LV Thạc sỹ_Solutions for the international payment development at the Agribank Bac Ninh

Structure of thesis Besides the sections such as Introduction, Conclusion, this thesis includes the following 3 chapters: Chapter I: Basic theoritical issues on international payment Chapter II: The current status of the international payment development at the Agribank – Bac Ninh branch. Chapter III: Solutions for the international payment development at the Agribank – Bac Ninh branch.

INTRODUCTION

1 The necessity of the research

Under the conditions of globalization, internationalization, theinternational economy is operating more and more strongly, each nation shouldpositively and actively join to obtain a favorable position in the internationallabor allocation and commercial exchange That means each nation needs todevelop strongly the external economic field

For our nation, the external economic development is an objectivelyobvious matter aiming at serving the cause of economic development andconstruction of the nation under the orientation of Socialism Particularly, in thecurrent period, we are still in the process of performing the nationindustrialization and modernization Only through the activities externaleconomic activities may we create a necessary source of foreign currencies forimporting modern techniques, technologies, equipment, and simultaneouslypromoting the nation potentials, utilizing foreign capital and technologies tospeed up the nation industrialization and modernization, shortening the gap ofbackward, and make our economy step by step integrate with the regional andinternational economies

As an indispensable change link in the external economic activities, theInternational Payment activity of each Bank has been getting more and moreimportant position and role It’s considered as an instrument, a bridge in theexternal economic relationship, economic and commercial relationship amongnations in the world

International Payment is one of the important activities of the Bank, as it

is related to many other activities of the Bank such as credit activity for foreigncurrencies, mobilization of capital in foreign currencies…

Though Agribank- Bac Ninh branch has just entered into performingInternational Payment, it has attained some certain achievements Nevertheless,International Payment activity of the branch with a small scale and many

external economic activities, contribute to the performance of the renovationpolicies by the Party and the State, but also is an important and obvious matterdecisive to the survival and development of the Bank in the market mechanism,helping Agribank – Bac Ninh branch to soon integrate with the system ofdomestic and international banks.

International Payment is really complicated and remains manyinadequacies in regimes, profession, as well as in the organization andimplementation Thus, we need to research and work out remedies Basing on thesaid issues and as an official working in the Bank, I have chosen the thesis “TheInternational Payment development at the Agribank – Bac Ninh branch” for myresearch

3 Object for and scope of research

- The object for research of this thesis is the International payment Bank atthe Agribank – Bac Ninh branch

- Scope of research: the current status of the International Payment at theAgribank – Bac Ninh branch in the period of 2006-2009

4 Methods of research

This thesis applies methods of systematization, statistics, comparison andanalysis to process information, data collected on the status of InternationalPayment to see clearly the resuls as well as the limitations of the Agribank – BacNinh branch in this activity; at the same time, to research on the orientations,strategies for the International Payment development at the branch in the comingtime; from then on, to work out some solutions, proposals for the InternationalPayment development at the branch

roles of International Payment ; on such basis, to clarify the issue on theInternationa Payment development of Commercial Bank

- To analyze, assess the current status of International Paymentdevelopment at the Agribank – Bac Ninh branch in the period of 2007-2009; onsuch basis, to highlight the obtained results and remaining inadequacies aiming athelping the branch to draw experience and considerable matters in theInternational Payment development

- To propose some viewpoints and solutions for the International Paymentdevelopment at the Agribank – Bac Ninh branch, contributing to the sucess of thestrategy on turning Agribank into a multifunctional financial group of theregional and international levels

6 Structure of thesis

Besides the sections such as Introduction, Conclusion, this thesis includes the following 3 chapters:

Chapter I: Basic theoritical issues on international payment

Chapter II: The current status of the international payment development

at the Agribank – Bac Ninh branch

Chapter III: Solutions for the international payment development at the

Agribank – Bac Ninh branch

I.1 Overview on international payment 4

I.1.1 Definition of international payment 4

I.1.2 Roles of international payment 5

I.1.3 Forms of international payment 6

I.1.3.1 Letter of credit 7

I.1.3.2 Remittance 10

I.1.3.3 Collection 12

I.1.3.4 Open-account 15

I.2 Development of international payment of commercial banks 17

I.2.1 Concept on the development of international payment of commercial banks 17

I.2.2 Measuring of the development of international payment 18

I.2.2.1 Measuring of the Qualitative 18

I.2.2.2 Measuring of the Quantitative 21

I.3 Factors affecting the development of international payment 25

I.3.1 Subjective factors 25

I.3.2 Objective factors 27

I.3.2.1 Economic environment 27

I.3.2.2 Politic environment 28

I.3.2.3 Legal environment 28

CHAPTER II: CURRENT STATUS OF INTERNATIONAL PAYMENT DEVELOPMENT AT VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT – BAC NINH BRANCH 29

II.1 Background on Vietnam Bank for Agriculture and Rural Development – Bac Ninh Branch 29

II.1.1 Establishment and development 29

II.1.2 Bussiness performance 32

II.1.2.1 Capital mobilization 32

II.1.2.2 Lending and investment 34

II.1.2.3 Provision of services 36

Ninh branch 39

II.2.1 Legal basis of international payment 39

II.2.2 Legal basis of application for international payment at Agribank - Bac Ninh branch 41

II.2.3 Current status in the development of international payment at Agribank - Bac Ninh branch 43

II.2.3.1 Satisfaction of customers to International Payment activity: 43

II.2.3.2 Prestige and trademark of the bank increase: 46

II.2.3.3 The increase in scale of International Payment activity 47

II.2.3.4 The increase in the quality of International Payment activity: 54

II.3 General assessment 58

II.3.1 Results attained 58

II.3.1.1 The International Payment activity has been improved and developed more and more 58

II.3.1.2 International Payment contributes to increase income for the bank 58 II.3.1.3 International Payment activity has contributed to heighten the prestige of Agribank - Bac Ninh branch 59

II.3.2 Limitations and reasons 59

II.3.2.1 Limitations 59

II.3.2.2 Reasons 61

CHAPTER III: SOLUTIONS FOR INTERNATIONAL PAYMENT DEVELOPMENT AT VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT – BAC NINH BRANCH 64

III.1 Orientation of international payment development at Agribank - Bac Ninh branch 64

III.1.1 General orientation 64

III.1.2 Orientation for International Payment professions 66

III.2 Solutions for international payment development at Agribank - Bac Ninh branch 66

III.2.1 Perform appropriate customer policy 66

III.2.2 Push up information technologies, modernization of bank operations .68

III.2.3 Focus on training, reinforcing the qualification of a team of officers working in international payment 69

III.2.4 To promote the mobilization of capital in foreign currencies for the International Payment activity 70

III.3 Some proposal 71

documents and regimes in accordance with the laws and internationalcommon practices 73III.3.2.2 Agribank Vietnam should build up and develop the trade marknamed Agribank Vietnam to the international level 73

CONCLUSION 77 REFERENCES 78

I would like to express my gratitude to all those who gave me thepossibility to complete this thesis I want to thank all lecturers from Faculty ofInternational Education – National Economics University and Solvay BusinessSchool –University of Brussel who have given me a lot of useful and interestingknowledge of various subjects.

I am deeply indebted to my thesis tutor - Dr Vu Dinh Hien from theNational Economics University whose help, stimulating suggestions andencouragement helped me in all the time of research for and writing of thisthesis

My colleagues from , Vietnam bank for agriculture and rural development,Bacninh Branch supported me in my research work I want to thank them for alltheir help, support, interest and valuable hints

Especially, I would like to give my special thanks to all of my classmatesand wish them a lot of success in the future

 Definition of international payment

International payment is the performance of payment obligation incurrency arising from economic, commercial, financial, credit and non-tradeservices relationships between organizations and individuals of differentcountries to complete an operation process in the field of foreign trade bydifferent payment methods such as remittance, collection, letter of credit andopen account

 Factors affecting the development of international payment

- Subjective factors : Operation scale of the bank, bussiness strategy of the bank,

human management, technology, customers policy

- Objective factors : Economic environment, politic environment, and legal

environment

CHAPTER II: CURRENT STATUS OF THE INTERNATIONAL PAYMENT DEVELOPMENT IN AGRIBANK- BACNINH

 Organization structure and operation network

On the first days the branch entered into operation (on 01 January 1997)there were 282 officers and employees, up to now, over the past 10 years, therehas been a development of up to 396 officers and employees

 Current status in the international payment development in Agribank– Bac Ninh

Over the past 10 years of getting matured and development, internationalpayment activity has attained certain successes Such achievements are showed

in the more and more extension of international payment methods, in revenueand income collected from this kind of activities In other words, to know howinternational payment of the branch has developed, it’s required to base on thefollowing criteria:

- Customers satisfaction on international payment activity has increasedday by day

- The prestige and trademark of the bank has been heightened

- The increase in the scale of international payment activity

- Attained results:

The achievements attained by Agribank – Bac Ninh branch from

international payment activity over the past time include:

- International payment activity has been being improved and

+ Reasons

a/ Objective reasons

- The foreign trade activity is a complicated activity hiding many risks,

requiring the participants to not only understand the markets but also understandinternational as well as international payment common practices

- The export activity has not deserved its potential

- The international economic management policy of Vietnam, thoughbeing opened more and more, enabling international economic integration, butwritten regulations on import, export, tariff, customs have not be stable withmany changes impacting on foreign trade activities

b/ Subjective reasons

- Non-diversified payment services

- Agribank Vietnam has just really moved itself recently, therefore, thedeployment of new products and services still meets many perplexes,inadequacies, and has not caught up with actual situations and internationalcommon practices

CHAPTER III: SOLUTIONS FOR THE INTERNATIONAL PAYMENT DEVELOPMENT AT AGRIBANK- BACNINH

- To implement appropriate customer policy

- To promote informatics technologies and modernize activities:

-To focus on training and improving qualification of officers ininternational payment

-To promote the mobilization of capital in foreign currencies for theinternational payment activity

 Some proposals

- Proposals to the Government and SBV:

+ On the legal environment for international payment and trading of foreign currencies

+ On the policies on export and import

+ On the issuance of regime documents,

+ On the policy on the management of foreign currencies

- Proposals to Agribank- Vietnam

+ Agribank Vietnam should promptly adjust and supplement documents andregimes in accordance with the laws and international common practices

+ Agribank Vietnam should build up and develop the trade mark namedAgribank Vietnma to the international level, and been known to everyone as one

of the largest enterprises in the Top 200 of Vietnamese leading enterprises

IT : Information Technology

L/C : Letter of credit

D/P: : Collected from Document against payment

T/T: : Collected telegraphic Transfer

SBV : State Bank of Vietnam

Agribank : Viet Nam Bank for Agriculture and Rural DevelopmentJSCB : Joint Stock Commercial Bank

SWIFT : Society of World Interbank Financial Telecommunications

UCP : Uniform Customs and Practice for Documentary CreditsIPCAS: : Intra- Bank payment and customer accounting system

Chart 1.2: Professional procedure for remittance 11

Chart 1.3: Professional procedure for clean collection 13

Chart 1.4: Professional procedure for documentary collection 14

Chart 1.5: Professional procedure for documentary collection 16

Chart 2.1: Organization mechanism of officers in Agribank – Bac Ninh Branch31 Chart 2.1: Business growth rate in the period of 2007-2009 39

Chart 2.2: International Payment revenues at Agribank - Bac Ninh branch 51

Chart 2.3: The increase of customers in Agribank - Bac Ninh branch 52

Chart 2.5: Structure of Income from International Payment 56

Table 2.1: Summary of capital resources mobilized 32

Table 2.2: Account outstanding in economic sectors 34

Table 2.3: Business Result 38

Table 2.4: Revenue of International Payment 47

Table 2.5: Number of International Payment items in Agribank - Bac Ninh branch 54

Table 2.5: Income of International Payment 55

CHAPTER I BASIC THEORETICAL ISSUES ON INTERNATIONAL PAYMENT

I.1 Overview on international payment

I.1.1 Definition of international payment

In the trend of current globalization, there is rarely a nation producingitself all the things it needs Each nation has its comparative advanges in somekinds of goods compared with other nations and it shall produces these kinds ofgoods in exchange for other kinds of their disadvantage The exchange exceedingthe borders of a nation constitutes the export and import activities; and the result

of these activities is the payment between subjects from different nations Onsuch basis, International Payment profession is formulated, in whichCommercial Bank act as intermediary bridge

International Payment is the performance of obligations in payment of currencies arising out of economic, commercial, financial, credit relationships and non-trade services between organizations, individuals from different nations

to finish an operation process in the external economic field by different payment methods such as remittance/telegraphic transfer, collection, letter of credit It’s

shown from the above concept that, International Payment serves two fields ofeconomic and non-economic activities In reality, there is often the interferencebetween these two fields International Payment is formed on the basis of foreigntrade activities and server mainly foreign trade activities, thus, they devideInternational Payment into two clear fields: foreign trade payment and non-foreign-trade payment

Foreign trade payment is the performance of payment on the basis ofexport and import goods and commercial services provided to foreign buyers at

the prices in the international market The basis on which the parties performpurchase and sale and payment to each other is a foreign trade contract.

Non-foreign-trade payment is the performance of payment in no relationwith export and import goods as well as labor provision to foreign nations,meaning payment activities without marketability Such payment is made forexpenses of overseas national diplomatic authorities, expenses for traveling,accommodation of state delegations, organization and individuals; sources ofgifts and souvenirs, allowances by foreign individuals to domestic individuals,funds by a foreign charity organization to domestic organizations, communities

As a whole, foreign trade activity has some feature basically different todomestic trade activity, including:

- Buyers and sellers from two different nations or nationalities

- The currency used in payment may be that of one of two nations and of athird nation

- Goods sold or purchased are often moved across the borders betweennations, from the nation of the seller to the nation of the buyer

- The laws governing the contractual relationship of purchase, sale andpayment contain international factors: the control of foreign exchanges, exchangerates and policies restricting foreign trade by the Government

I.1.2 Roles of international payment

- International Payment for the economy: In the trend of integration into

the international economy, every nation pays a great attention to the externaleconomic development International payment is the bridge between domesticand foreign economies, useful to push up the activities of goods and serviceexport and import, foreign investment, overseas national inward remittance andother financial and international credit relationships International payment ismore and more confirmed in the national economy in general and the externaleconomic activity in particular Especially, in the current context, every nationregards external economy as a leading priority, consider the external economicactivities as the indispensable way in the economic development strategy of eachnation

International Payment is an important phase in the process of goods andservices purchase and sale between organizations, individuals from differentnations But for International Payment, external economic activity shall bedifficult to exist and develop If International Payment is performed quickly,

safely, efficiently it shall solve the relationship of goods – currency circulationbetween buyers and sellers smoothly and efficiently.

- International Payment for the business operations of Commercial Bank :

International Payment activity helps Commercial Bank to attract many morecustomers with demand for payment exceeding the borders of a nation, creatingcompetitive advantage in the market economy In addition, International Paymentenable Bank to perfect and diversify business services such as foreign currencybusiness, guarantee profession and other services aiming at meeting better andbetter the demands of the economy, establishing trust in customers, and on suchbasis, heightening the prestige for customers

Due to the International Payment promotion, Commercial Bank havedeveloped the international credit activity, financed for export and import as well

as increase sources of capital mobilization due to utilizing the capital resourcefrom customers deposits upon their participation into International Payment orupon the flow of foreign currencies through the way of overseas national inwardremittance or payment of export goods

International Payment helps Commercial Bank to raise their prestige andadvantages in the international market; so that Commercial Bank may exploitsponsorship capital resources from foreign bank and the international financialmarket to domestic meet credit demand, collect many payment service fees such

as L/C payment fees, collection fees, remittance fees, overseas national currencyremittance fees, guarantee fees contributing a considerable part into the revenueand profit of the bank

- International Payment for export and import enterprises: International

Payment is the final phase in the performance of a foreign trade contract; it closes

a process of goods and service purchase and sale This is a complicatedprofession, hiding many risks beyond expectation, so, even when any two partieshave agreed on prices, payment methods, payment time, risks still may happendue to objective reasons or Force Majeure events Accordingly, a requirement toInternational Payment is to ensure the security for foreign trade contracts,collecting and receiving goods fully in accordance with the provisions under suchcontracts

Through International Payment activity with foreign partners, enterprises

of conditional export have conditions to catch information on the market, knowmore about partners; on such basis, to balance potentials, set out appropriatebusiness strategies, preventing and limiting risks

As International Payment is getting more development, InternationalPayment is required to renovate in accordance with International Trade Thus, theresearch of International Payment and related issues like currencies, exchangerates is always the serious concerns of economist, bank and export and importenterprises

I.1.3 Forms of international payment

Forms or methods of International Payment are the whole contents,conditions and ways for Bank to perform their payment obligations betweenindividuals, organizations from different nations and territories

The selection of payment methods proper with each trade affair,relationship between contractual parties is a factor contributing to limit risks inInternational Payment Current payment methods: letter of credit, remittance,collection and opening account

I.1.3.1 Letter of credit

a/ Definition of Letter of credit

A letter of credit is an agreement, of which at the request by a Customer(L/C applicant), a Bank shall issue a letter, called as L/C (Letter of Credit)thereby this Bank (called as L/C issuing bank ) commits to pay to or accept draft

of a third party (L/C beneficiary) agaist the presentation to Issued Bank a full set

of payment documents in accordance with the terms and conditions provided inthe L/C

According to Article 2, UCP 600 “A letter of credit is any agreement,whether described or called whatsoever, indicating a firm and irrevocableconfirmation by Issuing Bank on the payment agaist proper presentation”

b/ Professional procedure of a letter of credit:

Issuing BankL/C

Advising BankL/C

(8) (7) (1) (6) (5) (3)

(2)(5)(6)

(4)

Diagram 1.1: Professional procedure of a L/C

(1) An importer applies for a L/C issuance at its Bank requiring for theopening of a letter of credit in favor of an exporter

(2) Based on the application for L/C issuance, the L/C issuing bank shallissue a letter of credit and through its agent bank in the country of the exporternotify of the L/C issuance and transfer the letter of credit to the exporter

(3) Upon the receipt of this notice, the advising bank shall notify theexporter of the entire contents on such L/C opening; and upon the receipt of theoriginal L/C, the issuing bank shall immediately transfer to the exporter

(4) The exporter shall conduct the delivery if it accept such L/C, otherwise

it shall request the importer through the L/C issuing bank to amend, supplementthe L/C in accordance with the contract

(5) After the delivery, the exporter shall prepare a full set of documentsunder the requirements of the L/C, present it through the Advising Bank to L/CIssuing Bank as a payment request

(6) The L/C Issuing Bank shall examine the set of documents and makepayment to the exporter in case of finding such set of documents to be inaccordance with the L/C Otherwise, the Bank shall refuse to pay and return thewhole set of documents to the exporter

(7) The L/C Issuing Bank shall ask for payment to the importer andtransfer the whole set of documents to the importer upon its receipt of document

or acceptance of payment

(8) The importer shall examine the documents and make payment in case

of conformity with the L/C; otherwise the importer shall be entitled to refuse topay

c/ Some considerable points in using L/C:

- The popular international legal document of letter is “The UniformCustom and Practice for Documentary Credits, No 600, amended version of2007” by the International Chamber of Commerce (abbreviated as UCP 600).This written rule is legally optional; meaning in order to apply it, the applyingparties shall mutually agree on and refer it in L/C Now in our nation,Commercial Bank and export and import business units have agreed on the use ofthis written Rule as a legal document governing kinds of letter of credit applied

in International Payment between Vietnam and other nations

- Characteristics of L/C transaction:

+ L/C is a two party economic contract: Many people are confused to saythat, L/C is a three party economic contract, including: L/C applicant, IssuingBank and the beneficiary Actually, L/C is an independent economic contractwith only two parties including the Issuing Bank and the beneficiary Allrequirements and instructions of the L/C applicant are represented by the IssuingBank, therefore, the official voice of the L/C applicant is not shown in L/C Thisunderstanding is very important; as many exporters think that L/C belongs tothem and the Bank just provide such service for fee; thus, only the agreementsbetween the importer and the exporter are important, then the acceptance by theBank depends only on the factor of payment fee Let’s image that, a L/Camendment has been agreed by the exporter and the importer, but without theacceptance thereof by the Bank, would such acceptance become valid?

+ L/C is independent to the basic contract and the goods: This isconfirmed in the versions of UCP Essentially, L/C is a transaction totallyindependent to the foreign trade contract or any other contract which is the basis

to establish L/C transaction In all circumstances, the Bank is not related to orbound on such contract, even when L/C includes any references to this contract

Accordingly, a L/C has important characteristics, it forms on the basis of aforeign trade contract, but after being established, it turns out to be independent

to this contract Once a L/C has been opened and accepted by the parties, whetherthe contents of such L/C are in accordance with the contract or not, it shall notchange the rights and obligations of the parties relating to it

Some importers don’t understand or neglect this rule, upon the occurrence

in the basic contract, turn back to claim or prevent the Bank from paymentagainst an appropriate set of documents This is unallowable

In reality, a importer may use L/C as a provisional instrument to embody,elaborate or supplement terms omitted by commercial contracts; additionally, tocorrect, amend unfavorable contents in the signed foreign trade contracts.Nevertheless, this may only help to avoid from opening a L/C in favor of theexporter, but the exporter may take the importer to the court basing on the terms

of the commercial contract

- A L/C is transacted only be documents and paid only on the basis ofdocuments; the Bank bases only on inspecting presented documents to determine

if such documents on their surfaces may constitute a proper presentation or not.Thus, documents in L/C transaction have a special importance, being theevidence on the delivery by the seller, representing for the goods value delivered;therefore, they become the basis for the Bank to pay, for the importer to

reimburse the Bank, and the shipping documents for the importer… Thepossibility of collecting payments depends only on the proper presentation ofdocuments, at the same time, the Bank also make payment against properdocuments It means the Bank are not possible for the truth of the goodsrepresented by any documents.

When presented documents are proper, a Issuing Bank shall makeunconditional payment to the exporter, despite the fact that the goods may not bedelivered or delivered fully in accordance with what written on documents Thus,L/C payment can not base on the real status of the goods, if the goods do notmatch with the documents, the seller and the buyer shall mutually resolve on thebasis of the sales contract, without any relation with the Bank Only in case ofimproper documents, and the Bank still make payment to the exporter, the Bankshall take all responsibilities therefore, as the importer shall have the right torefuse to pay back to the Bank

- The content of a L/C and the set of documents mush not be contradict toeach other: As the transaction bases only on documents and the payment basesonly on documents, so the requirement of strict compliance by the documents isthe basic principle of L/C transaction For payment, the exporter must present aproper set of documents, comply strictly with the terms and conditions of L/C

- L/C is an instrument of payment for restricting risks or an instrument forrefusing payment and doing fraudulence? In terms of being an instrument ofpayment and precaution against risks to the exporter and the importer, L/C has anoutstanding advantage compared with other payment methods Thus this methodhas existed and developed as it’s seen today However, in the reality ofinternational trade, due to changes of the market, prices of goods… L/C may beavailed to become an instrument for refusing the delivery of goods, the paymentand an instrument for cheating and doing fraudulence

From the virtue of L/C is just to transact by documents and theexamination of documents bases only on the surface of the documents withoutconsidering the features “inside the documents” For this reason, there are notfew disputes arising due to the strict compliance of the documents In reality, thepreparation of a perfect set of documents without any errors is not easy;furthermore, the gap between the compliance and “error” is really slim,depending on custom, qualification, viewpoints, motivation of related parties.Additionally, due to the independence of L/C to the basic contract, a fraudulentperson may not perform the delivery or perform an improper delivery, while he

still prepares a proper set of documents for payment There have been manycircumstances like that in the real world.

I.1.3.2 Remittance

a/ Definition

To be a payment method in which a customer (the remitter) requires aBank to serve him to remit a certain amount to another person (the beneficiary) at

a certain address and within a certain time

It’s possible to say that, remittance is a simple payment method, in whichthe remitter and the beneficiary perform payment directly to each other TheBank during the remittance plays only a role as an intermediate underauthorization for commission and without being bound to any responsibilities forthe remitter and the beneficiary

b/ Sequence of profession performance:

Chart 1.2: Professional procedure for remittance

- (1) This step is only performed in the existence of a foreign tradecontract After signing the foreign trade contract, the exporter shall perform thedelivery, simultaneously send to the importer a full set of documents (invoice, B/L…)

- (2) After examining the set of documents (or goods), if the importerdecides to pay, the importer shall prepare a remittance request and send to theBank for serving him

- (3) After examining the documents and remittance documents asstipulated, in case of compliance and eligibility for payment, the Bank of theimporter shall perform the remittance

- (4) The remittance Bank orders the Bank which serves the importer topay the beneficiary

- (5) The remittance Bank shall entry credit to the account of thebeneficiary and send written notice to the beneficiary

(4) (3) (2) (5)

(1)

c/ Advantages, disadvantages of remittance:

For the beneficiary: As well as the remitter, the beneficiary shall payfewer expenses, less time and shorter time for procedure than in other paymentmethods due to saving work and money

+ Disadvantages: May result in the appropriation of capital between thetwo parties: the buyer and the seller

I.1.3.3 Collection

a/ Definition

Collection is a payment method, in which the seller (the exporter) after hisdelivery of goods or provision of services, entrust the Bank to serve him inpresenting the set of documents through the collection Bank of the buyer(importer) for payment, acceptance of draft or acceptance of other terms andconditions

In order to make collection into an efficient payment method, the buyerand the seller must agree on details of payment terms as stipulated in the foreigntrade contract On the basis of this agreement, the seller perform the collectionthrough the Bank serving him

The legal document governing collection is ICC Uniform Rules forCollections effective from June 1995 (abbreviated as URC 522) When URC 522

is referred to the Collection order, all the related parties shall perform their rightsand obligations properly under these Rules However, if the parties otherwiseagree on the Rules or the Rules are contradict to national laws, the Rule shall not

be applied; it means that the related parties shall have the right to agreeparticularly on the collection; simultaneously national laws must always berespected beyond these Rules This happens because URC 522 is only optional, itcomes into effect upon the agreement of application by the parties and beingreferred in collection Thus, in application of URC 522, the related parties alwayshave to consider about the legal features of the nations relating to the collection

Collection includes two kinds: Clean collection and documentarycollection

b/ Clean collection: To be the method in which a seller entrust the Bank tocollect money for him from a buyer basing on the draft prepared by hime, anddirectly send shipping documents to the buyer, not through the Bank

- The performance sequence of clean collection profession include thefollowing steps:

+ The seller, after dispatching the goods and shipping documents to thebuyer, prepares a draft asking for money from the buyer and entrust his Bank tocollect such money for him by a collection order

+ The Bank serving the seller send a trust instrument of collection against

a draft to the Bank representing him in the country of the buyer for the collection

of money for the seller

+ The agent Bank requires the buyer pay for the draft (in case of at sighdraft) or accept to pay for the draft (in case of deffered draft)

+ The agent Bank remits the money collected to the seller, in case ofacceptance against draft, the Bank keeps the draft and forward it to the seller.Upon the due date, the Bank shall ask for many from the buyer and makepayment to the seller

The following is the chart for the professional procedure of cleancollection:

Chart 1.3: Professional procedure for clean collection

(1) Request for collection against a draft

(2, 3) Ask for money from the buyer

(4) The buyer pay the seller

- Cases for the application of clean collection:

(2)

(4)

(1) (4) (4) (3)

Send goodsanddocuments

Document forwarding

Bank

Collection and Document presentation

NH

+ The seller and the buyer believe in each other and have joint venturerelationship between parent company, subsidiaries or branches.

+ For payment of services relating to the goods export, as this paymentdoes not need attached documents such as transport fee invoices/receipts,insurance policies, penalty records, compensation records…

The clean collection is not applied much in trade payment, as it can notprotect the rights of the sellers, in which the taking of delivery by the buyer isentirely separate from the payment phase, thus, the buyer may take the deliverywithout payment or late payment For the buyer, the application of this methodalso brings him risks, as if the draft comes earlier than the documents, the buyershall have to pay immediately without knowing about the compliance with thecontract of the delivery buy the seller

c/ Documentary collection: To be a payment method, in which thedocuments sent for collection include: either commercial documents withfinancial documents; or only commercial documents without financial documentsenclosed The collection Bank shall deliver the set of documents to the importeronly after the importer has made payment or accepted to pay for the draft

- The following is the chart for the professional procedure of documentarycollection:

Chart 1.4: Professional procedure for documentary collection

This procedure is also like that of clean collection, just different in thephase (1) to prepare a set of documents and send to the Bank for collection Theset of documents includes draft and shipping documents attached, in the phase(3) the agent Bank deliver the shipping documents to the buyer if the buyermakes payment or accept to pay for the draft

In documentary collection, the seller entrust the Bank, apart from thecollection, to control the shipping documents to the buyer This is the basic

(2)(4)

(1) (4) (4) (3)

Send goodsanddocuments

Document forwarding

Bank

Collection and Document presentation

NH

difference between documentary collection and clean collection With this way

of document control, the rights of the seller are more secured

- The seller through the Bank may control only the right of determiningthe goods, but can not control the payment of the buyer The buyer may extendthe payment by temporarily not receiving the documents or not performingpayment, when the market is adverse to them

- In this method, the Bank plays only the role of an intermediate forcollection, without responsibility for the payment of the buyer

d/ Issues of using collection:

- The popular legal document of the collection method is ICC UniformRules for Collection, 1995 Revision No 522 by the International Chamber ofCommerce

These Rules are optional so to apply it, the buyer and the seller mustagree and stipulate on it in the contract

- The seller must prepare a collection order and sent to the Bankrepresenting for him for collection In such collection order, the seller must setout terms of collections which must be accepted by the Bank This is a specificlegal document governing the relationship between the seller and the Bankserving the seller

The contents of such collection order often include the followingconditions: payment terms of either D/A or D/P In the term of D/P(Documentary against payment: to make payment in exchange for thedocuments), the buyer shall receive documents from the Bank only by paying forthe draft In the term of D/A (Documentary against acceptance: to acceptpayment in exchange for the documents), the buyer shall receive documents fromthe Bank only by accepting to make payment

I.1.3.4 Open-account

a/ Definition: To be a payment method, in which the seller opens anaccount (or a book) to entry debit of the buyer after the seller has completeddelivery of goods or services, until the due date, the buyer shall pay the seller

b/ Characteristics of open-account method:

- There is no participation of Bank with the function of opening anaccount and performing payment There are only two parties participating in thepayment including the exporter and the importer

- Just open a unilateral account, not open a bilateral account If theexporter opens an account to entry debit, this account is only for monitoring, notvalid for payment.

- The two parties must really believe in each other

- Apply mainly in barter sale or for series of shipments performedregularly and periodically in a certain time

- Goods prices in this method are often higher than those in at sighpayment method as it takes into account for interest rates and credit risks

Currently, England or EU countries usually apply this payment method

as between these countries there is a similarity of culture, customs in business,laws, and customers have traditional, regular and long-term business relationship

on the basis of mutual belief

c/ Professional procedure:

Chart 1.5: Professional procedure for documentary collection

(1) Delivery of goods or services along with sending goods documents(2) Direct debit notification

(3) The buyer apply remittance to pay on due date

d/ Cases for application

- Usually applied for domestic payment

- The seller and the buyer really trust each other

- Applied for barter sales, or for series of shipments performed regularlyand periodically in a certain time (6 months, 1 year)

- This method is favorable only to the buyer

- Applied for payment of consignment payment in foreign countries

(3)

(3) (3)

(2)(1)

- Applied for payment of non-trade such as: freight charges, insurancepremium, commission in brokerage, assignation, and interest from loans andprofits from investment.

c/ The considerable points in application are as follows:

- Agreed stipulations on currencies written on account

- Basis for debit entry of the seller is usually commercial invoice

- Basis for debit acceptance of the buyer, either is the value of invoices, orthe results of taking delivery in places of delivery

- Remittance method either by mail or by telegraph must be agreedbetween the parties

- The goods prices in this open-account method are often higher thanthose in at sight payment method This difference is the interest arising out of theopen-account amount within duration equal to period payment period under theinterest rate agreed by the buyer

I.2 Development of international payment of commercial banks

I.2.1 Concept on the development of international payment of commercial banks

To understand clearly what International Payment is, it’s required tostart from the concept of development Under the Vietnamese polytechnicdictionary, development is deemed as to change or make changes from little tomuch, narrow to large, low to high, simple to complex

This concept shows that in order to refer to the development of a specificobject is to indicate the increase both in quality and quantity of such object

For example, talking about the economic development is understood astalking about the process of increase in all aspects of the economy Economicdevelopment is considered as the process of changing both in quantity andquality; it is the close combination of the completion process of the two issues ineconomy and society of each nation

So the concept of International Payment development is the increase in quantity and quality of this activity International Payment development in

quantity show that the payment of currency obligations arising in relation witheconomic, commercial relationships and other relationships among differentorganizations, companies, and subjects of different countries is increasing Thisincrease is shown through number of items, amounts of every period higher thanthose of the previous period, of every year higher than those of the previous year

In this meaning, International Payment development is almost the extension ofoperation scale, the development in width However, International Paymentdevelopment in width can not prove the quality and safety of this operation Due

to the characteristic of International Payment is related to foreign factors, the rate

of risks is very high So, besides the extension of operation scale, CommercialBank can not omit the quality And it’s the International Payment development inquality To upgrade the quality of International Payment, Commercial Bankshould have many efficient measures; it’s possible to list some of such measures

as follows:

+ Establish agent Bank in countries, regions, territories in the world andconsider this is an important change link helping domestic Bank to researchclearly customers in the countries where agent Bank are located

+ Establish a procedure of International Payment in accordance withdomestic laws and international custom and laws This helps the system tooperate more smoothly, more professionally and thus restricts risks

+ There is another so important factor is human resource It’s required toallocate and assign tasks to officers in International Payment profession who arequalified in specialized profession and foreign languages besides generalstandards

Nowadays, International Payment is a service becoming important toCommercial Bank It brings considerable revenue source not only in absolutequantity but also in proportion International Payment is also an important chainlink in connecting and pushing up the development of other business operations

of Bank such as foreign currency business, bank guarantees, overseas nationalcurrency remittance, increase of capital mobilization source, especially forcapital in foreign currencies

The International Payment perfection and development have a veryimportant role for activities of Bank It is not only a pure payment service butalso the central indispensable phase in the line of business operation,supplementing and supporting other business activities of Bank

Today, due to the strong, comfortable, safe and efficient development ofInternational Bank, most of International Payment activities take place throughBank system, at the same time, International Bank has developed under auniform custom on the international scale through different International Bankmethods

I.2.2 Measuring of the development of international payment

I.2.2.1 Measuring of the Qualitative

Reflect International Payment development by qualitative criteriarepresented through many criteria, including but not limited to the followings:

- Customers satisfaction: Customers satisfaction for each product,

service of Bank is increasing, then the prestige, trademark of Bank is increasedmore and more To satisfy customers and heighten the prestige of domestic andinternational commercial bank, first of all, International Payment professionsmust be diversified and affluent Besides, Commercial Bank officers should alsounderstand deeply in foreign trade field, so that they can help customers torestrict risks, losses In general, to bring customers the gratification andsatisfaction, Bank must perform well the issues as follows:

+ Customers care policy: The policy of each Bank to developInternational Payment during the period of harsh competition betweenCommercial Bank at present must be really attractive to attract customers to useservices of such Bank International payment policy of a Bank is considered to beattractive when it focuses enough issues such as the ability to provide export-import credit services, the ability to provide sources of foreign currencies in need

of customers, International Payment performance fees, deposit rate for L/Cissuance… Normally, a enterprise with International Payment activities at acommercial bank always have demand to be financed A commercial bankproviding enough capital in foreign currencies at the request by customers evenwhen the foreign exchange market is fluctuating and in short of foreign exchangesurely can build up in customers with belief and confidence Now, due to thehigh difficulty in buying USD, the import of importing enterprises has reallyfallen into difficulty In the mean time, exporting enterprises are having abehavior of “speculating” USD, waiting till USD price become higher to sell outfor profit Facing this situation, Commercial Bank wait for the strongerinterference from SBV indeed to stabilize the foreign exchange market, fromthen on, to meet demands for USD of importing enterprises well

On the deposit rate for L/C issuance, Commercial Bank often have twodifferent rates, a low rate for traditional customers and a high rate applied tocurrent customers That is also a good customer care policy needed to bepromoted As traditional customer are ones having regular transactions and goodcredit relationship with each Bank, so high rate of deposit shall result in capitalstagnation affecting the financial status of customers and consequently customersare also affected A Commercial Bank having conducted well the works ofinspection, assessment, and classification of customers may also suggest its

Director to approve on the deposit rate for customers to be 0 or allow customerspay such deposit into a fixed-term deposit account and block this account inorder to avoid the waste in capital resource of customers Thus, customers shallfind that the Bank always take care of their benefit and are really satisfied withthe customers care policy performed by the bank

The matter of fees also influences export-import enterprises on choosewhich

Commercial Bank shall work with them in performance International Payment

The fee schedule of each Commercial Bank depends on regulations by SBV and

the Central Commercial Bank, therefore, it varies from different Bank However,nowadays, due to the competition for market dominance between commercialbank, most of the fees by Bank are not much different

In summary, customers care policy may attract more and morecustomers to a Bank if it is done well; otherwise it may make ccustomers “runaway” to other Bank The customer policy makers should pay attention to thefactor of line reflection of geometric progression, meaning that a dissatisfaction

of a customer shall be transmitted to so many following customers Now, withthe “boom” of domestic as well as international Bank, the customer care needsmore and more attention

+ Bank officers: Human factor is very important to every activity,especially to International Payment activity of Commercial Bank BecauseInternational Payment is an activity exceeding the national borders so it is highlycomplicated and risky For that reason, Bank have to allocate officers of the rightspecialty, profession trained, avoid the allocation of person unqualified in foreigntrade profession working in the field of International Payment; as operationofficers not competent in foreign languages and profession shall not be able toperform well this activity, resulting in the loss of prestige in customers Apartfrom incentive capacity and qualification, officers in International Payment arerequired to have good serving attitude and communicating ability to customers

+ Time of payment: The time factor in performing InternationalPayment procedure is very important as it ensures the performance progress ofcontracts signed between parties Bottlenecks in the payment phase may lead tothe fact that customers may bear the penalty for late payment (in the payment ofL/C, late payment) or late delivery (in remittance of deposit for imported goods)

… Payment time not as agreed between parties shall cause damages in financeand gradually decrease the prestige in customers and in the international Bank

+ Ability of consultancy to customers: With incentive qualification inthe field of International Payment, Bank officers are persons not only helpingcustomers to perform their requirements but also being able to analyze favorableand unfavorable to their customers In the international market, Vietnameseenterprises are always pressed by foreign enterprises in prices, paymentprovisions, rights of transportation hiring… For example, enterprises in exportinggoods have rarely acquired the right of chartering which belongs to the foreignimporters In case Vietnamese enterprises import goods, such right still belongs

to foreign partners, though they are suppliers In front of this current status, Bankshould advise their customers to take efforts in negotiation, and sign contractsunder condition of acquiring the right of chartering This helps our enterprises toactively choose good ships, ensuring the safety for shipments and moreovercreate jobs, collecting foreign currencies for the nation In short, the consultancy

of Bank officers is very necessary, it helps enterprises avoid risks and damages inparticipating International Payment and therefore bring benefits to enterprisesthemselves as well as Bank

- Prestige and trademark of Commercial Bank are increased: to be

synonymous with safe, efficient International Payment, standard telegraphsthrough SWIFT network without correction or return, timely payment…Particularly, for the issuance of import letters of credit, Commercial Bankserving importers should work fairly, be careful to avoid unnecessary refusal topayment; sometimes, import goods prices suddenly go down and importers findall ways to combine with L/C Issuing Bank to claims on mistakes in documents(even such mistakes are acceptable) At the angle of Issuing Bank, if all of themjoin in with such customers, refuse to return documents, and don’t take thedelivery, in such case they shall be disregarded by agent Bank, even such actionsshall lead to disputes

Therefore, apart from satisfying customers, each commercial bank also have toconcentrate to its prestige and the safety of the Bank itself, so that it may havesustainable position in the international market

I.2.2.2 Measuring of the Quantitative

Differently from qualitative criteria, quantitative criteria are criteria may

be measured in certain numbers Quantitative criteria reflect the development ofInternational Payment in the increase in scale and quantity

- Increase in International Payment scale: International Payment scale

increases in synonym with the revenue of International payment, number of items

performed, number of customers and International Payment market shareincreased of every year higher than the previous year.

+ Increase in International Payment revenue:

International payment revenue is the total amount participating in theperformance of this activity It includes total payment amount of InternationalPayment methods such as remittance, letter of credit, collection…

The increase of International Payment revenue by time may be measured

by two ways: First, to calculate in absolute number during this time then compare

it with the previous time This way can not indicate the actual growth rate Thislimitation may be overcome by the second method, to calculate the increase bypercentage The formula thereof is as follows:

H 1 = H 1 – H t-1 x 100%

H t-1

With H1 is the increase in international payment revenue of the year t

Ht: International Payment revenue of the year t

Ht-1: International Payment revenue of the year t-1

The increase in % reflect the most accurate increase or decrease, thequick or slow increase or decrease rate of the revenue brought by InternationalPayment The continuous increase of H1 proves that the International Paymentactivity of the Bank has been developing more and more

Commercial Bank nowadays not only have the function of borrowing forlending but also pay attention to extending their service activities, which bringbig sources of revenue to Bank Commercial Bank compete with each other bydiversifying their products and services, any bank may provide many productsand services with high quality shall secure larger market share It’s known thatInternational Payment is a service activity bringing a big source of revenue toBank, so Commercial Bank always perfect this products and services to meetfully the more and more diversified demands of customers The development ofscience and technologies is also a good condition helping Bank upgrading theirmodernization of International Payment While in the past, the transmission of atelegraph from the system of commercial bank from inside the country to foreigncountries must be done by mail (time was calculated by day), nowadays, theSWIFT network allows the transmission of a telegraph between countries with avery high speed (time is calculated by minute) With the support of InformationTechnology (IT), it’s clear that the safety, accuracy shall be higher and

additionally time shall be saved more Saving time is saving expenses, humanefforts At that is also the factors creating increasing International Paymentrevenue.

+ Number of items performed by International Payment activity increases:The higher International Payment revenue of every year compared with theprevious year can not also prove the increase of the number of items performedbecause the amount of money in each item may be different So, in reflecting thedevelopment of International Payment, in addition to the increase in revenue, it’srequired to refer to the increase of the number of items performed

+ The quantity of customers participating in International Paymentactivity increases: For all kinds of activities in production and business,customers act as a very important factor, especially in the market mechanism andthe open market as like now Commercial Bank always compete harshly to attract

“their God” to come to their Bank Customers decide the quantity and scale ofactivities in each Bank

To have an increase in the quantity of customers joining InternationalPayment activity, firstly, a Bank must have an appropriate customers policy,diversify their International Payment products, and have enough resources offoreign currencies to meet the demands of customers… Without performing wellphases such as advertisement, marketing of products and services to customers,Commercial Bank can not increase the number of their customers

Customer is the vital issue for Bank as only customers bring profit toBank It’s necessary to change the thought that Bank are ones bring sources ofcapital and services to customers, so customers need Bank The change in way ofthinking and action shall bring to bank chances to enlarge their scale due to theincrease in the number of “their God”

+ The increase of market share: Market share is a certain section of themarket occupied by a enterprise So, it’s possible to understand that InternationalPayment market share of a Bank is the market share of International Paymentactivity performed by such Bank What is the motivation make a bank to enlargeits market share It’s because that a Bank is highly profitable by enlarging marketshare despite the unchange of market scale However, every Bank is required tounderstand clearly that the increase of market share served by such Bank do notalways increase the profitability This also depends much on the strategy forincreasing market share of every bank, the costs and expenses for creating amarket share and the income value of such market share The bigger the marketshare is, the more profit tends to be created in two cases, as follows:

Input prices decrease while market share increases: Input prices of a bankare deemed as decreased loan interest, service fees… Thus, when market shareincrease by the amount higher than the loss due to decrease of input prices, Bankprofit shall be increased and as a result, bank activities shall be developed, ofwhich is International Payment.

Products and services with the top quality and higher evaluation shall used

to cover the creation of higher quality

In short, the criterion of increasing market share is one of the criteriameasuring the growth in scale of this activity The increasing market share shallbring much profit to Bank, first of which are increased profit and theimprovement of income for laborers Due to such importance, it’s necessary tohave a strategy to increase market share in domestic and international bankmarkets

- Quality of International Payment activity: The embodiment of

International Payment activity quality is the increase of risk and income

+ The increase of income before tax: Income before tax is the revenueminus costs and expenses

Income = revenue – (costs + expenses)

However, to know the increase rate of income before tax fromInternational Payment activity in a certain time, it’s necessary to calculate suchincrease rate with the following formula:

H 2 = I t –I t-1 x 100%

I t-1

With H2 is the increase in International Payment income of the year t

It: International Payment income of the year t

It-1: International Payment income of the year t-1

The increase of H2 by the time shows that International Payment hasbrought an abundant income source to every Bank In H2, International Paymentcosts and expenses have been deducted, so the increase of H2 shall reflect thegood performance activity of International Payment and thus InternationalPayment shall develop more and more

+ Limiting the risks of credit in International Payment: In the businessfield, there is always potential of risks International Payment obviously can notavoid such risks due to the different specific characteristics with geographic,

cultural, and legal factors of the participating parties International Payment risksmay be divided into two kinds: risks to import goods and risks to export goods.

In International Payment for import goods, the risks often take place when aseller does not delivery in accordance with quantity and quality as agreed orwhen the buyer has already made payment, the seller shall not make the delivery(as the set of documents presented to the bank is perfect, so it shall be payable ondue date while the seller does not make the delivery) On the contrary, inInternational Payment for export goods, the risks often happen when the IssuingBank falls into bankruptcy, the claim for mistakes in documents or thesuspension or delay in payment after the goods have been shipped… In any caseswhatsoever, Bank must bear all the losses and risks happened together withcustomers The risk precaution and limiting for customers are always paidattention to by Bank as the benefits of Bank and customers are always connected

to each other The risks in International Payment of Commercial Banks include:

Risks in payment: include the risks arising when the goods have beenalready delivered but the payment for such goods can’t be made by the buyers; orthe goods received are not in accordance with specifications and quality asrequired… This kind of risks results from so many factors such as risks frompolitical activities (wars, riots, embargoes…), economic risks such as the foreignpartners meet difficulty in finance resulting in the insolvency or bankruptcy, risks

of conduct happening when partners do not have goodwill, or they performfraudulence

Risks in exchange rate: to be the damages caused by changes of foreignexchange rates

For the good performance of International Payment, the restriction of risks

is very necessary To limit risks, it’s necessary to frequently monitor the economic situation of each nation with commercial relationships, consultcustomers upon signing contracts, with the most favorable methods andconditions, and to reserve a variety of foreign currencies

socio-I.3 Factors affecting the development of international payment

To say about the influence of a factor is to consider if such factorinfluence positively or negatively on the subject to be researched InternationalPayment bear influence from two groups of factors including the first from bankthemselves (subjective factors) and the other of outside factors (objective factors)

I.3.1 Subjective factors

International Payment is the field bringing major profits to commercialbank and also is the activity with high risks The managers must accept theexchange between risks and profit In reality, it’s possible to say that the factorsimpacting on International Payment derive maily from bank themselves Suchfactors include:

- The operation scale of each bank A Bank with large scale shall have alarge quantity of customers and chances, ability to develop service activity(including International Payment) The extension or narrowing of InternationalPayment is closely related to the operation scale of each bank

- The business strategy of each bank: International Payment is a field withmuch more risks than domestic activities due to the difference in geographicdistances, laws governing trade and commerce caused by the non-existence of aninternational trade code, language difference, different politic system….Therefore, it’s not that every bank may be allowed to operate in this kind ofoperation When a bank gathers enough conditions in human resources andfinancial resources for the eligibility of operating in this field, it also has to set up

a specific strategy of International Payment development so that this activityshall be developed more and more

- The human resources, especially the team of officers working inInternational Payment must include persons qualified for foreign languages,specialties and profession Bank officers must be the ones can advise customers

to avoid possible risks adverse to them For example, when a customer open a L/

C with the term of payment by telegraphic (T/T remittance allowed) the bankofficers should advise them to reject this term Because if such term is applied,when Issuing Bank has received such telegraphic request for payment before theset of original documents come to Issuing Bank, Issuing Bank shall have to payfor such request in no time

Well qualified bank officers play a pivotal role as International Paymenthas high risks, if such officers are not competent in profession, Bank shall bevery easily to bear risks If they are not fluent in foreign languages, they can notproperly understand the transaction information sent from foreign partners, and

as a result, the two parties shall not understand each other, creating disputes

- IT foundation: Together with the human factor, IT is one of the essentialand leading factors deciding the success of International Payment IT helps bank

to perform transactions more safely, accurately and quickly For InternationalPayment, the introduction of SWIFT network connecting globally has help tosave time for delivering a telegraphic with much higher speed Or the birth of the

systems of Visa cards, Master cards has allowed human-beings to draw moneyand make payment beyond borders of a nation… The above example shows thatthe importance of IT is so great nowadays.

Today, it’s possible to say that IT is one of the vital factors deciding thesuccess of each commercial bank Because IT help us to deliberate our laborpower, allow the connection in the bank system helping customers to withdrawand make payment in different places, and especially due to IT with modernmachines and equipment, the transactions among people all over the world shallnot take much time and many efforts That shall help bank to minimize costs andexpenses and maximize their business profit

- Customer policy: Bank business is an industry creating super profit, sothere are more and more bank established Every bank without policy to competewith other bank shall have fewer and fewer customers, the amount of deposit andother bank services shall therefore drop down As a result, bank profit shall alsodecrease

The policy of each commercial bank varies from different periods, itdepends on the targeted purposes Customer policies are also useful to promotethe development of bank activities, if they are uncourageous However, the factshows that this is not always like that At present, due to the scarcity of USD,commercial bank can not sell spot USD to import customer but only forwardUSD This policy has restricted the development of International Paymentactivity; specifically the issuance of L/C, remittance of payment for import goods

of customer shall not be performed

- Other supporting services: Bank professions are related closely to eachother In order to have good performance, International Payment need supportsfrom other professions such as credit and accounting As usual, a customer shallperform International Payment at any bank from which it has gotten loans Bankissue loans to import enterprises, on the contrary the development in the exportand import of enterprises shall maintain and push up credit activity

Besides, the accounting profession also helps commercial bank tomonitor, and account International Payment activities scientifically

In short, nowadays, commercial bank always pay great attention to thedevelopment of products and services along with traditional professions (such aslending, capital mobilization) so International Payment is always focused.Therefore, the development of International Payment meets many favorableconditions

I.3.2 Objective factors

I.3.2.1 Economic environment

The economic environment impacts directly on the business operations ofeach enterprise, individuals So, it shall impact on the International Paymentactivity At the time being, the financial crisis is influencing the whole economies

of countries in the world, creating difficulties to the activities of enterprisesleading to their possible bankruptcy This is the general difficulty to the wholeworld economy and shall affect the business environment of Vietnameseenterprises It includes the difficulties to export, decreased orders, and decreaseforeign investment capital These are the very reasons impacting on themaintenance and development of International Payment in commercial bank

I.3.2.2 Politic environment

This is related to wars, riots, terrorism, religious disputes, insurrection,demonstrations The economic environment is very important to economicactivities in general and International Payment activity in particular; it ensures asafe environment for the smooth performance of economic activities Countriesunder the embargo by USA such as Cuba, North Korea shall be clearly restricted

in economic development, so they can not perform business communication withother countries in a normal manner The reason is that all payment activities inthe world of USD dominance must be performed through USA On the otherhand, USA has a decisive role in the big economic matters all over the world.Nations of such politic sensitivity usually meet difficulties in internationaleconomic relationship

I.3.2.3 Legal environment

In the international business, the legal factors impacting on businessactivities include law systems, systems of measures to ensure the enforcement oflaws and the compliance with the laws

International Payment here is related to codes and international customs,their limitations and gaps as well as contradictions between national laws andinternational laws and customs In the application of rules, customs inInternational Payment such as URC 522, UCP600 , it’s necessary to payattention to their optional feature; it means that it’s required to provide onspecific reference in case of need for application In case of contradictionsbetween the above rules and customs and those of any nation, the rules andcustoms of such nation shall avail Therefore, during participating into foreigntrade activities not only customers but also bank need to research the laws of

partners to avoid losses and damages This also explains why VietnameseCommercial Bank should establish agent relationships with bank in the entireworld Agent bank shall understand more clearly about the laws of foreigncountries and shall help Vietnamese Commercial Bank to avoid unnecessaryrisks.

CHAPTER II CURRENT STATUS OF INTERNATIONAL PAYMENT

DEVELOPMENT AT VIETNAM BANK FOR AGRICULTURE AND

RURAL DEVELOPMENT – BAC NINH BRANCH

II.1 Background on Vietnam Bank for Agriculture and Rural Development – Bac Ninh Branch

II.1.1 Establishment and development

Agribank- Bac Ninh branch is a commercial bank with functions intrading of currencies, credit, services for economic sectors, especially agriculturalproduction and rural economic development through the extension of mediumand long term investment capital to build up technical facilities for production inagriculture, forestry, aquaculture contributing part to the successfulperformance of industrialization – modernization of rural agriculture in the localarea of the province

Agribank - Bac Ninh branch has some basic characteristics as follows:

- To be a State-owned enterprise

- To be a member branch of Agribank VietNam

- To be operating under the laws of the Socialist Republic of Vietnam;and under the Law of Credit Institutions

The bank observes both the direction of Agribank, and directions, policies

of the provincial People’s Committee on the socio-economic development plan inthe local area of the province

With the functions in trading of currencies, credit, and bank services foreconomic sectors, act under the assignation of short, medium and long terminvestment capital programs by the Government, socio-economic organizations,domestic and international individuals

The bank is responsible to perform self economic accounting, self-controlits finance under the decentralization, ensure the growth of business activities ofthe bank with the main tasks such as mobilizing capital to lend, trading incurrencies, perform bank services and other business and service activities

To make Agribank - Bac Ninh branch to develop comprehensively, thebranch has always paid attention to build up and reinforce its network of class-III

banks so that they become more and more strong and firm, simultaneously,decentralize business authorities to ground levels.

As business activities always have complicated changes in the marketeconomy, the branch has been performing synchronously three methodsincluding clearance risk management, interest risk management, reinforcement ofcapital resource management, and determine the payment assurance fund Thebranch also directs and manage balance in hand in class-III banks; ensure the rate

of cash balance as stipulated; grasp the interest rate announced by SBV in everyperiod, changes in mobilizing interest rates of commercial bank, creditinstitution; adjust loan interest rate in accordance with each object of businessand production in the local area of the province

Regarding the organization mechanism and officers:

On the first days the branch entered into operation (on 01 January 1997)there were 282 officers and employees, up to now, over the past 10 years, therehas been a development of up to 396 officers and employees The reason for thisincrease is due to the extension to other business services and operation network

of the branch Currently, with 29 transaction points in the whole province,Vietnam Bank for Agriculture and Rural Development – Bac Ninh Branch isreally the bank with the widest network

Agribank - Bac Ninh branch is a member directly under AgribankVietNam The head of the branch is the Director, responsible before the laws onevery activity of the branch Thereunder are Deputy Directors in charge ofprofessional departments in the provicial Head Office and class-III banks.Through many years of operations, the organization structure has been perfected

in accordance with the characteristics of the system, enabling the more efficientbusiness operation of the bank and this is shown in the following chart: