Banks urged to enhance risk, environmental management

Banks in Viet Nam have not focused on handling environmental and social risks, though 75 per cent of banks affirmed that if the issue is given importance, risks could be avoided.

Simon Andrews, International Finance Corporation (IFC) Regional Manager for Viet Nam, Laos, Cambodia and Thailand, made the statement at the banker conference held in Ha Noi last Saturday.

"Most of the banks were not aware of the direct connection between environmental and social risks management and their financial and banking activities".

Le Van Be, senior advisor at Institute of Manpower, Banking and Finance, noted that the environmental and social risks management is not a new issue. However, banks' assessment on investment into projects, especially hydropower plants, should include factors such as humans, social security and environment around.

"Issues emerging from environment, society from production activities could make businesses suffer losses relating to finance, legal responsibilities as well as being affected in terms of prestige and trademark in the market," Be stated.

Cat Quang Duong, deputy head of the State Bank of Viet Nam's Credit Policy Department, agreed, adding that most of the country's banks have not had official policies, regulations and systems relating to environmental and social risks management or less investments on such systems.

Duong noted that some banks admitted that lending to businesses that violate regulations on environment and society had high risks. However, most of the banks were not aware of the direct connection between environmental and social risks management and their financial and banking activities.

"The problem has resulted in several banks facing with negative effects such as legal disputes and reducing prestige. The challenge has put pressure on the banking sector to ensure sufficient capital for the economy while maintaining sustainable development," he added.

He pointed out that several credit institutions in developed and developing countries have become aware of the importance of environmental and social risks management after the world financial crisis.

The banks have considered sustainable development as a competitive advantage, a chance for growth and a vital part in risks management.

A report from IFC revealed that nearly 80 banks and credit institutions in developed and developing countries have joined the Equator Principles, which is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.

The central bank and IFC have researched to promulgate a guideline and tool kit to assess environmental and social risks for commercial banks to apply.

The kit was expected to promulgate in June with an aim of making it compulsory in a decree applied for banks and credit institutions.

Duong stated that the SBV in cooperation with IFC will build a criteria kit to assess environmental and social risks on 5 – 10 specific sectors.

The decree was expected to create an equal playground for all credit institutions in Viet Nam