The Success of Projects Funded by Nhpt

credit risk, thus reducing the bank's operating efficiency. Customers receiving funding from NHPT include:

i. Commercial banks and other credit institutions in co-financing loans: assessing the lending capacity, debt collection and financial capacity of these lending institutions is an important professional content of the staff of the Development Bank;

ii. Economic groups including parent companies and many subsidiaries or corporations: these are customers with strong financial potential but have complex ownership and diverse financial management mechanisms in the direction of "openness" between member units, which can cause difficulties in the financing process of the NHPT. The parent company can directly borrow or guarantee for the subsidiary or the subsidiary can directly borrow to implement the project. The appraisal content of the NHPT is the financial situation of the borrower in the relationship between the Parent - Child, Corporation - member unit;

iii. State management agencies from central to local levels, in fact, ministries and authorities at all levels are not the direct borrowers but the borrowers are their projects. Based on the established project, investors are established in the form of companies of the Ministry or government. When evaluating this type of investor, it is very difficult because it is a new legal entity. The NHPT must pay attention to the debt repayment responsibility between the project and the relevant State management agencies, and consider the management mechanism of these agencies with the project.

For long-term loans, they are usually secured by fixed assets (plant or equipment) owned by the customer and may bear fixed or floating interest rates. Due to the high risk, interest rates on medium and long-term loans are set higher than those applied to short-term loans. The possibility of the customer defaulting on the loan or the possibility of adverse changes in the customer's business operations is obviously higher during the term of the loan. Therefore, when evaluating a customer's loan application, the credit officer must carefully consider the following factors: (1)

(2) the quality of the client's management, (3) the transparency and clarity of the client's presentation of past business activities, (4) whether the client is willing to agree not to mortgage assets to other creditors, (6) whether the client's assets are adequately insured, (6) whether the client faces the risk of technological change that will cause early obsolescence of plant and equipment, (7) market trends for products created from the loan, (8) the status of the client's net current assets [25]. If the credit officer fully and accurately assesses the above factors, it will fundamentally limit the possible losses for medium and long-term loans. When deciding to lend, the credit officer must approach many industries, many regions, and even many countries. Thus, to make good loans, they must understand the customer, the field in which the customer operates, and the environment in which the customer lives and operates. They must be able to predict problems related to the borrower and the borrower's business. On the other hand, living in an environment that is constantly faced with "money", credit officers must train themselves to be clean.

However, the projects that the NHPT receives to decide on lending sometimes have low repayment capacity but significant socio-economic efficiency. For many reasons, the bank does not refuse these loans. If the credit officer has experience, he will find ways to support customers on the basis of complying with the principles of ensuring the safety of the bank's capital while still helping to create a certain rate of return for the project.

Therefore, the quality of credit officers reflected in their professional qualifications, experience and ethics is an important factor in determining the quality of loans and thereby affecting the efficiency of bank loans.

o Bank supervision and inspection of loan customers after disbursement

Due to the frequent changes in the underlying conditions of customers, affecting the financial position and repayment capacity of the borrower, it can lead to a decrease in the ability to repay the debt. This is especially evident for long-term loans. After disbursing loans, banks must be particularly sensitive to these changes, periodically checking the loans until maturity so that, when necessary, they can support customers in their capital use activities or adjust the repayment period, and collect debts early if necessary. Especially for financing activities for development projects, when the bank's capital participation in the project is very large and the risk to the project is too high, the bank's supervision from the time of capital disbursement is an important condition for the bank's financing activities to be effective and avoid serious impacts on the bank's financial situation.

The disbursement process is the process by which the bank monitors the investment progress. Capital will be disbursed according to conditions such as: construction progress, progress of importing machinery and equipment, results of implementing construction items... The basis for disbursement is invoices and documents of imported machinery and equipment, purchase of construction materials, and site clearance costs. Disbursement for assets is a construction item based on the acceptance minutes between the investor and the contractor with the witness of the bank... Controlling the investment implementation phase plays an important role not only for bank loans but also for the project. This is the stage of forming assets for the project, deciding the quality of investment and affecting future operations. This is the stage where costs are likely to exceed the estimate because when making the estimate, the investor often cannot foresee all costs or deliberately calculates low to easily raise capital. If the bank designs a strict, scientific monitoring program and trains a team of quality monitoring staff, it will limit negative situations between contractors and investors, between equipment suppliers and contractors, between bank staff and investors, etc.

The bank collects debts in connection with the production and business process of customers. This is the stage where incidents often occur such as: products that cannot be consumed or are discounted, raw materials that do not meet requirements, costs that increase sharply, fixed assets that are damaged or lost, etc. These incidents can lead to temporary or long-term delays in paying debts to the bank. For development projects, the bank's application of "financial penalties" is often ineffective, and it is better to work with customers to resolve these difficulties.

It can be said that monitoring of loan customers plays an extremely important role in the healthy financing activities of banks. It not only helps bank managers detect problematic financing faster but also helps determine whether credit officers are complying with lending policies. At the same time, it helps bank management agencies assess the entire potential risks of the bank as well as its future capital needs. In general, the inspection and assessment work includes:

- Review the project implementation progress in general and based on discussions with the investor and project implementing parties, adjust the project implementation schedule if necessary;

- Review the problems that the project is and may encounter during implementation, and work with the investor to find solutions;

- Review project expenditures and realistically assess the ability to complete the project within the estimated budget when the project was established. If the project is overspent, the investor must propose methods to compensate for this overspending;

- Review equipment procurement progress and disbursement progress based on comparison with bank and investor records; check results of signed procurement contracts and disbursed funds;

- Review the project's compliance with the terms of the credit agreement. In case of any violation or delay in compliance with the terms of the

In case of contract, the bank will immediately discuss with the investor and propose amendment measures;

- Consider other project-related issues that require bank involvement.

o Bank risk management capacity

The activities of the Development Bank are potentially risky, and in some countries, the risks of the Development Bank are many times greater than those of other commercial banks. These risks come from financing activities for “special” subjects in the economy, financing for new industries and sectors, and financing under “designation” by the Government. The basic risks that the Development Bank must face include credit risk, market risk, and operational risk. If risks are not handled promptly, the consequences will be unpredictable for public confidence in the bank and the bank’s survival when the bank’s funding subjects are projects of national importance. Therefore, the risk management capacity of the State Bank is an extremely important basis for banks to be confident in their financing activities, to accurately recognize and assess possible losses, and to propose effective loss handling measures, thereby maintaining and improving the bank's operational efficiency in a sustainable manner as well as enhancing the bank's reputation in the economy.

Risk management capacity in banks is assessed on two aspects: prevention before risks occur and handling after risks occur. It can be affirmed that the three types of risks above cannot be eliminated, so accepting the fact that risks always accompany banking activities is inevitable. The problem is that banks must determine the acceptable level of loss as well as the expected benefits that the bank will get if accepting that level of loss (the law of the dialectical relationship between risks and benefits). In addition, the risk management department must be organized independently from other professional departments to ensure the objectivity and accuracy of the results of risk measurement and assessment.

1.2.3.3. Success of projects funded by NHPT

This is an important factor reflecting the operational efficiency of the Bank. One of the main challenges for funding organizations is to ensure that the projects they fund are successfully implemented and achieve the set goals. When the project's goals are achieved, it means that the Bank's funding purpose has become a reality and thus not only ensures that the bank's funding capital is preserved and profitable, but more importantly, it will contribute to socio-economic development.

The success of any project is evaluated based on the subject of evaluation and the method of evaluating the input and output factors of that project. For commercial projects, the success of the project is evaluated based on the financial efficiency of the project, that is, the added value that the project brings to the investor or the parties contributing capital to the project. Factors other than this value only play a secondary role when evaluating the project. For development projects, the success of a project is evaluated not only based on the financial efficiency but more importantly, the socio-economic efficiency, that is, the contributions of the project to the socio-economic development of the country. In any case, the evaluation of whether a project is successful or not must be based on the "added value" - the difference between benefits and costs - that the implementation of the project has brought (compared to the case where the project is not implemented). This “added value” can be that of the investor - representing a business or organization - or that of the Government - representing a society. That value can be easily measured on the basis of a complete set of invoices and documents related to the project and calculating the project's benefits and costs according to financial prices, that is, market prices or monetary benefits and costs of the project. However, when the project is evaluated from the perspective of the whole society from the Government's point of view, the indirect (invisible) benefits and costs are of interest and require full calculation. At that time, the benefits and costs of the project are social benefits and costs, that is, the value that society receives and the costs that society must spend (or sacrifice) for the project to be implemented. The social benefits that the project brings are the project's response to the implementation of the common goals of the project.

economic development in each specific period (meeting the development requirements of a region, territory, community or industry). These benefits can be considered qualitatively such as meeting economic development goals, implementing development strategies, combating environmental pollution, improving ecological conditions or measured by quantitative indicators such as tax paid to the state budget, increased number of jobs, increased income value (per capita or the entire economy), increased asset value, increased export value, efficiency of natural resource use... The costs that society has to pay (or sacrifice) include the costs of capital, labor, natural resources and other resources that society has devoted to the project instead of using these resources for other purposes. It can be said that calculating the socio-economic efficiency of the project will help to dispel doubts about the project's contribution to national welfare. However, this assessment will be more difficult because (i) In many cases, some project indicators do not have a “market price” to calculate because some project outputs and inputs are not sold on the market and; (ii) If the indicators have a “market price”, this price does not fully reflect the marginal benefits and costs because the operating market is an imperfect market, so prices are distorted by many factors, market prices do not accurately reflect the social benefits and costs related to project implementation. In that case, the social benefits and costs of the project will be assessed according to the “economic price” reflecting the value of these items from a social perspective. The economic price is the price adjusted from the market price to reflect the effects of government intervention and market imperfections. This price is not real, so it is also called a “shadow price” or “obscure price”. “Economic price” and “financial price” are both related to market price but have fundamental differences in taxes, subsidies, surplus (consumption, production), impacts (environment, society). These two prices will be equal when the market price is equal to the marginal social cost of all project inputs and equal to the marginal social benefit of all project outputs. In general, the socio-economic efficiency of the project is determined according to the following steps:

 Quantify the input and output indicators of the project based on the adjustment of the indicators in the financial assessment. Based on the financial assessment indicators, the indicators are adjusted by eliminating the items of a “transfer” nature, the linkages (industry, region) and the impacts (environment, society) will be internalized into expenditure indicators - if negative impacts or benefits - if positive impacts.

 Economic valuation of social benefits and social costs of the project. “Conversion factors” are built to calculate economic prices.

 Determine economic discount rate

 Project risk analysis

 Calculate socio-economic efficiency indicators for the project

Based on the calculation of the socio-economic and financial efficiency of the project, a project is considered successful if it meets the following conditions:

Table 1.1: Socio-economic and financial efficiency indicators for project evaluation [29]

Socio-economic efficiency

Financial performance

Target

e PP – Economic Payback Period

e NPV – Economic Net Present Value

e IRR – Economic Internal Rate of Return

ePI – Sales Index

The project is successful if

e PP ≤ e PP standard

e NPV ≥ 0

e IRR ≥ Economic discount rate