Time for Bahrain banks to move towards green loans

MANAMA: The exceptional circumstances inflicted by the Covid-19 pandemic and its repercussions on business offer a favourable opportunity for banks to move more towards ‘green loans’, Bahrain Association of Banks (BAB) has said.

Green loans are loans to businesses and projects that consider energy efficiency management, more adoption of renewable energy sources, and reduced waste.

Dr Waheed Al Qassim, chief executive of BAB, said the sustainability of the performance and profitability of banks and financial institutions is linked to business sustainability, mobility, and economic growth.

He believes that it’s imperative to pay more attention to borrowers who provide feasibility studies that take into account the environmental and social perspective, and contribute to implementing the basic needs of the current generations in a way that does not affect the interest and resources for future generations, and focus on economic and social development and environmental preservation.

“The banking sector is keen to contribute to the strategy of sustainable economic development in Bahrain and support the economic, social, and environmental dimensions of this strategy. Banks should finance projects that prioritise sustainable development, including SMEs and micro-projects, and extend the loan portfolio to cover corporate loans and NGOs,” Dr Al Qassim added.

He noted that BAB has signed a co-operation agreement with the United Nations Development Programme (UNDP) to stimulate financial sector institutions to maintain resource sustainability and integrate sustainable development goals (SDGs) in the work of banks and financial institutions.

The association, said the official, is keen to collaborate with the Central Bank of Bahrain to develop legislation that assists this trend and expands the concept of sustainable development in all banks and financial institutions in Bahrain.

Dr Ali Ibrahim, chairman of the sustainable development committee at BAB, said the Covid-19 pandemic represents an opportunity to achieve sustainable economic recovery and that Bahraini banks can represent a substantial part of the current global trend towards increasing sustainable investments, which incorporate environmental and social considerations and governance.

“Banks must explore opportunities for sustainable and green assets, especially as we see that green mortgage globally has grown significantly. One of the primary reasons for lower defaults is that the owners of green mortgages save on energy costs and are more cash-efficient. Moreover, the banks should also explore financing solar and energy efficiency of the existing businesses. This will reduce the energy costs of the customers, and they will be able to spend the savings in other productive sectors of the economy,” Dr Ibrahim added.

He also emphasised that SMEs’ credit lines should remain open so that SMEs can improve their liquidity shortfall.

Besides, the banks should continue to back new startups to stimulate new business projects.

He added that banks should also invest in and finance circular economy businesses and efficient waste management technologies and others.

“With the growth of sustainable asset projects in Bahrain, banks can issue green bonds and Sukuk, considering that such developments will attract more international investors to pursue opportunities in sustainable and green assets,” Dr Ibrahim said.

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