China's green loan balance to hit $3.3 trillion by end 2022

In China, new policies and regulations were enacted to shift the financial industry towards sustainable, carbon-neutral and green finance. The COVID-19 outbreak has brought a series of challenges to China’s sustainable future. The biggest challenge is how to restore its economy after the crisis, while keeping track of the country’s climate goals, namely, United Nation (UN)’s social development goals, the Paris Agreement, and China’s 30/60 goal.

Green finance is critical to achieve these goals. It is estimated that to achieve climate-neutrality by 2030, China will need RMB 3.1 trillion to RMB 3.6 trillion ($477 billion to $554 billion) in financing per year for the next 10 years. With that said, the banking sector in China is playing an important role to support the transition. Since 2019, green loan balance with Chinese banks has seen exponential growth, from RMB 9.3 trillion ($1.4 trillion) in the first quarter (Q1) of 2019 to RMB 16 trillion ($2.4 trillion) by end of 2021, the largest in the world. It is expected to further increase to RMB 22 trillion ($3.3 trillion) by the end of 2022. The growth rate for green loans has been accelerating from the Q4 of 2020 and reached a record high of 33% in the Q4 of 2021, compared with the 12% growth rate of the total loan balance in that quarter.

The key driver of the green loan balance increase is China’s mega banks, which has contributed over half of the outstanding balance, and its share has increased from 49% in 2019 to 55% by 2021. Policy banks also played an important role in green finance in China, who’s share stood at 27% at the end of 2021, followed by joint stock banks at 12%. 

As one of the largest mega banks in China, Industrial and Commercial Bank of China (ICBC) possessed the largest outstanding green loan balance of $382 billion, followed by Agricultural Bank of China (ABC) with $304 billion and $302 billion for China Construction Bank (CCB). China Industrial Bank (CIB) is among the top joint stock banks in terms of green loan balance of around RMB 468 billion ($70 billion). In terms of growth rate of green loans, joint stock banks in China just lead the way, China Minsheng Bank (MSB) has achieved highest growth for its green loan in the past three years, with a three-year compound annual growth rate (CAGR) at 82%, followed by Ping An Bank (PAB) and China CITIC Bank (CITIC) at 77% and 75% respectively.   

Although Chinese banks have made great progress in green finance in terms of increasing the balance of green loans, it is not scaled yet with overall green loan balance just around 8% of total loan book. There is still immense potential for Chinese banks to increase its green loan shares to further support the social transition to a sustainable future.