Bank plans to add conditions and credit appraisal process

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The State Bank of Vietnam (SBV) has just published a draft Circular guiding the implementation of environmental risk management in credit granting activities of credit institutions and foreign bank branches.

Accordingly, the draft Circular provides for the autonomy of credit institutions when managing environmental risks in credit granting activities, such as in the assessment and use of the results of environmental risk assessment of investment projects to implement environmental risk management in credit institutions’ credit issuance activities; autonomy in the collection and use of information about environmental risks. The bank has the right to refuse credit to customers whose investment projects violate the provisions of the law on environmental protection; not to be granted credit for projects or production and business plans that are strictly prohibited in environmental protection activities in accordance with the Law on Environmental Protection.

The draft also sets out four principles of environmental risk management in credit granting activities.

Firstly, credit institutions develop an independent or integrated process in the current credit granting process, but ensure the separation of responsibilities with the lending decision stage in accordance with the provisions of the law on lending.

Second, credit institutions manage environmental risks according to the credit institutions’ internal processes.

Third, the results of the environmental risk assessment of the credit facility are the basis for the credit institution to rate the customer’s credit, determine the interest rate, credit extension costs and appropriate credit granting conditions.

Fourthly, credit institutions shall classify, make provision for risks and handle risks for credits that are managed by environmental risks in accordance with current regulations of the State Bank.

The State Bank of Vietnam has drafted a Circular guiding the implementation of environmental risk management in credit extension activities of credit institutions and foreign bank branches. Photo: SBV.

Regarding environmental policies, credit institutions develop and publish their own environmental policies, which include commitments to managing environmental risks in credit granting activities. The credit institution’s environmental policy must be approved by the credit institution’s board of directors or members’ council or executive board.

Credit institutions shall manage environmental risks in credit extension activities, except for forms of credit extension, loans to meet capital demand such as credits in the form of discounts; factoring; Bank guarantee; lending through credit card issuance; loans to meet capital needs for living needs, consumer loans of consumer finance companies; loans for investment projects and business plans in the fields of commerce, services, and goods circulation that do not emit waste and emissions as prescribed in the Law on Environmental Protection; investments, purchase of fixed assets to serve the management of borrowers; credit extension for investment projects and production facilities in Group IV – without the risk of adverse impacts on the environment as prescribed in the Law on Environmental Protection.

Regulations on information for environmental risk management in credit granting activities, including the project’s environmental profile; environmental information of output products, goods and services of borrowers; actual survey information and information from competent authorities on the operation of investment projects, production and business plans of customers related to the implementation of regulations on environmental protection; Report on the borrower’s compliance with regulations on environmental protection (if any); information on environmental risks of customers at other credit institutions (if any); other information related to environmental protection activities.

Based on environmental criteria, classification of investment projects and production facilities according to the level of environmental impact in Article 28 and Clause 2, Article 39 of the Law on Environmental Protection and risk appetite of credit institutions to classify the level of environmental risk of the credit grant according to the following levels: Requests for credit issuance and credit levels with environmental risks in low credit issuance activities; Requests for grant of credit and credit levels with environmental risks in medium credit issuance activities; Requests for credit and credit levels with environmental risks in high credit grant activities.

Credit institutions develop criteria, tools to classify and ensure requirements for investment projects, production and business establishments in Group I – the group with high risk of adverse impacts on the environment. credit institutions are not allowed to assess and classify environmental risks in credit granting activities at a low level.

It is expected that this Circular will take effect on January 1, 2022 along with the time of implementation of the Law on Environmental Protection.

Source: ndh.vn – Translated by fintel.vn