35pc FIs invest in polluting industries
Thursday, 8 April 2010
FE Report
Thirty-five per cent of the country's financial institutions have invested in industries that pollute the environment, as they lack mechanism and in-house capacity to check such financing, a study said.
These industries were not only doled out money as loans, the government actually provided them incentives in recognition of their contributions to export and gross domestic product (GDP), it said.
The disclosure came at the unveiling ceremony of the baseline study - Financial Institutions' exposure to environmental risks in lending: Bangladesh perspective - conducted by SouthAsia Enterprise Development Facility (SEDF), an arm of International Finance Corporation (IFC), in the city Wednesday.
Bangladesh Bank Governor Atiur Rahman attended the event as chief guest, while senior officials from state-owned and private commercial banks were also present.
The SEDF-IFC study - which aims at ensuring sustainable energy financing in Bangladesh - said although the country's textile sector was the main thrust sector of all financial institutions (FIs), state-owned commercial banks gave the second highest priority - at least 10 per cent of their loan portfolios - to engineering, paper and pulp sectors.
The private commercial banks also considered sugar and food as their second priority sectors, with each bagging 14 per cent of their total loans.
The same was true in the case of state-owned banks which also gave priority to chemicals and pesticides, the SEDF study said.
The study shows 27 per cent of the country's textile units received the highest percentage of loans disbursed by FIs in 2007, followed by food and sugar with both receiving 13 per cent.
The study found only 12 per cent of the clients of private banks complied with the banks' guidelines regarding environmental risk management before going to production, which was only 6.7 per cent when it comes to state-owned commercial banks.
It noted the FIs have no credit policy to assess the risk involved although certificates from the Department of Environment (DoE) are taken before issuing loans.
It said the FIs have prepared their own credit policy according to the guidelines of Bangladesh Bank. But they do not include any specific guidelines on assessing and mitigating environmental risks while taking lending decisions.
It said Bangladesh Bank published a circular in 1997 asking the FIs not to lend term loans for balancing, modernisation, replacement and expansion of working capital finance to the existing industrial units without certification that the enterprise has in place adequate environment pollution control measures.
There is severe lack of sustainable service providers and in-house capacity within FIs, the study pointed out adding that relevant rules, legal and institutional frameworks for managing environmental risks are practically non-existent.
"Most FIs have not developed any specific sustainable financing lending products or services," it said.
The SEDF-IFC study also found that sales of the clients have soared up to 88 per cent after setting up of effluent treatment plants.
Thirty-five per cent of the country's financial institutions have invested in industries that pollute the environment, as they lack mechanism and in-house capacity to check such financing, a study said.
These industries were not only doled out money as loans, the government actually provided them incentives in recognition of their contributions to export and gross domestic product (GDP), it said.
The disclosure came at the unveiling ceremony of the baseline study - Financial Institutions' exposure to environmental risks in lending: Bangladesh perspective - conducted by SouthAsia Enterprise Development Facility (SEDF), an arm of International Finance Corporation (IFC), in the city Wednesday.
Bangladesh Bank Governor Atiur Rahman attended the event as chief guest, while senior officials from state-owned and private commercial banks were also present.
The SEDF-IFC study - which aims at ensuring sustainable energy financing in Bangladesh - said although the country's textile sector was the main thrust sector of all financial institutions (FIs), state-owned commercial banks gave the second highest priority - at least 10 per cent of their loan portfolios - to engineering, paper and pulp sectors.
The private commercial banks also considered sugar and food as their second priority sectors, with each bagging 14 per cent of their total loans.
The same was true in the case of state-owned banks which also gave priority to chemicals and pesticides, the SEDF study said.
The study shows 27 per cent of the country's textile units received the highest percentage of loans disbursed by FIs in 2007, followed by food and sugar with both receiving 13 per cent.
The study found only 12 per cent of the clients of private banks complied with the banks' guidelines regarding environmental risk management before going to production, which was only 6.7 per cent when it comes to state-owned commercial banks.
It noted the FIs have no credit policy to assess the risk involved although certificates from the Department of Environment (DoE) are taken before issuing loans.
It said the FIs have prepared their own credit policy according to the guidelines of Bangladesh Bank. But they do not include any specific guidelines on assessing and mitigating environmental risks while taking lending decisions.
It said Bangladesh Bank published a circular in 1997 asking the FIs not to lend term loans for balancing, modernisation, replacement and expansion of working capital finance to the existing industrial units without certification that the enterprise has in place adequate environment pollution control measures.
There is severe lack of sustainable service providers and in-house capacity within FIs, the study pointed out adding that relevant rules, legal and institutional frameworks for managing environmental risks are practically non-existent.
"Most FIs have not developed any specific sustainable financing lending products or services," it said.
The SEDF-IFC study also found that sales of the clients have soared up to 88 per cent after setting up of effluent treatment plants.