Date: June 2, 2017 Source: caixin.com
（http://finance.caixin.com/2017-06-02/101097232.html）
Boosted by policy drivers, the green finance has witnessed a surge in the last two years. The market has been concerning about whether its commercial mode is sustainable and the financing and investment return is attractive enough.
For that, Luo Shiyi, the GM of Green Finance Dept., IB, said, “Green finance is commercially sustainable.”
The data shows that by the end of April 2017, Industrial Bank (IB) has planned to provide green financing totaling RMB 1.2048 trillion; the balance of green financing was RMB 567 billion; the NPA of green credit was 0.38%, down by 0.11% compared with the beginning of the year.
“Green finance actually comprises high quality assets and it is sustainable from this point. If the NPA is high, it’s not going to last long.” Luo Shiyi pointed out that right now the cost of fundraising through IB green finance business is relatively low. The interest rate paid out is low while the average yield of interest-bearing assets is not lower than the average level.
Tang Ying, the GM of Green Finance Dept., IB Hangzhou Branch, said, “in addition of tradition interest income and net interest margin, the low level of NPA is a great help for the operation of commercial banks.”
As the first “Equator Bank” of China, IB has undertaken green finance business for 11 years and is now taking the leading position in the industry. In 2016, IB developed a mid-term goal of green finance, “Two Ten Thousands”, which is to, by 2020, achieve RMB 1 trillion of balance in green financing, and achieve ten thousand clients (projects) in green finance.
The reporter learned that some banks have special review and approval procedure for green credit and have allocated the line of green credit from the total credit line. Jiang Zhanqin, the vice president of IB Nanjing Branch, said, “this year the overall credit policy is moderate and a little bit tight while the line of green credit is used for special review and approval and is supported by a special fund.”
Low NPA of green credit
Does low NPA mean that the threshold is high for companies seeking fund?
Luo Shiyi answered that IB will not approve the credit for those enterprises in violation of environmental protection standards and IB's equator principles. A violation of environmental protection standards will hold back the long operation of a company. From this point, enterprises are strictly screened.
Apart from this, the credit approval procedure is identical with other projects, which takes into consideration the cash flow and credit enhancement. “In the past 11 years, our NPA of green finance bas been low, mostly attribute to the evaluating standards of equator principles and the overall evaluation of project risks.” said by Luo Shiyi.
In terms of client qualification, Luo Shiyi said, “Now there are not too many private enterprises involved in environmental protection.” Tang Ying added that now there are two ways of selecting small and medium-sized enterprises involved in environmental protection: the first is to select upstream and downstream suppliers of large enterprises; the second is to select leading enterprises in an industrial segment, such as a small company excelling at a certain sector of environmental protection and has the potential to be discovered by a PE.
Taking the example of Shuangliang Group, a client of IB, this company is a national key high-tech enterprise who has obtained ISO9001, ISO14001, OHSAS18001 certificates as well as recognition from ASME, CE and other international standardization institutions.
Besides factors inside the enterprise, the overall condition of the industry will also influence the NPA. “The environmental protection industry is now a rising industry whose supply-demand ratio of production capacity is better than other industries. We invest in this segment according to the industrial trend, which allows us to effectively avoid some risks.” said by Peng Guanghui, the vice president of IB Hangzhou Branch.
Peng Guanghui took an example that IB entered into Hangzhou market late and has limited client resources. If they provided similar financial products, it would be difficult for them to seize market shares. But by virtue of the unique green finance products, they have successfully taken the local market and avoided some risks.
In addition, some insiders noted that the NPAs of banks have been gathering in some industries with excessive capacity. In other industries, the NPA is generally low.
According to the annual report of IB in 2016, among 21 announced industries, only 5 industries, including the mining industry and the manufacturing industry, have the NPA rate higher than the average level, while that of hydraulic, environment and infrastructure industries is only 0.14%; among the first six industries ranked by loan balance, the hydraulic, environment and infrastructure industries have the lowest NPA rate.
Still need financial subsidy
While being commercially sustainable, the green finance of China is generally in the beginning stage and some environmental protection projects are not very profitable.
Some insiders noted that the green finance business are now mainly driven by policies. “Sometimes we will give up some more profitable projects to promote a green project. But the capital cost of green credit is actually lower.”
A local governmental officer said that the reason why banks put so much efforts in green finance can be seen in two aspects: one is that they are seizing the market share as instructed by the policy; the other is that they have noticed the increasing financial subsidies and support granted by the country for energy-saving and emission-reducing industries in recent years. “No matter green or non-green projects, they have to depend on the evaluation results eventually. Banks have to achieve balance between risks and benefits.”
“In addition to policy drivers, financial subsidies are pertinent benefits for banks and central enterprises, such as Xiamen and Zhongguancun.” said by a senior product manager of green finance. However there are only a few districts enjoying financial subsidies.
In November 2016, Xiamen Finance Office and other relevant departments issued the Opinions on Promoting Banks and Financial Institutions in Xiamen to Develop Green Finance, which states that a 20% interest subsidy will be granted to green credit projects that comply with the requirements of CBRC and have a loan rate not higher than the benchmark loan rate.
In April 2017, the Steering Committee of Zhongguancun Scientific and Technological Park issued the Methods of Zhongguancun National Independent Innovation Demonstration Zone on Management of Funds to Support the Deep Combination and Innovative Development of Technological Finance, in which the subsidy policies for green credit and green bonds are defined; the first is to offer “green enterprises” a subsidy for loan interest, which means that any “green enterprises” applying for financing through a technology loan product will be given a subsidy as much as 40% of interest; the second is to support enterprises to raise fund by issuing green bonds and any enterprise issuing a green bond will be given a subsidy as much as 40% of the face interest.