Loans to environment-friendly industries by banks dropped in the January-March quarter of 2023, while a rise was observed in such loans by financial institutions (FIs), according to the latest report of the Bangladesh Bank.
In Bangladesh, there are two types of environment-friendly financing: green finance and sustainable finance.
Both banks and financial institutions extend loans for ventures related to renewable energy, alternative energy, solid waste management, socially responsible initiatives and sustainable agriculture.
According to a report released on Thursday by the Bangladesh Bank, banks' investments in green financing plummeted by over 31 per cent to Tk 27,759 million during the January-March quarter of 2023, in comparison to the preceding quarter ending in December 2022.
Concurrently, sustainable finance provided by banks experienced an 11.5 per cent drop, amounting to Tk 353,879 million in the review period.
Contrastingly, green financing by financial institutions showed a robust increase of nearly 34 per cent, totalling Tk 8,390 million during the review period.
Likewise, sustainable finance extended by these institutions rose by over 17 per cent, reaching Tk 13,069 million, data showed.
People familiar with the development told The Financial Express that a reduced number of green projects may be contributing to the decline in financing during the quarter.
Besides, they noted that the private sector's overall investment has witnessed a recent deceleration, impacting its growth trajectory.
"I don't find any big reason; in one quarter it may increase, and in another quarter it may decrease," said Selim RF Hussain, the managing director and CEO of BRAC Bank.
Syed Mahbubur Rahman, the managing director and CEO of Mutual Trust Bank, told the FE, "The private investment is currently slowing down; it might be another contributing factor."
He added that a few more quarters must pass before the main reasons can be specified.
Mosleh Uddin Ahmed, the managing director of Shahjalal Islami Bank, told the FE that green and sustainable financing constitute subsidiary elements of primary financing.
"If the credit growth, which forms the core funding, is nearly stagnant, how can the subsidiary elements thrive?" he questioned.
To broaden the spectrum for financing eco-friendly ventures such as solar energy and effluent treatment plants, the Bangladesh Bank (BB) formed a revolving refinance scheme of Tk 2.0 billion (200 crores) from its own resources in 2009, encompassing solar energy, bio-gas and effluent treatment plant (ETP) initiatives.
In the meantime, the size of the fund has been increased from Tk 2.0 billion to Tk 4.0 billion in view of the growing demand for financing for environment-friendly products and initiatives.
In the review quarter, 19 banks out of 62, and 8 financial institutions out of 34, exceeded the target for green finance (5.0 per cent) concerning total term loan disbursement.
In the same period, 15 banks and 10 financial institutions achieved their target (20 per cent) for sustainable finance concerning overall loan disbursement.
Among private commercial banks, the attainment rate for green financing as a portion of total term loan funding stood at 4.8 per cent. However, specialised banks and state-owned commercial banks lagged significantly, registering below 1.0 per cent (0.16 per cent) and just above 1.0 per cent, respectively.
Foreign commercial banks recorded 1.3 per cent of loans as green financing out of their total term loans, the report said.
jasimharoon@yahoo.com
