BANKING ACADEMY OF VIETNAM FACULTY OF FOREIGN LANGUAGES ---o0o--- GRADUATION THESIS THE EFFECTIVENESS OF INTERNATIONAL PAYMENT BY DOCUMENTARY CREDIT AT VIETNAM JOINT STOCK COMMERCIAL
INTRODUCTION
Introduction
As global market integration continues to rise, international trade is becoming crucial for the economic development of nations The expanding trade activities between countries have led to a heightened demand for partnerships with foreign companies Vietnamese businesses are not only attracting foreign investment but are also adapting to the trends of integration From 2010 to 2021, Vietnam's total import-export turnover surged 4.25 times, escalating from $157.1 billion to $668.5 billion, reflecting the growing demand for imports and exports within the country.
Banks serve as crucial financial intermediaries in global international payment activities, facilitating transactions between importers and exporters This banking involvement allows governments to monitor and manage import-export dynamics, enabling them to analyze data and propose strategies for economic growth Consequently, international payments through banks are vital for economic development Notably, the documentary credit method is the most preferred payment option, representing over 80% of all bank-provided payment methods.
VietinBank's documentary credit payment activities have consistently generated stable profits, showcasing the bank's success in this area However, there are notable limitations that hinder the effectiveness and quality of its international payment operations Consequently, I have chosen to focus my thesis on "The effectiveness of international payment by documentary credit method at Vietnam Joint Stock Commercial Bank for Industry and Trade – Dong Ha Noi Branch."
Background of the study
International payments play a crucial role in enabling countries to engage in the global commercial market and foster economic growth By facilitating safe and stable transactions, these payment systems enhance the exchange of imported and exported goods, ultimately contributing to the development of a nation's economy.
Vietnamese businesses are increasingly engaging in the commodity exchange market due to favorable production incentive policies To select an appropriate payment method, business owners must be well-informed about international payment options and processes, particularly the Letter of Credit (L/C) method, which is recognized as the safest and most widely used approach in international transactions today.
The COVID-19 pandemic significantly impacted the global economy, with Vietnam experiencing notable challenges in early 2021 as the virus spread rapidly The government allocated funds for disease prevention and medical equipment, which strained the economy further Many businesses faced staff reductions and production cuts, leading to nearly 55,000 enterprises temporarily suspending operations, an 18% increase from the previous year Additionally, 48,100 businesses halted operations while awaiting dissolution, a 27.8% rise, and 16,700 completed dissolution procedures The majority of affected enterprises were small-scale, with 14,800 having capital under 10 billion VND, highlighting the severe repercussions of the pandemic on business activities and international payment operations within the banking sector.
In 2022, the country saw a significant surge in business activity, with 208,300 newly registered companies and 59,800 businesses resuming operations, marking a 30.3% increase from the previous year Many of these revitalized businesses operated with limited capital, prompting commercial banks to implement targeted financing policies and offer preferential loans Additionally, banks aimed to attract clients by developing a range of international payment products utilizing documentary credit methods To mitigate potential risks, banks also emphasized the importance of thorough evaluations of businesses before extending financing services.
International payment services offered by commercial banks have intensified competition in the financial sector, focusing not only on profitability but also on enhancing banks' reputations in the global market Successful international transactions significantly boost a bank's standing and financial credibility Consequently, it is essential for banks to strengthen their global partnerships and expand both domestic and international branches to remain competitive.
Objectives of the study
This study assesses the effectiveness of international payment via documentary credit at Vietnam Joint Stock Commercial Bank for Industry and Trade, identifying limitations and proposing solutions to enhance L/C-based international payment activities.
Evaluate the business performance of the Dong Ha Noi Branch and indicate whether the branch has operated effectively or not
This article evaluates the qualitative factors influencing the effectiveness of international payments via documentary credit at the Dong Ha Noi Branch of Vietnam Joint Stock Commercial Bank for Industry and Trade Key criteria include the variety of L/C products offered, the volume of foreign currency trading operations, and the bank's engagement in import-export credit activities.
Evaluate quantitative indicators affecting the effectiveness of international payment by documentary credit method at Vietnam Joint Stock Commercial Bank
The Dong Ha Noi Branch of Industry and Trade evaluates its international payment sales through several key criteria These include the ratio of L/C payment sales to total international payment sales, the share of L/C revenue in total international payment revenue, and the proportion of L/C costs relative to L/C revenue Additionally, the branch assesses the ratio of L/C profit to L/C revenue, the percentage of L/C fees in relation to total service fees, and the number of customers engaging in L/C payment transactions.
Significance of the study
This research evaluates the effectiveness of documentary credit payment activities at VietinBank's Dong Ha Noi Branch, utilizing the bank's statistical data The primary beneficiary of this study is the Dong Ha Noi Branch, which can leverage the findings to enhance its international payment services Additionally, students and researchers interested in international payment methods, particularly those related to documentary credits at banks like VietinBank, will benefit from this work The thesis aims to enrich the understanding of international payment practices in banking, offering an objective and comprehensive perspective on the topic.
Researching documentary credit payment methods enhances my understanding of bank operations, processes, and associated risks Additionally, analyzing data and leveraging insights from staff and experts can yield valuable solutions for improving documentary credit activities Furthermore, engaging with books and electronic resources, along with guidance from instructors, aids in refining the research topic and developing critical thinking and presentation skills essential for defending a thesis before the scientific council.
Scope and limitations of the study
This research examines the effectiveness of international payments using the documentary credit method at the Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Ha Noi Branch It identifies the limitations faced in this process and proposes solutions to enhance the development of international payment activities through documentary credit.
This study is limited to five time constraints and specifically examines documentary credit payment methods Data was gathered from the Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Ha Noi Branch, covering the period from 2021 to 2023.
Definition of terms
L/C (Letter of credit): is a document sent from a bank or financial institution that guarantees that a seller will receive a buyer’s payment on time and for the full amount
Quantitative indicators : are numerical, objective, and easy to measure and compare They can include data such as sales, revenue, productivity, customer satisfaction, retention, and quality
Qualitative indicators : are descriptive, subjective, and harder to measure and compare They can include feedback, opinions, perceptions, attitudes, behaviors, and skills
The Uniform Customs and Practice for Documentary Credits (UCP) establishes essential rules governing the issuance and utilization of letters of credit, widely employed by bankers and commercial entities in over 175 countries Approximately 11-15% of international trade relies on letters of credit, amounting to over a trillion dollars annually.
SBV (State Bank of Vietnam): is a ministerial agency of the Government of
Vietnam's central bank plays a crucial role in managing the country's currency, banking operations, and foreign exchange It oversees currency issuance, regulates banking activities for credit institutions, and provides essential currency services to the government.
Funding Bank : The bank makes immediate payment to the exporter and requests money from the Issuing Bank when the L/C is due
Chapter 1 provided an overview of international payments by banks today as well as the context and reasons for choosing the topic Besides, chapter 1 also pointed
6 out the specific objectives of the research, the meaning of the research, the scope and limitations of the research as well as the terms related to the topic
LITERATURE REVIEW
Literature review
The study titled "Solutions for Developing International Payment by Documentary Credit at LienViet Post Joint Stock Commercial Bank," conducted by Nguyen Mai Ly in 2012, assesses the effectiveness of the bank's operations in capital mobilization and credit activities The author examines the stability of the bank's capital sources for facilitating international payments and trade finance The research highlights the current status of payment activities using documentary credit, focusing on both import and export letters of credit For import letters of credit, the bank serves as the issuing bank, facilitating payments to foreign partners on behalf of importers The evaluation of import L/C payment activities is based on data from 2009 to 2011, including the number of items and sales of L/C issuance In contrast, for export letters of credit, the bank's customers are exporters, who utilize L/Cs for collections The analysis of export L/C payment activities is similarly based on the total number of items and payment turnover during the same period.
In 2011, the author highlighted the significant volume of documentary credit payment sales, noting a stark contrast between export and import letters of credit (L/C) due to the country's ongoing trade deficit and reliance on imports for raw materials The predominance of imported L/C in payment activities reflects this imbalance Additionally, the author commended LienViet Post Joint Stock Commercial Bank for its adherence to L/C payment process standards and competitive service fees, emphasizing the bank's success in maintaining strict control over L/C processes, with no instances of payment refusals or document errors However, the article also pointed out that payment activities through documentary credit face several limitations, primarily stemming from challenges encountered by import-export enterprises in Vietnam.
The article discusses the challenges faced by banks in preparing documents according to Letters of Credit (L/C), leading to frequent document errors Enterprises often depend on limited financial resources and primarily rely on bank loans, struggling to compete with larger banks that possess superior capital and technology The lack of diversification in L/C payment services and an imbalance between export and import L/Cs further complicates foreign currency supply and demand Additionally, newly established banks face trust issues with corporate clients due to limited staff qualifications, resulting in processing delays To enhance documentary credit payment activities, the author proposes solutions such as developing reasonable customer policies, improving staff capacity, and diversifying banking products Recommendations for the Government and the State Bank of Vietnam include enhancing documentary credit payment policies, stabilizing the international balance of payments, and fostering a favorable business environment for foreign investment Furthermore, the Ministry of Industry and Trade is urged to improve trade policies to boost exports, while the SBV should focus on legal frameworks for import-export transactions and modernizing banking technology across the system.
Le Tran Ai Phuong (2019) conducted a study on the efficiency of documentary credit payment activities at the Joint Stock Commercial Bank for Foreign Trade of Vietnam Her research identified three interconnected factors that significantly influence this efficiency: the economy, commercial banks, and customers She assessed the effectiveness of documentary credit payment activities using both qualitative and quantitative indicators, with qualitative criteria focusing on how well L/C payment activities align with customer needs.
The efficiency of L/C payment activities, essential for supporting forex trading and import-export credit operations, is measured through quantitative indicators such as the growth rate and proportion of L/C volumes Analysis reveals that L/C revenue is the most significant contributor to bank income, with Vietcombank effectively managing L/C costs However, the volume of sales via L/C remains lower than that of the Remittance method, primarily due to the latter's lower costs and simpler implementation process Additionally, subjective factors such as Vietcombank's stringent Key Performance Indicators (KPIs) for employee evaluation, along with subpar employee performance and a lack of customer attraction policies, further impact L/C usage.
In her 2014 research, Nguyen Minh Trang explored the "Improving the Effectiveness of International Payment Activities by Documentary Credit at Joint Stock Commercial Bank for Investment and Development of Vietnam - Thanh Do Branch," introducing the concept of international payment effectiveness and specifically focusing on documentary credit She assessed L/C payment activities through qualitative indicators, including product diversity, payment timing, credit activities, and foreign currency operations, as well as quantitative measures such as international payment sales, revenue, and profit ratios Trang identified both objective factors, like economic conditions and monetary policies, and subjective factors, including customer policies and staff qualifications, that influence the effectiveness of documentary credit The study culminated in an evaluation of the branch's overall business performance.
The analysis of BIDV's mobilization activities, outstanding loans, and branch profits revealed a remarkable increase in profits, nearly quadrupling in 2013 due to effective capital utilization While the branch excelled in documentary credit payment activities, enhancing profits and offering diverse L/C products through a skilled, modern team, it faced challenges such as an imbalance in export and import transactions and slow processing times Additionally, the branch struggled to establish a strong brand in L/C payments, resulting in a limited customer base To address these issues, several solutions were proposed, including diversifying L/C-related services, enhancing payment officer capabilities, and implementing preferential service fees Recommendations for the State Bank of Vietnam (SBV) included improving legal frameworks for international payments, innovating foreign exchange policies, and increasing foreign currency reserves For BIDV, it was suggested to create regulations for international payment activities and loan mechanisms for import-export financing Lastly, customers engaging in international trade were advised to adhere to regulations, thoroughly verify partners' legal and financial status, and stay informed about market conditions.
Theoretical framework
2.2.1 The international payment by documentary credit method
According to Article 2, UCP 600, documentary credit is defined: “Credit means any arrangement, however named or described, that is irrevocable any
11 therefore constitutes a definite undertaking of the issuing bank to honor a complying presentation” (Nguyen Huy Hoang, Partner, Bross & Partners, 2024) b Characteristic
Documentary credit, or letter of credit (L/C), is a secure payment method that provides a firm commitment from the issuing bank to pay the exporter upon presentation of the correct documents This arrangement assures exporters of payment while giving importers confidence that funds will only be released once the goods are delivered as per the L/C terms Consequently, documentary credit safeguards the interests of both parties involved in the transaction.
According to the reversible nature:
+ Revocable L/C: A type of letter of credit that after being opened, its additions, corrections, or cancellations can be made unilaterally Banks rarely use this type of L/C
An irrevocable letter of credit (L/C) is a financial instrument that, once established, can only be modified, added to, or canceled with the consent of all parties involved, as managed by the bank This type of L/C is the most widely utilized in documentary credit transactions, ensuring secure payment processes.
+ L/C at sight: A type of L/C in which the exporter will receive payment within
5 days after presenting a set of documents by the terms in the L/C (The exporter issues a sight draft to request payment)
A Deferred Letter of Credit (L/C) is an irrevocable financial instrument where the issuing bank agrees to pay the beneficiary at a predetermined time after receiving the necessary documents, eliminating the need for a bill of exchange.
According to the operational nature of letters of credit:
A transferable letter of credit (L/C) is an irrevocable financial instrument that allows the paying bank to make full or partial payments to one or more parties, as designated by the original beneficiary.
A back-to-back letter of credit (L/C) is a newly issued credit that relies on an existing L/C When an importer opens an L/C for the exporter, the exporter can use this L/C as collateral to secure another L/C for a different beneficiary, maintaining similar terms to the original However, key differences exist: the value of the back-to-back L/C must be less than that of the original, with the intermediary covering the cost difference, and the delivery terms for the back-to-back L/C must occur before those of the original L/C.
A revolving letter of credit (L/C) automatically renews its value upon expiration, continuing until the total contract value is met It is essential for the revolving L/C to specify the final expiry date, the number of recirculations allowed, and the minimum value for each period to ensure clarity and compliance.
A standby letter of credit (L/C) serves as a guarantee from the issuer to the beneficiary, ensuring repayment for funds borrowed by the L/C applicant if the seller fails to meet contractual obligations In such cases, the bank compensates the seller, and if the applicant is unable to pay, an alternative party will cover the payment to the exporter.
A red clause letter of credit (L/C) enables the issuing bank to notify the advance of partial or full payment to the beneficiary for purchasing goods and raw materials, contingent upon a receipt and a written commitment to present documents before the L/C expiration Commonly utilized in trading relationships between parent companies and their subsidiaries, this L/C serves as a unique financial tool for providing capital support to sellers.
According to the payment of the letter of credit:
+ L/C at sight: The person opening the L/C agrees to pay the seller immediately upon presenting the appropriate set of documents
UPAS L/C (Usance Payment at Sight Letter of Credit) addresses the seller's requirement for prompt payment while accommodating the buyer's delayed payment schedule In this arrangement, a third party steps in to prepay the exporter, effectively providing immediate funds, while subsequently lending the same amount to the importer This financial structure facilitates smoother transactions between buyers and sellers by balancing cash flow needs.
- The Applicant: The importer or buyer who instructs the bank to open an L/C
- The Issuing Bank: The bank that accepts the importer's request to open a letter of credit and issues the L/C
- Beneficiary: The exporter, seller of goods, or any other beneficiary designated by the exporter
- Advising Bank: The correspondent bank of the Issuing Bank in the exporter's country, and is responsible for advising the L/C to the beneficiary
A Confirming Bank, which can be the Advising Bank or another trusted institution designated by the exporter, plays a crucial role in international trade by jointly committing to payment alongside the Issuing Bank Due to a lack of trust in the Issuing Bank, exporters often rely on the Confirming Bank, which typically charges a significant confirmation fee and requires an advance deposit These banks are usually large and reputable, ensuring a reliable payment process for exporters.
A nominated bank, also known as the confirming bank, is authorized to make payments upon receiving a set of documents that comply with the terms of the letter of credit (L/C) After processing these documents, the nominated bank will seek reimbursement from the issuing bank, ensuring a smooth transaction process in documentary credit payments.
(1) The importer and exporter sign a foreign trade contract, which stipulates payment by documentary credit
(2) Based on the signed foreign trade contract, the importer sends a request to open an L/C to the Issuing bank and deposits to ensure payment ability
(3) The Issuing Bank reviews L/C and if deemed reasonable, they will open the L/C and send a letter of credit to the bank to notify the exporter of benefits
(4) The Advising Bank sends notification documents to the exporter
The exporter thoroughly reviews the letter of credit and, upon acceptance, delivers the goods to the importer while preparing the necessary payment documents as specified in the letter of credit These documents are then sent to the Advising Bank for processing.
(6) The Advising Bank sends money to the exporter after receiving enough documents in accordance with the provisions of the L/C
(7) The Advising Bank transfers a set of valid documents to the Issuing Bank
The Issuing Bank reviews the submitted documents and informs the importer of the findings If the documents align with the terms of the letter of credit, the Issuing Bank proceeds to make the payment to the Advising Bank.
(9) The Issuing Bank sends a set of documents to the importer
(10) The importer receives the documents from the Issuing Bank and checks them, if deemed appropriate, they will make or accept payment f The international legal frameworks of documentary credit operation
- The Uniform Customs and Practice for Documentary Credits (UCP)
The UCP600, a comprehensive set of regulations governing the issuance and use of letters of credit, was officially implemented by the International Chamber of Commerce (ICC) on July 1, 2007 This framework is utilized by banks and commercial entities across more than 175 countries As an optional legal document, the UCP allows participating parties to decide whether to adopt its guidelines for credit payment activities Once agreed upon, the UCP terms become binding, defining the obligations and responsibilities of the involved parties.
The UCP 600 does not entirely replace UCP 500; rather, it supplements it, allowing parties to choose which version to apply in their letters of credit (L/C) It is important to note that only the original English version of the UCP holds legal authority for resolving disputes, while other translations serve merely as references.
- International Standard Banking Practice for Examination of Documents Under Documentary Credits (ISBP)
Conceptual framework
The researcher utilized both qualitative and quantitative indicators to assess the effectiveness of documentary credit payment activities at VietinBank – Dong Ha Noi Branch, drawing on data related to the bank's overall business performance, particularly in international payments By analyzing and comparing this data, the study aims to evaluate the branch's operational efficiency Additionally, the author synthesized insights from previous research and considered the current status of VietinBank's international payment activities, alongside the prevailing economic context and various reference materials, to formulate conclusions and actionable recommendations for enhancing documentary credit payment processes.
The model applied in this thesis is IPO (Inputs => Process => Outputs)
The secondary resources are collected at Administration Department of VietinBank – DHN Branch in 2021 – 2023 and on website VietinBank
The process then includes data synthesis, statistics, and data analysis through the data and information collected above
The findings from these methods will offer solutions for Vietinbank - DHN Branch to improve the efficiency of documentary credit, while also presenting recommendations to the Government, the State Bank of Vietnam (SBV), and the DHN Branch.
The literature review identifies three studies that offer a suitable research model for the thesis, with Nguyen Minh Trang's research being the most significant This study utilizes secondary data sourced from the Administrative Department of DHN Branch and Vietinbank's website The thesis concludes with solutions and recommendations aimed at the Government, SBV, and DHN Branch.
RESEARCH METHODOLOGY
Locale of the study
The thesis was conducted at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Ha Noi Branch The bank was established on April 1,
Established in 2003, the Dong Ha Noi Branch of VietinBank, located at 284 Ha Huy Tap - Yen Vien - Gia Lam - Hanoi, began with 7 professional departments, 3 savings funds, and over 30 employees Initially, it mobilized more than 250 billion VND in capital and had an outstanding balance of approximately 350 billion VND Over the past 20 years, despite facing challenges related to location, facilities, and personnel, VietinBank has continuously innovated its operational model, enhancing effectiveness and improving product management and customer service.
Research methodology
The thesis employs statistical methods, comparative analysis, and both qualitative and quantitative indicators to evaluate the effectiveness of documentary credit payment activities at the DHN Branch The researcher concludes with actionable solutions and recommendations derived from the analyzed data, considering the branch's business context, economic conditions, and various factors influencing documentary credit activities, including societal and geographical aspects.
Evaluate the level of diversity L/C products
Evaluate the indirect operations related to L/C
The increase in profits of these operations contributes to the increase in L/C profits
- International payment sales according to L/C method
- The proportion of L/C payment sales over total international payment sales
- The proportion of L/C revenue over total international payment revenue umber of L/C pr
Evaluate the turnover, proportion, revenue and profit that L/C contributes to international payment activities
The higher these indicators are, the more effectively the documentary credit operate
The proportion of L/C profit over total international payment revenue umber of L/C pr
Evaluate the profit earned per unit of international payment revenue by documentary credit
The higher these indicators are, the more effectively the documentary credit operate umber of L/C pr
Data collection
Secondary data are collected from both internal and external resources Internal sources are provided by the Administration Department of VietinBank –
The proportion of L/C cost over total international payment revenue umber of L/C pr
The proportion of L/C fees over the total service fees umber of L/C pr
The number of customers participating in L/C payment umber of L/C pr
Evaluate the costs must be spent per unit of L/C payment revenue
The higher this indicator is, the less effectively the documentary credit operate umber of L/C pr
Evaluate the profit earned from L/C fee compared to the profit earned from total service fee
The higher this indicator is, the more effectively the documentary credit operate
Evaluate the number of customers using L/C method
The higher this number is, the more effectively the documentary credit operate umber of L/C pr
From 2021 to 2023, data was collected from the DHN Branch, alongside external information sourced from the VietinBank website, previous research, and various articles The data was compiled and analyzed using Microsoft Excel, a widely utilized tool for data analysis Results were calculated using the sum function and percentage, with values rounded to two decimal places.
Validity and Reliability of data analysis
After completing the data collection process, a comprehensive analysis was conducted to ensure data accuracy and reliability The primary sources of the data thesis include the Administration Department of VietinBank and the VietinBank website Additionally, insights were gathered from previous Banking Academy theses and reputable official agency websites and publications, such as tapchinganhang.gov.vn and sbv.gov.vn In conclusion, the data presented in this thesis is both valid and highly trustworthy.
Chapter 3 mainly focuses on the research location and research methods of the thesis The thesis was researched based on qualitative and quantitative indicators, thereby evaluating the effectiveness of international payment activities using documentary credit In addition, chapter 3 also introduced the data collection process and data reliability
FINDINGS AND DISCUSSIONS
The business performance of VietinBank - Dong Ha Noi Branch
4.1.1 General introduction about VietinBank - Dong Ha Noi Branch
Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Ha Noi Branch, established on April 1, 2003, is located at 284 Ha Huy Tap, Yen Vien - Gia Lam - Hanoi Over its 20 years of growth, the branch has overcome initial challenges related to location, facilities, and human resources Through continuous innovation in its operational model and specialization of services, VietinBank has significantly enhanced its efficiency, management, and product sales to customers.
VietinBank's DHN Branch is committed to its core value of being "Customer-centric," actively supporting customers through challenging times, particularly during the COVID-19 pandemic by providing low-cost loan solutions This dedication has transformed the branch from one of the lowest-ranked in service quality to consistently achieving a top 3 position in the region and top 30 overall, earning numerous awards for its service excellence The branch upholds five core values: Customer-centricity, Innovation, Integrity, Respect, and Responsibility, guiding its mission to become the premier destination for customer service.
The DHN Branch Headquarters currently comprises nine departments, extending its network beyond Gia Lam district to include multiple transaction offices in Long Bien, Hoan Kiem, Dong Da, and Hai districts.
Ba Trung, Ba Dinh, and Thanh Xuan When it first established in 2003, the branch had only 42 employees By April 2024, the branch had a total of 156 employees, including 7 directors
4.1.2 Assessing the business situation of VietinBank - DHN Branch
For any business activity, capital is an extremely important factor, especially for commercial banks Therefore, VietinBank - DHN Branch always tries to
The DHN Branch has successfully implemented various capital mobilization activities by offering savings products with attractive interest rates and promotions As a result, it has effectively attracted idle funds from residents in Gia Lam district and nearby areas.
Figure 4.2 Structure of average capital mobilization in the period 2021 - 2023
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
The chart above shows that the average total mobilized capital of the branch increased significantly from 2021 to 2023 The average total mobilized capital in
In 2021, the total mobilized capital reached an impressive 11,300 billion USD, with a continued average increase of 13.71% in 2022 and 13.24% in 2023 Despite facing numerous economic challenges, the capital mobilization activities in the sector have yielded remarkable results.
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
The branch experienced significant growth in its average outstanding balance, which rose from 7,249 billion VND in 2021 to 8,594 billion VND in 2022, marking an 18.55% increase In 2023, this upward trend continued, with the average outstanding balance reaching 10,250 billion VND, reflecting a 19.27% growth from the previous year This impressive growth indicates effective capital utilization by the branch to enhance its loan balance.
Figure 4.4 Structure of short-term debt and medium/long-term debt balance
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
From 2021 to 2023, the branch experienced a consistent increase in both short-term and medium/long-term outstanding balances In 2021, the short-term outstanding balance represented 83.21% of the total, but this percentage decreased slightly to 82% in 2022.
In 2023, the short-term outstanding balance of the branch decreased to 81% of the total outstanding debt, reflecting a consistent trend where short-term debt has historically surpassed medium and long-term debt This strategy has been crucial for minimizing recovery risks, as short-term debts allow for quicker capital recovery However, there has been a slight decline in the proportion of short-term outstanding balances over the years, leading to an increase in long-term outstanding balances This shift indicates that VietinBank is placing greater emphasis on providing businesses with access to medium and long-term capital, thereby fostering growth in production, business operations, and import-export activities.
Short-term outstanding balance Medium/long-term outstanding balance
Figure 4.5 Total profit before tax of VietinBank - DHN Branch in the period of 2021 - 2023
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
The chart shows that the pre-tax profit of the VietinBank - DHN Branch from
Between 2021 and 2023, VietinBank's DHN Branch experienced a consistent increase in pre-tax profit In 2021, the profit was 301.5 billion VND, which rose significantly to 392 billion VND in 2022, marking a 30.02% growth from the previous year By 2023, the profits continued to show growth, achieving a 5.87% increase compared to 2021.
Despite a slower profit increase compared to the previous year, the branch has effectively implemented timely strategies tailored to the challenging economic conditions, ensuring stable development and growth.
The indicators affecting the effectiveness of international payment operations by
Qualitative indicators and quantitative indicators are used to evaluate the effectiveness of international payment activities by documentary credit
VietinBank - DHN Branch currently provides several payment products under L/C to help customers have more choices in commercial payments Some of the following products are being offered at the branch:
UPAS LC, or Usance Payment at Sight Letter of Credit, is a financial instrument where the Issuing Bank directs the Funding Bank to either make an immediate payment or a deferred payment just before the L/C payment due date When the Funding Bank opts for immediate payment to the beneficiary, it is referred to as a Normal UPAS LC Conversely, if the Funding Bank chooses to defer the payment until the day prior to the L/C payment due date, it is known as a Deferred UPAS LC.
The LC product facilitates deferred payments for importers while allowing exporters to receive immediate payment through a partnership between DHN Branch and the Funding Bank Customers benefit from competitive UPAS L/C fees, which are based on the reasonable interest rates set by both the Funding Bank and Commercial Bank Typically, the Funding Banks involved are well-known foreign institutions operating in Vietnam, including Shinhan Bank, Bank of Communication, JPMorgan Chase Bank, and Citibank Vietnam.
Import financing is a short-term credit solution, typically lasting 4 to 6 months, offered by VietinBank to businesses for covering the cost of goods paid through banks To qualify, customers must meet specific criteria set by VietinBank, including operational scale, the experience of the Board of Directors, financial capacity, established relationships, reputation with the bank, and adequate collateral.
VietinBank offers a discounting bill of exchange service, allowing exporters to secure credit by presenting a bill of exchange along with export documents that require payment under a letter of credit (L/C) at the bank This financial product enhances business capital, improves document liquidity, and enables better cash flow management, ultimately boosting the competitiveness of businesses.
In summary, the branch's range of letter of credit (L/C) products effectively satisfies the demand for documentary credit payments However, the limited variety of these L/C offerings has hindered the bank's ability to attract a diverse clientele for transactions.
Figure 4.6 Foreign currency trading turnover of VietinBank - Dong Ha Noi
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
From 2021 to 2023, the foreign currency business at DHN Branch demonstrated consistent growth Notably, in 2022, the revenue from foreign currency trading soared to 520 million USD, marking an impressive increase of 52.94% compared to the previous year.
2021 By 2023, foreign currency trading sales increased more slowly, reaching 552 million USD, an increase of 6.15% compared to 2022 The strong sales growth in
In 2022, the economy experienced a gradual recovery following the COVID-19 pandemic, leading to a resurgence in business operations and an increase in production and imports This recovery significantly boosted import-export payment transactions, resulting in remarkable growth in foreign currency trading turnover The branch's business activities primarily relied on import-export enterprises rather than retail foreign currency trading Import businesses seeking to open a Letter of Credit (L/C) typically require foreign currency as a deposit to ensure payment, which drives customers to purchase foreign currency directly from the branch rather than from other banks.
Many export enterprises often sell foreign currency back to the DHN Branch after completing sales transactions, allowing them to convert it into VND for domestic use Notably, another bank's exchange rate was found to be higher than that of the DHN Branch.
Figure 4.7 Profit from foreign currency trading
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
Along with the growth of foreign currency trading sales, the foreign currency trading profit of DHN Branch also increased steadily over the years from 2021 to
In 2023, the DHN branch achieved remarkable growth in foreign currency trading profits, reaching 34.95 billion VND, a 35.47% increase from 2022, despite only a 6.15% rise in sales This significant profit surge, up from 25.8 billion VND in 2022, which itself was a 23.68% increase from 2021, highlights the branch's effective strategy in capitalizing on exchange rate differences between buying and selling currencies The results demonstrate DHN Branch's strong performance in international payment activities, particularly in documentary credit.
Profit from foreign currency trading
Profit from foreign currency trading
Table 4.1 Total outstanding balance structure of VietinBank - DHN Branch in
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
The growth of the average total balance has been accompanied by an increase in import-export credit lending activities In 2021, outstanding import-export loans reached 2,908 billion VND, representing 40.12% of the total outstanding balance, indicating a strong focus by DHN Branch on lending to corporate customers This approach included guarantees and loan support to help clients secure the capital necessary for stable production By 2022, the outstanding import-export balance rose to 3,105 billion VND, reflecting a 6.77% increase from the previous year.
In 2023, the outstanding import-export debt rose to 3,625 billion VND, marking a 16.75% increase from 2022 and representing 35.37% of the total average outstanding balance.
Difference between 2023/2022 Value (%) Value (%) Value (%) (+) (%) (+) (%)
Outstanding balance for import & export
From 2021 to 2023, the proportion of outstanding import-export debt relative to total average outstanding debt at DHN Branch decreased slightly, yet it remains significant, underscoring the critical role of import-export lending These credit activities have greatly supported Vietnamese businesses in the Gia Lam district and Long Bien area, facilitating safe, convenient, and swift import-export operations Furthermore, the growth in import-export credit activities at DHN Branch indicates a positive trend in payment transactions through documentary credit.
4.2.2.1 International payment sales according to L/C method
Table 4.2 Sales of international payment activities under L/C
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
Between 2021 and 2023, the documentary credit method was the most popular choice for international payments at DHN Branch, consistently representing over 50% of the total payment turnover This trend highlights the preference of customers for documentary credit over other methods like Remittance and Documentary Collection.
38 reached 223,728 thousand USD By the year, this number increased more than doubled to 506,047 thousand USD, specifically an increase of 126.19% compared to
In 2022, the L/C payment method represented 71.84% of international payment sales, driven by the transaction office's commitment to enhancing service quality and expanding L/C product offerings while actively pursuing corporate clients The post-COVID-19 era saw a surge in international trade, leading businesses to favor secure payment methods, resulting in a significant rise in L/C payment sales However, in 2023, L/C payment volume fell to 435,509 thousand USD, a decrease of 13.94% from 2022, with the proportion of L/C payments at DHN Branch dropping to 54.04% Despite this decline, the branch's total international payment turnover demonstrated consistent growth, increasing from 430,531 thousand USD in 2021 to 704,389 thousand USD in 2022, and reaching 805,975 thousand USD in 2023.
In 2023, DHN Branch catered to new export and import clients with strong ties to international partners, opting for cost-effective and efficient payment methods like Remittance and Documentary Collection, which expedited money transfers As a result, the branch saw a substantial rise in Remittance sales Nonetheless, the significance of the Letter of Credit (L/C) payment method in international transactions at DHN Branch remains undeniable.
Table 4.3 Export-import L/C payment value for the period 2021 - 2023
(Source: VietinBank Administration Department – Dong Ha Noi Branch in 2021, 2022, 2023)
The table above shows that documentary credit payment activities at VietinBank - DHN Branch increased over the years 2021 - 2023
In 2021, despite difficulties during the COVID-19 pandemic, the L/C payment value of DHN Branch reached 152,227 thousand USD By 2022, L/C payment value grew strongly to 242,243 thousand USD, an increase of 59.13% compared to 2021
In 2023, although the L/C issuance value had a slight decrease compared to the previous year, the payment value increased specifically by 73.43% compared to 2022
Evaluation of the effectiveness of international payment operations by
Analyzing the effectiveness of international payment operations via documentary credit reveals that VietinBank - DHN Branch has achieved several encouraging results.
In 2023, documentary credit payment activities represented the largest share of international payment transactions, contributing significantly to branch profits This method, trusted and widely utilized, accounted for an impressive 91.6% of international payment revenue, with over 50% of total bank fees derived from L/C fees, which encompass opening, discrepancy, correction, payment, and cancellation charges This highlights the crucial role of documentary credit payments in the banking sector.
To enhance documentary credit payment services, the bank offers various products linked to L/C methods, including import financing, discounted bills of exchange, and UPAS L/C This strategy allows the branch to generate revenue through fees from UPAS L/C issuance and interest from import financing, thereby contributing to its overall business performance.
Supporting foreign currency activities and import-export financing: To open
To facilitate L/C transactions, customers must maintain sufficient foreign currency in their accounts Traditionally, customers purchase foreign currency from the branch to settle shipments, and export customers frequently resell it back to the branch for VND, enhancing the branch's profitability through foreign exchange trading Analysis indicates that the branch effectively leverages exchange rate fluctuations to optimize profits in this area Furthermore, significant outstanding import-export loans represent a large portion of the branch's total loans, indicating a promising growth trajectory for revenue from import-export credit activities in the coming years.
The recent achievements of the DHN branch warrant recognition and support Nonetheless, there are still limitations in the L/C payment method that hinder the overall effectiveness of documentary credit transactions.
Between 2021 and 2023, there has been a notable imbalance in the payment activities for imports and exports, with import L/C sales dominating the total payment turnover of the DHN Branch, despite a gradual increase in export L/C This disparity is primarily due to Vietnam's status as a trade deficit country, which forces import L/C payments to rely heavily on foreign currency trading and borrowing Consequently, the majority of DHN Branch's clientele consists of import-focused businesses.
The branch faces challenges in managing Letter of Credit (L/C) costs, which negatively impacts profitability The primary L/C product offered is UPAS LC, but the branch incurs fees to the Funding Bank that fluctuate based on interest rates, complicating the management of UPAS services.
LC costs, causing for this service cost to increase
The DHN Branch offers a limited range of letter of credit (L/C) products, primarily focusing on bill discounting, advance trade finance through deferred payment L/Cs, and import finance with guarantees.
50 branch has not had a breakthrough, investing in research and development of new trade finance products
The DHN Branch has seen a gradual increase in customers engaging in L/C payment transactions annually, yet participation remains low Despite efforts to promote international payments via documentary credit through VietinBank, the branch's attraction strategies lack comprehensiveness and depth, failing to adequately address and enhance customer understanding of their needs.
Reasons for shortcomings
In recent years, both the global and Vietnamese economies have encountered significant challenges, primarily due to global inflation and escalating energy prices, which have adversely impacted the import and export of goods This situation has created operational difficulties and hindered capital turnover for businesses, particularly small and medium enterprises, ultimately affecting international payment activities, such as letters of credit (L/C), at the DHN Branch.
The DHN Branch, situated in Gia Lam district, is encircled by numerous agricultural villages and traditional trading areas like Ninh Hiep commune The scarcity of industrial zones and active businesses in import and export within the vicinity poses challenges for the DHN Branch in attracting and expanding its customer base.
Many Vietnamese import-export businesses exhibit a limited understanding of documentary credit, along with the laws and practices of their international customers This lack of knowledge complicates the work of international payment specialists, leading to delays and increased risks in the payment processes associated with letters of credit (L/C) and foreign trade contracts Additionally, small and medium-sized enterprises often have constrained financial resources, resulting in a reliance on bank loans for transactions with foreign partners This reliance poses a risk to banks, as the recovery of capital is entirely dependent on the business outcomes of these enterprises.
Exchange rate risk is a significant concern in international trade, making its mitigation a priority in global relations At present, VietinBank DHN Branch primarily handles payments in key currencies such as USD, EUR, and AUD, with USD representing over 90% of transactions However, recent economic crises and political instability have led to fluctuations in the dollar's value, resulting in frequent changes in exchange rates This volatility has adversely affected international payment activities, particularly those involving Letters of Credit (L/C), leading to increased costs for DHN Branch when settling with the Funding Bank and ultimately reducing the profitability of documentary credits.
The effectiveness of marketing policies aimed at attracting new customers remains limited, despite efforts to retain existing ones The DHN Branch has struggled to significantly increase the number of customers utilizing L/C payments, resulting in stagnant growth over the years This lack of customer acquisition directly impacts the branch's L/C profitability.
The DHN Branch has not actively pursued corporate clients in the Gia Lam district of Hanoi, resulting in a limited customer base despite VietinBank's established reputation.
Despite the advancements in the agent banking system, it remains relatively weak, and while the banking network is expanding quickly, it has not achieved global reach As a result, international payment transactions often rely on intermediary banks, leading to increased costs and delays.
Bank staff possess general training but lack specialized expertise, leading to confusion in document handling and revisions Their capacity to provide advice on Letters of Credit (L/C) to customers is restricted, and their understanding of risk assessment in transactions remains inadequate Furthermore, the absence of dedicated research departments hampers their ability to anticipate fluctuations in market exchange rates.
Despite the DHN Branch's progress in documentary credit payment activities, including profit growth and increased customer trust, there are still significant limitations in their L/C payment services These shortcomings not only hinder the effectiveness of the services offered but also tarnish the branch's reputation To enhance the quality of their L/C services, it is crucial for the DHN Branch to implement timely and effective solutions.
Chapter 4 begins by assessing Vietinbank's business performance, followed by a synthesis and analysis of key indicators for evaluating the effectiveness of documentary credit payment activities at the bank The chapter concludes with a discussion of the achievements, limitations, and underlying causes of the documentary credit payment method specifically at the DHN Branch.
CONCLUSIONS AND RECOMMENDATIONS
Conclusion
Documentary credit payment activities heavily rely on foreign currencies, particularly US dollars, making the USD/VND exchange rate crucial for enhancing their efficiency Economic factors such as interest rates and inflation significantly influence exchange rates, with high rates leading to increased exchange values Therefore, implementing effective exchange rate policies and maintaining sufficient foreign currency reserves are vital for optimizing documentary credit transactions However, managing exchange rates poses challenges, and banks must also focus on reducing L/C costs to improve payment efficiency Many costs arise from utilizing UPAS L/C, including fixed fees to funding banks, which complicates cost management Strengthening relationships with funding banks can help branches enhance profitability from L/C payment activities Additionally, banks should promote L/C transactions and related services, such as foreign currency trading and import-export financing, to further improve their documentary credit payment operations.
Recommendations
The Government must implement effective policies to facilitate the growth of payment activities while proactively managing risks associated with the payment process This approach will safeguard the interests of banks and import-export businesses, ensuring a stable and secure financial environment.
The Government must develop more precise guiding documents that align with customary international law and the unique characteristics of Vietnam to effectively regulate international payments through the documentary credit method.
The government must swiftly release guidelines for new letter of credit (L/C) products, clearly outlining the legal responsibilities and rights of all parties involved This includes defining the connections between foreign trade contracts and documentary credit methods, as well as the relationships between banks and import-export businesses.
To promote export-import operations, the Government should implement measures that encourage business expansion, particularly for companies in Gia Lam district Additionally, creating a favorable business environment is essential to attract foreign investors and support Vietnamese businesses in their global expansion efforts.
The State Bank must establish a comprehensive legal framework for international payments using the documentary credit method, ensuring alignment with socio-economic development policies Furthermore, it is essential for the State Bank to assess and update existing documents related to documentary credit activities to reflect the evolving economic landscape.
The State Bank of Vietnam (SBV) should implement flexible exchange rate management policies that align with market trends Additionally, it is essential for the SBV to maintain foreign currency reserves that correspond to the growth of import-export turnover, while also mitigating inflation risks stemming from exchange rate fluctuations.
The State Bank of Vietnam (SBV) should implement a flexible monetary policy to maintain stability in interest and exchange rates within acceptable limits Additionally, it is crucial for the SBV to safeguard the credit capital of the commercial banking system.
To enhance the effectiveness of foreign currency trading for commercial banks and better serve the needs of import businesses, the State Bank of Vietnam (SBV) must focus on completing and developing the interbank foreign currency market.
5.2.3 Recommendations to VietinBank – DHN Branch
In terms of customer policies
In a highly competitive market, DHN Branch must develop a tailored customer policy that identifies its target clientele and proactively offers them effective payment solutions To attract large transaction customers and frequent traders, the branch can implement preferential policies, such as competitive fees, reduced letter of credit (L/C) margin levels, and the option for customers to make margins in multiple batches.
DHN Branch facilitates meetings with both existing business customers and potential clients interested in VietinBank’s offerings, enabling discussions about the bank's latest products and services Additionally, the branch actively gathers customer feedback during transactions, allowing for tailored advice and support for various customer segments.
To enhance its communication strategy, DHN Branch should focus on effective advertising that instills a strong impression of VietinBank's core values among customers Collaborating with media companies to promote content on social media platforms like Facebook and Instagram will be essential The media messages must highlight VietinBank's core values while specifically targeting corporate customers engaged in import and export transactions.
To effectively expand its target market, the branch should not only concentrate on Gia Lam district but also reach out to other districts in Hanoi It is essential to promote its L/C payment product to import-export businesses in Gia Lam and nearby areas, particularly in Long Bien district, which hosts numerous industrial zones and companies like Duc Giang and Sai Dong.
In terms of international payment staff
The branch needs to increase the organization of internal staff training classes, fostering and updating knowledge for staff on weekends In addition, the branch
To enhance the skills of payment officers, it is essential for the branch to send them to training courses organized by VietinBank or supported by international organizations Qualified staff should be given opportunities to gain experience in international payments, particularly in developing countries Additionally, to boost employee morale, the branch must implement attractive remuneration strategies, which could include organizing biannual staff trips, providing insurance benefits, and considering salary increases based on individual performance and experience.
In terms of products and services
Diversifying the types of Letters of Credit (L/C) enables DHN Branch to offer a wider range of services to various customers However, it is essential to conduct thorough market research to understand customer needs before introducing new L/C types This approach ensures that the branch develops practical and meaningful L/C options, avoiding the risk of implementing unsuitable types that could lead to inefficiencies and waste.
In terms of promoting import and export financing
For import businesses, the DHN Branch enhances the L/C issuance process by offering services like sponsoring L/C margins, opening L/Cs without deposits, and providing endorsements and guarantees Additionally, the branch can extend credit to customers through advance loans linked to the opened L/C or by outright purchasing export documents.