Đề tài International payment service by opening Letter of Credit at Vietnam Eximbank Hanoi Branch

ces. The Vietnamese name in commercial trading is “Ngân Hàng Thương Mại Cổ Phần Xuất Nhập Khẩu Việt Nam” while its English name is “Vietnam Export Import Commercial Joint Stock Bank”, and this name is shortened to “Vietnam Eximbank” The Bank’s head office is located at 07 Le Thi Hong Gam St., Dist. 1, Ho Chi Minh city. The bank has 29 nationwide branches. Its commercial website is on This website has officially been in order from July 2001 to supply its customers with all information about the bank in both Vietnamese and English. And the logo of bank is very popular and easy for everybody to remember. Figure 3: The official logo of Vietnam Eximbank Development process Vietnam Eximbank was established on May 24th, 1989 under the decision No. 140/CT signed by the Chairman of the Council of Ministers under the name of VIETNAM EXPORT IMPORT BANK and being one of the first joint-stock commercial banks of Vietnam. VIETNAM EXPORT IMPORT BANK officially came into operation on January 17th, 1990. On April 6th- 1992, under license No. 11/ NH-GP signed by the Governor of the State Bank of Vietnam, the Bank was allowed to operate with a term of 50 years and its charter capital registered at 50 billion VND (equivalent called 12.5 million USD) and its name changed to VIETNAM EXPORT IMPORT COMMERCIAL JOINT-STOCK BANK (shortly called VIETNAM EXIMBANK). Since December 2007, Eximbank’s chartered capital amounted to 2,800,000,000,000 VND. Vietnam Export Import Commercial Joint-Stock Bank has a nationwide network with its Head Office located in Ho Chi Minh City and 64 Branches in Ha Noi, Da Nang, Nha Trang, Can Tho city, Quang Ngai, Vinh, Hai Phong city, Quang Ninh, Dong Nai, Binh Duong, and Ho Chi Minh city. VIETNAM EXIMBANK has established correspondent banking relationships with over 735 banks in 72 countries worldwide. Vietnam Eximbank – Hanoi Branch and its services 3.1 Vietnam Eximbank -Hanoi Branch Vietnam Eximbank has one head office in Ho Chi Minh City and 27 Branches with 39 Transaction Offices across the country. Among them, Eximbank Hanoi Branch in Hanoi city is one of the most successful branches and always exceeds their goals. The trading name of Hanoi Branch in Vietnamese is “Ngân hàng thương mại CP xuất nhập khẩu Việt Nam-CN HàNội” and in English is “Vietnam Export Import Commercial Joint-Stock Bank-Hanoi Branch”. The short name of branch is “Vietnam Eximbank-Hanoi Branch”. The office is located at 19 Tran Hung Dao St., Hoan Kiem Dist., Hanoi City. Services of Vietnam Eximbank Hanoi Branch Hanoi Branch of Vietnam Eximbank provides its customers with the same main banking services as its Vietnam Eximbank head office. Firstly, the traditional services of Hanoi Branch are mobilizing, savings deposits, demanding deposits from individuals and entities in VND; providing short, medium and long term loans; syndicating loans, overdraft loans, consuming loans, and credit limits in VND, foreign currencies, and gold with favorable conditions and simple formalities; doing foreign exchange and gold trading by SPOT, SWAP, FORWARD, and Currency Option. Secondly, Hanoi Branch is also very famous in settling, financing export-import activities, and negotiating export documents. Various forms of settlements by L/C, D/A, D/P, T/T, cheque are handled safely and quickly via SWIFT at reasonable fee. Next, this branch also makes issuing and settling domestic and international credit cards such as EXIMBANK MasterCard, EXIMBANK Visa card, EXIMBANK card, acquiring VISA, MasterCard, and JCB, etc., making payment online by cards. This service goes with providing cash services such as salary payment, collection, on-site collection and payment, foreign exchange, domestic and overseas remittance. In addition, Hanoi Branch is also notable for some modern services such as issuing Bank Guarantee in favor of domestic clients and clients abroad (payment guarantee, tax payment guarantee, performance bond, bid bond, offerings, warranty bond, advance payment bond, etc.); financing package services for overseas study, providing advisory services for monetary-financial investment; providing various kinds of real estate services like Home-Banking and Telephone-Banking, etc. PART II INTERNATIONAL PAYMENT METHOD BY OPENING LETTER OF CREDIT IN VIETNAM EXIMBANK HANOI BRANCH. THE CURRENT SITUATION OF L/C PAYMENT IN VIETNAM EXIMBANK With a network of more than 750 correspondent banks in over 72 countries worldwide, Eximbank Hanoi Branch ensures that the international settlement transaction will be carried out swiftly and effectively. The mode of payment by Letter of Credit is a very common mode of international payment in Vietnam Eximbank. On behalf of the Importer or Exporter, the branch commits with the Exporter’s/Supplier’s bank to make payment within a specified time when the Exporter/Supplier presents documents as indicated in L/C that Eximbank Hanoi has opened upon the LC request (Application for opening L/C is provided.) This mode of payment assures the Importer that Hanoi Branch will, on behalf of the Customer, make payment to the Exporter/Supplier only when the Exporter /Supplier performs his responsibilities stipulated in the L/C. By this mode, the customers have an effective access to international settlement standards (at the time being: UCP500-the United Customs and Practices for Documentary Credit – issued by the International Chamber of Commerce – ICC). By opening L/C at Vietnam Eximbank Hanoi Branch, customers could quickly receive Eximbank’s advice about the best terms of payment, currency of payment, etc in accordance with international practices. In this mode, the branch in essence guarantees the payment of the customer will carry out quickly and safely. Therefore, Eximbank will implement several requirements of its customers’ assurance: cash cover, lending money, etc. Based on the customer’s payment capability and its reputation, Eximbank Hanoi Branch might apply various levels of cover announced by directors of branch within a specific period. Over the past years, the strict compliance with international settlement standards has built up a complete confidence in Hanoi Branch of Eximbank’s services by exporters& importers opening L/C at Eximbank and other bank partners in Vietnam and over the world. Documents requested for opening Import L/C at Vietnam Eximbank Hanoi Branch In order to provide customers with the best payment methods, Hanoi Branch often introduces two common modes of payment by L/C at the time being: L/C at sight and deferred L/C Supposing that in the Contract, parties agreed to pay by L/C, there are several documents required for opening an Import L/C: - A copy of sales contract or documents providing the contract - Copy of insurance policy (for L/C not covering insurance and without sufficient deposit) - A copy of the trust contract (in case of import by consignment) - Import license (for conditional import goods) - A copy of business license and business code registration (for the first transaction) L/C Issuance With 100% deposit of the L/C Value to open an L/C Eximbank, the customer can submit the L/C opening request at the Import Bills Department. With deposit less than 100% of L/C value, the customer should contact the Corporate Credit Department for concrete guidance on guarantee, loan, collateral or mortgage as well as negotiation on security deposit rate and submission of your L/C opening request. In case of foreign currency purchase for deposit to open or settle an L/C, you can directly contact our Treasury Department. And Eximbank Hanoi Branch opens L/C within one working day. B/L endorsement/guarantee issuance In case of goods arrival to Vietnam earlier than documents to receive the goods sent to Eximbank Hanoi Branch, and if the customer wants to promptly receive goods (if the customer has the security deposit equivalent to the invoice value or backed by a guarantee from the Corporate Credit Department):1. If the customer receives the B/L directly from the seller: Hanoi Branch will endorse B/L in accordance with the endorsement and discrepancy acceptance request of the document. 2. If the customer does not have any B/L in hand and has request of goods receipt, the branch will issue letter of guarantee for it in Vietnamese or English.  Documents required for issuance of Letter of Guarantee are at least two originals of Letter of Guarantee for Goods Receipt (Eximbank Hanoi Branch keeps the original one) and a copy of Invoice, B/L or AWB. Documents Processing and Payment Upon checking of the documents sent by a foreign bank, Eximbank Hanoi Branch will advise the customer immediately: For L/C at sight, if the documents fully comply with the L/C, they will be delivered to the customer and payment will be effected to the foreign bank in accordance with the L/C. If the documents do not fully comply with the L/C, they will be delivered to the customer right after the customer has signed discrepancies and payment acceptance. For deferred L/C, if the documents fully comply with the L/C, they will be delivered to the customer right after the customer has confirmed the maturity date. If the documents do not fully comply with the L/C, they will be delivered to the customer right after the customer has signed discrepancies and payment acceptance. On the due date, Eximbank Hanoi Branch will debit the customer’s account to effect payment to foreign bank. Note: For those documents which are with B/L endorsed or which are guaranteed by Hanoi Branch for goods receipt, the branch will keep the customer noticed of date of payment and will effect payment in accordance with the L/C 2. Documents requested for opening Export L/C at Vietnam Eximbank Hanoi Branch. Like procedure of opening Import L/C, right after receipt and authentication of L/C or amendment from the issuing bank, Eximbank will promptly advise it to the customer by phone. The customer has to bring with ID card, reference letter to receive. Upon receiving L/C or amendment, the customer should check the contents of L/C or L/C amendment to ensure its consistency with the sales contract. In case of discrepancy, customers should contact directly with the buyer to amend L/C accordingly. If the customer refuses to receive the L/C or L/C amendment, he/she had better inform promptly Eximbank in writing so that Eximbank Hanoi Branch can advise the issuing bank in time. To present Export L/C, the beneficiary should complete the payment request with authorized signature, seal, and other details such as Original L/C, L/C amendment and Documents required by the L/C. Upon receipt of credit advice from the foreign bank, Eximbank will promptly credit in accordance with customer’s order in compliance with regulations by the State Bank of Vietnam after deduction of all arising fee(s). 3. Development of L/C payment in Vietnam Eximbank International settlements have always been Eximbank’s traditional strength from the beginning days until now and recognized by many prestigious financial organizations like HSBC, Standard Chartered Bank, Wachovia Bank N.A NewYork, etc. On principal, it is easy to realize some reasons why the role of L/C payment mode is more important than other international settlement modes at Hanoi Branch of Eximbank. Firstly, opening LC is the safest and most popular mode of international payment in doing business in Vietnam nowadays. It is a secure way for not only importer, exporter but also advising bank, and issuing bank in the international payment method. Secondly, it is suitable for the current conditions of Vietnam economy because many big Vietnamese companies, that are emerging, do not hold a well-known trade name in the world, and lack the experiences in dealing with document processing of international settlement. Consequently, so they need specialists in Eximbank to help them complete their documents. Thirdly, Vietnam is speeding up its modernization and industrialization to catch up with other developed countries. Therefore, the amount of imported goods and services also has a dramatic increase. Moreover, the traditional customers of Eximbank are the Vietnamese companies which make their business largely on imported goods and services. 3.1. Analysis on the current Import L/C payment activities at Hanoi Branch In particular, according to the annual report of Hanoi Branch on the volume of its international settlement, we have some analytic tables about operation of L/C in recent years. Table 1: The total volume of Import L/C payment mode recently Import L/C 2006 2007 2008 Open Settlement Open Settlement Open Settlement Item 871 933.90 934 963.80 965 986.60 Revenue(USD) 79, 837.64 92, 533.57 104, 185.7 121, 719.07 112,915.4 135,035.66 (Source: Annual report of Vietnam Eximbank Hanoi Branch) In 2006, Hanoi Branch of Eximbank opened 871 items of Import L/C which valued 79, 837.649 USD. In comparison with the total value of 2005, this number indicates a strong increase both in term of revenue and in the amount of items. And the settlement of Branch in that year also had much increased in the number of items and its value. The turnover of 92, 533.57 USD in 2006 is up 46%, higher than the revenue of 2005 with 32, 591.86 USD. This great achievement was recorded at that time thank to the positive change of management and key staffs in the international settlement department at the early of 2005. In the trend of overall growth in the banking sector in general, 2007 target of Import LC payment was done better than that in 2006. As of 2007, the total revenue reached 121, 719.07 USD with 963.80 items, increasing by about 140 % against last year. This number is a highest level as from the year 2000 because at the end of 2007 Hanoi Branch has 136, 046 individual customers, increasing 55% compared with 2006. The achievements were the combination of branch network development, the improvement of international payment service quality by management director broad. However in 2008, outgrowth of Hanoi Branch in terms of revenue of Import L/C was affected strongly by the world crisis. The slow down tendency of the world economy and global inflation in 2008 would exert adverse impacts on Vietnam’s economy and banking sector as well. Though the amount of open and settlement items has decreased a little bit compared with 2006 and 2007 but the higher fee and commissions from these settlements brought larger revenue for Hanoi Branch up to 12% against 2007. This figures show that there are more and more Vietnamese big import companies put their belief and business in the profession of Hanoi Branch’s payment services in processing document of import L/C. And this number is even more impressive because the competition among branches and transaction offices of Eximbank in Hanoi and against other commercial banks has become fiercer to attract new potential customers to their bank. This significant growth of Import L/C payment mode can be explained with two following reasons: Firstly, Vietnam has been the official member of WTO, so importing activities of domestic enterprises is taxed lower than before and Vietnamese enterprises has more chances to combine with many foreign partners. The operation network of Eximbank also developed two times over previous years. Apart from the domestic market in the big cities, many local and foreign cooperation expansions through cooperation signing with local and foreign partners are enhancing the Bank’s activities. Secondly, the traditional domestic clients still put their belief in the transaction with Hanoi Branch to carry out their important payment with oversea companies. Additionally, thank to its ceaseless progress in its services and performance, Hanoi Branch’s prestige, which has been improved more and more over time, is also an important factor attracting more potential customers to make their payment with foreign agency. Table 2: Volume of Import L/C in comparison with the total value of Export Import international settlement services Year Import L/C Export Import Bill Import L/C / Ex-Import Bill 2006(USD) 92, 533.57 189, 132.89 48% 2007(USD) 121, 719.07 235, 525.78 51% 2008(USD) 135,035.66 273, 789.89 50% (Source: Annual report of Vietnam Eximbank Hanoi Branch) This comparison indicates that Import L/C is always the main mode of international settlement at Hanoi Branch of Eximbank. The total volume of import L/C in a year often occupies nearly a half of total turnover of both Export and Import bill. Especially in 2007, the Import L/C payment performance is really impressive and significant; it is by 51% turnover of total Export Import international settlement in Hanoi Branch, higher than 48% of 2006. This great number has proved the sustainable development of Import L/C payment mode thank to the ceaselessly endeavor of all staffs and the well–know prestige of Eximbank Hanoi Branch. However, the volume of Import LC in comparison with Ex-Import Bill has declined from 51% of 2007 to 50% of 2008. This little reduction in revenue of Import LC 2008 is under the bad impact of the world crisis on Vietnam economy. As these above statistics and analysis, the Import L/C mode has gained a remarkable record over years and brought many benefits for both its customers and profits for its bank. However, under further consideration of Import L/C payment activities, there are some existing limitations which Hanoi Branch needs to overcome and perfects its international payment services in the coming time. Analysis on the current Export L/C payment activities at Hanoi Branch At present, Export L/C payment mode is not the main source of revenue in Hanoi Branch but it still plays an important role in the development of the international settlement department. Recently, the ineffective operation of Export L/C payment activity is caused by several reasons so its services do not work as productive as its possibility. This result is shown in the following table report: Table 3: Volume of Export L/C in comparison with the total value of Export/Import international settlement services Year Export L/C payment Ex/Import L/C Bill(USD) Export L/C / Ex-Import Bill Item Revenue(USD) 2006 319 51, 643.50 144, 176.07 35.5% 2007 391 58, 419.12 180, 138.19 32.4% 2008 384 61,135.34 196, 171.05 31.6% (Source: Annual report of Vietnam Eximbank Hanoi Branch) In general, the growth of Export L/C’s revenue has a sign of slow increase in recent years because of the financial crisis of the world economy caused by the US sub-prime mortgage crisis from 2007 until now. In 2006, the international department carried out 319 items export L/C with the turnover of 51,643.50 USD doubled in comparison with 2004. The value of international payment of Export L/C is 35.5% of total takings of Ex/Import L/C Bill in Eximbank Hanoi Branch. The scale between Export LC and Import L/C payment in Hanoi Branch is much more equal to each other than that in other banks because Vietnam Eximbank has a good reputation in many foreign banks and is often chosen to be the partner bank to do the Export L/C. Although the item Export L/C in 2007 has a notably increase up to 391items and brought to a revenue of 58,419.12 USD but the value of Export L/C on scale with Ex-Import Bill reduced from 35.5% to 32.4%. Although the volume and value of Export L/C 2007 is much high than 2006 by 113%, the turnover of Import L/C 2007 also experienced more substantial increase of 131% in revenue of settlement items against 2006. Consequently, in 2007 the contribution of Export L/C is still lower than Import L/C in term of revenue. In 2008, Vietnam also faced a bad consequence of the world financial crisis which led to GDP growth rate showing lower signs, inflation increases far beyond the expected rate, monetary and financial markets having many fluctuations, adverse factors causing difficulties for production; so the business cooperation with foreign enterprises also has a bit decrease. In the case of Eximbank Hanoi Branch, the number of Export L/C payment is only 384 items with revenue 61,135.34 USD higher than the average growth of 104% of the last year’s revenue. Nevertheless, the scale of Export L/C to Ex-Import L/C continued going down by 31.6% and lower than 2007 record due to the fast growth of Import L/C compared with the slower growth of Export L/C over years. As these above statistics and analysis, the L/C payment mode has gained a remarkable record over years and brought many benefits for both its customers and profits for its bank. However, under further consideration of Import L/Cs payment activities, there are some existing limitations and difficulties which Hanoi Branch needs to surmount and to perfect its international payment services in the coming years. ESTIMATION OF THE IMPORT L/C PAYMENT PERFORMANCE IN EXIMBANK-HANOI BRANCH Strengths of Eximbank Hanoi Branch in L/C payment services Predominant credit & Wide operation network After a long time operating in banking field, Eximbank Hanoi Branch has distributed much to Vietnam Eximbank’s success especially in the international settlements and has been awarded many prizes and honors such as “Excellent International Payment Quality 2006” by HBSC bank, “Vietnamese Strong Brand Name 2005” by the Vietnam Economic Time, and “2007 Vietnam Gold Brand Name” by VATAP, especially in July 2008 Eximbank was named “The Best Bank in Vietnam” by The Banker Magazine. Additionally, Hanoi Branch has established a strong correspondent banking relationship with over 735 banks in 72 countries worldwide. With a multi-nation and multi-layer high-speed universal payment network established through nearly 20 years accumulation, Eximbank Hanoi Branch has many good business relationships with a great number of traditional domestic customers in Vietnam market and the number of its branches has start to raise much up to 18.312 offices because of the fast increasing customers in over Vietnam. More than seventy enterprises are both the faithful and regular clients of Eximbank Hanoi Branch in only Hanoi market. Furthermore, it has continued to advance toward its strategic position of becoming a leading branch in the international settlements in Vietnam Eximbank since Hanoi Branch has begun applying the new payment system INCAS in their work. As a result, the speed of international settlement service by L/C payment will be transacted quicker and more conveniently. Leading technology & Advanced technology level A large number of professional personnel in Vietnam Eximbank are proficient in documentary credit business, UCP500, and relevant laws; their technical and professional level of document checking up and dispute handling are the first class in banking sector of Eximbank-Hanoi Branch. Taking the lead in innovation when Eximbank participated SWIFT (Society for Worldwide Intern bank Financial Telecommunication) in 1995, Vietnam Eximbank Hanoi Branch has managed sophisticated SWIFT system easily and is capable of handling convenient and quick incoming export documents business for the clients. And in January 2006, Eximbank Vietnam was awarded “the excellent STP (Straight-Through Processing) recognition in international payment through SWIFT” by Standard Chartered Bank. Actually, Eximbank Hanoi branch has become one of the most popular banks in settling Import L/C safely and quickly via SWIFT at reasonable fee. Abundant service content Vietnam Eximbank Hanoi Branch always is ready to provide all customers with direct consultation service including credit status of the exporter, the risks in the exporter’s country, the trend of the products in the international market, selecting exporter's bank, quality of terms on the L/C and documents, foreign exchange control, financing policy, etc. In addition to experience and expertise in international settlements, Eximbank-Hanoi Branch qualified and enthusiastic staffs are always proved to have strong service mind. Since HR training and development always is paid a considerable attention to improve its profession and attitude in working. As of 31 December 2006, Vietnam Eximbank Hanoi Branch’s staffs in the international settlement department got 20 which 80% staff obtained a college diploma and there are five people got MA in banking. Therefore, Eximbank has always been highly appreciated by its regular customers for its expertise and quality in international settlements, especially effective advice to customers. Besides, Eximbank Hanoi Branch has continuously diversified its products and customized its services for customers’ higher satisfaction with the single-minded motto “All for the success of customers” and it always makes all efforts to better its services quality at the fastest speed of working. Limitations in L/C payment services Except from its strengths in L/C