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

THEORETICAL FRAMEWORK

Letter of Credit

According to Article 2 of UCP 600, a Letter of Credit is defined as an irrevocable arrangement that represents a definite commitment by the issuing bank to honor a complying presentation.

A documentary letter of credit (L/C) is a bank's guarantee to pay the seller a predetermined amount on behalf of the buyer, contingent upon the fulfillment of specific conditions The buyer outlines required documents, including a title document, that the seller must provide before payment is made This arrangement ensures that the seller will receive payment once the goods are shipped and the specified documentation is submitted.

From these definitions,it is can be seen that method of L/C reconciles the benefits and risks between exporters and importers, which is its advantages over other international payment methods

Exporters can be assured of receiving the exact payment amount promptly when they adhere to the conditions outlined in the letter of credit (LC) process.

 Importers know that banks will not be paying to the exporters if they fail to meet the letter of credit conditions

-L/C is an economic contract between 2 parties : the issuing bank and the beneficiary

All requests and instructions of the applicant are performed by the issuing bank so the official voice of the applicant is not shown in the L/C

A Letter of Credit (L/C) operates independently of the underlying trade contract, establishing itself as a distinct transaction Once the L/C is opened and accepted by all parties involved, the rights and obligations remain fixed and cannot be altered, regardless of whether the L/C terms align with the trade contract.

A Letter of Credit (L/C) operates solely through documentation, with payments made based on the provided documents Banks meticulously review these documents to ensure compliance; if they meet the required standards, the issuing bank is obligated to pay the exporter unconditionally, regardless of whether the goods were delivered as specified.

In a Letter of Credit (L/C) transaction, strict adherence to the documents is essential, as the involved parties focus on the documents themselves rather than the actual goods, services, or performance they represent This fundamental principle ensures that the transaction is executed accurately and efficiently.

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The documentary credit process begins when the buyer applies to their bank to open a credit in favor of the seller, who is designated as the beneficiary In this context, the buyer is referred to as the buyer in commercial terms, the importer in economic terms, and the applicant in banking terms, all of which denote the same individual.

Following the buyer's instructions, the issuing bank, usually the buyer's regular business bank, creates a documentary credit that identifies the seller as the beneficiary and forwards it to the advising bank, which is typically the seller's bank.

The advising bank, usually the seller's regular business bank located in the seller's country, notifies the seller about the credit based on instructions from the issuing bank and the buyer.

The seller, also known as the beneficiary of the documentary credit, receives notification from the advising bank regarding the credit approval By adhering to the stipulated terms and conditions, the seller successfully completes the transaction and receives payment In commercial contexts, the seller is referred to as the exporter, while in banking terminology, they are identified as the beneficiary, highlighting that all these terms refer to the same party in the transaction.

A confirming bank enhances the security of a letter of credit by adding its guarantee to the payment obligations of the issuing bank This ensures that the confirming bank assumes responsibility for payment or negotiation acceptance, providing additional assurance to exporters who may be hesitant to rely solely on the issuing bank's commitment.

The negotiating bank is responsible for reviewing and processing documents submitted by the beneficiary under a letter of credit, either directly advised or restricted to them Upon successful negotiation of these documents, the bank seeks reimbursement under the credit and disburses payment to the beneficiary, ensuring that the submitted documents comply with the specified terms and conditions of the letter of credit.

The reimbursing bank is the institution authorized to process reimbursement claims related to negotiations, acceptances, or payments submitted by the negotiating bank Typically, this bank holds an account with the issuing bank, from which the necessary payments are drawn.

The process of L/C can be divided into 2 main steps, namely Documentary Credit Application and Documentary Credit Payment

(1) The buyer and the seller set out the terms and conditions of the transaction in a contract of sales The issuance of a documentary credit will be one of the requirements

(2) The importer requests his bank to establish the documentary credit and must ensure that:

The bank has provided adequate facilities to address the financial needs However, if the bank assesses that the financial risk is excessive, it may request additional security in the form of a surety.

• The transaction complies with the relevant exchange control rulings or has a Reserve Bank approval reference number

(3) The issuing bank issues the documentary credit in conformity with the applicant’s instructions and sends it to the advising bank

(4) The advising bank hands the documentary credit to the beneficiary

(5) The exporter ships goods to the buyer

(6) The export submits the documents, which conform to the terms and conditions of the credit, to the advising bank

(7) The advising bank submits the documents to the issuing bank

The issuing bank verifies the compliance of the documents with the documentary credit Upon confirming that the documents satisfy the letter of credit (L/C) requirements, the bank forwards them to the buyer and ensures payment to the seller at maturity.

(9) The seller receives the payment or the acceptance through the advising bank

Norms reflecting the improvement of international payment by Documentary Credit

1.2.1.1 The transaction duration of a L/C payment

The duration of a Letter of Credit (L/C) payment is crucial, as it spans from the opening of the L/C to its settlement with the beneficiary, impacting the overall efficiency of the transaction Timeliness is essential; banks must issue L/Cs promptly in accordance with the agreements made between importers and exporters in their commercial contracts A shorter duration from L/C opening to settlement enhances transaction effectiveness, allowing customers to mobilize capital more swiftly and minimizing potential losses from delays Additionally, this efficiency helps banks reduce costs and increase productivity, ultimately improving the quality of L/C payment services.

The professional skills of the staff have a decisive impact on the duration, safety and improvement of the L/C transaction If the staff have good professional skills, practical

Giang Thị Nga ATC-B emphasizes that with adequate experience and foreign language skills, professionals can excel in their roles and offer valuable advice to clients This expertise not only mitigates risks but also speeds up the document verification process, ultimately improving the efficiency of the documentary credit method.

1.2.1.3 The satisfaction of the customers involved

Customer satisfaction serves as a key indicator of the quality of a bank's services Banks typically distribute survey questionnaires every one to four months to gather customer feedback By analyzing these results, they can assess the quality of their international payment services and identify areas for improvement A consistent increase in customer satisfaction over the years reflects the effectiveness of the bank's improvement strategies.

1.2.2.1 The proportion of L/C payment in the total international payment operation of the bank

The significant market share of international payments via documentary credit highlights customer preference for this banking method, indicating that the bank has successfully implemented an effective improvement strategy in its letter of credit (L/C) payment activities.

1.2.2.2 The profit from L/C payment operation

The profit from L/C payment operations is calculated by subtracting the associated expenses from the generated revenue, representing the bank's earnings from this activity.

Profit from L/C payment = Revenue from L/C payment –Costs of L/C transactions

Banks operate as profit-driven economic organizations, making it crucial to assess the effectiveness of documentary credit methods To enhance profitability, banks must implement strategies to boost revenue or reduce costs Fluctuations in payment profit over the years indicate the scale and growth of these operations A higher profit signifies that the bank successfully attracts more valuable letter of credit (L/C) transactions, reflecting the quality of its services and fostering an exceptional reputation among customers.

1.2.2.3 The level of risk in international payment by L/C

In international payments via documentary credit, risk is defined by potential losses incurred by banks when they are unable to recover debts already paid to exporters or face unnecessary expenses The greater these losses, the higher the transaction risk.

Effective risk management in Letter of Credit (L/C) payments hinges on the accurate transmission of L/Cs to all parties involved, alongside careful forecasting of political and economic conditions Implementing stringent verification processes is essential to mitigate fraud risks By addressing these challenges effectively, banks can reduce risks, protect customers from potential losses, and build trust, ultimately leading to increased profitability.

Factors impacting the improvement of international payment by Documentary Credit

1.3.1.1 Economic situation in domestic market and in the world

Banking in a stable and developed economy offers enhanced safety and efficiency, allowing banks to confidently invest in the economy, innovate products and services, and expand internationally The use of letters of credit (L/C) for international payments thrives in positive economic conditions, leading to increased demand for such transactions Historical trends indicate that global economic downturns result in stagnation of trading activities, making it challenging for banks to implement and promote international payment methods effectively.

1.3.1.2 Legal environment and macroeconomic policies from the government

A stable environment fosters economic development and accelerates international payment operations Political stability and sound macroeconomic policies significantly influence the business climate and investment opportunities A secure political landscape enhances investment safety, which is crucial for attracting both domestic and foreign investors while expanding the import-export market Consequently, this stability leads to improved international payment activities.

Cross-border trading activities are significantly influenced by the laws of both the domestic and host countries A favorable legal environment that aligns with international regulations and standards can effectively attract global investors.

International payment activities primarily involve exporting and importing enterprises as customers of commercial banks These customers must possess knowledge of foreign trade, international law, and language skills By attracting financially capable and reputable businesses, banks can facilitate smoother transactions, thereby minimizing payment risks and enhancing the quality of the documentary credit method.

The professionalism, language skills, and experience of bank staff are crucial for enhancing documentary credit payments and overall international payment activities When employees possess technical expertise, attention to detail, patience, and fluency in foreign languages, they can work more efficiently, attracting more customers Furthermore, skilled staff who provide valuable consultancy help clients minimize risks, thereby building trust and improving the quality of international payment methods while also reducing potential risks for the bank.

In today's era of rapid technological advancement, modern technology and facilities play a crucial role in facilitating fast, accurate, and secure international payments These elements are essential for enhancing both international payment processes and the operation of letters of credit (L/C) within banks To effectively address the varied needs of customers, commercial banks must invest in advanced technology and infrastructure.

The network of correspondent banks is crucial for facilitating international payments, ensuring consistency in Letter of Credit (L/C) transactions and enhancing customer convenience Banks with extensive correspondent networks can process international payments more quickly and accurately, effectively meeting customer needs A well-functioning correspondent banking network not only improves operational efficiency but also enhances the bank's reputation in the global finance and banking sector.

THE INTRODUCTION OF SAIGON THUONG TIN COMMERCIAL

The establishment and development of Sacombank – Thang Long Branch

Founded on December 21, 1991, Sacombank emerged as a leading financial institution through the merger of Go Vap Economic Development Bank and three credit institutions, starting with an initial charter capital of VND 3 billion The bank aims to establish itself as the first modern multi-purpose retail bank at the regional level.

After 20 years operating, Sacombank has become one of the biggest commercial banks in Vietnam with great results: 146,000 billion VND of total assets; 10,740 billion VND of charter capital, 69 branches ( 1 branch in Laos and 1 branch in Cambodia) and 408 transaction offices in Vietnam, 6180 agencies connected with 289 banks in 80 countries and areas in the world

Sacombank has become a pioneering bank in many business performances, such as:

• The first bank to be listed on the Ho Chi Minh Stock Exchange in Vietnam;

• The first bank in Vietnam to expand its network to Laos and Cambodia;

• The leading bank in Vietnam to top into the niche market such as Bank for Women

(8 March Branch) and Chinese Community Bank (Hoa Viet Branch);

• The first bank in Vietnam to receive funding allocations from international financial institutions such as IFC, FMO, ADB, Proparco, etc to support individuals, small and medium-sized enterprises;

The bank has garnered numerous prestigious awards and rankings from both international and domestic organizations, including accolades such as "Best Retail Bank in Vietnam 2012" from The Asian Banker, "Best Foreign Exchange Provider in Vietnam 2010" from Global Finance, and "Best Cash Management Bank in Vietnam 2010" from The Asset.

Established on August 8, 2007, Sacombank-Thang Long Branch, located at 60A Nguyen Chi Thanh, has expanded to include three transaction offices to enhance customer service in the local area The branch offers a comprehensive range of traditional and modern banking services, including capital raising in VND, foreign currencies, and gold from both organizations and individuals, as well as diverse loan options tailored to meet customers' borrowing needs Additionally, it provides money transfer services and various banking solutions such as international payments and factoring.

At its inception, the Thang Long branch encountered numerous challenges; however, through the unity of its staff and the strategic leadership of Sacombank, it successfully navigated these obstacles This perseverance led to significant contributions to the overall performance of the Sacombank system, marking its initial success.

After nearly five years of operation, Sacombank's Thang Long branch consistently exceeds its targets and receives commendations from the board of directors The branch has established a strong foothold in the financial market, demonstrating its competitiveness against other major banks in the region.

Giang Thị Nga ATC-B Page 12 expansion in 2012, Thang Long branch will become an important link in the network of modern and multifunctional branches of Sacombank.

The organizational structure of Sacombank – Thang Long Branch

At Sacombank Thang Long, the leadership team consists of the Director and two Deputy Directors, who oversee the performance of all staff members The branch is organized into five functional departments: the Business Support Department, the Customer Service Department, the Administration Department, the Finance and Accounting Department, and the Transaction Offices This structure is illustrated in Figure 1 below.

Figure 2.1: The organizational structure of Sacombank- Thang Long

The result of some main operations of Sacombank – Thang Long Branch

2.3.1 The operation of capital mobilization

Figure 2.2 : The result of capital mobilization 2009-2011 (billion VND)

Total amount of mobilized capital

(Source: Sacombank- Thang Long’s annual report in 2009, 2010 and 2011)

Total amount of raised capital increased over the years: in 2009, this amount was 710 billion VND; in 2010 it reached 1,020 billion VND; in 2011, this number increased by

The capital raised ranges from 50% to 1,500 billion VND, with deposits from residents surpassing those from economic organizations This indicates a stable capital structure that aligns with the characteristics of a retail bank Analyzing the terms of capital reveals significant insights into the bank's financial composition.

2009 to 2011, short term capital accounted for 67% total mobilized capital Regarding kinds of currency, capital in VND usually constituted 65 % of the total capital raised through the years

2.3.2 The operation of capital financing

Figure 2.3: The result of capital financing from 2009 to 2011(billion VND)

Total loan in 2010 was 950 billion VND, increasing by 45% compared to 2009 This amount in 2011 was 1200 billion VND, in which USD reached 150 million

In 2011, the branch faced significant challenges in mobilizing funds, resulting in short-term loans in VND constituting over 80% of the total loan portfolio Constraints imposed by the State Bank of Vietnam on credit growth limited the branch's ability to fully develop its lending capabilities.

2012, the branch continued to promote the short-term loans in VND, especially consumer loan

2.3.3 The operation of international payment

Sacombank, one of Vietnam's pioneering commercial banks, has joined SWIFT (Society for Worldwide Interbank Financial Telecommunication) to enhance its payment services and customer support Over the years, Sacombank-Thang Long has gained recognition as the leading branch in terms of transaction volume processed through SWIFT.

Figure 2.4: The result of international payment 2009- 2011 (thousand USD)

Total value L/C Remittance Collection Others

The total value of international payments has significantly increased over the years, rising from 46,000 thousand USD in 2009 to 109,000 thousand USD in 2010, with an impressive 85% growth in revenue in 2011 compared to the previous year Among the three primary methods of international payment—remittance, collection, and letter of credit—the letter of credit emerged as the most utilized and profitable, generating 60,000 thousand USD in 2010, which represented 55% of total revenues By 2011, revenue from letters of credit surged to 120,000 thousand USD, accounting for 62% of international payment revenues This upward trend highlights the improvement in international payment processes, particularly through letters of credit, and reflects positively on Sacombank-Thang Long, which achieved remarkable growth despite intense competition and economic challenges in 2011.

ANALYSES AND FINDINGS

The reality of the improvement of the international payment by documentary credit at

3.1.1 Legal framework governing the international payment by documentary credit at Sacombank – Thang Long Branch

UCP 600 is the most recent update to the Uniform Customs and Practice, consisting of 39 articles that regulate the functioning of letters of credit, as established by the ICC in 2007 It is important to note that UCP 600 does not automatically apply to letter of credit payments; its use as a reference must be mutually agreed upon by the involved parties.

ISBP 681 serves as a valuable supplement to UCP 600, providing detailed guidance on the application of its rules in letter of credit (L/C) transactions without altering the original framework of UCP 600 By clarifying various interpretations, ISBP 681 harmonizes the understanding among global participants involved in L/C payments.

In addition to the Uniform Customs and Practice for Documentary Credits (UCP) and the International Standard Banking Practices (ISBP), the International Commercial Terms 2000 (Incoterms 2000), published by the International Chamber of Commerce (ICC), is widely utilized to clarify the responsibilities of parties involved in goods delivery.

Domestic Law Resources and the branch’s regulations

Together with international laws, the international payment by documentary credit of Sacombank – Thang Long also follows a number of national legal documents such as: -Law on the Transferable Instruments 2005

-Decision No.226/2002/QD-NHNN issued on 26 th March 2002 on the payment operation via organizations providing payment services

-Decision No.711/2001/QD-NHNN issued on 25 th May 2001 on opening letter of credit for deferred payment

Decree No 63/198/ND-CP, issued on August 17, 1998, regulates foreign exchange management for Vietnamese organizations and individuals both domestically and internationally Additionally, the Letter of Credit (L/C) payment activities are overseen by the regulations established by the General Director of Sacombank.

3.1.2 The reality of the improvement of international payment by documentary credit at Sacombank - Thang Long Branch

3.1.2.1 Qualitative criteria a) The transaction duration of a L/C payment

International payments utilizing Letters of Credit (L/C) in branches are streamlined through import and export L/C processes The branch's role is limited to receiving, advising, and executing payments or collecting debts, while the International Transaction Center manages all issuance and technical procedures Notably, the time required to open an L/C has significantly decreased compared to previous practices, as illustrated in the accompanying table.

Table 3.1 : Time to open a L/C set

( Source: Sacombank- Thang Long’s report on international payment by L/C from 2009 to 2011)

The transaction process is expedited through the expertise of professional staff and advanced banking technology, ensuring customer satisfaction and confidence by saving both time and money This efficiency significantly enhances the overall satisfaction levels of customers involved.

In order to evaluate the quality of L/C operation, the branch falls into a habit of making a yearly research by delivering the questionnaire to 100 customers of the branch

Figure 3.1 :The satisfaction degree of customers in L/C operation

Research indicates high customer satisfaction with L/C transactions at the Hanoi branch, with satisfaction rates increasing from 75% in 2009 to 90% in 2011 A significant 65% of customers attribute their satisfaction to the qualified staff, while 35% credit the advanced data processing banking technology These findings highlight that the branch's professional and enthusiastic personnel, along with modern banking technology, are key factors in the success of its L/C payment operations.

3.1.2.2 Quantitative criteria a) The profit of international payment using L/C

In terms of the L/C transactions’ quality, this is one of the most important quantitative criteria used to evaluate

Table 3.2: The quantity and profit of L/C transactions 2009-2011

Between 2009 and 2011, profits from import and export L/C transactions significantly increased, with total profits rising from 23,000 thousand USD in 2009 to 60,000 thousand USD in 2010, coinciding with a rapid recovery of both the Vietnamese and global economies By 2011, profits surged to 120,000 thousand USD, driven by a higher volume of L/C packs opened, primarily from Sacombank-Thang Long's clientele, which consists of large importing and exporting enterprises dealing with substantial quantities of raw materials and equipment This growth in L/C transactions underscores the enhanced reliability of international payments, contributing to the branch's increased trustworthiness.

In 2011, the quantity of export L/C reduced but the earnings still increased compared to

In 2010, the branch attracted significant new clients, resulting in an increase of 400 thousand USD The profit from import letters of credit surged to 117.6 million USD, doubling the amount from the previous year This growth is attributed to the booming trading activity, which heightened the demand for secure international payment methods, particularly documentary credit.

Figure 3.2 : The profit of L/C transactions 2009-2011(million USD)

The significant rise in the total volume of L/C payments can be attributed primarily to import L/Cs, which constitute approximately 97% of the overall international payment volume This trend highlights that the main clientele of the branch consists of domestic enterprises purchasing goods and materials from abroad There is a stark contrast between import and export L/Cs, with import L/Cs representing 97% to 98% of international payment activities, while export L/Cs only account for 2% to 3% This disparity indicates an imbalance in L/C payment operations, particularly regarding the proportion of L/C profits within the branch's total international payment activities.

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

Figure 3.3 : Proportion of L/C profit in the total international payment operation of the Branch from 2009 to 2011(%)

The author quantitatively assessed the quality of Letter of Credit (L/C) transactions by examining the proportion of L/C profit relative to total international payments The analysis revealed a substantial and increasing share of L/C turnover, rising from 50% in 2009 to nearly 62% in 2011 This consistent and significant growth in L/C payment turnover contrasts sharply with the minimal gains observed in other payment methods, such as remittance and collection Consequently, it is evident that the L/C payment method offers distinct advantages, leading to its widespread adoption among enterprises.

A remarkable achievement in Sacombank – Thang Long is raising the safety, mitigating risks and improving competitiveness in L/C payment

Table 3.3 : The rate of errors in checking L/C documents

Between 2009 and 2011, the error rate in document verification at the branch decreased from 8% to 5%, attributed to the proficiency of well-trained staff Despite this improvement, the remaining error rate is still significant in the context of economic integration, adversely impacting both customer business activities and the branch's overall performance.

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

The delinquency ratio at the Thang Long branch has significantly decreased over the years, dropping from 2.1% in 2009 to 1.3% in 2011 This improvement can be attributed to the restrictions on opening deferred letters of credit (L/C) As a result, the L/C payment operations at the Thang Long branch have become both more effective and safer.

Valuation of the improvement of the international payment by documentary credit at

The analysis reveals that the branch has effectively managed its letter of credit (L/C) operations, leading to a steady increase in revenue and maximizing profits from international payment activities Revenue from documentary credit rose significantly from $23 million in 2009 to $120 million in 2011, representing 62% of income from international payments and nearly 35% of total income This growth underscores the crucial role of documentary credit in diversifying the branch's income The success can be attributed to enhancements in the quality of international payment services, with Sacombank and its Thang Long branch consistently meeting international standards, as recognized by leading financial publications.

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 highlights the effectiveness of the documentary credit method, which has facilitated the establishment of long-term relationships with key clients, including Petrolimex, An Phu Linh Ltd Co., and An Binh Telecommunications Co Notably, statistics from the International Payment Department reveal that the import Letter of Credit (L/C) sales of Vietnam National Petroleum Group (Petrolimex) account for over 40% of the total import L/C sales.

In addition, credit risk in documentary credit method significantly reduced Delinquency ratio dropped from 2.1 % in 2009 to 1.3 % in 2011

After 3 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

In recent years, Sacombank - Thang Long has achieved many encouraging resultsin L/C payment activity The main reasons which can be seen are:

The L/C payment process at Sacombank – Thang Long is managed by a qualified team of professionals, all of whom hold university degrees and possess strong English skills They are adept at using the SWIFT banking network for international transactions The department is characterized by a dynamic and modern work environment, emphasizing polite and attentive communication practices.

The branch has established strong connections with global agents and banks for the L/C payment process, facilitating smoother payment relations This growing reputation in international markets enhances the branch's customer base, enabling it to gradually enter new markets and expand its international payment operations, particularly in documentary credit transactions.

In addition, in 2009, Sacombank –Thang Long applied Corebanking technology T24 R06 so that telegraphic handling and information transmit are fast, accurate and convenient

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

From 2009 to 2011, the revenue generated from international payments via documentary credit was insufficient, despite a notable increase in total revenue from L/C payments during this period This growth did not align with the branch's potential, especially given its strategic location in the heart of Hanoi, surrounded by numerous exporting and importing companies The branch had the opportunity to achieve significantly higher profits through transactions with these businesses.

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 24 payment transactions whereas a huge workload needs to be taken, which has restrained the quality and time of document processing

Sacombank – Thang Long has significant potential to tap into the needs of customers that remain largely unexplored In the context of international economic integration, there is a notable increase in international trade and L/C transactions However, the branch primarily serves a limited number of existing patrons, leaving a wealth of potential customers untapped Many businesses continue to maintain their accounts with traditional banks like Vietnam Commercial Bank and Vietnam Joint Stock Commercial Bank for Industry and Trade, indicating an opportunity for Sacombank to expand its customer base.

The branch faces challenges due to its limited range of products, offering only standard options like Irrevocable and Revolving Letters of Credit This lack of diverse offerings hampers its competitiveness against other banks in today's advanced financial landscape Consequently, the branch struggles to enhance its market presence and gain broader recognition among potential customers.

The final imbalance in international trade arises from the disparity between export and import activities conducted through letters of credit (L/C) Revenue generated from export L/Cs constitutes a minor fraction of the overall international payments made via L/C Primarily, domestic enterprises engage in L/C transactions to procure goods and materials from abroad, resulting in a shortage of foreign currency needed for these imports.

Vietnam's legal environment remains incomplete and lacks synchronization with international practices, despite gradual adjustments to meet new requirements The legal system still exhibits shortcomings and fails to prioritize market rules and international standards Numerous legal barriers exist that banks cannot resolve independently, leading parties involved in disputes to rely primarily on international rules or the laws of third countries This reliance often creates challenges for both banks and customers.

In 2011, significant macroeconomic fluctuations led to insolvency in major economies, a decline in the value of the US dollar, and a continuous rise in gold prices, all of which impacted banks' foreign exchange operations With domestic inflation soaring at 18.58%, banks faced challenges due to the central bank's shifting policies, including tightened monetary measures and increased reserve requirements These changes in gold prices and inflation affected both domestic and international markets, complicating lending for banks as enterprises struggled with high output and capital costs Consequently, the economic crisis profoundly affected domestic importing and exporting businesses.

The final cause of limitations faced by branches arises from their customers There is a lack of knowledge regarding international law, practices, and the economic conditions of partner countries, along with insufficient qualifications and experience among Vietnamese import and export enterprises Furthermore, the expertise of professionals in law and international payment is inadequate.

A survey by the Commerce and Industry Chamber revealed that 65% of directors in small and medium-sized enterprises lack professional training in foreign trade operations, despite 80-85% of these companies engaging with specialized traders This gap in knowledge, combined with a weak economic position, often forces these companies to accept unfavorable conditions in foreign trade contracts, increasing potential risks for the banks financing them.

Vietnamese firms exhibit weak financial capacity, characterized by low equity that insufficiently supports their operational costs As a result, these businesses heavily rely on loans from financial branches Consequently, any incidents of fraud or losses within these firms can significantly impact the credit quality of the lending branch.

The morality of enterprises significantly impacts the quality of financing within the sector, as some companies engage in dishonest financial reporting to secure loans or misallocate funds for unauthorized purposes.

SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY

Solutions to improve the international payment by Documentary Credit at Sacombank-Thang Long

CHAPTER 4 SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT

BY DOCUMENTARY CREDIT AT SACOMBANK – THANG

4.1 The orientation for the improvement of the international payment by Documentary Credit at Sacombank – Thang Long Branch

Accession to the WTO presents a significant opportunity for our country to enhance export activities, reduce trade deficits, and attract investments through modern production processes However, this also brings challenges as foreign enterprises with substantial capital and resources enter the Vietnamese market, intensifying competition To thrive in this environment, businesses must adopt new technologies, making international payment processes, particularly through documentary credit, crucial In light of these developments, the Sacombank – Thang Long Branch has outlined strategic orientations for improving international payment via documentary credit during its 2012 development meeting.

- 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

In today's competitive banking landscape, Thang Long Branch must recognize the crucial role of marketing alongside traditional banking operations, as international payment services are also offered by various other banks Developing an effective marketing strategy is essential for the branch's survival and success in this challenging environment.

To enhance its market presence, the branch should prioritize developing a dedicated marketing division staffed with creative professionals who can craft targeted strategies for various periods Additionally, establishing a robust online presence through a dedicated website is crucial, as it allows for effective brand promotion in the digital space, complemented by traditional marketing tools like leaflets, advertisements, and posters Furthermore, fostering a strong workplace culture can significantly differentiate the branch in a competitive landscape; attention to detail—such as organized equipment, well-dressed staff, and courteous behavior—can instill trust in customers, ultimately leading to increased patronage of the branch’s services.

Developing customer activity is crucial in modern marketing, where customers are central to the business model Beyond product development and distribution expansion, banks must implement effective customer management strategies that focus on building relationships, understanding customer demands, and actively listening to feedback Given that customers often compare services across multiple banks, it becomes essential for banks to not only attract but also retain their clientele This necessitates a systematic marketing strategy to enhance customer engagement and loyalty, as maintaining ongoing transactions is more challenging than acquiring new customers.

Developing a flexible pricing strategy is crucial for banks, as pricing cannot be overlooked Banks should compare their prices with competitors in the same area while considering costs, profit margins, and risk coverage for each product Additionally, adjusting prices periodically can help cater to the diverse needs of customers and reflect the value of each offering.

4.2.2 Improving the professional skills of staff

The enhancement of international payments through Documentary Credit largely relies on human factors To ensure that the staff is equipped to meet the evolving demands of international payments, branches should implement specific measures aimed at improving their workforce.

- Recruiting the employees who possess knowledge of foreign trade and international payments, capacity of foreign languages and computer technology

The International Payment Department consistently conducts training courses and seminars to facilitate feedback exchange between staff and customers, as well as to share valuable experiences among employees from various branches and banks.

The International Payment Department should prioritize not only the professional qualifications and language skills of its staff but also the development of their moral qualities Cultivating a sense of responsibility, enthusiasm, and a polite attitude among employees is essential for fostering a positive work environment.

Creating a supportive workplace involves implementing favorable policies that ensure a friendly environment for staff, alongside equitable opportunities and incentive programs such as promotions, bonuses, and holiday benefits Conversely, the branch also enforces discipline for those who do not adhere to these standards.

Giang Thị Nga ATC-B Page 28 who do not complete the task Through these forms, the branch might improve staff’s responsibility and encourage their working spirit

Banking technology in our country lags behind that of other nations, highlighting the urgent need for technological innovation in the banking sector This innovation is crucial for enhancing competitiveness and can be achieved through various advancements.

-Saving costs, speeding up payment and cash flow and using capital effectively

-Ensuring safety for international payment and foreign currency trading operations

In recent years, Sacombank – Thang Long has modernized its payment technology, transitioning most transactions to a computerized system The branch has joined the Society for Worldwide Interbank Financial Telecommunications (SWIFT), which facilitates a global financial messaging network connecting over 9,700 banking organizations and corporate customers across 209 countries This system enables the branch to efficiently handle an average of 2,000 telegrams daily, significantly reducing transaction time and costs while enhancing the efficiency of L/C payments However, the adoption of new technology is still in its early stages, and the branch must continue to innovate its payment processes to ensure seamless data exchange with its headquarters Additionally, Sacombank – Thang Long should prioritize information security and upgrade its security systems alongside technological advancements.

In the future, Sacombank, particularly Sacombank – Thang Long, should implement the concept of an "Imaginary Bank," which offers banking services through advanced technology This innovative approach allows customers to conduct transactions without visiting a physical branch, utilizing Phone Banking and Home Banking services These solutions are currently under development to ensure broad accessibility for all clients By enabling seamless online transactions between customers and branches, international payments can be processed within the same day, significantly enhancing efficiency and safety in letter of credit (L/C) payments.

Sacombank-Thang Long currently offers limited types of Letters of Credit (L/C), including Irrevocable L/C, deferred payment L/C, and acceptance L/C, primarily for import transactions However, as international commerce continues to expand, the demand from both domestic and foreign enterprises for diverse L/C options is increasing To better serve customer needs, the branch should diversify its international payment products For instance, transferable or back-to-back L/Cs can facilitate the transfer of goods through intermediaries, while revolving L/Cs can streamline transactions involving circular trade, saving time and reducing costs associated with canceling and issuing new L/Cs.

In order to successfully diversify the products of L/C, the branch should:

To enhance customer experience with special letters of credit (L/C), it is essential to provide comprehensive training courses for staff, enabling them to offer effective consultations Additionally, introducing lower fees for first-time applicants will encourage customers to familiarize themselves with these L/C options This strategy will gradually allow the branch to diversify its L/C product offerings.

4.2.5 Increasing the supply of foreign currencies for international payment using L/C

Ensuring sufficient foreign currency for international payment operations is crucial To achieve this, branches must implement strategies to enhance the mobilization of foreign currencies and optimize funding sources This includes increasing foreign currency deposits and encouraging overseas remittances Offering attractive interest rates, additional value, and special occasion gifts can effectively draw in these essential resources.

Petitions

Enhancing international payment activities, especially through the documentary credit method at commercial banks, necessitates collaborative efforts from both the banks and supportive macroeconomic policies from the government To effectively regulate the macroeconomic environment, it is crucial for the State to focus on key areas that will foster this improvement.

A stable and sustainably growing economy is essential for enhancing the effectiveness of banks' international payment activities When economic development occurs alongside controlled inflation and managed deflation, as well as stabilized domestic currency values and interest rates, businesses gain the confidence to engage in import-export activities and seek new markets and partnerships.

-Completing the law on international payment by documentary credit

A comprehensive legal framework is essential for the smooth and effective operation of international payment activities In Vietnam, the absence of specific legal principles governing the documentary credit method leads local banks to rely solely on arbitrary international rules such as UCP, ISBP, and Incoterms In contrast, other countries have established specific laws for these transactions As a result, Vietnamese enterprises often face challenges during disputes, which adversely affects the quality of letter of credit (L/C) payments.

The government must urgently draft and implement a law on international payments through documentary credit that aligns with both international standards and the unique characteristics of Vietnam This legislation is essential to establish a supportive legal framework for Vietnamese banks, businesses, and foreign partners, ultimately promoting international trade Key legal provisions should be clearly outlined in these documents.

+ 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 effectively manage monetary and banking operations, the government should closely monitor and timely forecast macroeconomic events and fluctuations in both domestic and international financial markets, aiming to mitigate risks and enhance overall activity.

4.3.2 Petitions for the Central Bank

-Improving and better organizing the inter-bank foreign exchange market

The inter-bank foreign exchange market facilitates the exchange of foreign currencies, enabling the settlement of foreign currency relations between the State bank and commercial banks, as well as among commercial banks A well-organized inter-bank foreign exchange market is crucial for commercial banks to enhance their foreign exchange and international payment operations In Vietnam, this market operates under specific regulations that govern its functionality.

+ 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 enhance the foreign exchange market, the central bank should monitor the end-of-day foreign exchange positions of commercial banks, compelling them to manage these positions by engaging in buying and selling foreign currencies on the interbank market, thereby increasing its activity.

To enhance the foreign currency interbank market, it is essential to broaden the range of participants beyond just the headquarters of commercial banks Currently, only these headquarters are members, but many branches with significant international payment volumes also have a substantial demand for foreign exchange Expanding participation will facilitate better access to foreign currency for these branches, ultimately improving market efficiency.

Developing diverse foreign currency borrowing options and various foreign exchange trading instruments, such as swaps, futures, and options, enables banks to flexibly choose trading tools This diversification not only enhances the banks' operational capabilities but also helps exporting and importing enterprises mitigate risks associated with exchange rate fluctuations.

To enhance the stability of exchange rates and provide security for banks during transactions, it is essential to develop legal frameworks for international payments through documentary credit, alongside implementing a flexible exchange rate policy.

- 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

To enhance its market presence, Sacombank should prioritize expanding its distribution network and agency relationships, particularly with foreign agents in developed countries like the U.S., Japan, China, and the EU This strategic focus, alongside improving staff professional skills and strengthening technology infrastructure, is essential for diversifying the bank's product offerings and achieving sustainable growth.

To enhance its visibility, the bank should actively promote its brand, particularly focusing on new products, branches, and transaction offices, both domestically and internationally Engaging in social initiatives, such as charity programs and sponsoring entertainment events on television, as well as collaborating with enterprises and universities, will effectively showcase the bank's image to a global audience.

4.3.4 Petitions for the exporting - importing enterprises

To enhance the professional qualifications of staff in exporting and importing enterprises, it is essential to regularly provide training opportunities Additionally, prioritizing the foreign language skills of employees is crucial, as these abilities play a significant role in successfully negotiating and signing 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 do 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 mitigate risks, companies should leverage information from banks, in addition to traditional sources like newspapers, television, and the Internet Banks offer advisory services that provide insights into the financial status, business capabilities, and reputations of potential partners This authentic information is invaluable for businesses seeking to gain a deeper understanding of their partners.

To develop a suitable business strategy that aligns with both domestic and international conditions, enterprises must effectively capture legal regulations, market prices, and exchange rate information.

-Implementing the commitments with the bank accurately

Tiêu đề	Solutions To Improve The International Payment By Documentary Credit At Saigon Thuong Tin Commercial Joint Stock Bank – Thang Long Branch
Tác giả	Giang Thi Nga
Người hướng dẫn	Nguyen Hong Ngoc, M.A, Ngo Tung Anh, M.A
Trường học	State Bank of Vietnam Banking Academy
Chuyên ngành	Foreign Language
Thể loại	graduation thesis
Năm xuất bản	2012
Thành phố	Hanoi

Định dạng
Số trang	42
Dung lượng	1,2 MB