appraisal work because they are the ones who make the project conclusion. If the appraisal staff has high professional qualifications, in-depth knowledge, and broad understanding of business management, finance, and technical fields... then the project appraisal will be of better quality, will take less time, and will be more objective.
If the qualifications, capacity and experience of the appraiser are poor, it can lead to two situations: First, the conclusion is made to exclude a good project, causing a negative impact on the investor and at the same time losing the opportunity to finance a profitable project of the Bank. Second , the conclusion is made to accept a bad (ineffective) project, this case causes great losses not only for the investor and the Bank but also wastes resources of the whole society. In addition to the technical requirements, the appraiser must also have the knowledge to advise customers from the stages of collecting information, establishing the project, signing the credit contract, choosing a favorable payment method, and binding conditions in the credit contract to be most beneficial and ensure safety. Thereby creating trust and attracting customers to the Bank.
Qualifications and honesty of the project developer: If the project developer is honest and has good expertise, the project will be built accurately, specifically, with full and useful information, which will facilitate the appraisal work. In addition to qualifications and professional experience, the ethical character of the appraisal team also has a significant impact on the quality of the appraisal work.
* Appraisal process and method: This is a factor that directly affects the quality of investment project appraisal at commercial banks when organizing investment project appraisal. There must be a scientific and complete project appraisal process and method as the basis to ensure the quality of appraisal work. If an unreasonable and sketchy appraisal process and method will certainly lead to low project appraisal results, it will be difficult to rely on it to make accurate investment decisions.
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+ Regarding the appraisal process: The appraisal process of each Bank is the basis for appraisal officers to perform their work objectively, scientifically, progressively, in accordance with the strengths, fully and specifically of the Bank, which will contribute to improving the appraisal quality . The appraisal process is the order and content
carry out the work from receiving loan applications to giving final appraisal results. Each Bank has a different appraisal process, but in general, it guides in detail the following steps:
- Regulate the sequence of operations, coordinate to carry out work steps, clearly identify the basic contents that need to be implemented, serving the decision on medium and long-term credit and loan guarantees.
- Clearly define the tasks and responsibilities of appraisal officers and credit department heads, as a basis for organizing investment project appraisal operations, in accordance with the organizational model of the Board of Directors/Credit Council of the Head Office and Branches.
- Standardize processes and procedures to help the appraisal become unified and scientific, ensure control of business activities, contribute to preventing and limiting risks in investment, and continuously improve the quality of TĐDA operations. To have high-quality appraisal results, this process must be arranged in a scientific order, with detailed, clear and easy-to-understand content. A complete and scientific process will facilitate investors in providing necessary information documents as well as facilitate the Bank in collecting sufficient data to be able to give an accurate appraisal result.
Illustration of the project appraisal process: Customers who want to borrow capital come to the bank, credit officers guide customers to complete the application, receive the application, collect information, conduct preliminary appraisal, appraisal, prepare a report to submit to the competent person, through the Credit Council/Board of Directors, make minutes, prepare a report to submit to the competent person to decide on lending, issue letters, negotiate and sign contracts, disburse, manage the collection of principal and interest. For example, a project applying for a loan if it does not follow the procedures of the appraisal process, such as ignoring the collection of additional information or ignoring the examination of the application, will affect the project appraisal to be inaccurate, cannot rely on making the right investment decision, rejecting effective projects or investing in ineffective projects.
+ Regarding appraisal method: The investment project will be fully appraised and
Accurate appraisal when there is a reasonable, scientific appraisal method combined with practical management experience and reliable sources of information, helping appraisal officers analyze the project, calculate the effectiveness of the project quickly, accurately and reliably. However, the TĐDA can be carried out according to many different methods depending on the content of the project under consideration. Each investment project has certain characteristics, each indicator only reflects a certain aspect of the project and each has certain advantages and disadvantages. Therefore, if only one method or appraisal indicator is used, the appraisal result may not be comprehensive, so the reliability is not high. For example, the appraisal method, analyzing the NPV indicator: The main advantage of this method tells us quantitatively the amount of net profit that can be obtained from the investment project. That is also what investors are most interested in. In addition to this indicator, we can also calculate the internal rate of return IRR.
The main disadvantage of this method is that it does not give accurate decisions for projects of different sizes and different life spans.
The method of evaluating and analyzing the IRR index has the following advantages and disadvantages: The advantage of this method is that it represents the highest rate of return (opportunity cost) that the project itself can achieve or calculates the highest interest rate that the project can afford.
The disadvantage of this method is that it is not easy to calculate the exact value of IRR. It leads to incorrect decisions for mutually exclusive projects of different sizes.
* Document information for appraisal work : For commercial banks, project evaluation work is essentially a process of analyzing, comparing and evaluating information together (of customers and the Bank). Therefore, the project evaluation process is essentially a process of collecting, analyzing and processing information to serve the goal of project financing activities of commercial banks to be safe and effective.
Information is the basis for analysis and evaluation, and is the raw material for the appraisal staff's working process. The most important source of information is first of all from the project dossier. If the information in the project dossier is missing or unclear, the appraisal staff has the right to request the project developers to provide it.
Add or explain that information. In addition to project information, in order for the appraisal to be conducted proactively, with more objective and accurate assessments, the ability to access and collect other sources of information and the ability to process information of the appraisal officer play a decisive role.
Appraisal information is knowledge related to the project that the Bank has collected and processed for use in project analysis and evaluation, to ensure the Bank's capital financing process is safe and effective.
Based on the characteristics of investment projects as a set of very large and complex economic and technical proposals, appraisal information is therefore very rich and diverse. Information is the basis for the appraisal staff's operations in analyzing and evaluating projects. Therefore, complete, comprehensive, accurate and updated information is an important factor to ensure the quality of investment project appraisal, especially in the current era when the economic situation is market-oriented, technology, engineering... fluctuates rapidly. The information collection process must be based on reliable data, the information must be processed very carefully and meticulously to make accurate decisions on project effectiveness. On the contrary, using an unreliable source of information can lead to allowing wrong investment decisions, causing damage not only to investors, banks but also to the whole society. Therefore, building an accurate and comprehensive information system is an urgent requirement for appraisal work in general and for the Bank's appraisal work in particular.
* Technical facilities serving appraisal work: Technical facilities are a factor that greatly affects the quality of investment project appraisal of the Bank. The application of modern technological equipment to appraisal work will help to analyze and evaluate appraisal results quickly and accurately. Appraisal activities can hardly achieve quality if the Bank's facilities and technology do not reach the minimum level required by the region and the world. The Bank's technical facilities include: Means, equipment, computers, interbank credit information network
Along with the rapid development of information technology, banks have continuously developed and modernized technology to serve the activities of banks in general and appraisal work in particular. It allows to handle complex problems related to calculation work and expand the ability to provide information to appraisal staff. The system of modern information technology equipment helps appraisal staff to access huge databases to select appropriate information, process a large amount of information but still save time and costs, and at the same time reduce risks arising through manual processing as before.
The above are factors belonging to the Bank, affecting the quality of investment project appraisal. Through assessing these impacts, the Bank will be able to develop appropriate operational strategies to improve the quality of investment project appraisal. In addition, studying the impact of objective factors will help Banks limit the unusual impacts from the socio-economic environment on appraisal work.
1.5.2. Objective factors
The quality of project appraisal not only depends on subjective factors belonging to the Bank but is also influenced by objective factors from the external environment. These are factors that are very difficult or impossible to control, but have a great impact on appraisal quality such as: Information from the investor, mechanisms, policies, laws of the state, unavoidable risks that may occur during project implementation...
* About the macro environment:
- Legal environment, state policy mechanism: The legal environment, state policy mechanism is built by a system of legal documents and the implementation of healthy, clear and strict State agencies will affect the process of project appraisal and implementation. The financial assessment indicators of the project are therefore guaranteed to be accurate and consistent. On the contrary, the shortcomings in legal documents, state management policy mechanisms all have negative impacts on the project. The contradictions and overlaps of legal documents, sub-law documents in related fields
Combined with the loose management, inspection and control of State authorities, it also changes the feasibility of the project and makes it difficult for the Bank to assess and forecast risks, limiting the collection of accurate information to credit institutions.
- Impact of inflation: Inflation is an uncertain factor that affects the investment project. Inflation causes changes in prices over time. Therefore, it changes the expected cash flow and discount rate when evaluating the financial performance of the investment project. The inflation rate cannot be predicted accurately because it depends on many factors such as the law of supply and demand, income and consumer psychology, and the growth rate of the economy. Financial variables in the project, input factors of indicators such as NPV, IRR... are all affected by inflation. Therefore, to evaluate the effectiveness of a certain application, it is necessary to accurately and reasonably determine the prices of the factors that make up the cost or revenue of the project. Taking into account the inflation factor will make the project implementation process easier and the investment project more effective.
- Exchange rate: Is a factor that affects the appraisal of investment projects. Exchange rate causes changes in the quantity of imported and exported products according to the supply and demand of the consumer market. The level of exchange rate is as difficult to predict as inflation because it depends on many factors.
- Economic environment: Along with the legal environment, the economic environment also has significant impacts on the quality of appraisal. A favorable economic environment is one in which the economy develops stably, prices accurately reflect supply and demand in the market, and economic entities have many conditions to develop production and business on the basis of capital, technology, human resources, etc. A favorable economic environment will help investors have complete and accurate information and have more capacity to appraise investment projects. On the other hand, existing in a stable economic environment will not cause too big changes compared to the initial predictions when making investment decisions. On the contrary, if the economy is unstable, there are unpredictable fluctuations in the input and output markets, inflationary factors, deflation or recession, etc., then the appraisal process as well as project operation can make predictions become incorrect.
- Political environment: This is also an important factor affecting the quality of appraisal work. Political stability leads to social justice, which is the first condition for economic development. Therefore, a good political environment will have a very positive impact on investment project appraisal.
- Natural environment: Natural stability, weather, climate, water resources, terrain... are of course favorable for TĐDA work and vice versa, places where earthquakes often occur, natural disasters (floods, droughts...), weak engineering geology... of course require TĐDA work which is costly in both time and finance.
* On the side of the project owner: The investor is also a factor that has a significant impact on the appraisal process because the investor is the one who prepares the loan application and sends it to the Bank. These documents are the main basis for the Bank to consider the project. Therefore, the honesty, completeness and timeliness of the data, the level of preparation, appraisal as well as the cooperative attitude of the investor are necessary factors to improve the quality of the project.
1.6. EXPERIENCE IN INVESTMENT PROJECT APPRAISAL OF THE BANK FOR FOREIGN TRADE OF VIETNAM AND INTERNATIONAL CREDIT INSTITUTIONS AND LESSONS LEARNED
1.6.1. Experience in appraising investment projects of the Bank for Foreign Trade of Vietnam
Project appraisal in lending activities of Vietnamese commercial banks from the perspective of specialization, Vietnamese commercial banks currently have quite similar operational orientations of multi-functional, multi-sector business, serving a variety of customers from all economic sectors. This is the development trend of business activities of most financial institutions and commercial banks in the world. However, specialization in banking activities is still a pressing issue, including credit - one of the major activities and bringing in the most revenue for Vietnamese commercial banks today. Very few commercial banks in Vietnam have separated the appraisal department from the credit department to serve the analysis of large-scale and complex projects.
In the system, the Bank for Foreign Trade of Vietnam is a leading state-owned bank in Vietnam that has sponsored many large domestic projects and is the first to boldly participate in sponsoring large projects with foreign investment capital (scale of hundreds of millions of USD) in the form of investment, co-sponsorship, and partial sponsorship. After a period of time, with internal growth and recognizing a group of potential customers, the Bank for Foreign Trade of Vietnam has pioneered in the block.
Domestic banks participate in providing credit for domestic and foreign projects.
water. Enhance autonomy and self-responsibility for their decisions in business activities.
1.6.1.1. Appraisal process
The TĐDA process at NHNT-VN is carried out in accordance with the prescribed steps: from receiving documents, collecting information, organizing appraisal, appraisal documents (if any), and preparing appraisal reports (appraisal documents).
- At the central level, project appraisal is assigned to the Project Investment Department, with the support of related departments: Risk Management Committee, Central Credit Council, Customer Relations Department, Credit Information Department, Credit Management Department, and Legal Department.
- At the Exchange and branches, project appraisal is the responsibility of the Project Investment Department (Exchange), the credit department and has the support of related departments. If the project is complex, the loan scale is large, beyond the authority of the branch director, it will be transferred to the Project Investment Department at the central level for appraisal. The appraisal is independent of the first appraisal (both FDI and domestic projects).
- The credit officer is responsible for the appraisal. However, for large and complex projects, the appraisal results will be reviewed by the Credit Council.
- In the appraisal process, depending on the scale and complexity of the project, it can be undertaken by a professional officer or both a professional officer and a credit department manager.
- NHNT-VN has developed a Credit Handbook which includes quite detailed instructions on TĐDA operations, but has not developed a process and guidelines.