LV Thạc sỹ_Improving project loan appraisal–financial aspect for Maritime bank

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** Bachelor’s Thesis Improving Project Loan Appraisal –Financial Aspect for Vietnam Maritime Commercial Joint stock Bank ACKNOWLEDGEMENT During this internship period, I have experienced a real working environment, so that I did not only enhance the knowledge I have learnt in class but also be able to reflect and learn so much more besides the knowledge learnt I would like to espress my gratitude to all those who gave me the possibility to complete this thesis Without their help and guidance, I could not have completed this research First, I am deeply indebted to PhD…, instructors from National Economics University for his advice, valuable suggestion and support through obstacles in the completion of this research work Second, I would like to show my gratitude to my supervisors – PhD … for his precious time, his helpful guidance;and all the staffs in Economic Research Department at Maritime bank for enthusiasm and kindness and for giving me permission to commence this thesis, to the necessary research and to use departmental data while I have been for internship and completing my thesis It has been an enjoyable and rewarding experience to work together with them TABLE OF CONTENT ABBREVIATION CHAPTER 1: INTRODUCTION 1.1 Rationale 8 1.2 Research objective 1.3 Research Methodology 1.4 Scope of research 10 10 CHAPTER 2: THEORETICAL FOUNDATION OF PROJECT AND PROJECT APPRAISAL 11 2.1 Investment Project 11 2.1.1 Definition of investment project11 2.1.2 The need of investment Project 12 2.1.3 Cycle of an investment project 13 2.2 Project Appraisal 15 2.2.1 Definition 15 2.2.2 Importance of Project Appraisal 2.2.3 Aspects of Project Appraisal 2.2.4.Non-financial aspect 15 16 17 2.2.4.1 Legal aspects of Project appraisal 17 2.2.4.2 Socio-Economic aspects of Project Appraisal 17 2.2.4.3 Technical aspect of Project appraisal 18 2.2.4.4 Managerial aspect of Project appraisal 18 2.2.4.5 Project Risk Assessment 19 2.2.5 Financial Aspect 20 2.2.5.1 Definition of financial appraisal of project 20 2.2.5.2 Perspective of financial project appraisal 2.2.5.3 Financial 20 Project Appraisal Criteria 19 2.2.5.4 Financial Project Appraisal Content 21 2.2.6 Principles and best practices of project's financial appraisal 28 CHAPTER 3: CURRENT SITUATION OF PROJECT LOAN APPRAISALFINANCIAL ASPECT IN MARITIME BANK 31 3.1 Overview of Vietnam Maritime Bank Commercial Joint stock Bank 31 3.1.1 History and development of Vietnam Maritime Bank Commercial Joint stock Bank 31 3.1.2 Organization Structure of Maritime Bank 3.1.3 Business Performance 2009-2011 33 35 3.2 The importance of project loans: current situation in Maritime Bank 38 3.3 Principles for Project Loan Appraisal in Maritime Bank 3.4 Project Loan Appraisal Process in Maritime Bank 38 41 3.5 Project Loan Appraisal- Financial aspect in Maritime Bank 43 3.6 Example of a Project Loan Appraisal- Financial Aspect “FTN Vietnam Co., Ltd” 45 3.7 Evaluation of the Project Loan Appraisal in Maritime Bank 3.7.1 Achievements 56 3.7.2 Limitations 57 3.7.2.1.Limited intheappraisalmethod 56 57 3.7.2.2 Limited in the appraisal aspects 57 3.7.2.3 Limited in collecting information 57 3.7.2.4 Limited in human resources 57 3.7.3 Causes .54 3.7.3.1 Causes from the Banks 58 3.7.3.2 Causes from the Customers 59 3.7.3.3 Other Causes 59 CHAPTER 4: MEASURES TO IMPROVE PROJECT LOAN APPRAISAL IN VIETNAM MARITIME COMMERCIAL JOINT STOCK BANK 61 4.1 Oriented Development Plan for Maritime Bank in the next years 61 4.2 Measures to improve Project Loan Appraisal in Maritime Bank 62 4.2.1 Improving Appraisal Aspects 62 4.2.2 Improving appraisal method 65 4.2.3 Improving appraisal procedures 66 4.2.4 Improving Human Resources Efficiency 67 4.2.5 Improving Managerial Effectiveness 68 4.2.6 Improving the efficiency of Information Collection 69 4.3 Recommendation 70 4.3.1 Recommendation to the Government 70 4.3.2 Recommendation to State Bank of Vietnam CHAPTER 5: CONCLUSION 73 REFERENCES APPENDIX 71 ABBREVIATION MSB Maritime Bank SBV State Bank of Vietnam NPL Non Performing Loan ROA Return on Assets NPV Net Present Value IRR Internal Rate of Return NEU National Economics University TABLE OF FIGURES Figure 1: Project Cycle .13 Figure 2: Aspects of Project Appraisal .16 Figure 3: Organization Structure of Maritime Bank 33 Figure 4: MSB Capital Mobilization in 2011 37 Figure 5: MSB Credit Structure 38 Figure 6: Project Loan Appraisal Process 41 Figure 7: Project Loan Appraisal Procedure 43 CHAPTER 1: INTRODUCTION 1.1 Rationale Vietnam has entered the WTO’s integration process, this gives great opportunities to Vietnam but also impose a lot of threats and challenges In this integration process, Vietnam’s objective is “To build our country into an industrialized country with modern facilities - technology, rational economic structure, which is consistent with the development of productive forces and high standard of living” In order to reach its goal, Investment plays a crucial role and considered as a driving force for the country’s development However, starting as a poor country in addition to facing the changes when entering WTO and fluctuations in the World economy, Vietnam’s financial market has evolved greatly As a result, lending and providing capital to implement the project loans in turn is having a lot of difficulties Recent years, under the impact of the financial crisis, the financial system all over the world has fluctuated significantly, including Vietnam’s financial market & banking system On one hand, the financial crisis occured, leads to the decrease the investment rate, through which makes the revenue from the credit activity drop On the other hand, in the difficult background of the global economy, there are many high- risk investment projects required to be appraised carefully Banks, as an intermediary institution, play the roles of facilitating funds to the borrowers Credit activity of commercial banks, therefore, is extremely crucial not only to the development of an economy but also to the development of each individual bank Along with credit activity, the quality of credit appraisal is also very important as it identifies risks, improving the stability, efficiency for a project To be able to reduce bad debts and give out rational loan decisions, Loan Appraisal is an important step in helping the Banks prevents project-associated-risks As a student majored in Finance, I found this very interesting During my time as an intern in Maritime Bank, I have learn more about Project Loan and understand its important to the development of Vietnam Financial aspect of project loan is associated directly with what I have studied at NEU (typically, the subject of Corporate Finance and Commercial Banking) Therefore, I can apply and reflect this theoretical foundation in reality, with the target of researching project appraisal process in Maritime Bank and contributing in improving this process both in size and depth Therefore, I chose to my internship report on “Improving Project Loan Appraisal –Financial Aspect for Vietnam Maritime Commercial Joint stock Bank” Apart from the introduction and conclusion, my internship report consists of chapters: Chapter 1: Theoretical Foundation of Project and Project Appraisal Chapter 2: Current situation of Project Loan Appraisal in Maritime Bank Chapter 3: Recommendation to improve Project Loan Appraisal in Maritime Bank First, I would like to send my thanks to Maritime Bank- head office, especially the staffs at the Economics Research Department, Mr Trinh Quang Anh, Ms Do Thuy Dung, Mr Pham Van Dai for their kind support during my internship there Last but not least, I would like to thank Dr Hoang Van Hoa, my internship advisor, who helped me a lot in completing this report 1.2 Research objective The objective of this research is to investigate in one section of credit management in a bank, i.e project loan appraisal Especially, with my major in finance, this research will be particularly focused in financial aspect of a project loan appraisal By experiencing a real situation in addition to my knowledge studied at university, I was able to give some evaluation and recommendation to improve the current situation of loan appraisal, especially the financial aspect in Maritime Bank 1.3 Research Methodology After deciding on the topic, data and information have been collected both primary and secondary sources Primary sources are the process of project loan appraisal at MSB, example of a project loan proposal of a company,etc., which received from Credit Department of MSB Secondary sources are the theoretical background of a project appraisal, etc., which are obtained mostly from the internet After that, comparison, analysis, analytics and solving of the data and information collected have been used in order for this research to be completed 1.4 Scope of research This research will look at a real situation: Financial Aspect of Project Loan Appraisal in Vietnam Maritime Commercial Join-stock Bank 10 diversified information sources such as from news, from the project owners or from the ministry, industry and Government Management Agencies Furthermore, Appraisers can access information from CIC through the internet Therefore, Maritime Bank need to enhance the quality of modern facilities and technologies for the Project Appraisal Group, assure that every employee has his/her own computer to be more active and confident in his/her work, have training for the employees; research and purchased professional software serving effectively for project appraisal; expand relationship with other Banks in the system in order to expand information collection In addition, the Bank should coorporate with the Technology Centre in order to have more access to information such as Vietlaw, CIC For the database system, information storage and information search, appraisers need to have the following measures: - Establishing database of each customer to serve credit-granting process, credit analysis and management, credit risks management - Searching and timely identifying doubtful and risky project and assess the level of risks of the loan, as well as forecasting the possibility that the loan could turn into bad debt - Establishing the non-financial database system in order for timely and efficiently project appraisal - Helping the Board of Management with good foundation to crafting strategies, policies, credit policies and risk management strategy for each period and customer 4.3 Recommendation 4.3.1 Recommendation to the Government Government should have decrees to enhance the quality and promote the role of auditing In addition, Government should also have the specific instruction to the Ministry of finance to facilitate and promote business to construct their financial statement strictly and transparently in accordance to Government regulation These recommendations aim to promote credibility from the enterprises/companies, hence, 72 Banks can have accurate information about the business performance of the enterprises/companies, financial situation which serve as importance databases for corporate appraisal in general and project appraisal in particular Every year, Government usually has investment and development plan for each industry which is not equal: there is a situation that the project if considered in the industry is abundant but considered in the region is lacking It is very hard for the Bank because when appraise the project in the market aspect, the need for product in the region is lacking but if considered in the industry, the total products is abundant Or the problem when project are implemented simultaneously so that before the project being appraised, total supply less than total demand but when the project are approved and operating, total supply is more than total demand These problems are very hard for the Bank to predict when appraising a project but Government and related ministry can adjust in their plan Therefore, Government should pay attention in these problems In particular, authority agencies should focus on the supporting policies for project appraisal especially the financial appraisal of investment project: issue standard of indicators for the commercial banks and credit institutions to follow Government should also specify sanctions to handle cases where enterprises/companies provide false information so that to promote enterprises/ companies to operate transparently and improve socialist legal system 4.3.2 Recommendation to State Bank of Vietnam - SBV needs to improve the management of monetary policy: continue to improve an complete monetary operation and tools, especially indirect tools; determine the responsibility of SBV in monetary policy management; enhancing the transparency in monetary policy management - Helping Commercial banks in improving appraisal professional and appraisers’ development Regularly organize training course and invite experts in banking and finance from the developed financial system or prestige institutions to give lectures 73 Especially the training program should focus on practicing appraisal software directly on the computer - Continue to improve and develop the information centre of SBV Information here is not only information about corporation but also information serving as guideline for commercial banks Information about the companies, customers will be collected and provided through Credit Information Centre of SBV (CIC), which include information on financial capacity, business performance, Capital Adequacy Ratio (CAR), and credit relationship of company with commercial banks, credit institution In addition, SBV should frequently update information from Government management Agencies about the orientations, development plan, tasks, and operating objectives of the region, area and country in each specific period to promptly disseminate to commercial banks - Enhance inspection and monitory activities of commercial Bank for timely detecting, fixing problems and having measures to adjust and prevent the risks for the entire system - Regularly control, review and amend credit and appraisal instruction, guideline and regulation documents in order to adapt with the changes and developments of the new situation and consistent with the integration trend and international practices 74 CHAPTER 5: CONCLUSION Facing the development of the domestic and global economy, the issue being raised to every bank is to improving economic efficiency However, to achieve desirable economic efficiency, banks should put more and every efforts and overcome difficulties and limitation to develop further In the past years, Appraisal has been an important part in the growth and development of Maritime Bank in which project loan appraisal contribute not a small part at all Nevertheless, in order to continue growing and developing, Maritime Bank need practical measures to improve and enhance project loan appraisal in particular to increase profit and business efficiency This is a very important job which influence very much on Maritime Bank business performance However, this is rather a large and complex topic relating to many aspects of finance and socio-economic problems, it not only enquires deep and wide knowledge but also the sensitivity and experiences in the field Therefore, my internship report can not avoid mistakes, and I need to research more both on theoretical and practical in order for this report to be more completed Again, I would like to send my thanks to Dr … and all the employees at Maritime Bank-Head office, who have support me a lot during this internship period and completing the internship report 75 REFERENCES Maritime Bank (2010) Project Loan Principles and procedures Maritime Bank (2010; 2011; 2009) Annual report for shareholder Project Loan Appraisal and Management- Fulbright FTN Vietnam Co., Ltd Project loan proposal report Various authors (various) Graduated thesis of previous intakes 76 APPENDIX A General information of FTN Vietnam Co., Ltd Enterprise name: FTN Việt Nam Limited Partnership (Nines Limited Partnership) Trading name: Abbreviation: CIC Code( new ): Head Office: 7400001533 CIC Code( old ) : G2-CN, Road D1, Industrial Area Mỹ Phước, Bến Cát, Bình Dương Telephone: 0650.566500 Tax code: 3700427321 Business license: 462023000045 Business line: Clothing Chartered capital: FAX: Date of issue: 19/12/2006 Total labor: Chairman of board of director: Manager: 1.1.1 650001569 KYUNG HWAN KIM Financial status of FTN Vietnam Co., Ltd  Credit balance for latest year 77 Identification number:  Credit balance of customer (May 2009- May 2010)  Relationship with other credit institutions in the past Ord Institution SHINHANVINA Bank - (TP HCM )- Head Credit institution Date of the code report 79503001 May 14th, 2007 SHINHANVINA Bank - Bình Dương Branch 74503001 April 30th, 2010 Office  Current credit balance Customer does not have any credit balance with other institutions  The history of substandard debt for the latest years Customer does not any substandard debt for the latest years 78 APPENDIX B 79 80 81 82 83 COMMENTS 84 INTERSHIP REPORT ASSESSMENT Signature of supervisor 85 86 ... situation in Maritime Bank 38 3.3 Principles for Project Loan Appraisal in Maritime Bank 3.4 Project Loan Appraisal Process in Maritime Bank 38 41 3.5 Project Loan Appraisal- Financial aspect in Maritime. .. Foundation of Project and Project Appraisal Chapter 2: Current situation of Project Loan Appraisal in Maritime Bank Chapter 3: Recommendation to improve Project Loan Appraisal in Maritime Bank First,... SITUATION OF PROJECT LOAN APPRAISALFINANCIAL ASPECT IN MARITIME BANK 3.1 Overview of Vietnam Maritime Bank Commercial Joint stock Bank 3.1.1 History and development of Vietnam Maritime Bank Commercial