IFC, a member of the World Bank Group, is providing a financing package of $212.5 million to Vietnam Prosperity Joint Stock Commercial Bank (VPBank). The funding will help it expand its lending to small and medium enterprises (SMEs) and boost financing especially for climate-friendly projects.
The five-year tenor loan comprises $50 million from IFC’s own account, $37.5 million from the multi-investor Managed Co-Lending Portfolio Program (MCPP) managed by IFC, and $125 million in syndicated loans from the Chinese Bank of Communications Company Limited; Industrial and Commercial Bank of China Limited; Korean KEB Hana Bank; Thai Kiatnakin Bank Public Company Limited; German DEG — Deutsche Investitions- und Entwicklungesellschaft mbH and multilateral International Investment Bank.
This is IFC’s first green loan to a bank in Vietnam, where most of the near-term multimillion-dollar climate investment potential is in renewables and infrastructure. The loan will qualify as per the Green Loan Principles — a widely accepted set of voluntary guidelines that specify the use of proceeds, monitoring, and reporting.
VPBank will also establish a management system to track, manage, and report on the use of proceeds of a loan for dedicated green projects through third party verification.
Concerning greenhouse-gas emissions, Vietnam’s is one of the most carbon intensive countries in the world, ranking only after China and Mongolia in the East Asia and Pacific region.
While reducing greenhouse-gas emissions has been a national target to mitigate climate change impact, it presents a $753 billion climate investment opportunity for Vietnam between 2016 and 2030, according to an IFC study.
However, the current share of climate financing - as a percentage of total bank financing - in Vietnam is just about five percent or $10.3 billion, indicating a significant climate finance gap.
Against this backdrop, about one third of the financing package will be earmarked for climate-friendly projects, creating new options for businesses to obtain green financing at a favorable interest rate.
“Our loan to VPBank addresses IFC´s strategic objective of increasing financing for climate-smart initiatives to boost environmentally sustainable development in emerging markets with high potential of greenhouse gas emissions reduction such as Vietnam,” said Rosy Khanna, IFC Financial Institutions Group Director for Asia Pacific.
Participation of regional and international lenders in this financing package shows the high interest of institutional and private investors in climate finance in Vietnam, facilitating a new source of capital while helping the country tackle climate change at the same time.
“Strengthening the green lending market is crucial to help Vietnam shift to a low-carbon growth model and to mitigate the adverse impacts of climate change,” said Kyle Kelhofer, Country Manager for Vietnam, Cambodia, and Lao PDR.
IFC’s support will help VPBank become the first financial institution in Vietnam to adopt an international comprehensive standard in green lending, sending a positive signal to the market as well as to international investors.
IFC has been actively facilitating the development of a climate finance market in Vietnam by supporting regulators to develop sustainable finance policies and tools to promote responsible lending practices in the banking sector, implementing a green buildings program, and financing renewables projects.