Decision 1604/QD-NHNN 2018 approving Scheme on green bank development

DECISION

Approving the Scheme on the green bank development in Vietnam

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THE GOVERNOR OF THE STATE BANK

Pursuant to the Law on the State Bank of Vietnam dated June 16, 2010;

Pursuant to the Law on Credit Institutions dated June 16, 2010; the Law on Amending and Supplementing a Number of Articles of the Law on Credit Institutions dated November 20, 2017;

Pursuant to Decision No. 403/2014/QD-TTg dated March 20, 2014, promulgating the National Action Plan on green growth for the 2014-2020 period;

Directive No. 03/CT-NHNN dated March 24, 2015, promoting green credit growth and environmental-social risk management in credit extension;

Decision No. 1552/QD-NHNN dated August 6, 2015, on the banking sector’s Action Plan to implement National Green Growth Strategy until 2020;

At the proposal of the Director of the Banking Strategy Institute,

DECIDES:

Article 1. Approving “The Scheme on the green bank development in Vietnam” with the following main contents:

I. GENERAL OBJECTIVES AND SPECIFIC TARGETS

1. General objectives

Enhancing awareness and social responsibility of the banking system for environmental protection, combating climate change, gradually greening banking operations, directing credit capital flows into financing environmentally friendly schemes, promoting green production, services and consumption, clean energy and renewable energy; contributing actively to promote green growth and sustainable development.

2. Specific objectives and targets

a) To gradually increase the proportion of credit capital for green industries and fields that need priority support in the List of green schemes issued by the State Bank.

b) To promote the application of technology along with building eco-friendly habits for customers within the framework of banking activities; strongly develop electronic transaction channels, new services and payment methods on modern technology platforms.

c) To strive for the objectives that by 2025:

- 100% of banks will develop internal regulations on social and environmental risk management in credit extension.

- 100% of the banks will conduct the assessment of social and environmental risks in credit extension; the environmental standards will be applied for all schemes receiving loans from the banks; the environmental risk assessment will be integrated as part of the banks’ credit risk assessment.

- At least 10 to 12 banks will have specialized units/agencies for social and environmental risk management.

- 60% of banks will access to the green capital resources, and will provid green credits.

II. SOLUTIONS FOR DEVELOPING GREEN BANKS IN VIETNAM

1. Solution group for the State Bank

a) Formulating and issuing instructions on the directions of green bank development for credit institutions;

- To issue instructions on activities of green banks and green credits, clearly stating the definition of activities of green banks and green credits. Criteria for evaluating green banks include: (i) System of internal regulations on social and environmental risk management; (iii) Organizational model to implement social and environmental risk management activities in the process of credit extension; (iii) the proportion of credit capital for green industries and fields that need priority support in the list of green schemes issued by the State Bank of Vietnam; (iv) Quality of training, propaganda and dissemination to raise awareness and capacity of bank cadres in general and credit cadres in particular in sustainable development, green credits, and green banks.

- To issue instructions for formulating reports on green banks/green credits, detailing indicators and reporting requirements to ensure the following contents: (i) Administration and organizational structure; (ii) Policy system and financial capacity; (iii) Process management; (iv) Internal control and information disclosure.

- To continue to research and complete the Manual for social and environmental risk assessment for the remaining 11 economic sectors out of a total of 21 sector groups that do not have instructions in credit extension of credit institutions.

- To periodically update the list of green schemes.

b) Formulating and issuing incentive policies and preferential mechanisms to support credit institutions in the green bank development;

To research incentive, support mechanisms and tools applied to banks to encourage the development of green banks/green credits, such as:

- The consideration of prioritizing capital sources for green credit development through refinancing policies/rediscount policies on the basis of ensuring the principle of not affecting the management of monetary policies and inflation targets in each period.

- The consideration of priorly accessing to preferential loans from international organizations and development partners through the State Bank for commercial banks with a high proportion of green credit loans.

c) Promoting training and communication

- To continue to deploy and expand training programs on green credits and green banks for cadres of State Bank and credit cadres of credit institutions.

- To periodically organize forums and seminars on the topic of green credits and green banks for green growth and sustainable development.

- To organize propaganda and raise awareness for cadres, civil servants, public employees and workers in the banking sector about green growth and sustainable development in general and the development of green credits, green banks in particular.

- To supplement the annual report of the State Bank with contents on the banking sector's activities towards sustainable development to contribute to a green economy and green growth.

d) Researching and implementing measures to increase the economic benefits (combined with administrative incentives) in order to encourage non-cash payments based on the application of Technology 4.0 to green banking operations.

2. For credit institutions

a) Focusing on formulate strategic frameworks for green banks

Based on business orientation, market segment, products and target customers, along with its capabilities and strengths, each credit institution shall formulate a strategic framework and roadmap to develop green banks at appropriate levels based on the following 5-level reference:

Level 1: To carry out supporting activities, sponsor for "green" events and participate in community activities.

Level 2: To separate development of schemes and business activities, in which the banks develop separate green products and services to supplement the list of traditional banking products and services.

Level 3: The system of business operations should be developed. Most banking processes and products should be complied with green principles. The banks’ organizational structures shall be designed to support "green" impact on the following perspectives: operational objectives, operating principles, personnel and organizational structure, operating procedures.

Level 4: There is an initiative to achieve strategic ecological balance. Green banking activities shall not be limited to single operations but shall be expanded into networks, alliances, community dialogues or entire ecosystems to achieve sustainability of social factors, environment and finance.

Level 5: Proactive eco-balancing initiatives shall be taken, in which green banking activities shall be similar to level 4, but shall be carried out purposefully, not just activities that respond to external change as mentioned in level 4.

b) Formulating and operating the system of social and environmental risk management, which should include: internal instructions on social and environmental risk management applied in the credit extension; the organization structure for the management and the assessment of the social and environmental risks; delegating and authorizing, allocating and utilizing the resources to implement the system; reporting system on the social and environmental risk management; programs to improve the banks’ institutional capacity in social and environmental risk management.

c) Following the instructions of the State Bank on the social and environmental risk assessment; integrating the social and environmental risk assessment as part of the banks’ credit risk assessment; including the social and environmental assessment into the instructions for the internal audits and the banks’ general reporting systems; developing the social and environmental risk management plans after having evaluated and supervised the approved schemes and the loans that have been provided.

d) Researching and setting up specialized units/agencies responsible for the social and environmental risk management, and the supervision and management of green banks and green credits in banks.

dd) Gradually transforming the procedures of internal governance, modernizing the infrastructure and the information technology towards developing a better supportive system to minimize the negative impacts on the environment; providing credits and payment services for eco-friendly sectors; proactively formulating internal instructions on green working environments, aiming at implementing effectively such measures as: efficient use of water, print paper, electricity, fuels, etc. in each branch and transaction office within banks’ systems.

e) Formulating specific green credit policies for environmentally sensitive sectors such as agriculture, hide and leather, renewable energy, apparel; strictly supervising and taking measures to reduce the lending to those activities that may harm the environment.

g) Coordinating with the functional units of the State Bank to formulate, implement, evaluate and report on the implementation of strategies and action plans on green banks and green credits.

h) Organizing the training courses in order to increase the cadres’s awareness of sustainable development, green growth, green banks, and to understand the importance of social and environmental risk management; conducting communication and organizing events to help customers better understand about the green bank products and services; introducing products that are environmentally friendly or do not cause negative impacts on the environment.

Closely coordinating with functional units of the State Bank in assessing needs to develop training and fostering programs to implement at units and/or in the banking sector.

i) Closely collaborating with the functional units of the State Bank and the environment authorities to develop and form a database on the compliance and violations of environmental requirements of enterprises in order to be used by the commercial banks as a basis for the loan appraisal and identification of environmental risks during their evaluation of creditors, and thereby minimize/reduce the credits for non-environmentally friendly activities.

III. IMPLEMENTATION ROADMAP

1. Period 1 (2018-2020):

a) The State Bank shall:

- Issue instructions on activities of green banks, green credits.

- Issue instructions for formulating reports on green banks, green credits.

- Continue to research and complete the Manual for social and environmental risk assessment for the remaining 11 economic sectors out of a total of 21 industry groups that do not have instructions in credit extension of credit institutions.

- Periodically update the list of green schemes.

- Consider prioritizing capital sources for green credit development through refinancing policies/rediscounting policies.

- Consider prioritizing access to preferential loans from international organizations and development partners through the State Bank for commercial banks with a high proportion of green credit loans.

- Research and implement measures to increase the economic benefits (combined with administrative incentives) in order to encourage non-cash payments based on the application of Technology 4.0 to green banking operations.

- Continue to deploy and expand training programs on green credits and green banks for cadres of State Bank and credit cadres of credit institutions.

- Periodically organize forums and seminars on the topic of green credits, green banks, green growth and sustainable development.

- Organize propaganda and raise awareness for cadres, civil servants, public employees and workers in the banking sector about green growth and sustainable development in general and the development of green credits and green banks in particular.

b) Credit institutions shall:

- Formulate strategic frameworks and implementation roadmap towards green banking development.

- Formulate and operate the system of social and environmental risk management; which develops internal instructions on social and environmental risk management applied in the credit extension; reporting system on the social and environmental risk management; programs to improve the banks’ institutional capacity in social and environmental risk management.

- Comply with the instructions of the State Bank on the social and environmental risk assessment; integrate the social and environmental risk assessment as part of the banks’ credit risk assessment; including the social and environmental assessment into the instructions for the internal audits and banks’ general reporting systems; develop the social and environmental risk management plans after having evaluated and supervised the approved schemes and the loans that have been provided.

- Formulate internal instructions on green working environment.

- Formulate specific green credit policies for the environmentally sensitive sectors.

- Organize training courses to enhance social and environmental risk management capacity, increase employee awareness of sustainable development, green growth, green credits, green banks; organize propaganda and events for customers to better understand green bank products and services; introduce products that are environmentally friendly or do not cause negative impacts on the environment.

2. Period 2 (2021-2025):

a) The State bank shall:

- Based on the initial results of the proportion of green credit in the investment portfolio and the results of formulating a strategic framework for green banking development of the bank in period 1, the State Bank shall announce the target of the proportion of green credit in the portfolio investment of the bank for the 2021-2025 period.

- Continue to research and complete the Manual for social and environmental risk assessment.

- Continue to complete the list of green schemes.

- Supplement the annual report of the State Bank with contents on the banking sector's activities towards sustainable development to contribute to a green economy and green growth.

b) Credit institutions shall:

- Report on progress in implementing the proportion of green credit in the bank's investment portfolio in period 1; propose implementation goals for period 2 (2021-2025).

- Continue to comprehensively complete the social and environmental risk management system; which forms the organization structure for the management and the assessment of the social and environmental risks, and supervise the implementation of green bank and green credit operations at the bank.

- Closely collaborate with the functional units of the State Bank and the environment authorities to formulate and form a database on the compliance and violations of environmental requirements of enterprises in order to be used by credit institutions as a basis for the loan appraisal and identification of environmental risks during their evaluation of creditors, and thereby minimize/reduce the credits for non-environmentally friendly activities.

- Continue to organize training courses, enhance social and environmental risk management capacity, increase employee awareness about sustainable development, green growth, green credits, green banks.

- Formulate and form a data system on compliance and violations of environmental requirements by enterprises.

Article 2. Organization of implementation

1. Implementation

a) The Banking Strategy Institute shall act as the focal point and coordinate with relevant units to organize forums and seminars on the topics of green banks, green credits, green growth and sustainable development; organize investigations, surveys, and collection of data from credit institutions to serve the assessment of green bank and green creditoperations.

b) The Department of Credit for Economic Sectors shall assume the prime responsibility for, and coordinate with relevant units to advise, formulate and issue instructions to orient green bank development for credit institutions including: issuing instructions on activities of green banks and green credits; issuing instructions for formulating reports on green banks/green credits; researching and completing the Manual for social and environmental risk assessment for the remaining 11 economic sectors out of a total of 21 sector groups that do not have instructions in credit extension of credit institutions.

c) The Monetary Policy Department shall research and advise on capital support through monetary policy tools for green banks and green credit in accordance with the law and the Government's directions, in accordance with monetary policy goals of each period; supplement the annual report of the State Bank with content on the banking sector's activities towards green economy, green growth and sustainable development.

d) The Organization and Personnel Department shall assume the prime responsibility for, and coordinate with relevant units under the State Bank, combined with international technical support sources to formulate policies to support human resource training to raise awareness of banks, strengthen the capacity of cadres in the banking sector to promote green banking development.

dd) The Banking Supervision Agency shall research and advise on additional inspection and monitoring mechanisms for social and environmental risks of banks and credit institutions; supplement and integrate regulations on social and environmental risk management into regulations on the internal governance of credit institutions.

e) The Payment Department shall assume the prime responsibility for, and coordinate with the Information Technology Department to advise on the formulation of policy mechanisms to promote the application of science and technology to banking products and services, develop electronic payment networks, and mobile payment, environmentally friendly technology applications; researche and implement encouraged measures foreconomic benefits (combined with administrative incentives) in order to develop payment based on the application of Technology 4.0 to green banking operations.

g) The Management Board of ODA schemes shall act as the focal point and coordinate with relevant units to periodically update the List of green schemes; consider prioritizing access to preferential loans from international organizations and development partners through the State Bank for commercial banks with a high proportion of green credit loans.

h) The Department of Communications, Office of the State Bank shall organize propaganda and awareness raising for cadres, civil servants, public employees and workers in the banking sector about green growth and sustainable development in general and the development of green credits, green banks in particular.

i) The Department of Finance and Accounting shall balance and allocate appropriate financial resources to formulate and deploy green bank and green creditoperations.

k) Credit institutions shall proactively formulate strategic frameworks for green banking development to report to the State Bank and carry out tasks according to the roadmap in Section III of this Scheme.

2. Supervision and evaluation of implementation results

a) Evaluation shall be conducted annually.

b) Units under the State Bank and credit institutions shall, according to assigned tasks, send reports on the status of task implementation, recommendations and proposals to send to the focal unit (Banking Strategy Institute) to synthetic; at the same time, send to the Department of Credit for Economic Sectors with tasks similar in content to the tasks in the Governor of the State Bank’s Decision No. 1552/QD-NHNN dated August 6, 2015, on the banking sector’s Action Plan to implement National Green Growth Strategy until 2020. The deadline for submitting reports is December 31 every year.

c) The Banking Strategy Institute shall act as the focal point, synthesize and formulate a comprehensive report evaluating the results of the Scheme's implementation and submits it to the Governor of the State Bank before January 31 every year.

Article 3. This Decree takes effect on the date of its signing.

Article 4. Chief of Office, Director of the Banking Strategy Institute, Heads of units under the State Bank of Vietnam, Directors of State Bank branches in provinces and centrally-run cities, Chairpersons of Boards of Directors, Chairpersons of the Members’ Councils and General Directors (Directors) of credit institutions and foreign bank branches shall implement this Decision./.