Improving project loan appraisal –financial aspect for vietnam maritime commercial joint stock bank

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** Bachelor’s Thesis Improving Project Loan Appraisal –Financial Aspect for Vietnam Maritime Commercial Joint stock Bank Student’s name: Nguyen Thu Hang Class: Advanced Finance Intake:K50 Internship guide: Dr Trinh Quang Anh Supervisor: Dr Hoang Van Hoa Hanoi, 2012 ACKNOWLEDGEMENT During this internship period, I have experienced a real working environment, so that I did not only enhance the knowledge I have learnt in class but also be able to reflect and learn so much more besides the knowledge learnt I would like to espress my gratitude to all those who gave me the possibility to complete this thesis Without their help and guidance, I could not have completed this research First, I am deeply indebted to PhD Hoang Van Hoa, instructors from National Economics University for his advice, valuable suggestion and support through obstacles in the completion of this research work Second, I would like to show my gratitude to my supervisors – PhD Trinh Quang Anh for his precious time, his helpful guidance;and all the staffs in Economic Research Department at Maritime bank for enthusiasm and kindness and for giving me permission to commence this thesis, to the necessary research and to use departmental data while I have been for internship and completing my thesis It has been an enjoyable and rewarding experience to work together with them TABLE OF CONTENT ABBREVIATION CHAPTER 1: INTRODUCTION 1.1 Rationale 8 1.2 Research objective 1.3 Research Methodology 1.4 Scope of research 10 10 CHAPTER 2: THEORETICAL FOUNDATION OF PROJECT AND PROJECT APPRAISAL 11 2.1 Investment Project 11 2.1.1 Definition of investment project11 2.1.2 The need of investment Project 12 2.1.3 Cycle of an investment project 13 2.2 Project Appraisal 15 2.2.1 Definition 15 2.2.2 Importance of Project Appraisal 2.2.3 Aspects of Project Appraisal 2.2.4.Non-financial aspect 15 16 17 2.2.4.1 Legal aspects of Project appraisal 17 2.2.4.2 Socio-Economic aspects of Project Appraisal 17 2.2.4.3 Technical aspect of Project appraisal 18 2.2.4.4 Managerial aspect of Project appraisal 18 2.2.4.5 Project Risk Assessment 19 2.2.5 Financial Aspect 20 2.2.5.1 Definition of financial appraisal of project 20 2.2.5.2 Perspective of financial project appraisal 2.2.5.3 Financial 20 Project Appraisal Criteria 19 2.2.5.4 Financial Project Appraisal Content 21 2.2.6 Principles and best practices of project's financial appraisal 28 CHAPTER 3: CURRENT SITUATION OF PROJECT LOAN APPRAISALFINANCIAL ASPECT IN MARITIME BANK 31 3.1 Overview of Vietnam Maritime Bank Commercial Joint stock Bank 31 3.1.1 History and development of Vietnam Maritime Bank Commercial Joint stock Bank 31 3.1.2 Organization Structure of Maritime Bank 3.1.3 Business Performance 2009-2011 33 35 3.2 The importance of project loans: current situation in Maritime Bank 38 3.3 Principles for Project Loan Appraisal in Maritime Bank 3.4 Project Loan Appraisal Process in Maritime Bank 38 41 3.5 Project Loan Appraisal- Financial aspect in Maritime Bank 43 3.6 Example of a Project Loan Appraisal- Financial Aspect “FTN Vietnam Co., Ltd” 45 3.7 Evaluation of the Project Loan Appraisal in Maritime Bank 3.7.1 Achievements 56 3.7.2 Limitations 57 3.7.2.1.Limited intheappraisalmethod 56 57 3.7.2.2 Limited in the appraisal aspects 57 3.7.2.3 Limited in collecting information 57 3.7.2.4 Limited in human resources 57 3.7.3 Causes .54 3.7.3.1 Causes from the Banks 58 3.7.3.2 Causes from the Customers 59 3.7.3.3 Other Causes 59 CHAPTER 4: MEASURES TO IMPROVE PROJECT LOAN APPRAISAL IN VIETNAM MARITIME COMMERCIAL JOINT STOCK BANK 61 4.1 Oriented Development Plan for Maritime Bank in the next years 61 4.2 Measures to improve Project Loan Appraisal in Maritime Bank 62 4.2.1 Improving Appraisal Aspects 62 4.2.2 Improving appraisal method 65 4.2.3 Improving appraisal procedures 66 4.2.4 Improving Human Resources Efficiency 67 4.2.5 Improving Managerial Effectiveness 68 4.2.6 Improving the efficiency of Information Collection 69 4.3 Recommendation 70 4.3.1 Recommendation to the Government 70 4.3.2 Recommendation to State Bank of Vietnam CHAPTER 5: CONCLUSION 73 REFERENCES APPENDIX 71 ABBREVIATION MSB Maritime Bank SBV State Bank of Vietnam NPL Non Performing Loan ROA Return on Assets NPV Net Present Value IRR Internal Rate of Return NEU National Economics University TABLE OF FIGURES Figure 1: Project Cycle .13 Figure 2: Aspects of Project Appraisal .16 Figure 3: Organization Structure of Maritime Bank 33 Figure 4: MSB Capital Mobilization in 2011 .37 Figure 5: MSB Credit Structure 38 Figure 6: Project Loan Appraisal Process 41 Figure 7: Project Loan Appraisal Procedure .43 CHAPTER 1: INTRODUCTION 1.1 Rationale Vietnam has entered the WTO’s integration process, this gives great opportunities to Vietnam but also impose a lot of threats and challenges In this integration process, Vietnam’s objective is “To build our country into an industrialized country with modern facilities - technology, rational economic structure, which is consistent with the development of productive forces and high standard of living” In order to reach its goal, Investment plays a crucial role and considered as a driving force for the country’s development However, starting as a poor country in addition to facing the changes when entering WTO and fluctuations in the World economy, Vietnam’s financial market has evolved greatly As a result, lending and providing capital to implement the project loans in turn is having a lot of difficulties Recent years, under the impact of the financial crisis, the financial system all over the world has fluctuated significantly, including Vietnam’s financial market & banking system On one hand, the financial crisis occured, leads to the decrease the investment rate, through which makes the revenue from the credit activity drop On the other hand, in the difficult background of the global economy, there are many high- risk investment projects required to be appraised carefully Banks, as an intermediary institution, play the roles of facilitating funds to the borrowers Credit activity of commercial banks, therefore, is extremely crucial not only to the development of an economy but also to the development of each individual bank Along with credit activity, the quality of credit appraisal is also very important as it identifies risks, improving the stability, efficiency for a project To be able to reduce bad debts and give out rational loan decisions, Loan Appraisal is an important step in helping the Banks prevents project-associated-risks As a student majored in Finance, I found this very interesting During my time as an intern in Maritime Bank, I have learn more about Project Loan and understand its important to the development of Vietnam Financial aspect of project loan is associated directly with what I have studied at NEU (typically, the subject of Corporate Finance and Commercial Banking) Therefore, I can apply and reflect this theoretical foundation in reality, with the target of researching project appraisal process in Maritime Bank and contributing in improving this process both in size and depth Therefore, I chose to my internship report on “Improving Project Loan Appraisal –Financial Aspect for Vietnam Maritime Commercial Joint stock Bank” Apart from the introduction and conclusion, my internship report consists of chapters: Chapter 1: Theoretical Foundation of Project and Project Appraisal Chapter 2: Current situation of Project Loan Appraisal in Maritime Bank Chapter 3: Recommendation to improve Project Loan Appraisal in Maritime Bank First, I would like to send my thanks to Maritime Bank- head office, especially the staffs at the Economics Research Department, Mr Trinh Quang Anh, Ms Do Thuy Dung, Mr Pham Van Dai for their kind support during my internship there Last but not least, I would like to thank Dr Hoang Van Hoa, my internship advisor, who helped me a lot in completing this report 1.2 Research objective The objective of this research is to investigate in one section of credit management in a bank, i.e project loan appraisal Especially, with my major in finance, this research will be particularly focused in financial aspect of a project loan appraisal By experiencing a real situation in addition to my knowledge studied at university, I was able to give some evaluation and recommendation to improve the current situation of loan appraisal, especially the financial aspect in Maritime Bank 1.3 Research Methodology After deciding on the topic, data and information have been collected both primary and secondary sources Primary sources are the process of project loan appraisal at MSB, example of a project loan proposal of a company,etc., which received from Credit Department of MSB Secondary sources are the theoretical background of a project appraisal, etc., which are obtained mostly from the internet After that, comparison, analysis, analytics and solving of the data and information collected have been used in order for this research to be completed 1.4 Scope of research This research will look at a real situation: Financial Aspect of Project Loan Appraisal in Vietnam Maritime Commercial Join-stock Bank 10