Completing International Payment Activities By Documentary Credit Method At The Transaction Office Of The Bank For Foreign Trade Of Vietnam

Many businesses consider this as a form of long-term loan financing, taking advantage of foreign loans to open letters of credit for deferred payment. The collected money is circulated, causing the letter of credit to default, leading to the bank having to pay on their behalf.

Unstable exchange rates and underdeveloped foreign exchange markets have led to foreign currency fevers and a shortage of foreign currency sources to pay for import letters of credit, especially deferred letters of credit, causing businesses to suffer, reducing business efficiency and making it difficult for banks to urge customers to pay.

In addition, the legal environment for international payment activities is still lacking and not uniform. The Government has not issued legal documents on international payment activities, especially specific regulations on guiding the application of international practices such as UCP, INCOTERMS, international payment activities are not really protected by a legal corridor when disputes occur. Some documents of the State Bank are not specific, causing different understandings between the reality at banks and the State Bank Inspectorate, leading to inconsistent application, causing unfair competition between banks.

The current deficit in Vietnam's balance of payments also affects international payments in general and the documentary credit method in particular. This is the direct cause of the imbalance between export payments and import payments at banks. The deficit in international balance of payments also leads to an imbalance between foreign currency supply and demand, affecting the ability of commercial banks to pay foreign currency, thus affecting the need for foreign currency to serve payments to foreign partners.

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The fierce competition between domestic commercial banks and foreign banks operating in Vietnam is also one of the main factors that divide the market share of international payments in particular and the documentary credit method in general of the Vietnam Foreign Trade Bank. Currently, there are nearly 100 banks operating in Hanoi. On the other hand, since 1990, the State has allowed qualified banks to expand their operations to the foreign trade sector. The Foreign Trade Bank no longer holds a monopoly position. Being allowed to operate international payments, realizing the great benefits brought by this activity, new banks entering this field have sought every way to attract customers to their side, such as applying a very open import-export financing loan regime with simple procedures, fast disbursement speed, priority in foreign currency trading, and applying low fees. They have attracted a large number of traditional customers of the Bank for Foreign Trade of Vietnam.

In addition, some enterprises currently have shares in joint stock commercial banks, so they mainly operate at their own banks, only transacting with the Bank for Foreign Trade of Vietnam to maintain relationships.

In addition, foreign banks operating in Vietnam are also making efforts to establish relationships with Vietnamese import-export enterprises, including large enterprises that are traditional customers of the Exchange such as Vietnam Coal Corporation, Northern Food Corporation, etc. These banks have many advantages such as foreign currency capital potential, high professional management level, and modern technology. They proactively learn about the needs and benefits that customers expect, deliver letters of credit directly to customers, and attract new customers by lowering service fees and interest rates.

discount loans and deposit levels for opening letters of credit, which are then raised reasonably after a period of time. They combine payment credit in a closed cycle, simplify procedures, and try to make customers only have to transact at one office, or even one employee. These factors have really attracted customers, causing the market share of the Bank for Foreign Trade of Vietnam in recent years to decrease significantly.

Inadequacies in foreign trade knowledge and ethical behavior of customers are also one of the reasons that limit the development of documentary credit method at the Bank for Foreign Trade of Vietnam. Coming from a centralized, bureaucratic and subsidized economy, experience and understanding of international practices and customs in business are still limited, leading to Vietnamese enterprises not avoiding loopholes when signing foreign trade contracts, not taking precautions against risks, and having to suffer losses when incidents occur. Meanwhile, the financial capacity of the units is still too weak, so business activities mainly rely on bank loans. Therefore, when Vietnamese enterprises are defrauded by foreigners, losses will be directly related to the quality of credit activities and international payment activities of the bank.

In addition, due to the lack of strict regulations on foreign trade contracts, Vietnamese customers lack commercial information, do not have a firm grasp of their business partners in the international market, and importers do not attach importance to the advisory role of banks in signing contracts. All of these have caused banks to encounter many difficulties in dealing with foreign partners of importers or banks that notify according to the contract regulations due to agency relationships, and amending and remedying the consequences will cause many inconveniences, costing both time and money. Lack of knowledge about foreign trade also causes Vietnamese enterprises to often be confronted with

Foreign partners push into disadvantageous situations such as having to open a Confirmation Letter of Credit, while not requiring the partner to have a contract performance guarantee, an agreement with the foreign side to purchase the product but not requiring them to open a corresponding Letter of Credit, allowing foreign partners to deceive and sell low-quality products...

For customers who are new to the export business, due to the strict requirements of documents in payment, especially payment documents by Letter of Credit, it is very difficult to prepare a set of documents that are in accordance with the terms and conditions of the Letter of Credit when they do not understand anything about it. In practice, implementing export payment by Letter of Credit, bank payment officers have encountered many cases where they did not check documents on time or were forced to refuse to pay customers, the reason being that the exporter, although reminded, still did not submit documents on time or prepared a set of documents that did not match the Letter of Credit such as incorrect or incomplete descriptions of the goods.

In addition, it is necessary to mention the intentional and dishonest violations of commitments to banks by domestic import-export businesses. Disputes arising in the process of paying for imported goods by letter of credit not only originate from dishonesty of foreign partners but in many cases are caused by domestic businesses. In addition to lack of knowledge and information in import-export business, many domestic businesses, because they are only interested in immediate profits, violate their commitments to banks. Customers are guaranteed by the bank to receive goods before the documents arrive and commit to accept payment. But in reality, there are still cases where customers delay payment due to objective reasons such as price fluctuations in the consumer market, imported goods cannot be sold or can be sold.

also suffer losses, the business is unable to pay the bank. However, there are also cases where the business deliberately violates, when it has sold all the goods, it still refuses to pay the bank but uses that money to continue investing in business, suffers losses and loses the ability to pay.

The above is an overview of international payment activities by documentary credit method at the Transaction Office of the Bank for Foreign Trade of Vietnam in the past time, along with the achieved results as well as the remaining limitations and causes. Developing this activity is considered an indispensable aspect in the business activities of the Transaction Office, it supplements and supports other business activities of the bank such as expanding credit activities to finance import and export, helping Vietnamese enterprises in capital matters, integrating into the global economy to ultimately collect more and more service fees from this payment activity. Therefore, it is necessary to research to propose solutions and recommendations to perfect international payment activities by documentary credit method at the Transaction Office of the Bank for Foreign Trade of Vietnam.

CHAPTER 3: COMPLETING INTERNATIONAL PAYMENT ACTIVITIES BY DOCUMENTARY CREDIT METHOD AT THE TRANSACTION DEPARTMENT OF THE BANK FOR FOREIGN TRADE OF VIETNAM

3.1. DEVELOPMENT STRATEGY OF THE BANK FOR FOREIGN TRADE OF VIETNAM IN THE PERIOD 2006-2010

3.1.1 General objectives

Faced with the urgent requirements of the international economic integration process, the Bank for Foreign Trade of Vietnam has set a more specific goal, with the aim of becoming "a multi-functional financial group with a scale among the 70 largest financial groups in Asia in the period 2010-2020, with a scope of operations not only domestically but also in the world financial market".

The above goal is completely grounded in the achievements after 5 years of implementing the restructuring project as well as the figures on the growth rate and current position of the Foreign Trade Bank: in 2004, the Foreign Trade Bank ranked 748th out of the 1000 largest banks in the world 3 , up 10 places compared to

2003. In the Asian region (excluding Japan), Vietcombank is currently ranked 127th in terms of equity and 119th in terms of total assets. The expected growth rate of Vietcombank in the coming time is 15%/year.

However, the gap between Vietcombank and the 50 largest banks in the continent is still quite large. The largest bank in Asia has a capital size 70 times larger than Vietcombank, while the 50th ranked bank has a capital size 4 times larger. This requires Vietcombank to have stronger solutions in the coming time.

3.1.2 Strategic tasks

3 Source of ranking information: The Banker Magazine (July & October 2004 issues)

To specify the above objectives of the whole system, based on the results achieved in recent years, combining analysis, evaluation as well as research and forecast of the economic and market situation in the coming time, the Foreign Trade Bank Transaction Office focuses on implementing the following main tasks:

Firstly , focus on capital mobilization, attracting deposits from customers, especially paying attention to deposits from traditional customers, doing business effectively. Thoroughly implement customer marketing to each department, each officer, selectively expand lending to customers with preferential interest rates and regular payments through the Transaction Office.

Second, actively promote and improve the quality of mobilizing savings deposits in both foreign currency and VND, focusing on attracting term and long-term deposits (over 6 months) to stabilize capital sources in business operations. Review the operations of transaction offices, selectively expand the network of transaction offices in densely populated areas and convenient transactions. Consider adding functions and tasks of each professional department to effectively serve all customer groups. Focus on solutions to mobilize medium and long-term capital to improve liquidity in business operations.

Third, continue to expand credit in a safe and effective manner, combining the retention of traditional customers in the state-owned economic sector and the development of customers in the non-state-owned economic sector, small and medium-sized enterprises. Increase the proportion of loans from non-state-owned enterprises and individual customers by providing secured loans.

Focus and pay due attention to resolving overdue debts, not allowing overdue debts to arise from new credit contracts, and combine resolving outstanding debts according to the outstanding debt resolution plan of the Foreign Trade Bank.

Fourth, seriously implement documents related to the Process and regulations on operations, paying special attention to risk management in harmony with customer relations. Correct and perform well treasury work, proactively train and retrain professional staff. Strengthen professional training for employees to improve customer service quality and exploit the technological strengths of the Foreign Trade Bank.

Fifth, flexibly use economic leverage such as interest rates, exchange rates, service fees, and commission fees to attract customers, combined with improving service quality and widely promoting the products of the Foreign Trade Bank.

Sixth, strengthen the management and administration of the Board of Directors of the Exchange, maintain and improve discipline and order in operating activities, actively promote dynamism and creativity in work, and independence and autonomy in the functional departments of the Exchange.

Seventh , stabilize the organization and labor of departments at the Exchange, build a reasonable structure suitable for the business situation of the Exchange in the coming time.

Eighth , innovate and strengthen internal inspection and control work, increase the quantity and quality of inspection staff to ensure systematic consistency in inspection.

Ninth, equip the necessary equipment for the functional departments to facilitate the operations of the departments.

3.1.3 Development orientation of international payment activities of the Transaction Office of the Bank for Foreign Trade of Vietnam

International payment activities are becoming increasingly important, closely linked to other business activities of commercial banks. The Transaction Office of the Bank for Foreign Trade of Vietnam determines the goal of maintaining and increasing

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