Solutions to improve the international payment by documentary credit at sai gon thuong tin comercial joint stock bank thang long branch,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY DOCUMENTARY CREDIT AT SAIGON THUONG TIN COMMERCIAL JOINT STOCK BANK – THANG LONG BRANCH Student : Giang Thi Nga Class : ATC-B Lecturers : Nguyen Hong Ngoc, M.A Ngo Tung Anh, M.A 6th June 2012 ACKNOWLEDGEMENTS This thesis would not have been possibly completed without the generous help, support and guidance from many individuals I would like to express my sincere thanks to all of them Firstly, I would like to express my warm and sincere thanks to my supervisors, Ms Nguyen Hong Ngoc, a lecturer of Banking Faculty and Mr.Nguyen Tung Anh, the Vice Dean of Foreign Language Faculty, Banking Academy for their continuous support of my study and research, their great efforts to explain things clearly and simply, their corrections, comments, criticism, suggestions during the process of report Their guidance helped me very much in all the time of research and writing of this report Secondly, I would like to express my gratitude to the leaders of Sacombank-Thang Long branch for offering me an opportunity to internship there Additionally, I am greatly indebted to all of the staff members in the International Payment sector of SacombankThang Long for providing me with a good working condition, and valuable reference documents to complete this report Last but not least, I would like to give my special thanks to my family, my friends for every valuable thing they made for me Their love, trust and encouragement really gave me strength to keep going on my way Thank you for all TABLE OF CONTENTS ACKNOWLEDGEMENTS LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES EXECUTIVE SUMMARY INTRODUCTION CHAPTER 1: THEORETICAL FRAMEWORK 1.1 Letter of Credit 1.1.1 Definitions of L/C 1.1.2 Characteristics of L/C 1.1.3 Parties to the L/C transaction 1.1.4 Process of L/C 1.1.5 Classification of L/C 1.2 Norms reflecting the improvement of international payment by Documentary Credit 1.2.1 Qualitative norms 1.2.2 Quantitative norms 1.3 Factors impacting the improvement of international payment by Documentary Credit 1.3.1 Objective factors 1.3.2 Subjective factors CHAPTER 2: THE INTRODUCTION OF SAIGON THUONG TIN COMMERCIAL BANK – THANG LONG BRANCH 11 2.1 The establishment and development of Sacombank – Thang Long Branch 11 2.2 The organizational structure of Sacombank – Thang Long Branch 12 2.3 The result of some main operations of Sacombank – Thang Long Branch 14 2.3.1 The operation of capital mobilization 14 2.3.2 The operation of capital financing 15 2.3.3 The operation of international payment 15 CHAPTER 3: ANALYSES AND FINDINGS 17 3.1 The reality of the improvement of the international payment by documentary credit at Sacombank - Thang Long Branch 17 3.1.1 Legal framework governing the international payment by documentary credit at Sacombank – Thang Long Branch 17 3.1.2 The reality of the improvement of international payment by documentary credit at Sacombank - Thang Long Branch 17 3.2 Valuation of the improvement of the international payment by documentary credit at Sacombank – Thang Long Branch 22 3.2.1 The achievements and reasons 22 3.2.2 The drawbacks and causes 23 CHAPTER 4: SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY DOCUMENTARY CREDIT AT SACOMBANK – THANG LONG BRANCH 26 4.1 The orientation for the improvement of the international payment by Documentary Credit at Sacombank – Thang Long Branch 26 4.2 Solutions to improve the international payment by Documentary Credit at Sacombank-Thang Long 26 4.2.1 Establishing an effective marketing strategy 27 4.2.2 Improving the professional skills of staff 28 4.2.3 Strengthening technology infrastructure 28 4.2.4 Diversifying the products of L/C 28 4.2.5 Increasing the supply of foreign currencies for international payment using L/C 29 4.2.6 Managing risks in international payment 29 4.3 Petitions 30 4.3.1 Petitions for the government 30 4.3.2 Petitions for the Central Bank 31 4.3.3 Petitions for the Sacombank 31 4.3.4 Petitions for the exporting - importing enterprises 32 CONCLUSION 33 REFERENCES 34 LIST OF ABBREVIATIONS SacombankLong Thang Saigon Thuong Tin Commercial Bank- Thang Long branch L/C Letter of Credit SWIFT Society for Worldwide Telecommunications UCP The Uniform Customs and Practices for Documentary Credit ICC International Chamber of Commerce ISBP International Standard Banking Practices Interbank Financial LIST OF TABLES AND FIGURES Figure 2.1 : The organizational structure of Sacombank- Thang Long 13 Figure 2.2 : The result of capital mobilization 2009-2011 14 Figure 2.3 : The result of capital financing 2009-2011 15 Figure 2.4 : The result of international payment 2009-2011 16 Table 3.1 : Time to open a L/C set 18 Figure 3.1 : The satisfaction degree of customers in L/C operation 18 Table 3.2 : The quantity and profit of L/C transactions 2009-1011 19 Figure 3.2 : The profit of import L/C and export L/C 2009-2011 20 Figure 3.3 : The proportion of L/C profit in the total international payment operation of the branch 21 Table 3.3 : The rate of errors in checking L/C documents 22 Table 3.4 : The ratio of overdue debts in L/C payment 22 EXECUTIVE SUMMARY The report aims to provide understanding of the important role as well as the reality of the Documentary Credit method for International Payment sector of Saigon Thuong Tin Commercial Bank – Thang Long Branch Also, the report gives some recommendations to help the branch improve the international payment activity by L/C Apart from the introduction and conclusion, this report is divided into four chapters The first chapter mentions the theoretical framework used as basis for the research In this chapter, readers will have a deeper understanding of L/C including definition, characteristics, the process of a L/C transaction, types of L/C, norms reflecting the improvement of international payment by L/C as well as factors affecting the improvement of L/C payment in a bank The second chapter, the researcher gives an overview of Sacombank – Thang Long Branch and its results of some main operations The third chapter provides analysis and findings of international payment using L/C at Thang Long branch More specifically, this chapter points out the reality of import and export L/C All achievements and drawbacks of this method are also disclosed Finally, in the fourth chapter, the researcher makes some recommendations to help the branch overcome the limitations and this kind of method become more effective INTRODUCTION Research rationale In the trend of international economic integration, trade of goods among countries develops rapidly, which requires the international payment operation of banks to be complete Nowadays, Vietnam has stepped up its international trade, as a result, its market is expanding globally and its partners are varied as well Along with the development of international trade is the introduction of a range of payment methods, which are: Advanced payment, Open account, Remittance, Collection of payment, Documentary Credit Documentary Credit shows as the most advantageous method, which harmonizes the interests of both parties Therefore, an estimated 90% of foreign trade contracts agreed upon payment by Letter of credit Sacombank in general and Thang Long branch in particular are not the exception After interning in the International Payment Department of Sacombank – Thang Long Branch, I recognized that the Documentary Credit method accounts for the largest proportion The branch has gained remarkable achievements, however , there are limitations needing to be addressed Therefore, I have chosen “ Solutions to improve the international payment by Documentary Credit at Saigon Thuong Tin Commercial Joint Stock Bank-Thang Long Branch” as the topic of my graduation thesis Research questions My research focuses on answering two main questions: What is the current situation of international payment by documentary credit at Sacombank – Thang Long Branch? What should be done to improve L/C payment at Sacombank – Thang Long Branch? Research methodology To clarify the issue, I have used some methods to collect data One of the methods was observing daily operations of Thang Long branch, interviewing some officers Meanwhile I got the data through figures and facts filed in the branch, sources such as books, magazines, newspapers and others related documents in the library of Banking Academy All data were analyzed and made full use to create completion for this research paper Giang Thị Nga ATC-B Page Scope of the research The research will concentrate on the reality of L/C payment at Sacombank – Thang Long Branch by analyzing facts, figures of the branch to assess the achievements as well as limitations The study also provides some recommendations to address the issues Giang Thị Nga ATC-B Page Figure 3.2 : The profit of L/C transactions 2009-2011(million USD) 120 100 80 60 40 20 2009 2010 Import L/C 2011 Export L/C ( Source: Sacombank- Thang Long’s report on international payment by L/C from 2009 to 2011) We also see that contributing considerably to the increase of total volume of L/C payment was the import L/C The value of import L/C accounts for the average of 97 percent of total volume of international payment From the tendency of this figure, it is obvious that major customers of the branch are domestic enterprises buying goods and materials from foreign countries There is a big difference between Import L/C and export L/C Import L/C accounts for 97% to 98% in the international payment activities while the export one only takes 2% to 3/% This shows the unbalance of L/C payment operation b) The proportion of L/C profit in the total international payment operation of the branch By the data in Figure 2.4, we build the following bar chart that reveals profit proportion of L/C payment and other payment in the total international payment operation of the branch Giang Thị Nga ATC-B Page 20 Figure 3.3 : Proportion of L/C profit in the total international payment operation of the Branch from 2009 to 2011(%) ( Source: Sacombank- Thang Long’s report on international payment by L/C from 2009 to 2011) The author quantitatively evaluated the quality of L/C transaction by one more factor that is the proportion of L/C profit in the total of international payment Through the above chart we see the portion of L/C turnover not only is large but also increased over the years: this percentage increased from 50% in 2009 to nearly 62 % in 2011 The turnover from L/C payment experienced a regular and significant rise while others only gained a little more like remittance and collection Thus, it is obvious that the L/C payment method has the most advantages over other methods so that it is popularly applied by more and more enterprises c) The safety level in L/C payment A remarkable achievement in Sacombank – Thang Long is raising the safety, mitigating risks and improving competitiveness in L/C payment Giang Thị Nga ATC-B Page 21 Table 3.3 : The rate of errors in checking L/C documents Year 2009 2010 2011 Rate (%) 5.5 ( Source: Sacombank- Thang Long’s report on international payment by L/C from 2009 to 2011) The rate of errors in checking documents of the branch tended to decrease This rate dropped from % in 2009 to 5% in 2011 because of the skills of well-trained staff Howerver this number is not small in the fact of economic integration All of these errors are affecting the business activities of customers as well as branch negatively Improvement of L/C payment is also expressed through the ratio of overdue debt Table 3.4 : The ratio of overdue debts in L/C payment Year 2009 2010 2011 Ratio (%) 2.1 1.9 1.3 ( Source: Sacombank- Thang Long’s report on international payment by L/C from 2009 to 2011) Delinquency ratio of Thang long branch declined over the years: in 2009, this ratio was 2.1%, in 2011 the number fell to 1.3% This was due to restriction of opening deferred L/C This proves that L/C payment operation at Thang Long branch is safer more effective and safer 3.2 Valuation of the improvement of the international payment by documentary credit at Sacombank – Thang Long Branch 3.2.1 The achievements and reasons 3.2.1.1 The achievements According to the findings and analysis above, it is clear that the branch has well managed its L/C operation; helping to increase its revenue in a stable way and bringing the most profit for itself regard to international payment activities In 2009, revenue of international payment by documentary credit was 23,000 thousand USD, in 2010, this amount increased to 60,000 thousasnd USD, and in 2011, it reached 120,000 thousand USD, accounting for 62 % of income from international payment activity and nearly 35 % of total income It can be seen that turnover from documentary credit method played an important role and contributed to the diversification of the branch’s income This achievement was due to improvement in the quality of international payment: according to the evaluation of several leading financial magazines in the world, the quality of documentary credit method in Sacombank in general and Thang Long branch in particular have met international standards for many years Besides, Sacombank-Thang Long issued and advised L/C quite well Decrease in errors in the process of opening L/C, checking the documents took part in improving the quality of Giang Thị Nga ATC-B Page 22 documentary credit method Thanks to this, the branch established many long term relationships with major clients such as Petrolimex, An Phu Linh Ltd Co., An Binh Telecommunications Co, etc According to statistics from the International Payment Department, sales of import L/C of Vietnam National Petroleum Group (Petrolimex) made up more than 40 % of total sales of import L/C In addition, credit risk in documentary credit method significantly reduced Delinquency ratio dropped from 2.1 % in 2009 to 1.3 % in 2011 After years of the establishment, the International Payment Department has established the large economic relationships On the basis of these gained relationships, the branch is actively expanding its agents with a desire to find new clients, speed up settlement growth and the marketing of other products of the branch 3.2.1.2 The reasons In recent years, Sacombank - Thang Long has achieved many encouraging results in L/C payment activity The main reasons which can be seen are: The process of L/C payment in Sacombank – Thang Long is operated by a qualifed staff All of the officers in the International Payment Department have university degrees, English proficiency and a good use of the SWIFT banking network with other banks in the world Next is their dynamic, modern working style and caring, polite communicating practices Moreover, the branch has close and wide links of L/C payment process with agents and banks in the world; therefore, the payment relations are facilitated The bank's reputation is increasing on international markets and in customer range, which helps the branch to gradually penetrate into international markets and expand its international payment operation in general and international payment by documentary credit in particular In addition, in 2009, Sacombank –Thang Long applied Corebanking technology T24 R06 so that telegraphic handling and information transmit are fast, accurate and convenient 3.2.2 The drawbacks and causes 3.2.2.1 The drawbacks Sacombank is one of the banks whose strength is international payment activity but at Thang Long branch, many limitations still exist, hindering the improvement of the documentary credit method The first one is that revenue of international payment by documentary credit from 2009-2011 was not high enough The total revenue from L/C payment from 2009 to 2011 increased But this increase was not adequate with the potentiality of the branch With the advantage of its location in the heart of Hanoi where a lot of exporting-importing companies are located, the branch should have gained much more pofit through transactions with these companies Secondly, the employees in the International Payment Department are few At present, Thang Long Branch has only four permanent employees undertaking international Giang Thị Nga ATC-B Page 23 payment transactions whereas a huge workload needs to be taken, which has restrained the quality and time of document processing The third is that the potential and needs of customers are untapped by Sacombank – Thang Long In this era of international economic integration, the international trade grows along with an increase in L/C transactions However, at the branch, the customers involved in transactions are primarily patrons, while the area is full of quite a few untapped customers Businesses still hold their accounts in the traditional banks such as Vietnam Commercial Bank, Vietnam Joint Stock Commercial Bank for Industry and Trade, etc Another drawback is the branch’s limited products The branch has only applied some normal L/C such as Irrevocable L/C, Revolving L/C Limited products makes the branch not compete with other banks in the modern and advanced world as today For this limitation, it is also difficult for the bank to promote its image in the market as well as make its name widely recognized by more customers The final is the unbalance between export and import activities using L/C The revenue from export L/C only accounts for a small proportion in the total international payment using L/C Customers who use L/C transaction are mainly domestic enterprises buying goods and materials from foreign countries This puts the branch in the situation of lacking foreign currencies paid for imported goods 3.2.2.2 The causes - The objective causes First of all, Vietnam’s legal environment is incomplete, short of synchronism and not in compliance with international practices Although the legal system of Vietnam has been adjust gradually to meet the new requirements, it still holds shortcomings and not really care about the market rules and international standards Many legal barriers exit which the banks cannot solve by themselves Therefore, when the disputes occur, the involved parties rely mainly on international rules or laws of the third countries that in many cases bring about difficulties for banks as well as customers The second is fluctuations of the macroeconomic factors: in 2011, many big economies were insolvent, value of US dollar reduced while gold price increased continuously, which affected the foreign exchange operation of banks In our country, inflation was high (18.58 %) The banks also suffered from constantly changing policies of the central bank such as tightening monetary policy, increasing reserve requirements, etc This is a corollary of changes in the gold price and inflation on the domestic and international market In addition, in fron of the volatile market, enterprises also faced many difficulties because huge output and capital costs make the banks cautious in lending The economic crisis has left a profound impact on domestic importing-exporting enterprises The final cause is the limitations steming from branch’ customers Knowledge of the international law, pracrices as well as the economic situation of the partner countries;qualification; experience of Vietnamese importing and exporting enterprises are limited In addition, experts in the fields of law and international payment have not met Giang Thị Nga ATC-B Page 24 requirements due to lack of training According to a survey of the Commerce and Industry Chamber, 65 % of directors of small and medium sized enterprises were not trained professionally about foreign trade operation whereas 80-85 % of the companies conduct business with specialized traders, which leads these companies to look for banks’ consultancy and financing On account of a dearth of business understanding along with a weak economic position, when signing foreign trade contracts, companies now and then accept the adverse conditions for themselves unwillingly This could cause potential risks for the branch financing these companies Moreover, the financial capacity of the Vietnamese firms is weak with low equity which is not enough for themselves to pay; their business operations depend on loans from the branch Therefore, those businesses suffering from fraud or losses will directly affect the credit quality of the branch Morality of the enterprises is another cause of reducing the branch’s financing quality In fact, there are companies making financial report dishonestly in order to make a loan to or using funds for uncommitted purposes The subjective causes Firstly, the branch has not diversified its types of services to support international payments by L/C The branch used to apply services such as collateral loans, guarantee to support international payments by L/C Other forms such as reciprocal L/C, transferable L/C or back-to-back L/C were rarely implemented This is one of reasons making revenue of export L/C occupied inconderable rate Now, Sacombank- Thang Long has not offered documentary discounts form for importers while discounts have long been offered by Vietnam Commercial Bank On the other hand, the branch has not regurlarly provided services such as loans on L/C profile, etc to support exporter activities The second is the branch’s lack of marketing program Although Thang Long branch as well as Sacombank is one of the largest commercial bank in Vietnam, its marketing activities still not have many special characteristics compared to other banks In the world of information and technology, it will make the bank lag behind others Marketing strategies such as competitor analysis, consumer stimulating, etc, are not paid proper attention, so that the branch has not taken the most advantages from these marketing tools The next subjective cause relates to technology equipment and banking engineering Although Sacombank- Thang Long has been equiped with modern technology, the branch has not yet met standards of modern banks Some duties such as managing of customers profile, saving files, etc are still carried out in traditional ways of records or notebooks Finally, the process of international payment operation in the branch still depends on the headquater in Ho Chi Minh City as for resources mobilizing and payment performing Thus, procedures of international payment by L/C have been prolix, payment time has been slow This fact caused difficulties for the branch in transacting with customers Giang Thị Nga ATC-B Page 25 CHAPTER SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY DOCUMENTARY CREDIT AT SACOMBANK – THANG LONG BRANCH 4.1 The orientation for the improvement of the international payment by Documentary Credit at Sacombank – Thang Long Branch Accession to WTO is a great chance for our country to enlist the privileges with a hope of promoting our export activity, breaking from trade deficit, expanding our investment market, applying modern production process, etc However, quite a few new challenges are also posed for many managers when more foreign enterprises whose capital and human resource are strong are penetrating into Vietnam, which causes the competition becomes tougher and tougher Therefore, to survive in the competition, to win the rivals, the first to be implemented is application of new technology to business All of these things make the international payment activity become the key, especially international payment by documentary credit Confronting this fact, in the meeting “The orientation for the development of Sacombank –Thang Long Branch 2012”, the branch has given the following orientation for the improvement of the international payment by Documentary Credit: - Step up marketing to attract the units, particularly units with large import-export activities - Diversify the types of L/C is used, actively advise clients to choose which L/C is the most appropriate for thier type of business - Improve the service quality and ensure safety of international payment by documentary credit - Keep its prestige in the field of import-export, comply with the commitments with domestic and international customers - Focus on training staff so that they have a solid qualification and high language level to satisfy the strict demand of international payment activities - Strive to make international payment by documentary credit account for a significant proportion of the branch’s “profit pie " 4.2 Solutions to boost the international payment by Documentary Credit at Sacombank – Thang Long Branch 4.2.1 Establishing an effective marketing strategy Nowadays, the competition among banks is becoming more and more severe Not only does international payment is operated at Thang Long Branch but also in many other banks , so the branch has to realize that marketing is an indispensable factor along with the traditional banking operations Building an appropriate marketing strategy for survival is extremely important Giang Thị Nga ATC-B Page 26 The first to be paid attention to is a division specializing in marketing, in which there are creative, professional people planning marketing strategies for each different period The second is creating a good image about the branch At present, the branch has not possessed its own website This could be a drawback because the Internet is the place where banks can promote their brand eficiently Besides, the branch can use many other forms such as leaflets, advertisements, posters, etc Last but not least, creating the branch's working cultural can make a difference in the competition Sometimes the small details bring a good impression If customers find that machines, equipments and files are arranged in order, staff are well dressed and behave politely, they will have a trust on the branch, which could lead more customers using the branch’s services The third is developing customer activity According to modern marketing theory, customers always occupy a central position apart from the distribution agency and products Therefore, in addition product development, expansion of distribution agencies, it needs to build a customer management strategy, develop relationship with customers, understand customers’ demand, listen to their comments They deal with other banks many times so their comparisons are worth considering Banks are also sellers and their goods are products of international payment Finding out customers is difficult, keeping them transacting with banks is more difficult This has required the branchh to have a systematic marketing strategy The final is building a flexible pricing strategy The price is an issue that can not be ignored Branches should make a comparison between its price and that of other banks in the same area, consider the factors of costs, profit, risk coverage, etc to make price for each product Besides, it is better if the price is sometimes changed to adapt to fundamental differences in customers, the value of each item 4.2.2 Improving the professional skills of staff The improvement of international payment by Documentary Credit depends primarily on human factors as discussed in part 1.3.2.1 To have a staff of international payment that meets the improvement requirements of international payment by Documentary Credit, the branch should carry out some following measures: - Recruiting the employees who possess knowledge of foreign trade and international payments, capacity of foreign languages and computer technology - Regularly organizing training courses and seminars for the staff of International Payment Department to share feedback between the staff and customers, and experiences among staff of other branches and banks - In addition to helping the staff of International Payment Department cultivate their professional qualifications and language skills, the branch also should pay attention to fostering their moral qualities It is important that these employees have a sense of responsibility, enthusiasm, and polite attitude - Providing the staff with favorable policies Make sure for them a good and friendly working environment along with fair opportunities and incentive policies such as promotion, bonus, holiday, etc On the contrary, the branch offers the discipline for those Giang Thị Nga ATC-B Page 27 who not complete the task Through these forms, the branch might improve staff’s responsibility and encourage their working spirit 4.2.3 Strengthening technology infrastructure Banking technology in our country is rather backward compared to other countries in the world Technological innovation is one of the banks’ urgent tasks, is the factor to make competitiveness as indicated in the following aspects: -Saving costs, speeding up payment and cash flow and using capital effectively -Ensuring safety for international payment and foreign currency trading operations In the recent years, Sacombank – Thang Long has modernized the payment technology Most transactions have been computerized In international transactions, the branch joined the Society for Worldwide interbank Financial Telecommunications (SWIFT) SWIFT operates a worldwide financial messaging network that exchanges messages between banks and other financial institutions It connects more than 9,700 banking organisations, securities institutions and corporate customers in 209 countries With this banking system, the branch can handle 2000 telegrams on average each day, efficently serving in the international transactions The automated data processing contributes to reduction of transaction time and costs, improvement the L/C payment efficiency However, the use of new technology in the bank is only at the beginning; the branch should further innovate the payment technology to ensure that the process of data exchange between it and Headquarter is continuous Along with the modernization of technology, Sacombank – Thang Long also needs to focus on information security as well as security system upgrade In the future, Sacombank in general and Sacombank – Thang Long in particular ought to carry out “Imaginary Bank” “Imaginary Bank” is the bank whose services are provided through modern technical facilities, so without going to the bank, customers can transact with the bank via Phone Banking or Home banking service These services are being investigated to be completed and widely applied to all customers When transactions are networked between customers and branch, all transactions related to international payment can be done in the day, which greatly contributes to improvement efficiency and safety in L/C payment 4.2.4 Diversifying the products of L/C At present, Sacombank- Thang Long only applies some types of L/C such as Irrevocable L/C, L/C available by deferred payment, L/C available by acceptance, most of which are import L/Cs Whereas, international commerce has been more and more expanded, the demand of domestic and foreign enterprises getting for international payment by L/C is higher In order to meet the customers’ demand in the best way, the branch should diversify the products for international payment using L/C For example: with the goods transferred through intermediates, the bank can supply transferable L/C or back –to – back L/C so that the L/C can be easily transferred from the first to the final one With the goods traded in circle, it is more effective to apply revolving L/C This kind of L/C will save time and money for cancelling as well as issuing another L/Cs In order to successfully diversify the products of L/C, the branch should: Giang Thị Nga ATC-B Page 28 -Give training courses for staff about these special L/C so that they can consult effectively for customer; helping the customers get used to using these kinds of L/C -Encourage customers to be accustomed with using by applying lower fee at the first time of applying these L/Cs By this way, the branch will little by little diversify their products of L/C 4.2.5 Increasing the supply of foreign currencies for international payment using L/C An important issue in the international payment operations is to ensure that foreign currencies are enough for payment The branch needs to take measures to promote the mobilization of foreign currencies as well as maximize funding sources Thus, the branch should push up the mobilization of foreign currencies from various sources such as foreign currencies deposit, overseas remittance, etc More value added, appealing interest rate as well as gifts for special occasions are good ways to attract these sources Besides, the branches need to further enhance the business forms of foreign currencies with other commercial banks Simultaneously, it is essential to create good relationships with those banks so that in case of urgent need for foreign currencies, the branch can purchase from them 4.2.6 Managing risks in international payment by Documentary Credit Documentary Credit method does not bring an absolute safety It does not completely eliminate all risks for the parties because it is a very complicated method with a large number of documents to be prepared The biggest disadvantage of this process is making payment under a meticulous and complex process, requiring the parties to proceed with carefulness, especially in the stage of document formulation and examination Some hard risks exposed to banks are: -For the issuing bank: when the issuing bank determines that a presentation is complying, it must honour even if the importer can not repay or intentionally cheat the bank -For the advising bank : the bank is responsible for a " reasonable care " to ensure the authenticity of L/C , including verification of signature , encryption, etc before reporting to the exporter -For the confirming bank : if the documents constitute a complying presentation, the bank must honour even if it can not get the reimbursement from the issuing bank Thus, the confirming bank suffers from the credit and political risk from the mechanism of issuing bank’s country To limit risks in L/C payment process, the branch ought to take the following measures: - Enhancing the inspection and control over international payment activity This helps international payment activity in general and L/C payment in particular to be transacted more accurately and more effectively, go the right direction and development in accordance with the legal framework of the State It is advisory for the branch to select controllers who are impartial and responsible for the branch’s development -Fully updating economic information with an aim at minimizing the risks of this activity Giang Thị Nga ATC-B Page 29 -Selecting and applying appropriate methods and tools to prevent, mitigate risks For examples, tools against exchange rate risk such as forward contracts , futures contracts , swap contracts,etc 4.3 Petitions 4.3.1 Petitions for the government The improvement of international payment activity in general and documentary credit method in particular at commercial banks requires not only the efforts of the banks themselves but also relevant macroeconomic policies of our government Holding macroeconomic regulation, the State is recommended to pay attention to the following issues: - Stabilizing the macroeconomic environment Only when the economy has a stability and sustainable growth, will the banks’ international payment activity be improved safely and effectively Only when the economy develops, inflation is curbed, deflation is overcome, the value of domestic currency and interest rates are stabilized, businesses feel secure to be involved in the import-export field, look for another markets and business partners -Completing the law on international payment by documentary credit To operate international payment activity smoothly, consistently and effectively, a comlete legal environment is indispensable In Vietnam, there are no legal principles governing documentary credit method When using this method, Vietnamese commercial banks purely base on the arbitrary international rules such as UCP, ISBP, Incoterm while in other countries, specific laws are promulgated Wherefore in case of disputes, Vietnamese enterprises are usually embarrassed as well as quality of L/C payment reduces noticeable Therefore, there is an urgent need for the government to draft and bring the law on international payment by documentary credit into effect that is in accordance with international practices and characteristics of Vietnam so as to create a favorable legal environment for Vietnamese banks, businesses and foreign partners, promote the international trade These documents should show the following legal provisions: + Responsibilities of the involved parties in the implementation of the international payment conventions and rules + Solutions to conflicts between international rules and Vietnam’s laws + Solutions to disputes or damages - Strengthening the management role of the State to L/C payment activity To gain the aim of limiting risks as well as improving this activity, it is much better if the government monitors closely and forecasts in time macroeconomic happenings, changes in domestic and foreign financial markets to administrate monetary, banking operations effectively Giang Thị Nga ATC-B Page 30 4.3.2 Petitions for the Central Bank -Improving and better organizing the inter-bank foreign exchange market The inter-bank foreign exchange market is a market which exchanges and provides foreign currencies to settle foreign currency relations between the State bank and commercial banks, among commercial banks Improving and well organizing the interbank foreign exchange market is one of the important conditions for commercial banks to expand their foreign exchange and international payment operations Currently, this market in VN is organized under the following regulations: + The central bank administrates and supervises this market + The central bank takes the role as the final dealer; intervene if necessary for the purpose of national monetary policy To improve this market, the central bank should implement the following measures: + Monitoring the foreign exchange status of each commercial bank at the end of day, forcing the banks to handle their status by buying and selling foreign currencies on the interbank market, which partly makes the interbank market more active + Extending the scope of participants in the foreign currency interbank market At present, only the Headquarters of commercial banks are members of the market, yet the branches whose international payment turnover is high also have a big need for foreign exchange + Developing foreign currency borrowing, speculation, overnight deposit operations and other forms of foreign exchange trade such as Swap, Futures, Options, etc This diversification will allow the banks to select the exchange trading tools flexibly and help exporting - importing enterprises avoid risks in case of exchange rate changes as well - Continuing to build the legal documents about International payment by documentary credit and a flexible exchange rate policy not only to stabilize exchange rates in the countrybut also to ensure security for the banks when making payment - Enhancing the inspection, monitoring and safety evaluation for commercial banks with a view to minimizing risks in payment, thereby contributing to improve the payment quality at the banks 4.3.3 Petitions for the Sacombank Apart from the measures (improving the professional skills of staff, strengthening technology infrastructure, diversifying the products of L/C, etc mentioned in part 4.2), Sacombank ought to scale up the distribution network and agency relationships, especially with foreign agents This is a significant strategy that Sacombank should pay attention to Sacombank needs to expand its agents into developed countries such as the U.S, Japan, China, EU , etc Moreover, the bank had better further advertise its image, especially new products, branches and transaction offices widely, both in the country and abroad Participating in social activities such as charity programs, financing exchange and entertainment programs on television, in enterprises and universities also help introduce the bank’s image to the world Giang Thị Nga ATC-B Page 31 4.3.4 Petitions for the exporting - importing enterprises - Improving professional qualification of the exporting - importing enterprises’ staff Enterprises need to constantly foster their staff’s professional ability by regularly sending them to training courses Besides, they had better pay attention to foreign language ability of their employees which is important when they sign foreign trade contracts It is important for the enterprises frequently exporting or importing to establish a department in charge of import and export activities that consists of professional and honest employees As for businesses that not specialize in import and export or, they had better hire consultants This can cost them much, but ensure safety in each transaction -Fathoming their partners carefully as well as their country's trade policies before signing the contracts To limit risks, in addition to sources such as newspapers, television, Internet, companies should exploit information from an important source that is banks Through advisory services of banks, businesses can obtain information on financial status, business capability and reputation of their partners It can be said that this is a source of authentic information that helps enterprises better understand about their partners The law, information on market price and exchange rates must be captured by these enterprises so that they have an appropriate business strategy in accordance with domestic and foreign situation -Implementing the commitments with the bank accurately When participating in the international payment operation, businesses need to comply with the instructions or advice on the implementation of the L/C terms from the bank and adhere to strict payment obligations committed in the L/C The thing that the businesses acting as importers deliberately delay payment will tail away the bank’s reputation in the eyes of foreign banks With documentary credit method, the bank only checks conformity on the documents’ surface; if documents are in accordance with the provisions of the L/C, the bank has to pay In case goods are not the same as the quality requirements in trade contracts, the enterprises should find solutions with the bank, not lay the blame on the bank If the enterprises fulfill the above requisitions, it is certain that they will achieve good results in their import-export activities and the international payment process of the bank is quick, safe and effective, which limit risks from the enterprises at the highest level Giang Thị Nga ATC-B Page 32 CONCLUSION Vietnam’s accession to WTO is a big opportunity for our economy to integrate with the world’s economy Along with growth of international trade, international payment has increased not only in value but also in size and quality The more joint venture banks and foreign banks enter Vietnam, the tougher competition on the business market is In front of this fact, Sacombank - Thang Long needs to take measures to complete the international payment activity, especially documentary credit method, thereby raising the branch’s reputation After two- month internship in International Payment Department at Sacombank Thang Long, I wrote this graduation thesis on the basis of my understanding and the direction, data provision of employees at Thang Long branch In the scope of this research, I tried to find out the reality of using L/C payment method in Sacombank – Thang Long branch The readers have chance to go through four main chapters of the research The chapter provides the theoretical framework for the research of international payment using L/C with definitions, characteristics, kinds, process of L/C, criteria to reflect L/C payment improvement as well as the affecting factors on international payment using L/C Some information about Sacombank and Thang Long branch is shown in the second chapter Following is analysis and findings of L/C payment in Thang Long branch in chapter which is the foundation to give recommendations to improve international payment using L/C of the branch in the chapter Through this thesis, I hope some solutions can help to enhance documentary credit method at the branch I have tried my best to finish this thesis; however, there are still some mistakes needing to be found out and corrected Therefore, this research would welcome any comment to make it more practical Giang Thị Nga ATC-B Page 33 REFERENCES Vietnamese Nguyễn Văn Tiến (2007) Giáo trình toán quốc tế, 291-321, xuất lần thứ Tư, NXB Thống kê, Hà Nội PGS.TS Phan Thị Thu Hà (2009), Quản trị ngân hàng thương mại, ĐH Kinh Tế Quốc Dân, Hà Nội ICC- phòng thương mại quốc tế (2007).Bộ tập quán quốc tế L/C NXB Đại Học Kinh Tế Quốc Dân Ngân hàng Sài Gịn Thương Tín- chi nhánh Đống Đa, Báo cáo thường niên (20082010), Hà Nội English “A Short Course in International Payments”, Second Edition by Edward G Hinkelman (2003) Faculty of Business English (2009) “International Business Management”, National Economics University, 51 7.”Procedure and regulations of international payment methods and trade sponsorship” by Hill W.L., Charles, (2009) Ec-finance, (2010), Letter of credit process, Retrieved from http://www.ecfinance.com/ Lakshman, W & Michael (1998).The Complete Guide to Documentary Credits Rowe The Chartered Institute of Bankers – UK 10 Understanding and Using Letters of Credit, Retrieved from http://www.scribd.com/doc/5034881/understanding-and-using-letters-of-credit Giang Thị Nga ATC-B Page 34