Green banking gaining ground

Green banking, also termed sustainable financing, is gaining ground in the country's banking sector as entrepreneurs are leaning towards the banking model crafted for eco-friendly financing to foster growth of green initiatives.

More than 68% of the Tk26,973 crore green loans disbursed so far was released in the past two years alone – indicating increased popularity of green financing.

Non-performing loan (NPL) under the sustainable financing programme stands at just 0.2%, while NPL for other loans is 8-9%.

Khondkar Morshed Millat, general manager of the central bank's Sustainable Finance Department, said, "We were able to keep the NPL ratio low as we maintain strict monitoring after the loan disbursement."

In 2021, scheduled banks disbursed Tk6,885 crore green loans and the disbursement in 2020 was Tk11,507 crore.

Twenty of the 61 local and foreign banks operating in the country have performed well against their green loan disbursement targets, which is 5% of all term loans.

The central bank outlined the green banking policy in 2011 and later categorised it under the Sustainable Finance Policy in 2020.

In 2021, Citibank NA achieved 100% of their green loan target ahead of another foreign bank The State Bank of India that met 71.80% of the target.

Islami Bank was third on the list of meeting yearly target at 14.33% followed by Community Bank 9.70%, NRB Bank 9.10%, Basic Bank 7.42%, South East Bank 7.18%, Bank Asia 6.81%, IFIC Bank 6.56%, Standard Chartered Bank 5.78%, Modhumoti Bank 5.23% and Rupali Bank 5.12%.

Among the NBFIs, Bangladesh Infrastructure Finance Fund topped the list with 32.96% followed by Infrastructure Development Company 16.30%, CVC Finance 15.22%, Agrani SME Financing Company 7.66%, IDLC Finance 6.43% and Prime Finance & Investment 5.69%.

A senior official of the central bank told The Business Standard it is difficult for the NBFIs to meet the yearly disbursement target and they will need to improve gradually.

Md Arfan Ali, president and managing director at the Bank Asia, one of the top ten green loan providers, said, "While making any decisions on credit, we keep green financing in mind as we know that the future is green and it is wise to start preparing beforehand." 

He added that they often need to convince potential borrowers to take green loans.

According to the Bangladesh Bank's Sustainable Finance Policy, banks can disburse loans against a total of 68 products under 11 categories and most of these products fall within green financing criteria.

In 2021, banks disbursed Tk3644 crore for construction of green industry, green building, fire defence system, disaster defence and prevention system and workers' health safety system.

Second highest Tk1321 crore went to projects including LED Bulb/Tube Manufacturing or Assembly Plant, Improved Rice Parboiling System and Energy Efficient Cook Stove Assembly Plant.

Tk541 crore went for Plastic, Paper, Battery Waste Recycling Plant and Recyclable Bag Manufacturing Plant constructions.

Projects including Biological, Chemical and Central ETP, Waste and Sewage Water Treatment Plant received Tk420 crore loans while Tk391 crore was granted for projects like Solar Home System, Pico Grid, Solar Micro Grid or Solar Irrigation Pumping System developments.

Besides, Tk267 crore for Environment Friendly Brick Production project; Tk201 crore for projects like Green/Clean transportation, expansion of green coastal belt, water purification, water blockage mitigation, soil and water salinity mitigation or river erosion prevention; Tk163 crore for Green Cottage Industry construction; Tk39 crore for Solid Waste Management and Tk19 crore for Green Agriculture.

The NBFIs disbursed Tk122 crore for the construction of Green Cottage Industry, Tk75 crore for Green/Environment Friendly Establishment and Tk58 crore for Energy & Resource efficiency initiatives.

According to Bangladesh Bank data, the banks have also improved significantly on In-house Environment Management indexes, which is key to offering green banking services. 

Number of solar powered ATM booths have increased to 138 in 2021 from 31 in 2020 and the number of solar powered branches increased to 792 from 612 in one year.

Bangladesh Bank has envisioned a target of reaching 50% green loans by the year 2050, said officials. 

However, senior officials of some scheduled banks said to further popularise green loans the central banks must consider lowering the lending rate.