05 Rules for environmental risk management in extending credit in Vietnam

05 Rules for environmental risk management in extending credit in Vietnam (Internet image)

The State Bank of Vietnam promulgated Circular 17/2022/TT-NHNN dated December 23, 2022 providing guidelines on environmental risk management in credit extension by credit institutions and foreign bank

1. What is the environmental risks in extending credit?

According to Clause 3, Article 3 of Circular 17/2022/TT-NHNN, environmental risks in extending credit refer to credit risks that are incurred by a credit institution and arise from its client that is extended credit but face the environmental risks as prescribed.

Specifically, environmental risk means the probability of causing adverse impacts on the environment during the implementation of an investment project resulting in increased costs, reduced incomes or loss of capital and/or assets of the client that is the project owner.

2. 05 Rules for environmental risk management in extending credit in Vietnam

Specifically, in Article 4 of Circular 17/2022/TT-NHNN stipulating the rules for environmental risk management in extending credit as follows:

(1) Credit institutions shall be responsible for the environmental risk management in extending credit which must be conformable with regulations of law on credit extension and credit risk management in banking sector.

(2) Credit institutions shall carry out environmental risk assessment in extending credit to investment projects in order to determine credit risks, determine conditions and manage credit risks for credit amounts extended to clients.

(3) The credit institution shall organize assessment of environmental risks for every investment project, or use the report on assessment of environmental risks for that investment project given by a qualified environmental risk assessment service provider or by another credit institution under terms and conditions of the signed service contract.

(4) If the investment project is found to have environmental risks in extending credit according to the assessment report, the credit institution shall reach an agreement with its client on addition of measures to be taken by the client to minimize the environmental risks in extending credit to the credit extension agreement.

(5) Clients shall provide all information necessary for the environmental risk management in extending credit at the request of credit institutions and assume responsibility for the accuracy of provided information.

3. Contents of Internal regulations on environmental risk management in extending credit in Vietnam

According to Clause 2, Article 6 of Circular 17/2022/TT-NHNN, internal regulations on environmental risk management in extending credit of a credit institution shall, inter alia, have the following contents:

- Identification and classification of applications for credit extension which require environmental risk assessment in extending credit;

- Information to be collected to serve the environmental risk management in extending credit;

- Environmental risk assessment in extending credit that is carried out in conformity with the provisions of this Circular;

- Environmental risk management in extending credit during the consideration, appraisal, approval and management of credit amounts extended;

- Internal reporting on environmental risk management in extending credit.

4. Subjects of application of environmental risk management in extending credit in Vietnam

- Credit institutions and foreign bank branches in Vietnam (hereinafter referred to as “credit institutions”) that are established and operating under the Law on Credit Institutions, except microfinance institutions, people’s credit funds, and banks for social policies.

- Organizations and individuals that are clients of credit institutions.

(Article 2 of Circular 17/2022/TT-NHNN)

Circular 17/2022/TT-NHNN takes effect from June 1, 2023.

Thanh Rin

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