KUWAIT CITY, Nov 15, (Agencies): In a proactive move towards supporting climate initiatives and anticipating the future landscape of global credit, the Central Bank of Kuwait has verbally instructed local banks to earmark a portion of their loan portfolios for green financing, according to reliable sources.

While the regulatory body has refrained from specifying an annual ceiling for green financing, it emphasized that each bank should allocate a share of its loans to both local and foreign projects in the green sector. The directive does not prescribe particular allocations for different financing wings or the overall loan portfolio.

The focus of the supervisory authority appears to be on encouraging banks to dedicate a segment of their financing portfolios to extend loans for sustainable projects. This aligns with the global trend of supporting grants for environmentally friendly initiatives. The directive, however, refrains from outlining a precise approach, leaving the decision on project features, financing percentages, and determination of eligibility to the discretion of individual banks, provided they adhere to general instructions.

Green loans, under this initiative, will be offered without interest or at reduced rates along with additional benefits. Notably, there is no specified cap for banks to deduct from their overall portfolios.

Local banks, faced with limited local projects meeting the criteria for green financing, are adopting three compensatory strategies. Firstly, they are introducing innovative green financing lines for companies with exclusive discounts on terms and interest rates. The second strategy focuses on enhancing the green credit culture among individuals, offering personalized financing products with incentives, including interest-free financing. Lastly, some banks are exploring foreign markets for green financing, leveraging investor interest and crowdfunding for these projects.

The global green finance market has experienced significant growth over the past decade, witnessing the emergence of financial instruments such as green-rated bonds, unrated sukuks, green loans, green investment funds, and green insurance. According to estimates by the Infrastructure Development Finance Company, green financing could reach up to $134 billion. In 2019 alone, $185.4 billion in green bonds were issued, targeting climate change mitigation and adaptation activities, as well as other environmental issues.

While Kuwaiti and international banks typically aim for a suitable profit margin, green or sustainable financing, being granted with exceptional benefits, allows banks to seek affordable loans. Some banks are entering into financing agreements with regional and international financial institutions interested in green financing. This enables them to obtain loans at favorable interest rates, redirecting these funds to stimulate loans for customers in the green sector.

One significant area of local projects entering the realm of green financing involves the rehabilitation of soil in oil fields affected by the Iraqi invasion. This massive undertaking is one of the largest soil remediation projects globally. The United Nations has allocated approximately $3 billion to rehabilitate the Kuwaiti environment, with the Kuwait Oil Company having spent $281 million until last September. The focus is on remediating the polluted and damaged lands within oil fields, covering about 114 square kilometers, with 16 square kilometers already addressed and the remainder expected to be completed through ongoing contracts set to expire in 2027-2028.