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April 22, 2022

Singapore banks push into small-ticket green loans

The country's big lenders are raising their focus on sustainable lending to individual investors and small businesses, despite the administrative challenges and lower margins involved, taking the view that a more bottom-up approach will help address the climate crisis.

By Adrian Murdoch

green loans
Going green starts at home. Singapore’s big three banks are providing retail and SME green loans. (Image by Artystarty via iStock)
  • Since the Cop26 climate summit last year there has been growing pressure on individuals to consider how they can help tackle the climate emergency. 
  • Schemes to offer green loans to individuals and small businesses in Asia have been few and far between, but Singapore’s big banks are becoming more active. 
  • Smaller-ticket financing offers slimmer margins and requires greater due diligence, but is seen as necessary to help drive sustainable behaviour. 

Banks in Asia-Pacific are generally at the evolving stage in terms of ESG compared with their peers in Europe, wrote Andy Chang, a senior director at S&P Global Ratings in the firm’s ESG Industry Report Card in February.

However, Singapore’s big lenders – DBS, OCBC and UOB – are ahead of the sustainability curve in the region and have been at least since late 2020, according to the World Wildlife Federation’s (WWF) Sustainable Banking Assessment, published in December of that year. It assessed 38 Asian banks in nine countries in Southeast Asia, Japan and Korea across 11 metrics from sustainability strategy and stakeholder engagement to disclosure of ESG risk exposure and targets.

It makes sense, after all, for Singapore to be urgently focused on tackling climate changes, given that a third of the island state lies less than 5m above sea level.

Prime Minister Lee Hsien Loong launched the Singapore Green Plan 2030 in February last year, making various pledges on sustainable development. And those plans are starting to gain some traction. That came shortly after central bank and financial regulator the Monetary Authority of Singapore (MAS) in December 2020 issued guidelines on environmental risk management for banks, insurers and asset managers.

Such action is badly needed, according to Berlin-based Climate Action Tracker. The non-profit organisation rates Singapore’s climate targets and policies as “critically insufficient” and its policies and action as “highly insufficient” in terms of their alignment with the 2015 Paris Agreement.

Individual responsibility

Accordingly, pressure has also been mounting on individuals to do their part. Speaking on a round table in Singapore at the end of March, Abigail Ng, executive director at MAS, called for a “collective bottom-up effort” for sustainability. 

However, while news pages are full of green bonds and sustainability-linked loans, and ESG is even filtering into trade finance, financial support to help individuals and small and medium-sized enterprises (SMEs) to go green have been largely absent. 

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Adrian Ow, responsible for the development of ESG financing at UOB, says the due diligence process for retail green loans can be onerous. (Photo courtesy of UOB)

Schemes to introduce green loans to retail markets around the world are few and far between – perhaps understandably. The volumes are smaller, the margins slimmer and, much like with trade finance, it is harder to ensure that every element of the process is green.

The process of validation of every stage can be “onerous” given the amount of due diligence required to put such financing packages together, admits Adrian Ow, who is head of business enablers and ESG solutions and responsible for the development of ESG financing at UOB. But a focus on the individual is key to driving sustainability, he adds.

Green retail loans are offered by some of the mainstream lenders in the UK and Europe, such as ABN Amro, Barclays, Swedbank and Unicredit, and niche players in the US like Mosaic, LightStream Financial and Sunlight Financial.

Small-ticket green loans

In Singapore, however, all three major domestic banks have been pushing into the market for green retail and SME loans.

They have all set sustainable financing portfolio targets. DBS is aiming for S$50bn ($36.7bn) by 2024. UOB’s sustainable financing portfolio reached S$17bn last year, well ahead of its 2023 target of S$15bn, and it now has set a sustainable financing portfolio target for 2025 of S$30bn. OCBC has also reset its 2025 goal to S$25bn (see chart).

DBS last week announced a new grant programme to help Singapore SMEs become more sustainable, after launching, in April last year, a package of retail green loans. OCBC has focused on the SME market. In November 2020, it offered small businesses funding of up to S$20m across eight categories, from energy efficiency to waste water management.

But arguably the biggest recent sustainability ramp-up has come at UOB. As part of the bank’s ‘smart city’ sustainable finance framework, since October 2019 it has rolled out products U-Drive and U-Solar, targeting individual investors and SMEs and focused on green trade finance, real estate and the circular economy.

Retail demand for green loans in Singapore is clear: the bank’s volume of ESG-focused retail transactions more than tripled last year from S$300m in 2020 to S$1bn last year.

Solar financing

U-Solar launched in October 2019 across Singapore, Malaysia, Indonesia and Thailand. It includes cash management and green financing for solar project developers and end-to-end contract-based financing for engineering, procurement, construction and commissioning contractors.

For homeowners, the loans charge zero interest for the first three years of the solar instalment plans through tie-ups with local solar power service providers across the four countries. Loans are typically for between three and seven years, and UOB says that the electricity savings will have paid back the cost of the loan between the third and sixth year.

For the project developers, all buildings must be certified and the maintenance history of solar panel manufacturers and contractors verified.

As of the end of last year, the U-Solar project has been responsible for generating 279GW of solar energy – enough to run almost 70,000 homes for a year. That is equivalent to removing 142,000t of carbon dioxide, says UOB, but it declined to say how many loans it had provided.

An indication of the potential size of market can be seen in the government’s targets for solar usage across Singapore. In a written response to parliament last November, the minister for trade and industry, Gan Kim Yong, said the country wanted to power 350,000 households via solar by 2030. Singapore’s population stands at 5.45 million .

The loans under the scheme range from up to S$100,000 for very large homes up to S$5m to S$10m for a large office building, Ow says. “This is still relatively small compared to the overall construction costs of the building itself.”

Green vehicle loans

U-Drive was rolled out in Singapore in September, and Ow says UOB is getting requests from customers in Thailand, Indonesia and China. The programme connects the electric vehicle (EV) value chain, from automotive brand owners, car dealers and charging point operators to end-users, and offers trade financing, dealer stock financing and green car loans. 

Maintaining control of the supply chain for U-Drive has been “less problematic” than for U-Solar because EVs are “very well-governed”, says Ow. Every vehicle imported into Singapore must be tested for emissions levels by the country’s Land Transport Authority, from which UOB obtains the results.

Having started these programmes with neighbours like Indonesia and Malaysia, Ow now wants to expand them into China, Hong Kong and Vietnam. 

Second-party opinion provider Sustainalytics says UOB’s support of the climate goals of Singapore and across Southeast Asia is “meaningful”, citing its financing of green projects for SMEs. 

Ow says the Cop26 climate summit in November had rejuvenated the urgency around sustainability. The challenge now is maintaining that momentum to push individuals to change their habits. Offering green financing in the retail markets is a good start.

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