SOLUTIONS TO IMPROVE THE EFFICIENCY OF INTERNATIONAL PAYMENT BY IMPORT DOCUMETARY CREDIT AT SAIGON COMERCIAL BANK - SCB

VIETNAM GENERAL CONFIDERATION OF LABOUR TON DUC THANG UNIVERSITY DEPARTMENT OF BUSINESS ADMINISTRATION SOLUTIONS TO IMPROVE THE EFFICIENCY OF INTERNATIONAL PAYMENT BY IMPORT DOCUMETARY CREDIT AT SAIGON COMERCIAL BANK - SCB Thesis submitted as a requirement for the degree Bachelor of Business Administration Supervisor: NGUYEN PHUOC KINH KHA MSc Student: NGUYEN NU CHIEU OANH Student ID: 70900363 Intake: 2009 - 2013 HO CHI MINH CITY, July 2013 ACKNOWLEDGEMENT My thesis is completed not only thanks to my effort but also receiving valuable assistance and supports from many people who I am grateful Firstly, I would like to express my sincere thanks to my supervisor, Mr Nguyen Phuoc Kinh Kha, for his enthusiasm in repairing and suggesting on my thesis Although encountering some obstacles, went with me till the final stage Secondly, my sincere thanks also go to staffs at Trade Finance Operation department of SCB, to Ms Luong Nguyen Ngoc Quynh who help me so much during my internship time at there and after then Next, many thanks send to my close friend Vu Thi Thu Hoai for sharing difficulties and helping me when we are working together Last but not least, it cannot be short of deep gratitude to my family for always besides me, encouraging me to complete my study Without them I will not be like now DECLARATION I hereby declare that this graduation thesis is based on my work with the professional guidance of supervisor: Nguyen Phuoc Kinh Kha Msc The contents, result of this study is trustful and I also declare that it has not been previously or simultaneously submitted under any form The data using for analysis, review in this thesis which is gathered from various sources by the author-my own and it has been stated clearly in the references In addition, the thesis includes quotations and citations which have been duly acknowledged If there is any fraud I shall take all responsibility for the content of my thesis Ton Duc Thang University is not related to the violation of copyright which caused by me in the implementation process (if any) Ho Chi Minh City, July 2013 Signature: Nguyen Nu Chieu Oanh ABSTRACT The letter of credit (L/C) is an important payment method and financial instrument in international trade Two fundamental principles are independence and strict compliance Its operation was standardized in UCP 600, which is used widely all over the world Moreover, international payment is being interested significantly in Vietnamese banks and SCB in particular This study concentrates on the issues and solutions to enhance efficiency of import documentary credit transactions in the commercial join stock bank and SCB in particular To begin with, the current thesis provides overall of letter of credit which developed base on reliable literature review Furthermore, it also shows the analysis in business result in import documentary credit sector of SCB with reliable data in the period 2009 – 2012 and my own experienced during internship time After conducting the analysis, it is found that there are many competitive advantages as well as drawbacks in the process of international payment under letter of credit at SCB More importantly, basing on the profession knowledge from SCB’s staff in international payment, data from SCB and literature as well, this study supply some recommendations to improve the problems which is existing in import documentary credit at SCB Finally, the results of this study brings about a reference for policy maker and banking manager who are interested in documentary credit in general as well as import documentary credit at SCB in particular to enhance the efficiency of import documentary credit operations COMMENT OF COMPANY Student: Nguyễn Nữ Chiều Oanh Class: 09070101 Student ID: 70900363 Intake: 13 …, July 2013 Signature COMMENT OF SUPERVISOR Student: Nguyễn Nữ Chiều Oanh Class: 09070101 Student ID: 70900363 Intake: 13 …, July 2013 Signature COMMENT OF CRITICISM Student: Nguyễn Nữ Chiều Oanh Class: 09070101 Student ID: 70900363 Intake: 13 …, July 2013 Signature TABLE OF CONTENT ACKNOWLEDGEMENTS DECLARATION ABSTRACT ABBREVIATIONS LIST OF TABLES LIST OF FIGURE CHAPTER 1: INTRODUCTION 1.1 Problem description: 1.2 Research objective 1.3 Scope and focus 1.4 Research methodology 1.5 Data source 1.6 Thesis structure: CHAPTER 2: THEORETICAL FRAMEWORK 2.1 The overall of international payment 2.1.1 The overall: 2.1.2 Roles of IP: 2.1.3 The main international payment methods: 2.2 General concepts of Letter of Credit 10 2.3 Function of a L/C 10 2.3.1 The payment function: 10 2.3.2 Credit function: 11 2.3.3 Security function: 11 2.4 Types of L/C 12 2.5 Content of an L/C presented under MT700: 15 2.6 Advantages and Disadvantages in using L/C method 17 2.7 Risk in using L/C: 19 2.8 Parties involved in L/C transaction 21 2.9 Basic L/C transaction: 22 2.10 Import L/C transaction 24 2.11 The efficiency of international payment under Letter of Credit service in commercial bank: 24 2.11.1 Concept on the efficiency of international payment under Letter of Credit method 24 2.11.2 Criteria in the efficiency of international payment under L/C: 25 2.12 The factors influencing on the efficiency of international payment by import L/C in commercial bank: 26 2.12.1 External factors: 27 2.12.2 Internal factors: 29 2.13 Legal document in L/C 31 CHAPTER 3: OVERVIEW OF SAIGON COMMERCIAL BANK – SCB 33 3.1 Profile of SCB 33 3.1.1 General information 33 3.1.2 Development history 33 3.1.3 Business area and operation objectives: 36 3.1.4 Vision – Mission – Core Value: 36 3.2 Organization structure and policies 38 3.2.1 Organizational chart: 38 3.2.2 Policies for the workforce 40 3.3 Products and services 41 3.4 Business operation in SCB 42 3.5 Competiveness in banking industry 46 CHAPTER 4: STATUS OF INTERNATIONAL PAYMENT OPERATION UNDER IMPORT DOCUMENTARY CREDIT AT SCB 48 4.1 International payment performance at SCB: 48 4.2 International payment under import letter of credit method at SCB52 4.3 Process in international payment under import letter of credit at SCB: 53 4.4 Strong and weak points in profession of international payment under import letter of credit at SCB 58 4.4.1 Strong points: 58 4.4.2 Weak points: 60 CHAPTER 5: SOLUTIONS TO IMPROVE THE EFFICIENCY OF THE INTERNATIONAL PAYMENT BY IMPORT DOCUMENTARY CREDIT AT SCB 5.1 62 SWOT analysis 62 5.1.1 S – Strengths: 63 5.1.2 W – Weakness 65 5.1.3 O – Opportunities 66 5.1.4 T – Threats 68 5.2 Some solutions improve the efficiency of international payment by import documentary credit at SCB: 70 5.2.1 Renovating the processing and recordkeeping: 70 5.2.2 Developing the service of customer consultancy: 71 5.2.3 About training management, enhancing professional qualification of the staffs of international payment: 71 5.2.4 About technology: 72 5.2.5 About building appropriate marketing strategy : 73 5.2.6 About expanding and developing correspondent banks: 75 5.2.7 About brand building and enhancing reputation in the international market: 76 CONCLUSION REFERENCE APPENDIX 76  Country of correspondent bank is longtime and potential market for export goods of Vietnam 5.2.7 About brand building and enhancing reputation in the international market: The bank has known as the 4th commercial bank with amount of charter capital in Vietnam (1st quarter 2013) So SCB should enhance ability to use capital efficiently and raise gradually amount of capital In addition, Vietnam’s accession in WTO enhance Vietnam position toward the world, also brings many opportunities and concomitant challenges for domestic banks in competition with other foreign banks in Vietnam When it comes to IP, foreign customer mentions SCB alongside famous names like ACB, VCB, Sacombank, Eximbank,… Building and promoting brand name – SCB to becoming the first choice for customer in the future, SCB should care some problems: - Performing the advertisement strategy on mass media to increase the level awareness of brand in customer’s mind Through such activities can make SCB with slogan "Perfection for Customers" closer to customers - Establishing the relationship and opening representative office in other countries in the same region to learn and penetrate the monetary finance market to improve professional quality, build SCB’s image in the world market and contribute to impulse SCB become a large finance group - Increasing to sponsor for academic competitors of universities, for social programs, scholarships for students,… Thus it makes SCB become closer, more familiar, attracting talented human resource from university effectively 77 CONCLUSION Vietnam became a member of Association of Southeast Asian nations (ASEAN) in November 2004, the World Trade Organization (WTO) on January 11, 2007 We have been integrated with the world economy, and now international payment activities in which L/C is the major method, is one of the factors that are promoting our economic exchange It can be said that L/C method becomes a useful tool for Vietnamese export – import businesses to join the international trade Vietnamese commercial banks are main subjects which keep the important role in L/C payment The capacity of banks is a determinant key to the effectiveness of payment method This thesis provides an overview of documentary credit or exploits deeply the current international payment under import documentary credit at SCB and gives assessment strong points as well as weakness of documentary credit in particular SCB also faces many subjective and objective difficulties in the international payment activities from the external and internal environment Therefore, to achieve its goal as well as its plan, SCB needs to constantly improve the process of international payment under import documentary credit with the international standard to save time and cost The main goal of the thesis is that it gives recommendations to perfect the international payment operations under import documentary credit method at SCB Perhaps, this is not a new problem, in the context of competition and integration, improvements is "survival solutions." With the graduation subject as: “Solutions to enhance the efficiency of the international payment by import documentary credit method at SCB”, I tried collecting the problems related to international payment under import documentary credit operations and making international payment activities better by the above solutions in the thesis REFERENCES  Practical Information: Reference materials provided by SCB  Websites: http://en.scb.com.vn/ http://www.letterofcredit.biz/ http://www.sggp.org.vn/taichinhnganhangchungkhoan/2013/4/315891/ http://bean.vn/home/export-import-procedure-in-vietnam/ http://www.v1000.vn/bang-xep-hang-theo-nganh?c=SB64 http://ub.com.vn/attachment.php?attachmentid=5816&d=1363406936 http://sbv.gov.vn/ http://www.qfinance.com/operations-management-best-practice/understanding-theucp600?page=1 http://www.vietfin.net/quy-mo-cua-cac-ngan-hang-tai-viet-nam-2012/ http://www.stockbiz.vn/News/2012/3/17/278449/scb-hop-nhat-chang-duong-taicau-truc.aspx http://laisuat.vn/5871/Ngan-hang-hop-nhat-SCB-lai-82-ty-dong.aspx http://www.letterofcredit.biz/ISBP.html http://www.economicshelp.org/macroeconomics/monetary-policy/effect-raisinginterest-rates.html http://ub.com.vn/threads/12424-Phan-tich-chi-so-tai-chinh-cua-ngan-hang.html http://www.tapchitaichinh.vn/Bao-cao-va-thong-ke-tai-chinh http://letterofcreditforum.com/content/swift-codes  Material: 1) Annual report of SCB (2009,2010) 2) Report business results of SCB (2009-2012) APPENDIX: No.1 Message Type sample in L/C transaction through SWIFT: In international payment under L/C method through SWIFT, here are 19 standard telegraphic model commonly used: (Abbreviation: Documentary credit = DC) Serial number Message Type Message Type Name 700/701 705 Pre-Advice of a DC 707 Amendment to a DC 710/711 Advice of a Third Bank’s DC 720/721 Transfer of a DC 730 Acknowledgement 732 Advice of Discharge 734 Advice of Refusal 740 Authorization to Reimburse 10 742 Reimbursement Claim 11 747 Amendment to an authorization to Reimburse 12 750 Advice of Discrepancy 13 752 Authorization to Pay, Accept or Negotiate 14 754 Advice of Payment, Acceptance or Negotiation 15 756 Advice of Reimbursement or Payment 16 760 Guarantee 17 767 Guarantee amendment 18 768 Acknowledgement of a Guarantee Message 19 769 Advice of Reduction or Release Issue of a DC No.2 List of SCB’s Nostro account up to June 21st, 2012: O/N Currency Correspondent Bank SWIFT code USD JP Morgan Chase, New York Br CHASUS33 USD Deutsche Bank Trust Americas Co., NY BKTRUS33 USD Standard Chartered Bank, New York SCBLUS33 USD Commerzbank AG, Frankfurt COBADEFF USD Bank of China, Hochiminh City Branch BKCHVNVX EUR Deutsche Bank, Frankfurt DEUTDEFF EUR BHF-Bank, Frankfurt BHFBDEFF EUR Commerzbank AG, Frankfurt COBADEFF EUR 10 EUR Standard Chartered Bank, London SCBLDEFFX 11 CAD The Bank of Nova Scotia, Toronro NOSCCATT 12 GBP Standard Chartered Bank, London SCBLGB2L 13 AUD Commonwealth Bank, Sydney CTBAAU2S 14 JPY Sumitomo Mitsui Banking Corp., Tokyo SMBCJBJT 15 SGD DBS Bank, Singapore DBSSSGSG Landesbank baden – Wurttemberg Stuttgart, SOLADEST Germany (LBBW) No.3 International settlement service fee under L/C method of SCB: O/N 2.1 2.1.1 Items Issuance of Pre-advise L/C Applied fees Fee Minimum Maximum 50 USD Notes Not subject to VAT Import L/C Not subject to VAT Import L/C opening - Deposit 100% of L/C’s value 0.075% 20 500 USD +L/C opening cable fee 2.1.2 2.2 - Deposit