Technology of Crediting Investment Projects at the Modern Stage

Lamara Qoqiauri, Doctor of Ecomomics Professor of Ivane Javaxishvili Tbilisi State University

Credit is necessary for normal functioning of public industry, because the borrower uses credit for the reasons of objective circulation and turnover of the capital, as own resources are nor enough for him/her.

Inequality of circulation and turnover of a capital gave rise to the necessity of such relations, which destroy incompatibility between period of production and that id circulation of recourses and comparative opposition between term of putting resources and their usage in public industry. Such are credit relations, i.e. possibilities of forming credit relations involved into capital circulation and turnover. For making these possibilities real, participants of the arrangement – borrower and creditor – must be juridical persons. This means, that they must have separate property in the operative management and be responsible for their obligations by this property; they must have right for purchasing and realization of property and own arrangement; fulfill obligations and be prosecutors and respondents in the court. The credit appears to be necessary and possible in the case, if there is mutual arrangement between the creditor and borrower’s interests.
They separate two spheres in bank crediting of the investment process:
· Supporting capital circulation and turnover in the industrial sphere;
· Creation of new productions and liquidation of old ones.
Crediting of enterprises for filling own resources is typical for the first sphere. Following features characterize it: the capital is used immediately and return it after one cycle of production and selling without overtaking production; Quality and structure of the used industrial potential do not change; They do not represent business-plan of the investment project to the bank; risk of not returning of the credit is less.
Second sphere, which is considered to be the one of bank investment crediting, is characterized by the number of features. The investor represent business-plan for realization of the project by all means; the period of overtaking of new production is long; new industrial potential is formed or status of the existed one changes; risk of not returning credit and not receiving percent is high.
They grant long-term credit after concluding credit arrangement, foreseeing expiation of various projects.
For receiving long-term credit for new buildings of modernization or reconstruction of active enterprises they represent to the bank credit application. The officer of credit department, who receives the application, begins its processing. The bank makes a list of the documents necessary for receiving credit of the given kind, checks its complicity and correctness of filling. In the best variant there are balances for the last calculation period and previous ones, arrangements about supplying equipment and materials, business-plan of the investment project, document proving fulfillment of obligations of returning credit. In the credit application they point destination of the credit and the project’s title. There are data about characterizing of the requested credit in the application: its kind, term, rules of granting and covering, ways of providing returning of the credit. To this list my be added, in case of need, project-calculation documentation, agreement of guarantee, graphic of providing works, the graphic of purchasing equipment, a certificate about the volume of actually fulfilled work for the beginning of crediting, calculations of accounting values of the current prices and so on.
While receiving documentation bank officers gain wide ability for independent research of the enterprise for the purpose of defining its investment creditability. Definition of the client’s creditability is provided on the basis of the represented documentation. In case of positive answer, the documents are discussed by the security department of the bank, also by juridical department, and then, each visa-placed document is gathered for analyzing business-plan of the investment project realization.
While analyzing business-plan they pay special attention to the correctness of analyzes of basic competitors, definition of the existed request on the given production, statement of the knowledge of managing self-value of the product, also seeing perspectives of the business realization.
In the case of forming positive idea about the given business-plan, they make analytical conclusion and every document is sent to the specialists of researching enterprises, who introduce with them and learn analytical conclusion about the business-plan. Finally they work out the program of researching enterprise and they provide the research. They discuss results of the researches for the purpose of finding conformity of the actual position of the enterprise with appropriate data, which are represented in the investment project and business-plan. They estimate investment creditability, i.e. possibility of covering investment credits in case of successive realization of the project. While making positive idea about the borrower’s sufficient investment creditability, they work out the most effective scheme of crediting. This is followed by the agreements with the client. They process every condition of credit agreement and every other ones related with it; make conclusions and documents for granting credit.
If in the process of realization of these procedures, during specification of the conditions, the fulfiller gains negative point of view, which is stated by the concrete documents and facts, the discussion about the subject of granting credit, must be stopped. The documentation is transmitted to the chief of credit department for informing bank administration and making decision of refusing granting of credit to the client.
They define the size of the project’s realization credit from the accounting value (which is calculated by the current values) and according to other sources used for its financing. They grant credit for compensation of the value of building-installation works, actually received materials and equipments, and also provided services. This takes place by avoiding current calculation from the customer’s loan one, – on the bases of accounting documents or notifications about the value of the made job, which are signed by the customer and the renter. Cash sources may be transferred from the loan account of the renter to the current account as an advance for providing planned volume of the building works.
While crediting building-assembling works fulfilled in the industrial manner, compensation of building materials and services, also issuing salaries may be provided as according to the elements of expenses from the loan account of the borrower, so in the way of recovering industrial expenses according to the acts of provided work.
Covering of the credit is realized from the current account, at the expense of made profit from the project realization and depreciation fund. Payment of the percent added to the investment credit is realized according to the terms foreseen in the credit agreement. The bank controls granted credits foreseeing conformity between project-accounting documentation of the calculation documents and conditions of the agreement; checks correctness of calculations provided while formation of the acts of fulfilled works and purposeful usage of the credit.
There are various methods for estimation creditability of the borrower, but it is impossible to use each one for checking ability of covering long-term credit of an enterprise, because during investment crediting prediction of financial status for important period is needed.
For estimation of investment creditability we must come from financial status of that enterprise, which is going to realize investment project. If it is firm, then it is purposeful for the investor to continue definition of investment attractiveness. After establishment of current creditability it must be given quantitative estimation, for example in the diapason form 0 till 1. They establish that limited meaning of current creditability, down of which existence of the investment creditability is impossible for high level of risks
During estimation of creditability of the enterprise which wants to take a credit for project realization learning investment attractiveness of the borrower is an important direction of analyzing. Those factors, which are outer factors (field of investment sources, location) and inner ones (industrial potential, financial status, management, investment program) towards the enterprise, appear to be factors of investment attractiveness.
To which field creation of new production or enterprise belongs, is of great importance, because competition ability of production depends on the reputation of the given country field at a market. It may be explained by that priority of the enterprises working good at the markets is projected for all those ones, which are in the given field.
Location of the enterprise influences significantly upon the investment attractiveness by development of concrete region or by the fact, that exactly there is possible to provide highest quality of the production and less self value. There are such natural-climate conditions in some regions, which prevent or help creation number of enterprises having competition abilities. For example, low middle annual temperature gives rise to the additional expenses and makes self value expensive. This mostly takes place in the warm places. Natural-climate conditions do not influence upon development of such enterprises, which need labor of high qualification. If they are directed towards creation high-technology production and growing level of labor, then formation of enterprises of high competition ability is in perspective.
Industrial potential influences straightly upon the investment creditability. Basic and turnover funds, also nonmaterial assets are basic subjects of analyzing. It is that part of capital, which may be expressed in the cash form, or the part of the enterprise potential, which is expressed in the quantity of capital.
Industrial potential has other elements too, expression o which is yet impossible in cash form. There are levels of labor, managing and production in it, and also intellectual potential of the enterprise. With its help basic and turnover means, nonmaterial assets work and goodwill of the firm is created.
During analyzing industrial potential it is necessary to learn existed level of labor and production organization in details, research that industrial mechanism, which is out of the bounds of managing apparatus and center of strategic decisions.
Investor and creditor are obliged to introduce with every investment project to be financed in the enterprise ad the documents consisted on them. This is necessary because every realization of every project is reflected on the financial status of the borrower and, accordingly, its creditability.
As practice shows, long-termed financing of programs doesn’t take place spontaneously, but it means analyzing and control of current activities of the enterprises. For satisfaction of such requests, unfortunately, not every enterprise appeared to be ready. There, where all these requests are satisfied, banks become active participants in processing plans of strategy and financial provision of investment activities of the enterprises.
A special attention is required by such direction of the activities of commercial banks, as project financing is, which, to our mind, requires administration and financial support from the government, we mean the condition, that for effective salvation of investment problems it is necessary to create finance-industrial groups, and holding unions, which, in its turn, represents initial form of forming thick financial capital at the market and confluence of bank capital to the industrial one.1 This will give rise to the growth of investment volume in the economy and growth of effectiveness of capital investments. Of course, creation of such unions will be actually supported by commercial banks, but this is interrupted by such condition, that groups created today provide this activity in unregistered form and nobody is interested in their registration. This is supported by incomplete logistic, slow development rates of the institute of private property, interruptions in realization of agrarian reforms, provision of accounting calculations of financial structures in incomplete form and existence of separate statements working opposite to the creation of holding unions in the low about industry. All mentioned above may be solved immediately, by processing special low about investment activity and on the basis of its setting by the parliament in a short period of time.
It must be mentioned, that there are enough conditions for widening financial investments in the economy from the bank side because of the existence of free cash means. It is important, that these financial resources were influxed and to create a system of rational organization of purposeful usage, which must be expressed by processing of the investment policy. Here an important meaning belongs to the investment policy and correct definition of tactics.
It is also to be mentioned, that commercial banks have numbers of problems while realization of their investment activities, which prevent their normal functioning. We mean the banks, working on financing investment projects, in fact, represent only one unit in the system of private institutions. We consider following to be preventing conditions of their activities:
Ø Existence of marketing center of the investment projects, a coordinating organ in the country scale, which would play a function of regulator in the financial provision of the investment projecting;
Ø Unacceptability o the information about position of a potential borrower or investment institution;
Ø Refusal of creation of deposit web;
Ø Low level of development of the investment funds existed today;
Ø Absence of state investment bank, total specific organ of financing investment activity and, consequently, spontaneous distribution of the functions of investment banks working abroad under the conditions of market economics among Georgian commercial banks.
It must be also mentioned, that there are many economical factors, which may influence negatively upon realization of investment processed by the banks and nobody can define beforehand nontransiency of expected risk danger of these factors. Herewith, widening of working sphere in the investment activity of commercial banks objectively requires: giving more independence and rights to the commercial banks, growth of effectiveness of long-term investments and growth of incomes, relatively with those received from short-term financial operations, fastening of this process, ll kinds of supports from the side of the government and finally, further statement of trustfulness and firmness of the activities of banking system.
For guaranteeing firmness of banking activities structure-institutional reforms, min goal of which is preparation for new stage of development of banking field, come to the first place. Necessity of the mentioned reforms is conditioned by the position of financial market of the country. New institutions, as mentioned in the works of D. Nort – the laureate of Nobel Premium, are formed in the case when the society sees the possibility of making profit, which is impossible during active institutional system. Maximal investment activities of banks are possible during many-fielded system o a financial market. This is a result of logical development of competition, as it solves problems of optimal usage of financial resources. Exactly this many-fielded character reduces and stops crisis in the country.
Many-fielded character of the banking system is characteristic to the most part of developed countries (the USA, countries of western Europe, Japan) and also for the countries having transitional economics, which applied for firm economical growth in the last decimal (China, Poland, Brazil and others). Exactly this many fielded banking system gives possibilities for using various types and forms of financial service in economics by credit department.
In this system the state creates various mechanisms of artificial reduction of competition among financial organizations. An evident example of this is separation of credit institutions into commercial and investment-credit institutions in the USA, also reduction of the bans of countries in the sphere of realization of many year credit investments and separation of state bank into separate category.
Creation of advantage regime for small-scaled business, in the first place, regulates creation of competition able outer conditions of the investment activity, which must be definitely foreseen in the activities of the country’s banking system. It must also be mentioned, that according to the development and improvement of the economy in the future, perhaps, such activities may not be needed, but under the conditions of transitive economics their importance may not be specially noticed. It is natural, that many-fielded financial sector is formed only under the equal conditions of competition, as there is reason-resulted, reverse-influencing relation. Mentioned relation between many-fielded financial sector and competition is expressed by that it helps creation of advantage regime for the investment activity being in the position of an embryo and its further development.
According to the many-fielded principle of the financial market, the state must work out such a system of regulating investment activity, which guarantees “peaceful” coexistence of various financial institutions notwithstanding their size and specialization. Banks of every category must “act” in their marketing “sphere”, while regulation of banks of different levels from the state is stated according to the rules of regulation. Privately, to our mind, it is important to point out and regulate activity spheres of those banks, which use a capital of governmental organs. Under the conditions of many-fielded system of a financial market competition carries “fair” character and this is why such system is much firmer. Privately, in case of many-fielded system, under the conditions of concrete fight, while financing concrete state programs by forming a system of specialized state banks usage of state resources is possible more effectively. In this case objective usage of lobbing of state resources from the side of commercial banks is not allowed. For example, in Germany realization of state projects of ecological, agrarian, building and other fields are provided by specialized commercial banks. There are specialized credits in the banking system of other developed countries (Japan, Italy, France and so on) too. Such practice significantly reduces danger of incorrect usage of state resources under the conditions of competition fight.
One of the most important factors, which degrade effective development of real sector of the economy, is the irrelevance of the needed financial capital for the regional services. Basic volume of financial resources from the enterprises is accumulated in the center. Such situation is in a way justified for the state, but it is absolutely insoluble in relation with the private companies.
According to the various estimations, regional banks control not more, than 20-30% of inflow of financial resources of the regional enterprise, and this seriously degrades development of the local banks and enterprises. Thus, for solving problems about lack of resources for crediting real sector of a small economics of regional banks, question related with it, must be discussed in relation with outflow of financial resources from the region. Solving of these problems by administrative activities is impossible, processing of appropriate economical activities is needed. We mean the condition, that together with the growth of the share of local budgetary tax income, it is important to define responsibilities of the budgets of municipal creations in the development of regional economics. Thus, financial federalism is that necessary condition, which guarantees, from one side, formation of balanced market of financial service, and, from nother, further development of the investment activities on the basis of appropriate legislative base.
Creation of equal conditions for the competition under the conditions of financial federalism will naturally lead us to the formation of many-fielded system of the financial market. Such process also gives rise to the creation of thick financial centers on the basis of the existed and newly formed banks. Thus, development of regional banks within the bounds of the conception of banking industry development, gives rise to the growth of financial potential o regional economics. At the modern stage conditions of development of bank branch sphere are being widened more and more. Today banks mostly provide sources of basic financial capital inflow in the way of “region-center”, after transition to the real federalism many-fielded banks transform into the banks providing sources for financial capital outflow among the regions.
It also must be mentioned, that it is important to grow the importance of banking business, which must be expressed by forming town and country credit relations, mutual crediting and insurance societies, and loan-constructing associations. All these must be foreseen in Georgia in the process of banking system development and, accordingly, an adequate logistic must be prepared for advantage conditions for development of small and middle banking businesses, because formation of effective financial system in the regional scale is absolutely impossible. Therewith, if we take into account the fact, that the investment portfolio in the structure of joint assets of Georgian commercial banks did not overcome 1% for the first of January of 1999, and 4% for the first of January of 2005, this speaks for the tendencies of growing portfolio investments.