The Government Savings Bank (GSB) has started to use environmental, social and governance (ESG) scoring in the process of considering loans to large businesses with a credit limit of 500 million baht or more, said president and chief executive Vitai Ratanakorn.
He said GSB will be the first bank to apply ESG scores when considering lending to large corporate customers. This initiative aims to support businesses which create positive effects on the economy, society and the environment.
Large businesses will be questioned on how their operations contribute to environmental, social and governance standards as well as issues regarding negative news, if any.
The full score is 10 points, while a score of less than 2 points means a loan rejection. However, a score of 8 points or more will get loan approval together with loan rates reduced by 0.10-0.20%.
"Even though businesses scoring less than 2 points will not be entitled to loan approval, the bank is ready to engage those businesses to help them improve their operations for higher ESG scores," Mr Vitai said.
In terms of retail customers, which are considered the main customer segment, Mr Vitai said the bank took part of the profits from large businesses to subsidise interest for unserved segments of retail customers and vulnerable groups.
Over the past three years, the bank has reduced interest rates, implemented debt moratoriums and debt restructuring measures and provided direct payments through corporate social responsibility (CSR) operations totalling more than 55.4 billion baht.
He said the bank wants to create a tangible impact on society via its operations. For example, the bank is offering auto title loans at low interest, at 8-10% lower than the market, which helps low-income borrowers access loans by using motorcycles as collateral.
In the recent past, the bank issued auto title loans to 1.8 million people.
Mr Vitai added that by the end of this year, the bank will set up a subsidiary named Ngern Dee Dee with registered capital of 500 million baht to lend to unsecured and high-risk retail customers.
Commonly known as a P Loan, the interest rate is set at 3-5% lower than the market, with a credit limit from 10,000 to 100,000 baht per borrower.
The bank is set to offer this loan through its digital lending app at the beginning of next year.
At the end of the second quarter, the bank had outstanding loans of 2.35 trillion baht, an increase of 57.4 billion baht from the end of last year, deposits of 2.68 trillion baht, up by 3.6 billion baht, with a net profit of 17.3 billion baht and non-performing loans (NPLs) at 2.63% of outstanding loans.
The bank set a target to control NPLs for the whole year to not exceed 2.95%.
ESG is a functional approach to doing business which focuses mainly on sustainability, not only on financial returns.
It is used by socially conscious investors to evaluate organisations and screen potential investments by taking into account environmental, social and governance issues.
Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, carbon emissions, pollution, energy use and biodiversity.
Social criteria cover human rights, adherence to occupational safety and health standards and relationships with employees, suppliers, customers and communities.
Governance focuses on corporate transparency, internal system control and audits, and strict compliance with rules and regulations.
The ESG concept helps build credibility for businesses as it reflects a company's commitment to environmental, social and governance standards and requirements.
Many listed companies use ESG data to prepare sustainability reports to be disclosed to shareholders, investors and the public along with financial reports.
The majority of institutional investors' investment portfolio, at roughly 80%, is allocated to ESG compliant organisations.