BSP looking to create credit facility to boost green loans
By Luz Wendy T. Noble, Reporter
THE CENTRAL BANK is looking to set up a separate credit facility that will encourage lenders to provide sustainable financing.
“The Bangko Sentral ng Pilipinas (BSP) is exploring regulatory incentives which may include the use of preferential rediscount rates or provision of higher loan values. This may be implemented through enhancements in the existing rediscounting facility and/or creation of a new credit facility for banks that lend to priority green sectors,” the central bank said in an e-mail.
In November, the central bank launched the second phase of its sustainable finance framework. Its focus was directing banks to monitor environmental and social risks in their credit exposures and business operations.
The BSP said they are still assessing potential regulatory incentives for green financing.
“We are carefully considering the potential incentives so as not to create any unintended consequences. Nevertheless, we are hoping that this initiative will spur a change in the behavior among our supervised banks to mobilize funds towards green and sustainable activities and investments,” the BSP said.
The Bankers Association of the Philippines (BAP) welcomed the central bank’s move to explore regulatory incentives that could help boost lending for green projects, noting local banks have issued more than $1.15 billion of green, social, and sustainability bonds since 2017.
“The BAP will continue to collaborate with the BSP and Congress to pursue a clear regulatory framework to mainstream sustainable finance in the Philippine financial system. This will ensure that we and future generations of Filipinos, will benefit from the initiatives we have today,” the BAP said in a Viber message.
Meanwhile, Chamber of Thrift Banks Executive Director Suzanne I. Felix said they are actively collaborating with the central bank on a training program that will help banks in the implementation of the sustainable finance framework.
The framework was released in 2020, with banks given a three-year transition period to adopt sustainability principles through environmental and social risk management systems, as well as in their governance frameworks, strategies and operations.
“Creating a more sustainable future should be everyone’s responsibility, and the financial sector holds enormous power in funding and bringing awareness to issues of sustainability,” Ms. Felix said in an e-mail.
Smaller banks are still navigating how to implement the sustainable framework as their borrowers are mostly small businesses and “backyard industries” that do not particularly focus on green practices for business operations, Rural Bankers Association of the Philippines President Albert T. Concha, Jr. said.
“Rural banks are caught between a rock and a hard place in having to choose between implementing the mandate of sustainability under threat of penalty or to lose a client borrower. The cost of having sustainable practices is deemed high, and these incentives, if given to rural banks will trickle down to borrowers to cushion the expense of compliance,” Mr. Concha said in a Viber message.
He said apart from the potential regulatory incentives floated by the central bank, a separate valuation and classification for loans that are classified under the green sector should also be considered.
“Rural banks might shy away from lending sustainable loans such as renewable projects as it may be considered riskier to undertake due to higher capital requirement and its dependency on weather conditions and exposure to calamities,” Mr. Concha said.
