Volume 4 Issue 5
International Journal of Trend in Scientific Research and Development (IJTSRD) Special Issue on Innovative Development of Modern Research Available Online: www.ijtsrd.com e-ISSN: 2456 – 6470 ID: IJTSRD41106 | Special Issue on Innovative Development of Modern Research Page 126 Mechanisms for Financing Investment Projects through Commercial Bank Loans Norov Akmal Ruzimamatovich1, Mirzayev Azamat Abdujalilovich2, Haydarov O’ral Axmadovich3, Qahorov Bobur Baxtiyorovich4, 5Nurmuxammedov Abdijabbar Yunusovich 1PhD of Banking and Investment Department at Tashkent State University of Economics, Tashkent, Uzbekistan 2Student of the Banking and Finance Academy of the Republic of Uzbekistan, Uzbekistan 3PhD of Banking and Investment Department at Tashkent State University of Economics, Tashkent, Uzbekistan 4Student of the Banking and Finance Academy of the Republic of Uzbekistan, Uzbekistan 5Senior Lecturer, Department of Banking and Investment, Tashkent State University of Economics, Tashkent, Uzbekistan ABSTRACT The article analyzes the role of commercial banks in financing investment projects. The experience of developed foreign countries in financing investment projects is studied. The activities of commercial banks for lending to investment projects were studied and suggestions were made for their improvement. KEYWORDS: investment project, lending practice, GDP, employment, loan portfolio INTRODUCTION At present it is impossible to imagine the socio-economic life without the activity of commercial banks without their financial support. This is due to the fact that commercial banks play a leading role in financing investment projects in the country by providing loans to investment project participants and customers thereby contributing to the overall macroeconomic stability in society. In the context of modernization of the country's economy the importance of financing investment projects by commercial banks is growing from year to year. With the help of loans from commercial banks important sectors of the economy are being financed new investment projects are being built additional jobs are being created for the population and new products are being developed. Regarding the role of commercial banks in financing investment projects Sh. Mirziyoyev noted that "The bank should develop measures to attract external sources of financing for investment activities along with their own funds". The topicality of this topic is reflected in the fact that the wide implementation of investment projects in the country and its comprehensive support taking into account the issues of financing investment projects at all stages of economic development. It is gratifying that over the past 10 years the volume of lending by commercial banks has increased 35 times in the development of the economy of Uzbekistan. However, as we know the process of development and progress is fiercely competitive and the problems are improving in acocida. When banks finance investment projects they are assessed as low liquidity. This creates problems in allocating bank loans to these enterprises. An in-depth scientific and methodological study of ways to solve these problems and management methods is an important task. Literature review Many foreign and local economists have been working on the effectiveness of investment projects and their evaluation. From foreign economists who have conducted research on this issue: Professor F. Mike and Professor V. Rong (2006) suggested that external financial constraints should be imposed on the effective use of investment projects and that domestic investment projects should be encouraged on this basis. At the same time scientists conclude that as the cost of external financing increases the value of cash will increase significantly . Professor H. Wang, P. Liang, H. Li and R. Yang (2016) studied the relationship between investment projects focused on technological developments and their sources of funding, as well as sources of funding for research investment risk . In addition, the well-known Russian economic Professor T. Mazurina (2013) justified the existence of the following conditions for the development of lending for investment projects at the expense of loans from commercial banks: existence of effective state investment and industrial policy (with indication of clear directions of placement of financial resources); development of investment infrastructure, which is the main direction of risk reduction associated with the implementation of investment projects; increase the investment attractiveness of enterprises . According to Professor I. Yudina (2013) a necessary condition for the development of investment lending practices of commercial banks in developing countries is the diversification of risks . Professor N. Karimov one of the Uzbek scientists studied the problem of increasing the investment lending capacity of commercial banks as the main problem in improving the mechanism of financing investment projects through commercial banks. This scientist cited factors such as improving the efficiency of risk management of investment activities in commercial banks, improving the feasibility of International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470 ID: IJTSRD41106 | Special Issue on Innovative Development of Modern Research Page 127 business plans submitted by customers to commercial banks for investment projects . Today the credit policy of the country's commercial banks has a number of shortcomings. Therefore, the main purpose of this article is to identify the existing problems in the practice of lending to investment projects of commercial banks to study the priorities of lending practices of foreign banks on the basis of practical analysis to present their best practices in the lending practice of commercial banks in Uzbekistan. Research Methodology The research used a dialectical and systematic approach to determining the role development specific features of enterprises operating with innovative projects in the country complex assessment and comparative analysis statistical and dynamic approaches grouping methods. Econometric analysis was performed to determine the volume of loans that have a positive impact on the country's economy as well as the impact of innovative projects in particular loans to the real sector on GDP. The practical significance of this work is that in order to ensure national growth in the country the quantitative growth of the country's GDP by 2025 will reach 350 trillion soums. Assuming that the total amount of loans required from banks to achieve this result is 25.543 trillion soums. One of the factors of sustainable development of the economy is the financing of innovative projects. In this process the increase in employment and a comparative analysis of these indicators will be determined by the development of appropriate recommendations on this basis. Analysis аnd results According to the World Bank the demand for bank loans by enterprises operating on investment projects is much higher in developing countries. While an average of 40 % of enterprises in developed countries need credit. Eastern Europe and Central Asia have a range of 45 % to 60 %. At the same time the demand for collateral in the lending process is above 60 % on average in developed countries and above 80 % in Eastern Europe and Central Asia (Figure 1). 62 83 78 75 42 48 41 36 0 10 20 30 40 50 60 70 80 90 Developed countries Eastern Europe and Central Asia China Czech Republic Percentage of loans required as collateral, percent (%) The share of enterprises operating on the basis of investment projects in need of credit, percent (%) Figure 1. Demand for bank loans at the level of enterprises operating on the basis of investment projects in the world, percent (%)  Based on the experience of the above countries lending for investment projects should be aimed at solving specific socio- economic problems, such as improving the living standards of the population employment, increasing their economic activity. The use of the experience of investment lending tested in world practice in the context of the formation of the market in this area in the Republic of Uzbekistan, serves as an important theoretical and practical source. A study of the financing of investment projects in the Russian Federation, which is one of the most developed countries revealed that there is a large imbalance in the supply and demand for investment project loans in the country. In 2013 Russia spent 30 billion US dollars. Loans have been allocated for investment projects in the amount of 50 billion US dollars, but the demand is 50 billion US dollars. According to the data 60 % of the allocated loans fall to banks and 40 % to credit institutions. The average amount of loans for investment projects in Russia is 45-50 thousand US Dollars. The average term is 5-6 years and the average interest rate is 4-5 %. The process of lending to investment projects in Russia the amount of these loans is 10 thousand U.S. dollars. It should be noted that the term is 30-35 years and the interest rate is 3-15%. In the Russian Federation as in all countries soft loans are provided for investment projects and in most cases they are engaged in agricultural and industrial production. When it comes to the effectiveness of loans the risk portfolio of many credit institutions in Russia is in line with international standards. Overdue indebtedness of every second credit institution did not exceed 2,7 %. In addition credit institutions operate with very good profitability averaging 127 % . International Journal of Trend in Scientific Research and Development (IJTSRD) @ www.ijtsrd.com eISSN: 2456-6470 ID: IJTSRD41106 | Special Issue on Innovative Development of Modern Research Page 128 Table 1 Quantity and share of credit investments of GDP and commercial banks in Uzbekistan  Indicators 2014 2015 2016 2017 2018 2019 Gross domestic product (trln.so'm) 177,1 210,1 242,4 302,5 406,6 511,8 Credit investments (trln.so'm) 34,5 42,7 53,4 110,6 167,4 211,5 Change (percent) 19,5 20,3 22,0 36,6 41,2 41,3 If we analyze the state of economic development in Uzbekistan: In 2019 the gross domestic product of Uzbekistan will reach 511,8 trillion soums and increased by 25,8 % compared to 2018. In 2014-2019, the country's GDP and the volume of loans from commercial banks had an upward trend. The volume of loans to the real sector of the economy in 2019 increased by 26,3 % compared to the previous year and as of January 1, 2020 amounted to 211,5 trillion soams. The relative level of loans to GDP amounted to 41,3 %. From this we can be concluded that the country's creative work is really widespread the demand for money is growing and this indicates that the level of credit supply is increasing. However, the fact that the relative level of loans to GDP increased by only 0,1 % compared to the previous year we can say that it has not increased shows that the loans allocated to the real sector in this country are insufficient (Table 2). In order to study the investment potential of the banking sector today and study the opportunities for banks to finance investment projects the activities of the country's leading commercial banks "Agrobank" and "Ravnaq-Bank" were analyzed. Analyzing the indicators in Table 2: The trend of changing the financial performance of Agrobank has been growing steadily over the years. According to Ravnaq-Bank the bank's total assets loan portfolio and investments have shown good growth rates since 2016. However, the investment performance of the two banks is very low compared to other indicators and even in Ravnaq-Bank we can see that this figure has decreased in the last year. From this, we can see that the bulk of the bank’s revenue is accounted for by bank loans and that the investments provide almost nothing for the bank’s revenue portion. This situation deprives the bank of investment activity income, which is a significant source of income for banks in the world practice. Table 2 Balance indicators of "Agrobank" and "Ravnaq-bank", billion soums  № Name 2015 2016 2017 2018 2019 Agroban k Ravnaq -bank Agroban k Ravnaq -bank Agroban k Ravnaq -bank Agroban k Ravnaq -bank Agroban k Ravnaq -bank 1 Investment s 71,6 0,040 72,5 0,040 186,9 0,5 168,7 3,3 130,0 3,0 2 Credits 223,1 43,9 317,6 100,1 476,9 162,1 1108,2 315,6 4462,2 397,2 3 Total assets 2899,0 93,7 3192,5 239,1 3949,4 340,4 4981,5 438,8 10363,0 608,6 4 Charter capital 263,5 15,7 317,6 20,0 367,6 22,8 1335,6 100 2163,0 100 The above situation in turn has a negative impact on the bank's profitability. Therefore, today there are the following problems in expanding the participation of commercial banks as investors in public investment programs: the growth rate of bank capital lags behind the development needs of the bank and the needs of bank financing of the real sector of the economy; significant growth of net profit reduces the efficiency of attracting additional resources at the expense of interest; commercial banks sell their shares at a very low rate to expand the base of long-term credit and investment resources; the bank's issuance and investment policies are not interrelated, increase in the bank's equity does not lead to an increase in the bank's equity in other joint-stock companies; As a result, investment activity in the bank has become an insignificant secondary activity sector. Conclusion/Recommendations The following generalized proposals and recommendations for financing and improving investment projects through bank loans have been developed: Investment projects – According to the principle of repayment of lending practice the organization of loan repayment in several stages depending on the type of loan for each loan, the payback period of the project, the sector of the economy in which the loan is issued and provide credit tracking and consulting services; Modernization of key industries in the country to increase the volume of bank's own assets, in particular, to expand the use of project financing in the financing of investment projects by banks; Improving the investment policy of commercial banks including, increase the share of investment assets in the asset structure, optimization of investment portfolio structure, we believe that it is necessary to increase the level of diversification of bank assets through the sale of non-profit assets and strengthen the organizational structure of investment departments. 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