Friday, December 13, 2019

Banks formulating practical guidelines for responsible lending

Aug 13. 2019
Veerathai Santiprabhob
Veerathai Santiprabhob
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By The Nation

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The Bank of Thailand will establish guidelines in collaboration with 15 commercial banks for responsible lending as part of sustainable business operations.

Banks are being encouraged to lend based on environmental, social and good governance (ESG) criteria, which will serve as protection against adverse consequences and therefore ease potential problems. Four policies for responsible lending will be put in place by the end of next year, accounting for stakeholder engagement, internal implementation mechanisms as well as transparency.

Bank of Thailand Governor Veerathai Santiprabhob said that if banks fail to integrate ESG into their business practices, their financial position may be jeopardised. 

Banks should adopt responsible lending guidelines and adjust through internal changes to fend off problems that would otherwise be caused by their failure to embrace ESG principles, he said. It is therefore essential for financial institutions, led by their board members and high-ranking executives, to push for incorporating ESG criteria into their operations and risk management.

At the beginning of this year, many areas in the country suffered from PM2.5 air pollution, which immeasurably damaged people’s health and hit tourism. Besides this, flooding and other environmental issues have led to a slew of additional problems the kingdom faces. 

Moreover, household debt has become chronic. If left unresolved, the problem will weaken the economic health of households, affecting debt quality and threatening Thailand’s growth prospects in the long run. 

Meanwhile, corruption, which is deeply rooted in society, has eroded the country’s potential to advance and aggravated its social inequality. 

Faced with these problems, the Thai banking sector, in its capacity as a financial intermediary, can help fix them by appropriately allocating resources to ease any negative impacts that may occur. 

The sector aims to establish a common policy on responsible lending to ensure commercial banks have proper procedures to promote socially conscious loan approvals based on ESG principles to protect financial institutions and mitigate potential damages. 

It is essential for financial institutions to prioritise the setting of clear goals, together with evaluation and examination of policy implementation. Related information must also be disclosed in a timely manner. 

The cooperation marks a milestone for the financial sector in conducting business by not only adhering to internal corporate governance but also integrating ESG criteria with a holistic approach by considering negative impacts that their businesses may cause.

Thai Bankers’ Association chairman Predee Daochai said the association recognises the importance of responsible lending. 

“All of our member banks believe the financial institution system is an important mechanism in not only providing financial support via lending, but also creating a balance that can help minimise potential risks to the sector and the Thai economy. Therefore, a commitment by these institutions to lend responsibly will help protect financial service users and build the nation’s stability over the long term,” he said.

Given this, the BOT-initiated guidelines for sustainable banking operations are vital and comprise leadership and a commitment to responsible lending, stakeholder engagement, internal implementation mechanisms, and transparency. 

BOT is also encouraging banks to commit to the creation of a culture of financial discipline and business operation that attaches importance to the well-being of the economy, society and the environment, based on good governance principles and appropriate risk management.

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