INTRODUCTION
Overview of thesis
This report cannot cover all aspects of international payment methods comprehensively Instead, the author focuses on the case of MB – HBT to research and analyze its international payment strategies, ultimately providing recommendations for MB to adapt to emerging trends.
The author utilized two primary sources for this thesis: first, a variety of national and international papers, research studies, newspapers, articles, and websites; second, personal observations and analyses conducted during an internship at the MB – HBT branch from February to March 2012.
This paper explores the impact of IP methods in MB – HBT, examining how these trends influence banks and their clients It also offers solutions and recommendations to navigate the evolving landscape of intellectual property.
The thesis composes of five parts
Part 3: Details of research in MB – HBT Branch
Literature review
Vietnam has limited research on this topic, with one notable study conducted by Dr Nguyen Thi Hong Hai Her comprehensive analysis examined various aspects, including banks, importers, exporters, and intellectual property methods.
Advantages and disadvantages of relevant parties
Several Vietnamese theses from BAV students have explored this topic, including works by Chu Thi Bao Van (BAV course 2006-2010) and Hoang Tuong Minh (BAV course 2007-2011) Their research focused on a specific structure related to the subject matter.
Chapter 1: Conceptual framework of International Payment methods in commercial banks
Chapter 2: Current situation and trends of International payment methods
Chapter 3: Concerns about the trends of International payment methods
International research articles, such as "Trends in International Payments – A US Perspective" by Gina Knight, published on November 23, 2009, provide valuable insights into the challenges faced by US-based entities in engaging with international payments The article examines these issues from a US-centric viewpoint and highlights key trends relevant to both customer and self-directed international transactions.
Continued growth in worldwide remittance
Increasing emergence of non-traditional players and payment channels
Another research by a chinese named Xiao-Yan Ren, Ren Xiao-hung is “On the choice of payment methods in international trade” - Store modernization, 2007 It consists of three main parts:
How to select the right method of payment
Trends of selecting each method
Part 1 of the thesis provides essential context and orientation, featuring a detailed problem description, a comprehensive literature review, and an overview of the research This section effectively introduces the central issue and clarifies the author's objectives, setting the stage for the subsequent analysis.
THEORETICAL FRAMEWORK
Method of payment means the way one pays for a transaction Thus, international method of payment refers to the way that importers and exporters make payment for an international transaction
2.2 International payment methods and the roles of banks
Cash in Advance is a pre-payment method in which, an importer makes payment for the items to be imported in advance prior to the shipment of goods
Importers rely on suppliers to deliver products punctually and as promised, but using the Cash in Advance payment method introduces significant risks Despite these risks, this approach is cost-effective, allowing for direct communication between importers and exporters without the need for commercial banks.
Commercial banks play a limited role in the open account method of trade, where all shipping and title documents are exchanged directly between trading partners This method simplifies the payment process, making it a cost-effective option for both importers and exporters, as banks primarily focus on clearing necessary amounts.
An Open Account is a credit arrangement that permits customers to make purchases without a formal borrowing contract While this flexibility can attract buyers, it poses significant risks for sellers due to the lack of a formal payment guarantee.
The primary disadvantage of the open account method is that the exporter bears all the risks, while the importer benefits from delayed access to the company's cash resources and is not accountable for the risks linked to the goods.
The roles of commercial banks in this method are the same to those in cash in advance method
The payment collection process involves the seller (exporter) authorizing their bank to present documents to the collecting bank (importer's bank) after fulfilling their delivery obligations, aiming to secure payment and/or acceptance of the bill of exchange or other specified terms and conditions.
Payment collections facilitate cost-effective import-export transactions; however, they lack the same level of security as letters of credit, as they do not offer any bank guarantees.
Commercial banks serve as agents for payment collection, assuming no liability for delays or losses during transit of messages, letters, or documents (ICC, 1995) They do not verify the documents submitted for payment collection and bear no responsibility for their form, content, or authenticity of signatures Nevertheless, banks must act in good faith and exercise reasonable care when executing collection orders Key responsibilities of banks include ensuring diligent handling of transactions while maintaining compliance with these principles.
• Verification of documents received: The banks check whether the documents appear to be as listed in the collection order and advises the party in the event of missing documents
Exporters must provide clear instructions to the remitting bank regarding document handling, including the protocol for delivering documents to a representative if necessary and the steps to take in case of nonpayment or draft non-acceptance These instructions are forwarded by the remitting bank to the collecting bank, which is obligated to follow them strictly.
Documentary credit (D/C) is an IP method in which L/C is its instrument It‟s a common practice among businessmen that D/C is considered as L/C and vice versa
Therefore, the definition of L/C can also be used to explain D/C in general understanding
A Letter of Credit (L/C) is a financial agreement where a bank, known as the Issuing Bank, commits to honor or accept a bill of exchange (B/E) on behalf of a customer (L/C applicant), provided that the presentation complies with the terms and conditions specified in the L/C.
Roles of commercial banks: Compared to other payment forms, the role of banks is substantial in documentary credit transactions
Banks enhance trade transaction security by acting as intermediaries, with the issuing bank representing the importer and the advising bank serving the exporter.
The banks assure the seller that he would be paid if he provides the necessary documents to the issuing bank through the advising bank
The banks also assure the buyer that his money would not be released unless the shipping documents evidencing proper and accurate shipment of goods are presented
Remittance is a payment method in which customer (remitter) asks his bank to transfer a certain amount to another person (beneficiary) based on a certain address within a certain time
Commercial banks serve as intermediaries in remittance transactions, facilitating direct payments between the remitter and beneficiary They charge a fee for their services but assume no responsibility for any uncertainties that may arise during the transfer process.
Diagram 2.1: Arrow shows the level of Roles of banks
The arrow above shows an increase in the level of bank‟roles from the left to the right
2.3 Factors to affect enterprises on choosing IP methods
The following table will compare 5 methods of IP in different aspects
Table 2.1: Factors to affect enterprises once choosing IP methods
Remittance a, Bank Charges Low High Medium Low Low b, Relationship between importers and exporters
New New Established Established Established c, Relationship between banks and customers
New Established Established New New d, Political situation
Unstable Unstable Stable Stable Stable e, Economic situation
Unstable Unstable Stable Stable Stable g, Credit Facilities Not required
Required Not required Not required Not required
(Source: http://www.commercial.hsbc.com.hk)
Part 2 provides a summary of fundamental theoretical concepts related to International Payment (IP) methods and the roles of commercial banks in each method The author focuses on the involvement of commercial banks in IP and evaluates the advantages and disadvantages of various IP methods in international trade To aid in decision-making, a table outlining factors that influence enterprises when selecting IP methods has been included This section establishes a theoretical framework essential for the thesis.
DETAILS OF RESEARCH IN MILITARY BANK – HAI
Established in November 4, 1994, MB has been affirmed its position and prestige as one of the leading commercial bank in Vietnamese financial market The
Since its inception in 1996, MB has evolved significantly, shifting from a reliance on remittances in international trade—common among Vietnamese enterprises due to the banking system's limited prestige—to a more robust banking framework Currently, MB utilizes three primary payment methods: remittance, collection of payment, and letters of credit It boasts one of the largest networks of correspondent banks in Vietnam, with over 700 partnerships across 75 countries and territories MB is committed to innovation and the integration of advanced banking technologies, ensuring efficient business management and a comprehensive service network Today, it operates a connected computer network linking its headquarters to nearly all branches nationwide, offering a wide range of banking services, including e-telegraphic transfers, international credit cards, ATMs, and SWIFT payments, catering to both domestic and international customers.
The Hai Ba Trung Branch of MB, established on July 14, 2008, is a first-level branch that evolved from the Minh Khai sub-branch Located at No 29, Le Dai Hanh Street, Hai Ba Trung District, Hanoi, its establishment was formalized by the Board of Management's Decision No 421/QĐ-NHQĐ-HĐQT The branch comprises six departments, including supporting services, accounting and customer services, credit management, general administration, and separate departments for individual and corporate clients, along with five transaction offices situated in Minh Khai, Nguyen Du, Lo Duc, Nguyen Duc Canh, and Le Thanh.
The Nghi transaction office is dedicated to directly engaging with customers, with international payment being the primary focus of HBT Branch's operations Currently, among the five international payment methods analyzed, MB offers three options: remittance, letters of credit (L/C), and payment collection.
As the foremost commercial bank in Vietnam, MB and its HBT Branch have achieved significant milestones and played a vital role in advancing the national economy.
3.1.2 Rate of using International payment methods
Table 3.1: Amount of IP transactions per method in MB – HBT Branch
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
Diagram 3.1: The changes in using payment methods
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
Table 3.2: IP volume per method in MB – HBT Branch
Remittance Letter of credit (L/C) Collection of payment Volume
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
Diagram 3.2: Proportion of IP volume per method
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
As shown in diagram 3.1 and 3.2, there was a decrease in the volume and amount of L/C transactions and an increase in those of collection of payment and remittance from 2009 to 2011
Table 3.3: Amount of export transactions per method in MB – HBT Branch
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
Diagram 3.3: Changes in using IP methods for export goods
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
The diagram illustrates a shift in export transactions from letters of credit (L/C) and payment collections towards remittance methods Consequently, revenue generated from remittance has also seen an upward trend For more detailed information, please refer to the following table.
Table 3.4: Volume of export transactions per method in MB – HBT Branch Method
Remittance Letter of credit (L/C) Collection of payment Volume
(Source: Annual report of IP operations of MB – HBT in 2009 – 2011)
Table 3.5: Amount of Import transactions per method in MB – HBT Branch
Method Remittance Letter of credit Collection of
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
Diagram 3.4: Changes in using IP methods for import goods
(Source: Report of IP operations of MB – HBT Branch in 2009 - 2011)
The diagram once again reassures the increasing trend of remittance in import goods from 2009 to 2011
Table 3.6: Volume of Import transactions per method in MB – HBT Branch
Remittance Letter of credit (L/C) Collection of payment Volume
(Source:Report of IP operations of MB – HBT Branch in 2009 – 2011)
The table illustrates the revenue generated from import goods by various methods, revealing that from 2009 to 2011, import revenue surpassed that of exports, as indicated in Table 3.4 Notably, the revenue from imports via Letter of Credit (L/C) has shown a decreasing trend over time, while revenue from remittance and payment collection has consistently risen.
Recent data analysis reveals significant trends in import and export payment methods within Vietnam's commercial banks The findings indicate a decline in the use of Letters of Credit (L/C) and a corresponding rise in payment collections and remittances for both import and export transactions Specifically, revenue from these payment methods fluctuates in tandem with the volume of international trade Detailed assessments show that export transactions are increasingly shifting from L/C to payment collections and remittances, which is mirrored in import transactions as well Notably, the revenue generated from imported goods substantially surpasses that from exports, highlighting Vietnam's ongoing international trade deficit.
The data analysis indicates a noticeable trend in payment methods, with a general increase in remittances both in quantity and value, while letters of credit (L/C) and collection payments are experiencing a gradual decline The author identifies a need to investigate the underlying causes of these shifts, leading to several key findings.
From Military Bank – HAI BA TRUNG BRANCH
In international trade, the choice of payment method is primarily determined by exporters and importers; however, banks play a crucial role in influencing this decision They provide essential products and services while also offering valuable advice on the most suitable payment methods for their clients.
As banks grow more influential by offering additional services like export-import financing, they aim to support enterprises engaged in foreign trade With Vietnam's accession to the WTO, domestic and foreign banks face intense competition, prompting Vietnamese commercial banks to diversify their offerings with modern banking services such as Factoring, Forfaiting, and Leasing To successfully implement these services, there is a noticeable trend of increasing remittances while experiencing a decline in Letters of Credit (L/C) and payment collections.
3.2.2.2 Objective causes a From exporters and importers
Vietnam, as a developing country, faces challenges in competing with financially stronger nations To enhance their standing in the international market, Vietnamese enterprises strive to foster positive relationships with business partners This is reflected in the preference for Letters of Credit (L/C) for imports, despite the associated high transaction costs, as foreign exporters require L/C to mitigate non-payment risks In contrast, Vietnamese exporters often opt for remittance or collection of payment (D/A), accepting greater risks to establish goodwill and nurture long-term relationships with foreign partners.
Globalization has significantly transformed the business landscape, providing Vietnamese enterprises with increased opportunities to engage with potential partners and explore new markets amidst a challenging environment and dynamic international trade In this context, remittance emerges as an optimal choice, offering advantages such as simplicity, cost-effectiveness, and minimal language barriers, aligning with current payment trends.
Current payment trends reveal a distinct divergence between Vietnam and other countries, with Vietnamese enterprises favoring remittance methods, while businesses globally are increasingly opting for open accounts.
Statistically, 60% import – export turnover between England and EU are open account The reason is of the similarities in cultures, business practices, rules and traditional clients
VN enterprises, as analysed above, favor remittance on other purposes c From the methods of payment
Payment methods play a crucial role in influencing the choices of exporters and importers in international trade To highlight the risks associated with each payment method, the author provides a concise table for clarity.
Table 3.7: Compare 3 methods of payment Method Risks to exporters Risks to importers
Non-payment Importers might go bankrupt or be badly reputed
Exporters fake documents or commercial fraud on purpose
Price and foreign exchange risks
Unable to comply with L/C terms, counterfeit L/C,
Issuing bank's failure risk and issuing bank's country risk
Goods received with inferior quality
Exchange rate risk and the issuing bank's bankruptcy risk
Remittance Non-payment Depending on importers
Such trends are new and necessary in such occasion of globalization Neverthless, there araise some concerns about MB – HBT Branch in particular and
VN commercial banks in general So as to fully serve customers, our banks need to take these concerns into consideration:
Banks have varying roles across different payment methods, and emerging trends are reshaping these roles The shift from Letters of Credit (L/C) to payment collections and remittances significantly lowers the risks faced by banks in international transactions, effectively reversing the risk structure This transition is particularly beneficial in reducing operational risks associated with cross-border payments.
SOLUTIONS AND RECOMMENDATIONS
To address the challenges posed by emerging trends, it is crucial for the MB – HBT Branch and commercial banks as a whole to implement immediate strategies.
4.1.1 Reducing moral hazard problems a Improving internal and external control operations
Moral hazards pose significant risks in IP transactions, necessitating stringent internal and external controls for the MB – HBT Branch It is crucial to meticulously oversee every aspect of the payment process, including signatures, documentation, information accuracy, and credit assessments By enhancing their control measures, the MB – HBT Branch can effectively minimize the risks associated with moral hazards Additionally, fostering strong relationships with customers is essential for maintaining trust and ensuring successful transactions.
Establishing strong relationships with customers is essential for effective customer care Knowledgeable customer care representatives understand the unique aspects of their clients' businesses and can provide tailored advice to mitigate risks in international trade Banks utilize credit-assessing systems to categorize customers based on their creditworthiness, but fostering firm relationships allows them to engage more closely with clients and partners This proactive approach significantly reduces moral hazard issues in trading, enhancing overall trust and collaboration.
Viet Nam c Expanding good relationships with correspondent banks
Correspondent banks are essential for efficient IP processing, as they enhance transaction speed and quality When an IP transaction involves a bank without a direct correspondence, costs can escalate and processing times can double due to the necessity of bridging multiple correspondent banks This is why clients favor banks with extensive correspondent networks Additionally, strong relationships with correspondent banks streamline the payment process and mitigate moral hazard issues Banks with robust correspondent ties can provide better guidance to importers and exporters in international trade, further reducing risks Therefore, it is crucial for MB to enhance its correspondent relationships in both quality and quantity.
4.1.2 Making IP services highly competitive and attractive
To counter the decline in IP revenue due to the shift from letters of credit to remittance and payment collection, banks, particularly MB - HBT BRANCH, must enhance the competitiveness and appeal of their international payment services This can be achieved by providing improved financial consultations that clearly outline the pros and cons of each payment method, as well as offering tailored advice for specific situations Additionally, diversifying international payment services is essential in today's competitive landscape, with banks expanding their offerings to include services such as forfaiting, factoring, leasing, and Letters of Guarantee alongside traditional remittance options.
Performance Bond, document negotiating, etc Exporters and importers will select those with better preferences and treatment
To keep pace with evolving trends, it's essential to modernize the centralized payment system within the IP framework This modernization will streamline money transfer transactions, making them faster and more efficient, ultimately enhancing customer satisfaction and boosting the bank's reputation.
In addition to SWIFT, MB should enhance its IP management and operations by implementing additional applications It is essential to digitize the accounting system and generate statistical reports on intellectual property Investing in modern technology is crucial for improving efficiency and effectiveness in these areas.
IP equipments and facilities For instance: buying softwares for IP, training or recruiting more informatic specialists, visioning at electionic banking network, etc
4.1.4 Diversifying professional skills for IP officers
To address the uneven workload among staff in the IP department, it is essential to implement a training program for IP officers to cultivate a professional, flexible, and versatile team The MB – HBT Branch should continuously strive to identify and harness the potential of its human resources by creating an ideal working environment that offers equal opportunities for learning, competition, and personal growth, while ensuring fair treatment for all employees Establishing a system of rewards and penalties will enhance the development of IP activities within the branch Additionally, regular training in English, informatics, and operational skills is crucial for IP officers to keep pace with new trends and meet evolving job requirements.
The solutions above aims at MB – HBT Branch, yet it would be a great shortcoming if the author skipped the recommendations to relevant parties such as MB, SBV and customers
4.2.1 To the State Bank of Vietnam
The State Bank of Vietnam (SBV) must diligently monitor and regulate the operations of commercial banks to identify and mitigate potential risks Additionally, effective control over foreign exchange is crucial, as the SBV serves as both a governmental authority managing financial, credit, and monetary operations, and as a central bank for commercial banks To enhance this oversight, it is essential to establish clear legal documents and regulations that define the responsibilities and obligations of all parties involved in overseas money transfers.
Firstly, MB should distribute human resources in a reasonable way
Appointing staff who are knowledgeable and aware in their roles at payment centers is crucial for success; placing them in the right positions will ensure optimal performance.
Secondly, MB should enhance internal control by internal regulations and rules; or else, they can make advanced control by technology and others
To enhance the effectiveness of training centers, it is essential for management boards to emphasize the importance of developing both professional and soft skills from the outset Establishing clear guidelines for warm service styles and polite communication is crucial in fostering a positive and professional environment.
MB diversifies its business financing through comprehensive risk analysis and control Emerging services such as Factoring, Forfaiting, Letters of Guarantee, Performance Bonds, and document negotiation should become standard offerings These services are expected to play a crucial role in the operations of commercial banks in the future, particularly as the traditional roles of banks evolve.
Export and import enterprises must enhance the professional skills of foreign trade officers through regular training on the latest national and international legal frameworks These officers should be adept at identifying business opportunities and negotiating agreements effectively Furthermore, establishing a dedicated legal department is essential to streamline the international trading process and minimize potential risks.
Ex-importers must take a proactive approach in managing their foreign currency reserves to mitigate foreign exchange risks It is essential for them to develop a practical strategy for buying and selling foreign currencies through commercial banks, ensuring that the currency is not only actively held by importers and exporters but also operates efficiently within the banking system.
Ex-importers must exercise caution when choosing partners for transactions, ensuring they conduct thorough research through reputable sources such as the Vietnam Chamber of Commerce and Industry, the Credit Information Center of the State Bank of Vietnam, banks, and foreign organizations Honesty and transparency in dealings with commercial banks and partners are crucial, as these practices enhance their reputation in the international market.
CONCLUSION
In summary, intellectual property (IP) activity plays a crucial role in a country's integration and development Additionally, IP methods are essential considerations for both exporters and importers As the economy evolves, business leaders are increasingly adapting their choices regarding IP methods to align with changing market dynamics.
In Vietnam, businessmen primarily rely on remittances for international trade, unlike their counterparts in many other countries who prefer open accounts This difference presents both advantages and disadvantages for the involved parties Therefore, it is crucial for banks to closely monitor these international payment trends and identify effective strategies to adapt and succeed in the evolving market landscape.
The author has thoroughly investigated the trends of intellectual property (IP) methods and their implications within the MB - HBT Branch and Vietnamese commercial banks, effectively addressing all initial inquiries.
Firstly, the thesis points out the new trends of IP methods in MB –
HBT Branch in particular and in VN commercial banks in general
Secondly, based on the facts of MB – HBT Branch, the author raises big concerns to relevant parties, esspecially commercial banks
Lastly, the author makes some recommendations and solutions, so as for MB – HBT Branch as well as VN commercial banks to confront the new trends
All things considered, may IP activities in VN be more and more professional and move the mountain of IP obstacles in international trade in the future
The thesis inevitably reflects certain limitations due to the author's knowledge and research experience However, it aims to improve through valuable contributions from both lecturers and students, enhancing the overall quality of the research.
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Report of IP operation of MB – HBT Branch in 2009 – 2011
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Maciej Makowski, MSc in European Union Business and Law Department of Law, Master‟s thesis
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Bachelor Hoang Tuong Minh, 2011, BAV, Banking department, Gradution thesis No NH.000210.