Green bond policy framed to protect environment

The Bangladesh Bank has framed a green bond policy for the first time to finance environmentally friendly projects.

Under the new policy released on Tuesday, banks and financial institutions (FIs) are allowed to issue non-convertible green bonds, which commit to using the bond proceeds only for projects that help reduce carbon emissions.

For a bond to be labelled green it must comply with eight principles or conditions set by the central bank.

For issuing a green bond, the first and foremost eligibility for banks and FIs is their non-performing loans must be less than 10 per cent, but the state-owned banks may not follow the condition. 

Minimum capital adequacy including CCB (Capital Conservation Buffer) must not be less than the prescribed ratio for the last eight consecutive periods and no provision shortfall for the last two years.

No shortfall will be allowed to maintain Cash Reserve Requirement (CRR) and Statutory Liquidity Requirement (SLR) for the last two years and CAMELS rating must not be less than two.

The CAMELS rating system is used by the BB to assess the strength of a bank through six categories—adequacy, assets, management capability, earnings, liquidity, and sensitivity.    

Minimum acceptable rating grade 2 of BB or equivalent for a long term, and minimum acceptable rating grade S2 of BB or equivalent for the short term are required to issue the bonds, according to the policy.

The sectors in which green bonds can be issued are low-carbon electricity, heating, and cooling; green establishments and build environment; energy and resource efficiency in the industry; low-carbon transportation; circular economy, wastewater, and water management; green agriculture and land-use; activities to enhance climate resilience and services to support the low carbon climate resilient and green economy, it said.

Banks and FIs must follow the securities rules set by the Bangladesh Securities and Exchange Commission regarding the issuance, verification, certification, proceeds management, and other subsequent norms.

Green bonds issued by banks and FIs will be treated as “Green equity”, said the policy.

The tenure of green bonds to be issued by the banks or FIs will not be allowed to exceed 15 years and the bonds should be redeemable.

For the investment in bonds, banks and FIs must follow the five conditions.

The minimum investment grade of the instrument must be equivalent to long term- BB rating grade-2, short term- BB rating grade S3 as per the conditions.

The single borrower exposure limit must be maintained as prescribed by the BB. CIB status of the borrower must be verified through the CIB database of BB and the instrument must be nonconvertible and also non perpetual.

Banks and FIs may invest in green bonds after taking approval from their boards and approval from the BSEC.

The financial sector must develop its own Green Bond Financing Policy which must be approved by its competent authority.

Board’s approval will be required upon the Risk Management Committees (RMC’s) approach in case of all scheduled commercial banks.