Fifth, lack of coordination and support from stakeholders
72% | ||||
55% | ||||
|
Lack of senior management support in Lack of coordination among bank stakeholders | ||||
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Source: Compiled from survey results
Senior management support is important when doing business according to a sustainable model. Short-term, medium-term and long-term sustainable development strategies must be integrated into the bank's operational practices, serving as the basis for credit, investment and capital mobilization decisions at all levels of the bank. According to the survey results, the lack of support from senior management in the bank is one of the barriers when implementing a sustainable model.
Customers are important stakeholders of banks, when customers operate according to a sustainable model, it will be much more convenient for banks in making credit decisions and monitoring customer activities. However, Vietnamese enterprises are mainly small and medium enterprises, with limited financial capacity, so many corporate customers do not have an ESMS management framework, and the cost of applying E&S impact mitigation measures is often quite high. Therefore, customers who are project investors often seek ways to cut and limit these costs in implementing business projects. Meanwhile, communication activities, impact assessment inspections by specialized agencies, E&S management as well as sanctions... still have many limitations. This is a gap that makes compliance with E&S assessment not really concerned. Enterprises wishing to access loans from banks for projects sensitive to E&S factors will also have to accept higher capital costs and operating costs due to the application of solutions to limit
impact on E&S, thus reducing the profitability of the project, while the mechanism to support projects to minimize negative impacts on the environment and society has not been widely implemented, but mainly through funds in cooperation programs and funding from governments of developed countries for Vietnam.
In Indonesia, the Ministry of Environment will assess, classify and monitor companies for compliance with the country’s environmental regulations and standards. This classification will make it easier and more convenient for banks to make credit decisions and monitor customers’ compliance with E&S issues, helping banks reduce management costs and reduce environmental and social risks.
Lack of participation and close connection between bank stakeholders is one of the major barriers to the transition to a sustainable business model at Vietnamese commercial banks.
Sixth, international standards on sustainability have not been widely applied in Vietnamese enterprises.
International standards on sustainability such as: IFC's sustainability performance standards, Equator principles (EPs), United Nations Global Financial Initiative (UNEP-FI), Global Alliance for Banking Values (GABV) banking sustainability principles, International Organization for Standardization (ISO14001, ISO26000)... are considered the gold standards in assessing the sustainability of an organization, in which IFC's standards and EPs are widely applied by credit institutions. Although built by different organizations, these standards all focus on core values of sustainability such as economic, environmental and community efficiency.
36% of the respondents said that their bank has applied international standards to develop an environmental and social risk management policy in its business operations to manage, measure and evaluate E&S risks in its internal operations, lending and investment. 55% of the bank managers said that their bank does not apply any international standards on sustainability. Compliance with international standards on sustainability allows commercial banks to manage E&S risks fully, transparently and comprehensively, including assessing E&S risks and potential risks affecting the environment, mitigation options, and measures to reduce environmental impacts.
control social issues including human rights, labor, anti-corruption...
64.00%
36.00%
Yes, it applies.
Not applicable
Compliance with international standards on commercial bank sustainability
Source: Compiled from survey results In the context of the commercial banking system making efforts to restructure to improve the stability, health and efficiency of the entire system, compliance with international standards and global initiatives on sustainability can lead to a reduction in the competitiveness of banks. Customers may look for banks that require fewer environmental quality control procedures, minimizing negative impacts on the community due to the high cost of mitigating E&S impacts. Therefore, customers often look for banks with quick and simple procedures, do not require full E&S risk assessment options, and measures to overcome these risks. This is also the reason why banks assess the level of competition between traditional business methods and sustainable implementation as one of the two biggest challenges when implementing development.
sustainable development
Seventh, the effectiveness of implementing environmental and social policies is not yet effective.
High
Vietnam has built many environmental protection policies but
The effectiveness of the enforcement of legal regulations is still limited. Many projects that have a major impact on the environment are still approved for environmental impact, many projects that do not meet the required environmental standards are still allowed to operate and are approved to implement the project and even expand the scale of production. For example, projects in industrial parks have very poor wastewater treatment systems, some places only
reached 15 - 20%, such as: Ba Ria - Vung Tau Province, Vinh Phuc, Thach Khe Iron Mine Project (Ha Tinh) approved in 2008, Vinh Tan 2 Thermal Power Project, Formosa Factory (Ha Tinh)... have seriously affected the environment and caused damage to the local community where the project is implemented.
CONCLUSION OF CHAPTER 2
In chapter 2, the thesis analyzed the current situation and evaluated the sustainable development of the Vietnamese commercial banking system in the period of 2008-2017. The sustainability of the commercial banking system was assessed according to groups of criteria reflecting economic, social and environmental sustainability, which are the core values of sustainability and are integrated through banking products and services. The thesis conducted an empirical test of the relationship between credit risk factors and profitability, resulting in the ratio of bad debt to outstanding debt and the ratio of debt with the potential for capital loss negatively affecting the profitability of the commercial banking system.
The research results show that the financial capacity of the commercial banking system has improved significantly since 2011, the quality of assets, income and liquidity of the banking system has improved significantly, the operations of the bank are more stable and healthy. Vietnamese commercial banks have performed very well in social aspects such as: income policies, rewards, training and development and policies to encourage employees, invest heavily in social security, sponsor educational activities, healthcare, infrastructure construction, volunteer and charity activities... In terms of environment, some commercial banks have good environmental management policies, build environmental and social risk assessment systems to evaluate and classify loan customers. However, up to now, no commercial bank has developed according to the sustainable banking model and has not provided a variety of sustainable products. Limitations in capital potential, human resources for E&S risk assessment, and effective implementation of environmental regulations are barriers to the sustainable development of the commercial banking system.
CHAPTER 3: SUSTAINABLE DEVELOPMENT SOLUTIONS FOR VIETNAM COMMERCIAL BANKS IN THE PERIOD 2019-2025
3.1 OPPORTUNITIES AND CHALLENGES FOR SUSTAINABLE DEVELOPMENT OF VIETNAM'S COMMERCIAL BANKING SYSTEM IN THE INTEGRATION TREND
3.1.1 Trends in sustainable development of the commercial banking system
Sustainable finance is a global trend that major banks and financial institutions around the world are implementing. In 2003, the Equator Principles on a framework for assessing risks of social and environmental factors of financial projects were adopted by financial institutions. As of January 2018, 92 financial institutions in 37 countries have officially adopted this Principle (Pham Hong Hanh and Nguyen Thi Thuy Hang, 2018). Many large financial groups and banks follow this Principle such as Grupo Santander, Calvert Group, HSBC, Storebrand, UniCredit, Nationaal Groenfonds, Rabo Groen Bank, and Triodos Groenfonds, etc.
The first ASEAN-EU Dialogue on Sustainable Development was held, building on the outcomes of the 21st ASEAN-EU Ministerial Meeting to build a platform to promote cooperation in the effective implementation of the United Nations 2030 Agenda for Sustainable Development (SDGs) and the Paris Agreement on Climate Change. Sustainable development, narrowing the development gap, through the implementation of the Sustainable Development Goals, continues to be a priority focus of both ASEAN and the EU. ASEAN's initiative on enhancing complementarities between the ASEAN Vision 2025 and the SDGs, the ASEAN Integration Initiative, and the Master Plan on ASEAN Connectivity are recognized as important tools for the implementation of the SDGs. Delegates also acknowledged the great potential for bilateral and multilateral cooperation between ASEAN and the EU on global issues of sustainable development, in which the EU has significantly increased its contribution to the Development Cooperation Fund to 170 million Euros for the 2014-2020 period to support ASEAN integration activities, in addition to financial support of more than 2 billion Euros through bilateral channels during the same period.
Sustainable development plays an important role on the national agenda of policymakers in ASEAN countries, with common themes and distinct roles specific to the financial sector. All six ASEAN countries, namely Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, have taken up the issue of responding to
climate change and the Sustainable Development Goals (SDGs) on the national policy agenda, as well as the development of green growth strategies. Financial institutions are identified as playing a key role in financing green technologies, promoting green sectors, and developing sustainable products in line with the SDGs. In Malaysia and Thailand, the role of the financial sector in achieving sustainability goals has been formally recognized in national development plans. (Pham Hong Hanh and Nguyen Thi Thuy Hang, 2018).
The Global Progress Report on Reforms to Sustainable Finance published by the Sustainable Banking Network (SBN) in early 2018 showed that developing countries have become key drivers of development and climate change response. Currently, 34 SBN member countries, with total commercial bank assets of 42.6 trillion USD, accounting for 85% of total banking assets in emerging markets, have proposed and implemented banking sector reforms to promote sustainable finance. Vietnam, along with seven other countries, namely Bangladesh, Brazil, China, Colombia, Indonesia, Mongolia and Nigeria, are assessed to be among the countries that have actively implemented large-scale reforms, issued fundamental policies and regulations to enhance sustainable finance and have a mechanism to measure the results achieved (SBN, 2018). These reforms require banks to assess and report environmental and social risks in their lending activities and offer incentives to encourage lending to green projects.
3.1.2 Orientation for sustainable development of Vietnamese commercial banks to 2025
In recent years, the Vietnamese Government has made great efforts in reforming and promulgating policies to promote sustainable finance, including the Law on Environmental Protection Tax (2010), tax incentives for green enterprises, green fees and green procurement, and the Green Growth Strategy Action Plan for the Financial System by MoF (2015). Directive 03 of 2015 aims to promote green credit growth and implement E&S management in credit granting activities, including training programs on E&S lists for specific sectors, providing specific guidance for banks in managing E&S risks in 10 high-risk sectors. Decision No. 403 QD-TTg indicates that credit granting activities of the banking sector need to focus on environmental protection, improving resource efficiency,
energy; improve environmental quality and protect human health, ensuring sustainable development. Review, adjust and perfect credit institutions to suit green growth goals; focus resources on providing credit for projects and production and business plans that are friendly to the environment and society, contributing to supporting businesses, thereby achieving green growth and sustainable development goals.
The project to restructure credit institutions associated with bad debt settlement in the 2016-2020 period and Resolution 42 of the National Assembly on piloting bad debt settlement of credit institutions create conditions for the banking system to handle bad debt synchronously and effectively. Bad debt of the banking system is controlled and maintained below 3%, ensuring the safe and healthy operation of credit institutions.
Decision No. 76/2016/QD-TTg dated January 11, 2016 approving the national action program on sustainable production and consumption until 2020, with a vision to 2030. The general goal is to gradually change the production and consumption model towards improving the efficiency of using resources and energy; increasing the use of raw materials, renewable energy, and environmentally friendly products; minimizing, reusing, and recycling waste; maintaining the sustainability of the ecosystem at all stages of the product life cycle from exploitation, supply of raw materials to production, processing, distribution, consumption, and disposal of products. The national action program on sustainable production and consumption has set out key tasks and specific solutions to achieve sustainable development goals with a vision to 2030.
In 2018, the State Bank of Vietnam issued Decision No. 1604/QD-NHNN approving the project to develop Green Banking in Vietnam with an implementation roadmap of 2 phases: phase 1 (2018-2020), phase 2 (2021-2025), building a strategic framework on the green banking model with 5 levels from low to high, the highest level of the bank will have proactive ecological balance initiatives. The project clearly states the target of striving for 2025 is that 100% of banks will develop internal regulations on environmental and social risk management in credit granting activities; 100% of banks will conduct environmental and social risk assessment in credit granting activities; Apply environmental standards to projects funded by banks; Combine
environmental risk assessment as part of the bank's credit risk assessment. At least 10-12 banks have a specialized unit/department on environmental and social risk management; 60% of banks have access to green capital and deploy lending for green credit projects. The project also identifies solutions to achieve the goal of developing green banking in Vietnam.
The project also proposes solutions for developing green banking in Vietnam. In particular, the group of solutions for the State Bank is first of all to develop and issue guidelines to orient the development of green banking for credit institutions. Issue guidelines on green banking and green credit activities, which clearly state the definition of green credit and green banking activities; criteria for evaluating green banks, including: System of internal regulations on social and environmental risk management; Organizational model to implement environmental and social risk management activities in the credit granting process; Proportion of credit capital for green sectors and fields that need priority support in the list of green projects issued by the State Bank; Quality of training, propaganda and dissemination to raise awareness and capacity of bank staff in general and credit staff in particular in sustainable development, green credit and green banking.
At the same time, the State Bank issued guidelines for preparing reports on green banking, detailing reporting criteria and requirements to ensure the following contents: Governance and organizational structure, policy system and financial capacity, process management, internal control and information disclosure; Continue to research and complete the Handbook on environmental and social risk assessment for the remaining 11 economic sectors out of a total of 21 sectors that do not have guidelines in credit granting activities of credit institutions; Periodically update the Green Project Catalog.
In addition, the Project also clearly states solutions to develop and promulgate preferential policies and support mechanisms for credit institutions to encourage the development of green banking, such as considering prioritizing capital sources for green credit development through refinancing/rediscounting policies on the basis of ensuring the principle of not affecting the management of monetary policy and inflation targets in each period; Considering 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.
In 2019, the State Bank issued Decision No. 34/QD-NHNN on promulgating