In the socialist-oriented market, commercial banks are still confused, and their business efficiency has many limitations, including capital mobilization. However, with the efforts of commercial banks themselves and support from many sides to create a more favorable business environment, commercial banks have gradually become accustomed to the new mechanism and achieved certain business results. In the period 2000-2005, considering only the capital mobilization sector of most commercial banks, there was an increase in both scale and quality. According to the report of the State Bank, the total capital mobilized by domestic credit institutions as well as foreign bank branches and joint venture banks continuously increased. In 2005, state-owned commercial banks mobilized 367.5 trillion VND (including converted foreign currency) (about 70% of GDP), exceeding the target set at the 9th Party Congress.
2.1.2. Expanding credit and investment
Credit from commercial banks is important to the entire economy, it provides funding for activities in the industrial, agricultural, commercial and service sectors of the country. Bank credit has created the ability to carry out the entire process from the time the product is manufactured until the product reaches the consumer.
Table 2.1 - Growth in outstanding loans of the commercial banking system
Unit: billion VND - %
Target
2003 | 2004 | 2005 | |
State commercial bank | 302,840 | 389,950 | 457,535 |
Joint Stock Commercial Bank | 45,920 | 58,950 | 69,745 |
Foreign and joint venture banks | 38,240 | 46,100 | 53,720 |
Total | 387,000 | 495,000 | 581,000 |
Debt/GDP ratio | 54.73% | 62.38% | 68.42% |
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Current Status of Foreign Currency Business Development in the International Market of Vietnamese Commercial Banks -
Current Status of Vietnamese Law on Controlling Abuse of Dominant Market Position in the Petroleum Business Sector -
Current Status of Logistics Services Business Activities at I Trading Joint Stock Company I -
Current Status of Business Cost Management in Vietnamese Wood Processing Enterprises -
Current Status of State Mechanisms and Policies for Business Development Services
(Source: State Bank of Vietnam, 2005)
For Vietnamese commercial banks, because banking services are not yet diversified and developed at a low level, and profits from service fees are still low, lending activities play the number one role in finding profits for banks. Due to the monotony of the product, the main form of competition is through lending interest rates. And in the "interest rate war", the advantage belongs to the group of state-owned commercial banks due to their large capital scale and wide branch network. Joint-stock commercial banks, joint-venture banks and foreign bank branches, due to higher costs for mobilization, often have to set higher interest rates than state-owned commercial banks. However, that does not mean that the number of customers applying for loans at state-owned commercial banks is not large. Because of the more attractive "prices", loans from state-owned commercial banks are very difficult to access. State-owned commercial banks often lend to Corporations 90, 91, and state-owned enterprises; lending as directed by the government for key national projects... Small and medium enterprises, enterprises in the private economic sector often do not have good credit relations with state-owned commercial banks because they are always considered small customers, operating in a fragmented, opportunistic manner, with low equity and low reputation. These enterprises are the subjects of joint-stock commercial banks, joint-venture banks, and foreign bank branches.
Since the State-owned commercial banks separated their policy credit functions and transformed from specialized banks to multi-purpose banks, diversifying their customers, the private sector has had more opportunities to access capital from these banks. In 2004, State-owned commercial banks lent VND265,792 billion to the private sector, and by 2005, it had increased to VND372,869 billion, an increase of 14.1% compared to 2004.
2.1.3. Payment activities
Providing payment activities, or in other words, capital movement, is one of the important functions. In recent years, the banking system has undergone certain changes. Banks have been equipped with computers, international card payment network systems, and technical means to put into use new forms of money transfer such as electronic money transfer, SWIFT network, and computer system networking in banks. The interbank electronic payment network system has been established, creating profound changes in domestic and international payment activities of Vietnamese commercial banks.
2.1.4. Trade finance
This can be said to be one of the most important activities carried out by commercial banks in the trend of integrating the world economy. Although foreign trade is formed and originated from domestic trade activities, there are significant differences and it is from these differences that commercial banks need to provide international payment services or import-export factoring to make this process go smoothly. The reason is that each country has its own monetary system, which is not uniform, and the financial capacity of buyers and sellers in different countries is also different, in addition to language limitations, cultural environments, different customs and practices, legal environments and laws of different countries, different political regimes, buyers and sellers are geographically far apart... Therefore, commercial banks play an important role in international trade, which is shown in the following aspects:
Providing guarantees or credits: including credit guarantees, L/C issuance guarantees, loans... for importers and discounting export documents, buying back collection documents... for exporters.
Payment intermediary: the banking system allows payments to be made between related parties, ensuring safety, speed and accuracy.
Consulting: In any case, if there are problems related to payment in foreign trade transactions, the related customers can receive good advice from professional staff in commercial banks.
Credit risk management: In international trade, buyers may deal with a seller they do not know, even if they have made some transactions with each other, the buyer does not know the seller thoroughly. Thus, buyers and sellers cannot grasp with certainty the financial capacity, reputation and ability to perform the contract of the partner, so it is difficult to predict the risks that may occur. With the help of banks, buyers and sellers will be able to trust each other more because it will eliminate or minimize some risks in business activities.
Foreign exchange risk management: In international trade, buyers and sellers in two different countries but only transact with each other in the same currency, they will have to face risks of exchange rate fluctuations, these risks will be easily limited with the help of banks through foreign exchange purchase or sale contracts depending on the customer's choice.
Provide the ability to choose payment methods: prepayment, postpayment, open account, collection, L/C and factoring. Currently, in Vietnam, the documentary credit method is still preferred by customers.
2.1.5. Other activities
Other activities such as foreign exchange transactions, gold trading, precious metals and stones, trust services, etc. are also growing strongly.
Thus, in addition to the main tasks of playing the role of lifeblood, being the midwife for economic activities, the system of Vietnamese commercial banks also provides banking services, which is a service economy. Nowadays, the system of Vietnamese commercial banks is facing the trend of globalization and economic integration, so the products and services provided by banks must always meet the requirements of the times. In the world, when factoring has become one of the familiar operations of most credit institutions, in Vietnam, many businesses do not know about this type. The author would like to dedicate a part of his thesis to mention the current status of factoring application at Vietnamese commercial banks.
2.2. CURRENT STATUS OF FACTORING SERVICES AT VIETNAMESE COMMERCIAL BANKS
2.2.1. Compare the advantages and disadvantages of factoring with other financing methods at Vietnamese commercial banks
Vietnamese commercial banks are facing an increasingly fierce competitive environment, diversifying banking services more than ever has become an urgent issue in the development strategy of each bank in particular and the entire banking industry in general. Up to now, the main method of trade finance is still secured loans with debt collection rights, guarantees, document discounting, etc., which are very popular and traditional methods in most banks in the world. So what is superior about factoring compared to the popular methods in current Vietnamese banks? Through some comparison tables with current services of Vietnam Technological and Commercial Joint Stock Bank (TECHCOMABNK), a typical bank in developing
and diversifying types of services and products, the author hopes to partly demonstrate the fact that Vietnamese commercial banking products and services lack creativity, innovation and modernity.
2.1.2.1. Comparison of factoring and secured lending
As analyzed, factoring has certain similarities and differences compared to traditional banking products of Vietnamese commercial banks, especially loan products secured by receivables (debt collection rights).
Table 2.2. Comparison of factoring and debt-secured lending
Difference
Loan secured by claim in debt | Payment factoring | |
Accounts Receivable collect | Belongs to seller | Belong to Bank |
Seller financing on a case-by-case basis receivable | Similarities between the two forms: sellers can both receive working capital financing based on receivables | |
Risk of default | The seller must bear all | Bank (in case of non-recourse factoring) |
Collection service | Do not have | Collection service available |
Bank appraisal object | Seller (mainly the final source of payment) and buyer | Buyer (credit capacity) and seller (supply capacity) |
(Source: Vietnam Technological and Commercial Joint Stock Bank, 2006)
Thus, there is a fundamental difference between debt-backed lending and factoring, which are the services
The following is related to receivables, namely the ownership of receivables and the bank's responsibility to collect them.
2.1.2.2. Comparison of factoring and international payment methods
Import-export factoring can be considered as an independent payment method. Compared with other traditional payment methods, factoring has certain similarities and differences. Specifically:
Factoring is only applied in deferred payment, so it will be different from immediate payment methods, including: Advance payment (TTR In advance); cash payment based on documents (CAD: Cash against Documents); Documents against Payment (D/P: Documents against Payment) and At sight Letter of Credit method.
Deferred payment methods include: Transfer after delivery (TTR after shipment or Open Account); collection of documents against acceptance (D/A) and usance letter of credit. At Techcombank, factoring products are combined with deferred payment methods. In a few cases, factoring can be combined with D/A. For deferred L/C, factoring is an effective alternative.
However, for the form of L/C at sight, there is usually still a certain delay in payment (due to problems with complicated document requirements, strict procedures and the possibility of discrepancies between the set of documents compared to the L/C leading to delay in payment), so a general comparison can be made as follows:
For exporters:
Table 2.3. Comparison of accepting payment by L/C and accepting payment by factoring
Compare
Accept payment by L/C | Accept payment by factoring maths | |
Method of application | Pay now or pay later | Only applicable to deferred payments |
Ability to finance sellers when shipping goods | Bank deducted Deduction after having export documents | Advance by bank in advance on the basis of export documents |
Risk of non-payment | Low (by bank) Issue L/C to guarantee payment according to L/C | Bank bears (in case of non-recourse factoring) |
Track and collect payments receivable | Do not have | Collection service available |
(Source: Vietnam Technological and Commercial Joint Stock Bank, 2006)
Similar to the above method, the outstanding feature of factoring is that it has a service to track and collect receivables, and usually accepting payment by factoring only applies to deferred payment methods. In particular, in non-recourse factoring, the risk is borne by the bank itself. Thus, for exporters, using factoring, in addition to the advantage of capital, can also minimize risks for their business activities, transferring that risk to a unit with a lot of experience in the field of debt collection.