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PROJECT APPRAISAL IN NIGERIA A CASE STUDY OF INTERNATIONAL MERCHANT BANK (NIGERIA) LIMITED
ABSTRACT
Project appraisal is concerned with decisions about
whether, when and how to spend money on projects. Such decisions
were discovered in this project to be very crucial both to the
projec t promoter and the lender, as large sums of money are
often committed in an irreversible manner with no certain knowledge of the size of future benefits. Problems identified as
militating against project appraisal included the uncertainty
of projections, dearth of standards for comparison and government credit guide lines/shortage of funds, amongst others.
Traditional appraisal techniques as reviewed in the lite –
rature comprise of market analysis, economic analysis, technical
and management analysis, then financial analysis. IMB’s project
appraisal techniques were found to conform to the traditional
techniques except in the area of financial analysis. While the
traditional tools of financial analysis are the Net Present
Value, Internal Rate of Return, Accounting Rate of Return,
Payback Period and Profitability Index, the bank’s a financial
analysis simply comprise of a review of the project cost,
financing source and project profitability/debt service abilit y
using the projected financials usually provided.
It was also found out that the bank relie s more on the
financial analysis of projects in taking the accept /rejec t
decision and that relationships other than the Banker/ Customer
relation are brought to bear in the accept/reject decision.
Also discovered was the fact that collateral security is viewed
seriously and could lead to the rejection of a project if found
inadequate. Also discovered was the fac t that the bank’s
project appraisal objectives are in agreement with the Federal
Government development objectives except that projects with
short gestation periods are favoured — which is however in
response to the bank’s sources of funds. The above were al l
found true in the analysis of a tipically 1MB – appraised
project which was named BENCO in the case study. To ensure
a prudent financial management of the project (BENCO) a member
of convenants were entered into between the bank and the
project sponsors as conditions precedent to the loan.
It was also recommended amongst others that;-
the bank adopts the discounted techniques of project
appraisal since such technieques favour projects with
longer and higher economic benefits.
– Where financial appraisal is restricted to profitability
and debt-service ability, the bank should take minimal
collateral security since it must have satisfied itself that
‘ the project can conveniently service the debt.
– The bank incorporates some elements of risk analysis in
i ts appraisal techniques so as to discourage the heavy
reliance on collateral security in lending.
Social connections/extra-curricular relationships should
never be brought to bear in prject appraisal as this has
the effec t of reducing the competitiveness of the project.
– Project promoter need to be honest and provide actual
figures obtained rather than window dressing projects to
attract patronage.
TABLE OF CONTENT
Title page- – – – – – – – – i
Approval page – – – – – – – -ii
Dedication – – – – – – – – -iii
Acknowledgement – – – – – – – -iv
Abstract – – – – – – – – – -v
Table of content – – – – – – – -vi
CHAPTER ONE
INTRODUCTION – – – – – – – -1
1.0 Background of the study – – – – -1
1.1 Statement of the problem – – – – -5
1.2 Purpose of the study – – – – – -6
1.3 Significance of the study – – – – -8
1.4 Research questions – – – – – -9
1.5 Scope of the study – – – – – – -10
CHAPTER TWO
LITERATURE REVIEW – – – – – – -11
CHAPTER THREE
Research methodology – – – – – – -39
Design of study – – – – – – – -40
CHAPTER FOUR
Presentation, analysis and interpretation of data – -48
CHAPTER FIVE
Summary of findings – – – – – – -60
Conclusion – – – – – – – – -61
Recommendations – – – – – – – -62
Suggestions for further research – – – – -64
References – – – – – – – – -65
Appendix I – – – – — – – – -68
Questionnaire. – – – – – – – -69
