Transition financing under NETR on the cards

Rafizi says the funds allocated for transition financing will consist of projects including purchases or the usage of equipment to increase energy efficiency in businesses. — Bernama

PETALING JAYA: Plans for transition financing under the National Energy Transition Roadmap (NETR) are currently being discussed as the Economy Ministry is set to work together with banks and financial institutions, says its minister Rafizi Ramli.

He said the government has allocated RM2bil to be managed by his ministry and they are currently in the process of determining what type of financing can be made available and the amount to be allocated for different projects.

“The banking sector and government has provided funds for green projects. However, when we talk about energy transition, there are many sectors, industries or projects that may not qualify for green funding,” he said to reporters yesterday during the Asian Strategy and Leadership Institute’s (Asli) Banking and Finance Summit 2023, themed Future of Finance and Financing the Sustainable Development Goals.

Rafizi explained the funds allocated for transition financing will consist of projects including purchases or the usage of equipment to increase energy efficiency in businesses.

“By definition, it is not a green project but is it all part and parcel of the energy transition blueprint. It is important to note that for the NETR to achieve its objectives, an entire ecosystem must be created and this is why we developed another stream of funding called the transition financing,” he said.

According to Rafizi, any kind of supporting project will fall under this stream, including solar and hydrogen projects.

“Hydrogen for example is very nascent, it will most likely not pass the standard banking evaluations in terms of returns. But if we have a roadmap that plans for 10 or 15 years ahead, we can build an entire hydrogen economy,” he said.

Rafizi cautioned that the country should not wait for projects and strategies to fall into place before planning for funding and other policies needed.

“We cannot wait for everything to be ready then only look for funding, but it must start from now, so that’s where this idea came from,” he said.

Rafizi added he hopes this will open up channels for the government to work with the banking sector to further expand what was an already good system set up for green financing to now include transition financing.

Meanwhile, on digital banking, Rafizi said the last three years redefined the fiscal and monetary paradigms not only in Malaysia, but also globally.

In an attempt to curb inflation, he said central banks conducted the steepest series of interest-rate increases – the effect of this was felt throughout different segments of society.

“At the core of this is a banking and finance industry that had to navigate an economy that was at a standstill for almost two years. Yet, on the back of these higher interest rates, banks have managed to bolster their earnings with record highs in net interest income (NII) and robust growth in loans,” he said.

Rafizi noted however, with the cyclical nature of markets, peaks have been in NII’s, while the troughs have come from the non-interest income side, specifically in the form of the advisory and fee-based business.

“Uncertainty in the financial markets has forced many from the buy-side to revise their investment choices. With the lull in private equity deals continuing into 2023, many are growing weary of the limited exit opportunities which jeopardises the reinvestment lifecycle,” he said.

Rafizi said his ministry has a long-term horizon view on such matters, with the main question of how the banking sector can optimise revenue growth, still at the forefront.

“Given Malaysia’s transition towards a high-income country by 2025, the types of deals we source must be of equally high value. As with the NETR, it’s a framework for our nation to transform the stagnant structures of our economy fundamentally,” he said.

He added that by capitalising on this transition towards renewable energy, Malaysia’s financial industry will have the once-in-a-generation opportunity to capture large segments of the transition value chain.

“With the direction and support of this government, there has never been a more opportune time to act. We have sufficient infrastructure, incentives, and initiative to drive Malaysia forward for a just and equitable transition.”

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