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Improving the performance of international payment at the Vietnam Joint Stock Commercial Bank for Industry and Trade
ACKNOWLEDGEMENT
I would like to thank several people for their Giúp throughout graduate school and the completion of this thesis.
First of all, I am sincerely grateful for all the Giúp and advice I received from my supervisor M.S Le Duc Hoang. I appreciated all the time and effort M.S Le Duc Hoang put into helping, guiding and encouraging me during the time of making this thesis.
I would also like to thank the lecturers and tutors in National Economics University generally and Advanced Program particularly who have conveyed valuable knowledge to me during the last school years.
Most of all, I sincerely thank all of the staffs in Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) who gave me favorable conditions, helps and guidance in the days of internship at the bank.
Lastly, I would especially like to thank all my friends in Advanced Class for all their encouragement and intellectual support that has made this report possible.
Student
Nguyen Thu Hong
ABBREVIATION
Abbreviation Completed script
CBs Commercial banks
E-bank Electronic bank
IP International payment
L/C Letter of credit
SBV State Bank of Vietnam
SWIFT Society for Worldwide Inter-bank Financial Telecommunication
VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade
TABLE OF CONTENTS
ACKNOWLEDGEMENT
TABLE OF CONTENTS
ABBREVIATION
LIST OF TABLES
LIST OF DIAGRAMS
EXECUTIVE SUMMARY
INTRODUCTION
CHAPTER 1: GENERAL DISCUSSION ON PERFORMANCE OF INTERNATIONAL PAYMENT IN COMMERCIAL BANKS 1
1.1 Overview of the International payment activities in the CBs 1
1.1.1. The concept of international payment 1
1.1.2. The role of international payment 2
1.2. International payment methods 3
1.2.1. Remittance 4
1.2.2. Collection 6
1.2.3. Documentary credit 9
1.3. Performance of international payment of CBs 12
1.3.1. The concept of IP performance of CBs 12
1.3.2. Basic criteria evaluating IP performance in CBs 13
1.3.3. Factors affecting IP performance in CBs 16
CHAPTER 2: CURRENT SITUATION OF INTERNATIONAL PAYMENT PERFORMANCE IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE (VIETINBANK) 21
2.1. Overview of Vietnam Joint Stock Commercial Bank for Industry and Trade 21
2.1.1. Formation and development 21
2.1.2. Organizational model 23
2.1.3. Business activities of VietinBank (2006 – 2009) 24
2.2. Current situation of international payment performance in VIETINBANK 33
2.2.1. Export and import payment 33
2.2.2. Export Payment 36
2.2.3. Import payment 38
2.3. Evaluate the international payment performance in VIETINBANK 39
2.3.1. Quantitative valuation 39
2.3.2 Qualitative valuation 42
2.3.3. Limitations in IP transactions in Vietinbank 46
2.3.4. Causes reducing performance of IP transactions in Vietinbank 47
CHAPTER 3: SOLUTIONS TO ENHANCE THE PERFORMANCE OF INTERNATIONAL PAYMENT IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE (VIETINBANK) 53
3.1 Oriented development of the international payment transactions in VIETINBANK 53
3.1.1. Oriented business development 53
3.1.2. Oriented international payment development 54
3.2. Solutions to improve the performance of international payment transactions in VietinBank 55
3.2.1. Hedging risks, ensuring safety of IP 55
3.2.2. Enhancing the quality of banking Marketing 55
3.2.3. Having a flexible currency exchange trading policy associated with IP and credit services. 57
3.2.4. Well performing management 57
3.2.5. Expanding agency relationship. 58
3.2.6. Supporting the Import-Export enterprises in IP transactions. 59
3.2.7. Modernizing IP business 60
3.2.8. Diversifying products and services and reduce operational costs of IP 60
3.2.9. Perfecting IP networks. 62
3.3. Some recommendations to improve efficiency in international payment in VietinBank 63
3.3.1. For Government 63
3.3.2. For State Bank 65
3.3.3. For Vietnamese import and export Enterprises. 67
CONCLUSION 69
REFERENCES
LIST OF TABLES
Table 2.1: Situation of Payment and Remittance Services in VietinBank (2006-2009) 30
Table 2.2: IP revenue and total revenue in VietinBank 40
Table 2.3: IP volume in VietinBank and market share (2006-2009) 41
LIST OF DIAGRAMS
Diagram 1.1: Remittance payment process 5
Diagram 1.2: Clean collection process 7
Diagram 1.3: Documentary collection process 8
Diagram 2.1: Organization model of VietinBank 23
Diagram 2.2: Executive apparatus of Head Office 23
Diagram 2.3: Executive apparatus of Transaction Centers, Branches 24
Diagram 2.4: Fund mobilization in VietinBank (2006-2009) 25
Diagram 2.5: Structure of funds mobilized by kinds of depositors in VietinBank
(2006-2009 26
Diagram 2.6: Loans to the economy in VietinBank (2006-2009) 27
Diagram 2.7. Investments in VietinBank (2006-2009) 29
Diagram 2.8: ATM Card and International credit card Issuance in VietinBank (2006-2009) 31
Diagram 2.9: Overseas Remittance in VietinBank (2006-2009) 32
Diagram 2.10: Correlation between Export and Import Payment activities in VietinBank (2006-2009) 34
Diagram 2.11: Total Import-Export Turnover of Vietnam (2006-2009) 35
Diagram 2.12: Export Payment activities in VietinBank (2006-2009) 36
Diagram 2.13: Import Payment activities in VietinBank (2006-2009) 38
Diagram 2.14: Foreign exchange fund mobilization in VietinBank 43
Diagram 2.15: Situation of foreign exchange trading in VietinBank 44
Diagram 2.16: Agency relationship with foreign banks of VietinBank 45
EXECUTIVE SUMMARY
In the current global economy integration, an International Payment has become an indispensable of every commercial bank. In the modern banks, revenues from the IP activities make up more than 5% of total revenues. However, in VietinBank, IP revenues only make up a low proportion, namely below 2% of the total revenues of the bank. These low IP revenues are not commensurate with the reputation, scale and ability of VietinBank.
This thesis offers appropriate solutions to improve the IP performance in Vietinbank. The time period for this research is from 2006 to 2009. After discussing the basic IP issues in CBs and evaluating the real situation of IP in Vietinbank, the thesis brings out solutions to overcome the limitations and to strengthen the effectiveness of IP business. Particularly, it is recommended that the quality of Marketing and IP service needs improving. Besides, the capacity and qualifications of IP staffs need enhancing, the inspection and control over IP activities need strengthening. Finally, some recommendations are offered for the Government, State Bank of Vietnam, and Vietnamese import-export enterprises to improve IP performance in commercial banks generally and Vietinbank particularly.
INTRODUCTION
1. Rationale
After officially joining the World Trade Organization WTO (from November 7th, 2006), Vietnam's economy has increasingly integrated into the world economy. That has created an equal playing field and brought about many opportunities, but also held potential risks and great challenges to Vietnam economy. In order to overcome the difficulties and challenges, the Vietnamese commercial banks have actively improved their competitive advantages through measures such as: business expansion; management capacity enhancement; financial strength and business efficiency improvement; modernization and technological innovation.... Among them, International Payment is an important link in the process of developing international trade and also poses an urgent problem to be solved.
As one of the strongest Government commercial bank in Vietnam's banking system, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) has wide business network, diversified and high quality banking products, modern computer and communication systems, and advanced banking information processing technology... Besides, Vietinbank has gained prestige from its customers nationally and internationally, and is a member of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). International payment activities implemented since 1990 in VietinBank has achieved certain results and met the needs of customers for the operations relating to the payment of import and export in a rapid, accurate, safe and effective manner.
However, international payment in VietinBank still remains many limitations such as an imbalance between payment of import and export, complicated payment procedures, limited operational scale.... Therefore, the research on international payment activities in order to find the basic solutions for VietinBank‘s development in the future should be considered in terms of both theory and practice. So the topic "Improving the performance of international payment at the Vietnam Joint Stock Commercial Bank for Industry and Trade" was chosen as the research thesis.
2. Research questions
This study will aim at answering three questions:
What is international payment?
What are the issues of international payment performance in Vietinbank?
What are solutions and recommendations for improving international payment performance in Vietinbank?
3. Research objectives
- To further clarify the basic theories of economic efficiency of International payment field, especially during the periods of globalization and international integration.
- To assess the reality of international payment performance in Vietinbank and the factors affecting international payment activities during the international integration and economic development of Vietnam.
- Provides some basic solutions and recommendations to promote international payment activities in Vietinbank.
4. Research methodology
Accessing the issues in theory and practice, this subject uses the concepts of International payment, and then combines with statistics, analysis, synthesis, and comparison methods in Vietinbank in order to clarify matters.
5. Research scope
- Object of research: The performance of international payment activities in Vietinbank
- Scope of research: The real situation and performance improvements of international payment activities in Vietinbank in recent years.
6. Research structure
The thesis is constituted by three parts: Introduction, Body, and Conclusion. In which the body include three chapters:
Chapter 1: Overview of international payment performance in commercial banks.
This chapter systematically analyzes and synthesizes the basic international payment issues such as: IP concept, IP role, IP methods, IP international norms, and then IP performance concept, criteria to evaluate IP performance... This is an important basis for the analysis and evaluation and solutions to improve IP efficiency in Vietinbank.
Chapter 2: The real situation of international payment performance in Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank).
This chapter analyzes and evaluates the real situation of international payment in Vietinbank. It evaluates IP performance through some criteria and clarifies the achievements, limitations and causes in IP activities of Vietinbank.
Chapter 3: Solutions to enhance the performance of international payment in Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank).
This chapter offers solutions for Vietinbank and recommendations for the Government, State Bank of Vietnam, Vietinbank and Vietnamese import-export enterprises to improve IP performance in Vietinbank.
CHAPTER 1: OVERVIEW OF INTERNATIONAL PAYMENT PERFORMANCE IN COMMERCIAL BANKS
1.1 International payment activities in the CBs
1.1.1 The concept of international payment
Any country who wants to develop its economy must base not only on domestic production, but also on trade and economic relations with other countries. Economic relations among different countries are the overall relationship of external economics between countries. Along with the process of integration, the external economic relations between nations has increasingly broadened, which leads to a demand for payment between entities of these nations. Thenceforth, the IP activities have been formed and developed; and banks are intermediate bridge between the parties.
Thus, international payment (IP) is the implementation of the obligations to pay and the rights to receive monetary benefit arising on the basis of economic and non-economic activities between the organizations and individuals of this nation and ones of the other nation, or between a nation and international organizations, through the relationship between the banks of the nations concerned.
Under an economic point, IP consists of two areas: trade payment and non-trade payment.
Trade payment is to make a payment for import and export goods and services supplied for foreigners in the international market price. The basis for the parties to conduct a purchase and make a payment to each other is foreign trade contract, which clearly defines roles and responsibilities of each party, payment method, payment currency, trading conditions ... The concerned parties will be bound together by the signed contracts or commercial commitments.
Non-trade payment is to make a payment for the non-commercial activities which are not related to import and export goods as well as services supplied for foreigners. Non-trade payment is the payment for the costs of the diplomatic agency abroad; the travel and accommodation expenses of overseas delegations, organizations and individuals; the gifts and grants from foreign individuals to domestic individuals; the grants from foreign charity organizations to domestic organizations and unions.
The common means of payment: Draft, money orders, checks, debit cards...
1.1.2 The role of international payment
1.1.2.1 For the economy
In the context of the increasingly internationalized world economy, IP emerged as a bridge between the domestic economies with international economy. IP helps promote the activities such as: import-export goods and services, foreign investment, foreign exchange and international finance. IP activities are increasingly appreciated in national economy in general and in foreign trading in particular. Especially in the current context, every country gives top priority to foreign economic activity and considers it as an inevitable path of economic development strategies.
International payment is very important in the process of purchasing goods and services between organizations, individuals of different nations. If IP does not exist, the foreign economic activities are difficult to exist and develop. If IP activities are conducted quickly, safely and accurately, the circulation of goods - money between buyers and sellers will be processed smoothly and efficiently.
1.1.2.2 For the Commercial Banks
International payment activities have an important role in the business of a commercial bank. High quality of IP activities is increasingly attracting customers, creating efficiency in business as well as increasing the business scope. Besides, IP create good conditions for banks to improve and diversify business services such as: foreign exchange trading, underwriting business, consulting services ... thereby improving the bank's reputation and confidence to customers, and increasing competitiveness power.
In the process of implementing IP, clients who are incapable of capital will require the financial support from the bank. The bank will provide funds to customers in an active and positive way. Thereby, international credit, import & export finance and fund mobilization are promoted because of taking advantage of temporary deposits of customers participating in IP.
IP activities also Giúp banks raise their prestige in the international arena, thence exploit the funding from foreign banks and capital on international financial markets.
Thanks to IP, banks can raise the efficiency of business operations. Through IP activities, banks collected fees: underwriting fees, transfer fees, payment fees, announcement charges ... that contribute to the revenue and profit of the banks.
1.1.2.3 For the enterprises with import and export business
For the import-export enterprises, IP is the last step of the foreign trade contracts. It closes a complex and risky process of buying and selling goods and services. Therefore, the requirements set forth for IP is to ensure the safety of import & export contracts including the full and right receipt of goods as stated on the contracts, profit-making business.
The implementation of IP with foreign customers creates opportunities for Vietnamese enterprises to capture the information in the domestic market as well as in the foreign market. Basing on market information and their economic potentials, the enterprises can devise appropriate business strategies and solutions to prevent risks and improve business efficiency.
3.3.2.1. Implementing appropriate exchange rate policies to ensure the benefits of the import and export enterprises.
SB has a role of advising the Government to make foreign exchange management policies that effectively stabilize the foreign exchange market and create a favorable environment for import and export enterprises. In recent years, SBV has innovative exchange rate mechanism suitable with foreign currency supply and demand in the market. This innovative mechanism contributes to narrow the rate difference between free market and official market and create favorable conditions for foreign currency trading activities of credit institutions.
3.3.2.2. Perfecting the legal system of IP.
Banking legal system completion includes: the law of central bank and the law of credit institutions which are consistent with Vietnam’s economic and social development policies and international practices. SB needs to create an equal and transparent law to encourage fair competition among banks. SB needs to build and perfect the written regulations for IP activities so that IP activities are implemented in a more proactive way. Besides, SB needs a written rule requiring banks to set up reserve funds for activities related to foreign currencies which guarantee banks to maintain the best liquidity situation.
3.3.2.4. Strengthening the supervision to commercial banks.
SB should be coordinated closely with other agencies to strictly control the business activities, especially foreign trade activities of commercial banks. To most effectively do this, it is necessary to have a qualified inspection team who can capture and update international practice and also have good dignity, ethics.
3.3.2.5. Completing information systems to prevent risk in the entire commercial banks system.
SBV should build a system to collect timely necessary information to provide a basis for commercial banks to make correct business decisions. Also, SBV needs to improve the quality of financial analysis so that it can early warn commercial banks of the IP risks. Commercial banks also require multi-dimensional information provided by SBV to make up the decisions about their business.
3.3.2.6. Advising Government on issues relating to the banking operations
- Suggesting Government to create consensus among the concerned Ministries and Departments to avoid conflict between international rules and national provisions of financial obligations of foreign banks.
- Advising Government to devise appropriate and effective management policies to encourage relations between Vietnam commercial banks and other banks in the world.
3.3.2.7. Organizing seminars, training, experience exchange between domestic banks and foreign banks.
In currently dynamic and modern economy, information and experience are important factors in banking operations generally and IP activities particularly. SBV should organize training sessions and seminars for IP staff among commercial banks, especially with foreign banks to exchange, draw out lessons, then solve all obstacles in the IP operation. In addition, through seminars and training, IP staff will have more useful information for their business.
3.3.2.8. Improving management role in commercial bank system.
To effectively implement current regulations on foreign exchange management, SBV should strengthen the written regulations about examining and controlling documents for the overseas remittance. However, do not set out the specific provisions in the foreign exchange control regulations because listing all arisen transactions in the regulations is impossible.
3.3.3. For Vietnamese import and export Enterprises
Vietnam has officially become the 150th member of the World Trade Organization (WTO) since November 07, 2006. Therefore, when participating in international trade relations, Vietnamese commercial banks and import-export enterprises need to clearly understand the international and WTO rules to prevent risks in IP.
As above analysis, most operational risks in IP are arisen from customers who directly participate in this IP process. So as to reduce risks in IP operation, Vietnamese import and export enterprises needs to perform the following tasks:
- Obey the basic rules of international trade business; do not ignore even minor details in purchasing contracts. In international payment process, the Vietnamese import and export enterprises should thoroughly understand the applicable international practices and laws, as well as bilateral and multilateral agreements between countries...
- Do not hesitate to ask questions to establish the reliability with partners when starting a business relationship. Carefully and thoroughly investigate partners and intermediaries, as well as closely check documents relating to transactions.
- Pay attention to the use of legal services in international trade activities. Be familiar with the hiring of outside independent legal counsels or other experts who have much capacity and experience to draft or review all provisions and conditions of the contract before official signing.
- Timely capture information on prices, markets, exchange rates and Government laws to have suitable business strategy during each period.
- Carefully review the banks’ requests and advices in the process of opening L/C to have the timely amendments to minimize risk and reduce unreasonable expenses incurred in the operation. Use the IP services of large and prestigious commercial banks to conduct their IP activities (such as VietinBank...)
- Train and recruit staffs who are expert in professional skills, foreign language and international trade knowledge in IP business.
CONCLUSION
With the development of the open economy, the international payment has become a basic activity of the commercial banks. In recent years, VietinBank experienced some remarkable successes in IP. IP business has brought profits to the bank and good impacts on some other businesses such as fund mobilization in foreign currency, foreign exchange trading… Besides, the development of IP activity also contributes to raise the prestige of VietinBank in domestic and foreign markets.
This research "Improving the performance of international payment at the Vietnam Joint Stock Commercial Bank for Industry and Trade” has taken the results achieved in IP activities in Vietinbank during the period 2006-2009. IP activities increasingly develop and achieve success in revenues as well as quality of service and qualifications of IP staffs...
However, VietinBank has faced many limitations such as low-effective Marketing, imbalance between export and import payment, uncompleted banking modernization program… It is required that Vietinbank should find solutions to overcome the limitations and to strengthen the effectiveness of IP business. Particularly, VietinBank needs to improve the quality of Marketing and IP service. Besides, the capacity and qualifications of IP staffs need enhancing, the inspection and control over IP activities need strengthening. Finally, the thesis made some recommendations for the Government, State Bank of Vietnam, and Vietnamese import-export enterprises to improve IP performance in commercial banks generally and Vietinbank particularly.
In brief, the development of IP business in Vietinbank is confirmed by the positive results through quantitative and qualitative valuation. However, Vietinbank needs more time and efforts of itself, along with the Giúp of the Government, State Bank of Vietnam and customers to contribute to the effectiveness of the international payment.
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Improving the performance of international payment at the Vietnam Joint Stock Commercial Bank for Industry and Trade
ACKNOWLEDGEMENT
I would like to thank several people for their Giúp throughout graduate school and the completion of this thesis.
First of all, I am sincerely grateful for all the Giúp and advice I received from my supervisor M.S Le Duc Hoang. I appreciated all the time and effort M.S Le Duc Hoang put into helping, guiding and encouraging me during the time of making this thesis.
I would also like to thank the lecturers and tutors in National Economics University generally and Advanced Program particularly who have conveyed valuable knowledge to me during the last school years.
Most of all, I sincerely thank all of the staffs in Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) who gave me favorable conditions, helps and guidance in the days of internship at the bank.
Lastly, I would especially like to thank all my friends in Advanced Class for all their encouragement and intellectual support that has made this report possible.
Student
Nguyen Thu Hong
ABBREVIATION
Abbreviation Completed script
CBs Commercial banks
E-bank Electronic bank
IP International payment
L/C Letter of credit
SBV State Bank of Vietnam
SWIFT Society for Worldwide Inter-bank Financial Telecommunication
VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade
TABLE OF CONTENTS
ACKNOWLEDGEMENT
TABLE OF CONTENTS
ABBREVIATION
LIST OF TABLES
LIST OF DIAGRAMS
EXECUTIVE SUMMARY
INTRODUCTION
CHAPTER 1: GENERAL DISCUSSION ON PERFORMANCE OF INTERNATIONAL PAYMENT IN COMMERCIAL BANKS 1
1.1 Overview of the International payment activities in the CBs 1
1.1.1. The concept of international payment 1
1.1.2. The role of international payment 2
1.2. International payment methods 3
1.2.1. Remittance 4
1.2.2. Collection 6
1.2.3. Documentary credit 9
1.3. Performance of international payment of CBs 12
1.3.1. The concept of IP performance of CBs 12
1.3.2. Basic criteria evaluating IP performance in CBs 13
1.3.3. Factors affecting IP performance in CBs 16
CHAPTER 2: CURRENT SITUATION OF INTERNATIONAL PAYMENT PERFORMANCE IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE (VIETINBANK) 21
2.1. Overview of Vietnam Joint Stock Commercial Bank for Industry and Trade 21
2.1.1. Formation and development 21
2.1.2. Organizational model 23
2.1.3. Business activities of VietinBank (2006 – 2009) 24
2.2. Current situation of international payment performance in VIETINBANK 33
2.2.1. Export and import payment 33
2.2.2. Export Payment 36
2.2.3. Import payment 38
2.3. Evaluate the international payment performance in VIETINBANK 39
2.3.1. Quantitative valuation 39
2.3.2 Qualitative valuation 42
2.3.3. Limitations in IP transactions in Vietinbank 46
2.3.4. Causes reducing performance of IP transactions in Vietinbank 47
CHAPTER 3: SOLUTIONS TO ENHANCE THE PERFORMANCE OF INTERNATIONAL PAYMENT IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE (VIETINBANK) 53
3.1 Oriented development of the international payment transactions in VIETINBANK 53
3.1.1. Oriented business development 53
3.1.2. Oriented international payment development 54
3.2. Solutions to improve the performance of international payment transactions in VietinBank 55
3.2.1. Hedging risks, ensuring safety of IP 55
3.2.2. Enhancing the quality of banking Marketing 55
3.2.3. Having a flexible currency exchange trading policy associated with IP and credit services. 57
3.2.4. Well performing management 57
3.2.5. Expanding agency relationship. 58
3.2.6. Supporting the Import-Export enterprises in IP transactions. 59
3.2.7. Modernizing IP business 60
3.2.8. Diversifying products and services and reduce operational costs of IP 60
3.2.9. Perfecting IP networks. 62
3.3. Some recommendations to improve efficiency in international payment in VietinBank 63
3.3.1. For Government 63
3.3.2. For State Bank 65
3.3.3. For Vietnamese import and export Enterprises. 67
CONCLUSION 69
REFERENCES
LIST OF TABLES
Table 2.1: Situation of Payment and Remittance Services in VietinBank (2006-2009) 30
Table 2.2: IP revenue and total revenue in VietinBank 40
Table 2.3: IP volume in VietinBank and market share (2006-2009) 41
LIST OF DIAGRAMS
Diagram 1.1: Remittance payment process 5
Diagram 1.2: Clean collection process 7
Diagram 1.3: Documentary collection process 8
Diagram 2.1: Organization model of VietinBank 23
Diagram 2.2: Executive apparatus of Head Office 23
Diagram 2.3: Executive apparatus of Transaction Centers, Branches 24
Diagram 2.4: Fund mobilization in VietinBank (2006-2009) 25
Diagram 2.5: Structure of funds mobilized by kinds of depositors in VietinBank
(2006-2009 26
Diagram 2.6: Loans to the economy in VietinBank (2006-2009) 27
Diagram 2.7. Investments in VietinBank (2006-2009) 29
Diagram 2.8: ATM Card and International credit card Issuance in VietinBank (2006-2009) 31
Diagram 2.9: Overseas Remittance in VietinBank (2006-2009) 32
Diagram 2.10: Correlation between Export and Import Payment activities in VietinBank (2006-2009) 34
Diagram 2.11: Total Import-Export Turnover of Vietnam (2006-2009) 35
Diagram 2.12: Export Payment activities in VietinBank (2006-2009) 36
Diagram 2.13: Import Payment activities in VietinBank (2006-2009) 38
Diagram 2.14: Foreign exchange fund mobilization in VietinBank 43
Diagram 2.15: Situation of foreign exchange trading in VietinBank 44
Diagram 2.16: Agency relationship with foreign banks of VietinBank 45
EXECUTIVE SUMMARY
In the current global economy integration, an International Payment has become an indispensable of every commercial bank. In the modern banks, revenues from the IP activities make up more than 5% of total revenues. However, in VietinBank, IP revenues only make up a low proportion, namely below 2% of the total revenues of the bank. These low IP revenues are not commensurate with the reputation, scale and ability of VietinBank.
This thesis offers appropriate solutions to improve the IP performance in Vietinbank. The time period for this research is from 2006 to 2009. After discussing the basic IP issues in CBs and evaluating the real situation of IP in Vietinbank, the thesis brings out solutions to overcome the limitations and to strengthen the effectiveness of IP business. Particularly, it is recommended that the quality of Marketing and IP service needs improving. Besides, the capacity and qualifications of IP staffs need enhancing, the inspection and control over IP activities need strengthening. Finally, some recommendations are offered for the Government, State Bank of Vietnam, and Vietnamese import-export enterprises to improve IP performance in commercial banks generally and Vietinbank particularly.
INTRODUCTION
1. Rationale
After officially joining the World Trade Organization WTO (from November 7th, 2006), Vietnam's economy has increasingly integrated into the world economy. That has created an equal playing field and brought about many opportunities, but also held potential risks and great challenges to Vietnam economy. In order to overcome the difficulties and challenges, the Vietnamese commercial banks have actively improved their competitive advantages through measures such as: business expansion; management capacity enhancement; financial strength and business efficiency improvement; modernization and technological innovation.... Among them, International Payment is an important link in the process of developing international trade and also poses an urgent problem to be solved.
As one of the strongest Government commercial bank in Vietnam's banking system, Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) has wide business network, diversified and high quality banking products, modern computer and communication systems, and advanced banking information processing technology... Besides, Vietinbank has gained prestige from its customers nationally and internationally, and is a member of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). International payment activities implemented since 1990 in VietinBank has achieved certain results and met the needs of customers for the operations relating to the payment of import and export in a rapid, accurate, safe and effective manner.
However, international payment in VietinBank still remains many limitations such as an imbalance between payment of import and export, complicated payment procedures, limited operational scale.... Therefore, the research on international payment activities in order to find the basic solutions for VietinBank‘s development in the future should be considered in terms of both theory and practice. So the topic "Improving the performance of international payment at the Vietnam Joint Stock Commercial Bank for Industry and Trade" was chosen as the research thesis.
2. Research questions
This study will aim at answering three questions:
What is international payment?
What are the issues of international payment performance in Vietinbank?
What are solutions and recommendations for improving international payment performance in Vietinbank?
3. Research objectives
- To further clarify the basic theories of economic efficiency of International payment field, especially during the periods of globalization and international integration.
- To assess the reality of international payment performance in Vietinbank and the factors affecting international payment activities during the international integration and economic development of Vietnam.
- Provides some basic solutions and recommendations to promote international payment activities in Vietinbank.
4. Research methodology
Accessing the issues in theory and practice, this subject uses the concepts of International payment, and then combines with statistics, analysis, synthesis, and comparison methods in Vietinbank in order to clarify matters.
5. Research scope
- Object of research: The performance of international payment activities in Vietinbank
- Scope of research: The real situation and performance improvements of international payment activities in Vietinbank in recent years.
6. Research structure
The thesis is constituted by three parts: Introduction, Body, and Conclusion. In which the body include three chapters:
Chapter 1: Overview of international payment performance in commercial banks.
This chapter systematically analyzes and synthesizes the basic international payment issues such as: IP concept, IP role, IP methods, IP international norms, and then IP performance concept, criteria to evaluate IP performance... This is an important basis for the analysis and evaluation and solutions to improve IP efficiency in Vietinbank.
Chapter 2: The real situation of international payment performance in Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank).
This chapter analyzes and evaluates the real situation of international payment in Vietinbank. It evaluates IP performance through some criteria and clarifies the achievements, limitations and causes in IP activities of Vietinbank.
Chapter 3: Solutions to enhance the performance of international payment in Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank).
This chapter offers solutions for Vietinbank and recommendations for the Government, State Bank of Vietnam, Vietinbank and Vietnamese import-export enterprises to improve IP performance in Vietinbank.
CHAPTER 1: OVERVIEW OF INTERNATIONAL PAYMENT PERFORMANCE IN COMMERCIAL BANKS
1.1 International payment activities in the CBs
1.1.1 The concept of international payment
Any country who wants to develop its economy must base not only on domestic production, but also on trade and economic relations with other countries. Economic relations among different countries are the overall relationship of external economics between countries. Along with the process of integration, the external economic relations between nations has increasingly broadened, which leads to a demand for payment between entities of these nations. Thenceforth, the IP activities have been formed and developed; and banks are intermediate bridge between the parties.
Thus, international payment (IP) is the implementation of the obligations to pay and the rights to receive monetary benefit arising on the basis of economic and non-economic activities between the organizations and individuals of this nation and ones of the other nation, or between a nation and international organizations, through the relationship between the banks of the nations concerned.
Under an economic point, IP consists of two areas: trade payment and non-trade payment.
Trade payment is to make a payment for import and export goods and services supplied for foreigners in the international market price. The basis for the parties to conduct a purchase and make a payment to each other is foreign trade contract, which clearly defines roles and responsibilities of each party, payment method, payment currency, trading conditions ... The concerned parties will be bound together by the signed contracts or commercial commitments.
Non-trade payment is to make a payment for the non-commercial activities which are not related to import and export goods as well as services supplied for foreigners. Non-trade payment is the payment for the costs of the diplomatic agency abroad; the travel and accommodation expenses of overseas delegations, organizations and individuals; the gifts and grants from foreign individuals to domestic individuals; the grants from foreign charity organizations to domestic organizations and unions.
The common means of payment: Draft, money orders, checks, debit cards...
1.1.2 The role of international payment
1.1.2.1 For the economy
In the context of the increasingly internationalized world economy, IP emerged as a bridge between the domestic economies with international economy. IP helps promote the activities such as: import-export goods and services, foreign investment, foreign exchange and international finance. IP activities are increasingly appreciated in national economy in general and in foreign trading in particular. Especially in the current context, every country gives top priority to foreign economic activity and considers it as an inevitable path of economic development strategies.
International payment is very important in the process of purchasing goods and services between organizations, individuals of different nations. If IP does not exist, the foreign economic activities are difficult to exist and develop. If IP activities are conducted quickly, safely and accurately, the circulation of goods - money between buyers and sellers will be processed smoothly and efficiently.
1.1.2.2 For the Commercial Banks
International payment activities have an important role in the business of a commercial bank. High quality of IP activities is increasingly attracting customers, creating efficiency in business as well as increasing the business scope. Besides, IP create good conditions for banks to improve and diversify business services such as: foreign exchange trading, underwriting business, consulting services ... thereby improving the bank's reputation and confidence to customers, and increasing competitiveness power.
In the process of implementing IP, clients who are incapable of capital will require the financial support from the bank. The bank will provide funds to customers in an active and positive way. Thereby, international credit, import & export finance and fund mobilization are promoted because of taking advantage of temporary deposits of customers participating in IP.
IP activities also Giúp banks raise their prestige in the international arena, thence exploit the funding from foreign banks and capital on international financial markets.
Thanks to IP, banks can raise the efficiency of business operations. Through IP activities, banks collected fees: underwriting fees, transfer fees, payment fees, announcement charges ... that contribute to the revenue and profit of the banks.
1.1.2.3 For the enterprises with import and export business
For the import-export enterprises, IP is the last step of the foreign trade contracts. It closes a complex and risky process of buying and selling goods and services. Therefore, the requirements set forth for IP is to ensure the safety of import & export contracts including the full and right receipt of goods as stated on the contracts, profit-making business.
The implementation of IP with foreign customers creates opportunities for Vietnamese enterprises to capture the information in the domestic market as well as in the foreign market. Basing on market information and their economic potentials, the enterprises can devise appropriate business strategies and solutions to prevent risks and improve business efficiency.
3.3.2.1. Implementing appropriate exchange rate policies to ensure the benefits of the import and export enterprises.
SB has a role of advising the Government to make foreign exchange management policies that effectively stabilize the foreign exchange market and create a favorable environment for import and export enterprises. In recent years, SBV has innovative exchange rate mechanism suitable with foreign currency supply and demand in the market. This innovative mechanism contributes to narrow the rate difference between free market and official market and create favorable conditions for foreign currency trading activities of credit institutions.
3.3.2.2. Perfecting the legal system of IP.
Banking legal system completion includes: the law of central bank and the law of credit institutions which are consistent with Vietnam’s economic and social development policies and international practices. SB needs to create an equal and transparent law to encourage fair competition among banks. SB needs to build and perfect the written regulations for IP activities so that IP activities are implemented in a more proactive way. Besides, SB needs a written rule requiring banks to set up reserve funds for activities related to foreign currencies which guarantee banks to maintain the best liquidity situation.
3.3.2.4. Strengthening the supervision to commercial banks.
SB should be coordinated closely with other agencies to strictly control the business activities, especially foreign trade activities of commercial banks. To most effectively do this, it is necessary to have a qualified inspection team who can capture and update international practice and also have good dignity, ethics.
3.3.2.5. Completing information systems to prevent risk in the entire commercial banks system.
SBV should build a system to collect timely necessary information to provide a basis for commercial banks to make correct business decisions. Also, SBV needs to improve the quality of financial analysis so that it can early warn commercial banks of the IP risks. Commercial banks also require multi-dimensional information provided by SBV to make up the decisions about their business.
3.3.2.6. Advising Government on issues relating to the banking operations
- Suggesting Government to create consensus among the concerned Ministries and Departments to avoid conflict between international rules and national provisions of financial obligations of foreign banks.
- Advising Government to devise appropriate and effective management policies to encourage relations between Vietnam commercial banks and other banks in the world.
3.3.2.7. Organizing seminars, training, experience exchange between domestic banks and foreign banks.
In currently dynamic and modern economy, information and experience are important factors in banking operations generally and IP activities particularly. SBV should organize training sessions and seminars for IP staff among commercial banks, especially with foreign banks to exchange, draw out lessons, then solve all obstacles in the IP operation. In addition, through seminars and training, IP staff will have more useful information for their business.
3.3.2.8. Improving management role in commercial bank system.
To effectively implement current regulations on foreign exchange management, SBV should strengthen the written regulations about examining and controlling documents for the overseas remittance. However, do not set out the specific provisions in the foreign exchange control regulations because listing all arisen transactions in the regulations is impossible.
3.3.3. For Vietnamese import and export Enterprises
Vietnam has officially become the 150th member of the World Trade Organization (WTO) since November 07, 2006. Therefore, when participating in international trade relations, Vietnamese commercial banks and import-export enterprises need to clearly understand the international and WTO rules to prevent risks in IP.
As above analysis, most operational risks in IP are arisen from customers who directly participate in this IP process. So as to reduce risks in IP operation, Vietnamese import and export enterprises needs to perform the following tasks:
- Obey the basic rules of international trade business; do not ignore even minor details in purchasing contracts. In international payment process, the Vietnamese import and export enterprises should thoroughly understand the applicable international practices and laws, as well as bilateral and multilateral agreements between countries...
- Do not hesitate to ask questions to establish the reliability with partners when starting a business relationship. Carefully and thoroughly investigate partners and intermediaries, as well as closely check documents relating to transactions.
- Pay attention to the use of legal services in international trade activities. Be familiar with the hiring of outside independent legal counsels or other experts who have much capacity and experience to draft or review all provisions and conditions of the contract before official signing.
- Timely capture information on prices, markets, exchange rates and Government laws to have suitable business strategy during each period.
- Carefully review the banks’ requests and advices in the process of opening L/C to have the timely amendments to minimize risk and reduce unreasonable expenses incurred in the operation. Use the IP services of large and prestigious commercial banks to conduct their IP activities (such as VietinBank...)
- Train and recruit staffs who are expert in professional skills, foreign language and international trade knowledge in IP business.
CONCLUSION
With the development of the open economy, the international payment has become a basic activity of the commercial banks. In recent years, VietinBank experienced some remarkable successes in IP. IP business has brought profits to the bank and good impacts on some other businesses such as fund mobilization in foreign currency, foreign exchange trading… Besides, the development of IP activity also contributes to raise the prestige of VietinBank in domestic and foreign markets.
This research "Improving the performance of international payment at the Vietnam Joint Stock Commercial Bank for Industry and Trade” has taken the results achieved in IP activities in Vietinbank during the period 2006-2009. IP activities increasingly develop and achieve success in revenues as well as quality of service and qualifications of IP staffs...
However, VietinBank has faced many limitations such as low-effective Marketing, imbalance between export and import payment, uncompleted banking modernization program… It is required that Vietinbank should find solutions to overcome the limitations and to strengthen the effectiveness of IP business. Particularly, VietinBank needs to improve the quality of Marketing and IP service. Besides, the capacity and qualifications of IP staffs need enhancing, the inspection and control over IP activities need strengthening. Finally, the thesis made some recommendations for the Government, State Bank of Vietnam, and Vietnamese import-export enterprises to improve IP performance in commercial banks generally and Vietinbank particularly.
In brief, the development of IP business in Vietinbank is confirmed by the positive results through quantitative and qualitative valuation. However, Vietinbank needs more time and efforts of itself, along with the Giúp of the Government, State Bank of Vietnam and customers to contribute to the effectiveness of the international payment.
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Tags: 1.2 BUSINESS PERFORMANCE SITUATION OF THE ENTERPRISE, International payment risks in Vietnam, green trade in interntional payment commercial banks, summary in World development affecting to Vietnam and international trade, Analyze the current status of E-banking service at Joint Stock Commercial Bank for Investment and Development of Vietnam and enhacement solutions., Analyze and evaluate the performance of the mold, Research on factors affecting business performance of Joint Stock Commercial Bank for Foreign Trade
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