Sustainable Finance Investment in Bangladesh Grows 87% YoY

Published on: 26 September 2022
by KnowESG
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According to a central bank report, the banking sector is one of the key funding sources for industrial projects such as steel, paper, cement, chemicals, fertilisers, power, textiles, and so on, which emit the most carbon.

According to Bangladesh Bank data, financing for the sustainable finance sector stood at Tk 31,622 crore at the end of June this year, reflecting an 87.20% year-on-year increase in investment.

Financing in this industry climbed to 12% of total loan disbursement at the end of June, exceeding the central bank's target of 20%. However, in June of the previous year, funding in this sector accounted for only 6.48% of total loans.

According to a central bank report, the banking sector is one of the key funding sources for industrial projects such as steel, paper, cement, chemicals, fertilisers, power, textiles, and so on, which emit the most carbon. As a result, the banking industry can act as a bridge between economic and social development and environmental protection, promoting ecologically sustainable and socially responsible investment.

According to Arfan Ali, former managing director of Bank Asia Limited, sustainable finance and investment in the green financing industry are critical to the country's economic sustainability. It is vital to invest in this industry to mitigate the country's investment, social, and corporate governance risks.

He also stated that banks that adhere to the guidelines for financing this sector would fare well in the future. Furthermore, there are some international standards for investing in these industries that, if followed, will result in better progress.

Meanwhile, the central bank has set a target of 5% of total term loans from 2016 to further expand green financing in the country. Green financing of banks and financial institutions has almost reached the yearly target by the end of June this year.

At the end of June, the country's banks and financial institutions had green financing loans totalling Tk 2,621 crores, accounting for 4.13% of total term loans. During the same period the previous year, however, the loan amount was Tk 1,788 crore, representing 2.39% of the entire term loan.

According to the central bank data, 14 banks exceeded the target of green finance (5%) compared to total term loan disbursement for the said quarter. In addition, seven non-bank financial institutions (NBFIs) reached their goal.

Simultaneously, 11 banks were able to meet their aim of 20% sustainable finance compared to total loan disbursement in the April-June 2022 quarter.

A senior central bank official said, "Refinance support from BB is also playing an important role to incentivise the green banking activities. As the outcome of these initiatives, it is expected that positive impact will be evidenced in the trend of sustainable finance by banks and NBFIs gradually."

Meanwhile, the Bangladesh Institute of Bank Management (BIBM) this month recognised ten banks and five non-bank financial institutions (NBFIs) for their outstanding performance in sustainable financing.

Bank Asia, Brac Bank, Dutch-Bangla Bank, Eastern Bank, Exim Bank, Islami Bank Bangladesh, NRB Bank, Pubali Bank, Southeast Bank, and City Bank were recognised in the bank category, while Agrani SME Financing, Bangladesh Finance and Investment, Bangladesh Infrastructure Finance Fund, IDLC Finance, and IPDC were recognised in the NBFI category.

Source: The Business Standard

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