The International Finance Corporation (IFC) is extending a US$70 million loan to Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank), one of Vietnam’s leading banks in climate finance, to increase its funding for renewable energy projects in the country.
With the loan, announced on December 23, HDBank expects to expand its climate finance portfolio to more than US$800 million by 2025, resulting in a reduction of over 54,000 tonnes of carbon dioxide emissions per year from 2021 to 2025 and thereafter as Vietnam accelerates efforts to transition to low-carbon growth.
Commenting on the financing, HDBank chief executive officer Pham Quoc Thanh says the bank, going forward, sees climate finance as a driving force, especially with countries across the world trying to adapt and mitigate impacts of climate change while ensuring sustainable economic growth. “IFC’s long-term financing and expertise will help accelerate our evolving endeavours in climate business with a structured approach, allowing us to expand our climate portfolio by developing climate-targeted financial products and services that are aligned with global best practices,” he says.
As a signatory to the COP21 Paris Agreement, Vietnam aims to double its renewable energy generation capacity – excluding hydropower – over the next 10 years to meet the increasing demand for power, which is driven by robust economic growth and a growing population. This will help keep the country on track to reduce its greenhouse-gas (GHG) emissions by at least 9% by 2030 and further enable Vietnam to reach its recent COP26 commitment to net-zero carbon emissions by 2050.
Currently, according to IFC, 50% of Vietnam’s electricity comes from coal, making the need to develop a greener, lower-carbon economy – including necessary financing – crucial for the country to meet its reduced carbon emission commitments.
One of the top GHG emitters globally, Vietnam is estimated to have an overall climate-smart investment potential of US$753 billion by 2030, of which up to US$59 billion is in the renewable energy sector. However, the share of climate financing, as a percentage of total bank lending, in the country was just about 5% or US$10.3 billion as of 2016, indicating a significant climate finance gap.
“Building the capacity of private banks will help scale up climate finance markets, supporting climate change adaptation and resilience, and accelerate the shift to more sustainable lower-carbon economies,” says IFC regional vice-president for Asia and the Pacific Alfonso Garcia Mora. “As Vietnam recovers from Covid-19, it is a historic chance for the country to prioritize climate-smart and sustainability-linked solutions with increased private sector participation. This will help Vietnam build back better, greener and more sustainably.”
Climate change is a strategic pillar of IFC’s engagement in Vietnam. The aim is to catalyze finance and promote private sector solutions for climate action. IFC is supporting four Vietnamese commercial banks to expand their climate finance portfolios to US$1.2 billion by 2025.
As part of the World Bank Group Climate Change Action Plan 2021-2025, IFC and the World Bank are developing a new diagnostic tool – the Country Climate and Development Report (CCDR) – to help Vietnam align its climate action with broader development efforts. The tool will identify and prioritize opportunities for high-impact climate action to inform future World Bank Group climate engagements and investments over the next five years.
Established in 1989 as a privately-owned commercial bank headquartered in Ho Chi Minh City, HDBank currently holds a market share of 2% in terms of assets and deposits among Vietnamese banks. The bank, as of September 30 2021, reported total consolidated assets of 346 trillion dong (US$15.1 billion), conducting its operations in Vietnam through its 308 branches and around 18,025 point-of-sale terminals nationwide.