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Improving the quality of financial appraisal of investment projects in medium and long-term lending at the Military Commercial Joint Stock Bank, Hoang Quoc Viet Branch - 2


3.5.1.Recommendations to the State Bank 96

3.5.2.Recommendations to the Government and relevant Ministries and branches 97

3.5.3.Recommendations to investors 97

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CONCLUSION

LIST OF TABLES, FIGURES, GRAPHS, FORMULA

Improving the quality of financial appraisal of investment projects in medium and long-term lending at the Military Commercial Joint Stock Bank, Hoang Quoc Viet Branch - 2

Board

Table 2.1 Outstanding debt situation of MB Hoang Quoc Viet in 2012-2014 42

Table 2.2 Ratio of bad debt to total outstanding debt 43

Table 2.3 Service revenue tracking table 2012 - 2014 44

Table 2.4 Analysis table of return on total assets 46

Table 2.5 Loan results table for medium and long-term investment projects at MB bank in the period 2011 - 2014 49

Table 2.6 Actual capital structure as of December 2010 55

Table 2.7 Liquidity ratios 56

Table 2.8 Performance indicators table 56

Table 2.9 Capital structure index table 57

Table 2.10 Profitability ratio table 58

Table 2.11 Project scale 60

Table 2.12 Total investment in project 61

Table 2.13 Capital structure of project 62

Table 2.14 Project disbursement schedule 62

Table 2.15 Project FiveStar 63 Project Expected Revenue Table

Table 2.16 Depreciation cost table of project 64

Table 2.17 Estimated cost table of FiveStar 65 project

Table 2.18 Expected profit table of FiveStar project 66

Table 2.19 Calculation table of working capital needs of the project in year t0- year t10 67

Table 2.20 Working capital requirement calculation table for project t11 ​​– t30 68

Table 2.21 Project's expected cash flow table From year t1-t10 69

Table 2.22 Project's expected cash flow table From year t11-t30 70

Table 2.23 Debt repayment plan of enterprises 72

Table 2.24 Customer's ability to repay 72

Table 2.25 Sensitivity to rental price fluctuations 73

Table 2.26 Sensitivity to variable cost changes 73

Table 2.27 Sensitivity to rental capacity fluctuations 74

Table 2.28 Rate of successful projects implemented in practice in 2012 - 2014 77



Table 2.29 Percentage of projects that had to adjust their indicators in the 3 years 2012-2014 77

Table 2.30 Ratio of medium and long-term debt to total debt of 2012.2013.2014 78

Table 2.31 Overdue debt ratio in 3 years 2012-2014 78

Table 2.32 Medium and long-term capital turnover indicators for the period 2012-2014 79

Table 2.33 Medium and long-term profit margin ratio on total medium and long-term outstanding debt in the period 2011-2014 79

Chart

Chart 2.1 Capital mobilization situation of MB Hoang Quoc Viet 41

Chart 2.2 Pre-tax profit situation of Military Commercial Joint Stock Bank, Hoang Quoc Viet branch 45

Diagram

Diagram 2.1 Organizational structure of the management apparatus of the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch 36

INTRODUCTION

1. Urgency of the topic

Globalization and international economic integration are inevitable development trends in modern international relations. Vietnam has considered international economic integration an indispensable part of the process of industrialization and modernization of the country. Through proactive integration and participation in the process of globalization of the world economy, in recent years Vietnam has achieved many encouraging successes. According to data released by the General Statistics Office, 2014 is the first year in the 5-year plan (2011-2015) since 2011, economic growth not only reached the target but also exceeded the plan; compared to the economic growth target of 5.8% set by the National Assembly, 2014 reached 5.98%, which is a good number for the Vietnamese economy. In addition, foreign investment attraction is increasing, unemployment rate is maintained at a low level, people's lives are significantly improved. In particular, the banking sector's activities have developed quite strongly, as shown in the following indicators according to the General Statistics Office: Total means of payment as of December 22, 2014 increased by 15.99% compared to December 2013; credit to the economy increased by 12.62%; capital mobilization increased by 15.76%; foreign exchange reserves increased; foreign exchange rates were controlled within the set range. In such an integrated economic environment, businesses that want to survive and develop need to find new ideas and new investment projects to not only compete with domestic businesses but also with other countries. Whether a new investment project is feasible or not needs to be considered and evaluated accurately and fully in all aspects of the project, so that businesses can decide whether to invest in the project or not. However, investment projects often require a large amount of capital that not all businesses have the financial capacity to carry out the investment projects they propose. At that time, businesses need to find funding for the project by borrowing capital.

If the economy of a country is like the human body, then money is considered as the blood vessels and the banking system is the heart - the place that controls and "pumps" blood to the body's parts. Currently, the Vietnamese commercial banking system is increasingly asserting its important position, being the basic channel for providing capital for the country's economy: as a business entity in the field of monetary finance, commercial banks stand up to open up idle capital sources in all organizations, individuals, and all economic sectors, forming loan funds and using them to meet capital needs for the entire economy, creating conditions for businesses to be able to expand their scale, improve technology... to stand firm against the fierce competition of the domestic market in particular and the world market in general. Banking activities in



Our country is developing very rapidly, bringing many conveniences to the people, promoting capital circulation in society, creating a premise to promote economic development. In which, banking business activities, especially lending and project financing activities are the key activities that banks aim for. According to statistics from the State Bank, the Ministry of Finance as well as internal research documents of banks, currently, the number of projects implemented by bank loans accounts for the majority of the total investment capital of the economy.

In line with the general business trend in the banking industry, in recent years, the Military Commercial Joint Stock Bank in general and Hoang Quoc Viet Branch in particular have provided large amounts of funding for projects in many fields such as construction, road transport, real estate, information technology, etc. This is an activity that brings in large revenues for the bank, but also contains many risks.

Therefore, in order to improve the business efficiency of the bank and minimize risks when lending and financing projects with large capital and long periods, banks are required to carefully and accurately appraise projects that need to borrow capital from their banks, especially project financial appraisal because this is the top concern of commercial banks when making disbursement decisions. After an internship at the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch, I have clearly recognized the importance and significance of appraising loan projects, especially appraising the financial aspects of the project. From the data sources collected, I have chosen the topic: " Improving the quality of financial appraisal of investment projects in medium and long-term lending at the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch " as the topic for my thesis.

2. Research purpose

In theory:

The topic clarifies the theoretical basis of the quality of financial appraisal of investment projects in medium and long-term lending of commercial banks.

In practice:

Analyze and evaluate the current status of financial appraisal quality of investment projects in medium and long-term lending at the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch to see the achievements from financial appraisal of investment projects, as well as the existing problems and the causes of those problems.

Propose some solutions and recommendations to help the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch, improve the quality of project financial appraisal in the coming years.

3. Research object and scope

Research subjects:

Quality of financial appraisal of investment projects in medium and long-term lending of Military Commercial Joint Stock Bank, Hoang Quoc Viet branch.

Research scope:

Within the framework of the thesis, the scope of the study is the current status of project financial appraisal quality of the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch over the years 2012 - 2014, on that basis, propose measures to improve the quality of financial appraisal of this investment project in the following years.

4. Research methods

The method of analysis, synthesis, comparison and evaluation combines theoretical explanation and practical proof. The data is collected based on secondary information sources obtained from reports: financial reports, appraisal reports... from which to make comments and solutions to improve the quality of financial appraisal of investment projects in medium and long-term lending at the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch.

5. Structure of the topic

In addition to the introduction, conclusion, table of contents and list of tables, diagrams, references, the thesis structure has 3 chapters:

Chapter 1. Overview of the quality of financial appraisal of investment projects in medium and long-term lending at commercial banks

Chapter 2. Current status of financial appraisal quality of investment projects in medium and long-term lending at Military Commercial Joint Stock Bank, Hoang Quoc Viet branch

Chapter 3. Solutions to improve the quality of financial appraisal of investment projects in medium and long-term lending at the Military Commercial Joint Stock Bank, Hoang Quoc Viet branch



CHAPTER 1. OVERVIEW OF THE QUALITY OF FINANCIAL APPRAISAL OF INVESTMENT PROJECTS IN MEDIUM AND LONG-TERM LOANS AT THE MILITARY COMMERCIAL JOINT STOCK BANK, HOANG QUOC VIET BRANCH


1.1. General issues on investment project appraisal in medium and long-term lending of commercial banks

1.1.1. Concept of investment project

According to Investment Law No. 67/2014/QH13 dated November 26, 2014, it is defined as:

An investment project is a set of proposals for medium- or long-term capital investment to carry out business investment activities in a specific area, within a specified period of time.

In terms of form : an investment project is a set of documents presenting in detail and systematically the activities and costs according to a plan to achieve results and fulfill certain goals in the future.

In terms of content : an investment project is a set of related activities aimed at achieving set goals through identified resources such as market, product, technology, economic, and financial issues.

1.1.2. Commercial bank loans

According to the Lending Regulations issued together with the Consolidated Document No. 20/VBHN-NHNN dated May 22, 2014 of the Governor of the State Bank of Vietnam on consolidating the Decision on Lending Regulations of credit institutions for customers: "Lending is a form of credit granting, in which the credit institution gives the customer a sum of money to use for a certain purpose and time according to the agreement with the principle of repayment of both principal and interest".

Based on loan term, there are 2 forms: short-term loans and medium and long-term loans:

Short-term loans : This form of loan is intended to finance current assets or short-term capital needs of the state, businesses, and production households.

Medium and long-term loans : Enterprises need medium and long-term loans to buy equipment, build, improve techniques, buy technology with the rapid development of science and technology or borrow long-term capital to invest in an investment project. For enterprises to survive and develop, the need for medium and long-term capital is increasing.


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1.1.3. Commercial bank loans for medium and long-term investment projects

According to the textbook "Modern Banking Operations" by Associate Professor, Dr. Nguyen Minh Kieu, investment project lending is a method of medium and long-term lending with the purpose of helping customers have enough long-term capital to invest in investment projects.

Thus, lending for medium and long-term investment projects (also known as project lending) is when a commercial bank decides to lend a customer a sum of money with a term of 60 months or more based on the investment project expected to generate income. When performing lending operations, the bank clearly demonstrates its function as a financial intermediary, unlike in investment activities, where the bank plays the role of an investor.

The characteristics of this type are large loan capital, long loan period, many fluctuations and therefore high risk. And also because of this characteristic, banks often require a guarantee, according to which the bank can recover the loan from the guarantee organization when the customer is unable to repay the debt. At the same time, lending requires the participation of a number of other financial organizations to share the risk. However, in the market economy, competition between banks and other credit institutions is increasingly fierce. Therefore, in order for banks to win in this competition for customers, banks will have to consider lending without a guarantee. But this is a very difficult and difficult problem.

So, in order for banks to increase their competitiveness while still ensuring a decent income and capital safety, banks must have good projects. Nowadays, in commercial banking management, banks pay attention to minimizing risks that may occur with investment lending projects. The lending process of a project often includes many stages: from appraisal, approval, loan decision to checking the use of loan capital and monitoring, debt collection after lending. In particular, commercial banks often consider the pre-lending stage (credit analysis stage, project appraisal) to be the most important. The results of this stage will be decisive for a loan. In particular, project appraisal is the stage that banks must pay the most attention to in order to ensure avoiding risks of a loan, creating safety and soundness in the bank's operations.

1.1.4. Appraisal of investment projects in medium and long-term lending at commercial banks

Investment project appraisal is the process of checking and reviewing objectively, scientifically and comprehensively the basic contents of the investment project that the customer has established, in order to re-evaluate the reasonableness, effectiveness and feasibility of the project; on that basis, the bank decides whether or not to lend. In other words, project appraisal is on the one hand


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