Lending for sustainable finance rises by Tk28,103cr in June quarter

Addition of new banking products deemed to have contributed 32% growth in the sector

Loan distribution for sustainable finance by banks and financial institutions increased by 32% or Tk28,103 crore in the second quarter of the current year due to the addition of new products in the sector, according to a central bank report.

In the April-June period, banks and no-bank financial institutions (NBFIs) distributed Tk1,16,799 crore in loans for sustainable finance, up from Tk88,696 crore in the previous March quarter.

Loan distribution for green finance in the June quarter also increased by Tk732 crore to Tk7,771 crore compared to the January-March period.

Sustainable finance refers to the business conducted in such areas and in such a manner that helps the overall reduction of external carbon emissions and internal carbon footprint.

The major sectors financed by banks and NBFIs include industrial projects in steel, paper, cement, chemicals, fertilisers, power, and textiles, all of which contribute significantly to carbon emissions.

Chowdhury Liakat Ali, director of the Sustainable Finance Department of the central bank, told TBS, “We have added new products to increase investments in sustainable and green financing, which have led to an increase in loan distribution by banks in these sectors.”

He said previously, banks used to distribute loans in 68 products across 11 sectors in the green and sustainable categories. Now, three more sectors — blue economy, ICT and technology and miscellaneous — have been added, increasing the number of products to 94.

According to data from the Bangladesh Bank, from January to June of this year, banks and NBFIs distributed Tk2.05 lakh crore in loans in the sustainable sector, which accounts for nearly 37% of the total loans distributed in the sector during the period, although the target was set at 20%.

In 2023, sustainable financing accounted for 17.23% of the total loans distributed in the banking and financial sector, up from 11.59% in the previous year.

In the first six months of this year, banks distributed Tk15,211 crore in green financing, which constitutes 14.67% of the total loans, although the target was set at 5%.

The managing director of a private bank told TBS that investments in the sustainable sector are primarily made in industries. This year, the addition of new sectors by the Bangladesh Bank has led to an increase in loan distribution in these areas, he said.

“For a long time, banks struggled to meet their loan targets, but now they are providing loans that exceed those targets. In other words, banks are now being very cautious in their lending practices, focusing on sectors where the likelihood of loan recovery is higher,” said the banker.

During the June quarter this year, 28 banks and 13 finance companies managed to meet their target of 20% for sustainable finance in relation to total loan disbursement. In the previous March quarter, the numbers were 26 banks and 10 finance companies.

The central bank report states, “BB is pursuing to boost up the whole scenario by taking appropriate policy initiatives. Refinance support from BB is also playing an important role to incentivise the green banking activities.”

It added, “As the outcome of these initiatives, it is expected that positive impact will be evidenced in the trend of sustainable finance by banks and FIs [financial institutions] in gradual manner. Sustainable Finance Department, BB also anticipates robust, effective and coherent efforts from banks and FIs in the field of sustainable finance.”