On 23 December 2022, the State Bank of Vietnam (SBV) issued Circular 17/2022 on environmental risk management in lending activities by credit institutions. Circular 17/2022 will take effect from 1 June 2023.  In this post, we will discuss key points of Circular 17/2022

1)         Scope of application.  Credit institutions will have to manage environmental risks if it lends to the following investment projects:

·        projects that are likely to have significant adverse environmental impacts;

·        projects that are likely to have adverse environmental impacts; and

·        projects that are likely to have minimal adverse environmental impacts.

The specific projects are provided under Annex III, IV and V of Decree 8/2022 respectively.

Environmental risks in lending activities are defined to mean to credit risks that are incurred by a credit institution when a borrower is subject to environmental incident.

2)         Principles in managing environmental risks. The principles in managing environmental risks applicable to granting credit activities are as follows:

·        Managing environmental risks must be in accordance with regulations on granting credit and managing credit risks in banking activities;

·        Credit institutions must access environmental risks to determine credit risks, conditions for granting credits, and to manage credit risks;

·        Credit institutions may conduct access environmental risks by themselves, or relying on qualified third parties or other credit institutions;

·        When valuating environmental risks, credit institutions must agree with its borrowers the measures to mitigate environmental risks; and

·        The borrowers must provide all information necessary for the environmental risk management of credit institutions and be responsible for the accuracy of the provided information.

3)         Internal regulations on managing environmental risk applicable to credit granting activities

Credit institutions must develop internal regulations to manage environmental risks by way of (i) integrating into the existing internal regulations on granting credit and internal regulations on internal control or (ii) develop an independent internal regulation.