Import L/C Opening Situation 2003-2005

Due to the number and value of documents presented and paid through the Exchange, the proportion of the Lao and Cambodian markets has decreased significantly, reaching 6.2% and 13.12% respectively. Other markets have low payment turnover due to small value items and documents with low value, such as Japan with 26.99 million USD, Hong Kong with 16.5 million USD, Thailand with 11.71 million USD, Taiwan with 5.54 million USD.

The main export item is coal, accounting for 43.11% because the Foreign Trade Bank of Vietnam has been more proactive in marketing coal exporting companies such as Coalimex, Vietnam Coal Corporation, and Northern Coal Company. Petrolimex's petroleum products still account for the second largest proportion, 17.88%. This proves that the export potential of petroleum companies is very large. The following items are rice (9.5%), garments (6.61%), and handicrafts (2.88%).

b) Current status of import payment by documentary credit method.

Table 2.2: Import L/C opening situation in the period 2003-2005

Unit: Million USD

Year

Letter of credit opening value	Number of letters of credit opened
2003	1999	3817
2004	2110	3905
2005	2163	3405

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(Source: Import Payment Department's business results report)

In 2005, the number of import payment transactions at the Bank for Foreign Trade of Vietnam decreased significantly. But the value of opened letters of credit

The increase in sales mainly belongs to Petrolimex - accounting for nearly 2/3 of the sales of letters of credit opened at the Exchange. In 2005, the price of gasoline in the world increased, so the value of imported goods of companies trading in this item also had to increase and the credit limit of the Vietnam Foreign Trade Bank for these companies was always used to the maximum. In addition, the traditional customers of the Vietnam Foreign Trade Bank such as PTSC, Coalimex, Northern Coal Company, FPT Technology Investment Development Company, Petrochemical Joint Stock Company, Petrolimex Gas Joint Stock Company also always achieved high sales. Most of these companies are special customers of the Exchange with large credit limits and are allowed to open letters of credit without 100% deposit, so these companies are always the units with high transaction sales at the Exchange. Small and medium-sized companies that were previously customers of the Exchange now tend to switch to other banks. Some customers have stopped doing transactions with the Exchange. The volume of transactions of this customer segment in 2005 has decreased significantly, the number of letter of credit payments only reached 80% compared to 2004.

Normally, only customers who have regular transactions and payments through the bank and whose credit limit is approved by the credit council can open a letter of credit without deposit. Therefore, the expansion of the opening of letter of credit without deposit shows that the number of customers who have regular payment relationships with the bank has shown signs of increasing. Moreover, in recent years, the credit council has expanded the approval of limits for many new customers, especially to many economic sectors other than state-owned enterprises. Some companies not on the list of companies granted limits, with good import contracts, are also considered by the Department to open letter of credit without deposit. In general, the opening of import letter of credit without deposit at the Department in recent years has been more flexible.

In short, with a wide network of correspondent banks and more than 40 years of experience in international payment operations, along with the strong promotion of computerization in the banking sector, connecting to the international payment network has contributed to the improvement of the documentary credit method in particular and international payment activities in general at the Vietnam Foreign Trade Bank. Participating in the SWIFT network makes the processing speed of transactions faster and more convenient, and the transmission of information and data is therefore more accurate. All of the above advantages, along with the service fee considered the most attractive compared to other commercial banks in the country, have created a Vietnam Foreign Trade Bank that is always at the forefront in capturing the import-export market share of the whole country. For example, when opening a letter of credit, customers only have to pay an opening fee of 0.11% of the opening value and 0.22% for payment fee, and both of the above fees are only subject to a maximum of 330 USD/transaction, while at other commercial banks this maximum is 500-1000 USD/transaction.

In recent years, the proportion of import and export payments by documentary credit has been increasing, regularly accounting for over 60% of international payment turnover at the Transaction Office of the Bank for Foreign Trade of Vietnam. This also further confirms the advantages of this payment method.

2.3 ASSESSMENT OF THE CURRENT STATE OF INTERNATIONAL PAYMENT ACTIVITIES BY DOCUMENTARY CREDIT METHOD AT THE TRANSACTION DEPARTMENT OF THE BANK FOR FOREIGN TRADE OF VIETNAM

2.3.1 Results achieved

International payment activities by documentary credit method have brought certain results for the bank itself, for customers and for the whole economy.

a) For the bank itself.

Having a tradition in international payments, the Transaction Office of the Bank for Foreign Trade of Vietnam is constantly looking for ways to improve the quality of its services. Payments of letters of credit are always made on time, late payment of documents to foreign banks is very rare, operational risks almost never occur, contributing significantly to helping the Bank continuously achieve the title of Bank with the best service quality awarded by international banks and organizations.

The international payment activities by documentary credit method of the Transaction Office of the Bank for Foreign Trade of Vietnam have contributed to diversifying the products and services provided to customers, increasing the competitiveness of the Bank for Foreign Trade in the market. Developing this activity is an important premise to create conditions to support the development of other business activities such as foreign currency trading, correspondent banking activities and especially credit operations, traditional operations of commercial banks. This activity has created additional foreign currency revenue and service fees for the bank while the cost for this activity is small, the risk level is not high, contributing to increasing profits. Over the past years, the reputation of the Bank for Foreign Trade in general and the reputation in international payment activities in particular have been globally recognized. In fact, in summarizing the international payment work of the Transaction Office, since applying the form of discounting documents, most of the cases where the Transaction Office discounted have been paid by foreign banks.

In addition, the Transaction Office of the Bank for Foreign Trade of Vietnam always fulfills its obligations, in accordance with Vietnamese law and international practices. The staff's qualifications have been greatly improved in terms of expertise, foreign languages, information technology, transaction style, awareness of compliance with the law and international practices, and the ability to handle all types of letters of credit requiring

require high level of expertise such as standby letter of credit, confirmed letter of credit, back-to-back letter of credit, transferable letter of credit... The officers also gained valuable experience in handling export documents perfectly, including those presented to embargoed countries, and had experience in resolving disputes and complaints during the payment process of letters of credit with foreign countries.

Through the development of documentary credit payment methods, the management and operation level has also been improved. The Bank for Foreign Trade has issued, supplemented, and fundamentally revised mechanisms, regulations, and procedures related to payment of import-export letters of credit to ensure accurate implementation of operations, ensure customer benefits, limit risks for the bank, and is an important factor in enhancing the reputation of the Vietnam Foreign Trade Bank Transaction Office.

b) For customers and the economy.

Financing through letter of credit payment services helps customers make payments smoothly and easily. The international payment activities of the Vietnam Foreign Trade Bank Transaction Office gradually dominate the market serving import-export business activities. The Vietnam Foreign Trade Bank Transaction Office focuses on customer consulting in international sales transactions. Many customers come to the Transaction Office because they trust the bank's service, asking the bank to advise them on choosing the appropriate payment method. For example, in cases where it is mandatory to open a confirmed letter of credit, the Transaction Office has advised customers on confirming banks with low confirmation fees, helping to reduce costs for customers.

Besides, to improve the quality of export payment and avoid risks for customers, document checking is mandatory through many processes.

people before sending abroad. Serving customers better and better, gaining the trust of customers, the Transaction Office of the Bank for Foreign Trade of Vietnam also regularly sponsors low fees for units purchasing export goods, especially agricultural products such as rice, both ensuring the State's agricultural promotion policy and creating conditions for competition in the market.

International trade finance of the Vietnam Foreign Trade Bank, including financing in the form of letters of credit at sight, guarantees for opening deferred letters of credit and discounting export documents, has contributed to solving capital difficulties for businesses, helping businesses pursue their business goals, creating more jobs, increasing income for workers, reducing unemployment, contributing to the industrialization, modernization, construction and development of the country's economy. Especially the form of discounting and recourse of export documents. This is a form of bank credit based on discounting a set of documents before the payment deadline. With this service, the Vietnam Foreign Trade Bank has created conditions for exporters to recover capital to continue production rotation with the credit provided by the bank. And to keep up with international payment standards, the Vietnam Foreign Trade Bank is now also implementing non-recourse discounting. This has created a standard working style that allows export businesses to feel secure when their documents have been discounted.

International payment activities in general and international payment activities by documentary credit method in particular at the Transaction Office of the Bank for Foreign Trade of Vietnam are constantly developing, creating conditions for increasing payment activities through the banking system, contributing to strengthening the management of the system.

State management of business activities, especially import and export activities.

In summary, the results achieved in international payment activities by documentary credit method at the Vietnam Foreign Trade Bank Transaction Office are encouraging, contributing significantly to the innovation of the banking sector in particular and the economy in general, effectively serving the economic development strategy of Vietnam in the current period. For the Vietnam Foreign Trade Bank Transaction Office, this service contributes to increasing profits, strengthening financial strength and creating additional income for bank employees. With the import-export payment market share of the entire Vietnam Foreign Trade Bank system of nearly 30% of the country's import-export payment market share, this is a result that no other commercial bank in Vietnam has achieved.

However, the international payment activities by documentary credit method of the Transaction Office of the Bank for Foreign Trade of Vietnam still cannot avoid limitations and shortcomings. Therefore, the international payment segment of the Bank for Foreign Trade of Vietnam in general and the Transaction Office in particular is being divided in market share. Research to point out those limitations and find the causes is extremely important to be able to complete the international payment activities by documentary credit method at the Transaction Office.

2.3.2 Some limitations and causes

a) Some limitations

First: The customer structure is not yet reasonable.

Since the beginning of 2006, the customers who are Corporations have been separated and managed by the Head Office of the Foreign Trade Bank. However, at the Transaction Office, there is still a tendency to focus on large customers such as Cokyvina, PTSC, Coalimex, Vietnam Airlines... The characteristics of these customers are:

International payment transactions are conducted frequently, on a large scale, in the same documentary credit transaction, delivery and payment are conducted multiple times, bringing high and stable service revenue to the Exchange.

However, these large customers often demand preferential fee and interest rate policies, and are also easily lured and attracted by local banks to operate with them.

This was most evident in 2005, when the Exchange had to share Vietnam Airlines' operations with a partner bank, so Vietnam Airlines' sales and service fees decreased significantly, significantly affecting the Exchange's business plan. This was a major limitation in the Exchange's international payment by documentary credit method, requiring the Exchange to be more proactive in expanding its customer network, avoiding over-reliance on a few customers.

Second: Forms of payment by letter of credit are not diverse.

For export goods, non-recourse discounting is almost never done, even though the bank itself considers the documents to be clean and the customer's reputation is high. This causes inconvenience and dissatisfaction for customers, reducing their trust in the Exchange.

For imported goods, the Exchange mainly opens irrevocable letters of credit, which may be confirmed or transferable, or standby letters of credit. In addition, some back-to-back letters of credit are opened, but the number is very limited, although export letters of credit can be presented directly at the Exchange.

In addition, customer demand for revolving letters of credit is very large due to the nature of regular periodic imports. However, the Exchange has not yet implemented this form of letter of credit, but mainly requires customers to open letters of credit.

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