Yahoo Finance OCBC issued over $7 bil in sustainable financing to region's SMEs last year, more than double y-o-y
Demand for commercial loans may “continue to be somewhat soft” this year, says OCBC head of global commercial banking.
Oversea-Chinese Banking Corporation (OCBC) extended over $7 billion in sustainable financing to the region’s small- and medium-sized enterprises (SMEs) in 2023, more than double the amount issued in 2022.
OCBC issued these loans to over 1,200 companies across Singapore, Malaysia, Indonesia and Hong Kong, up from some 600 SMEs in 2022. The bank notes “significant traction” in Singapore, Malaysia and Hong Kong, without providing specific figures by market.
Across sectors, SMEs from the built environment, clean transportation, energy efficiency and renewable energy sectors accounted for more than 80% of the 1,200-plus firms that took up sustainable loans with OCBC last year.
OCBC also extended sustainability-linked loans (SLLs) to 24 enterprises in the region last year, up from just one the year prior. In 2024, OCBC hopes to more than double this figure, says Linus Goh, head of global commercial banking.
Speaking to reporters on Feb 5, Goh says these SLLs were issued to companies from nearly a dozen industries, including engineering, construction and textile manufacturing; and many are private companies.
Of the 24 SLLs, two were done in Hong Kong, one each in Malaysia and Indonesia, and the rest were in Singapore.
“Some are listed companies, and therefore they would have some obligation to show their progress in sustainability. But the others that are not, nonetheless, felt the need to represent how they would lead by showing the target improvements in emissions. That is significant because these are the ones who will then lead that whole momentum,” says Goh.
Among them is textile and apparel manufacturer Ghim Li, which received a $16 million SLL from OCBC last year with data collected and verified by local fintech company STACS.
SLLs are typically structured with pre-established key performance indicators or sustainability performance targets, such as lower electricity use or reduced emissions. Should the debtor company achieve these targets, they will enjoy lower interest rates on their loans via a step-down mechanism.
According to Goh, “most, if not all” of the companies that took out SLLs have opted for a 25% reduction in their greenhouse gas emissions over five years.
While Goh declined to reveal exactly how much companies can save with a step-down loan, he says these interest savings are “not a big factor”.
“Most of the time, the consideration is about how they’re able to present their firm as being clear about their target… Many of the multinationals are now contemplating their Scope 3 [emissions]. So, they need to come to players in their value chain; who is ready to make the move and help them demystify this whole thing?”
While Scope 1 and 2 measure the emissions of a company’s operations and its purchased energy, Scope 3 encompasses all the emissions arising from the company’s supply chain.
OCBC’s SME framework
These loans were issued in accordance with the OCBC SME Sustainable Finance Framework, which was launched in Singapore in 2020 and extended to Malaysia and Hong Kong from 2022.
Designed as a common point of reference for the bank’s sustainable loans, it replaces the need for bespoke frameworks for each loan.
OCBC launched the framework with eight categories: clean transportation, energy efficiency, pollution prevention and control, sustainable water and wastewater management, built environment, renewable energy, eco-efficient and circular economy, and environmentally sustainable management of living natural resources and land use.
In 2022, OCBC added a ninth category: climate adaptation. According to OCBC, this covers nature-based solutions and engineering services that “enhance adaptive capacity and reduce vulnerability to climate change”.
According to Goh, this category has been “applied” in Singapore and Malaysia. “To make things work at the company level, you really have to have good visibility of the interdependencies. The work that we try to do is to facilitate that conversation, to help overcome some of the issues.”
This may sometimes involve government bodies, he adds. “I think we [have] found, particularly here, [that] the government agencies are all quite willing to come to the table to solve the problems and help us move forward. We’re also trying to do the same in some of the other markets.”
Loan demand set to be ‘soft’
Demand for commercial loans was soft last year, says Goh, and it may “continue to be somewhat soft” this year. “If you look at the overall condition of the global economy and the regional economy, it still weighs on businesses. The outlook is still muted, at least for the first half of the year.”
Goh blames a “weak China outlook”. “China has quite a big influence and impact on the Asean economies and so, without China firing strongly, you kind of see a bit of a muted demand.”
Sustainable financing issued by OCBC to SMEs contributes towards the bank’s overall sustainable finance loan book.
OCBC group chief executive officer Helen Wong revealed at COP28 in December 2023 that the bank’s sustainable finance portfolio hit $52 billion at the end of September, surpassing its $50 billion target more than two years ahead of schedule.
OCBC had set the $50 billion target in 2021 after exceeding its original targets of $10 billion by 2022 and $25 billion by 2025 ahead of time.
Southeast Asia’s second-largest financial services group by assets reported that its sustainable finance portfolio amounted to $44 billion at the end of 2022, which was up 29.4% y-o-y from $34 billion reported at end-2021.
That said, Wong is unlikely to raise OCBC’s sustainable finance target again. In May 2023, Wong said it is “not crucial” for the bank to keep increasing this target. “This will become very business-as-usual to us; we will continue to grow our sustainable financing. If we continue to grow double-digits every year, whatever target you set becomes just a number to be beaten.”
OCBC is set to release its results for FY2023 ended December on Feb 28 before the market opens.
Shares in OCBC closed 19 cents lower, or 1.46% down, at $12.81 on Feb 5.
Photo: OCBC
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