Banks and non-bank financial institutions (NBFIs) will be able to issue green bonds only when their non-performing loan (NPL) is less than 10% of the total loans.
However, there will be a relaxation of the rule for state-owned banks, according to the "Policy on Green Bond Financing", announced by the central bank through a circular on Tuesday.
With the proceeds of these bonds, banks and financial institutions can finance sectors like eco-industrial parks, bus rapid transit, ecotourism and insurance.
According to the circular, in order to issue green bonds, banks cannot have any shortfall in their provisions, cash reserve requirement (CRR) and statutory liquidity requirement (SLR) in the last two years.
Their minimum capital adequacy including capital conservation buffer (CCB) shall not be less than the prescribed ratio for the last eight consecutive quarters, it added.
The bonds must be nonconvertible, the circular said.
If a bank or financial institution wants to finance green bonds, their financing amount will not be more than 5% of the sum of paid-up capital, statutory reserve, retained earnings and share premium account as a time to time prescribed by the Bangladesh Bank.
The single borrower exposure limit shall be maintained as prescribed by the central bank.
It is mentioned in the circular that Bangladesh Securities and Exchange Commission's guidelines on Shariah-based bonds (Sukuk) will be applicable in issuing green bonds.
The green bond tenure should not exceed 15 years of maturity and should be redeemable in maturity, it added.
The central bank said that these green bonds can be issued in eight sectors.
The sectors are low-carbon electricity, heating and cooling; green establishments and built environment; energy and resource efficiency in the industry; low-carbon transportation; circular economy, wastewater and water management; agriculture and land use; activities to enhance climate resilience not elsewhere classified; and services to support the low-carbon, climate resilient and green economy.
By dividing these sectors into 88 sub-sectors, the central bank has specified the type of projects for issuing such bonds.
According to the circular, banks and financial institutions may issue green bonds to raise their capital with a view to financing the proceeds in environmentally eligible projects aligned with the sectors. The banks and financial institutions shall adhere to Bangladesh Securities and Exchange Commission (Debt Securities) Rules, 2021 in case of issuance of a green bond.
The objectives of a green bond are climate change mitigation; climate change adaptation; sustainable use of water and marine resources; transition to a circular economy; population prevention and control; protection and restoration of biodiversity and ecosystems.
A senior official of the central bank told The Business Standard that banks and financial institutions can issue green bonds and invest in them.
"Our objective is to raise equity and improve the asset quality of banks and financial institutions. The criteria for green bonds are made in such a way that the investments become impactful," he added.
The official said, owing to large networks of state-owned banks and the support of the state, their NPL obligation has been made somewhat flexible.