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Dissertation abstracts: Appraisal of Project of Loan with Laos Bank for Foreign Trade

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To study and clarify the basic theoretical issues and practices on appraisal of investment projects at Laos Bank for Foreign Trade. To assess current situation of appraisal of investment project with loans in Laos Bank for Foreign Trade in the past ew years and work out outstanding issues need being completed. Suggest system of major solutions to complete appraisal of loan investment project of Laos Bank for Foreign Trade by 2020.

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Nội dung Text: Dissertation abstracts: Appraisal of Project of Loan with Laos Bank for Foreign Trade

  1. 1 2 PREMISE few years and work out outstanding issues need being completed. Suggest system of 1. Essentiality of thesis on project of appraisal of commercial banks major solutions to complete appraisal of loan investment project of Laos Bank for Currently, Laos Bank for Foreign Trade is a top bank in commercial banks of Foreign Trade by 2020. Laos in lending many big projects such as power plants, exploitation of mineral mines, 4. Subjects and scope of study of the dissertation cement plants and other manufacturing projects etc…… Subject of study: The dissertation focused on appraisal of loan investment project in However, during its operations Laos Bank for Foreign Trade had some Laos Bank for Foreign Trade. Scope of study: The dissertation focused on current appraisal limitations especially in appraisal of investment projects. Because appraisal of of loan investment projects of Laos Bank for Foreign Trade in period of 2000-2001. investment projects plays very important roles in formation and implementation of 5. Research methodology investment project, it is considered as a basis for determining selection or removal of The author uses combined methods, interviews, statistical analysis, investigation, projects. Along with renovations of economy, appraisal of investment projects is very and survey of legal documents that uses combined tables to calculate, illustrate, important to help selected sponsors or lenders and project owner to select the optimal compare and draw out the conclusions, analyze documents and international and local investment projects, therefore, Laos Bank for Foreign Trade has paid much attention to works relating to the thesis. appraisal of investment projects especially to new projects. Enhancing and completing Table: Schematic diagram of the study appraisal of projects of Laos Bank for Foreign Trade is very essential when Lao is one Content of study Methods of application of developing countries under orientation of market mechanism. Overview of the Collecting data of dissertations, thesis, relevant scientific Board of Management of Laos Bank for Foreign Trade issued Decision No study themes; assessing and working out the gaps of the research 07/NHNTL dated 19/02/2004 on applying completed risk management policies and Arguments about - Referring to the relevant documentations, investigation, project evaluation in surveying legal documents, instructions for job in Laos’s State Circular No 001/NHNT-2007 guiding application for loans, approval of credits and commercial banks Bank, Laos Bank for Foreign Trade and Commercial Bank of rights in approval of credits with quite clear contents but it is still difficult for Laos, performing evaluation activities in Vietnam implementation especially for big projects (over 5 billion of kips) and foreign projects, Evaluation of the - Conducting interview, investigation, field surveys in Laos moreover, Laos Bank for Foreign Trade has not had a separate department of appraisal. status of project Bank for Foreign Trade, compare with the provisions of the For the above mentioned-reasons, the author selected the topic “Appraisal of appraisal in Laos Laos’ State Bank, commercial banks of Laos Project of Loan with Laos Bank for Foreign Trade” as the title of economic master Bank for Foreign - Applying statistical methods to review and assess the current dissertation. In this dissertation, the author shall analyze in depth the current situation of Trade situation appraisal of investment project, achieved findings, causes, limitations during appraisal of Propose a complete - Applying the SWOT analysis method and forecasting to investment projects, then make some suggestions on solutions to enhance quality of solution provide a basis for proposing solutions appraisal of investment project with loans from Laos Bank for Foreign Trade. 6. New contributions of the dissertation 2. Overall of research situation relating to topic of the dissertation The dissertation systematized and clarified the fundamental theoretical issues in In general, appraisal of investment project is the study subject of many local and evaluating loans investment project in Laos Bank for Foreign Trade. It also analyzed international researchers. Many articles, dissertations, theses, and studies have been and evaluated the successes and limitations of the loans evaluation work of Laos Bank published. However, although approaching from many angles, solutions to strengthen, for Foreign Trade; analyzed the causes impacting on such successes and restrictions to complete and enhance have just been presented as one part of content in works on complete the evaluation of the loans investment projects of Laos Bank for Foreign appraisal of investment projects but not become only content systematic and updated as Trade until 2020. The dissertation proposed suitable perspectives and solutions to a separate work. Therefore, there has been no dissertation overlap with this dissertation complete the evaluation of loans investment projects of Laos Bank for Foreign Trade in 3. Research objectives of this dissertation the coming years, including several perspectives, solutions and recommendations for To study and clarify the basic theoretical issues and practices on appraisal of stakeholders. investment projects at Laos Bank for Foreign Trade. To assess current situation of 7. Structures of the project appraisal of investment project with loans in Laos Bank for Foreign Trade in the past Title: “Appraisal of Project of Loan with Laos Bank for Foreign Trade ".
  2. 3 4 The dissertation consists of 147 pages with 100 locally and internationally- project on the basis of standards and decisions of the state bank. The appraisal shall referred documents using tables and other relevant appendix. In addition to the analyze and clarify aspects and details of the project supporting the best selection and preamble, conclusion, and references, the dissertation consists of three chapters as analysis bring about the more feasible solution. Appraisal of investment project is to follows: ensure capital business activity of the Bank safe and effective, minimizing the risks Chapter 1: General theoretical background of loans investment project appraisal at while collecting profits) Laos Bank for Foreign Trade. + Role of appraisal of loan investment project at commercial bank: Appraisal Chapter 2: Current situation of appraisal of loan investment project at Laos Bank for of loans investment project in operations of Bank is one of basic methods for Foreign Trade in period of 2000-2011 preventing risks during making investment loans at Bank. In fact, Investor of project Chapter 3: Perspectives and some solutions for completing appraisal of loans shall partially and wholly inspect, analyze and assess aspects and issues in the pre- investment project at Laos Bank for Foreign Trade. feasible research and feasible research 1.1.3. Requirements and tasks set for the appraisal of loans investment projects in CHAPTER 1 commercial banks + Requirements for the appraisal of loans investment project in commercial GENERAL THEORETICAL BACKGROUN OF APPRAISAL OF banks: To master development strategies of bank, sector, localities, regulations and law LOANS INVESTMENT PROJECT AT COMMERCIAL BANKS on economic management, applicable management of investment and construction of 1.1. APPRAISAL OF LOANS INVESTMENT PROJECT AT COMMERCIAL the State relating to the project. To understand about the framework, conditions and BANK typical characteristics of project, situation and general economic level of the locality, 1.1.1. Definition of appraisal of investment project country and the world. To master business and operations. To master demands and Appraisal of investment project at commercial banks is appraisal of investment supply of product market of the project. To timely appraise and contribute comments project established and submitted by customer to the bank when making procedures for right after receiving the record. To regularly complete processes of appraisal, loans based on perspectives of bank...Mission of credit staffs upon appraising the coordinate and promote the collective intellect. investment project is to detect mistakes and questionable points or uncertainties of the + Tasks set for appraisal of loans investment project at commercial bank: The project and discusses with customers to make further clarification in order to assess the project is feasible, limiting and reducing the risks, generating basis for use of capital in accuracy and truthfulness of the project from angle of general standpoint, the author right purposes and subjects committed in the contract. The project is cable of paying stated that "Appraisal of loans investment project of commercial bank is organizing to debts of investment project in due. inspect, assess and review loans investment projects objectively, scientifically and 1.1.4. Essentiality of performing loans investment project appraisal comprehensively in terms of basic contents directly affecting feasibility of an effective + For investor: Select the feasible project, can make loans, the business investment project in the future and giving out the orientation for development to make operations generate interest. decision for loans” + For bank: (the project has financial feasibility, financial effectiveness, 1.1.2. Purposes, nature and roles of appraisal of investment project capability of recovering capital in due (principal and interest) and minimize the risks + Purposes of appraisal of investment project: (To help assess reliability of 1.2. PROCEDURES OF APPRAISAL OF LOANS INVESTMENT PROJECT AT manufacturing methods or investment project established and submitted by the COMMERCIAL BANK customers to the bank upon making procedures for making loans. To appraise and Depending on characteristics of organization and management, each commercial assess risks of the project upon deciding to lend. To help credit staff and leaders of the bank designs and builds for it a procedure of appraisal of investment project consisting bank to decide to lend and reduce the probability of two types of errors in their lending many different steps with specific results of each as follows: [18] decisions: (1) to lend a bad project (2) to reject to lend a good project) +Nature of appraisal of loans investment project at commercial bank: Nature of appraisal of investment project is to inspect and assess the whole content of the
  3. 5 6 Table 1.1: Summary of project appraisal procedures business registration, charter, decision on appointment of director, decision of Stages of Source and place of Tasks of bank at each stage Result of each stage appointment of chief accountant…., record of project, finance record, guaranteed assets procedure information provision record and other legal documents. (1) (2) (3) (4) Establish - Lending customer provides - Communicate, propagandize - Complete record to transfer to Main contents for appraising the project include: (i) Appraising market aspect of record for information and guide customers to establish the following stage the project; (ii) appraising technique and technology of the project; (iii) appraising credit the loans record. organization and management of project performance; (iv) appraising finance of the issuance project; (v) appraising ecological environment and (vi) socio-economic appraisal of the Appraisal of- Record for loan request from - Organize appraisal of financial - Report result of appraisal to project previous stage transferred aspect and non-financial aspect transfer to competent project. - Information added from for individuals or department in department to decide lending 1.3.2. Appraising the lending customers (investor) interview and record charge of appraisal In this section, main contents include (i) appraising legal status of the lending storing…. customer; (ii) appraising financial capability of the customer; (iii) appraising collateral Decision on Documents and information Decide to lend or refuse to lend Deciding to lend or refusing to investment from previous stage based on result of appraisal lend bases on result of appraisal loans. transferred and report on - Legal procedures such as 1.4. METHOD FOR APPRAISAL OF LOANS INVESTMENT PROJECT appraisal result signing the loans contract, At commercial banks, appraising staffs must appraise projects on the basis of - Supplementary information notarized contract, and other combining many methods such as: appraisal in orders, comparison, and forecast, kinds of contract are made. Here, only basic steps of a procedure of loans investment project of a commercial analysis of sensitivity and minimization of risks. bank are presented in accordance with the following chart: [32, page. 280] 1.4.1. Order appraisal method The fact that investment project is performed in procedures from overall Customer Receiving record of establishing project customers appraisal to detailed appraisal, taking the previous conclusion as the premise for the of request for loans following conclusion. Gathering Collecting comments of informatio 1.4.2. Comparison method relevant central ministries, Visiting customer’s At commercial bank, this method compares contents included in the project in departments, divisions, place localities accordance with regulation of law, regulations, appropriate technical norms and Department of credit standards, international and local practices and practical experiences; analyze and organizes appraisal Establishing appraisal compare to select the optimal method. The project is compared with the projects under report establishment or operation. Establishing Council Management organize re-appraisal 1.4.3. Forecast method appraisal report Director of Forecasting projects of appraising staffs at the commercial bank bases on the commercial bank statistical extrapolation methods and methods of transmission of the norm expert opinions. Signing the contract Competent person decides investment Use of which forecast methods depends on the contents of appraisal of the project. 1.4.4. Analyzing the sensitivity of the project Chart 1.1: General procedures of appraisal of loans investment project This method is used to test the viability of the financial performance such as 1.3. CONTENTS OF APPRAISAL OF LOANS INVESTMENT PROJECT profitability, net income, rate of return etc…of the investment project. It is assumed to Appraisal of loans investment project consist of the two main contents as pose changes for one or more factors to consider how it affects the project, which factor follows: Appraising the project itself and appraising lending customers. has much and little influence to manage them in the implementation of project. 1.3.1. Appraisal of loans project 1.4.5. Risk minimization method Legally speaking, the following contents should be appraised: Legal status, To ensure stability and effectiveness of the project, it is often forecasted that decision on establishment, investment permit, minute of establishment, certificate of some risks may occur to have appropriate economic or administrative methods to
  4. 7 8 minimize the impacts of risks or distribute risks relating to the project. preparing documents for appraisal, appraisal by council). In terms of appraisal time: 1.5. FACTORS IMPACTING QUALITY OF APPRAISAL OF LOANS Each project has 12 to 14 weeks (excluding pre-appraisal with 6-7 week). Each job: (12 INVESTMENT PROJECT AT COMMERCIAL BANK days for completing documents of the project; 10 days for drafting legal documents; 6 1.5.1. Các nhân tố chủ quan weeks for appraising the field; 1 week for adjusting minute of appraisal). In terms of Internal factors actively controlled and adjusted by the Bank include: Leader, appraisal: Group leader plays a very important role. The cost of appraisal is always appraising staffs, procedures and method of appraisal, information serving appraisal, identified suitably and favorably. organizing controlling appraisal and technical facilities to serve appraisal. 1.6.3. Some experience lessons withdrawn from appraisal at bank and 1.5.2. Objective factors international credit organizations. In terms of macro-environment: Legal environment, state mechanisms, and For new projects, Vietnam Bank for Foreign Trade only considers lending loans impacts of inflation, rate exchanges, political environment, natural environment and when the capital of investor accounts for over 20% total investment. For lending loans owner of investment project: Composing information to serve initial establishment of to renovate techniques, technology and a part of existing equipment, or expand project. operations etc…with the capital not more than total existing assets of the investor, the 1.6. EXPERIENCES IN APPRAISING INVESTMENT PROJECTS OF owned capital contributed to the project must not be provide if the project is not VIETNAM BANK FOR FOREIGN TRADE AND INTERNATIONAL CREDIT effective and incapable of paying debts. The project is effective when the simple profit ORGANIZATION AND LESSONS rate > rate of bank. The time for capital refund is as short as possible. The project is 1.6.1. Experiences in appraising investment projects of Vietnam Bank for Foreign considered to be capable of paying debts when rate of debt payment ≥ 1,5. IRR Trade. standard used to select the project will lead mistakes when projects as substitute have Appraisal procedures: At Vietnam Bank for Foreign Trade, the procedure is different conditions and different scale, different life-expansion and different conducted with steps as follows: receiving records, collecting information, organizing investment duration. appraisal, appraisal talent (if any), establishment of appraisal report (report on talent of appraisal). Vietnam Bank for Foreign Trade built credit handbook including detailed CHAPTER 2 guidance for profession of appraisal of project; however, the Bank has not built CURRENT SITUATION OF LOAN INVESTMENT PROJECT procedures and guidance for appraisal profession of FDI project. APPRAISAL AT BANK FOR FOIREIGN TRADE OF LAOS Contents of appraisal of project at Vietnam Bank for Foreign Trade: Credit staffs processing record of investment project of customer established and submitted to 2000 - 2011 PERIOD leader of bank the report with contents as follows: A. Appraisal of legal record. B. 2.1. RESULTS AND FACTORS AFFECTING LOAN INVESTMENT PROJECT Appraisal of finance (project record). C. Loans guarantee. APPRAISAL OF AT BANK FOR FOREIGN TRADE OF LAOS Method of appraisal: The Vietnam Bank for Foreign Trade often applies method 2.1.1. Results in appraisal of loan investment projects at Bank for Foreign Trade of appraisal in order from general appraisal to detailed appraisal and method of of Laos comparing criteria under comparison: total investment, structure of capital, investment, From 2000 until 2011 Bank for Foreign Trade of Laos has appraised 803 technology level, financial effectiveness criteria ((NPV, IRR, T(PP)…) and other method projects, lent 735 and refused to lend 68 projects. Detailed data is shown in table 2.1 such as: Forecast, risk minimization….use and combination method is still limited 1.6.2. Experiences in appraisal of project of the World Bank Experience of the World Bank in appraising investment project is divided into 5 stages (identification, preparation, negotiation, approval and performance). In terms of content of appraisal, the World Bank divides issues into 6 groups: (Economic, technical and environmental issue, institutional issues, financial issues, and commercial issues, cultural and social issues). In terms of procedures of appraisal: (Pre-appraising,
  5. 9 10 Table 2.1: Quantity of medium-long term investment projects appraised in just begun to change from a state bank branch into a state commercial bank under 2000-2011 period Decree No. 129/NHNN and Decree No. 4284/NHNN dated 11/11/2010 by Laos’s Program Loan sales of TD Debt collection Number of Number of Number of State-owned bank with the charter capital of 610.43 billion laos kips and operate full TDH Billion of sales of TD DH disbursed projects refused invested business model under the management of State-owned bank. Until early 2012, it Year Lao Kip Billion of Lao Kip projects to be lent projects became a strong system including: 18 branches, 25 transaction offices, 11 foreign 2000 56,46 47,80 55 6 61 exchange offices, 78 automatic teller machines nationwide, international card service 2001 48,39 51,69 57 7 64 (credit card) and other services, which has participated in 2 (securities, credit leasing) 2002 62,37 11,35 31 3 34 2003 73,19 58,11 41 6 47 companies and in 3 foreign joint-ventures (Vietnam: insurance, bank and France: bank) 2004 75,46 59,84 36 5 41 and has currently agent relationship with over 25 banks on over the globe and more 2005 104,26 90,72 45 4 49 than 100 accounts, ensuring to serve customers’ requirements well. There are 2006 156,66 104,33 58 6 64 employees of up to 997 people including 1 doctor, 61 masters, 514 people at university 2007 186,54 126,07 67 7 74 level, 317 people at college level, 26 people at middle-level school level, 8 people at 2008 207,84 146,89 81 8 89 vocational level, 3 people at high school level and 67 people working under contracts, 2009 235,16 162,36 85 6 91 124 people of whom are credit staff (11 masters, 79 people at university level, 33 2010 294,53 183,72 87 7 94 2011 313,12 235,92 92 3 95 people at college level, 1 person at middle-level school level). Total 1.813,98 1.278,80 735 68 803 2.2.2. Characteristics of Bank for Foreign Trade of Laos affecting the appraisal of BQ 151,16 106,57 66-67 6-7 73 investment projects Source: Annual economic report of Bank for Foreign Trade of Laos [56] Bank for Foreign Trade of Laos grants credit to state-owned enterprises, 2.1.2 Economic – social factors affecting the appraisal of projects at Bank for individual business households joint-venture enterprises, cooperation enterprises, Foreign Trade of Laos cooperatives, individuals, especially import-export enterprises, foreign enterprises and Subjective factors consist of: a leader, appraiser team, process and appraisal other financial organizations etc. under the forms of loan, discounting commercial method, information for the work of appraisal, organization and management of papers and value papers, guarantees, financial leasing and forms as stipulated by the appraisal and technical facilities for appraisal. state-owned bank and under the forms such as (short-term loan in order to meet capital Objective factors: For macro environment: Legal environment, State’s policies requirements for production, business, living services (circulating capital), medium and and mechanism, impact of inflation, exchange rate, political environment, natural long-term loan for purpose of exercising investment projects into development of environment and an investment project owner production, business, services, life (fixed capital), and loans as decided by Prime 2.2. CHARACTERISTICS OF BANK FOR FOREIGN TRADE OF LAOS Minister if necessary but there must be the government security (Ministry of Finance). 2.2.1. Introduction about Bank for Foreign Trade of Laos * Bank guarantee: Bank for Foreign Trade of Laos has its Head office which is located at Road No. - Loan, payment, contract performance, bid, product quality assurance, refund, 1 Pangkham, Xiengnhun mountain village, Chanthabuly district – Vieng Chan Capiral, counter guarantees and other guarantee forms for local and international organizations, Laos. Its international transaction name is Banque pour le Commerce Exterieur Lao individuals as stipulated by the State bank. (abreviatedly BCEL), which is a state-owned commercial bank, established and - Loan, payment guarantees and other bank guarantee forms of which beneficiary operated since 1975.In Decree No. 11/ND-CP dated 30/11/1988 by the Laos is a foreign organization, individual). Government “the subsidy regime in banking system was removed. One-level State bank The branch performs the operation of discounting commercial paper and other system was changed into two-level bank system: State banks and commercial banks”. short-term valuable papers for organizations, individuals, rediscounting commercial Charter capital of Laos State bank at that time was defined to be 1.93 billion Laos kips paper and other short-term valuable papers for credit organizations, individuals). with operation duration of more than 20 years since the governor of state-owned bank * Payment services and funds: (Provide means of payment). Carry out domestic signed the re-establishment decision according to state-owned branch model. After payment services for customers. Perform cash collection services. Exercise services of nearly one pilot year, until November 01st, 1989, Bank for Foreign Trade of Laos has collecting and delivering cash to customers. Exercise international payment service as
  6. 11 12 stipulated by the law). 2.3.2. Investment project appraisal process at Bank for Foreign Trade of Laos 2.2.3. Overview on the improvement process of legal documents related to Project appraisal process at Bank for Foreign Trade of Laos is conducted in appraisal of loan investment project at Bank for Foreign Trade of Laos accordance with the provided steps: From receiving files, collecting information, - Bank for Foreign Trade of Laos always plays a main role in the lending bank organizing preliminary appraisal, detailed appraisal, establishing an appraisal report system to bring economy to develop as oriented by national economic-social includings 7 steps: done as procedures such as: [57] development, which is the most prestigious bank in the fields of intermediary business, A customer makes a Sign a contract between the people with excessive money and the people lacking money. Until early requesting project 2012, Bank for Foreign Trade of Laos has developed and become a non-stop strong Officer/Chief of Borrowing Board of Directors encouragement department Responsible person of system regarding to process of improving its loan investment project management Borrowing officer of organizes preliminary credit department Sign a mechanism by issuing documents on credit. The documents helped the bank base, contract branch organizes appraisal preliminary appraisal check and control loan use process. Department of operating Chief of Credit 2.3. ANALYSIS OF CURRENT SITUATION OF APPRAISAL OF credit organizes detailed Department INVESTMENT PROJECT AT BANK FOR FOREIGN TRADE OF LAOS Board of branch appraisal person in charge of 2.3.1. Investment project appraisal organization of Bank for Foreign Trade of credit General Director Laos Credit Council Project appraisal is made by three departments: Department of borrowing Branch’s chief of Reappraisal encouragement, Department of credit management, and department of assets borrowing organization department Board of management. In addition, there are also internal inspection department, accounting Management department and other departments etc. Reappraisal Prepare a report to submit organization Branch’s credit competent person Board of Management operating officer organizes detailed Director appraisal Branch’s credit Competent person council organizes decides to lend Credit member Branch Director reappraisal (Credit Council) Deputy director directs credit and capital operating industry Ineligible or not feasible or exceeding deciding level Satisfactory or feasible results Chief of Credit Department Chart 2.2: Detailed process of investment project appraisal organization Branch director Board of Directors Chief of Credit Department of Refuse Person in charge of Department operating credit Deputy Chief of Deputy Chief of Credit credit department collects information, Credit Department Department appraises in details Prepare an General appraisal report Director Chief of TS Operating Chief of Credit Chief of Borrowing Borrowing Chief of Department Operating Encouragement encouragement Credit Council/Board Borrowing department prepares A client of Management Decide to Department Department Department submits a file lend a file applying for organizes reappraisal loan to appraise Expert Expert Expert Expert premilinarily Sign a contract Issue a letter to the client Chart 2.1: Entities related to the appraisal of investment projects at the Head Office of Bank for Foreign Trade of Laos and its branches Chart 2.3: Project appraisal steps
  7. 13 14 2.3.3. Content of investment project appraisal at Bank for Foreign Trade of Laos in table 2.1 The bank appraises projects for some contents such as appraisal on legal aspect, For appraisal process: On the basis of theoritical and practical research on aprpaisal on market aspect (formal), appraisal on organization, project performance appraisal, Bank for Foreign Trade of Laos has strict process, many specific steps. The management (xem qua) and appraisal in terms of project finance. Some remaining bank’s appraisal process is decentralized synchronously and detailedly by vertical, contents are rarely appraised [47] generally agreed for the entire system from head office to branches with clear division 2.3.4. Investment project appraisal method at Bank for Foreign Trade of Laos of power and responsibilities of each individual as well as departments participating On basis of interview with Chief of Credit Department as well as on-site survey, into this appraisal. However, the duration is rather short if compared to Vietnam it is shown that Bank for Foreign Trade of Laos has applied two methods such as commercial banks causing appraisal results not to be high. appraisal method according to the order from general appraisal to detailed appraisal and Table 2.3: Comparison of investment project appraisal duration comparison and contrast method. Forecasting, sensitivity analysis and risk reduction Define situation appraisal duration for a project methods are seldom used. Project group Vietnam Laos 2.3.5. Detailed project appraisal at Bank for Foreign Trade of Laos A Not more than 40 days Not more than 18 days The thesis mentioned appraisal of a particular project (Appraisal of mineral mine B Not more than 30 days Not more than 13 days exploitation investment project with codonating loan of US $ 20 million acted by Bank C Not more than 20 days Not more than 13 days for Foreign Trade of Laos as focal point). Appraisal of investment projects in the bank Vietnam data source [8], Laos credit manual [57] is based on mainly information and files provided by clients, reliable information For example, Group A project is a big one. It has 18- day duration for appraisal source inside and outside the bank, CIB to compare and contrast, apply information so that it must be completed all works during appraisal process. Appraisers can do each collection and processing skills. Project technology appraisal is still restricted. Finance step without care to be in time with regulated time. If appraise carefully, it can exceed appraisal of projects uses targets of NPV, IRR, T(PP) etc. In fact, calculation targets regulated time. Thus, some projects lent by the bank are not effective when executing still lack accuracy. Payback duration, project analysis under risk condition remain business operations. It is advisable to shorten some steps in appraisal process and add simple. However, for majority of investment projects, accounting and financial some days to appraisal duration. position has not checked and certified by an independent inspection agency yet. For For appraisal content: Officers have applied some contents such as appraising appraisal of secured assets: Some projects don’t have securing assets, but only regarding to legal aspect, appraising market aspect, project management organization, certificate of other financial institution appraised formally, not strictly. project finance. Ecological environment and economic-social appraisal is seldom Through analysis, illustrating examples, the thesis has evaluated archived results applied. Own project and client (investor) appraisals are not analyzed clearly. as well as indicating shortcomings in this appraisal of project. The appraisers are still In addition, compared to theory, in fact, for market aspect appraisal, an officer short of experience, capacity. The officers are weak about professionalization both in appraises the market aspect of project basing only available data and information given depth and width of architectural engineering based on available data and information by the client. He/she does not appraise market supply and demand in connection to sent to the bank by clients. (if not appraise strictly, detailedly, carefully, it can result in products of ongoing project and define type of market and product of project etc. due to “Netherlands disease”. (i.e. exploitation of resources does not help Lao People's not enough information to compare. Democratic Republic develop sustainably) In appraising technical design, the appraiser lacks experience in architecture, 2.4. EVALUATION OF LOAN PROJECT APPRAISAL AT BANK FOR machine and equipment techniques etc. FOREIGN TRADE OF LAOS For project performance organization, manager appraisal, the appraiser only 2.4.1. Achievements in loan investment project appraisal at Bank for Foreign browses structure, organizational form, project performance management. He/she does Trade of Laos not consider carefully the issues such as project operational organization level, capacity In the past time, appraisal of loan projects at Bank for Foreign Trade of Laos has in finance, production and business management, human resources of project (quantity also achieved positive results. From 2000 until 2011 Bank for Foreign Trade of Laos of laborers, technical level, workmanship, training plans, supply ability). has appraised 803 projects, lent 735 and refused to lend 68 ones. Detailed data is shown For project finance appraisal, the appraiser applies only some targets to evaluate
  8. 15 16 the project and make a decision to lend, especially basing on securing assets, if process, content, and method, which can be seen in charts 2.1 and 2.3 below. Overdue compared to theory, it still lacks reliability and efficiency of financial appraisal of Bank and bad debts formally go down but they go up by value. for Foreign Trade of Laos is not high. 6.000 For ecological environment and socio-economic appraisals, the bank’s appraiser only take a glance at data from relevant specialized ministries 5.000 For appraisal method: Bank for Foreign Trade of Laos is allowed to apply two 4.000 traditional methods such as by-order appraisal method and comparison and contrast method but some remaining methods are rarely applied. Therefore, effeciency of the 3.000 bank’s investment project appraisal is not high and some projects are involved in 2.000 overdue debts and outstanding debts. To prevent risks based on securing assets, ability 1.000 of project operation is rarely calculted. Forecasting, sensitivity analysis and risk reduction methods are not applied because appraisers still lack experience, are not 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 similar and there is no guidance document for application. For officers: Credit officers are usually trained for the purpose of  Total account outstanding  bad debt supplementing, improving operations, level to satisfy increasingly high requirements for the bank’s project appraisal but, compared to work volume in present era, it is not Chart 2.1: Comparison of bad debts with total account outstanding enough, still short of professional experience and quantity. from 2000 to 2011 For information, materials for appraisal: Information and materials are 6000 available but, in fact, they don’t meet requirements and are not exact because some 5000 enterprises have three types of accounting statements such as: accounting statements for banks which have quite high profit to be lent capital, accounting statements for 4000 Ministry of Finance (Tax Department) which has quite low profit to pay less tax and 3000 the remaining statements for enterprise which are main one. Thus, when the bank 2000 receives unexact data and information, it is difficult to appraise and appraisal results are not exact because there isn’t a information system to compare. 1000 Technical facilities for appraisal: In general, Bank for Foreign Trade of Laos 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 has positive technical facilities. However, if compared with neighbouring countries, it total account outstanding short-term debt does not keep up with in present era. medium and long-term debt The investment project appraisal quality of Bank for Foreign Trade of Laos isn’t Chart 2.2: Comparison of situation of short-term and medium-long term loans generally high if compared with the foresaid achieved results. In 2010, Bank for from 2000 to 2011 Foreign Trade of Laos applied ISO 9001-2008 credit quality control to project appraisal, therefore, appraisal process, appraisal content, appraisal method and investment project appraisal are agreed from head office to branches. However, to which extent in quality of investment project appraisal is improved, depending on each branch because appraisers lack experience, their profession is not uniform and quantity is not enough. This is reflected through unstable credit quality of past years and overdue account outstanding continously went up and down. The appraisal of loan project at Bank for Foreign Trade of Laos generally has unhigh results in connection to
  9. 17 18 investor’s finance appraisal content and many contents are still stopped at quire 6.000 general, non-full appraisal lacking authenticity. For method, appraisers are familiar 5.000 4.000 with traditional methods such as by-order appraisal method and comparison and 3.000 contrast method. The remaining methods are rarely used. For equipment, technology 2.000 for investment project appraisal, which don’t meet requirements and there is still a 1.000 shortage in expenditure for appraisal. 0 2.4.3. Causes for the restrictions in appraisal of loan investment projects at Bank 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 for Foreign Trade of Laos total account outstanding bad debt Overdue debt Although the quality of project appraisal is improving more and more, there are some shortcomings in causes as follows: For officers, credit officers are not enough Chart 2.3: Comparison of situation of bad debts, overdue debts with total account strong in quantity and quality for law, technique appraisal etc. For Law, law issuance is outstanding from 2000 to 2011 not enough especially law on project apprasal, non-synchronous accounting law. For Table 2.7: Credit operation according to economic sectors information, information is not collected fully, sometimes, it is formal. For equipment, Unit: Billion of Lao Kips computers do not have high configuration. Internet network is slow, not satisfying Transp Total loan Agricul Commer demands. Software mainly used in analysis is Microsoft Corporation (Word and Excel). Industry- construc equip ort Year at the end ture - ce - Other handicraft tion ment post For expenditure, the bank does not have an individual investment fund to pay expenses of year forestry service office 2000 556,49 301,15 88,53 52,28 114,53 - for project appraisal activity. There is only general investment funds. 2001 904,74 414,82 317,33 31,12 141,47 - 2002 321,20 145,56 113,32 10,97 51,35 - 2003 992,56 241,99 380,57 47,83 322,17 - CHAPTER 3 2004 1.054,38 257,99 405,53 46,38 344,48 - POINT OF VIEW AND MEASURES FOR ACCOMPLISHMENT OF 2005 1.371,64 429,84 409,98 17,96 345,56 168,30 2006 870,86 307,92 63,06 16,86 327,08 155,93 FUNDING INVESTMENT PROJECT EVALUATION IN BANK FOR 2007 873,17 385,69 125,63 22,74 339,11 - FOREIGN TRADE OF LAOS 2008 1.382,43 360,89 206,78 40,03 857,73 - 2009 1.894,30 292,21 408,44 48,82 1.166,78 - 3.1. DEVELOPMENT ORIENTATION OF BANK FOR FOREIGN TRADE OF 2010 2.705,47 353,44 735,05 79,05 122,59 49,78 1.375,13 25,43 LAOS BY 2020 2011 5.141,56 785,02 1.208,37 405,90 503,07 237,13 1.837,40 164,67 3.1.1. Chances and challenges of Bank for foreign trade of Laos in the Tổng 16.300,68 3.976,52 4,062,59 208,39 284,26 481,78 6,872,81 414,33 Making up 100 24,39 24,92 1,28 1,74 2,95 41,88 2,54 circumstance of shift of economy into market mechanism with State’s socialist – weighting % orientated regulation Source: data from annual economic reports of Bank for Foreign Trade of Laos [56] Strong point: Bank for foreign trade of Laos is popular in nationwide, has 2.4.2. Restrictions in loan investment project appraisal at Bank for Foreign Trade relationship with international banks in different 25 countries, possesses modern of Laos equipments compared with other domestic commercial banks, manages a young and The appraisal of investment project at Bank for Foreign Trade of Laos has been qualified staff, and builds branches in provinces. In conclusion, Bank for foreign trade constantly strengthened and improved quality for the past time. However, besides the of Laos is a popular bank achievements, the investment project appraisal of Bank for Foreign Trade of Laos also Weak point: Some branches in provinces cannot access internet; in others, has some restrictions, affecting the quality of investment project appraisal such as although the internet is available, however, it cannot satisfy user’s requirement. decentralizational appraisal process with too many steps, resulting in taking a lot of Besides, there are some existences such as young staff without experience, time and only single process is applied for all projects in different sectors. For appraisal confidentiality of information among banks content, there is no clear distinction between project finance appraisal content and Chance: Development of some branches of industry and law system will
  10. 19 20 facilitate extension of Bank for foreign trade of Laos in the future. Economy of Laos is 3.2.3. Viewpoint: Combination between funding investment project evaluation and more developed than previous years, demand on investment capital also becomes more innovation of evaluation process, content and methods in Bank for foreign trade of urgent Laos Challenge: At present, comprehensive open - door policy for international credit In terms of process: Continue to accomplish evaluation process in the direction institutions and financial agencies will create strong competition in domestic economy. of reasonableness, science and synchrony, avoid redundancy and confusion resulting to With experience, capital, modern technology and large network in over the world, difficulties in working process of evaluators. Work must be finish in time as stipulated competition from international bank, non-bank financial institutions and other In terms of content: Firstly, evaluators should care for information supplied by commercial banks which Bank for foreign trade of Laos must face will become popular sources such as Ministries, Quality registration department or mass media. stronger and more severe Secondly, they also pay more attention to technical evaluation of investment projects. 3.1.2. Development orientation of Bank for foreign trade of Laos by 2020 Thirdly, it is required to improve quality of financial evaluation for investment projects: + General orientation: Carry out policies of expansion of development of branches method for determining ratio r of projects, analyze sensitivity of project in different and services in every province nation-wide aiming to facilitate capacity of Bank for directions, evaluate irregular changes relating to demands on product in current and foreign trade of Laos in supplying services equally. At the same time this Bank also incoming projects... Fourthly, on environmental impacts of project relating to buying pays more attention to small, medium and big sized investment projects (annual machine and equipment, the bank should take more care of calculation of funding increases 18%, annual interest increases over 40%) environmental cost for projects. + Orientation for investment project evaluation: In the next time, evaluation still In terms of method: Evaluation method affects largely gained results. Forecast continues to focus on further accomplishment of process, content and method and and evaluation in the order must be applied flexibly in accordance with each project capacity of staff (human resource, equipment and information system). In details: and sector Develop staff in charge of evaluation to ensure increase of quantity, quality as well as 3.2.4. Viewpoint: Funding investment project evaluation in Bank for foreign trade their owned capacity. Strengthen evaluation process in order to fit sectors of project and of Laos is required to ensure objective requirements and effectiveness evaluation time. Train further specialized technology for staffs in charge of evaluation. State is required to strengthen documents and law relating to operating activities Decrease expenditure through improving quality of equipments used for investment of Restaurant; when carrying out evaluations, project supervision and enactment of law project evaluation. Build modern information technology system on investment project evaluation must be implement tightly and seriously. Data and 3.2. VIEWPOINTS ON ACCOMPLISHMENT OF FUNDING INVESTMENT information relating to these projects should be published by investors. It is necessary PROJECT EVALUATION IN BANK FOR FOREIGN TRADE OF LAOS to have solid co-operation among Ministries in evaluating and approving investment 3.2.1. Point of view: Combination between funding investment project evaluation project. and document system and investment management innovation in Bank for foreign 3.3. CONTENT OF ACCOMPLISHMENT OF FUNDING INVESTMENT trade of Laos PROJECT EVALUATION IN BANK FOR FOREIGN TRADE OF LAOS It is required to continue to invest, strengthen and foster profession, knowledge 3.3.1. Orientation for investment project evaluation in relevant sectors of project for staff, especially evaluators from central to local level. In the next time, orientation for investment project evaluation continues to focus Document system relating to project evaluation must be suitable with relevant others. on further accomplishment about evaluation process, content, method and capacity of Besides, this bank also pays more attention to evaluation and supervision of capital use staff (evaluator, equipment and information system) and should be careful in disbursement and project performance. Organization and 3.3.2. Accomplishment of process for funding investment project in Bank for management system of investment project should be strengthened. foreign trade of Laos 3.2.2. Viewpoint: Use of modern equipment and information system in evaluating On evaluation, Bank for foreign trade of Laos establishes tight process including investment project detailed steps. It is required to stipulate detailed period for each task to gain the highest Equipment and software which are installed in bank must be modern and suitable results, as regulations in following table: with general trend of the world
  11. 21 22 Table 3.2: Comparison of time for investment project evaluation guideline, supplement evaluation contents with 2 aspects as follows: project evaluation Determine evaluation time basing on situation of project 1 and borrower evaluation (investor) Project group Vietnam Laos Author 3.3.4. Accomplishment of evaluation method for funding investment project in A Not exceeded 45 days Not exceeded 18 days Not exceeded 30 days Bank for foreign trade of Laos B Not exceeded 30 days Not exceeded 13 days Not exceeded 25 days The Bank should use modern evaluation methods, as well as pay more attention C Not exceeded 20 days Not exceeded 13 days Not exceeded 20 days to determination of financial effect, time value of money, and choose combined Sign contract discount interest rate and amortization determination… Project proposed by customer 3.4. METHODS FOR ACCOMPLISHMENT OF FUNDING INVESTMENT Officer/ Head of borrowing Credit management encouragement department finishes PROJECT IN BANK FOR FOREIGN TRADE OF LAOS department carries out Borrowing officer documents for preliminary evaluation detailed evaluation 3.4.1. Improvement of capacity for evaluator finishes documents for preliminary evaluation The Bank must combine with Universities and relevant agencies to open training Board of Director/ Head of Head of credit Credit department courses, held conferences, invite experts to take part in talks and exchange department reviews Sign experience… Ministries, ministry – level agencies and local organizations can appoint contract General Director qualified officers to research in foreign countries. Agencies in charge of evaluation Credit council should give reasonable treatments for staff, commend and reward in both material and Head of borrowing evaluates spirit direction for officers who have been well done their tasks. It is necessary to department in branches Board of Director carries out evaluation employ officers who are a harmonious combination between capacity and ethnic Establish evaluation report behavior. Evaluation agency and Bank must carry out policies aiming to attract talent to Credit manager become long-term staff or invite consultants to become their collaborators. Credit council in branches 3.4.2. Supplementation of technology and equipment, application of information evaluates Competent person takes Branch director action for loan technology in evaluation Supplementation of technology and equipment: Bank for foreign trade of Laos Unqualified or infeasible or out of decision capacity should strengthen their investment activities to improve capacity in using evaluation Qualified or feasible equipments such as computer (both hardware and software). Scheme 3.1: New process to curtail time of project evaluation Enhancement of information technology application: Promote information Credit depart. management relating to establishing, evaluating and implementing project. Improve Customers establish and Collect Evaluate Evaluation submit informatio document with details quality of information collection and processing. It is required to ensure that finish lending documents document n information source is divers, accurate and timely. The Bank should diversify sources of Refuse Head of Credit information as well as settle them effectively. Credit information system must be hold Sign department uniformly from central to local level in the form of combination between centralization contract and decentralization. Credit Director Board of Director/ 3.4.3. Increase of expenditure for evaluation Decide to council/ Head of Credit lend It is required to pay more attention to expenditure and increase of expenditure for Board of department project evaluation. Bank for foreign trade of Laos should build private investment fund Scheme 3.2: Project evaluation for this activity. 3.3.3. Accomplishment of evaluation contents and norms for funding investment 3.4.4. Enhancement of control of quality of funding investment project project in Bank for foreign trade of Laos It should be strengthen further evaluation of financial effectiveness norm. It is The Bank is required to strengthen their document system to supply clear necessary to make sure that mortgaged properties were reserved to ensure current
  12. 23 24 investment projects without use for this purpose before. Internal inspection in bank their owned operating activities in market economy at current time should be boosted to limit risks in lending activities. Bank should reinforce MIS – Management information system specializing in 3.5. PROPOSALS FOR ACCOMPLISHMENT OF FUNDING INVESTMENT collecting and processing information PROJECT IN BANK FOR FOREIGN TRADE OF LAOS Bank continues to build options aiming to improve quality of evaluators at both 3.5.1. Proposals for State bank and Government head office and branches. At the same time they are also required to arrange, employ On the one hand, state bank should held conferences to discuss and draw evaluators in whole system experience relating to evaluation in commercial banks. On the other hand, they must strengthen information system, verify credit information center to gain better results CONCLUSIONS The Government is required to create long-term and stable legal environment, Thanks to mentioned-above researches and statements, the thesis finished main enact Law on investment project evaluation and its guiding documents to consolidate, task as follows: amend relevant legal documents, as well as law on operating activities, accounting and 1. In this thesis, the author summarized experience lessons from other financing, dispute settlement… researchers to gain more detailed knowledge about evaluation of funding investment The Government (Ministry of Finance) undertakes role of a auditing center who projects of Banks. This evaluation facilitates investors, sponsors, banks or managers to in charge of establish an accounting system for uniform use of enterprise nation-wide. carry out efficiently socio-economic aspect of projects, as well as gain benefits, create However, this system must be connected with auditing center of Ministry of Finance state budget and employment for laborer. Ministry of Planning and Investment co-operate with relevant Ministries to 2. In this thesis, the author chose and drew experience lessons in investment research and determine cost level for evaluation and consultancy for investment project evaluation from countries in the world, Commercial banks of Vietnam and projects of State budget and ODA distributed by State and other projects. World Bank. These are basic foundations which raises quality of investment project To improve legal environment and documents relating to investment project evaluation in Bank for foreign trade of Laos. In particular, evaluation process and evaluation, it is required to verify out-of-date regulations, remove overlap and content is applied with divers theoretical and mathematical bases and presented under contradiction among laws, decrees, circulars and decisions of levels. Principle of different viewpoints, directions and forms. accomplishment of legal system is to ensure equality, indiscrimination among 3. Analysis situation of investment project evaluation in Bank for foreign trade of enterprises, and enact law on investment project evaluation in the near future. Laos in previous years and collected results and limitations: 3.5.2. Proposals for investors - In terms of result, Bank for foreign trade of Laos is one of the top banks in Enterprises will take all responsibilities for improving quality of investment funding for enterprises, create more job for habitants, develop economy and society, project establishment and evaluation, sufficiency and accuracy of information sent to and distribute to state budget bank as well as publicity of figures relating to borrowing. This important information - In terms of limitation, Investment project evaluation in Bank for foreign trade shall help them to convince bank to fund to continue producing. All enterprises are of Laos in previous year cannot reach effectiveness as desired. Some projects lost required to possess accounting system in accordance with law on accounting and capacity of payment of debts international accounting practices 4. Through a range of research result, in Chapter 3 the author also suggested 4 3.5.3. Proposals for Commercial banks of Laos viewpoints, 4 contents for accomplishment, 4 measures and 3 proposals mainly for Bank should give detailed supports and guideline for enterprises in establishing relevant parties such as: State Bank of Laos, The Government, investors and funding investment projects. In addition to collecting and checking information Commercial Banks in Laos to accomplish investment project evaluation in Bank for supplied by borrowers, it is required to exploit thoroughly data received from credit foreign trade of Laos in the next future. These are conditions which must be prepared information center CIB under management of State bank. Commercial banks in Laos and promoted to use effectively. should co-operate with each other in publishing figures to improve quality of project evaluation and choose good customers. It also should avoid separation which leads to backlog of debt. The most optimal measure is to consolidate with each other to develop
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