First Green Bank Promoting Sustainable Financing InstrumentsWed, 02/19/2014 - 12:12
Q: CIBanco was the first Mexican bank to join the Equator Principles (EP). What made you decide to do so?
A: Joining EP is the main flag that a green bank has to fly. We could have just decided to be a green bank, nobody would have asked us why we had become a green financial institution, but joining the EP made it official. We were the first Mexican bank to do so and we are happy for other banks to adhere to this green philosophy. However, among our customers and the wider community, CIBanco is the green bank. Any additional green strategies in the financial sector help our philosophy, many banks may become green and this will benefit society in general.
Q: What criteria does CIBanco use to ascertain the financial viability of its green customers?
A: Our first criterion is that we provide loans in which repayment is feasible. The first issue is to analyze if a project is feasible and if the loan will be repaid. We are not an NGO, we are a company and we must take care of our depositors. We analyze and approve all the green loans through the credit committee, so we provide optimal financial conditions to our customers. But this also means that we are not going to approve a loan simply because it is a green loan. At first, these loans are just simply loans, but after they are approved, we provide better conditions for those customers that request loans for a green purpose.
We will provide medium-sized companies with medium- term loans but feasibility is the name of the game. However, sustainability does not go against profitability. Just recently, we turned down a wind project as it seemed unfeasible based on the developer’s forecast and projections. When we started the bank, I told my sustainability committee to watch out and to ensure that we fulfill all the basic requirements of a bank. We are looking for a certain return on equity for our shareholders and we must provide our customers with the right interest and security.
Q: Which types of renewable energy have been the most financially attractive?
A: Among renewable energy sources, we view solar energy as the most reliable technology and safest investment. However, we are not a huge bank that can provide US$1 billion loans. The companies that look for that level of financing usually have access to such funds with larger banks. In order to be consistent with CIBanco’s size and objectives, our loans have a maximum term of five years and involve amounts not exceeding US$30 million. We also believe safe investments can be found in projects where energy efficiency or savings allow for credit repayment, such as energy efficiency projects in small and medium-sized firms.
Q: The PV sector is mostly concentrating on the commercial and residential sector. How does this shape your loans strategy?
A: It is not easy to create a business plan, relying only on a green philosophy. Therefore, we created two types of green credits: the green auto loan and the PV residential loan. We are the only bank in Mexico providing such types of loans. In implementing them, we ran into two challenges: a cultural barrier and interconnectivity with CFE. The cultural barrier meant we had to educate customers about PV energy and how it works. Second, we had a problem with bidirectional controllers installed by CFE. If you decide to use PV technology, the provider installs it, our bank provides the loan but you will not be using that energy until CFE interconnects you to the network, which can take three months or more. That is actually already an improvement as we worked closely with CFE to bring this down from six months to three.
Q: Does CIBanco have the ambitions to become a private banking partner for larger projects through collaboration with development banks?
A: Not yet as there are many regulations for banks that have to be taken into account. Large projects require a large amount of credit but as a small bank we have a credit limit, while huge companies have access to huge loans through development banks or through big commercial banks. This is the reason why we have decided to focus in mid-sized companies. However, CIBanco can enter the market through medium-sized companies that ask for loans of around US$700,000. The size and timeframe of such loans fit our strategy. Since this type of customer is not being attended to by larger banks, it creates a niche we can exploit.