Features of Import-Export Credit at Commercial Banks

large business. Timely and appropriate import-export credit from banks helps businesses ensure compliance with contracts, thereby enhancing the reputation of businesses in the world market [1, 10].

1.1.1.3. Characteristics of import-export credit at commercial banks

* Purpose of credit

For commercial banks, any credit activity originates from business purposes and import-export credit is no exception. These commercial banks provide import-export credit to compensate for temporary capital shortages of import-export enterprises, support these enterprises in implementing and paying foreign contracts, on the basis of mutual benefit, keeping pace with the development of import-export enterprises.

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* Credit granting objects

The object of import credit is the need for money of importers to pay the exporter in the contract of sale of goods. The credit term is usually short-term. Banks only grant credit to importers on the condition that they have a contract of sale of goods with the exporter, have an import business license, import goods permitted by law and some requirements on financial capacity to ensure repayment of the credit granted.

The subjects granted export credit are the temporary capital shortage needs of exporters during the export business process (the process of collecting goods as well as processing, manufacturing or producing goods in preparation for export). Exporters to be granted credit at banks also need to meet the following conditions: the enterprise must be licensed to do export business or have an export entrustment contract, the project must be economically effective, the source of debt repayment must be determined, the business results must not be loss-making and there must be no overdue debt at other banks...

* Credit currency

The characteristics of import-export credit activities are reflected in the credit currency, which is mainly foreign currency, specifically USD, EUR, JPY... in addition to local currency.

* Factors affecting import-export credit

Enterprises operating in the field of import and export are not only affected by economic and commercial laws, import conditions of domestic laws, but also affected by foreign factors and tariff barriers.

and import laws in exporting countries. Therefore, if you do not understand economic laws,

In the context of world trade, import-export enterprises are very likely to violate the terms of foreign contracts, encounter difficulties in exporting, encounter obstacles in importing goods from customs procedures or do not understand international payment methods, lack of foreign currency for international payments... affecting the ability of import-export enterprises to pay partners, directly affecting the repayment of debts to banks through import-export credit activities provided by banks.

In addition, participating in import-export credit activities, commercial banks (CBs) not only transact with domestic enterprises but also with companies with foreign elements such as: foreign investors, foreign-invested enterprises, enterprises located outside the national territory or enterprises located within the national territory but operating in export processing zones... Therefore, CBs must be the entities that have the best understanding of factors such as current commercial laws, geographical location, language, terms in foreign contracts, and equity capital of CBs related to import-export credit activities for enterprises.

1.1.1.4. Forms of import-export credit

* Export credit

Currently, commercial banks provide credit to finance exports in local currency or foreign currency to help export enterprises purchase export goods. Export credit is currently applied specifically in the following forms:

- Loans to supplement working capital for purchasing, processing and producing export goods

This form is carried out before delivery, mostly applied in cases where the lending bank is also the paying bank for the export letter of credit (L/C), the exporter presents a set of documents and is paid at the bank. The bank lends in parallel with the exporter's own capital. The goods will be used as collateral to continue borrowing, until the exported goods are equal to 100% of the export value. Normally, the bank only lends about 70% of the export shipment value. After delivery, the exporter prepares a set of documents in accordance with the conditions specified in the L/C and submits them to the bank for payment.

payment. On the bill of exchange, the bank will be the direct beneficiary on the bill of exchange. The bank checks the reasonable set of documents and sends them abroad to collect the debt from the bank that opened the L/C. When receiving the money transfer from the bank that opened the L/C, the bank notifies the L/C to credit the loan account to collect the debt.

When the lending bank is not the advising bank or the paying bank, risks may occur if, after borrowing, the enterprise cannot export goods or exports goods but encounters risks in delivery or payment, or the customer uses the loan for the wrong purpose.

- Discounting documents or advance payment for export goods

If the exporter needs money while waiting for payment, he can negotiate to discount the set of documents or advance money at the bank specified in the L/C or at any bank. This form of lending is carried out after delivery, including the following forms:

+ Export document discount

When discounting, the set of documents must be perfect and presented on time. The business's production and financial situation is stable and ensures payment ability, and has prestige with the bank. The discount amount must be within the credit limit. After receiving the documents from the customer, the bank assesses the loan purpose, financial situation, payment ability... The bank checks the conformity on the surface of the documents with the terms and conditions stated in the L/C and decides on the discount rate, currently usually about 90% of the value of the L/C issued. There are two forms:

• Recourse discounting is a form of discount in which the bank, after paying the exporter, has the right to claim the money if the set of documents is not paid.

• Non-recourse discount is a form of discount in which the bank, after paying the exporter, has no right to claim money if the set of documents is not paid.

+ Advance payment for export goods

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

The bank collects 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 automatically debits the customer's deposit account. If the customer's account does not have enough money within 7 working days, the bank will transfer the discount or advance amount to overdue debt. When receiving payment from the foreign bank, the loan amount and related costs will be directly deducted.

- Discounting of bills of exchange

Bill discounting is a form of credit granted by a bank to a customer in the form of buying back a bill of exchange before it is due for payment.

Discounting bills of exchange enables exporters to receive money sooner to meet capital needs for the supply credit granted to the importer. The basis for determining the value of this credit is the value of the bill of exchange after deducting the discount value and the collection fee rate enjoyed by the discounting bank.

- Loan based on payment documents by collection method

Most banks are willing to provide overdraft facilities to export customers for contracts with payment terms of up to 6 months. When a bank sends a foreign correspondent bank for collection, the bank will provide an advance payment at an agreed percentage of the outstanding uncollected collections. This method has many similarities with the form of discounting documents for payment under the documentary credit method. However, collection is rarely used in payment because it is a payment method that is beneficial to the buyer, and is often applied when the two parties know each other and truly trust each other.

- International factoring

International factoring is a factoring service based on import-export contracts, where the customers and debtors are businesses in different countries. The role of the factoring unit is to collect debts from abroad by approaching importers in their own country, in their own language and according to local business practices. There are two types of factoring:

+ Recourse factoring is a type of factoring service in which if the person

If the buyer cannot pay the debt or fails to fulfill the debt payment obligation, the seller is responsible for returning the advance payment to the factoring unit.

+ Non-recourse factoring is a type of factoring service in which the factor must bear all credit risks and does not reclaim the amount advanced to the seller in case the buyer fails to fulfill his debt repayment obligations.

- Bid security and contract performance security

Bid bonds and contract performance bonds are intended to support exporters in bidding or performing export contracts for goods in the list of export credit loan items. The term of bid bonds and export contract performance bonds is consistent with the term of the exporter's obligations. The maximum guarantee amount is not more than 3% of the bid price for bid bonds and not more than 15% of the export contract value for export contract performance bonds. At the same time, the guaranteed exporter must pay the guarantee letter issuance fee and the guarantee fee.

* Import credit

Normally, commercial banks provide credit in foreign currency to import raw materials, supplies, goods, machinery, equipment, technology... or in local currency. This case is very rare because when using local currency to convert to foreign currency to pay for imported goods, customers have to lose a sum of money due to the difference in the bank's buying and selling exchange rates. Banks mainly implement this in the following forms:

- Form of opening L/C to pay for imported goods

This is a form of bank financing for importers. The bank opens an L/C for the exporter at the request of the importer that the bank will pay the exporter or accept the bill of exchange drawn by the exporter if the exporter presents a set of documents in accordance with the terms and conditions stipulated by the bank opening the L/C. The bank will bear the risk if the importer is unable to pay. Therefore, before opening an L/C, the bank must check the financial situation and payment capacity of the importer and decide on a specific deposit level. According to current regulations, the deposit amount is entitled to interest equal to the interest on the payment deposit. If there is not enough balance in the foreign currency account or for orders

The consignee can attach an application to buy foreign currency for deposit or can apply for a foreign currency loan with L/C deposit, but this is very limited in our country at present.

- Loan to pay for import documents

The L/C opening bank receives the set of documents from the L/C advising bank, has 7 days to check and process the documents and make a payment decision or refuse to pay. In this transaction, the paying bank is based on the set of documents, if the documents are in accordance, the bank will pay the money (at sight L/C or accept payment of bills of exchange - deferred L/C).

For importers, the goods have just arrived at the port and must pay the bank to pay the exporter before receiving the documents to receive the goods, sell the goods and recover the capital. That is a rather long period of time, so the importer needs to have credit from the bank, borrow from the bank to pay for imported goods. The bank will conduct an assessment of the effectiveness of the loan and financial capacity, debt repayment capacity, and collateral to make a decision.

- Guarantee and reinsurance business

Currently, banks provide guarantees for businesses and re-guarantee other banks.

There are many forms of guarantees: loan guarantees, bidding participation guarantees, contract performance guarantees, deposit guarantees... but in reality, contract performance and bidding guarantees are rarely used. Loan guarantees are the main form at banks, re-guarantees are rarely used. Guarantees in our country are mainly used to finance import businesses to borrow capital, implemented in the following forms: Issuing letters of guarantee, opening deferred L/Cs, signing guarantees on bills of exchange to receive foreign debt, signing guarantees on promissory notes to receive foreign debt, signing guarantees on debt receipts made by customers (borrowers) to receive foreign debt. Two forms of guarantees are commonly applied in commercial banks in our country today:

- Guarantee loans by issuing letters of guarantee.

Currently, most foreign banks and foreign enterprises lend to Vietnamese enterprises to import goods, machinery and equipment produced in that country.

Exporters often require Vietnamese enterprises to have a bank guarantee before delivery. The guaranteeing bank will issue a letter of guarantee committing to pay the foreign country if the Vietnamese enterprise fails to pay when due. Based on the guarantee of a Vietnamese bank, foreign exporters can transact with their service bank to borrow capital on behalf of Vietnamese enterprises. If the enterprise accepts the loan conditions of the foreign bank, it must repay the debt directly to the foreign bank.

- Guarantee by issuing deferred payment L/C

This is the most popular form applied in our country in recent times, accounting for the largest proportion of outstanding loans guaranteed at commercial banks. For Vietnamese enterprises, this is a simple form of borrowing capital, mobilizing foreign capital and easily approved by purchasing goods on credit, suitable in the current situation where enterprises are lacking capital. [1, 7, 10]

1.1.1.5. Risks in import-export credit of commercial banks

Risks in import-export credit are a type of risk in the operations of commercial banks. These are unusual, unexpected events that lead to losses for banks. These risks can originate from the economy, from import-export enterprises and also from commercial banks themselves. There are main types of risks in import-export credit of commercial banks: credit risk, interest rate risk, exchange rate risk.

* Credit risk

Credit risk is the risk that arises when a customer is unable to pay. This risk can arise from objective or subjective reasons and from both the customer and the bank.

- On the customer side : risks can arise from subjective causes of law, capacity, behavior... or subjective causes from the economy and surrounding environment. Specifically:

+ Subjective causes:

• Lack of information on current international trade laws, customs procedures or international payment methods.

• Due to the borrower's lack of legal capacity, lack of conditions to participate in import-export activities, or import-export credit.

• Exporters and importers use loans for purposes other than those committed to the bank or ineffectively.

• Weak corporate financial situation, lack of transparency, leading to insolvency to banks.

• Improper capital management leads to lack of liquidity, affecting the ability to pay for banks.

• Business owners who borrow capital lack management capacity, are corrupt, fraudulent, or lack unity within the Board of Directors, executive board, or importers and exporters intentionally commit fraud.

+ Objective causes: due to the influence of unstable economic and political conditions such as:

• Due to economic crisis or recession, inflation, imbalance in international balance of payments, exchange rate fluctuates abnormally.

• Due to the rapid and unpredictable fluctuations of the world market as well as the domestic market.

• Inevitable risks of financial liberalization and international integration.

• Lack of planning and reasonable allocation of investment has led to a crisis of excess investment in some industries.

• The attack of smuggled goods makes goods lose competitiveness and reduce marketability.

• Due to natural disasters, epidemics, fires... or due to security situations, domestically, in the area where import-export activities of import-export enterprises are conducted.

- On the bank side: credit risks can arise due to subjective causes from the bank's management capacity such as:

+ Originating from staff: Staff do not comply with policies, do not follow import-export credit procedures, credit staff are weak in professional qualifications or violate business ethics.

+ Originating from import-export credit policies and procedures and the application of credit policies and procedures is not serious: Unreasonable import-export credit policies, over-emphasizing profit targets leading to reckless lending; concentrating too much lending capital on a certain enterprise or economic sector, due to banks increasing import-export credit without quality control.

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