ESG Scoring pioneered by Thailand’s GSB for large business loan approvals

In a first for Thailand, the Government Savings Bank (GSB) is revolutionising its loan approval process. Chief executive Vitai Ratanakorn shared that GSB will introduce environmental, social and governance (ESG) scoring when deciding loans for sizeable businesses, requiring a credit limit of 500 million baht or more.

This ESG scoring pioneering model aims to incentivise companies to contribute positively to not only the economy but also the society and the environment. Businesses will be assessed on their ESG standards compliance and their handling of any negative news.

The total score is ten points, where a grade less than two indicates declined eligibility for loan approval. However, businesses reaching a score of eight or above receive conditional approval alongside reduced loan rates of 0.10 to 0.20%. GSB, however, is willing to guide businesses that fell short of the necessary score through a process to enhance their operations to meet ESG standards.

Vitai mentioned that the bank utilises profits gained from large companies to subsidise interest for underrepresented retail customer segments and vulnerable groups. The bank has successfully decreased interest rates, provided direct payments via corporate social responsibility operations and introduced debt moratoriums and restructuring measures that amounted to over 55.4 billion baht in the past three years.

Looking further, GSB aims to create a significant societal impact through their work, which includes offering auto title loans at 8 to 10% lower interest than market rates. This initiative enables low-income borrowers to secure loans with their motorcycles serving as collateral.

By the end of the current year, Vitai announced plans to establish a subsidiary, Ngern Dee Dee, with a registered capital of 500 million baht to assist unsecured and high-risk retail customers. The subsidiary is expected to offer P Loans, set at an interest rate of 3% to 5% below the market rate with a borrowing range of 10,000 to 100,000 baht reported Bangkok Post.

Furthermore, the bank reported an increase in outstanding loans worth 2.35 trillion baht by the end of the second quarter, a rise of 57.4 billion baht from the end of last year. Additionally, deposits have shown an upwards trend, reaching 2.68 trillion baht, an influx of 3.6 billion baht, and a considerable net profit of 17.3 billion baht was recorded. Meanwhile, non-performing loans (NPLs) stood at 2.63% of the total outstanding loans, and the bank aims to cap the NPL rate at 2.95% for the entire year.

The ESG framework is a sustainable path of conducting business, considering elements beyond financial gain. Environmentally, it reviews how a corporate protects the environment, including policies on climate change, carbon emissions and energy use. Socially, it assesses a company’s relationships with employees, suppliers, customers and communities, while governance evaluates a company’s transparency, control systems and adherence to regulations.

Adopting ESG scoring can build credibility, as it displays the company’s commitment to ESG principles. Presently, a significant 80% of institutional investors’ investment portfolios are allocated to ESG-compliant organisations.