The International Finance Corporation (IFC) is providing a US$100 million long-term loan to Orient Commercial Joint Stock Bank (OCB) of Vietnam to help expand lending to small and medium enterprises (SMEs) and boost financing, especially for climate-friendly projects in the country. This is designed to facilitate greater private sector contribution to a green and sustainable growth in Vietnam.
The IFC loan, announced on July 8, will help OCB improve its outreach to SMEs in Vietnam, which are facing a financing gap of US$21 billion, equivalent to 11.2% of the country's GDP. With IFC's support, OCB expects to double its SME lending portfolio by 2024 by leveraging its digital banking platform and developing products that cater to the sector's requirements.
Some of the emerging areas that SMEs are seeking financing for include renewable energy, energy efficiency and climate-smart solutions, which can help them grow sustainably while contributing to reducing greenhouse-gas (GHG) emissions. The current share of climate financing – as a percentage of total bank financing – in Vietnam is just about 5% or US$10.3 billion and is expected to increase significantly in the coming years. As the country aims to reduce GHG emissions by 9% by 2030 to mitigate climate change impact, this presents a US$753 billion climate-smart investment opportunity for Vietnam between 2016 and 2030, according to an IFC study.
To help OCB tap into this huge lending potential, US$50 million – or half of the IFC funding – will be earmarked for climate-friendly projects, creating new options for businesses to obtain green financing.
Commenting on the IFC lending, OCB general director Nguyen Dinh Tung notes that OCB is one of the first banks in Vietnam to integrate environmental and social risks assessment into its credit granting procedure. “While we have been implementing green finance since 2015, our priority areas include high-tech agriculture, renewable energy and climate-friendly projects, among others,” he says. “IFC's funding will allow OCB to contribute to the country's climate goals while further offering preferential green financing for smaller businesses and promoting energy efficiency, improved health for consumers and sustainable growth.”
IFC country manager for Vietnam, Cambodia and Lao People’s Democratic Republic Kyle Kelhofer says that by supporting commercial banks in Vietnam to establish a viable climate-finance portfolio, IFC is facilitating the development of a climate-finance market, attracting international lenders and further supporting Vietnam's shift to a low-carbon and resilient growth model. “IFC sees banks as a major force in fighting climate change in emerging markets such as Vietnam since they can strategically expand financing for climate-smart initiatives," he points out.
While the State Bank of Vietnam (SBV) has been promoting green banking over the past few years, the climate-finance market is still at its nascent stage and banks are now considering a systematic approach towards climate finance. IFC says its investment in OCB is part of its ongoing efforts to promote sustainability and responsible financing in the country's banking sector. With IFC's support, SBV has issued guidelines for credit institutions to incorporate environmental and social risk evaluation into their transactions and increase green lending.