Introduction A2 K43 BBE Trần Thị Hoài Thu ACKNOWLEDGEMENTS Actually the thesis is the process of my collecting information, choosing data, analyzing figures and especially asking for valuable helps of[.]
A2-K43 BBE Tr ần Thị Hoài Thu ACKNOWLEDGEMENTS Actually the thesis is the process of my collecting information, choosing data, analyzing figures and especially asking for valuable helps of many people I could not have finished my thesis without the great support and guidance of my supervisor, Ms Nguyen Hoang Giang Therefore, I would like to give my warmest thanks to her I would like to express my deep gratitude to Mr Ngo Xuan Quang, the credit staff of the credit department at Agribank, who spent much time explaining, suggesting, and providing me with valuable information I also would like to give my big thanks to other staffs of Agribank credit department such as Ms Linh, Ms Hue and Mr Long who are enthusiastic to help me complete the thesis Last but not least, I wish to pay tribute to my friends and relatives, who gave me encouragement to overcome many obstacles during writing process Despite my own effort and others the thesis unavoidably contains errors and limitation because of time limit and my inexperience I am really willing to receive constructive comments and contributions from the readers Tran Thi Hoai Thu A2-K43 BBE Tr ần Thị Hoài Thu INTRODUCTION ****@@@**** Rationale Becoming the full member of WTO marks a mile-stone for Vietnam in its transitional period of economy, which creates a great deal of unprecedented opportunities and major challenges for the domestic economy To overcome the difficulties, a smooth and quick capital turnover especially bank credit capital is necessary By covering some of the risks that the market is not able to bear or adequately evaluate, the bank guarantee can attract new sources of finance, reduce financing costs, and extend maturities Guarantee operations, therefore, is one of the three basic modes of credit operations (together with loans and equity investments.) for a developed economy A2-K43 BBE Tr ần Thị Hoài Thu Bank guarantee operations appeared firstly in US in the early of the 1960s under the form of Standby Letter of Credit Until the early of the 1970s it really became common in every developed country Nowadays, guarantee plays a more and more vital role in the international economic transactions and in the bank activities all over the world with the participation of 6-9% total a bank’s revenue.1 Guarantee, however, is quite new to Vietnam commercial banks It has just been implemented for the last few years It means that, in Vietnam, guarantee operations have just been at the primary stage of development There are a lot of weakness and shortcomings leading to considerable losses for the banks because of its new, complicated and risky characteristics As a result, ceaseless enhancement in bank guarantee operations is an urgent requirement for Vietnam commercial bank It cannot be denied that, in the integration economy, the development of guarantee operations in specific, and credit operations in general are indispensable and objective requirement in order to push banking as well as Economic activities stronger forward So how to improve and promote bank guarantee operations, how to guarantee banks’ safety and avoid risks are the concern not only of authorities, policymakers but also of any students like me Moreover, after reading Aniston, S (2004) The history of the bank guarantee operations Retrieved June 8, 2004 from the World Wide Web: www.powerhomebiz.com A2-K43 BBE Tr ần Thị Hoài Thu this issue in a banking finance book, I am really interested in and I desire to learn more about it Probating at Agribank Operation Centre gives me a good chance to study about guarantee activities, which offers me a new and comprehensive insight into bank operations In the short period of probation at Agribank, one of the top commercial bank in Vietnam, with the enthusiastic help of Ms Hoang Giang and the staffs in the credit department, I have completed this report: Guarantee Operations at Agribank – Current Situation and Recommendations Aims of the study 2.1 Objectives of the study Sharing ideas of guarantee operations and analyzing the theoretical base and the practical factors related to the bank guarantee operations Broadening the knowledge of the bank guarantee activities particularly in Agribank and clearing up any misunderstandings of this Suggesting some measures to improve the bank guarantee operations’ development Improving the skills of research, for example, learning how to collect information sufficiently, assess information correctly, analyze figures completely and so on A2-K43 BBE Tr ần Thị Hoài Thu 2.2 Research questions: (1) What is the definitions of bank guarantee operations? (2) What is the functions of guarantee operations in the bank services? (3) How many types of bank guarantee? (4) What are the determinants of bank guarantee development? (5) What is the overview of guarantee operations at Agribank? (6) What is about the regulations of guarantee activities at Agribank? (7) What is the current situation of guarantee activities at Agribank? (8) What are the achievements and weakness of guarantee operations at Agribank? (9) How to improve the guarantee operations at Agribank? (10) What are proposals to the Government, State Bank and others organizations for developed guarantee operations? Methodology Based on knowledge at university, books and selfaccumulation, several methods of studying the thesis are used as follow: A2-K43 BBE Tr ần Thị Hoài Thu Figures collection: from websites of the banks, books, trade journals, bank magazines and internet Inductive, deductive and statistical method Figure comparison Data evaluation, judgment and conclusion Scope of the study Bank guarantee operations are quite new and complicated in Vietnam so materials of this subject are not much abundant and available As a result, the study just concentrates on guarantee operations of Agribank and Vietnam commercial banks recently (figures almost of three years 2005-2007) The thesis focuses on the analysis, evaluation of the basic guarantee operations factors mainly at Agribank and suggestions to develop this activity there Structure of the study Besides the Contents, Introduction, Conclusion and References, the thesis consists of chapters Chapter gives the overview of guarantee operations at commercial banks including the general definitions and the definition of Vietnam State Bank, the functions and types of bank guarantee operations and the determinant of guarantee operations’ development Chapter is the main part of the thesis It is about the current situation of guarantee activities at Agribank This chapter refers to the overview and general regulations including guarantee A2-K43 BBE Tr ần Thị Hoài Thu types, manners, conditions, fees, files of application, activity environment and procedures of issuing guarantee at Agribank After analyzing the qualitative and quantitative indicators of guarantee activities at Agribank and the central part of chapter reveals the achievements, weakness and causes of the weakness of these activities at Agribank Chapter gives the solutions to improve guarantee operations at Agribank The recommendations includes marketing, human solutions, flexible guarantee mechanism, IT applications and other solutions In addition, this chapter also refers to some proposals to the government, the state bank, Agribank and the enterprises for the guarantee development A2-K43 BBE Tr ần Thị Hoài Thu Chapter OVERVIEW OF GUARANTEE OPERATIONS AT COMMERCIAL BANKS 1.1 DEFINITION OF BANK GUARANTEE The more developed the economy is, the larger scale and higher value of the international commercial transactions are To avoid and reduce potential loss, the banks have used various measures such as more legal procedures on dispute settlement promulgation, using mortgage property, and delegating the third party which is reliable, specialized, well-qualified and wellfinancial ability to guarantee to make up for the loss party Guarantee appears as an objective, indispensable factor to prevent risks in financial and nonfinancial transactions In term of definition, bank guarantee can be looked at from different angles 1.1.1 General definitions In theory, bank guarantee is a form of signature credit It is a lucrative activity without providing capital of a bank In other words, it uses prestige of the bank to guarantee somebody's obligation A2-K43 BBE Tr ần Thị Hoài Thu With regard to international commerce, bank guarantee is considered to be a foreign trade sponsor form which aims to protect guarantee beneficiary party from loss because of the breach of related partners’ duty Besides, there are several definitions of bank guarantee on some popular websites A commitment made by a bank to a foreign buyer that the bank will pay an exporter for goods shipped if the buyer defaults.1 A bank guarantee is the bank's promise to repay the debt of another person if that person does not pay the debt.2 An undertaking by a bank to be answerable for payment of a sum of money in the event of non performance by the party on whose behalf the guarantee is issued.3 A guarantee from a lending institution ensures that the liabilities of a debtor will be met In other words, if the debtor fails to settle a debt, the bank will cover it.4 1.1.2 The definition of Vietnam State Bank According to bank guarantee operations status (enclosed with the decision number 283/2000/QD-NHNN on 25th August, 2000 of the Governor of Vietnam State Bank.), www.powerhomebiz.com/Glossary/glossary-B.htm www.investor-info.ca/glossary.asp www.cma-cgm.com/shipping/lexiqueB.asp http://www.answers.com/topic/bank-guarantee?cat=biz-fin A2-K43 BBE Tr ần Thị Hoài Thu “Bank guarantee is committed to paper by credit organization (the guarantor) and the beneficiary The commitment is about the financial duty performance on be half of the customer (the principal) when the customer does not perform his duty or has done wrongly according to the commitment The customer has to admit and return this loan to the credit organization with the amount of money equal to which has been paid.” In guarantee operations, there are at least participating parties They are: The Guarantor: the party issues guarantee may be the bank, credit organization or financial organization which are generally called bank guarantee bank must be prestigious, financialworthy and accepted by the beneficiary The Principal: the party requires customers to open letter of guarantee According to guarantee status (enclosed with the decision number 283/2000/QD-NHNN 14), the principal includes: state-owned enterprises, other legal types of enterprise (according to Vietnamese law): co-operative, nonstate-owned enterprises, foreign enterprises joining in join-venture cooperation, credit organization, private-owned business… The Beneficiary: all organizations or individuals who have legal capacity and civil capacity The beneficiary enjoys benefit from guarantee contract