this is the best graduation thesis on LC payment method at Sacombank.it is for the last year student for reviewing their knowledge., it is also for graduated persons who are working in a bank. This thesis mainly talks about how to improve the efficiency of international payment method of Letter of Credit at Sacombank Tan Binh branch.
UNIVERSITY OF ECONOMICS HO CHI MINH CITY INTERNATIONAL BUSINESS SCHOOL GRADUATION THESIS: “HOW TO IMPROVE THE EFFICIENCY OF LC PAYMENT METHOD AT SACOMBANK- TAN BINH BRANCH” GUIDED BY: PRO DOAN THI HONG VAN i GRATITUDE After four years of studying precious knowledge at the University of Economics Ho Chi Minh city, trained, instructed, taught by respectful lecturers, I have learned and accumulated so much knowledge and experience for my self that are very important for my future career path Within the internship period, I have got acquainted with new environment, learned a great deal of realistic knowledge and experience as well as how to go from academics to reality Sacombank- Tan Binh branch was the first practical environment I have ever been During the time, I was being instructed heartedly by ProfessorDoctor Doan Thi Hong Van- lecturer of the faculty of Commerce, Tourism and Marketing, associated with enthusiastic supports from officers working at international payment division of Tan Binh branch This thesis is built from the basis of association between theory and actual result of my internship period at the branch Through this, I would like to express honest thanks to the board of lecturer, respectful lecturers of the University, lecturers of the faculty, that have dedicatedly directed over the time, especially Professor –Doctor Doan Thi Hong Van who directly instructed to complete this thesis The professor devotedly directed and created every chance for me to finish the thesis successfully I would also like to bring my thanks to all those officers working at international payment division of Tan Binh branch Finally, I would like to give all of you a great wish for health, happiness, and success in your career paths and your lives HCMC, 30th, March, 2012 ii Tran Thanh Tuyen SACOMBANK-TAN BINH RBANCH COMMENT HCMC,…… date iii , month , 2012 INSTRUCTOR’S COMMENT HCMC,…… date iv , month , 2012 SUMMARY *********@********* In the tendency of deep globalisation of the world economy nowadays, international trade has been playing a vital role in the global economic system In order to enhance the efficiency of transactions among nations worldwide, one of the most important issues must be improved first is international payment methods among which documentary credit payment is a very important and common used one all over the world With understanding of its role, after contacting and learning realistic knowledge and experience at Sacombank-Tan Binh branch during the internship period there, I chose the matter of “Solutions to enhance documentary credits payment activities at Sacombank-Tan Binh branch” to be my thesis topic This thesis will introduce you to the deeply basic theory for the payment method and the actual information about Sacombank in general and Tan Binh branch in particular as well as the situation of the payment method activities at the branch, and finally some empirical solutions will be introduced to help the bank improve the the payment activities Specifically, Chapter talks about theory from the definition of the payment method to common factors affecting the payment activities Next, Chapter firstly introduces information about Sacombank and Tan Binh branch, and then chapter talks about the actual situation of the payment activities at the branch Lastly, Chapter is to present some practical solutions that are resulted from related information and database collected from the bank to enhance the method activities I hope that this thesis will reflect how hard I have worked on my study at the University as well as my internship at Tan Binh branch, simultaneously could contribute somewhat to the method improvement at Sacombank in general and at Tan Binh branch in particular v TABLE OF CONTENT INTRODUCTION 1 Problem Statement Research objectives Modus Operandi Methodology Structure of content CHAPTER 1: 1.1 Overview of Documentary Credits Payment Method 1.1.1 Definition 1.1.2 Regulatory Basis 1.1.2.1 UCP 600 1.1.2.2 ISBP 681 1.1.3 Concerned Parties 1.1.4 Functional Procedure 1.1.5 Fundermental principles of Documentary Credits 1.2 Letter of Credit 10 1.2.1 Definition 10 1.2.2 Main content 10 1.2.3 Types of Letter of Credit 11 1.2.3.1 Basic Types of Letter of Credit 11 1.2.3.2 Special Types of Letter of Credit 12 1.3 Pros and Cons of Documentary Credits 13 1.3.1 Pros of Documentary Credits 13 1.3.1.1 To exporters 13 1.3.1.2 To importers 14 1.3.1.3 To banks 14 1.3.2 Cons of Documentary Credits 14 1.3.2.1 To exporter 14 1.3.2.2 To importer 14 1.3.2.3 To bank 15 1.4 Factors Influencing the payment activities 15 1.4.1 Belonging to The bank 15 1.4.2 Belonging to Customers 15 1.4.3 Objective Factors 16 1.4.3.1 Legal environment 16 1.4.3.2 Economic Environment 16 1.4.3.3 Natural environment 17 1.4.3.4 Technological Environment 17 1.4.3.5 Social and Cultural Envirnment 17 Conclusion 17 CHAPTER 18 2.1 Introduction about Sacombank 18 vi 2.1.1 History of Establishement and Development 18 2.1.2 Recent Awards 21 2.1.3 Scope of Operations 22 2.1.4 Organisational Structure and human resource situation 22 2.1.5 Business Operation Result in the period of 2013-2015 24 2.1.6 Business Operation Efficiency Evaluation 30 2.2 Introduction about Tan Binh Branch 33 2.2.1 The Process of Establishment and Development 33 2.2.2 The Organisational Structure 34 2.2.3 Business operational Result Error! Bookmark not defined Conclusion 35 CHAPTER 35 3.1 The Situation of Documentary Credit Payment Activities 36 3.2 The Functional Process of Documentary Credit Payment for Import 41 3.2.1 LC issuing process 42 3.2.2 LC amending process 44 3.2.3 LC document execution process 46 3.2.4 LC payment execution process 49 3.2.5 LC termination process 50 3.2.5.1 Valid LC termination process 50 3.2.5.2 Expired LC termination process 51 3.2.6 Pros and cons of the process 52 3.2.6.1 Pros of the process 52 3.2.6.2 Cons of the process 53 Conclusion 54 CHAPTER 55 4.1 Development Direction for the next period 55 4.1.1 General Direction 55 4.1.2 Direction for Documentary Credit Payment Acitivities 55 4.2 The Solutions to enhance Documentary Credit Payment Activities 56 4.2.1 Objectives of building solutions 56 4.2.2 Basis for building solutions 57 4.2.3 Specific Solutions 57 4.2.3.1 Process Improvement 57 4.2.3.2 Customer Service Enahncement 59 4.2.3.3 Building a well specialised and knowledgeable workforce 60 4.2.3.4 Improvements for Organisational Mechanism and Business Expansion 61 4.2.3.5 Diversification for Letter of Credit 62 4.2.3.6 Analysing Competitors and Implementing Marketing into Documentary Credits Payment Activities 63 4.2.3.7 Bolstering Export Financing Acitivities 63 4.2.3.8 Fostering Internal Auditing Activities 64 4.2.3.9 Risk Management Improvement 64 4.3 Some other Recommendations 68 4.3.1 For import-export enterprises 68 4.3.2 For Sacombank 68 vii Conclusion 69 CONCLUSION 70 LIST OF TABLES AND FIGURES LIST OF TABLES Table 2.1: The situation of Turnover and Profit of Sacombank in the period of 2014-2016 24 Table 2.2: Sacombank’s raised capital against total capital in the period of 2013-2015 26 Figure 2.2: Sacombank’s raised capital against total capital in the period of 2013-2015 26 Table 2.3: Sacombank’s Debt balance classified by type of customer in the period of 20132015 27 Table 2.4: Sacombank’s Debt balance classified by time in 2013-2015 28 Table 2.5: Sacombank’s business operation efficiency evaluation ratios in the period of 2014-2016 30 Table 2.6: Sacombank’s business operation efficiency evaluation ratios in the period of 2014-2016 (continued) 31 Table 3.1: The number of LCs executed at Sacombank-Tan Binh branch in the period of 2014-2015 36 Table 3.2: The revenue from LC at Sacombank-Tan Binh branch in the period of 20142015 37 Table 3.3: The weighting of revenues from import LC and export LC at Sacombank-Tan Binh branch in the period of 2014-2016 38 LIST OF FIGURES Figure 1.1: Diagram illustrating the process of Documentary Credit Payment Figure 2.1: The situation of Turnover and Profit of Sacombank in the period of 2014-2016 25 Figure 2.2: Sacombank’s raised capital against total capital in the period of 2013-2015 26 Figure 2.3: Ratios reflecting Sacombank’s credit activities in the period of 2013-2015 29 Figure 2.4: Diagram of Tan Binh branch’s Organisational Mechanism 34 Figure 3.1: The number of LCs executed at Sacombank-Tan Binh branch in the period of 2014-2015 37 viii Figure: 3.2: The revenue from LC at Sacombank-Tan Binh branch in the period of 20142015 38 ABBREVIATTION AND ACRONYM LIST Sacombank : Saigon Commercial Joint Stock Bank B/L : Bill of lading CAR : Capital Asset Ratio C/O : Certificate of origin D/A : Document Acceptance D/P : Document Payment D/C : Documentary Credits LC : Letter of credits ICC : International Chamber of Commerce IPD : International Payment Department ISBP : International Standard Banking Practice for Examination of Documents under Documentary Credit 681 P/L : Packing list ROA : Return On Asset ROE : Return On Equity TT : Telegraphic Transfer UCP : Uniform Customs and Practices for Documentary Credits ix INTRODUCTION Problem Statement In recent years, Vietnamese economy has integrated deeply into the global economy As a result, international trade and international investment have increasingly become of very important activities in the world’s economy This, in turn, has promoted the role of international payment, so the international payment departments of banks have been required to work harder in professional way International payment is vitally important for the efficiency of the process of trading products and services among countries Through the long history of international trade, there have been many methods used for conducting payments between trade partners internationally Among these methods, Documentary Credits Payment method is one of the most important ones and used commonly all over the world In the process of this method, commercial banks have a big impact on making payment activities become faster and more efficient and effective Sacombank is one of the biggest commercial joint stock banks in Vietnam with high level of credibility and deep experience in foreign currency trading Furthermore, the bank always pursues the objective of “ConvenienceEfficiency-Safety” In recent years, the bank has continuously innovated and enhanced its payment activities to serve customers better and better With foreign economic policy that has been more and more opened, export and import activities has more and more developed Sacombank always desires to increase the efficiency of all international payment methods in general and Documentary Credits methods in particular to cope with higher requirement from customers and also to take advantage of the very large opportunity During an intern period at Sacombank- Tan Binh Branch I realise that Sacombank has capitalised on its strengths to offer Documentary Credits payment service However, Documentary Credits Cautious consideration of essential aspects before issuing an LC: in order to ensure a successful business with customers the bank, before deciding to issue an LC for customers, should carefully consider some vital respects as follows: - The bank should appraise customer’s financial situation, reputation, LC limit level A customer with a good financial situation will be able to make payment when complied documents arrive However, not every of the finance able customers will be willing to conduct payment because of some different reasons Maybe because the documents are conformed to LC but the goods not arrives, then customers like to delay payment until the goods arrive to make sure that they receive right goods as expected Therefore, besides customer’ financial situation the bank also needs to assess their reputation in doing business with the bank before If customer is of sufficient finance, reputable then the bank will consider LC limit level for the customer - Deposit rate is very important not only for the bank to ensure security but also for customer to be inspired to conduct payment for presented documents The bank should base on such aspects as customer’s financial situation, credibility, guarantee asset, types of import commodity, exchange rate, economic situation, LC content etc to decide a most suitable deposit rate for customers - Furthermore, the bank should consider carefully the market of the commodity to check its trade power, its level of consumption, its attractiveness Additionally, the LC beneficiary should also be inspected cautiously to assess their reputation, their financial situation and so on - The bank needs to advise customer of the knowledge and information relating to the payment method in order to help them understand comprehensively the payment activities Customers should be tipped carefully on terms and conditions in an LC such as price, commercial 65 terms, insurance terms, product specification, date of LC expiry, date of shipment, and date of document presentation and so on so that the customers can have the ability to make right LC application conformed to the sales contract between them and their partners - Lastly, the bank should educate and train international payement staffs carefully on UCP latest version, ISBP for professional job The staffs must master those things to help themselves in doing the payment function as well as in advising their customers of the related knowledge Solutions for counterfeit presented documents: in order to secure reputation and legitimate interest of both importers and Sacombank as well as prevent bad actions from exporters the bank should recommend importer to require presented documents forcedly consisting of the following contents: - Certificate of quality and quantity established by exporter and certified that the goods are complied with contract by importer or his deputy - Certificate of origin granted by exporter’s nation’s chamber of commerce and industry - Bill of lading issued by carrier having representative department in Vietnam - Content and form of documents have to be firm and granted by credit agencies - Using fax advising for exporter in advance send a copy of documents to importer for examining before commodities arrive Solutions for goods receipt guarantee issuance risk: in order to minimize unfavorability for Sacombank as well as help importer to receive goods arriving prior to documents, the bank should: - Request customers to send Sacombank’s goods receipt guarantee application model, copy of bill of lading and commercial invoice for value base for the guarantee Additionally, the bank needs to contact carrier’s 66 representative in Vietnam to check whether they accept the guarantee issued by Sacombank or not - Moreover, the bank should advice customers on how to count time to make sure that when the goods arrive at destination the documents are also arrive at Sacombank Therefore, it is unnecessary for the bank to issue the guarantee Solutions for acts of god risks: in order to minimize Sacombank’s loss when those risks happen, the bank should on behalf of customers purchase insurance at highest level involving force majueres for LC having delivery by E, F, CER, and CPT terms Because the bank is conducting compulsory depository insurance purchase, when the bank buys import-export goods insurance it will receive favorable fee, and quick services Furthermore, this also helps customers to save time, cost, and effort spent in dealing with insurance company and the bank 4.2.3.9.2 Loss Minimization Solutions Equip and enhance risk solving ability of functional staff: the bank can equip risk solving knowledge and experience for staff through organising training courses inside and outside the bank as well Moreover, the bank has to always update creative risk solutions from other banks to learn and gain experience from them Gradually, the bank can increase its staff’s level of risk solving capacity Conduct risk reserve and risk deposit: - The bank should conduct risk reserve sufficiently based on classifying correctly debts about document negotiations, LC payment commitments - Build and modify deposit rate in direction of increase for customers with usual late payments, hard to sell products to minimise the bank responsibility when those customers lose their paying capacity - The bank should buy insurance for large transaction or transactions with high risk 67 - The bank also should use credit information center of the state bank Vietnam (CIC) to support appraisal activities, customer evaluations because credit information center is a place that supply all debt information of customers at all credit institutions in Vietnam 4.3 Some other Recommendations 4.3.1 For import-export enterprises Be careful in choosing partner: enterprises can collect information about partners through many different sources such as banks, Vietnamese representative agencies overseas, newspapers, Vietnamese chamber of commerce and industry to understand more the economic and political situation of partners’ countries and their financial capabilities Enterprises also need to master foreign trade functions such as Incoterms 2015 and international payment methods including LC, TT, D/P, D/A to guarantee business efficiency when signing foreign trade contracts Realistic experience: - For importers in order to reduce risk when applying for LC, they need to follow sales contracts strictly, state clearly and specifically shipment responsibility, date of shipment, expiry date for document presentation, as well as conditions about documents especially about goods specification including type, quality, quantity, price, etc that should be short and clear to avoid deliberate misunderstanding from exporters - When receiving LC, exporters need to carefully consider the LC to discover vague or unfavorable terms and conditions, or conditions that are different from those of sales contracts and LC amendments When establishing payment documents they should follow printed forms of the bank to track easily and avoid mistakes 4.3.2 For Sacombank The bank may supply total import-export service package for customers to control thoroughly and avoid risks It can sign coordination contracts with 68 Logistics companies, insurance companies, and consultancy companies etc to offer customers services related to import-export, in which the bank will execute consultancy jobs instructing customers about documentary credit functions such as LC issuance, LC advising, documents presentation Besides, the bank should focus marketing effort on those industries that have the highest turnover in Ho Chi Minh City such as petroleum, fertilizers, steel, cements, rubber etc Profit objective for those customers is to mainly derive from investment of import-export credits Therefore, the bank will apply a special service policy and competitive sale promotion for service fees Additionally, the bank also should establish an international payment risk contingency fund at headquarter The resource for the fund can come from general risk contingency fund or be contributed by Tan Binh branch with a certain rate based on international payment turnover When risk happens, the bank can ask for abstract from the fund to offset loss induced Moreover, for agent banks, Sacombank should frequently intensify international cooperation especially in international payment activities, evaluate, and update periodically information about those agent banks to avoid undeserved risks Lastly, the bank needs to check up the procedure often, coordinating with learning, comparing with those of other banks to come up with reasonable modifications as well as discover hidden risks, repair payment procedure of each method in accordance with international customs and practices about international payment Conclusion Chapter has pointed out for us some basic, synchronised solutions for Sacombank in general and Tan Binh branch in particular to enhance documentary credits payment activities Moreover, through the solutions mentioned above I hope that I can contribute a little bit effort to the general 69 development of Sacombank and Tan Binh as well, and I also would like to exchange knowledge, experience with other people through analysis, comments, and criticism CONCLUSION Despite a great number of difficulties resulted from the global financial crisis, with positive and strong changes Vietnamese economy has achieved many encouraging results, especially banking sector Vietnamese commercial banks have gradually demonstrated their positions and roles in comparison with commercial banks in the world in terms of both functions and customer services However, in today’s fiercely competitive stage, each bank should not be self-satisfied with its success In converse, they have to continuously improve their functions, international style, and customer satisfaction In order to that well each bank must have their own right, reasonable growth policy that can helps the banks to catch up with growth rhythm of international commercial banks It is possible to say that the objective of efficiency has stuck with international payment activities at commercial bank in general and at Sacombank in particular from commencement up to now Thanks to its endowed advantages such as capital, experience, reputation in the fields of finance and credits, international payment, Sacombank has been fellows of import-export enterprises, contributing substantial effort for import-export encouragement in Vietnam Nevertheless, with continual strong changes of economic, political, social environment, Sacombank has had to face plenty of hardships and obstacles that have reduced the efficiency of international 70 payment activities especially documentary credit method in which the payment process plays a vital role and which is a very common used one at Sacombank With the difficult situation ahead, the bank’s board of directors, staff, and officers need to capitalise and promote its prestige, strengths, and achievements as well as deal with obstacles, problems in enhancing international payment activities to sustain and upgrade the bank’s position in the market This thesis helps us understand more documentary credits payment theory as well as brings us so much exciting information about Sacombank and Tan Binh branch and the practical situation of the payment activities at the branch I hope that those solutions that I have mentioned above will to some extent help Sacombank in general and Tan Binh branch in particular to promote its documentary credits payment activities 71 APPENDIX Appendix 1: The organisational Structure of Sacombank 72 Source: Sacombank’s Human Resources Department Appendix 2: The process of issuing LC Receive Dossier Examining Dossier73 and Advising Customers Handing dossier to Appraisal Department, making deposit Source: Sacombank-Tan Binh branch’s International Payment Division Appendix 3: The process of amending LC Receive LC amendment Application Examining Dossier and Advising Customers 74 Handing dossier to enterprise department for reporting Other amendments In the branch’s limit level Source: Sacombank-Tan Binh branch’s International Payment Division Appendix 4: The process of LC document execution Receive the documents Examining the documents Scanning and handing documents to headquarter’s IPD Receiving the result 75 Reviewing and clarifying the examination result Source: Sacombank-Tan Binh branch’s International Payment Division Appendix 5: The process of LC payment execution Making payment slip Disbursement, Accounting for additional deposit (if nay) Censorship 76 Scanning and handing the payment slip to headquarter’s IPD Source: Sacombank-Tan Binh branch’s International Payment Division Appendix 6: The process of LC Termination required by beneficiary’s bank Receive LC termination requirement Making LC termination notification Censorship Advising customers of LC termination Examining customer’s feedback Agreed, making proposal Disagreed, making a mail of disagreement Censorship 77 Scanning and handing Proposal to Headquarter to issuing LC, collecting fee Source: Sacombank-Tan Binh branch’s International Payment Division Appendix 7: The process of LC Termination required by LC applicant Receive LC termination requirement Inspecting Dossiers Making proposal list Censorship Scanning and handing proposal slip to headquarter’s IPD Print VAT slip, Checking foreign bank’s feedback Agreed, making proposal for Deposit clearance Disagreed, making a mail of disagreement Censorship Denying termination Deposit clearing 78 Censorship Source: Sacombank-Tan Binh branch’s International Payment Division 79 ... Letter of credits ICC : International Chamber of Commerce IPD : International Payment Department ISBP : International Standard Banking Practice for Examination of Documents under Documentary Credit. .. turn, has promoted the role of international payment, so the international payment departments of banks have been required to work harder in professional way International payment is vitally important... Basis of Documentary Credits Payment Method Chapter 2: Introduction of Sacombank and Sacombank- Tan Binh Branch Chapter 3: The Situation of Documentary Credits Payment Method Activities at Sacombank-