Banks' sustainable financing soars 138% in March quarter

Loan disbursement by banks and financial institutions in the sustainable finance sector has increased by 138%, equivalent to Tk55,626 crore, in the first quarter, to maintain good ratings.

According to the Quarterly Review Report on Sustainable Finance by the Bangladesh Bank, loans disbursed in the green and sustainable finance sector in January-March of 2024 totaled Tk95,935 crore, compared to Tk40,309 crore a year ago.

Bankers said banks are inclined to invest in the green and sustainable finance sector because of the role these loans play in the country's economy. Additionally, the recovery rate of these loans is also good. Moreover, investing in these sectors improves the health ratings of banks, which increases their interest in these investments.

Selim RF Hussain, managing director of BRAC Bank, told The Business Standard, "The central bank has taken several initiatives to increase investment in the green and sustainable finance sector, which has prompted all banks to take advantage of these funding opportunities for investment."

He also said many banks are now giving great importance to these sectors in terms of investment because investing in these sectors is beneficial for banks and reduces environmental risk.

"Banks are rated by the central bank based on their investments in these sectors. I would say many banks have increased this investment to be in a better position," he added.

A central bank official said, "We provide funding to banks at low interest rates, which encourages lenders to increase their investments here.

The positive side is that banks used to increase investment at the end of the year, but now investment has increased at the beginning of the year, indicating that banks want to reach their targets early."

Sustainable finance refers to business conducted in such areas and in such a manner that helps reduce overall external carbon emissions and internal carbon footprints.

One of the major areas for financing industrial projects by banks and non-bank financial institutions includes sectors such as steel, paper, cement, chemicals, fertilisers, power, and textiles, which contribute significantly to carbon emissions.

The central bank has issued directives mandating banks and financial institutions to allocate 5% of their total loans to green finance and 20% to sustainable financing. In 2024, banks and financial institutions disbursed a total of Tk88,696 crore in sustainable financing, which is 31.85% of the loans disbursed during this period.

Chowdhury Liakat Ali, director of the Sustainable Finance Department, told TBS that the Bangladesh Bank is working to boost the overall scenario by taking appropriate policy initiatives.

"Refinance support from the Bangladesh Bank is also playing an important role in incentivizing green banking activities. As a result of these initiatives, it is expected that a positive impact will be evidenced in the trend of sustainable finance by banks and FIs in a gradual manner," he said.
"We have three schemes for sustainable and green finance. Banks can raise funds from here at just 1% interest. Besides, they disburse at a maximum of 5% interest to the customer level. Loan disbursement is increasing due to the low interest rate of these loans."