PBOC to Punish Banks Based on Green Finance Performance

The PBOC’s branches will grade banks on their green finance performance quarterly starting in January 2021, using a set of quantitative and qualitative indicators.

The PBOC (People’s Bank of China) plans to start evaluating banks’ performance in green finance on a quarterly basis, starting from January 2021.

In draft guidelines for consultation, the PBOC says its branches will conduct the quarterly evaluations of banks to grade them based on the actual conditions in their jurisdictions.

The assessment method used will combine both quantitative and qualitative indicators, to more comprehensively reflect the green finance performance of financial institutions.

Initially, the quantitative indicators will account for 80 percent of the assessment, including four indicators:

  • the total value of a bank’s green finance business against its total assets (25%)
  • the total value of a bank’s green finance business against other participating banks (25%)
  • the year-on-year growth in a bank’s green finance business (25%)
  • the total risk of a bank’s green finance business, including non-performing green loans and overdue or unpaid green bonds (25%)

Currently, the green finance business being measured only includes green loans and green bonds, but in future it may include green securities, green equity investments, green leases, and green trusts.

The qualitative indicators, accounting for 20 percent of the assessment, will be based on subjective evaluations by regulatory agencies, including three criteria:

  • a bank’s implementation of national and local green finance policies (30%)
  • a bank’s implementation of its own green finance development strategy (40%)
  • the financial support a bank provides to green industries (30%)

The branches of the central bank will submit the results and related explanations in semi-annual and annual reports to the PBOC’s main office, for use in measuring regulatory compliance. Banks will be rewarded or punished based on their performance.

The measures are aimed at developing the green finance sector through effective incentives, the PBOC said.

The consultation document, available here, is open for comment until 19 August 2020.

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