Trade finance under letter of credit transaction recommendations for joint stock commercial bank for foreign trade of vietnam

s BANKING ACADEMY FACULTY OF INTERNATIONAL BUSINESS - BACHELOR’S THESIS TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTION – RECOMMENDATIONS FOR JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM Student : Nguyen Huong Giang Class : K20KDQTA Course : 2017 – 2021 Student ID : 20A4050097 Supervisor : Dr Nguyen Thi Hong Hai Hanoi, May 2021 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014129178091000000 i DECLARATION I guarantee that my Bachelor’s thesis with the research topic "Trade finance under Letter of Credit transaction – Recommendations for Joint Stock Commercial Bank For Foreign Trade of Vietnam" is my personal research with the guidance of Dr Nguyen Thi Hong Hai – Lecturer of the Falcuty of International Business, Banking Academy of Vietnam Data sources and information used during the study are derived and cited in accordance with regulations Research results in the thesis topic serve for self – study and objectively analysis I take all responsibility for my thesis Student’s signature Nguyen Huong Giang ii ACKNOWLEDGEMENTS Throughout the writing of this thesis I have received a great deal of support and assistance Foremost, I have to thank Banking Academy of Vietnam and the Faculty of International Business for creating good conditions for me in the process of studying in the past years and completing this thesis Also, I would like to thank all lecturers of the Faculty of International Business and lectures of Banking Academy of Vietnam who equipped me with useful knowledge in the university years; and my classmates and friends for their suggestions Especially, I would like to express my sincere gratitude to my advisor Dr Nguyen Thi Hong Hai for the continuous support of my research, for her patience, motivation, enthusiasm, and immense knowledge Her guidance helped me in all the time of research and writing of this thesis Last but not least, I would like to thank my family: my parents, my brother and my sister in-law for supporting me spiritually throughout my life iii TABLE OF CONTENT DECLARATION i ACKNOWLEDGEMENTS ii TABLE OF CONTENT iii LIST OF ABBREVIATIONS vi LIST OF CHARTS viii LIST OF FIGURES viii LIST OF TABLES ix INTRODUCTION 1 Rationale of the study .1 Research purpose .2 Research scope and objective Research methodology .3 Thesis Structure CHAPTER 1: LITERATURE REVIEW AND THEORETICAL OF TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTION 1.1 LITERATURE REVIEW 1.2 THEORETICAL OF TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTION 1.2.1 Overview of Letter of Credit 1.2.2 Overview of trade finance under Letter of Credit transaction 12 1.2.3 Criteria for assessing trade finance under Letter of Credit transactions 20 1.3 FACTORS AFFECTING THE DEVELOPMENT OF TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTIONS 22 1.3.1 Subjective factors 22 1.3.2 Objective factors 23 SUMMARY OF CHAPTER 25 CHAPTER 2: EXPERIENCES IN TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTION IN SOME COMMERCIAL BANKS 26 2.1 EXPERIENCES FROM ASIAN COMMERCIAL BANKS .26 2.1.1 Experiences from BRAC Bank 26 2.1.2 Experiences from Hong Kong & Shanghai Banking Corporation Bank 29 iv 2.2 EXPERIENCE FROM EUROPEAN COMMERCIAL BANKS 30 2.2.1 Experiences from Vnesheconombank 30 2.2.2 Experiences from Roseximbank 30 2.2.3 Experiences from Sberbank 31 SUMMARY OF CHAPTER 31 CHAPTER 3: ANALYZE ON THE REAL SITUATION OF TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTION AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM 32 3.1 OVERVIEW OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM .32 3.1.1 Development History 32 3.1.2 Structure of management apparatus 34 3.1.3 Business Operations of Joint Stock Commercial Bank for Foreign Trade of Vietnam 36 3.2 THE REAL SITUATION OF TRADE FINANCE UNDER LETTER OF CREDIT TRANSACTION AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM .40 3.2.1 Trade finance under Letter of Credit transaction at Joint Stock Commercial Bank for Foreign Trade of Vietnam .40 3.2.2 Analyze the real situation of trade finance under Letter of Credit transaction at Joint Stock Commercial Bank for Foreign Trade of Vietnam 43 SUMMARY OF CHAPTER 53 CHAPTER 4: RECOMMENDATIONS FOR JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM 54 4.1 SHORT - TERM SOLUTIONS .54 4.1.1 Diversify trade finance under Letter of Credit product 54 4.1.2 Continuing to enhance process modification 54 4.1.3 Implement flexible measures in working .55 4.1.4 Strengthening international trade finance activities by Documentary Credit payment method 55 4.1.5 Marketing 56 4.2 LONG - TERM SOLUTIONS 57 v 4.2.1 Human resource development 57 4.2.2 Technological development 57 4.2.3 Strengthening inspection, internal control and compliance 58 4.2.4 Branch network, correspondent banking relationship 58 SUMMARY OF CHAPTER 59 CONCLUSIONS 60 REFERENCES 61 vi LIST OF ABBREVIATIONS ADB Asian Development Bank API Application Programming Interface ATM Automatic Teller Machine B/L Bill of Lading BBLC Back–to–Back Letter of Credit BDT The currency for Bangladesh BRAC Bangladesh Rural Advancement Committee CAR Capital adequacy ratio CDCS Certificate for Documentary Credit Specialists CEB Commercial Bank of Ethiopia CRM IT Customer relationship management Information technology D/C Letter of Credit FY Fiscal Year GIC Guaranteed investment certificate HCMC Ho Chi Minh City HOSE Ho Chi Minh City Stock Exchange HSBC Hong Kong & Shanghai Banking Corporation ICC International Chamber of Commerce IFC International Finance Corporatio ING Internationale Nederlanden Groep ISBP International Standard Banking Practice ISP International Standby Practices L/C Letter of Credit MT700 Issue of a Documentary Credit POS Point Of Sale ROA Return on Assets ROE Return On Equity SBLC Standby Letter of Credit SLOC Standby Letter of Credit vii SMEs Small and Medium Enterprise SMS Short Message Service SWIFT Society for Worldwide Interbank and Financial Telecommunication UCP 600 The Uniform Custom and Practice for Documentary Credits UPAS L/C Usance payable at sight Letter of Credit URDG Uniform Rules for Demand Guarantees URR Uniform Rules for Bank-to-Bank Reimbursement US United States VCB Joint Stock Commercial Bank for Foreign Trade of Vietnam VCBL Vietcombank Leasing VCBR Vietcombank Remitance Company VCBS Vietcombank Securities Limited Company VCCBCC Vietcombank Corporate Channel Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam viii LIST OF CHARTS Chart Chart 3.1 The number of transaction offices and branches at Joint Stock Page 46 Commercial Bank for Foreign Trade of Vietnam from 2017 to 2019 Chart 3.2 Profit from trade finance under Letter of Credit transactions from 51 2018 to 2020 LIST OF FIGURES Figure Page Figure 1.1 The entire process under Letter of Credit transaction Figure 2.1 The percentage of traditional trade finance used globally 26 Figure 2.2 Import traffic vs average value in FY2019, split by region, 27 based on SWIFT MT700 traffic Figure 2.3 SWIFT MT700 export L/C volumes by country/region 28 Figure 3.1 Management structure of Joint Stock Commercial Bank for 35 Foreign Trade of Vietnam ix LIST OF TABLES Table Page Table 3.1 Key financial ratios of Joint Stock Commercial Bank for Foreign 36 Trade of Vietnam from 2016 to 2020 Table 3.2 Liabilities and shareholders’ equity of Vietcombank from 2018 to 37 2020 Table 3.3 Loan portfolio by term of Vietcombank from 2018 to 2020 38 Table 3.4 Loan portfolio by debt group and proportion of Vietcombank 39 from 2018 to 2020 Table 3.5 The number of customers using trade finance at Joint Stock 44 Commercial Bank for Foreign Trade of Vietnam Table 3.6 Categorize customers using trade finance under Letter of Credit 45 transaction in 2020 Table 3.7 Customer satisfaction in trade finance under Letter of Credit 48 transaction from 2018 to 2020 Table 3.8 Revenue and Profit Statement of trade finance under Letter of Credit transaction from 2018 to 2020 50