Project Ownership Structure and Financing Structure Are Still Simple

participating in TTDA for 3 investment projects: Bac A and Dai Duong, the remaining joint stock commercial banks only participate in TTDA for 1-2 investment projects.

In addition, there are currently only 2 financial companies, namely the Petroleum Finance Company (PVFC) and the Electricity Finance Company (EVNFinance), participating in TTDA from 1 to 2 investment projects. In addition, there are only 2 joint venture banks (Indovina and Vinasiam) out of a total of 4 joint venture banks currently operating in Vietnam participating in TTDA and currently there is only 1 100% foreign-owned bank, Shinhanvina, out of a total of 5 100% foreign-owned banks currently operating in Vietnam participating in TTDA.

This shows that in fact, credit institutions in Vietnam have not participated much in TTDA loans in recent times.

2.4.2.3. The ownership structure and project financing structure are still simple.

Specifically, from Table 2.5 above, it can be seen that project initiators only use two forms of ownership of enterprises, namely joint stock companies and limited liability companies, to implement investment projects funded by the TTDA method. Meanwhile, according to the Enterprise Law (2005) and Investment Law (2005) of Vietnam, domestic and foreign investors can establish many types of enterprises to implement investment projects in Vietnam such as: private enterprises, partnerships, limited liability companies, joint stock companies and investment forms under business cooperation contracts. In reality, because the type of private enterprise has unlimited liability, it is not suitable for the TTDA characteristics of no recourse or limited recourse. The form of joint venture is often established to do business in conditional industries such as: legal consulting, design consulting, accounting and auditing consulting, notary, etc., so it is rarely used in TTDA structures.

On the other hand, the TTDA structure used by domestic and foreign credit institutions in Vietnam to finance investment projects under the TTDA method also has only three common structures: loan structure, BOT structure and co-financing structure, but there has been no case of credit institutions using the product payment structure and

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Leasing structure. TTDA practice in many countries shows that the product payment structure is often used in the field of oil exploration and exploitation and the leasing structure is often used to finance the maritime and aviation sectors. However, in Vietnam, these two financing structures are hardly used, but the majority of lending structures are used to finance many different industries and sectors.

2.4.2.4. The proportion of investment capital under the project financing method is still low compared to total social investment capital and compared to gross domestic product.

Specifically, from Table 2.2 above, it can be seen that if we compare the total investment of investment projects funded by credit institutions in each year with the total social investment capital in each year announced by the General Statistics Office of Vietnam, it can be seen that the total investment capital in the form of TTDA funded by domestic and foreign credit institutions for investment projects in Vietnam accounts for a very small proportion compared to the total social investment capital in each year in the period from 2002 to 2012.

Table 2.9: Ratio between the total investment of investment projects granted credit by credit institutions in Vietnam under the TTDA method compared to the total social investment capital from 2002 - 2012

(Unit: billion VND)

Year

Total investment (TMĐT)	Total social investment capital (VĐTTXH)	E-commerce vs. Social Investment (%)	GDP at actual price	Social Security GDP (%)	E-commerce GDP (%)
2002	7,240.32	200.145	3.62	535,762	37.36	1.35
2003	6,478.29	239,246	2.71	613,443	39.00	1.06
2005	669.00	343,135	0.19	839.211	40.89	0.08
2006	1,806.52	404,712	0.45	974,264	41.54	0.19
2007	4,550.00	532,093	0.86	1,143,715	46.52	0.40
2008	2,809.50	616,735	0.46	1,485,038	41.53	0.19
2009	25,225.04	708,826	3.56	1,658,389	42.74	1.52
2010	35,335.60	830,278	4.26	1,980,914	41.91	1.78
2011	78,123.05	877,850	8.90	2,535,008	34.63	3.08
2012	1,672.00	989,300	0.17	3,471,228	28.50	0.05

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Source: General Statistics Office and author's calculations [80]

Looking at Table 2.9 above, we see that this ratio was highest in 2011 (reaching 8.9%) and lowest in 2012 (this ratio only reached 0.17%). On the other hand, if compared with real GDP each year, the ratio between

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The total investment of investment projects granted credit under the TTDA method is much lower than the ratio between the total social investment capital and GDP in each year in the period from 2002 to 2012. The ratio between the total investment of investment projects granted credit by credit institutions under the TTDA method and actual GDP in Vietnam also reached its highest in 2011 (3.08%) and the lowest in 2012 (0.05%). This shows that the TTDA activities implemented by domestic and foreign credit institutions have not contributed much to the growth of the Vietnamese economy in recent times. Chart 2.2 below will show the development of the ratio between the total investment of investment projects granted credit by credit institutions under the TTDA method and the total social investment capital in each year in the period from 2002 to 2012:

Chart 2.2: Ratio between the total investment of investment projects granted credit by credit institutions in Vietnam under the TTDA method compared to the total social investment capital from 2002 - 2012

37.36

39.00

40.89 41.54

46.52

41.53 42.74 41.91

34.63

28.50

8.90

4.26

3.62

3.56

2.71

0.86

3.08

1.35

1.06

0.45

0.46

1.52 1.78

0.19

0.40

0.17

0.19 0.19

0.05

0.08

125 % ratio

E-commerce/Social Investment (%) Social Investment/GDP (%) E-commerce/GDP (%)

2002 2003 2005 2006 2007 2008 2009 2010 2011 2012

Source: General Statistics Office and author's calculations [80]

2.4.2.5. Risks arise for credit institutions participating in project financing

As presented in the concept of TTDA, one of the important characteristics of TTDA is that banks base their decision on TTDA mainly on the feasibility and prospects of project success, not on the

mainly on the reputation of the initiators as for loans under investment projects. However, currently, the mentality of officers and experts appraising investment projects at credit institutions is generally more focused on the borrower's collateral than on closely appraising the feasibility of the investment project to make lending decisions or investment projects. This has led to many risks for credit institutions when implementing investment projects in the past. For example, the Phu My Bridge BOT project, due to the lack of careful appraisal of traffic volume, the responsibility for infrastructure connection of the Ho Chi Minh City People's Committee has not been completed, and the high compensation cost has forced the investor to sell the project back to the Ho Chi Minh City People's Committee. The high-cost Binh Phuoc ethanol plant project cannot compete with fossil fuel products, causing the project to suffer heavy losses. The Cam Pha thermal power plant project imported equipment from China, which operated unstablely and did not ensure quality, and had to be frequently shut down for repair and maintenance. After more than 4 years of construction, the Lao Cai iron and steel plant project is behind schedule by more than a year due to the contractor facing many difficulties in mobilizing construction resources, site clearance work for the project is still not completed in many locations, and especially the slow supply of equipment from a third party in China, leading to disruption of the overall construction progress of the project.

2.4.3. Causes of limitations in project financing activities at credit institutions in Vietnam

From the existing limitations in the application and expansion of the TTDA method at credit institutions in Vietnam in the past as mentioned above, the following main reasons can be pointed out to show why the TTDA method in Vietnam still has such limitations:

2.4.3.1. Credit institutions have not yet distinguished the difference between project financing methods and traditional credit granting methods for investment projects.

TTDA is actually one of the methods of providing medium and long-term credit for investment projects of credit institutions. However, because this financing method has many fundamental differences compared to traditional credit methods for investment projects (project-based lending, syndicated lending and CTTC), in recent years, researchers and banking operations in developed countries have reached an agreement and have put forward many clear concepts of TTDA, used to distinguish it from traditional credit methods for investment projects, and it is considered as one of the non-traditional financing methods (modern TTDA) for investment projects of banks in developed countries. More specifically, for traditional credit methods for investment projects, lending credit institutions do not completely rely solely on the feasibility of the project and the reputation of the initiators, but only focus on the issue of collateral or third-party guarantees. Meanwhile, for the TTDA method, credit institutions only focus on the feasibility and the ability to successfully implement the funded investment projects. At that time, the cash flow arising from the funded investment projects in the future acts as a source of debt repayment and the project assets (assets formed from loan capital) act as collateral for the loan. Therefore, the financing decision of credit institutions is not mainly based on the support of the project initiator as well as the credit status of the borrower (DNDA), because DNDA is only responsible for the limited equity of the shareholders who contributed to DNDA and TTDA amounts are usually not recourse to the project initiators when the project comes into operation.

In Vietnam today, credit institutions have not yet clearly differentiated and promoted credit products to finance investment projects. The evidence is that on the websites of many banks, there are introductions about

TTDA product, but when learning more about this product, it is actually a loan method according to the investment project or traditional syndicated loan, not a TTDA product in its true sense. For example, when introducing the co-financing product on Agribank's website, Agribank said that the financing method would be the loan method according to the investment project, which is not accurate. Or the TTDA package product of Vietnam Prosperity Bank (VPbank) is applied to both traditional and new customers instead of the TTDA product which is only applied to new customers (customers are newly established enterprises), etc. For this reason, credit institutions have not been prepared in terms of organization and personnel as well as have not been proactive in finding truly feasible investment projects to grant credit by the TTDA method.

2.4.3.2. The State Bank of Vietnam has not yet clearly explained the difference between project financing methods and traditional credit granting methods for investment projects.

Specifically, in Circular 42/2011/TT-NHNN dated December 15, 2011 of the State Bank of Vietnam "Regulations on the granting of syndicated credit by credit institutions to customers" there is no clear distinction between syndicated lending and co-financing. Syndicated lending is understood as having two or more credit institutions jointly lending to one or a part of an investment project and is often applied to syndicate loans for expansion projects or replacement projects of investors, while co-financing is considered a non-traditional method of providing credit to investment projects, according to which many credit institutions jointly finance a new investment project in which the borrower is a newly established project enterprise to manage and operate the investment projects funded by credit institutions. Because there is no clear distinction from the management agency, the State Bank of Vietnam, credit institutions in Vietnam have not yet prepared and promoted credit products to finance investment projects as accurately and clearly as in developed countries.

2.4.3.3. The financial potential of many credit institutions in Vietnam is still weak.

As mentioned in Chapter 1, the TTDA method is often used to finance investment projects in the fields of infrastructure, energy, oil and gas, etc., which often require very large initial investment capital. Investment projects in these fields often require very large initial investments, at least tens of millions to hundreds of millions of USD, and some projects even require investment capital of up to billions or tens of billions of USD, such as projects to build highways, power plants, petrochemical refineries, high-speed trains, etc. With investment projects requiring such large initial investment capital, it is difficult for any credit institution in Vietnam to stand alone to provide credit using the TTDA method, because the equity capital of many credit institutions in Vietnam is very low and the ability of these credit institutions to mobilize large amounts of capital is not high. Therefore, to participate in TTDA for investment projects requiring such large initial investment capital, small credit institutions can only participate in co-financing with large credit institutions in Vietnam and foreign credit institutions. This clearly limits the ability of TTDA to independently or to act as a focal point for co-financing many large TTDA projects of credit institutions in Vietnam.

2.4.3.4. There is no specialized department for project financing at credit institutions in Vietnam.

The organizational model of the credit department at most credit institutions in Vietnam currently does not have a separate project investment department, except for Vietcombank, which has a project investment department. However, Vietcombank has only established a project investment department at the transaction office and two major branches in Hanoi and Ho Chi Minh City. Even BIDV, a bank with many large investment project loans, only has a corporate customer department 2 at the transaction offices responsible for appraising investment projects of corporations and general companies, but does not have a project investment department or department. Almost no other credit institutions have a project investment department or department. This also greatly limits the ability to apply and expand the project investment method at these credit institutions in the future.

2.4.3.5. The capacity of investment project appraisal experts is still limited.

The limitation in the capacity of appraisal experts of credit institutions in Vietnam not only occurs in the project appraisal activities for investment projects in particular, but also occurs in the credit granting activities for investment projects in general. The limitation in the capacity of appraisal of investment projects has led to the low quality of appraisal reports of appraisal experts. Appraisers cannot point out unclear and unfeasible points in the feasibility study report of the borrower. Most appraisal experts only rely on information from the project and there is very little information collected to conduct appraisal work. Moreover, many appraisal experts are not yet familiar with the process of appraising the financial efficiency of an investment project. They also have very little experience and understanding of the business lines of the investment projects being appraised to assess the future development trends of that business line, in order to proactively limit and prevent risks. On the other hand, the knowledge and understanding of the technology used in the appraisal projects are also very vague. Finally, many appraisal reports have overlooked an important content: risk analysis techniques and how to allocate these risks to minimize losses for sponsors are not fully implemented.

2.4.3.6. Bad debt is increasing, the economy has not shown any signs of recovery and credit institutions are afraid of risks

The high increase in bad debts of credit institutions is likened to a “blood clot” that blocks the flow of credit capital circulating in the economy. According to the data released by the State Bank of Vietnam at the conference summarizing banking activities in 2012, as of December 31, 2012, the bad debt ratio of credit institutions accounted for about 8% of the total outstanding credit of credit institutions. However, according to the estimate of the credit rating organization Fitch Rating, the bad debt ratio in Vietnam is about 13% of the total outstanding debt.

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