Consequently, green credit is becoming increasingly vital. However, despite the importance of this financing avenue, both businesses and banks still face substantial challenges in tapping into green credit opportunities.
Challenges for Both Enterprises and Banks
The current scale of green credit in Vietnam remains modest. One of the main reasons behind this is the difficulty businesses—especially small and medium-sized enterprises (SMEs)—encounter when trying to access green financing.
Several factors contribute to this issue. First, many businesses lack a clear understanding of green credit and the benefits it can offer. There is limited information available on green credit products, criteria, and the procedures involved, leaving companies unsure of how to navigate these options. Moreover, businesses often struggle to find reliable, comprehensive information about the necessary requirements for green projects and how to meet them.
In addition to this knowledge gap, the procedural complexity associated with securing green loans also acts as a significant barrier. The process for obtaining green credit can be more intricate than traditional loans, often involving multiple steps of due diligence and extensive documentation. SMEs, in particular, may lack the resources or manpower needed to complete these procedures, leading to delays and higher costs.
Another hurdle comes from the lack of a clear regulatory framework. Vietnam currently lacks a solid legal foundation for green projects, including definitions of what constitutes a "green" project and a standardized green taxonomy. This makes it difficult for businesses to prove their green credentials to banks, which leads to complications during the evaluation process. Without clear criteria, assessing the potential and risks of green projects becomes a challenge for both banks and enterprises.
On the side of financial institutions, several limitations also exist. Green projects are often perceived as high-risk investments, making it difficult for banks to evaluate the potential social and financial returns, as well as the need for collateral. As a result, banks tend to offer loans under stricter conditions, such as higher interest rates to offset the perceived risks. However, for green projects to succeed in the long term, the loans need to come with favorable interest rates and incentives.
From the banks’ perspective, there is a real concern about the financial risks involved in funding green projects. Green initiatives usually require significant upfront investment and often have longer payback periods compared to conventional projects. If businesses fail to generate sufficient cash flow to repay the loan in the early stages, banks could face the risk of capital losses.
Banks also face market risks. The market for green products and services is still in its developmental stage, and demand remains uncertain. Fluctuations in market demand and pricing can impact the profitability of green projects. If the market fails to accept green products, businesses may struggle to stay afloat, creating a further risk for the banks that finance them.
Lastly, the lack of clear standards and the difficulty in gathering necessary information makes it even more challenging for banks to make lending decisions on green projects.
Bridging the Gap: Cooperation Between Banks and Businesses
Unlocking the potential of green credit requires concerted efforts from both enterprises and banks. To overcome these barriers, businesses must first enhance their understanding of green credit. They should proactively seek out information on green financing programs, criteria, and benefits, as well as participate in networks and forums focused on green credit. By connecting with other businesses, organizations, and experts in the field, companies can learn from shared experiences and gain access to valuable information that will help them better navigate the green credit landscape.
On the banking side, strategic actions are needed to facilitate green financing. Banks should work with international organizations to analyze the current landscape of their customers, the green sectors in need of loans, and the specific requirements of businesses. This will help them develop a green finance strategy that aligns with customer needs and global standards.
Banks must also establish a clear green finance framework by referencing international regulations and best practices. This framework should include specific criteria to assess the feasibility and environmental impact of green projects seeking loans. By creating standardized guidelines, banks can simplify the evaluation process and make it easier for businesses to access green credit.
Furthermore, banks should develop tailored loan packages for environmentally friendly projects, such as renewable energy, water management, and clean technologies. These packages should be designed not only for existing customers but also for future potential clients who aim to implement green solutions. In addition to financial products, banks should consider piloting non-financial services like ESG (Environmental, Social, and Governance) advisory programs for customers. This would help banks better understand the specific needs of their clients and develop customized products accordingly.
Of course, while businesses and banks must take the lead, support from the government and central banks is crucial in facilitating green credit. The State Bank of Vietnam (SBV) can play a pivotal role by actively promoting green financing programs. This could be done by offering incentives and rewards to banks that engage in green lending, ensuring that green credit policies align with the operational realities of financial institutions. For example, SBV could create favorable loan terms for green projects and implement policies that reduce risks for banks, such as loan guarantees or interest subsidies for green investments.
In Vietnam's journey toward a more sustainable and environmentally conscious economy, green credit is a vital tool. However, both enterprises and banks face significant challenges in accessing and providing green financing. For businesses, the obstacles stem from a lack of understanding, procedural complexities, and regulatory ambiguity. For banks, the risks associated with financing green projects, as well as market uncertainty, pose considerable barriers.
To unlock the full potential of green credit, both sides must take proactive steps. Businesses need to become more informed and engaged in the green finance landscape, while banks should develop strategic frameworks and products tailored to green investments. With additional support from the government and central banks, these efforts can come together to create a more robust and accessible green credit ecosystem, ultimately driving Vietnam’s sustainable development goals forward.
