credit analysis and lending management

As a commercial bank, playing the blood economy, intermediary bridge between excess capital and shortage of capital, the following report is going to present a credit appraisal report of

HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

Construction Joint Stock Company ( Coteccons)

Ores

CREDIT ANALYSIS AND LENDING MANAGEMENT

Lecturer : Dao Thi Thanh Binh

Tutors : Nguyễn Thị Minh Hằng Tutorial Number: 02

Group Name : ABC

Group Members: Nguyễn Thị Hải Anh - 20040400009

ACKNOWLEDGEMENT

We would like to thank Dr Dao Thi Thanh Binh and Mrs Nguyen Thi Minh Hang for their time and excitement in providing us with feedback on this project We would like to use this time to express our sincere gratitude to our friends and coworkers for their commitment to helping us finish this project We are motivated to retain the knowledge we learn during the course by the outcome and practicality of the project

ABSTRACT

In current development and integration economics, corporations, medium and small

enterprises are important departments in the economy and society in Vietnam To

continuously strongly improve and widen scales, requires abundant resources and stable capital from banks or financial institutions As a commercial bank, playing the blood economy, intermediary bridge between excess capital and shortage of capital, the following report is going to present a credit appraisal report of Coteccons — Construction Joint Stock Company including the analysis of financial performance, five Cs of the company and others With the purpose of answering the questions: Should loan support for Coteccons or not?

I Introduction

Coteccons Construction Joint Stock Company (Coteccons) is consistently determined to be the leading construction company in VietNam Coteccons was established on August 24, 2004 from the equitization process of a member company of Fico Corporation Founded in 2004, Coteccons Group has successfully grown in both size and reputation for delivering

world-class projects, including Residential, Commercial, Hospitality, Infrastructure, and

Industrial By investing in modem construction practices and management techniques to ensure that, Coteccons remain at the cutting edge of our industry To satisfy client expectations, Coteccons constantly aims to provide works of the best quality in the shortest amount of time When developing and building, Coteccons always gives the highest priority to technical and safety requirements Utilizing our knowledge and experience in construction management and technique, Coteccons guarantees the quality and safety of the job Coteccons covers design management, construction, material and equipment supply, providing a comprehensive and optimal solution for our clients’ projects A pioneer in the production of ESG value, Coteccons develops a thorough green construction solution based on the 3-Re standards: Recycle: Choose environmentally friendly materials and beautiful design Reduce: produce a better living environment by designing ventilation, reducing pollutants, and minimizing trash Renew: Use renewable energy and implement energy- efficient solutions Energy-efficient solutions are implemented and sustainable energy initiatives are developed with the help of member company CTD Future Impact

The organizations that have obtained loans from Coteccons are known as borrowers These borrowers may be based in Vietnam or outside, and they may be people or companies The majority of Coteccons' borrowers utilize the loans to fund their building projects The firm could also lend money to other companies in the building sector The borrowers of Coteccons are an integral element of the company's operations and guarantee a consistent flow of income for the firm Before granting a loan, the organization thoroughly considers each borrower's creditworthiness and continuously tracks each borrower's performance The borrowers of Coteccons have a wide range of credit demands and originate from a number of businesses The business offers a high degree of customer care to make sure that its borrowers are happy with their experience, and it customizes its loan products and services to match their unique needs Coteccons is dedicated to giving its debtors access to the money

they require for success The organization is able to provide borrowers affordable rates, flexible terms, and exceptional customer service because of its sound financial status and highly skilled staff of specialists Coteccons has been built and developed by more than 50 initial officers and staff members, resulting in a construction company with an annual

revenue rise of more than 50% and more than 2,000 officers and staff members holding

bachelor's degrees and higher With a charter capital increase of VND 307.5 billion, Coteccons was listed on the Vietnam Stock Exchange in 2010 The business evolved into the Coteccons Group in 2014 after Unicorns joined it The year 2016 continued to mark a milestone in Coteccons’ economic development The Company’s revenue reached VND 20,783 billion, increasing by 52% Profit increased 113% compared with that of 2015, reaching the level of VND 1,422 billion Coteccons surpassed many foreign contractors to win over the bid of The Landmark 81 project, the highest building in Vietnam and the 8th highest building in the world Coteccons has made significant strides in its technological growth with the execution of several difficult projects, such as the foundation construction packages for The Landmark 81 and The Spirit of Saigon (previously known as The One) Furthermore, there have been some notable achievements in the use of BIM in the building of the transfer beams for the Landmark 81 project

II Coteccons Analysis 1 Expert System — 5Cs 1.1.Character

First of all, Coteccons from the beginning identified this as a unit that plays a key role role, Coteccons from the beginning has determined that this is a world-class construction service according to an integrated model including design, providing national-class projects,

construction and design of Residential, Commercial, Hotel, Infrastructure and Industrial

areasKarma engineering and construction to create maximum value for customers headed by

Mr BOLAT DUISENO At present, Coteccons has equity of 8,247 billion VND, with a total

number of engineers and employees of more than 1,800 people

Coteccons has received numerous awards for its outstanding performance in the construction industry These awards recognize the company's commitment to quality, innovation, and sustainability With international awards, Best Commercial Project Asia Pacific (Asia Pacific

Property Awards) (2016-2022) In National Awards, Top 10 Most Reputable Construction Contractors by VietNam Evaluation Report Joint Stock Company(Vietnam Report) held in 2019; Top 20 Companies with Sustainable Development Index VNSI that the program is organized annually by the Ho Chi Minh City Stock Exchange (HOSE) in 2021 In other awards, Best Construction Contractor in Vietnam (Vietnam Construction Magazine) (2016- 2022) These awards are a testament to Coteccons' reputation and quality in the construction industry The company is committed to providing its clients with the highest level of service and is constantly innovating to improve its performance

Investing in modem construction practices and management techniques to ensure that it remains at the cutting edge of our industry Coteccons provide a comprehensive and optimal solution in the construction industry Coteccons is the contractor of choice in Vietnam In order to master modern technology and equipment, the company pays great attention to training and developing human resources Based on the importance of investing in human resources as a key factor, Coteccons has the prospect of effectively implementing the proposed long-term investment strategies In summary, all of this raises Coteccons value and establishes it as a trustworthy company

1.2 Capacity

The ability to pay back the loan with interest according to the agreed-upon timeline 1s known as capacity In addition, the ability to repay the debt financially is referred to as capacity Legal capacity, which relates to the ability or eligibility to sign a loan contract, is not the same as capacity A capacity is determined by two things The borrower's steady financial situation is the first consideration The borrower needs to be able to make enough money after expenses in order to service the loan Lenders frequently request financial information from customers in order to assess if the borrower's financial situation is steady When applying for a personal loan, applicants are frequently asked to provide information about their income, expenses, and net surplus that they have available for repayment The lender also obtains information on the borrower's current assets and liabilities Property, stock investments, managed funds, and/or term deposits are examples of assets Outstanding credit card and loan amounts are examples of liabilities

In order to evaluate the financial stability or creditworthiness of borrowers, lenders often require audited financial accounts and projected cash flow in the case of firms The lender

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considers the new project that the business is putting forth, taking into consideration both the risks and the profits Capacity is the primary source from which repayment is expected to happen It's critical to assess the primary sources of debt repayment early on

To analyze the ability to repay loans of Coteccons, lenders often consider the DIT ratio Total Debt

Debt — to — Gross income =

Revenue

Table 1: Capacity ratio

In the case of Coteccons, the debt to total revenue ratio has increased from 40.68% in 2020 to

45.20% in 2021 and 56.69% in 2022 This increase can be attributed to a number of factors, including: increased operating costs, increased prices for raw materials and labor; reduced

revenue, causing the real estate market to decline; Increase investment in fixed assets,

expanding the company's operating capabilities The increasing ratio of debt to total revenue 1s a warning signal for Coteccons This suggests the company is becoming more reliant on debt to fund its business In case the real estate market continues to decline or raw material and labor prices continue to increase, Coteccons may have difficulty repaying its debt To minimize financial risks, Coteccons needs to pay attention to improving revenue and controlling operations

1.3.Cash — Financial Performance of Coteccons

“+ Liquidity Analysis

Current Ratio (CA/AL) 2.24x 2.25x 1.71x times

Quick Ratio (CA - Inv)/CL |1.98x |1.95x | 1.43x |times |

Table 2: Liquidity Ratio

Liquidity indicators reflect the ability of the business to pay off short-term loans Current ratio is a payout ratio that measures a company's performance It is calculated by dividing total current assets into total current liabilities The current ratio is higher than the company's

ability to pay its short-term debts easily The quick ratio is similar to the current ratio, but there is no exclusion when a stock of total current assets exists A higher ratio shows that the company has the ability to pay its short-term debts even without revenue from inventory In the table, you can see that Coteccons' current ratio has decreased from 2.24 times in 2020 to 1.71 times in 2022 This shows that the company's short-term liquidity has decreased There are a number of possible reasons for this, including: increase material and labor costs, causing the company's operating costs to increase; reduced revenue, due to the impact of the COVID- 19 pandemic; increase in short-term debt, because the company has to borrow more money to finance its projects Coteccons' quick ratio has also decreased from 1.98 times in 2020 to 1.43 times in 2022 This shows that the company's short-term liquidity has decreased even more when excluding inventory warehouses The reasons for this decrease are similar to those for the current rate decrease Finally, it can be concluded that Coteccons has comparatively sound financial standing and the acceptable capacity to repay short-term loans, as a result, the first criterion of Coteccons's financial performance supports this decision to take out a short- term loan

In summary, the data in the table shows that Coteccons' short-term liquidity has decreased over the past two years This is due to a number of factors, including increased costs,

decreased revenue and increased short-term debt

“ Efficiency analysis

1 |Account Receivable Turnover 1.82x 1.23x 1.61X

5 |Days Inventory Heid 41.54 days 66.02 days 58.84 days 6 |Days Accounts Payable Outstanding 104.94 days 133.52 days 108.09 days

Table 3: Efficiency Ratio

As we mentioned before, an effective business is one of its traits when it comes to finances

Financial analysts compute the efficiency ratios in order to gauge efficiency The business's asset utilization efficiency is gauged by the efficiency ratios These percentages are depending on the quantity of activity (as measured by sales or the cost of items sold) as well as the various asset tiers The following efficiency ratios are crucial:

e The ratio of inventory turnover e The mean duration of collecting

The ratio of inventory turnover

The inventory turnover ratio demonstrates how effectively inventories are managed This ratio of the inventory turnover ratio is defined as net sales to inventory

Net Sale

Inventory turnover ratio = Inventory

The inventory tumover ratio of Coteccons decreased from 8.79x in 2020 to 5.53x in 2021 and then increased to 6.2x in 2022 This suggests that Cotteccons was less efficient at managing its inventory in 2021 than in 2020, but it improved its inventory management in 2022.There are a number of possible reasons for the decrease in inventory turnover in 2021 One possibility is that Cotteccons was stockpiling inventory in anticipation of increased demand in 2022 Another possibility is that Cotteccons was experiencing supply chain disruptions that made it difficult to obtain inventory.The increase in inventory turnover in 2022 suggests that Cotteccons was able to reduce its inventory levels or increase its sales This is a positive development, as it indicates that Cotteccons is becoming more efficient at managing its inventory.Overall, Cotteccons' inventory turnover ratio is still within a healthy range However, the company should continue to monitor its inventory levels and take steps to improve its inventory management if necessary

The average collection period

This ratio shows the efficiency in collection of receivables A business that is efficient in debt collection will face fewer liquidity problems The average collection period is the ratio of receivables to average sales per day The average collection period is calculated by the following formula :

; : Receivables Average Collection Period = —————————————— Average sales per day

For Coteccons , the average collection period was

@ 21 days in 2020 e 33 days in 2021 @ 29 days in 2022

A company should be able to collect its payments from customers within the credit period that it offers If the average collection period is longer than the credit period, then the company's debt collection is not effective This is because the company is essentially giving customers more time to pay than it originally agreed to.Coteccons policy of only allowing credit for a maximum of one month is not ideal, as it may not be enough time for all customers to pay their bills This could lead to an increase in the average collection period and reduce the company's cash flow.A company's credit policy is often determined by general market practice, as well as the company's own business needs New companies often offer longer credit terms to attract customers, while companies that are introducing new products may also offer longer credit periods to encourage customers to try their products.If a company's average collection period is shorter than the credit period that it offers, then the company's debt collection is considered to be effective This means that the company is able to collect its payments

from customers on time Account Receivable Turnover

The Account Receivable Turnover of Coteccons decreased slightly from 1.82x to 1.61x from 2020 to 2022 This index is generally quite good, its downtrend is not a good sign because the receivables turnover ratio is higher each month/quarter/year Thus, it is confirmed that the debts and receivables have been effective This means that Coteccons is not in a positive financial position in 2022

Account Payable Turnover

Coteccons's payable turnover decreased from 2020 to 2022 (3.48x to 3.38x) That proves that the financial health of this company is not good A decrease in this index shows that the company 1s taking too long to pay suppliers

Day Inventory Held

Day Inventory Held of Coteccons was an average number, but it had an upward trend between 2020 to 2022 Because this metric shows the length of time a company's cash is stuck in liquidity because of unsold inventory This data is higher because the company may want to keep inventory high to achieve high order fulfillment rates, for example because the company predicts strong sales for the coming year

Days Accounts Payable Outstanding

Coteccons' Days Accounts Payable Outstanding (DPO) of 104.94 days in 2020, 133.52 days in 2021, and 108.09 days in 2022 1s not good for the company's financial health A high DPO means that the company is taking a long time to pay its suppliers, which can lead to cash flow problems, damaged relationships with suppliers, and late payment penalties

Table 4: Profitability Ratio

Profitability ratios are selected as the best indicator of a bank's performance to create earnings relative to its revenue in order to analyze bank performance effectively In-depth measures of managerial effectiveness and the rate of return flowing to shareholders, together with other indicators, include return on assets (ROA) and return on equity (ROE)

ROA

This ratio demonstrates how well assets are used to produce income Since it is calculated by dividing net income by total assets, in general, the greater the rate of return, the more successfully the company turns its investments into net income.Coteccons' ROA has experienced a troubling decline from 2.20% in 2020 to 0.13% in 2022, signaling a deterioration in the company's ability to effectively utilize its assets for profit generation

This trend necessitates a thorough examination of the underlying causes and prompt action to rectify the situation

ROE

Coteccons' Return on Equity (ROE), a crucial financial metric indicating the company's efficiency in generating profits from shareholder investments, has exhibited a concerning downward trend from 3.96% in 2020 to 0.26% in 2022 This alarming decline is further compounded by consistently falling below the industry average throughout the period, highlighting Coteccons’ diminishing ability to convert its equity into profits compared to its peers

A closer examination of Coteccons' ROE reveals that the company's net income, the numerator in the ROE calculation, has declined significantly over the past three years This suggests that Coteccons is facing challenges in generating profits, which is negatively impacting its ROE Additionally, Coteccons' debt levels have increased during this period, raising the denominator of the ROE calculation and further contributing to the decline

Operating profit performance

In 2020, the company had an operating profit margin of 2.75%, indicating a positive

operating income relative to net revenue However, in 2021, the margin decreased to -

0.080%, signifying that the company had an operating loss, which could be a concerning trend In 2022, the situation worsened with an operating profit margin of -0.37%, indicating further losses in relation to net revenue This suggests that Coteccons faced challenges in maintaining profitability and operational efficiency during this period, and addressing these issues may be crucial for its financial health

reflecting the economic challenges and disruptions caused by the pandemic However, in

2022, there was a substantial recovery with net revenue increasing to 14,536,948,503,110, 12

signifying a notable 119.7% growth compared to the previous year This recovery could be attributed to the company's adaptability and resilience in navigating the pandemic's impact, potentially by shifting strategies or capitalizing on new opportunities

“+ Leverage Ratio Analysis

Liabilities to assets ratio

Managing the financial health of a business is a matter of utmost significance Owners commonly rely on the total debt-to-total assets ratio as their preferred tool for this purpose The debt-to-assets ratio is one of the key debt ratios or leverage ratios utilized in financial ratio analysis It offers insights into what percentage of a company's total assets has been financed through borrowed funds, which are typically depicted as debt on the company's

balance sheet In the case of Coteccons, you can determine the liabilities-to-assets ratio using the formula:

Total Liabilities

Liabilities to asset ratio = PP

We can see from the table, Coteccons' liabilities-to-assets ratio has shown a notable increase

over the three-year period from 2020 to 2022 In 2020, the ratio stood at 40.68%, which

remained relatively stable in 2021 at 40.77% However, in 2022, there was a significant spike

in the ratio to 56.69% This substantial increase indicates that Coteccons has been relying more on borrowed funds to finance its assets, potentially indicating increased financial risk - Liabilities to shareholder equity ratio

The liabilities-to-shareholder equity ratio is a measure that represents the relationship between the capital acquired by a business through borrowing and the capital contributed by its owners This ratio is calculated using the following formula:

Total Liabilities

Liabilities to Shareholder Equity Ratio = Sharahalter Routey

The liabilities-to-shareholder equity ratio for the given years indicates a significant shift in Coteccons' capital structure In 2020, the ratio stood at 68.57%, which increased slightly to

68.83% in 2021 However, in 2022, there was a substantial surge in the ratio to 130.91%

This upward trend suggests that Coteccons has increasingly relied on borrowed funds in relation to shareholder equity to finance its operations The sharp increase in 2022 may raise concems about the company’s financial risk and leverage

Long term debt to long term capital ratio

The long-term debt to long-term capital ratio is a financial metric used to assess a company's financial leverage It compares a company's long-term debt to its long-term capital, which includes both debt and equity The formula for calculating the long-term debt to long-term capital ratio 1s:

Long-term debt Long-term capital

Long term debt to long term capital ratio =

The long-term debt to long-term capital ratio for the given years demonstrates Coteccons' evolving capital structure In 2020, the ratio was negligible at 0.00%, signifying minimal long-term debt relative to long-term capital It increased slightly to 0.01% in 2021, still

maintaining a very low level of long-term debt However, in 2022, there was a significant

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