New Circular on Environmental Risk Management in Banking Lending Activities in Vietnam
On December 23, 2022, the State Bank of Vietnam (SBV) issued Circular 17/2022 regulating environmental risk management in the credit activities of credit institutions. Circular 17/2022 will take effect on June 1, 2023. In this article, we will discuss the key points of Circular 17/2022.
1) Scope of application. Credit institutions must manage environmental risks when lending to the following investment projects:
· projects with a high risk of adverse environmental impacts;
· projects with a risk of adverse environmental impacts; and
· projects with a low risk of adverse environmental impacts.
Specific projects are listed in Annexes III, IV, and V of Decree 8/2022.
Environmental risk in credit activities refers to the credit risk faced by a financial institution when a borrower who has been granted credit encounters environmental risks.
2) Principles of environmental risk management. The principles of environmental risk management applicable to credit activities are as follows:
· Environmental risk management must be consistent with regulations on credit granting and credit risk management in banking operations;
· Credit institutions must assess environmental risks to determine credit risk, credit granting conditions, and credit risk management;
· Credit institutions may conduct environmental risk assessments on their own or [use the results of] assessments conducted by qualified third parties or other credit institutions;
· When conducting an environmental risk assessment, the credit institution must agree with the borrower on measures to mitigate environmental risks; and
· The borrower must provide all necessary information for the credit institution’s environmental risk management activities and is responsible for the accuracy of the information provided.
3) Internal regulations on environmental risk management applicable to credit granting activities
The credit institution must establish internal regulations for environmental risk management either (i) by integrating them with existing internal regulations on credit granting and internal control regulations, or (ii) by establishing independent internal regulations.
