Green financing by banks and non-bank financial institutions declined in the July-September quarter amid a severe liquidity crisis and a challenging business environment after the political shift.
According to a Bangladesh Bank quarterly report on sustainable finance published recently, banks’ investments in green projects fell to Tk 6,584 crore at the end of September, down from Tk 6,978 crore in June.
NBFIs experienced a sharper decline, with green financing plunging to Tk 212 crore in September compared to Tk 992 crore in June and Tk 1,271 crore in March.
Bankers attributed the sharp drop in sustainable financing to countrywide disruptions caused by the student-led quota reform movement, which culminated in the collapse of the Awami League government on August 5.
The resulting political turmoil hindered business activities and banking operations, further exacerbating the liquidity crisis and curbing demand for financing.
However, bankers noted that the situation has begun to improve, with businesses gradually resuming investments.
The acute liquidity shortage in the banking sector has forced many banks to scale back lending activities, including sustainable financing initiatives.
Green financing surges at the end of 2023 as banks sought to secure favorable sustainable finance ratings announced annually by the Bangladesh Bank, observers noted.
Green financing represented 16.83 per cent of the total loan disbursements by banks and 11.62 per cent for NBFIs during the July-September quarter.
Out of 61 banks, 43 had exposure to green financing, while only 9 out of 34 NBFIs participated.
Overall, banks’ sustainable financing dropped to Tk 1,04,424 crore at the end of September, down from Tk 1,13,807 crore in June.
 It was at Tk 85,337 crore in March and Tk 87,826 crore in December 2023.
NBFIs’ sustainable financing also declined to Tk 1,631 crore in September from Tk 2,992 crore in June.
Sustainable finance by banks was 39.2 per cent and that by the NBFIs was 13.5 per cent of their total loan disbursements in the September quarter.
Banks financed the highest in sustainable CMSME for sustainable linked finance Tk 13,245 crore followed by sustainable agriculture sector Tk 5,468 crore and socially responsible financing Tk 3,360 crore in July-September.
There was no investment in green bond, green Sukuk or impact fund by the banks and NBFIs in the period.
The total utilisation of climate risk fund in the January-March quarter was only Tk 7.86 crore.
The total outstanding balance of sustainable finance by banks was Tk 4.75 lakh crore and by the NBFIs Tk 18,644 crore at the end of September.
In the July-September period, banks recovered Tk 69,537 crore and the NBFIs Tk 1,9523 crore from their disbursed sustainable loans.
In the period, banks rescheduled Tk 1,778 crore and the NBFIs Tk 72.3 crore in sustainable finance.
Fifty-five out of the 61 banks and 14 out of the 34 NBFIs had exposure to sustainable finance in the reporting quarter.
During the reporting quarter, 31 banks and 9 NBFIs have been able to fulfill their target (20 per cent) of sustainable finance compared to the total loan disbursement, while in previous quarter (April-June, 2024) the number was 28 banks and 13 NBFIs
During the quarter under review, 27 banks and five NBFIs surpassed the target of green finance (5 per cent) compared with the total term loan disbursement.
The Bangladesh Bank introduced the Sustainable Finance Policy in December 2020.