China's Industrial Bank has become the first Chinese bank to adopt the Equator Principles, a set of guidelines that require signatory banks to take into account environmental and social issues when financing development projects.

The Chinese authorities will encourage more banks to adopt the principles to promote the country's "green" credit program, said Yang Chaofei, head of the policy, law and regulations department at the Ministry of Environmental Protection.

The ministry will, together with other relevant ministries, devise preferential policies to mobilize more banks to adopt the new rules, he said on Friday.

IFC, a member of the World Bank Group and initiator of the principles, said the Industrial Bank's move marks a major breakthrough in the development of "green" banking in China, which promotes the development of innovative products to support energy efficiency for small and medium enterprises.

"Industrial Bank's decision to adopt the Equator Principles illustrates how Chinese companies can increasingly take on a leadership role in the global economy," said World Bank Group President Robert B. Zoellick.

"As a leading commercial bank in China, its adoption of the Equator Principles is a step forward for the Chinese banking industry," said IFC Executive Vice President and CEO Lars Thunell.

China has pledged to cut its energy consumption per unit of GDP by a total of 20 percent and major pollutant emission by 10 percent by 2010.

After adopting the principles, the Industrial Bank will have to assess whether the projects to receive loans abide by environmental rules and standards, arousing concern that this may affect the normal business of the bank.

"We actually gain by adopting such principles," said Li Renjie, president of the Industrial Bank.

"We can avoid potential losses from loan extension to projects that may be stopped due to breach of environmental laws and regulations."

The Equator Principles concerns projects with a capital cost of over US$10 million and such projects account for only "a very small" part of the bank's total investment portfolio, Li said, and therefore the bank's profit margin would not be affected.

Li said the bank would take about a year to adjust the internal loan extending procedures to cater to the new principles.

(China Daily November 1, 2008)