Appraisal of Investment Project Loan and Debt Repayment Plan

3.1 Customer assessment

3.1.1. For corporate customers

- Legal status: full legal status; for affiliated accounting units, it is required to have a Loan Authorization Letter from the Parent Company or a Guarantee from the Parent Company.

- Production and business situation: production and business must be profitable for 2 consecutive years. For enterprises that have not been established for 2 years, the production and business situation from the time of establishment until the time of borrowing capital must be profitable;

- Methods, capabilities, and experience in organizing and managing operations;

- Reputation, business advantages and other non-financial information;

- Financial status

+ Check financial reports;

+ Financial Report Analysis;

+ Credit relations with other banks;

+ Predict the financial situation of the business.

3.1.2. For customers who are households and individuals

Assess business situation, income and assets. For personal consumer loans: actual consumer needs.

3.2. Appraisal of investment project loan and repayment plan

3.2.1. For short-term loans:

Conduct appraisal of customers' loan and repayment plans according to the following basic contents:

- The loan object must be consistent with the production and business functions recorded in the customer's business registration and the regulations in the Loan Regulations issued by the State Bank;

- Loan needs;

- Market of products, goods and services subject to the project;

- Conditions, measures and project implementation capabilities of the customer;

- Feasibility and economic efficiency of the business plan.

- Source of debt repayment and the ability of the Central Bank to control the debt repayment source

client;

3.2.2. For medium and long-term loans:

Conduct appraisal of customer investment projects according to the following basic contents:

- Factors affecting investment projects:

+ External factors: World market situation, prices, trends

consumption, export trends;

+ Internal factors: Regarding investment encouragement and support policies

Government, Ministries, branches;

- About the market for input supply and consumption of products and services;

- About the geographical location of the project;

- About technology and equipment used in the project;

- Production and business capacity;

- About investment rate;

- Risks;

- Appraisal of project financial plan: Total revenue, profit, time

depreciation period, payback period, ...;

- Evaluate the ability to manage and operate production and business of the enterprise.

career;

- Financial capacity: through analyzing the customer's financial statements in the fiscal years from the time of investment project implementation until the bank loan can be fully paid off;

- Source of funds for debt repayment and the ability of the State Bank to control the source of funds for debt repayment;

Project effectiveness: financial and socio-economic

3.3. Loan security appraisal

3.3.1. For secured loans:

+ Quality and convertibility into money;

+ Legality and completeness of assets securing the loan;

+ Risks related to loan collateral: Price fluctuations,

market, legal status and financial capacity of the guarantor;

+ Ability and control and management measures of the Industrial and Commercial Bank

Hoan Kiem on loan guarantee.

+ Prepare minutes of assessment of mortgaged and pledged assets (according to regulations)

+ For collateral assets formed from loan capital, the value must be at least 50% of the project's investment capital. For assets that are required by law to be insured, the customer is required to write a commitment to purchase insurance throughout the loan term from the time the asset is formed and put into use.

3.3.2. For cases of loans secured by credit:

Ability to mortgage, pledge assets or provide third party guarantees in case the customer has to mortgage or pledge at the request of Hoan Kiem Industrial and Commercial Bank (in case the customer uses the loan for the wrong purpose or the credit officer sees a risk of affecting the customer's debt repayment)

3.4. Prepare a report

The credit officer prepares a report on the appraisal results, clearly stating his/her conclusions and recommendations (to lend or not to lend: reasons, loan amount, term...). When submitting the appraisal results for the Director to process, the customer's complete file must be presented. The file must include a list of documents signed by the Head of Department.

After receiving the loan application from the customer, the CBTD will conduct a preliminary assessment. If it is deemed feasible, the CBTD will schedule a visit with the customer to check the business situation and the customer's fixed assets. The CBTD will usually come down to check 1-2 times. Then, the CBTD will prepare an appraisal report including the following elements:

*) Business introduction: Includes content taken from the business's legal records and has the CBTD's conclusion on the completeness of the legal records. This section does not contain information about the customer's qualifications or non-financial information (Character).

*) Business financial situation: In this section, CBTD includes the business's Balance Sheet with data closest to the time of the loan and lists

Some details in the Balance Sheet such as: receivables, payables, inventories, assets... Then there is the CBTD's assessment of the customer's financial situation. The analysis of financial indicators, trend analysis, analysis of income and expense reports, and cash flow reports are omitted.

*) Loan plan and project: In this section, CBTD provides information on loan demand, capital structure for the project, loan purpose, capital use plan, assessment of economic efficiency of the project according to reality, debt repayment ability, and debt repayment source of the project. Future cash flow projections, income and expenses are not mentioned here.

*) Collateral: CBTD clearly states the name, location, characteristics, value, and legal documents of the collateral. This is followed by CBTD's conclusion on the collateral's ability to secure the asset.

*) Conclusion and loan proposal of CBTD: CBTD clearly states loan opinion

or no loan.

The determination of collateral value is done by an Asset Valuation Council based on the remaining value of the company's assets and an Appraisal Council is established at the branch. The members of the council include: Head of Credit Department, Head of Planning and Banking Services Department, Chief of Office, and CBTD. The members go together to evaluate and sign the collateral valuation report.

The proposal is approved at the department level and then submitted to the General Director for approval. If it exceeds the General Director's authority, the proposal is submitted to the Chairman of the Board of Directors. If it exceeds the authority, the Chairman of the Board of Directors will convene the members of the Board of Directors to consider and decide. Currently, the bank has established a Credit Council and has been operating quite well. Most of the loans are appraised by the risk management department and the large corporate customer department and then submitted to the General Director for approval.

After approval, CBTD completes the mortgage procedures, establishes a credit contract according to the form of the Vietnam Joint Stock Commercial Bank for Industry and Trade, completes other missing procedures and then disburses.

When disbursing, CBTD controls the purpose of using the customer's loan capital according to the established business plan and loan application project. In this step, some items

The purpose of the loan is not controlled, which is shown in the fact that customers are disbursed in cash or transferred to the unit's payment account.

After disbursement, CBTD opens a monitoring account, periodically checks and evaluates customers once a month, creates a loan safety check form and saves it in the credit file.

CBTD monitors debt collection and sends debt due notices to customers. In this step, debt extension cases are often not proactively assessed in advance. In some cases, when the customer cannot pay the debt, CBTD will come down to check. In some cases, when the debt payment deadline has passed, there is still no request for extension.

When overdue debt arises, the credit file is transferred to the debt processing department at

Other rooms monitor and perform processing.

After the loan is completed (the customer pays off the principal and interest), the CBTD will carry out procedures to liquidate the credit contract, release the mortgage, return the collateral documents to the customer and store the credit records.

4. An illustration project

To honestly reflect the investment project appraisal situation at the Hoan Kiem branch of the Industrial and Commercial Bank, the following is the appraisal process of a real project: "Project to borrow money to invest in an LPG filling station in Hanoi".

4.1. Project introduction

- Project name: Investment in construction of Hanoi LPG filling station

-Investor: Gas Products Processing and Trading Company (PVGC).

-Address: 95B Le Loi - Ba Ria - Vung Tau Province

-Total investment capital: 7,873 million VND, including:

- Investment preparation: 82 million VND

- Construction preparation: 548 million VND

-Investment: 6071 million VND

-Interest on loan during construction period: 422 million VND

-Reserve fee: 300 million VND

- Working capital: 450 million VND

-Investment capital

PVGC's equity: 10%

Corporation loan: 30%

Loan from Hoan Kiem Industrial and Commercial Bank: 60%

-The project's operating period is 16 years (2000-2015)

To facilitate the calculation of the Project's economic indicators and the balance of loans and repayments, the project will calculate loans from both the Corporation and the Bank at the current ceiling interest rate of the Bank of 12.6%/year.

4.2. Appraisal of loan projects from Hoan Kiem Industrial and Commercial Bank

4.2.1. Appraisal of legal basis and investment necessity of the project

4.2.1.1. Legal basis of the project

Based on the documents that the investor sent to the bank, the appraisal officer reviewed the legal factors of the project.

- According to Decision No. 4083/QD-HDB dated November 15, 1997 of the Board of Directors of Vietnam Oil and Gas Corporation on approving the adjustment of the feasibility study report "investment in construction of Hanoi LPG filling station" of the gas product processing and trading company.

- Decision No. 618/QD-HDB dated February 25, 1999 of the Board of Directors of Vietnam Oil and Gas Corporation on approving the construction design and total estimate of the project "investment in construction of Hanoi LPG filling station" of the gas product processing and trading company.".

- Decision No. 3576/HDB dated August 10, 1996 of the Board of Directors of Vietnam Oil and Gas Corporation on approving the feasibility study report on "investment in construction of Hanoi LPG filling station".

- Decision No. 1600/QD-UB/MTg dated September 15, 1997 of Hanoi People's Committee approving the environmental impact assessment report of the project "investment in construction of Hanoi LPG filling station".

In general, the investor and the project have met all the necessary legal factors, meeting the requirements of bank credit.

4.2.1.2. Regarding the necessity of project investment :

With specific data and analysis, the investor has proven and clarified the necessity of investing in the construction of a liquefied gas storage and distribution facility in Hanoi. PVGC sees that Hanoi is a place with a large population with high incomes who are ready to switch to using LPG for household cooking, in addition, there are many industrial and commercial establishments using LPG in production. Therefore, investing in the construction of an LPG station in Hanoi is extremely necessary, creating favorable conditions for the business of gas products and implementing well the distribution of liquefied gas to the Northern region in line with the current development trend.

Based on the legal content and the need to invest in the project being clarified, the appraisal officer moved on to considering the market issue through specific data presented by the investor in the project.

4.2.2. Market assessment

4.2.2.1. Product introduction

This is the investor's introduction to LPG products.

Liquefied petroleum gas (PLG) is a petroleum product, produced from the oil refining process (distillation of crude oil), from gas exploitation and from associated gas of oil fields, stored and transported in a liquid state. When the pressure is reduced, this product will be converted from liquid to gas.

PLG is widely used for various purposes, due to its high calorific value, low toxicity and non-polluting nature. The areas of use of liquefied gas include:

-Used in the family: cooking, heating...

-Used in business: restaurants, hotels, hospitals...

-Used in industry: food processing, construction materials production,

metal product manufacturing…

4.2.2.2. Market analysis

LPG was introduced to households in Hanoi by LPG trading companies in late 1993. Currently, LPG has become familiar and widely used in cooking by people of all classes, as well as in hotels and restaurants... In addition, a series of industrial establishments are also using LPG as fuel for production.

The demand for PLG will increase with the rate of conversion in the commercial sector, while the demand in the industrial sector will increase with the growth of GDP. The Vietnamese economy grew at 5.8% in 1998 and is expected to grow by 7-9% in the future. The forecast for LPG demand in Hanoi is as follows:

For the LPG demand in the household sector, investors base on factors such as households, annual population growth, monthly LPG consumption in households, and desired conversion rate.

For the demand in the commercial sector: The investor bases on the current demand and forecasts the demand for LPG in the commercial sector in Hanoi based on the collected survey data and the correlation between the demand for LPG between the household sector and the commercial sector. According to the experience of some countries in the region, the demand for LPG in the commercial sector accounts for about 15% of the total demand of both the household sector and the commercial sector combined. It is assumed that the same correlation will be applied in the Hanoi market in Vietnam.

The total forecast demand for the two market segments is summarized in the following table:

Table 2: Demand for LPG in Hanoi

Year