Solutions for developing international payment activities at Techcombank, period 2007 - 2010

through credit and payments in the banking system, in close connection with the central banking system of each country.

Assuming that all commercial banks do not retain excess reserves, checks are not cashed, and other complex factors are ignored, the money creation process is as follows: Suppose Bank A has a new deposit of 1,000, the required reserve is 10%, then the amount it can lend is 900. That loan is given to the borrower, the borrower never borrows the money but keeps it in the bank, so they have to pay interest in vain, they use that money to pay their debts. And that amount of money reaches the payee, the payer deposits that amount of money in Bank B, Bank B will now have a new deposit of 900. The required reserve is 10%, the amount that can be lent is 810. This amount of money is lent to the borrower, the lender pays the payments to the payee, the payee deposits the paid amount in Bank C. And so on and so forth… until the new deposit amount is 0. It is calculated that the new deposit amount in the entire banking system is 10,000, the required reserve amount is 1,000 and the loan amount is 9,000. And because of this method, money is created in the 2-tier banking system.

1.3. Basic activities of commercial banks

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A commercial bank is a business organization in the monetary sector whose main and regular activities are to receive deposits from customers with the responsibility of repaying and using that money to lend, invest, perform payment transactions and other intermediary transactions to gain maximum profit on the basis of ensuring liquidity.

The activities of commercial banks can be divided into basic activities:

 Capital mobilization activities

 Capital use activities (lending and investment)

 Payment intermediary activities and other types of services

These three activities are closely related, support each other and play an important role in determining the success of a bank's business operations.

1.3.1. Capital mobilization activities

An important feature in the business activities of commercial banks is borrowing to lend. Therefore, unlike businesses operating in non-financial sectors, capital mobilization is a very important business activity of commercial banks, including:

Deposit capital: Customer deposits are the most important resource of commercial banks. When a bank starts operating, the first business is to open deposit accounts to keep and make payments on behalf of customers, thereby the bank mobilizes money from businesses, organizations and residents.

Borrowed capital: During operations, to ensure the required reserve ratio or to solve urgent capital needs, banks can borrow capital from the central bank, other credit institutions or domestic and foreign financial markets in various forms.

1.3.2. Capital use activities

Using and exploiting capital sources is the main and most important activity of commercial banks and is demonstrated through many specific operations such as: credit, investment, treasury operations. In which, credit is the most basic operation in using and exploiting capital sources of commercial banks.

Credit activities: Bank credit includes the following forms: lending, discounting, brokerage, financial leasing and payment. In which, lending is considered the main profit-making activity of commercial banks, but also contains a high level of risk.

Investment activities: Investment activities of commercial banks are expressed in many forms such as: investment in buying securities, investment in contributing capital to shares, capital contribution to joint ventures and associations. Thanks to these investment activities, commercial banks can use and exploit the maximum mobilized capital sources, diversify business and disperse risks, increase profits.

Increase liquidity for bank reserves At the same time, it also brings income to commercial banks.

Treasury activities : activities that serve the payment to customers, it

including cash fund operations, deposits at other banks and the Central Bank. Although treasury operations are not investment activities, they are very important to commercial banks because they contribute to enhancing the ability to pay and make payments to customers.

1.3.3. Payment intermediary activities and other types of services

All exchange relations, purchase of goods, services and other activities in the economy are concluded by payment. In terms of scope, payment activities of banks are divided into 2 types: domestic payment and international payment. In which, international payment activities account for a high proportion and bring banks large profits through diverse payment methods.

Besides, commercial banks also provide financial related services such as consulting services, brokerage services, trust services, securities trading and purchasing... These intermediary activities have lower risks than lending and investment activities while still bringing large revenue to banks.

2. International payment activities of commercial banks

2.1. Concept and characteristics of international payment

2.1.1. Concept of international payment

Nowadays, for each country, foreign economic relations play a leading and inevitable role in economic development. Foreign economic activities are the exchange of goods and currencies between entities of different countries.

International payment is the performance of monetary payment obligations arising from economic, financial, commercial, credit and non-commercial service relations between organizations.

Economic organizations, companies, and individuals from different countries to complete a cycle of operations in the foreign economic sector by transferring money or clearing accounts at banks.

International payment in a broad sense includes payment of trade agreements, payment agreements signed between countries, foreign trade contracts, service fees (such as transportation fees, insurance...) International payment can be divided into:

Trade payment: is a directly related payment relationship arising on the basis of international trade exchange of goods and services.

Non-commercial payment: is a payment relationship that arises unrelated to goods and is not of a commercial nature: diplomatic relations (such as expenses of diplomatic agencies in the host country), culture, tourism (transportation and travel costs of delegations, governments, organizations and individuals, etc.)

In foreign trade transactions, the exchange of goods and currencies between entities of two different countries goes beyond the scope of a country, so there are differences in trade regulations, trade conditions as well as trade practices. Therefore, a unified payment mechanism that ensures the safety and benefits of both buyers and sellers is extremely necessary. In this payment mechanism, there is usually an independent third party acting as a payment intermediary. These are intermediary financial institutions (mainly banks) with experience, expertise, professionalism, reputation, financial capacity, a wide network of agents and relationships, etc.

2.1.2. Characteristics of international payments

International trade and international finance have existed for a long time, but they have only really developed since the birth of capitalism and since then they have become an inseparable part of the increasingly expanding international economy. International finance activities exist in a close relationship with other activities of international economic relations.

In international trade relations between entities of different countries in the world, the USD is no longer the only standard currency. The choice of currency is entirely up to the agreement of the buyer and seller, the buyer's domestic currency or the court currency can be used, or a foreign currency can be chosen for both the buyer and seller. This choice depends on the reputation of the economy, the comparison of the relative positions between the buyer and seller, or depends on international trade practices. International trade rarely uses cash, mainly carried out by transfers between related banks.

Any economy, even in a period of prosperous development, always has potential instability factors such as inflation, international trade deficit, imbalance in foreign currency supply and demand, irrationality of macroeconomic policies or fluctuations in exchange rates in a direction unfavorable to the economy... Because international trade relations are a part of economic relations, they are also not outside the impact of the above instability factors.

2.2. The role of international payment activities

2.2.1. For the economy

In any economic transaction, payment is an indispensable step. Simply put, payment is when the buyer pays money to the seller to receive goods or services from the seller. International payment has the same nature but is much more complicated, it involves subjects in different countries, foreign currencies and legal issues regulating trade relations between two countries... With the current trend of globalization and specialization, import and export activities are very developed and international payment activities are also developing. It can be said that international payment activities play a huge role in the development of the world economy in general and the economy of each country in particular.

International trade is born from international economic relations and it itself promotes the development of international economic relations . International trade is the final step of a trade transaction.

Goods and services, is a bridge between exporters and importers through mutual payment in the process of performing international payment transactions. Therefore, if international payment activities are carried out effectively, it will shorten the time of capital transfer, promoting the development of foreign trade activities. When foreign economic activities are considered the top priority in the economic development strategy, international payment plays an increasingly important role.

International payment limits risks in the process of implementing foreign economic contracts. Due to geographical location, it is difficult to understand the financial capacity and payment ability of buyers. If international payment is well organized, it will help import-export businesses limit risks in the process of implementing foreign economic contracts. International payment is a link, a bridge for economic organizations, commercial organizations and different countries in the world to implement commercial contracts.

International payment is a tool of the State to plan policies on foreign trade activities. International payment activities of commercial banks have a direct impact on the amount of foreign currency reserves of a country and if not controlled, that country may fall into a shortage of foreign currency reserves, which is very dangerous for the economy. The Central Bank controls international payment activities through monitoring and evaluating the international payment activities of commercial banks as well as enforcing regulations on international payment limits of commercial banks and supporting commercial banks when necessary.

2.2.2. For commercial banks and enterprises For commercial banks

The completion and development of international payment activities play a very important role and position in the operation of commercial banks. It is not only a pure service but also considered one of the business activities of banks, it supplements and supports other aspects of bank operations. International payment is a service providing activity to collect fees from banks. The fee is usually a certain percentage of the total value of goods.

In addition, international payment activities also increase the liquidity of banks. In the process of implementing payment methods for customers, for each type of customer, the bank will calculate a different margin rate. This is a relatively stable source of money, arising regularly and is a source of high liquidity for banks in the form of concentrated currency waiting for payment when the payment deadline for foreign parties has not yet come. The large and diverse foreign currency capital obtained from international payment activities helps banks develop foreign currency trading activities, guarantees and other international banking operations.

Furthermore, thanks to promoting international payment activities, banks can expand credit activities to finance import and export as well as increase mobilized capital, especially foreign currency capital, by temporarily managing idle capital of enterprises with payment relationships through banks.

For businesses

International payment for import-export enterprises is the final stage of a foreign trade contract, it closes a cycle of buying and selling goods and services. This is a very complex comprehensive business. Risks can occur at any time, even beyond the expectations of the enterprise. Because, although payment according to international prices has been agreed upon by both parties involved, foreign trade transactions are subject to the influence of many factors in the domestic and foreign markets such as import-export policies, foreign exchange management, exchange rates, taxes... Therefore, the requirement for international payment is to ensure the safety of import-export contracts, fully and timely recovery of goods to continue the production and business machinery to generate profits.

2.3. Main international payment methods at commercial banks

International payment method is the entire process, the way to receive and pay for goods in foreign trade transactions between exporters and importers. In foreign trade relations, there are many different payment methods, in which the methods of money transfer, collection and documentary credit are mainly and most commonly used.

2.3.1. Remittance/Transfer Definition:

Remittance method is a method in which a customer (Requestor) requests his bank to transfer a certain amount of money to another person (Beneficiary) at a certain location using a transfer method specified by the customer.

Procedure for carrying out the business

Diagram 1.1 : Money transfer business process

Paying Bank

Bank transfer

(4)

(5)

Beneficiary

(3) (2)

Requester

(1)

(6)

(Source: International payment textbook, Dinh Xuan Trinh (editor) (2006), Labor - Social Publishing House)