Financial appraisal of project a case study of maritime comercial joint stock bank head office,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS Financial appraisal of projectA case study of Maritime Commercial Joint Stock BankHead Office Student: Nguyễn Khoa Diệu Ngọc Lecturers: Phạm Quốc Khánh (Ph D) Bùi Lê Minh (M A) 20th May, 2012 ACKNOWLEDGEMENT This graduate thesis would not have been possible without the guidance and the help of several individuals who in one way or another contributed and extended their valuable assistance in the preparation and completion of this study First, I would like to send my thanks to Maritime Bank- head office, 88 Láng Hạ Street, Đống Đa Province, Hanoi, especially the staffs at The Economics and Financial Market Research Department, Dr Trinh Quang Anh, MA Hoang Thu Ha, MA Pham Van Dai for their kind support during my internship there Then, I would like to thank my family and friends whose sincerity and encouragement I will never forget Last but not least, I would like to thank Dr Pham Quoc Khanh and MA Bui Le Minh, my internship advisors, who helped me a lot in completing this thesis Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 ABSTRACTS Financial appraisal is a crucial step in the process of making loan- one of the activities that make up a large proportion of revenue for commercial banks each year Thus, financial appraisal, especially financial appraisal of project needs to be proceeded carefully and thoroughly However, financial appraisal of project in Vietnam still exists many problems, both in process and quality Accordingly, there is a need for improved training methods and virtual reality technology holds promise for this application The immediate objective of this thesis is to suggest some recommendations in improving financial appraisal of project in Vietnam’s commercial banks in general and in Maritime Bank in particular In order to reach this objective, the writer has collected some data from Maritime Bank’s credit hand- book, researched many theoretical documents on financial appraisal Also, the writer has studied the current situation and illustrated the real situation of Maritime Bank’s financial appraisal by a typical example of FTN Co Then, the thesis compares the standardized process and the real situation in commercial banks, through which gives out conclusion about the achievements and limitations of commercial banks in appraising a project’s finance Finally, the thesis also suggests some comments to improve the situation The writer hopes that these comments will help to improve the financial appraisal of project in Vietnamese commercial banks in the future Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 TABLE OF CONTENT ACKNOWLEDGEMENT ABSTRACTS I INTRODUCTION 1.1 RATIONALE 1.2 RESEARCH OBJECTIVE 1.3 RESEARCH METHODOLOGY 1.4 SCOPE OF RESEARCH 1.5 TASKS 1.6 CONTENT OF THE THESIS II COMMERCIAL BANK AND PROJECT APPRAISAL LENDING ACTIVITY AND COMMERCIAL BANKS 1.1 COMMERCIAL BANKS 1.2 LENDING ACTIVITY OF COMMERCIAL BANKS 1.3 PROJECT LOAN IN COMMERCIAL BANKS PROJECT APPRAISAL 2.1 DEFINITION 2.2 THE ROLE OF PROJECT APPRAISAL IN LENDING ACTIVITY OF COMMERCIAL BANKS PRINCIPLES AND BEST PRACTICES OF PROJECT’S FINANCIAL APPRAISAL 3.1 PRINCIPLES OF MAKING LOAN 3.2 BEST PRACTICES OF PROJECT’S FINANCIAL APPRAISAL 3.2.1 Project evaluation framework 3.2.2 Project evaluation criteria III PROJECT’S FINANCIAL APPRAISAL BY VIETNAM COMMERCIAL BANKS 12 VIETNAM COMMERCIAL BANKS AND PROJECT FINANCE 12 1.1 CURRENT FINANCIAL SITUATION AFFECT PROJECT FINANCE 12 1.1.1 Macroeconomic condition .12 1.1.2 Banking system 12 Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 1.2 DEFINITION OF FINANCIAL APPRAISAL 13 1.3 CONDITIONS TO IMPLEMENT A PROJECT’S FINANCIAL APPRAISAL 13 1.3.1 The condition of information 13 1.3.2 The condition of methodology 14 PROJECT’S FINANCIAL APPRAISAL PRACTICES BY VIETNAM COMMERCIAL BANKS 15 2.1 GENERAL REGULATIONS OF VIETNAM COMMERCIAL BANKS IN MAKING LOAN 15 2.1.1 Objects and requirements for project loan 15 2.1.2 Term for project loan 15 2.1.3 Credit line .15 2.1.4 Loan interest rate 15 2.2 PROCESS OF PROJECT’S FINANCIAL APPRAISAL IN VIETNAM COMMERCIAL BANKS .16 2.3 CONTENT OF FINANCIAL APPRAISAL OF PROJECT LOAN IN VIETNAM COMMERCIAL BANKS .18 2.3.1 Appraise financial condition of the project’s investor .18 2.3.2 2.3.3 2.3.4 2.3.5 Appraise investment capital of a project 19 Appraise expected benefits and costs of the project 20 Appraise annual cash flow of the project 22 Appraise and analyze indicators evaluating the financial efficiency of the project 24 2.3.6 Define the balance sheet of the ability of paying off the loan 28 IV CASE STUDIES 30 CASE STUDY I: FTN VIETNAM CO., LTD IN MARITIME BANK- APPRAISAL & LOAN APPROVAL REPORT- DATED 06/09/2010 30 1.1 GENERAL INFORMATION OF FTN VIETNAM CO., LTD .30 1.2 FINANCIAL APPRAISAL OF THE PROJECT 30 1.2.1 Objectives of the project 30 1.2.2 Appraise financial condition of the project investor 31 1.2.3 Appraise investment capital of the project and the feasibility of capital structure 31 1.2.4 Appraise expected revenue and costs of the project .33 1.2.5 Appraise annual cash flow of the project 34 Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 1.2.6 Appraise and analyze indicators evaluating the financial efficiency of the project 36 1.2.7 Define the balance sheet of the ability of paying off the loan 36 1.2.8 Sensitivity analysis 37 V DISCUSSION/ RECOMMENDATION 38 EVALUATION OF THE QUALITY OF PROJECT LOAN APPRAISAL 38 1.1 ACHIEVEMENTS .38 1.2 LIMITATIONS 38 1.2.1 Limited in appraisal content 38 1.2.2 Limited in collecting information 39 1.2.3 Limited in human resource 39 1.3 SUGGESTED FOR CAUSES OF EXISTING LIMITATIONS .39 1.3.1 Causes from commercial banks .39 1.3.2 Causes from the customers 40 1.3.3 Other causes 41 SUGGESTED SOLUTIONS TO IMPROVE THE QUALITY OF PROJECT LOAN APPRAISAL IN VIETNAM COMMERCIAL BANK 41 2.1 IMPROVE THE CONTENT OF PROJECT APPRAISAL .41 2.1.1 Appraise project’s investment capital .41 2.1.2 Determine proper discount rate for each project 42 2.1.3 Appraise of project’s ability of debt payoff 43 2.1.4 Appraise the project’s risks .43 2.2 IMPROVE THE QUALITY OF INFORMATION COLLECTION AND FACILITIES 44 2.3 IMPROVE HUMAN RESOURCES EFFICIENCY .45 VI CONCLUSION 47 VII BIBLIOGRAPHY 48 APPENDIX A- REVENUE/ BREAKEVENPOINT AND PROJECT EFFICIENCY PLAN APPENDIX B- PROJECT FINANCIAL INDICATORS APPENDIX C- FINANCIAL ANALYSIS Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 LIST OF CHARTS Chart 1: Full Procedure for the Appraisal Stage of the whole process Chart 2: Project’s financial appraisal process 16 Chart 3: Credit balance of customer (May 2009- May 2010) 31 LIST OF TABLES Table 1: Types of loans Table 2: Key characteristics of financial analysis of self- financing and nonself- financing projects Table 3: The model of investment project 17 Table 4: Sample Project Cash flow Analysis Table 24 Table 5: The balance sheet of the ability of paying off the loan 29 Table 6: General information of FTN Vietnam Co., Ltd 30 Table 7: Relationship with other credit institutions in the past 31 Table 8: Investment Capital of the project 33 Table 9: Types of costs of the project 34 Table 10: Appraise annual cash flow of the project 35 Table 11: Investment Efficiency Ratio 36 Table 12: Expected payment schedule 36 Table 13: Sensitivity analysis- change in price 37 Table 14: Sensitivity analysis- change in price and material cost 37 Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 LIST OF ABBREVIATIONS CF Cash Flow CIFs Cash Inflows COFs Cash Outflows DPBP Discounted Payback Period EBITDA Earnings Before Interest Tax Depreciation Amortization EBIT Earnings Before Interest Tax EBT Earnings Before Tax FV Future Value IRR Internal Rate of Return MSB Maritime Commercial Joint Stock Bank NPV Net Present Value PBP Payback Period PI Profitability Index PV Present Value ROA Return On Assets ROE Return On Equity SBV State Bank of Vietnam USD United States Dollar WACC Weighted Average Cost of Capital Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 I INTRODUCTION 1.1 Rationale On the role of intermediary institutions of the economy, banking system is considered the backbone of the economy, also is the major capital channel for investment project sponsored by both the government and corporate However, recent years, under the impact of the financial crisis, the financial system all over the world has fluctuated significantly, including Vietnamese market and Vietnamese banking system On one hand, as the financial crisis 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 Therefore, in such background, banks should focus on investment projects, especially making loan activity This kind of activity implicit high risks, unexpected results because of the variability of the competitive market and the exchange rate, etc Therefore, in order to invest effectively, commercial banks have to appraise the project comprehensively and carefully As a result, appraisal activity not only helps the bank eliminate the risks, but also makes the investment activity more effective Moreover, a good appraisal process may limit the default risk and eliminate ineffective business The diagram below illustrated the full procedure for the Appraisal stage of the whole process Documents Appraisal Customer Appraisal Project Appraisal Loan security measure Appraisal Chart 1: Full Procedure for the Appraisal Stage of the whole process The Project loan appraisal –financial aspect lies in the third step along with several other aspects, i.e., legal, socio-economic, technical, and risks management, as mentioned above In this thesis, I will only focus on the financial aspect of a project loan appraisal The financial aspect of a project appraisal is a crucial step and it must be appraised and analyzed thoroughly and carefully because based on this the Bank can analyze and assess the ability to repay the loan and loan interest of the customers Moreover, financial aspect of project loan is associated directly with what I have studied at university (typically, the subject of Corporate Finance and Commercial Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 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 For all of that reasons, I choose the topic of: “Financial Appraisal of Project” 1.2 Research objective The purpose of this document is to complete the written part of my bachelor’s project in English for Banking and Finance Based on the theoretical foundation of project appraisal and the practice in Vietnam’s Commercial Banks, typically in Maritime Bank, the objective of the thesis is also to propose some solutions aiming to improving the project loan appraisal in Maritime Commercial Joint Stock Bank 1.3 Research methodology The thesis is research based on information collection, statistical analysis, synthetic, and comparable methods 1.4 Scope of research The thesis focuses on the process of project loan appraisal in Maritime Bank Commercial Joint Stock Company 1.5 Tasks In order to reach the objective of the thesis, the responsibility in each part: Part 1: Research the theoretical foundation of commercial banks and project loan appraisal process Part 2: Make clear the situation of project loan appraisal process in Vietnam Commercial Banks Part 3: Research one typical study case: “FTN Vietnam Co., Ltd in Maritime BankAppraisal & Loan Approval Report- dated 06/09/2010” Part 4: Evaluate the quality of project loan appraisal, through which suggests some recommendations to improve its quality Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 37 1.2.8 Sensitivity analysis Operating capacity of the project in the first year reached 60% of the designed capacity, increase by 15% compared to the second year and increase by 10% in the next years compared to the second year Conducting sensitivity analysis for single changes in price of the products and changes in both prices and material costs as follow: Change in price: Table 13: Sensitivity analysis- change in price Change in price and material cost: Table 14: Sensitivity analysis- change in price and material cost Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 38 V DISCUSSION/ RECOMMENDATION EVALUATION OF THE QUALITY OF PROJECT LOAN APPRAISAL 1.1 Achievements Investment project credit in Vietnam has been dealing with many difficulties recently, especially after the financial recession at the end of 2008 In this difficult time, Vietnam commercial banks have emphasized more on the appraisal process of the project loan prior to loan approval, received many application documents for project loan, which on one hand, create favorable conditions for improving revenue and business expansion; on the other hand, may turn to be potential bad debts without careful appraisal process In fact, Vietnam commercial banks have reached some finite achievements in project loans as follow: - Continuously expand the project portfolio, especially for the customers whose projects are considerably safe; restricted with risky and inefficient project - Strategically expand for project in key economic sectors, products with stable demand; prudent with project with fluctuations in prices and demand - Project loan in commercial banks has helped enterprises and the economy with needed funds; help resolve the lack of capital for new investment or business expansion situation, ensure that businesses not miss investment opportunities - The appraisal and lending process is strictly in accordance with strict regulations, which organize, coordinate and manage flexibly within departments and committees - Ensure of the specialization, transparency and clear separation between Customers Department, Project Appraisal and Lending Approval 1.2 Limitations 1.2.1 Limited in appraisal content Project appraisal eventhough was implemented with the risks assessment; however, not yet thoroughly and deeply There are some method to assess risks but they are mostly old method and can not assess multiple factors changes and the impacts when these things happen Although there are several models and generalized methods, they has not been applied such as scenario analysis and probability method Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 39 Moreover, in revenue- cost appraisal, costs and prices of products are often applied for the entire economic life of the project This is not reasonable since the economy is greatly unstable, especially in this economic intergration at present Finally, collateral to secured project loan is still low Regulations and procedures on collateral are not really strict, collateral value does not really match with the real assets value 1.2.2 Limited in collecting information In order to make decision for a rational lending, we need information and information needs to be reliable However, by different reasons, Appraisers at Vietnam commercial banks can receive very limited information both quantitively and qualitatively For other information about the project, and project owners, appraisers need to look for on the internet or mass media,etc This type of information needs to be carefully proceeded and selected before putting into use; but sadly, the appraisers often use it immediately; hence, this can lead to irrational lending decision and may lead to serious consequences 1.2.3 Limited in human resource Ability to evaluate on industry sector is still weak, which affects a lot on appraisal process to conclude right decisions Typically, ability to analyze new products or analyze the eco-tourism project in medium and long term As a result, there exists some situations where new, potential projects are rejected while investing in more familiar enterprises which contains higher level of risks 1.3 Suggested for causes of existing limitations 1.3.1 Causes from commercial banks a Lending policy has not yet completed Although the majority number of commercial banks have adequate and proper policies according to the law and SBV, as well as suitable with the business environment and its resources capacity, they still have some problems with Appraisal and Customer Services, i.e., inadequate information collecting for the customer services department In addition, project profile is not specific for each type of business, business fields in a specific area b Information source is not sufficient and lack of creditability Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 40 Currently, the information source is mainly provided from the customers However, this source is sometimes insufficient, inaccurate, and depends a lot on the customers In addition, information is also collected from the internal information source of each bank, combined with Credit Information Centre – State Bank of Vietnam (CIC-SBV) This internal information source can currently provide information such as revenue and credit balance of the customers who previously or currently having a relationship with the bank or other credit institutions However, as a matter of fact, CIC – SBV can provide information but sometimes not adequate or outdated, poor in quality, not in time and discrete c Appraisal quality In some branches, appraisers are still limited in quantity; therefore, the job intensity is quite high, and as time limitation, appraisers can only assess the material indicators and methods which are suitable with the project but cannot assess the project thoroughly and sufficiently in all aspects On the other hand, most appraisers are still young; hence, lack of experiences, social relationship and general economic knowledge In addition, there has not been any basic training and development program to improve staffs’ skills Although many banks have tried to focus on the lives of the employees, rewarding system in some of them have not yet effective, not promote the employees’ full capacity and potential d Lack of facilities and equipment Currently, the “Modernizing Banks and Payment system Project’’ (World Bank) is only implemented only in the accounting, inspection of lending and retailing field The appraisal field has not yet any specialized software Most of appraisers still use EXCEL in the computer ; therefore, the efficiency is not high both quantitatively and timely 1.3.2 Causes from the customers There are two main obstacles from the customers Firstly, it is lack of experience and capacity in constructing and appraising a project; and secondly, it is lack of credibility and transparency when providing information for the appraisers Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 41 The credibility of the project owners and transparency of the information can affect a lot the project appraisal, which in turn, affects the efficiency of the project 1.3.3 Other causes a Policies are not completed The overlap in the legal system of investment- banking and finance, the loose in the management and inspection of the government is really a difficulty for banks to a project appraisal, and can easily create negative situations Moreover, the documents are issued and changed regularly; therefore, it affects the project assessment, even leads to inaccurate prediction of the project b Weak cooperation between banks Recently, with the impact of the market condition, the competitiveness between banks in funds mobilization and utilization has been becoming vigorous As a result, the cooperating and sharing information between Banks and SBV in the banking activities in general and project loan appraisal in particular are very limited This, in turn, influences the quality of the information collected c Macroeconomic factors- Business environment Macroeconomic factors such as: economic growth, inflation, depreciation, living standard and supply and demand of the market are changing rapidly, which impacts the input information, total revenue, total costs and project cash- flow; hence, influences the quality of the project appraisal SUGGESTED SOLUTIONS TO IMPROVE THE QUALITY OF PROJECT LOAN APPRAISAL IN VIETNAM COMMERCIAL BANK 2.1 Improve the content of project appraisal 2.1.1 Appraise project’s investment capital Currently, in investment capital appraisal, most of commercial banks just consider the suitability and the sufficiency of total investment capital, etc However, in order to appraise the project more carefully, banks should regulate specifically which criteria are needed to be considered like: investment capital for fixed assets (factory, equipment, or machines), working capital, reserved capital, capital for other costs coverage Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 42 From each typical project, investment capital classification process helps appraiser construct a suitable capital and asset structure, which creates condition for appraisal process to be implemented much easier Moreover, managing and defining these types of capital resource is the basis to calculate initial cost, cost of capital (interest rate and other fees related to the loan), cost of fixed asset repairing, depreciation, account payables In addition, as a matter of fact that many projects’ investment capital submitted is less than the total capital needed for projects to be implemented and operated Therefore, in order to define a project’s investment capital need accurately, banks should not depend so much on information provided by project investors, but should consider more about current and similar projects in reality 2.1.2 Determine proper discount rate for each project In order to give a conclusion about financial efficiency of a project, appraisers primarily depend on some criteria like: NPV or IRR However, the most difficult thing to calculate these criteria is how to define a suitable discount rate Financial ratio can only reflect financial efficiency accurately with a suitable discount rate In essence, aiming at determining a proper rate at which to discount the cash flows associated with a capital budgeting project, it needs to meet requirements: compensating for risks, reflecting the cost of project’s capital, and reflecting the efficiency of capital utilization Theoretically, defining discount rate depends on sponsored capital for the project In the limitation of this thesis, I only concern about the plan of using blend of equity and borrowing capital In this case, cost of capital of the project is weighted average cost of capital (WACC) that is determined by following formula: WACC= ( ) (1-t) + ( )( )+( )( ) Where: = percentage of debt in the capital structure = the before- tax cost of debt (the rate at which the firm can issue new debt) (1-t)= the after- tax cost of debt = percentage of preferred stock in the capital structure Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 43 = the cost of preferred stock = percentage of common stock in the capital structure = the cost of common equity However, it is worth noting that a firm’s WACC reflects the average risk of the projects that make up the firm, it is not appropriate for evaluating all new projects It should be adjusted upward for projects with greater- than- average risk and downward for projects with less- than- average risk 2.1.3 Appraise of project’s ability of debt payoff With many banks in Vietnam, appraising the project’s ability of debt payoff is one of the most content in financial appraisal of project Source of debt payoff of a project is calculated as follows: Source of debt payoff in year i = % after- tax income in the year i + project’s depreciation in the year i In reality, it is worth noting that enterprise cannot use 100% of after- tax income to pay off the debt, but only 50- 70% can be used, because the rest is used for distribution of some funds as national regulation and retained for reinvestment In order to make the project’s ability of debt payoff feasibility, project’s investor often raises the project’s depreciation in some first years of project’s operation Thus, banks need to manage and appraise the depreciation level to ensure it is calculated accurately After defining the sources of debt payoff, banks need to establish annual plan for debt payoff of each project Annual debt payables include both the payables to the bank and other institutions As a result, the bank can calculate the real ability of debt payoff by the difference between the source of debt payoff and the account payables 2.1.4 Appraise the project’s risks With financial appraisal of project, risk analysis takes an important role, which helps banks have comprehensive view about the suitability of the project with the reality, the adaption of the project to market changes In order to appraise risk level, banks often use two methods which are: sensitive analysis and scenario analysis Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 44 Currently, most Vietnamese banks have applied sensitivity analysis in appraising risks This method is implemented to evaluate ratio reflecting the financial efficiency (like: NPV, IRR, etc.) according to the change of related factors like: selling price, fixed costs, variable costs, etc However, this method still exists following limitations: − With a definite factor like selling price, or sales, as demonstrating in a graph, the slope of NPV or IRR may be relatively high; however, in the case that such factors are fixed by supplying contracts, the project is quite safe − In this method, changing variables and not calculating based on probability distribution make financial efficiency ratios difficult to quantify In this case, banks should use scenario analysis to overcome the limitation of sensitivity analysis Scenario analysis evaluates the outcomes of the project in some cases under definite conditions of some related factors, then distributing the probability of these factors In the future, with diversified database and modernized software, banks can apply the method of Monte Carlo Simulation According to this method, banks may analyze project’s results under simultaneous effects of many factors, accounting to probability distribution 2.2 Improve the quality of information collection and facilities Evaluation work in general and financial appraisal in particular is the process of analyzing information and data to make an evaluation and review Therefore, it is not exaggerating to say that information is a fundamental factor in financial appraisal of projects To improve the quality of financial appraisal of projects, banks need to diversify sources of information; besides, they also need to analyze and process the information obtained in the most efficient and thorough way Regarding to sources of information, appraisers not only have to pay attention to documents which is related to projects submitted by investors, but they also directly interview the representative of the project’s owner, coupled with visiting the factory to learn about buildings, machinery, engineering, process technology available, the situation of production and business activities of the customer To ensure the correctness and objective, appraisal staff needs to collect additional information from other sources such as: - Information from risk prevention center under the State Bank Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 45 - Information from other credit institutions that has credit relationships with the client - Information from the customers of the client, from project management departments - Information from the mass media (newspapers, radio, computer networks ) Besides, banks also need to build a database with their own personal aggregate information to serve for the evaluation work In terms of technology equipments, competitive advantage of banks is partly showed in equipment and systems of information processing technology In evaluating financial aspect of a project, modern equipment and advanced technology will improve the quality evaluation process and ensure the accuracy To achieve this objective, commercial banks need to modernize the entire computer system, put to use the large server with large storing capacity and high speed communications In addition, banks should boldly order the specialized software to increase efficiency in the work of analyzing and processing information In fact, the financial appraisal of projects is complex, involved and influenced by many different factors Above solutions are indicative base to address current shortcomings in Vietnamese commercial banks Therefore, to truly improve the quality of project evaluation, especially the financial appraisal of projects, requires the coordination of related sectors and sectors at all levels 2.3 Improve human resources efficiency In the financial appraisal of projects, human factor always plays a central role in governing and influencing the effectiveness of the work Acutely aware that, in recent years, Vietnamese banks have considerable paid attention to human factor Promoting the human factor in the evaluation work should be the solution to improve the qualifications, experience and ethic of works On the major level: personnel evaluation must be graduating from a university or higher, have extensive knowledge in banking - finance with the basic knowledge of legal, tax, etc In addition, they need have more knowledge about economic, social, cultural, political, foreign language skills, and computer Moreover, they need to be able to synthesize and evaluate information flexibly, responsively The banks should implement policies that encourage staff training to improve qualifications of staff such as giving them more time, tuition grants, increase salary, Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 46 for the college staff, and the staff at higher level The banks may open a study outside courses also In terms of work experience, to make evaluation staff have conditions to accumulate more practical experience, banks should make them penetrate the real problem, directly involve in supervising or managing a project finance of a bank or enterprise in some fields In particular, after each finished project financing, banks should conduct the review what needs to be improved, from which draws a common experience for appraisers In addition, the branch should focus on building a team with full of talent and experience as the core of project’s financial appraisal and this team may convey the experience, fostering next staff generation In terms of ethics: appraisers must act in ethical manner, honesty and high sense of responsibility and dedication to the work To have these kinds of staff, commercial banks should regularly perform the work of ideological and ethical education, as well as, there are adequate and timely rewarding policies for both material and spirit encouragement On the other hand, banks must also make strict and clear punishing policy with ethical corruption behaviors Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 47 VI CONCLUSION Base on the broad view from Part II: “Commercial Bank and Project Appraisal”, project finance in Vietnam is evaluated in part III by comparison and statistic method In order to adapt with new conditions of the economy, commercial banks have to prepare strategic policies Also, in this part, the writer has suggested practices applied by Vietnam Commercial Banks Applying appraisal practice continues to be analyzed in a more specific way with a typical case of FTN Vietnam Co., Ltd in Maritime BankAppraisal & Loan Approval Report- dated 06/09/2010, from which the thesis evaluated some achievements and limitations in part IV: “Discussion” More specifically, suggested causes of limitations in appraisal practice are also included Then, some recommendations are suggested, which include main groups of solutions aiming at giving more accuracy and reliability of project appraisal in Vietnam Commercial Banks Based on analyzing factors affecting financial appraisal process of project, the writer recommends the State Bank of Vietnam manage strictly project lending of commercial banks so that banks can avoid high- risk projects Another recommendation for State Bank of Vietnam is to improve credit database to strengthen the information provided to commercial banks However, the financial appraisal of project is a work which contains content and very complex process, influenced by many subjective and objective factors, relevant to many branches and many levels Quality evaluation of project financial performance depends not only on professional qualifications, ethical quality of appraisers but also depends on many factors such as: process, content evaluation, equipment and technology, information, organization and management methods, regulatory environment, economic environment, etc Therefore, to improve the quality of financial appraisal of projects, it cannot just rely on the bank's effort but also requires the close cooperation of related braches and ministries To be able to create workable solutions to improve the quality of financial appraisal of projects requires deep research process and comprehensive Because of the limitation of time, statistics, and analysis methodology, the thesis has not evaluated comprehensively the general impact of factors on appraisal process, has not sufficient analysis on the relationships among factors yet If there is a condition of development, the writer hope that the topic will be developed in more specific and deep way aiming to suggest more general recommendations on financial appraisal of project to meet new conditions of financial market Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 VII BIBLIOGRAPHY ADB (2011), “Asia Development Outlook 2011”, Philippines, p.215- 219 ADB, “Statistical Database System”, ADB website, www.adb.org/Economics/Sdbs.asp ARIC, “Economic and Financial Indicators Database”, ARIC website, http://aric.adb.org/aric_database.php CFA Program Curriculum, Volume 1, “Ethical and Professional Standards and Quantitative Methods”, 2012, Reading 05- Time Value of Money, p 255- 292 CFA Program Curriculum, Volume 1, “Corporate Finance and Portfolio Management”, 2012, Reading 36- Capital Budgeting & Reading 37- Cost of capital, p 10- 29 CFA Program Curriculum, Volume 1, “Financial Reporting Analysis”, 2012, Reading 28- Financial Analysis Techniques, pg 327- 390 Frederic S Mishkin: The Economics of Money, Banking and Financial Markets Addison- Wesley, Alternate Edition, 2007 Dr Hồ Diệu: Banking Credit Thống Kê Publisher, 2000 Dr Lưu Thị Hương: Corporate Finance Thống Kê Publisher, 2003 10 Dr Lưu Thị Hương: Financial Appraisal of Project Tài Chính Publisher, 2004 11 Dr Đinh Thế Hiển: Establish and Appraise Project Finance Thống Kê Publisher, 2003 12 Dr Nguyễn Minh Kiều: Credit and Banking credit appraisal Tài Chính Publisher, 2008 13 Dr Nguyễn Văn Tiến- Commercial Banking, Thống Kê Publisher, 2009 14 Department of Economics and Financial Market Research, Maritime Bank: “Vietnam Economic Prospect”, the first quarter of 2012 15 General Statistics Office, Database, download on www.gso.gov.vn 16 Maritime Bank, Credit Handbook, 2011 17 New South Wales Treasury, Commercial Policy Framework: Guideline for Financial Appraisal Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 18 Peter S.Rose and Sylvia C Hugdgins: Bank Management & Financial Services IRWIN, 2008 19 Project Loan Appraisal and Management- Fulbright 20 USAID/ India Reform Project Compendium with Practitioners’ Guide: State Fiscal Management Reform 21 Legal documents:  Law of State Bank of Vietnam, 1997  Law of State Bank of Vietnam, 2010  Law no 47/2010/QH12 on June 16th 2010, on Credit Institutions  Decision no 11/ NQ-CP on February 24th, 2011of the Government on policies focusing on inflation controlling, macroeconomic stability, and social welfare improvement  Directive no 01/CT-NHNN, SBV requires target credit growth rate for each bank  State Bank of Vietnam, “Regulations on lending by credit institutions for customers” (issued with decision No 1627/ 2011/QD-NHNN dated Dec 31st 2011 of the Governor of the State Bank) Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 COMMENTS Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11 GRADUATE THESIS ASSESSMENT Signature of supervisor Supervisor: Dr Phạm Quốc Khánh MA Bùi Lê Minh Student: Nguyễn Khoa Diệu Ngọc- ATCAK11