Assessment Of Appraisal Practice Of Dashen Bank For Financing Projects
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Date
2018-06-23
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Addis Ababa University
Abstract
This study intends to assess the project finance appraisal practice of financial institutions; specifically focusing on
Dashen Bank S.C. The challenges exist throughout the appraisal process are also assessed and identified. The project
appraisal practice was evaluated; whether or not it encompasses measurement parameters concerning Technical,
Financial, Market, Managerial, and risk aspects of a proposed project. Primary data was used throughout the
research. Quantitative and qualitative data were employed. The quantitative data was collected through a structured
questionnaire and the qualitative using an in-depth interview. Since the appraisal process is undertaken on two
departments at Head office, the 48credit related staffs of these departments were taken as a population and census
method was employed. About 77% or 37 questionnaires were filled and returned. Frequency, percentage, mean and
standard deviation ware used to analyze the data. The findings of the research revealed that from the technical
dimension the appraisal practice is good enough in addressing aptness of the project schedule, choice of appropriate
technology and scale of operation. However plant layout and selection of scale of operation were not well considered.
The Bank uses cash flow estimation to forecast the cost-benefit of the proposed project. Payback period, accounting
rate of return and net present value (NPV) are the widely used methods of estimation while other alternative methods
are not popular in the Bank. In the process, the management aspect got little attention despite the significant
contribution it has on project success/failure. Regarding the marketing aspect, Demand-supply gap analysis is the only
used to identify the demand for the product of the proposed project defining distribution channels and pricing of the
product got little consideration. Project related risk is assessed solely using sensitivity analysis leaving apart
qualitative risk analysis and probabilistic risk analysis. The Bank has no defined risk prevention and mitigation
strategy specifically for project risks. The restraining factors of the project appraisal process are identified as; low
level of quality and completeness of project feasibility study, unavailability of reliable, quality and up to date
information, low level of knowledge and skill of project appraiser, lack of well trained and experienced consultants on
the specific project, external pressure, management intervention.
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Keywords
Project, Appraisal, Finance