Introduction of SHB and SHB Thai Ha sub-branch
SHB and Thai Ha sub- branch overview
Saigon - Hanoi Joint Stock Commercial Bank (SHB), founded in 1993 and headquartered in Can Tho city, has evolved from a rural commercial bank into a prominent financial institution Over the years, SHB has garnered numerous prestigious awards, including the title of “Best Bank in Vietnam” in 2010 and recognition as a “National Famous Branch” in the same year.
“Top 20 biggest banks in Vietnam” With proper competitive strategy, modern technology and professional working style, SHB has taken leading position in
Vietnam banking and provide customers with superior banking services
SHB currently operates over 100 branches and sub-branches across major cities and provinces in Vietnam, demonstrating rapid growth Its clientele encompasses thousands of small and medium enterprises, households, individuals, and various organizations The primary banking services offered by SHB include capital mobilization and short-term lending.
SHB is focused on providing medium to long-term loans, facilitating international payments, discounting commercial documents, and handling foreign exchange transactions Looking ahead, SHB aspires to rank among the top ten retail banks in Vietnam and evolve into a robust financial holdings group, positioning itself to meet the demands of global economic integration.
Being successful as today, SHB has overcome many challenges and followed principle in core values
▪ Customers: SHB pledges to supply various, safe, secure, friendly & prompt products/ services because “The customer’s satisfaction is the SHB’s success”
▪ Shareholders: SHB ensures to grow constantly and maximize return to shareholders.
▪ Staff: SHB creates dynamic, professional working environment and bring developing opportunities for every staff.
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▪ Business principle: SHB improves the transparency and integrity in every activities of bank.
▪ Innovation: SHB encourages research and innovative approach to develop new products & services and make differentiation
▪ Brand value: SHB becomes modern and reputed retail bank with slogan
1.1.2 SHB Thai Ha sub-branch overview
According to Decision 49/ NHNN – HAN7 of Sai Gon – Ha Noi Joint Stock
Established on January 15, 2007, the Thai Ha sub-branch of SHB is located at 17 Thai Ha Street, Dong Da District, Ha Noi, making it the first SHB sub-branch in the capital It focuses on capital mobilization, loan projects, and international payments while also providing training courses, recruiting new staff, and developing products to support the headquarters With consistent positive performance, the Thai Ha sub-branch has significantly contributed to SHB's growth and reputation, earning recognition as one of the most effective sub-branches in Ha Noi Looking ahead, the sub-branch aims to expand its customer network, enhance competitiveness, and strive to become the top sub-branch of SHB.
Background of International payment by L/C in Thai Ha sub – branch.2 1.3 Key term definitions
Before 2008, SHB was required to process all international payment transactions through intermediary banks such as Military Bank and Vietcombank However, following a decision by the State, SHB has since been authorized to conduct international payment services directly.
In 2008, the bank successfully met SHB's requirements for implementing international payment transactions Despite only three years of direct involvement in international trade, SHB has garnered positive recognition from prestigious organizations.
“Bank has excellent international payment service” by Wachovia Bank in June
2009, “Best Trade finance Banks and Providers of Vietnam” by Global Finance…
SHB’s international payment system now applies three methods of payment:
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Remittance, Collection of payment and Documentary Credit Among these methods, Documentary credit or Letter of Credit cover a large percentage because of its advantages in processing and reducing risks
As a newcomer in Hanoi's banking and finance sector, SHB Thai Ha primarily emphasizes capital mobilization and credit projects, resulting in a limited focus on L/C payment operations Consequently, revenue generated from L/C payments constitutes a small fraction of the sub-branch's total income, highlighting the inadequacies in SHB Thai Ha's strategies for international payment operations.
According to the SHB’s regulation about international payment, Thai Ha sub- branch is only responsible for verifying and transferring documents to the
The International Payment Department at SHB Thai Ha plays a crucial role in the Letter of Credit (L/C) payment process, despite only being involved in the initial stages Their contributions are vital to the overall efficiency and effectiveness of L/C payment operations.
During my time of internship in SHB Thai Ha, I decided to choose
“Recommendations to enhancing L/C in international payment in SHB Thai
Ha sub-branch “as my topic with the aim to recommend some effective solutions to improve and expand L/C payment in Thai Ha sub-branch & in SHB in general
Advising bank means the bank that advises the credit at the request of the issuing bank (ICC, 2007 UCP 600)
Applicant means the party on whose request the credit is issued (ICC, 2007 UCP
Banking day means a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed (ICC, 2007 UCP 600)
Beneficiary means the party in whose favor a credit is issued (ICC, 2007 UCP
Complying presentation means a presentation that is in accordance with the terms and conditions of the credit the applicable provisions of these rules and international standard banking practice (ICC, 2007 UCP 600,)
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Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiate a complying presentation (ICC,
Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank’s authorization or request (ICC, 2007 UCP 600)
Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf (ICC, 2007 UCP 600)
ICC : means International Chamber of Commerce - The body which published the
Uniform Customs and Practice for Documentary Credits, the Uniform Rules for
Collections, the Uniform Rules for Reimbursements, Incoterms 2000 and other works commonly used in international trade.
UCP 600: means The Uniform Customs and Practice for Documentary Credits,
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Overview of Letter of Credit
Definition
A Letter of Credit is a widely used international payment method, leading to various definitions from numerous researchers This article aims to present some of the most recognized definitions of a Letter of Credit, highlighting its significance in global trade.
According to “Uniform Customs and Practice for Documentary Credits” (UCP), published by International Chamber of Commerce, L/C is known as Credit:
“Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation
Honor refers to the obligation to make immediate payment when credit is available, to undertake a deferred payment and settle at maturity if credit is granted, or to accept a bill of exchange from the beneficiary and fulfill the payment at maturity when credit is accessible.
In the book “Multinational business finance” of Eiteman, Letter of credit is defined as following:
A Letter of Credit (L/C) is a bank's conditional commitment to pay, initiated at the request of an importer (applicant/buyer), ensuring payment to an exporter (beneficiary) upon the submission of specified documents.
A letter of credit is a bank-to-bank payment commitment that guarantees payment to the exporter upon the submission of documents that meet the buyer's specified terms This mechanism serves as an intermediary, ensuring that the exporter receives payment while the importer obtains the goods It is important to note that banks only handle documents, not the goods themselves, and bear no responsibility for the quality of the products involved.
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Types of L/C
The growth of international payments and the diversification of goods necessitate various types of Letters of Credit (L/Cs) to enhance profits and mitigate risks Currently, banks worldwide have developed a range of L/Cs to satisfy the increasing demands of customers This report aims to highlight the most popular L/Cs utilized in Vietnam's banking sector, with definitions sourced from Edward G Hikelman's book, “A Short Course in International Payments.”
Irrevocable - A L/C that cannot be amended or cancelled without prior mutual consent of all parties to the credit This is the most popular form of letter of credit
Revocable – A L/C that may be amended or canceled by issuing bank without prior notice to the exporter (beneficiary)
A confirmed irrevocable letter of credit (L/C) is issued by a bank and has its authenticity verified by the advising bank, which adds its confirmation to the credit This type of L/C ensures that the beneficiary can rely on the payment, as it is guaranteed by both the issuing and advising banks.
Unconfirmed Irrevocable: An irrevocable L/C opened by an issuing bank in which the advising bank does not add its confirmation to the credit
A transferable letter of credit (L/C) allows the seller to redirect payments upon request, commonly utilized when an export broker is involved Once all conditions of the L/C are fulfilled, the broker's bank processes the payment, deducts its commission, and finalizes the transaction as agreed.
Back-to-back: A L/C that is issued on the strength of another L/C
Revolving: An agreement in which the buyer is allowed to replenish the credit after it is drawn down by buyer
Standby: A Letter of Credit under which payment is made available to the
Beneficiary against presentation of a draft, simple statement, or other documents.
SHB's customers primarily utilize irrevocable L/C, confirmed irrevocable L/C, and revolving L/C due to their low risk levels and compatibility with the business characteristics of Vietnamese enterprises.
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The Process of L/C
A typical Letter of Credit (L/C) transaction involves four key parties: the buyer (Applicant), the issuing bank, the advising bank, and the seller (Beneficiary) This process is divided into two main periods, encompassing nine essential steps, starting with the issuance of the L/C.
Payment under L/C The following is a step-by-step description of a typical L/C transaction, which is retrieved from “A guide to Letter of credit”
Issuance of a Letter of Credit
Chart 1: The Issuance of a Letter of Credit
1 Buyer and seller agree to terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable.
2 Buyer applies to bank for issue of letter of credit Bank will evaluate buyer's credit standing, and may require cash cover and/or reduction of other lending limits.
3 The Issuing bank issues L/C, sending it to the Advising bank by airmail or electronic means such as telex or SWIFT.
4 The Advising bank will verify the letter of credit for authenticity, then informs seller (beneficiary).
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Payment under Letter of Credit
Chart 2: Payment under Letter of Credit
5 Seller should now check that LC matches commercial agreement and that all its terms and conditions can be satisfied.
6 Seller ships the goods, then assembles the documents called for in the LC
To make a demand under the Letter of Credit (L/C), the beneficiary must present the required documents, such as the invoice and transport document, to the designated bank (Advising or Confirming bank) within the specified timeframe and before the expiration date.
7 The Advising bank checks the documents against the LC If the documents are compliant, the bank pays the seller and forwards the documents to the Issuing bank
8 The Issuing bank now examines the documents to ensure they comply with the
L/C terms and conditions If they are in order, it reimburses the seller's bank immediately.
9 The Issuing bank debits the buyer and releases the documents (including transport document), so the buyer can claim the goods from the carrier.
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2.4 Advantages and Disadvantages of L/C to parties
The letter of credit is one of the oldest forms of trade finance still in existence.
A Letter of Credit (L/C) is essential in international trade transactions due to the protection and advantages it offers to both exporters and importers However, it is important to note that L/C payments carry certain risks, particularly for the importer.
Using L/C has brought some advantages for importer especially assurance of receiving goods, which other tools can’t give
• The importer is assured that its bank will refuse payment to the exporter unless the seller’s documents comply with the terms and conditions of the
To mitigate the risk of not receiving ordered goods, importers can require compliant documentation and impose specific conditions regarding the shipping methods and dates.
• The importer is able to negotiate more favorable trade terms with the exporter when payment by L/C is offered.
Nevertheless, the importer has to bear considerable risks due to incorrect goods or the lack of credit facilities
A Letter of Credit (L/C) guarantees the accuracy of documents presented, but it does not ensure that the goods shipped are of the correct quality or quantity Consequently, importers are not protected against receiving inferior goods or a reduced amount from exporters.
To obtain a Letter of Credit (L/C), an importer must establish a line of credit with a bank Each L/C issued will draw from this credit line, with the outstanding amount being accounted for from the issuance date until the final payment is made.
In comparison to Importer, Exporter seems to have more advantages:
• The exporter will receive payment under the L/C provided that he meets all terms and conditions of the L/C.
• The exporter can reduce the risk that payment might be delayed or otherwise jeopardized by political or foreign exchange problems in the Importer’s country
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• The exporter is not obligated to ship against a L/C if the L/C is not issued as agreed (no matter what all requirements for payment under L/C are accepted in advance by exporter)
• The exporters can rely on a bank’s creditworthiness rather than an unknown importer The exporter is more confident when it has a bank’s commitment to pay upon presentation of complying documents
However, Exporter still has difficulties in preparing documents or meets risks in political situation & foreign exchange
• Documents must be prepared in strict compliance with the requirements stipulated in the L/C Non-compliance leaves exporter exposed to risk of non-payment.
• Some importers may not be able to open L/C due to the lack of credit facilities with their bank which consequently inhibits export growth.
• The exporter assumes any political and foreign exchange risk affecting the issuing bank’s obligation
2.5 Criteria to evaluate L/C payment of a bank
This report outlines key criteria for evaluating bank Letter of Credit (L/C) payments, commonly recognized by prominent organizations The assessment focuses on the perspectives of both banks and customers involved in L/C payment transactions.
The scale of L/C payment operation
The scale of Letter of Credit (L/C) payment operations can be measured through the growth in the number of transactions, the total value of transactions, and the proportion of L/C payments within the bank's overall operations These measurable indicators allow for an effective assessment of L/C payment performance by comparing figures across different financial periods However, it is important to note that these three factors may not always increase simultaneously; for instance, a decrease in the number of L/C transactions can occur alongside an increase in revenue, and vice versa Therefore, the significance of each factor should be evaluated based on the specific context of the bank's operations.
Chuyên đề thực tập Tốt nghiệp of criteria, we can give the correct conclusion Among indicators, the scale of L/C payment operation is shown mainly by value of L/C.
The degree of risk minimization in L/C payment operation
International trade transactions involve greater risks compared to domestic trade due to variations in culture, business practices, and legal frameworks Traders must prioritize securing payment for shipped goods and ensure that the received products align with the sales contract.
Letters of Credit (L/C) serve to minimize financial risks for exporters, but it is essential for all parties involved to be aware of various distinct risks These risks can be categorized into four main types: technical risks, political risks, economic risks, and fraud.
Effective assessment of L/C payment operations goes beyond mere quantity and turnover; crucially, it hinges on the bank's risk management capabilities Inadequate risk management can lead to significant losses for both the bank and its customers Therefore, banks must prioritize risk limitation in L/C payments to foster trust among customers and partners This focus not only enhances credibility but also enables banks to broaden their international payment activities and increase profitability.
When engaging in L/C payment, customers incur various charges, including notification, opening, discount, and amendment fees Companies strive to maximize profits and minimize risks by reducing costs while ensuring transaction safety Consequently, they carefully evaluate these fees to determine if they are reasonable relative to the complexity of the transaction.
If customer find the service quality they receive is worthy of the money they paid, they will choose the bank
2 The safety degree of L/C transaction process
In the current economic context, the international payment transactions need be
Timely and precise transactions are crucial for clients, as discrepancies in distance and information can lead to missed deadlines and substantial financial losses When banks and their staff execute transactions accurately, it not only saves customers time and money but also enhances their sense of security.
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Customers and staff must pay attention to some special dates: Expiry Date, Latest
Date for Presentation, Latest Shipping Date…to operate transactions accurately and timely
The transaction office is near or far from customer’s company? Transaction time is suitable with company’s working time? Facilities are enough modern and good?
When selecting a supplier, customers often consider the attitude of the staff A bank that can fulfill customer demands regarding location, timing, reputation, and staff demeanor, while offering convenient services that align with customer activities, is more likely to be chosen.
2.6 Factors affecting the efficiency of L/C payment in the bank
There are many factors influencing on the effectiveness of L/C payment, we can divide into 2 main groups: external factors and internal factors.
Economic and political situation in the world
The settlement of Letters of Credit (L/C) is significantly influenced by the economic and political conditions of the countries involved Changes in these areas can affect the payment capacity and willingness of both parties Economic crises and conflicts can hinder free trade, disrupt production and business operations, and impede international payment processes Conversely, a stable economic and political environment can accelerate L/C payment activities.
Criteria to evaluate L/C payment of a bank
This report outlines key criteria for evaluating Letter of Credit (L/C) payments by banks, focusing on the perspectives of both banks and customers involved in the transaction These criteria are widely recognized and utilized by prominent organizations in the industry.
The scale of L/C payment operation
The scale of L/C payment operations can be measured by the growth in the number of transactions, transaction value, and the proportion of L/C payments within the bank's total operations These measurable indicators allow for straightforward assessment of L/C payment effectiveness by comparing figures across different financial periods However, it is important to note that these three factors may not always increase simultaneously; for instance, the number of L/C transactions might decline while revenue rises, or vice versa, highlighting the need for context-specific analysis.
Chuyên đề thực tập Tốt nghiệp of criteria, we can give the correct conclusion Among indicators, the scale of L/C payment operation is shown mainly by value of L/C.
The degree of risk minimization in L/C payment operation
International trade transactions involve greater risks compared to domestic trade due to variations in culture, business practices, and legal frameworks To mitigate these risks, traders must prioritize securing payment for dispatched goods and ensure that the received goods adhere to the terms outlined in the sales contract.
A Letter of Credit (L/C) is essential for minimizing financial risks for exporters, yet it is crucial to recognize the distinct risks involved These risks can be categorized into four main types: technical risks, political risks, economic risks, and fraud.
Effective assessment of L/C payment operations hinges not only on transaction volume but also significantly on the bank's risk management capabilities Inadequate risk management can lead to substantial losses for both the bank and its clients Therefore, banks must prioritize risk mitigation in L/C payments to foster trust among customers and partners This focus will enable banks to broaden their international payment activities and enhance profitability.
When utilizing L/C payment, customers are responsible for various charges, including notification, opening, discount, and amendment fees Companies aim to maximize profits while minimizing risks by reducing costs and ensuring transaction safety Consequently, they carefully evaluate these fees to determine if they are reasonable in relation to the complexity of the transaction.
If customer find the service quality they receive is worthy of the money they paid, they will choose the bank
2 The safety degree of L/C transaction process
In the current economic context, the international payment transactions need be
Timely and precise transactions are crucial for clients, as discrepancies in distance and information can lead to missed deadlines and significant financial losses When banks and their staff execute transactions accurately, it not only saves customers time and money but also enhances their sense of security.
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Customers and staff must pay attention to some special dates: Expiry Date, Latest
Date for Presentation, Latest Shipping Date…to operate transactions accurately and timely
The transaction office is near or far from customer’s company? Transaction time is suitable with company’s working time? Facilities are enough modern and good?
When customers select their suppliers, they often consider the quality of staff attitude A bank that effectively meets customer demands regarding location, timing, reputation, and staff demeanor is more likely to be chosen Additionally, if the bank's services align conveniently with the customer's activities, it enhances the likelihood of selection.
Factors affecting the efficiency of L/C payment in the bank
There are many factors influencing on the effectiveness of L/C payment, we can divide into 2 main groups: external factors and internal factors.
Economic and political situation in the world
The settlement operations of Letters of Credit (L/C) are significantly influenced by the economic and political conditions of the involved countries Changes in these areas can affect both parties' willingness and ability to make payments Economic crises and conflicts can hinder free trade, disrupt production and business operations, and impede international payment processes Conversely, a stable economic and political environment can accelerate L/C payment activities.
The government's macroeconomic policy plays a crucial role in influencing the performance of import-export enterprises and banks Key components of this policy include forex management, taxation, and foreign trade strategies The government’s forex policy directly governs international payment activities and currency circulation Additionally, varying tax rates on products indicate government encouragement or restrictions on specific goods Finally, the implementation of free trade policies significantly promotes import-export activities.
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Customer’s experience, competence and reputation
In market economics, customers play a crucial role in banking and specifically in Letter of Credit (L/C) payment activities The effectiveness and efficiency of L/C transactions rely heavily on the customer's competence, experience, and reputation A reputable and ethical customer significantly reduces the risk of fraud, while fraudulent behavior can harm the bank's reputation and lead to legal complications.
Quality and attitude of staff take an important and positive role in making impression on customer about bank’s image They are expressed in communication style, technical knowledge, experience, etc.
In the realm of international payments, officers need to possess strong technical and financial expertise, along with proficiency in foreign languages and information technology Additionally, confidence, attention to detail, and experience are crucial for successfully executing transactions However, it's important to note that not many banks offer these specialized services.
Vietnam have professional and competent staff, which is the reason why efficiency of L/C payment is still low Therefore, banks should invest in improving human resource quality to facilitate L/C payment
Technology is a vital tool that facilitates swift and precise international transactions It enables customers to assess the modernity and professionalism of banks Key technological advancements, such as online platforms and automated systems, enhance transaction processes and customer support Today, the continuous evolution of technology plays a crucial role in improving service quality, providing accurate information, and fostering customer trust.
A network of correspondent banks plays a crucial role in facilitating international trade by expediting transactions, enhancing accuracy, reducing costs, and minimizing risks By leveraging a wide range of correspondent relationships, banks can improve the efficiency of international payments, particularly through the use of letters of credit (L/C), ensuring smoother and more reliable trade exchanges between countries.
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Cooperation with other supporting activities
In addition to international payment operations, banks engage in various activities that enhance their services, including import-export credit and foreign exchange These complementary functions not only support international payments but also attract more customers and facilitate the growth of letter of credit (L/C) payment operations.
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Reality and evaluation of international payment by L/C in
Reality of L/C payment in SHB Thai Ha sub-branch
The process of L/C transaction in SHB includes 2 periods: issuance of L/C and payment under L/C The sub-branch only takes responsibility in two first steps of
The issuance period for international payments involves receiving customer demands, verifying them, and transferring them to the International Payment Department The officers at the Thai Ha sub-branch strive to expedite this process to save customers time and money, typically completing requests within the first day However, the main tasks fall to the International Payment Department, where customers often face delays in proving the reliability of their documents, such as bills and contracts This has led to customer dissatisfaction regarding the length of the L/C payment process at SHB To address these concerns, SHB is actively working to reduce processing times and simplify procedures Plans are underway to invest in technology and hire specialists in international payments, promising improvements in L/C transaction efficiency in the near future.
3.1.2 Products of L/C payment in SHB
Despite being a newly established institution, SHB has made significant efforts to offer a diverse array of letter of credit (L/C) payment products to facilitate export and import transactions However, in practice, most of SHB's customers predominantly utilize basic L/C options, such as irrevocable L/Cs and confirmed irrevocable L/Cs.
L/C for their export and import transactions Some other L/Cs such as: standby
L/C, back to back L/C, revolving L/C, and transferable L/C are rarely used in Thai
The low demand for certain types of letters of credit (L/C) has led to their unsuitability for specific business features and customer needs Additionally, SHB's reputation in international payments falls short when compared to well-known banks such as Vietcombank, Eximbank, and Saccombank.
Chapter I, international payment in SHB has just been officially operated for nearly
To enhance its reputation in international payment services, SHB must focus on building trust among customers who remain hesitant to use its L/C payment options Many clients currently prefer more established banks for their international transactions Therefore, it is crucial for SHB to cultivate a strong brand image in this sector and diversify its L/C product offerings, ensuring they provide attractive and profitable services to draw in more customers.
The quantity & the revenue of L/C payment transaction in SHB
Value (million USD) Quantity Value
Table 1: The reality of import & export L/C
From the Table 1, we can see the total revenue is mainly made up by import L/Cs.
The rapid increase in import letters of credit (L/C) significantly boosts the total transaction volume, while export L/C transactions remain minimal in both value and quantity Despite a gradual rise in export transactions over the years, they fail to match the growth rate of import L/C Notably, the number of export L/C transactions in 2010 was equivalent to the volume of import L/C transactions in 2007.
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Chart 3: The value of Import & Export L/C in SHB
The chart 3 above shows the comparison in value between Import and Export L/C transactions In general, both L/C transactions have relatively stable growth From
Between 2009 and 2010, export letters of credit (L/C) surged significantly, reaching $860.3 million in 2010 Despite this increase, the volume of export L/C transactions remained relatively low compared to total revenue In contrast, import L/C transactions consistently outnumbered export transactions by three to four times, highlighting a notable imbalance in the L/C market between imports and exports.
Based on the factors influencing L/C transactions, such as economic conditions, government policies, and consumer behavior, two primary reasons contribute to the imbalance in import and export L/Cs The first reason is the increasing openness of Vietnam's trade environment.
Chuyên đề thực tập Tốt nghiệp door policy in recent years to expand outside trade with many foreign countries.
After joining WTO, Vietnam government has applied many policies to motivate international exchange activities such as loosing the import law, cutting tariff…
The actions taken have significantly impacted the import landscape for Vietnamese businesses and consumers Incentive policies have increased the demand for imported goods, particularly among high-income customers seeking items like cars and high-tech products Additionally, there is a notable distinction in the characteristics and value between imported and exported goods.
Vietnam's popular imported goods include high-value items such as cars, medicines, and machinery, while its exports primarily consist of lower-value products like handicrafts and rice Currently, the government and export enterprises are developing incentive policies to boost export activities, aiming for a more balanced trade in the future.
SHB Thai Ha should have strategy exploiting export customers market to make it become strength of SHB in international payment field.
Chart 4: The total revenue from L/C payment in SHB
After gathering and collecting data in SHB’s annual reports from 2007 to 2010, the author has given the chart above (chart 4) to show the positive changes in L/C
In recent years, the payment operations of SHB have evolved significantly, particularly from 2007 to 2010, when there was a notable increase in turnover from L/C payments Prior to 2007, SHB faced restrictions on L/C payments, as all international settlement transactions were required to be processed through other banks However, with the permission to conduct international payments directly starting in 2008, SHB experienced a positive shift in L/C operations, marked by a growing customer base and increased contracts Despite these advancements, the global economic climate only allowed for a modest rise in L/C volume, which increased from 297.8 million USD.
365 million USD From 2009, Vietnamese economy has been recovered; the revenue rocketed to 849.1 million USD- more two times increase in comparison to
2008 In 2010, the turnover continued to increase and contributed considerable to international payment settlement.
The proportion of L/C payment in total operation
The proportion of Letter of Credit (L/C) payments relative to total operations is a crucial metric for evaluating a bank's efficiency, alongside the criteria of quantity and turnover Chart 5 illustrates the significant role that L/C payments play in the operations of SHB Thai Ha, providing further insights into their impact on overall performance.
Chart 5: The proportion of revenue in Thai Ha sub-branch
The Proportion of Revenue in Thai Ha sub-branch
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(Source: SHB Thai Ha’s performance in 2009 & 2010)
SHB recognizes the importance of international payments in banking development; however, they lack a strategic approach to enhance both international payments and L/C payments specifically This ineffective strategy, alongside external factors, contributes to the imbalance in the L/C payment ratio within banks' overall operations As illustrated in Chart 5, international payments accounted for only 7% of total bank revenue in 2009 and 11% in 2010, while capital mobilization and loan interest consistently represented over 80% Moving forward, SHB should leverage its strengths to expand and improve international payment services, especially in an era characterized by economic and trade integration.
Customer satisfaction is a crucial metric for assessing organizational success Thai Ha sub-branch prioritizes enhancing customer satisfaction by focusing on service quality, competitive pricing, and the professionalism of its staff.
Firstly, customers are relatively satisfied with the fee for L/C payment transactions.
Comparison with other banks like Vietcombank and Eximbank shows that the
SHB’s fee is reasonable and sometimes lower than theirs
The positive attitude of Thai Ha sub-branch officers significantly enhances the image of SHB, fostering customer satisfaction among both enterprise and individual clients Customers consistently express contentment with the staff's enthusiastic and friendly demeanor, as well as their willingness to provide tailored product consultations To maintain high levels of customer satisfaction, SHB Thai Ha and its staff are committed to continuous self-improvement, guided by the slogan, "The customer's satisfaction is the priority."
Evaluation of international payment by L/C in Thai Ha sub – branch
Despite being a new operation for SHB, the Thai Ha sub-branch is committed to providing customers with high-quality and secure international payment services Through thorough preparation, SHB effectively meets customer demands in international transactions and has received numerous prestigious awards globally, including "Best Bank in Vietnam 2010" from The Banker magazine and "Best Trade."
Chuyên đề thực tập Tốt nghiệp finance Banks and Providers of Vietnam” by Global Finance, "Bank for excellent
International Settlements Service 2009" , Gold Cup for products / services
"Vietnamese Trademark in WTO integration"…
SHB has established an efficient technology infrastructure, including computers and internet connectivity, to facilitate seamless and accurate data exchange between its head office and branches Additionally, the bank has implemented a modern payment system, SWIFT (Society for Worldwide Interbank Financial Telecommunication), to enhance its financial transaction capabilities.
The Worldwide Interbank Financial Telecommunication (SWIFT) system streamlines international trading transactions, making it the latest advancement in global payment methods By enhancing efficiency, it significantly reduces both time and costs for customers engaged in overseas trade.
SHB excels in risk management during L/C settlement operations, as evidenced by a flawless record with no payment refusals or disputes since the initiation of its international payment services To mitigate payment risks, SHB officers meticulously handle each step of the process, focusing on thorough information collection and processing Additionally, there has been a notable increase in the percentage of deposits applied, further enhancing the bank's operational security.
Thai Ha sub-branch is also a useful method to minimize the risks
SHB stands out in Vietnam's competitive banking sector due to its exceptional customer care service, prioritizing customer satisfaction above all Unlike many banks, SHB emphasizes delivering high-quality products and services, ensuring that their staff is friendly and polite Their dedicated officers are always ready to assist customers, providing consultations and solutions to help them access the most suitable and profitable services.
SHB always defines that the international payment especially L/C payment is one of the strategic objectives in development of the bank Their mission is to create
SHB is recognized as a "reliable partner," consistently delivering "appropriate solutions" for its customers Committed to this mission, SHB is continually evolving and enhancing its services to provide exceptional customer experiences, positioning itself among the top banks in the industry.
As a newcomer in the international payment sector, SHB, particularly the SHB Thai Ha sub-branch, has made significant strides in recent years; however, it still faces certain limitations that impact its overall performance.
The ineffective process of L/C payment
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The Thai Ha sub-branch is responsible for the initial steps of document verification, but all subsequent processes are handled by the International Payment Department, leading to long waiting times that frustrate customers Additionally, customers face significant challenges in proving the reliability of their documents to the bank The L/C procedures at SHB are complicated by stringent regulations from the Central Bank, creating further obstacles for domestic customers in establishing letters of credit and conducting business with foreign entities.
Unbalance of L/C revenue in total revenue of Thai Ha sub – branch
Despite consistent annual growth in total revenue, the SHB Thai Ha sub-branch in Hanoi has seen only a slight increase in revenue from L/C payments and international transactions, which remain a minor component of its overall income As a prominent sub-branch, SHB Thai Ha has not adequately focused on international settlement activities, with staff prioritizing capital mobilization and credit activities over L/C payments.
SHB faces challenges in competing with other banks in international settlement operations due to a limited number of correspondent banks, especially compared to VCB's approximately 300 global partners Although the Thai Ha sub-branch has established connections with various partners, most are domestic banks In 2010, SHB joined the Asia Banker Association (ABA) to enhance its relationships with foreign banks, yet its presence remains limited primarily to Asian countries.
With the aim to boost international payment activities, SHB in future must extend relationship with more foreign banks in the world
One of the biggest advantages of other banks like Vietcombank and Eximbank in international settlement is the diversity of products They almost can provide any
L/Cs in accordance with demand of customers such as Irrevocable L/C, Standby
SHB primarily utilizes basic types of Letters of Credit (L/C), including Irrevocable L/C and Revolving L/C, while more complex options like Back to Back L/C and Irrevocable Conforming L/C are not commonly used As a result, SHB's international payment operations remain limited in scale and have not significantly expanded within the international trade sector.
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In recent years, SHB has focused on small and medium enterprises as its primary target customers, while also catering to household customers with lower demand for L/Cs settlement Additionally, traditional large clients, such as Vietnam National, remain part of their customer base.
Coal & Mineral Industries Holding Corporation limited (TKV), Vietnam rubber
Group and T&T Group account for a limited share of international payment revenue, primarily focusing on internal services like salary processing and sales collection Consequently, Thai Ha sub-branch is tasked with redefining its target customer base and crafting a positioning strategy to improve its international payment operations.
At present, many commercial banks in Vietnam are facing with the high restriction in the number of foreign currency available in L/C operation In particularly, the
Thai Ha sub – branch only uses some basic foreign currencies: USD, EUR, and
When customers need to use foreign currencies, the sub-branch must coordinate with other banks to obtain the required currency, resulting in increased time delays and additional costs for customers.
Building on the theories discussed in earlier chapters regarding the factors influencing the efficiency of Letter of Credit (L/C) payments, this section will examine the shortcomings observed in the L/C payment processes at SHB The analysis identifies two primary categories of reasons contributing to these inefficiencies.
External factors including economic context, government policy, customer knowledge and internal factors including human resource, technology, network of banks, marketing activities
Recommendations to enhance international payment by L/C in
Orientations of Thai Ha sub- branch in 2011
Despite entering the financing and banking sector later than its competitors, SHB has rapidly established itself as a leader by offering a diverse range of banking products and services, along with robust trade sponsorship With a focus on modern technology, SHB, particularly SHB Thai Ha, has gained a strong reputation as a reliable and customer-oriented bank in recent years.
In 2009, amidst significant global economic challenges, SHB was recognized as "The Best Trade Finance Bank and Provider of Vietnam" by Global Finance, a leading banking and finance magazine, highlighting its remarkable achievements in the industry.
The Chairman of Global Finance emphasized that SHB is favored for its commitment to supporting customers through careful credit management The bank's innovative strategies effectively minimize risks while enhancing cash flow in international payment transactions.
In the context of the economics’ integration as present, SHB as well as SHB Thai
Ha sub-branch have proposed a course of action to enhance international payment by L/C in coming years
Thai Ha sub-branch is enhancing its international settlement services by expanding L/C activities and introducing additional methods such as collection and remittance to better serve customer needs The bank aims to bolster foreign currency exchange operations to facilitate import-export payments Additionally, it is focused on expanding its network of correspondent banks, which is a strategic priority for advancing international payment operations.
The internship project focuses on the extensive network of correspondent banks across various countries, facilitating faster and more cost-effective international transactions Additionally, the Thai Ha sub-branch is committed to enhancing its technology and facilities to improve international payment operations.
Finally, SHB will focus on training and improving the quality of human resources quality to ensure transactions performed smoothly and exactly.
Recommendations
To attract more customers and enhance the efficiency of Letter of Credit (L/C) operations, SHB Thai Ha sub-branch needs to implement comprehensive measures This article outlines six key recommendations to improve international settlements via L/C at SHB Thai Ha: enhancing the quality of human resources, investing in modern technology, diversifying and improving product quality, boosting marketing efforts, expanding the network of correspondent banks, and increasing the variety of foreign currency sources utilized in L/C payments.
Human resources play a crucial role in the development of organizations To ensure a smooth and efficient L/C payment process while minimizing risks for all parties involved, staff must possess expertise in foreign trade, market characteristics, and technological knowledge Consequently, it is essential for the sub-branch to standardize staff quality by implementing effective solutions.
SHB should implement a meticulous recruitment strategy aimed at identifying top candidates with strong professional expertise, proficiency in foreign languages, and information technology skills Additionally, the bank should prioritize experienced individuals who possess a comprehensive understanding of L/C operations and are capable of effectively managing unforeseen circumstances.
SHB should facilitate discussions on L/C operations to enhance staff knowledge in foreign trade, insurance, and transportation Additionally, the sub-branch should collaborate with international payment experts to ensure comprehensive understanding and efficiency in these areas.
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Department to hold training courses in professional competence, foreign language and up-to-date law relating to L/C process.
The Thai Ha sub-branch should conduct regular assessments of staff knowledge and skills through small tests and direct interviews These evaluations will enable the bank to promptly address any knowledge gaps among employees Furthermore, the bank should motivate staff to participate in competitions related to international payments and letters of credit (L/C) to enhance their skills and techniques.
To enhance staff motivation at SHB, it is essential to implement effective incentive policies, including competitive salaries and bonuses for high-performing employees By integrating training programs with these incentive strategies, SHB can significantly boost staff quality and overall productivity.
4.2.2 Investing and making use of modern technology
The advancement of technology has significantly benefited various sectors, particularly economics To enhance business efficiency and align with global banking standards, SHB should seize opportunities to invest in modern technology Currently, the equipment at SHB Thai Ha is outdated and inadequately invested in, leading to difficulties in the L/C payment process.
To enhance the efficiency and security of the L/C payment process, the Thai Ha sub-branch should invest in modern machines and facilities, including high-capacity computers, high-speed intranet, and synchronized software These advancements will aid staff in facilitating transactions with greater safety and accuracy Additionally, it's crucial for employees to improve their IT skills to fully utilize these technologies Therefore, it is recommended that the bank implement training courses to teach staff the correct and effective use of modern equipment.
The first impression customers have upon entering a bank sub-branch is shaped by its style and appearance To enhance customer comfort and satisfaction, it is essential for the sub-branch to organize its facilities in a neat and inviting manner, creating a welcoming atmosphere for service use.
4.2.3 Enhancing the quality and diversifying L/Cs products
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With the strong development of banking technology and the significant increase of rivals, SHB need have clear orientations to diversify banking products as well as
The diversification of L/C products is essential for demonstrating the scale and quality of a bank while meeting the high demands of customers SHB prioritizes delivering the best products, as reflected in its business philosophy: “The satisfaction of customers will bring success to SHB Therefore, SHB commits to providing a variety of safe, secure, friendly, and efficient products,” according to the SHB General Director.
Nguyen Van Le said (Vũ Minh, SHB- Một năm thành công March 28 th 2010, http://vneconomy.vn/)
In recent times, Letters of Credit (L/C) have emerged as the predominant method for international settlements, accounting for a significant share of transactions To enhance their competitive edge, the Thai Ha sub-branch should diversify its services, expand its offerings, and elevate the quality of its L/C payment activities Beyond standard options like irrevocable L/C and confirmed irrevocable L/C, the sub-branch can also introduce additional types of L/Cs to meet diverse client needs.
Back-to-back L/Cs and Transferable L/Cs for products required intermediaries: electronics products, coal
Revolving L/Cs for processing goods, bartered goods, and multiple- shipment goods like: clothes, food-wares…
Standby L/Cs for farming goods or spoiled–easy goods like: foods, vegetables, flowers….
Depending on features of goods, bank officers can consult customers to choose the appropriate L/Cs to maximize profit and minimize risks for both customer and bank
4.2.4 Boosting marketing activities to improve image of banks and extend target customers
Currently, SHB is encountering intense competition from numerous domestic and international banks in Ha Noi To attract more customers, the Thai Ha sub-branch must implement appealing, flexible, and effective policies By enhancing its marketing activities, SHB can strengthen its brand image among customers and other banks.
Chuyên đề thực tập Tốt nghiệp marketing strategies will help to attract more customers, encourage customers to use new products and increase the revenue from L/Cs payment
Customers play a crucial role in the survival and growth of businesses At Thai Ha sub-branch, we prioritize our customers and operate under the motto, “The prosperity of our customers is the prosperity of Thai Ha sub-branch.”
Therefore, in the high-competitive environment as today, Thai Ha must apply a proper policy to attract customers
The Thai Ha sub-branch should proactively seek new customers, particularly in the import-export sector, rather than depending heavily on traditional clients such as TKV and the Vietnam Rubber Group To enhance their outreach, it is advisable for the sub-branch to acquire customer databases from research firms, leveraging this valuable information to connect with and build relationships with potential clients across various industries.
The Thai Ha sub-branch can effectively classify and evaluate customers to implement tailored incentive policies such as interest incentives, charge incentives, and deposit rates For core customers, the bank offers benefits like charge remission and reduced loan interest rates to foster strong relationships with traditional clients Meanwhile, for new customers with limited experience in international trade, bank officers should prioritize providing comprehensive consultancy services.
L/C process, risks minimization… From these activities, the bank will create trust in customers mind and build good relations with them
Strengthening marketing and public relation activities