With stringent green credit standards and a lower green loan default rate since 2013, China should be the first country to consider lowering the risk weight for green assets, according to a member with the monetary policy committee of China's central bank.
As many nations lack clear definitions for green credit and data for non-performing levels, "China has the great potential to take the lead," said Ma Jun, a member of the Monetary Policy Committee of People's Bank of China.
China has relative low non-performing ratios in issuing green credit as the nation is committed to achieve green development as the nation is gearing toward more sustainable development, he said.
Lowering the risk weight of green assets can be beneficial in the Chinese context, as it can significantly reduce the financial costs for green loans, provide an important incentive for banks to scale up green lending, and thereby accelerating the transition of the real economy to a green and low-carbon one, according to Ma.
In 2017, the non-performing loan ratio for green loans was only 0.4 percent, far lower than that of 1.7 percent of the banking sector.
Under such circumstances, lowering the risk weight for green assets will be in line with the macro-prudential principle to ensure banking system stability, with the additional benefits of meeting the government objectives of optimizing the economic structure, strengthening the ability of the financial system to serve the real economy and fostering greener economic development, he said.