Green financing by banks in Bangladesh declined in the first quarter of 2024 (January-March) compared to the last quarter of 2023 (October-December). This decrease coincides with a severe liquidity crisis currently impacting the banking sector.
A Bangladesh Bank report on the sustainable finance activities of banks and non-bank financial institutions (NBFIs) reveals a drop in green project investments by banks. The report states that banks had invested Tk5,967 crore in green projects by the end of March 2024, compared to Tk6,408 crore at the end of December 2023.
However, green financing by NBFIs showed a positive trend, increasing to Tk1,271 crore at the end of March 2024, compared to Tk996 crore at the end of December 2023 and Tk751 crore at the end of September 2023.
While green financing accounted for a significant portion of loan disbursements for both banks (11.82%) and NBFIs (27.9%), the number of institutions actively engaged in green finance has also decreased. In Q1'24, 43 out of 61 banks and 8 out of 34 NBFIs offered green financing products, compared to 54 banks and 16 NBFIs in the previous quarter.
The overall sustainability focus of the banking sector appears to be diminishing alongside the liquidity shortage. Banks' total sustainable finance portfolio declined from Tk87,826 crore in December 2023 to Tk85,337 crore in March 2024.
This trend extends back to December 2022, when the total was Tk39,987 crore. Conversely, NBFIs' sustainable finance portfolio experienced a slight increase to Tk3,359 crore at the end of March 2024, compared to Tk2,876 crore at the end of December 2023.
Bankers attributed the decline in sustainable financing by banks to the liquidity crisis, forcing them to restrict lending activities.
They also suggested that the significant increase in sustainable financing observed in December 2023 might have been motivated by banks' desire to secure a favorable sustainability rating from the central bank.
Despite the decrease in Q1'24, green financing remains a substantial segment of loan disbursements, with banks at 32.22% and NBFIs at 24.6%.
The highest concentration of green lending went towards sustainable micro, small, and medium enterprises (CMSMEs) for sustainable-linked finance (Tk15,969 crore), followed by sustainable agriculture (Tk7,157 crore) and socially responsible financing (Tk5,777 crore).
The report also highlights loan recoveries and rescheduling within the sustainable finance sector. In the first quarter of 2024, banks recovered Tk64,134 crore and rescheduled Tk1,313 crore in sustainable loans. NBFIs recovered Tk1,313 crore and rescheduled Tk53 crore during the same period.
While the liquidity crisis appears to be impacting banks' ability to offer green financing options, it's encouraging to see that 26 banks and 10 NBFIs were still able to meet the central bank's target of allocating 20% of their total loan disbursements to sustainable finance in Q1'24. This suggests a continued commitment to environmentally-friendly lending practices despite the current economic challenges.
