Banks and challenges in funding green projects

DNHN - Green projects today not only protect the environment but also open up new business opportunities. However, lending to these projects faces many challenges, prompting banks to strive to meet the capital needs.

Challenges in lending to green projects

One of the main challenges for banks when lending to green projects is risk assessment. Green projects often involve new technologies, production methods, and uncommon business processes. This makes evaluating and determining the ability to repay the capital more difficult. Banks need to have deep expertise in green projects and the ability to accurately assess risks to ensure the sustainability of lending.

Another challenge is determining the economic value of green projects. Green projects often have environmental and social benefits that cannot be directly measured in monetary terms. Valuing these non-financial factors, such as reducing emissions, saving energy, and protecting natural resources, is a major challenge. Banks need to develop appropriate valuation methods to ensure that green projects are recognized and valued at their true worth.

Another important factor for banks is finding suitable sources of capital to lend to green projects. Banks need to find long-term and stable sources of capital to ensure the ability to provide funds for green projects. At the same time, they also need to consider the financial viability of these projects to ensure the ability to repay capital and profit.

Additionally, the lack of information and common standards is a challenge for banks in lending to green projects. Currently, there are no clear and common standards for green projects, making it difficult to evaluate and compare projects. Banks need to engage in proposing and promoting the development of standards and related information systems to create a transparent and sustainable green project lending environment.

In this issue, we can argue that lending to green projects requires not only the interest and commitment from banks but also clear information systems and standards to create a transparent and sustainable green project lending environment. For banks, risk assessment and determining the economic value of green projects are important challenges to overcome.

Furthermore, there needs to be improvement in finding and managing long-term capital sources to ensure the ability to provide funds for green projects. This requires the cooperation of stakeholders, including banks, governments, funding organizations, and investors.

Legal framework is still limited

In the future, to promote green project development and facilitate lending, there needs to be coordination and support from stakeholders. Banks can play an important role in building a sustainable financial ecosystem and ensuring that green projects receive the necessary support and funding to develop and promote the transition to a greener economy.

Lending to green projects faces many challenges but also brings many opportunities and benefits to both banks and society. With increased knowledge, accurate risk assessment, and support from stakeholders, banks can positively contribute to the development of green projects and build a sustainable future for us and the planet.

Statistics from the Department of Credit for Economic Sectors (State Bank of Vietnam) show that currently, 47 banks have generated green credit balances, but this rate only accounts for 4.5% of the total outstanding loans of the economy. Commercial bank leaders said that the main reason is the limited legal framework on green credit.

According to Mr. Nguyễn Thanh Tùng, General Director of Vietcombank, promoting green credit is facing difficulties due to the lack of clear standards for green projects. Mr. Tùng suggested that ministries and sectors soon develop these criteria so that banks can implement them more effectively.

In the latest report, a group of experts from the National Economics University affirmed that to develop green credit, the legal system needs to be improved, specifically by establishing green project standards. This will help credit institutions select, appraise, and monitor green projects effectively.

The lack of clear guidelines on the categories and standards of green projects has made it difficult for credit institutions to select and appraise loans.

“We need to develop a specific roadmap to apply support policies for green industries and projects regarding taxes, fees, capital, technology, markets, planning, and development strategies, to enhance the efficiency of green credit use,” the research team proposed.

Nhan Ha