to national programs focused on environmental protection Additionally, tax incentives were introduced, such as a 10% tax rate on income from environmental socialization activities and a 10% tax rate for 15 years on income from investments in clean energy, biotechnology, and environmental protection projects Conversely, higher tax rates were imposed on projects utilizing non-renewable resources, while green credit policies were actively promoted to support sustainable initiatives.
The Vietnam Environmental Protection Fund offers loans at preferential interest rates, capped at 50% of commercial lending rates, to support projects focused on environmental protection, energy saving, renewable energy, and clean technology.