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Development Orientation of International Payment Activities by Documentary Credit Method at Vietnam Joint Stock Commercial Bank for Investment and Development - Branch


ensure rights, limit unfortunate risks in the process of importing and exporting goods and especially in the payment stage.

BIDV Thanh Do always diversifies support services for international payment activities in the form of documentary credit such as margin loans, guarantees, and foreign currency trading. The support services provided by BIDV Thanh Do have helped customers make transactions more convenient, not only increasing customer satisfaction but also creating conditions for increasing income for the bank. Revenue from international payment activities under L/C has been and is a significant contributor to international payment revenue in particular and the income of the entire branch in general. This income is not only a pure payment service fee but also the profit generated from other support services related to L/C payment of the branch.

BIDV Thanh Do has a team of more than 200 young and polite staff, especially international payment officers. Having a team of young, dynamic and polite staff is a competitive condition for a modern bank. Most commercial banks today aim to have a young and polite transaction department to build an image for customers. Currently, BIDV Thanh Do owns a team of young staff, not only good at professional skills, solid in expertise but also knowledgeable in other fields. They have been trained in professional expertise and customer communication skills. They have created the success of BIDV Thanh Do in the past time. And with that dynamism, BIDV Thanh Do is ready to meet all customer needs with the service motto "safe - convenient - fast - effective". In recent years, international payment in general and payment activities by L/C have grown even when the economy has many instabilities.

BIDV Thanh Do always focuses on innovation in technology and payment via SWIFT network, expanding the network of correspondent relationships in many regions. Currently, BIDV has more than 700 correspondent banks worldwide, the expansion of more correspondent banks helps BIDV's payment system as well as Thanh Do branch to increase significantly.

The fee schedule of international payment activities in general and the fee schedule of international payment by documentary credit method always has no fluctuation, helping BIDV Thanh Do to compete better and thereby attract more customers, along with the implementation of new software and SWIFT network to reduce time, increase customer satisfaction, thereby increasing the number of customers coming to BIDV Thanh Do more and more. That means BIDV Thanh Do has built trust with customers, international payment activities


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BIDV Thanh Do's L/C method is also being increasingly improved and enhanced, especially the diversity of products and services at the branch.

Table 0.10. Comparison of export-import L/C fees of BIDV and VCB


Fees

BIDV

Vietcombank

L/C notification fee

10- 20 USD

20- 25 USD

Document verification fee

20-50 USD/set

document

20-50 USD/set

document

Fee for payment of 1 set of documents

0.2% of the value of the set of documents

Minimum 10 USD

Up to $200

0.15% of the value of the set of documents

Minimum 20 USD

Up to $200


L/C issuance fee


100% deposit

0.025% of L/C value Minimum 20 USD

Up to $400

0.05% of L/C value Minimum 50 USD

Up to $500


Margin <100%

0.05% of L/C value

Minimum $20 Maximum $400

Minimum $50 Maximum $2,000

Electricity fee

20- 50 USD

20- 50 USD


L/C payment fee

0.2% of the value of payment documents

Minimum 20 USD

Up to $500

0.2% of the value of payment documents

Minimum 20 USD

Up to $500

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Development Orientation of International Payment Activities by Documentary Credit Method at Vietnam Joint Stock Commercial Bank for Investment and Development - Branch

(Source: Trade finance fee schedule at BIDV, Vietcombank in 2013)

BIDV Thanh Do is headquartered on Nguyen Van Linh Street - where many industrial parks, import-export production and trading companies are concentrated, creating conditions for the branch to attract customers and establish close relationships with import-export enterprises. Up to now, BIDV Thanh Do has had a large number of customers who are import-export enterprises in the area. Most of these enterprises have long-term relationships with the branch and are served by the branch with a variety of products such as: domestic currency loans, foreign currency loans and international payments. And most of them are very satisfied with the service style of BIDV Thanh Do. With the current network of transaction offices, BIDV Thanh Do is constantly improving product quality and expanding services to meet the increasing needs of customers. In addition, BIDV Thanh Do is also increasingly improving and perfecting its management and customer service, especially customers using high-quality services such as international payments under L/C.

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With the support of BIDV Bank: as the Bank for Investment and Development of Vietnam, BIDV Thanh Do operates not only for profit but also to ensure economic development. BIDV Thanh Do always receives preferential treatment from the Bank for Investment and Development of Vietnam to ensure economic development in the right direction, achieving the common goal of increasing export turnover for the whole country.

2.2.3.2. Existing problems

Imbalance between import payment activities and export payment activities. In the period of 2011-2013, although export L/C has gradually grown, import L/C turnover still accounts for a large proportion of the total L/C payment turnover of the entire branch. Due to the imbalance in import and export L/C payment, the source of capital for import L/C payment mainly relies on foreign currency trading and borrowing. The explanation for this is that although Vietnam has integrated and opened up to many countries in the region, in recent years our country has always been in a state of trade deficit. The enterprises that are customers of Thanh Do branch are mainly import businesses.

Transaction processing time is still slow: the level of transaction processing is not high, depending a lot on the process and human operations. The time to perform an import L/C transaction can be up to 1-3 days, and an export L/C is 1-4 days.

Products and services are not diverse: The supporting products for payment by documentary credit method are only limited to products such as discounting of bills of exchange, advance trade finance under deferred payment L/C, import finance ensuring payment by imported goods. There has been no breakthrough or investment in research and development of new trade finance products.

BIDV's international payment service by documentary credit method has not yet created its own brand, the scale of the service is still small, and the convenience of some services for customers is not high.

Although the number of customers coming to the bank to make transactions has tended to increase, it is still insignificant compared to some other banks. The branch has made efforts to attract customers to make international payments by documentary credit through BIDV, but the attraction policies are not yet strategic, not extensive, and do not focus on improving customer service attitudes.

Not completely proactive in buying and selling foreign currency: export payment turnover is much higher than import payment turnover, so the branch sells most of the purchased foreign currency to the head office, so the foreign currency purchase exchange rate is determined.


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with customers is not suitable with the exchange rate of local banks but mainly based on the listed buying rate of the head office. Therefore, foreign currency trading activities also partly depend on the foreign currency purchasing capacity of the head office. Cash foreign currency trading has not been implemented for strong foreign currencies such as: EUR, GBP, JPY, CAD, ...

The number of employees in the international payment department is still small: currently, the international payment department of Thanh Do branch consists of 5 employees. Of which, all the work of the department is performed by 04 employees, the remaining employees are on duty at the Western Union counter. Therefore, the payment staff undertakes more work than other departments.

2.2.3.3. Causes of the existence

a. Subjective causes

BIDV Thanh Do has not yet considered reducing the deposit amount for traditional customers. This has not fully met the needs of customers when participating in transactions. Information to decide on the deposit exemption limit for customers is still limited and the efficiency is still very low. This is the reason that reduces competitiveness and affects the payment activities according to the bank's TDCT method.

In many cases of issuing import L/C, BIDV Thanh Do is requested by the exporter to designate another bank, mainly the Joint Stock Commercial Bank for Foreign Trade of Vietnam, to confirm the payment capacity. Therefore, BIDV Thanh Do has to pay a confirmation fee to the confirming bank, confirming its payment capacity. This type of fee should not exist, because if it exists, it means that Thanh Do branch as well as BIDV are not reputable and will reduce the branch's profit from international payment activities according to L/C.

Exchange rate risk is a typical risk of international trade. Therefore, limiting exchange rate risk is always a top priority in international relations. Currently, BIDV Thanh Do makes payments in several key currencies such as USD, EUR, AUD, but USD accounts for more than 90%. However, in recent years, due to the impact of economic crises and political instability, the dollar has fluctuated, causing frequent exchange rate changes, affecting international payment activities in general and documentary credit methods in particular, such as increasing payment costs and reducing the effectiveness of payment activities of branches as well as import-export enterprises.

The combination and mutual support between related departments to create a closed service in international payment activities under the documentary credit method is not good: overlapping and loose, which has reduced the effectiveness of international payment activities under the L/C method.


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Bank staff are trained but are not uniform in each profession, not specialized, not up to standards in expertise, foreign languages, international law, processing procedures are still confusing, the ability to advise customers is still limited. Knowledge of professional skills to perform transactions and measure risks is too weak, there are no departments to research and predict changes in exchange rates in the market. The organization of international payment activities is still scattered. There is a large gap in qualifications between branches and headquarters.

The correspondent banking system is developed but not strong yet. The banking network is developing rapidly but has not been expanded worldwide, so it must go through an intermediary bank, increasing costs and wasting time.

BIDV Thanh Do has paid great attention to innovation in banking technology and has made certain progress, but compared to the general level of banking technology of domestic and international banks, it is only at an average level. Information on management and monitoring of international payment activities is still poor. The lack of information on domestic and foreign markets, information on partners, information on products, etc. has led to risks in international payment activities under the documentary credit method.

The application of marketing policies to attract customers is still limited and ineffective. Although the branch has focused more on marketing activities, the results have not been as expected. The branch only seeks ways to retain customers without focusing on finding ways to exploit other potential customers. Marketing strategies such as customer analysis, competitor analysis, and mixed promotion have not been focused on and properly evaluated in terms of importance.

b. Objective reasons

Vietnam's economy in 2013 had many difficulties, affecting many industries, businesses had difficulties in doing business, capital turnover, especially small and medium enterprises, thereby affecting international payment activities according to L/C of banks.

The level of understanding of documentary credit methods of Vietnamese import-export businesses is still poor, they do not really understand the national laws and customs as well as the laws and customs of the partner country. This has created difficulties for international payment officers, is the cause of delays in the international payment process according to L/C and is also the cause of many unfortunate risks in the payment process of foreign trade contracts.


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CONCLUSION OF CHAPTER 2

Chapter 2 of the thesis presented an overview of the formation, development and business performance of the Bank for Investment and Development of Vietnam as well as of Thanh Do branch.

Also in chapter 2, the thesis mentioned the current status of international payment activities by documentary credit method of the branch based on the theoretical basis and evaluation criteria stated in chapter 1. The criteria for evaluating the effectiveness of payment by documentary credit method were calculated, analyzed and compared based on the exact data of Thanh Do branch from 2011 to 2013. From the results of that analysis, chapter 2 of the thesis also pointed out the results that Thanh Do branch has achieved as well as the limitations that still exist in the international payment method by L/C method.



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CHAPTER 3:

SOLUTIONS TO IMPROVE THE EFFICIENCY OF INTERNATIONAL PAYMENT ACTIVITIES BY DOCUMENTARY CREDIT METHOD AT BANKS

VIETNAM INVESTMENT AND DEVELOPMENT JOINT STOCK COMPANY - THANH DO BRANCH

3.1. Orientation for developing international payment activities by documentary credit method at Vietnam Joint Stock Commercial Bank for Investment and Development - Thanh Do branch

3.1.1. General business orientation of BIDV Thanh Do

In the coming years, when many state-owned banks are equitized and many foreign banks with large capital potential enter Vietnam, the competition will become even fiercer. Therefore, facing those competitive challenges and economic difficulties, BIDV in general and Thanh Do branch in particular will have to make constant efforts to promote business development and cooperation with domestic and foreign strategic partners. And the following are the development orientations of Thanh Do branch in the coming years:

Strengthening reasonable credit development, focusing on debt collection, preventing new debt from arising, and thoroughly handling outstanding bad debts.

Actively deploy new products and promotional programs to increase the growth rate of mobilized capital.

Maintain and develop capital from businesses through good customer care, increase capital mobilization from the population with competitive interest rate policies.

Promote marketing of trade finance programs to develop synchronously business areas: credit, international payment, foreign exchange trading.

Table 0.1. 2014 business plan of Vietnam Joint Stock Commercial Bank for Investment and Development - Thanh Do branch

Unit: Billion VND



Main indicators

Implemented in 2013

TW assigned in 2014

Business Plan 2014

Growth

(%)

Average capital mobilization

2,440

2,650

3.020

19.2


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Main indicators

Implemented in 2013

TW assigned in 2014

Business Plan 2014

Growth

(%)

End of period credit balance

2,274

2,576

2,780

18.2

Net service revenue

18.7

22

25.4

26.38


(Source: BIDV Thanh Do's 2013 business results summary report)

3.1.2. Development orientation of international payment activities by documentary credit method at BIDV Thanh Do in the coming years

Along with the general orientations in business activities, the branch also proposes specific directions to promote the development of payment activities by L/C method as follows:

Diversify the types of L/C used, actively advise customers in choosing the type of L/C suitable for the import-export business of enterprises.

Strive for the payment structure by letter of credit to reach a proportion of over 75% in total import-export payments, of which import credit accounts for 85% and is extended to all types of enterprises; advance payment and discount of export L/C documents accounts for 70%. Promote the strategy of supporting exports, offering many short-term financing measures for import-export customers such as granting credit with preferential interest rates, agreeing on credit limits; continue to organize import-export consulting for customers.

Research and selectively expand foreign relations to maintain relationships with existing correspondent banks and develop new correspondent banks in places where many transactions occur.

Survey and research to find a direction to open a representative office abroad. Develop the volume of import-export payments, attract customers, especially large import-export customers to create foreign currency revenue, increase income from foreign currency trading, ensure sufficient foreign currency supply for import customers' needs and pay foreign debts.

Continue to enhance knowledge of international trade, law, international practices as well as improve foreign language proficiency for international trade finance officers to develop trade finance operations, especially in payment methods of documentary letters of credit.


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