Factors Affecting International Trade Finance Activities According to the Documentary Credit Payment Method of Commercial Banks

The advising bank (or confirming bank) upon receiving the L/C with red clauses and the authorization of the issuing bank will pay in advance before delivering the goods to the exporter. It should be noted that, here, the financing responsibility belongs to the issuing bank, so regardless of the results of the exporter's contract performance, the issuing bank must also be responsible for repaying the notifying bank (or confirming bank) both the principal and interest of the advance payment loan. After that, the issuing bank of the red clause L/C will recover from the importer the advance payment as above.

2.2.2. Post-Delivery Financing

a) Financing discounting of documents according to L/C

To meet capital needs, after delivering the goods, the exporter can negotiate with the bank to discount the set of documents. Discounting the set of export documents is a form of bank financing the exporter through buying back or lending based on the set of export documents. This activity of the bank aims to finance working capital for the exporter to ensure continuous production and business without interruption while waiting for the foreign importer to pay for the goods.

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When discounting, the set of documents must be perfect and presented on time. The bank opening the L/C must be a reputable bank in the international market and have regular trading relations with the discounting bank. The production and business situation and the financial situation of the enterprise are stable and ensure payment capacity, have prestige with the bank. The discount amount depends on each bank but usually does not exceed 90% of the value of the issued L/C and must be within the credit limit. There are two forms of discount:

Non-recourse discount (closing discount): The bank, based on the value of the export documents, after deducting the interest and costs related to the collection of money from the L/C opening bank, will pay the remaining amount to the exporter with the condition that the exporter will not be recourse if the documents are not paid. In essence, this form of discount is the bank buying the entire set of documents.

documents or bills of exchange of the exporter. The risk for the bank in this form of discount is greater, so the discount amount is usually smaller than in the form of discount with recourse as presented below.

Discounting with recourse (open discounting): The bank, based on the value of the export documents, after deducting the interest and costs related to the collection of money from the L/C opening bank, will pay the remaining amount to the exporter on the condition that the exporter can be recoursed if the bank cannot collect the money from the L/C opening bank. Thus, the exporter's responsibility remains until the bank collects the money from the importer. The discounting fee is calculated in the form of discounting interest, calculated by day and the fee is of course lower than in the case of non-recourse discounting because the risk the bank has to bear is lower.

Currently, most banks perform recourse discounting.

b) Advance payment for goods to exporters

In case the set of documents does not meet the conditions for discounting, or has errors that the bank does not agree to discount, the exporter can request the bank to advance payment for the goods, usually at a rate of about 50%-60% of the value of the exported goods.

The Bank proceeds to collect debt by sending a set of documents abroad to collect debt. Within 60 days from the date of sending the documents to collect money without receiving a credit notice from the foreign bank, the Bank will automatically record a Debit in the customer's deposit account. If the customer's account does not have enough balance, the Bank will transfer the discounted or advanced amount to overdue debt within 7 working days. When paid by the foreign bank, the loan will be directly deducted along with other related costs.

III. FACTORS AFFECTING INTERNATIONAL TRADE FINANCING ACTIVITIES BY DOCUMENTARY CREDIT PAYMENT METHOD OF COMMERCIAL BANKS

1. State policy mechanism

Business activities of economic sectors in general and enterprises in particular are greatly affected by the State's economic development policies. Any changes in the legal framework, monetary policy, fiscal policy, import-export activities, etc. will affect the procedures for requesting funding, the process of implementing the bank's financing operations, and affect interest rates and commodity prices.

2. Bank

Banks can only finance businesses when they have sufficient capital to carry out this business while still ensuring other business activities. Capital also creates conditions for banks to improve technical infrastructure, apply modern scientific achievements... thereby expanding financing activities.

In addition, the human factor is also very important for the expansion of international trade financing activities. With a team of experienced, highly qualified staff, knowledgeable about the market, good ethics, high sense of responsibility... international trade financing by the TDCT method can truly be effective, bringing benefits to both banks and customers.

In addition, the reputation and relationship of the bank with the network of correspondent banks are also important factors in deciding the expansion of foreign trade financing activities. Because the bank has a wide network of operations, it allows it to better meet the international payment and import-export financing needs of customers. That is the reason why import-export enterprises always want to choose banks with financial capacity, reputation, wide correspondent relationships and business experience to be supported when participating in the international market.

3. Import-export enterprises

The TDCT payment method starts from the importer when they submit a request to open an L/C to the bank serving them. Therefore, the requirement for the importer is to have qualifications, understand the market, and understand the trade.

foreign trade... Because only when the terms of the L/C are completely consistent with the commercial contract or accepted by the exporter will it be valid and the financing by issuing L/C by the bank will be effective.

Similarly, for exporters, to get paid, they must present a perfect set of documents, and the preparation of documents must go through many complicated stages. Meanwhile, any error in the set of documents can be the basis for the importer to refuse to pay. Therefore, it requires the exporter to be qualified, experienced and proficient in foreign trade transactions.

In addition, the business ethics of the exporter also affects the results of foreign trade activities. If the exporter commits fraud or forges documents, it will directly pose risks to the importer, thereby affecting the international trade financing activities of the bank. In addition, if both the exporter and the importer commit fraud and collude with each other to defraud the bank, the risk to the bank from its financing activities is very high.

4. Exchange rate fluctuations

Due to the nature of international trade activities, which are the buying and selling of goods and services between different countries, payments must be made on the foreign exchange market. Therefore, this activity will be affected by exchange rates.

Exchange rate is a sensitive factor, it always fluctuates. When the domestic currency depreciates compared to foreign currency, the importer will not want to receive the goods for fear of loss. On the contrary, the exporter will suffer loss. In case the exchange rate is clearly stipulated in the contract to ensure the rights of both the exporter and the importer, it will cause risks for the bank. Thus, all three cases above affect the business results of enterprises and banks, thus indirectly affecting the international trade financing activities of banks.

Chapter I Conclusion

Chapter I is an introduction to international trade financing activities in general and international trade financing by the payment method of credit institutions in particular of commercial banks. Along with the trend of international economic integration, international trade financing activities of banks are becoming increasingly rich and diverse, not only meaningful to all participants but also bringing high efficiency to the economy.

In which, financing by the method of payment of credit institutions plays an important role and brings the most benefits to the participating parties. Banks in the world as well as in Vietnam pay great attention to developing this financing activity because of its safety, popularity and high efficiency. It can be said that this is one of the modern banking operations and will be increasingly improved to suit the development of international trade activities.

With the aim of illustrating more specifically the international trade financing activities by the method of payment of credit institutions of Vietnam Commercial Banks, the next chapter will be devoted to introducing this activity at the Joint Stock Commercial Bank for Non-State Enterprises of Vietnam (VPBank). Based on the practical implementation of the business at the Bank, the thesis will analyze the achievements as well as the shortcomings, find out the causes leading to these achievements and shortcomings, and then propose some solutions and recommendations with the hope of contributing a small part to the development of international trade financing activities by the method of payment of credit institutions at the Bank.

Chapter II

CURRENT STATUS OF INTERNATIONAL TRADE FINANCE ACTIVITIES BY DOCUMENTARY CREDIT PAYMENT METHOD AT JOINT STOCK COMMERCIAL BANKS FOR FOREIGN ENTERPRISES

VIETNAM STATE-OWNED BANK (VPBANK)

I. GENERAL INTRODUCTION OF VIETNAM JOINT STOCK COMMERCIAL BANK FOR NON-STATE ENTERPRISES (VPBANK)

1. Formation and development process of VPBank

Vietnam Joint Stock Commercial Bank for Foreign Trade of Vietnam (VPBank) was established under the Operating License No. 0042/NH-GP issued by the Governor of the State Bank of Vietnam on August 12, 1993 with an operating period of 99 years. The Bank began operating on September 4, 1993 under the Establishment License No. 1535/QD-UB dated September 4, 1993.

VPBank's main areas of operation include:

Mobilizing short-term, medium-term and long-term capital from organizations and individuals Receiving investment and development trust capital from domestic organizations Borrowing capital from the State Bank and other credit institutions

Short-term, medium-term and long-term loans to organizations and individuals

core

Discounting of commercial papers, bonds and valuable papers

Capital contribution, joint venture and share purchase according to current law. Implementation of payment services between customers.

Conduct foreign exchange business

Mobilizing capital from abroad

International payments and other payment-related services

international math

Provide domestic and international money transfer services in many forms, especially Western Union fast money transfer.

VPBank's initial charter capital when it was first established was VND 20 billion. Subsequently, due to development needs, VPBank increased its charter capital many times over time. By August 2006, VPBank's charter capital had reached VND 500 billion. On September 27, 2006, the Governor of the State Bank of Vietnam signed a decision allowing VPBank to sell 10% of its shares to OCBC Bank (Singapore) after a period of reviewing the conditions and completing procedures from OCBC Bank. Accordingly, OCBC completed the procedures for transferring money to buy shares, equivalent to VND 250 billion, and the entire amount was used to increase VPBank's charter capital from VND 500 billion to VND 750 billion. Following that, VPBank's Board of Directors planned to increase charter capital from VND 750 billion to VND 1,500 billion in 2007, and VPBank's first capital increase plan of 2007 was completed in May 2007.

Currently, VPBank's shareholders include more than 100 individuals and legal entities, including two foreign shareholders: Dragon Capital (holding 10.9% of charter capital) and OCBC Bank holding 10%.

During the process of formation and development, VPBank has always paid attention to expanding its scale and strengthening its operations in major cities. As of April 2007, the VPBank system has a total of 61 transaction points including: Head office in Hanoi, 20 level I branches in major provinces and cities such as Hanoi, Ho Chi Minh City, Hai Phong, Quang Ninh, Vinh Phuc, Bac Giang, Da Nang, Hue, Nha Trang, Can Tho, ..., 41 level II branches and transaction offices in key economic provinces and cities of the country. In addition to expanding its transaction network, in 2006, VPBank also opened two more affiliated companies, namely the Debt Management and Asset Exploitation Company and the Securities Company.

The number of VPBank employees in the entire system to date is over 1,000 people, most of whom are university and post-graduate staff (accounting for 87%). Realizing that the quality of staff is the strength that helps VPBank be ready to face all competitions, especially in the upcoming challenging period when Vietnam truly enters the international economic integration, in recent years, VPBank has always paid attention to improving the quality of human resource management.

Since its establishment and development, VPBank has encountered many difficulties because banking business is inherently complex and contains many risks. However, with the wise management of the Board of Directors and the dynamism, creativity and enthusiasm of the young staff, VPBank has innovated itself and grown steadily. Especially in recent years, the Bank has found its place in the market and gained the trust of customers, especially the Bank's target customer group - small and medium enterprises and individual customers of the middle class.

Regarding strategic vision, VPBank continues to affirm and persevere in its retail banking strategy, striving to achieve higher growth in all aspects each year to become the leading retail bank in the Northern region by 2010 and among the top 5 banks of joint stock commercial banks in the country, while also being a prestigious bank in Southeast Asia in terms of quality, efficiency and reliability.

2. VPBank's business activities in recent years

2.1. Capital mobilization activities

With the goal of developing VPBank into one of the leading retail banks in Vietnam, in recent times, the Bank's capital mobilization activities have focused on providing retail banking products and services, targeting small and medium-sized enterprises and individuals.

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