Appraisal of investment projects in Agribank: Current situation and Recommendation

1 INTRODUCTION Rationale Operation of the Commercial Bank of Vietnam in recent years, including two main works, they are: currency trading and lending activities In which, lending activities tend to shift the proportion of credit from monoculture to diversified products and services During the transition period on goals, the revenue from lending accounted a large proportion of total revenue in the bank Therefore, if the banks desire to run sustainable development and assert their competitiveness, it is necessary for the bank to well in credit activities However, credit activities bear such a lot of risks due to uncertainties, market fluctuations, information asymmetry, competition and exchange rate risk that need better solutions to detect those risks One of these measures is to improve the quality of the evaluation of investment project In other words, the banks have to conduct project evaluation in a comprehensive, carefully and cautious manner before going on the investment Because of the fact that the evaluation has helped the bank avoid the risk and ensured that the investment will track the safety, create the potential for the economy on an upward In addition, the project appraisal also contributes to curb some of inefficient businesses, losses or possible bankruptcy Nevertheless, in Agribank, not only does the investment project appraisal lack the professionalism but it also does not work effectively In fact, investment project appraisal has not yet complied with the provisions of the bank for all the projects Furthermore, evaluation work has not been focused and concern properly; this process has not been conducted regularly and continuously throughout the life of the investment project As a consequence, the bank still can not recover some of their capital caused by poor evaluation works Currently, not only is Agribank striving to complete the assessment work of investment project but it’s also making investment project appraisal become a banking service for fees Recognizing the important of the problem on improving the effectiveness of the appraisal in Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 Agribank, I would choose the thesis: “Appraisal of investment projects in Agribank: Current situation and Recommendation” Research objectives The thesis will analyze and explain about the theories and practices of investment projects appraisal in credit activities at commercial banks Research questions The thesis research aims at thoroughly answering questions:      What are procedures and contents of an investment project appraisal? Factors influence investment project appraisal? How have investment project appraisals been implemented in Agribank? What are the problems in investment project appraisals in Agribank? What recommendations can be raised to enhance the quality of investment project appraisals in Agribank? Research methodology Secondary data for analysis was acquired mostly through the Internet, with common sources including Argribank website, Vneconomy website, etc The data was also collected from reports and papers compiled by Appraisal Department at Argribank After that, an analysis of the bank’s data on operational activities, especially investment project appraisal, in some recent years was conducted The research also has a reference on previous research on investment project appraisal in commercial bank Primary data for the research is acquired by a combination of various sources:  Observing officers in the daily working performance at Appraisal Department;  Interviewing 10 officers in Credit Department and two officers in Board of Management with five research questions above to get additional information on the procedures and methodology applied in investment appraisal procedure Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 Research scope Research objects: Thesis research focus on process, significance objectives of appraisal of investment projects in Agribank Research scope: All data presented in thesis research is extracted from Agribank in recent years (2000-2011) Research structure Thesis research comprises of three main parts: Chapter 1: Overview on appraisal of investment projects at commercial banks Overview on appraisal of investment projects in credit activity of commercial banks: definitions, concepts, significance, and important roles of appraisal of investment projects in credit activity of commercial banks Chapter 2: Current situation of appraisal of investment projects in Agribank Introduction about Agribank; current situation of appraisal of investment projects in Agribank; Then, evaluating the success and drawbacks of the presented current situation Chapter 3: Recommendations to enhance the quality of appraisal of investment projects in Agribank Recommendations to enhance the quality of financial appraisal of investment projects in Agribank in particular and in the commercial banks of Vietnam in general Chapter 1: Overview on Appraisal of Investment Project in Commercial Bank 1.1 Credit activities of commercial banks 1.1.1 Commercial banks Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 A commercial bank is a type of financial institution and intermediary It is a bank that provides transactional, saving, money market accounts and that accepts times deposits The functions of commercial banks are divided into two categories: Primary functions and secondary functions including agency functions a Primary functions: The primary functions of a commercial bank include:  accepting deposits  granting loans and advances b Secondary functions Besides the primary functions of accepting deposits and lending money, banks perform a number of other functions which are called secondary functions These are:  Issuing letters of credit, traveller’s cheques, circular notes etc  Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers;  Providing customers with facilities of foreign exchange  Transferring money from one place to another; and from one branch to another branch of the bank  Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc  Collecting and supplying business information; 1.1.2 Credit activities of commercial banks “Credit” is derived from the Latin “Credo” – meaning as the trust or credibility Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 Nature of credit is an asset transaction between a borrower and a lender on the basis of repayment of both principal and interest For a commercial bank, credit is a basic function and a core activity of any commercial bank Bank credit is defined as “a form of credit reflects an asset (cash or goods) transaction between the lender, that is a bank or a credit institution, and the borrower, that is individuals, enterprises, business owners, in which the lender transfer the asset to the borrower, so that the borrower can use it in a pre-identified time period under the agreement Once the maturity dues, the borrower holds the responsibility to unconditionally repay the entire principal and interest to the lender” Importantly, credit activities take a crucial role in creating revenue for the bank Besides the attractive profits, the credit medium - long term is also very good weapon damage competition between the banks together With this product, the bank will serve better for business owners and attract more customers to the bank In determining the expansion for medium - long term, the Bank does not just look at the immediate benefits but also expected in the longer term benefits, such as credit expansion medium - long term loans to promote short term However, credit activities of commercial banks seem to have so much problems and dangers that was represented by the relatively high volume of bad loans One of the most common reasons lead to bad loans is that the banks not have sufficient information from its customers or the information asymmetry To put it simply, due to the insufficient filtering mechanism is not sufficient, the bank lend the customers who were able to cover up their acts and information in the loan transaction to perform the highly risky project In other words, information asymmetry occurs in the performance of the contract between the bank and credit customers in which one party (customers) that has more information can have harmful acts to the one (bank) with less information This is the problem of asymmetric information in the economic activities The two most common behavior caused by asymmetric Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 information were the adverse selection and moral hazard Adverse selection is the act occurred before the signing of the contracts with on party who has more information (customer loans) can cause damage to the less information one (bank) Moral hazard has similar effect to the adverse selection but occurring after signing of the contract In the lending activities, banks have always been the parties who have less information about the project, the use of the loan; therefore, in order to ensure safety in their operations, the credit institutions must have to handle asymmetric information They must have measures to limit adverse selection and moral hazard to lend the right people, right objects and to closely monitor customers in ensuring the recovery of both principal and interest on credits granted One of the popular measures of the banks to limit information asymmetries is “Five C’s”, which are the basic components of any credit analysis The ‘C’s are described here to give an insight into each component and into the sources of information that the banks use for evaluate them Character: is the sense of responsibility to repay the loan by the borrower Since there are no accurate quantitative methods to assess credibility, the bank will decide subjectively whether the customers can afford to pay this loan or not The bank will check the previous debts, review the credit report, and education level and experience of customers’ business Other issues related to individual qualifications and experience of employees will also be considered Capacity: The possibility of having cash to pay loans or not Since this is the primary source to pay the loans, banks want to know exactly what the payment plans are in the future Bank will review the business cash flow, time of payment, and the successfulness of ability to pay the loans Capital: is the personal money invested in the company and this target shows how much the customers will lose when the projects failure Banks want customers mortgage their property and be responsible for financial risk when ask for the bank Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 loans Bank will consider the debt figures to find out the total debt to total investment ratios Collateral: the guaranteed by a third party is another form customers can guarantee to the bank If the money of borrowers is not enough for the debt, the bank is still guaranteed by estimated sources of payment If the borrowers fail to repay, the bank will recover and disposal machinery, buildings, receivable account and inventories Loan contract must carefully determine what items are considered collateral Business owners may be asked additional collateral of personal property (such as bonds, stocks) along with the assets of the company to borrow some capital In some cases, banks may require the third guarantor signed the guarantee to ensure the payment if the borrowers (guaranteed) can not be paid Conditions: relating to economic circumstances of each locality and each country The banks will consider this component of borrowers by answering the following questions What are the influences of revenues of the projects on the entire economy? If the economy deteriorated, whether have the company's revenues decreased or not (e.g like a chain grocery store)? The projects that have revenue of stability or affected little by the economy will normally be in favorer from banks Beside, investment project appraisal is also an effective tool to prevent credit activities from risk 1.2 Appraisal of investment project 1.2.1 Investment project According to modern economists, "Investment project is a set of specializing activities with an aim to create a new reality based on given resources " Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 In Vietnam, the concept of investment is presented in the regulation of investment management: "Investment project is a set of proposals related to the contribution of capital in order to create capital, to expand or renovate materials to achieve a certain growth in quantity or to maintain, to improve and to upgrade the quality of products or services within a certain time period”  In term of the form: Investment project is a documentation file presenting planned activities and expenditure in a detailed and systematic basis in order to accomplish set objectives and expected results in the future  In term of the content: Investment project is a collection of co-related and linked activities whose the aim is to achieve the goals set forth through the given resources including capital, production capacity, technology, labor So, investment project must set out how given inputs are effectively utilized in order to gain expected outputs in accordance with specific objectives Inputs are labor, materials, land and capital Output is product or service made How given inputs are utilized refers to the use of technological solutions, governance and management in any enterprise 1.2.2 Characteristic of investment project To clarify the concept of investment project, the following will analysis the typical characteristics of investment project: The objectives and targets of projects are clear: Each project represents a task or a group of tasks that need to be done with a defined set of outcomes which satisfy a certain demand The project is also such a complex system that it should be guaranteed about the basic objectives of time, cost and completeness with high quality Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 The project has its own cycle of development and limited survival time: That is, like the living entity, the project has gone through various stages: formation, development and ending Uncertainty and risk: Most projects require a great number of funds, materials and labors in a certain period of time On the other hand, the time of investment and operation should extend, so the investments in projects often have high level of risk Investment project decisions are often and primarily financial decisions: Capital is understood as lucrative resources, so the investment decision is often viewed in terms of financial (profitability, cost, ability to recover capital or not ) In fact, the investment decisions are considering under the limitations of the state budget, local, and individual Many projects are feasible in other aspects such as economic or society but not feasible in finance, so they can not be done in practice The above characteristics are not only setting the contents for the analysis and evaluation of projects but also finding out the methods of measurement and evaluation to make efficient investment decisions 1.2.3 Investment project appraisal As presented, an investment project proposal after completing will be passed to a new stage To properly assess the rationale, effectiveness and feasibility of the project and to confidently come to an investment decision, there must be an appraisal process which is independently and separately from drafting process This process is known as investment project appraisal Investment project appraisal is defined as “a process that an authority organization (State or Private) will verify and review an investment project in an objective, scientific and comprehensive basis in all aspects of legislation and basic contents that can affect the performance, the feasibility and the reality of the project, in order to make an investment decision or to grant the investment license…” Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 10 1.2.4 Contents of investment project appraisal The content of investment project appraisal includes the evaluation of all the aspects: market, technical, financial, organizational and operational and environmental aspects 1.2.4.1 Evaluating the market aspects The market is a very important stage to decide the success or failure of a project, so the evaluation of the market is one of the content that is indispensable when assessing the feasibility of investment projects Depending on the amount and the accuracy of the information collected, evaluation officers assess the market aspects of products on the following aspects:  Analysis the market demand of the project products in the present and future To determine the level of consumption in a given period (year / quarter) using the following formula: Total = total + GDP + inventory total imports tota l exports in the beginning - total inventory in the last period Analysis the product supply situation in the present and future Sources of domestic supply: • How many facilities are already producing products of the project? And how much is the capacity and actual output of each? • The ability to expand production of existing facilities and other facilities may have in the future • Plants are being and will be invested • The project to produce the same products / substitutes are being and will be deployed Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 54 • Assessment on market perspective is very sketchy and missing bases Officer only assess the general market supply and demand of the interior product, not specifically quantify the number of annual consumption, the number of vendors, product supply level, the alternative product Overall the assessment is indicative calculation, based largely on subjective review of staff appraisal • In the process of evaluating the financial aspects of projects, officer only use three basic criteria for calculation (NPV, IRR, T), the breakeven point criteria but benefit-cost ratio profitability of investment projects have not been mentioned The appraisal does not use sensitivity analysis methods to assess sustainability in terms of financial efficiency of the project • The information in the evaluation process is lacking; it mainly based on reports sent by the client, not with reference to external sources of information Costs of raw material inputs will be identified as volatile, but there is still no further investigation to adjust The discount rate used to discount cash flows are based only on interest loans from banks, excluding the opportunity cost of equity capital • The contents of the risk assessment was not considered despite of the fact that the project may face a lot of risks • Project evaluation does not include criterias to evaluate the effectiveness of the project's social 2.3 Evaluation on appraisal of investment projects in credit activity at Agribank 2.3.1 Achievements  Regarding the evaluation process: The analysises of investment project evaluation in Argribank are particularly emphasized For long-term development, the need to invest long-term investment Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 55 to be effective can not disregard the work of project appraisal The project is considered in many ways, it helps to conclude the evaluation of projects more accurately and the financing of projects having less risk Indicators NPV, IRR also started taken into account, helps make assessment decisions have a scientific basis Argribank has launched a process of evaluating that is relatively scientific and reasonable  Human factors: The staff is highly qualified, dynamic and innovative In the evaluation process, credit officers are responsible from the receipt of project documents, appraisal to credit decisions It requires solid professional level, thorough understanding of the appraisal process and of many areas related to investment project In addition, management and executive levels of leadership has facilitated the above potential The results of the Bank in the recent years are evidence to confirm the value of high management quality Beside business results, the innovating businesses chain technology, expanding production, improving quality and reducing production costs are also good evidences In fact, in recent years, the bank has successfully funded several major projects that bring economic efficiency for businesses, the economy and many jobs for laborers 2.3.2 Limitations  Regarding the evaluation method: The calculation of the target NPV, IRR but has been mentioned, but only for formation In additional, the time value of the loan was initially mentioned but not applied used much in the project  Regarding the appraisal process: Evaluation of investment projects must have to be implemented in stages of before, during and after the loan, however, the regular assessment are not Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 56 reasonable focused on the two later phases but the initial assessment phase In other words, the important assessement works such as evaluating the financial situation of enterprises, the use of capital, project implementation schedule are not regular attention throughout the investment project The valuation of assets and repayment of working capital at the end of the projects are not specified For investment lending with collateral or regular assets invested in loans as collateral, then the periodic assessment of collateral is done with efficiency is not high Risk analysis is an important part, however, in the process of implementation of projects this analysis was very static In addition, Risk analysises of bank not include human and other related factors which increase the risk of the loan Regarding the competency of the staffs: The staffs of the bank have been uneven, some people actually still lacks capacity Regarding the collection of information: The information on enterprises and projects are often incomplete Information is a corporate financial reports and project documents submitted by investors 2.3.3 Main causes of limitations in appraisal of investment projects at Agribank 2.3.3.1 Subjective Causes  Policy training and recruitment of the Bank has not really improved  Method of assessment is uniformly completed but not yet effective as desired  Argribank attracted many projects but due to the lending mechanism and the client did not meet the requirements of the bank, the efficiency is poor 2.3.3.2 Objective Causes The changing economy is a challenge for the appraisal It leads to the change in the industry, the sector in the economy Relationships with new customers, with the Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 57 foreign partners have created the challenge of competition, the risk of losing capital… Despite we have the great progress, we are inferior to many bank in the world In additional, the appraisal is outdated and not keep pace with the development of the world On the State, the regulation of documents related to the evaluation is limited or unclear Activities of the relevant industry are not efficient and making it difficult for the appraisal Management level has been uneven, leading to consistency problems for the evaluation work The planning of economic development in regions and localities are not specific, science leads to irrational investment, where a shortage of surplus to bank hard conclusions for effective evaluation of projects loans under the State plan In short, the objective or subjective reasons can also be difficult for the bank's evaluation work So it requires lot efforts from Argribank and from the ministries, departments and the relevant local authorities to solve the problems Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 58 Chapter Recommendations to enhance the quality of Investment project appraisal at Agribank 3.1 Orientation of Investment Project Appraisal in Agribank 3.1.1 Demand for project appraisal in banks Bank has set the orientation activities for 2012 as follows:  Diversification of types of loans, loans extended to enterprises in all economic sectors, especially small and medium enterprises, gradual access to credit for enterprises with foreign investment  To strive to raise capital levels increased 35% savings, outstanding loans increased 30% in 2005, overdue debts incurred last no more than 2% of total loans increased Make sure the speed to medium term average 15% during 2006-2010  To actively seek customers to choose to be good customers, projects with high economic efficiency, capital recovery possible Get the performance and safety as the top criteria for loan approval At the same time actively seeking clients, projects aimed at making customers put information giamviec not true To implement the direction set out, the completion of the evaluation of project loans play an important role So, banks should focus on proposed solutions to overcome the shortcomings in the evaluation and improve the quality of project appraisal as a basis for improving the quality of the bank's activities during next 3.1.2 Orientation of Investment Project Appraisal in Agribank The evaluation of investment projects must come from the socio-economic situation of the country in each period and from the lending practices of major banks The project appraisal should be consistent with the guidelines and general policies of the ministries in each stage of development, and maximize the strengths of the Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 59 bank Evaluation of the project must comply with the provisions of the bank with all projects applying for loans, otherwise the process must be conducted regularly and continuously, not only before but also during and after the loan In future the bank will strive to complete the evaluation becomes an activity of banking services, banking is not only a place to advise customers but charges from operations 3.2 Recommendations to Enhance the quality of Appraisal of Investment projects at Agribank 3.2.1 Solutions to strengthen the content and methods of evaluation  For the content of evaluation on customers The evaluation of information on borrowers is not simple, because not always the financial situation of enterprises is fully disclosed Thus the immediate banks should require the financial statements submitted by companies must be audited Besides, banks should strengthen established relationships with the authorities to have a more complete assessment of business To make more accurate conclusions on the situation of enterprises, banks should also apply the different methods in analyzing corporate finance, such as methods of analysis rate, and compare methods for logic  For the content of evaluation on financial aspects Firstly, if projects are funded from various sources, evaluation of staff should check the authenticity of each source, especially the commitment of capital funding of agencies both in the number of and progress, to avoid the lack of capital led to slow progress of construction works Secondly, the target NPV, IRR, T is the common norm in the investment bank, but using them we need to pay attention to the time value of money, otherwise they will not protest meaningful light On the other hand, the banks should also include other criteria to calculate the breakeven point such as benefit-cost, power break these Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 60 indicators will complement pulse for each assessment helps staff to have a more comprehensive view of project Lastly, banks should offer a method for calculating the appropriate discount rate The indicators on financial performance are an important basis for assessing the viability of each investment project and the basis for the decision of bank financing However, these indicators reflect the full nature of the selection of an appropriate discount A project can be financed from various sources, at different times and with different interest rates Hence the discount rate must reflect the total opportunity cost of all funds  For the content of safety analysis through risk analysis Because risk analysis is very significance in the evaluation of projects, it requires the evaluation staff to have more overview, more fully and put the project into an actual movement, which helps banks to reduce predicted losses So the bank should consider the analysis and risk management when considering the evaluation of projects In the immediate, banks can immediately apply the research methods of sensitivity analysis and scenario analysis In the future, the bank has a rich database system, computers and modern software to apply additional methods of scenario analysis 3.2.2 Solutions to strengthen data collection and information processing To improve the system of collecting and processing information in order for the evaluation work more effectively, banks should establish its own information center The center is responsible for research gathering, storing and providing information for evaluation of prevention, support for staff appraisal in finding the necessary information, reducing the time a decision 3.2.3 Solutions to improve organizational management The bank should have its own appraisal office, is responsible for specialized evaluation of the medium and long term, have the independence to prevent credit Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 61 and debt management The organization will help arrange for an official evaluation of reduced workload, enabling them to concentrate more on work, and have time to cultivate more business for themselves The bank also noted recruit more staff with experience in evaluating socio-technical projects On the other banks should provide more details about the responsibilities and rights of individual staff appraisal Also need to regularly review and restructuring staff, additional staff for the missing branch, transfer of staff unable to work other Banks should establish a mechanism to coordinate more closely in the evaluation process between the parts in the bank to improve performance Evaluation room should work closely with customer’s prevention, debt recovery room, property room to collect accurate information about customers, the project loan 3.2.4 Solutions to enrich the competency of appraisal officers  Recruiting high quality staffs Staff recruited to the harmonious combination between power and ethics professionals After recruitment, the bank should disseminate to all staff each capturing the target, the bank's regulations and the provisions of relevant laws, and need guidance, training depth to their work will be assigned Banks should have policies to attract talented people to work long or offer advice or as a collaborator for his work  Training and exchanging the knowledge Banks should open training courses, organizing workshops, inviting experts to talk, exchange experiences with your bank, find resources for staff reference In addition to encourage its own staff improve their knowledge, the bank may appoint qualified staff to be trained abroad in certain periods, which helps officers to conditional learning and retraining to improve professionalism Note that the training to achieve high educational process must take place regularly and systematically Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 62  Educating the wareness and morality Agribank should regularly educate the awareness, ethics and professional discipline to its staff so they are aware of role and significance of the project evaluation, and become more consciously, honesty and sense of responsibility Banks should also worthy of remuneration for employees, promptly reward materially and spiritually prices for the staff that completed tasks, and find signs of moral decline to promptly rectify Strictly punishments are applied for the officials who conduct negative behavior, accidentally or deliberately damage the general regulations of the bank 3.3 Some Suggestions 3.3.1 Suggestions to the Nation and related Department Firstly, State should publicize the master plan on socio-economic development by industry, region in each period This planning will help the commercial banks have the facility to arrange a credit plan to ensure both the needs of business investment and economic development objectives while ensuring interest of the banks Secondly, the state needs to constantly improve the legal system and the policy mechanisms State needs to make economic development policies appropriate to avoid mutations which appear to have adversely affect on the business of credit institutions in general and banks in particular, damage to the bank customers, investors and the entire economy The government should also have specific guidelines and responsibilities of evaluation organizations which often associated to establish and evaluate projects such as banks, Ministry of Commerce, Ministry of Planning and Investment Thirdly, the state needs to have regulations forcing companies to strictly implement the accounting regime, enable the bank to inspect and supervise the enterprises, which can prevent risk On the other hand, the State should promote the state audit and independent audit because this is the place to provide information for accuracy Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 63 evaluating To improve the operation of the audit the auditing companies of Vietnam must make agreement to standardize the auditing standards that are consistent with international standards 3.3.2 Suggestions to State Bank of Vietnam and other commercial Banks State Bank should increase technical support to the bank by organizing training courses for professional training for sector staff, focusing on practical skills in the evaluation software on the caculation with practical examples Every year, the State Bank should organize a conference to review the investments of commercial banks in each sector, economic sectors, from which to draw lessons learned and help shape investment time State Bank should improve the performance of risk management center by requiring the central bank provide useful information, while ensuring safe operation of the banking system State Bank should also expand the scope of information, the credit center (CIC), and provide more economic information and technology related to the appraisal The work of supervision should be strengthened in order to promptly detect errors in the credit evaluation work Besides, the commercial banks should also strengthen cooperation in collecting and processing information, exchange of experiences to cater for the evaluation of projects 3.3.3 Suggestions to Agribank Agribank should focus on regularly monitoring and supporting for the assessment activities by using the appraisal staffs with long -years experience In additional, Agribank should build the training center to contribute to reviews for the evaluation work at the bank On the other hand, bank should have policies to reward deserving appraisal staffs Besides, Agribank also need to actively organize the conference to review the appraisal experience; the contest officially evaluates the whole banking business Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 64 better to strengthen understanding and cooperation between branches and agencies departments Banks should actively search for investment projects to lend effectively, build proactive approach to learn the needs of business investment, which advises businesses the direction to effective investment based on the orientation of the state and plan of the bank Banks are also evaluating the legal and financial situation of enterprises; such improvements will save time and costs for both banks and enterprises in the evaluation CONCLUSIONS Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 65 The appraisal of investment projects plays a very important role in banking activities It set the stage for the decision to invest or lend precision and efficiency The appraisal of investment projects should be taken seriously to limit the risks that may occur when implementing the project and bring the effective project to society Over the internship period in Agribank, I understand about the investment project appraisal activities in general and it’s current situation in Agribank in particular I had completed my graduation topics, however, due to the limitation of the ability and experience, the proposed solution is still inadequate So I look forward to your comments to make the thesis become better Once again, I sincerely thank Ms Nguyen Thi Anh – my directly instructors and the Bank's staffs in Agribank for their helping during the time I the intership in Agribank Lastly, I offer my regards and blessings to my professor Ph.D Le Thi Bich Ngoc who supported me in any respect during the completion of the project REFERENCES Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 66 Vietnamese: Phan Thị Thu Hà (2007) Ngân hàng thương mại Nhà xuất Đại học Kinh tế quốc dân, Hà Nội Tô Ngọc Hưng (1993) Tiền tệ, Ngân hàng Thị trường Tài Nhà xuất Khoa học kỹ thuật, Hà Nội Tổng cục thống kê (2011) Báo cáo tổng kết năm 2010 English: Annual Report of Agribank 2010, 2009 Methods of analysis of investment projects- The National Pulbishing House Textbooks of commercial banks- National Economic University Don Dayananda, Richard Irons, Steve Harrison, John Herbohn, Patrick Rowland Appraisal of Investment Projects Cambridge Harold Bierman, JR Seymour Smith Appraisal of investment projects Articles Peter S Rose (Fifth edition) Commercial bank Managerment MacGrawHill Irwin Website: - http://www.neu.edu.vn - http://Agribank.com.vn - http://www.corpsolutions.net/documentos/faip.pdf - http://www.queensjdiexec.org/publications/qed_dp_172.pdf TABLE OF CONTENTS Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 67 LIST OF TABLES TABLE 2.1: INCOME STATEMENT OF AGRIBANK 31 TABLE 2.2: SUMARY FINANCIAL STATEMENT OF ANH TRUNG COMPANY 44 TABLE 2.3: RESULTS OF BUSINESS OPERATION OF ANH TRUNG COMPANY 46 TABLE 2.4: FINANCIAL ABILITY OF THE ENTERPRISE 46 TABLE 2.5: INDIRECT LABORS IN ANH TRUNG COMPANY 48 TABLE 2.6: COST OF BUILDING IN INVESTMENT PROJECT OF ANH TRUNG COMPANY 49 TABLE 2.7: PAYMENT SCHEDULE .51 LIST OF DIAGRAM Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 68 ORGANIZATIONAL CHART OF ARGIBANK 27 Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 [...]... and improvement of efficiency of capital investment for agriculture, farmers and rural areas in 2010 and orientation toward 2020”, with the aim of maintaining the proportion of loan portfolio in the sector at 70% of total outstanding loans in 2020, of which outstanding loans to households and individuals account for about 55% of total outstanding loans, raising the ratio of outstanding loans per Supervisor:... projected and actual indicators • Indicators of investment efficiency • Benchmark financial indicators of corporate finance in line with guidance and direction of the State and industry for the enterprises in the same type • The newly-arising indicators: • Usage of indicator comparative method should be flexibly and reasonably applied to specific conditions and characteristics of each investment project and. .. accounting for nearly 30% of total loan portfolio under interest rate subsidy program of the whole Vietnamese banking system Particularly, outstanding loans to agriculture and rural areas alone accounted for 56.8% of the total outstanding loans, and 95% of customers under this program 2.2 Investment project appraisal in Agribank 2.2.1 Current situation of investment project appraisal at Agribank Since... 1.2.4.3 Evaluating the financial aspects This part is mandatory and evaluation officers must conducted carefully for any investment project before granting credit Contents of the financial evaluation include: Appraisal of total investment capital Supervisor: Ph.D Le Thi Bich Ngoc Vu Thi Van - Class: Advanced Finance 49 13 Total investment of the project includes fixed capital and initial working capital... continuously maintained and improved its position in the financial market nationwide Together with the rapid development of credit activities, the bank’s investment project lending has been also growing in terms of both quality and quantity aspects, confirmed the superiority of the branch in this sector 2.2.2 Process of investment project appraisal at Agribank Concrete steps of the process of evaluating... method is simply and easy in use Economic and technical indicators of investment project will be compared with other investment projects that are already completed or still on operation Indicator comparative method is conducted based on following indicators: • Designing and construction standards declared in State regulations • Technology and equipment standards in relation to national and international... remaining of the investment project  Sensitiveness analysis method This method is usually used to test the sensitiveness of financial performance of the investment project The basis of this method is: forecast the probability of unanticipated events that might happen to the investment project in the future and analyze the impact of those uncertainties to investment efficiency and breakeven capacity of. .. Accounting and Treasury Department Branch Accounting and Treasury Department functionalizes:  Performing financial management and accounting activity in branch  Nurturing information technology training for branch  Performing direct transactions with customers in: settlement, cash mobilization and cash transaction, treasury management…according to current regulation of Agribank and SBV  Marketing and. .. loan it needs to set up the appraisal council for consideration and evaluation of projects 2.2.3 Content of investment project appraisal in Agribank When an investment project proposal was applied to Agribank, appraisal officers will conduct the following steps to evaluate this investment project: Evaluation of loan document Evaluation of lending customers Evaluation of investment project Evaluation... celebration of its founding and 21 years (26/03/1988 – 26/03/2009) Agribank is determined to maintain and confirm its leading and dominant positions to provide loans for the cause of industrialization and modernization of agriculture and rural development, economic development in conformity with the policies and objectives set by the Party and the State 2.1.2 Development and growth Agribank remains sustainable