STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY DOCUMENTARY CREDIT AT SAIGON THUONG TIN COMMERCIAL JOINT STOCK BANK – THANG LONG BRANCH Student : Giang Thi Nga Class : ATC-B Lecturers : Nguyen Hong Ngoc, M.A Ngo Tung Anh, M.A 6th June 2012 ACKNOWLEDGEMENTS This thesis would not have been possibly completed without the generous help, support and guidance from many individuals. I would like to express my sincere thanks to all of them. Firstly, I would like to express my warm and sincere thanks to my supervisors, Ms Nguyen Hong Ngoc, a lecturer of Banking Faculty and Mr.Nguyen Tung Anh, the Vice Dean of Foreign Language Faculty, Banking Academy for their continuous support of my study and research, their great efforts to explain things clearly and simply, their corrections, comments, criticism, suggestions during the process of report. Their guidance helped me very much in all the time of research and writing of this report.
Secondly, I would like to express my gratitude to the leaders of Sacombank-Thang Long branch for offering me an opportunity to do internship there. Additionally, I am greatly indebted to all of the staff members in the International Payment sector of Sacombank- Thang Long for providing me with a good working condition, and valuable reference documents to complete this report. Last but not least, I would like to give my special thanks to my family, my friends for every valuable thing they made for me. Their love, trust and encouragement really gave me strength to keep going on my way.
Thank you for all. TABLE OF CONTENTS ACKNOWLEDGEMENTS LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES EXECUTIVE SUMMARY INTRODUCTION. 1 CHAPTER 1: THEORETICAL FRAMEWORK. Letter of Credit.
Parties to the L/C transaction. Norms reflecting the improvement of international payment by Documentary Credit. Factors impacting the improvement of international payment by Documentary Credit. 9 CHAPTER 2: THE INTRODUCTION OF SAIGON THUONG TIN COMMERCIAL BANK – THANG LONG BRANCH.
The establishment and development of Sacombank – Thang Long Branch. The organizational structure of Sacombank – Thang Long Branch. The result of some main operations of Sacombank – Thang Long Branch. The operation of capital mobilization.
The operation of capital financing. The operation of international payment. 15 CHAPTER 3: ANALYSES AND FINDINGS. The reality of the improvement of the international payment by documentary credit at Sacombank - Thang Long Branch.
Legal framework governing the international payment by documentary credit at Sacombank – Thang Long Branch. The reality of the improvement of international payment by documentary credit at Sacombank - Thang Long Branch. Valuation of the improvement of the international payment by documentary credit at Sacombank – Thang Long Branch. The achievements and reasons.
The drawbacks and causes. 23 CHAPTER 4: SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY DOCUMENTARY CREDIT AT SACOMBANK – THANG LONG BRANCH. The orientation for the improvement of the international payment by Documentary Credit at Sacombank – Thang Long Branch. Solutions to improve the international payment by Documentary Credit at Sacombank-Thang Long.
Establishing an effective marketing strategy. Improving the professional skills of staff. Strengthening technology infrastructure. Diversifying the products of L/C.
Increasing the supply of foreign currencies for international payment using L/C. Managing risks in international payment. Petitions for the government. Petitions for the Central Bank.
Petitions for the Sacombank. Petitions for the exporting - importing enterprises. 34 LIST OF ABBREVIATIONS Sacombank- Thang Saigon Thuong Tin Commercial Bank- Thang Long Long branch L/C Letter of Credit SWIFT Society for Worldwide Interbank Financial Telecommunications UCP The Uniform Customs and Practices for Documentary Credit ICC International Chamber of Commerce ISBP International Standard Banking Practices LIST OF TABLES AND FIGURES Figure 2.1 : The organizational structure of Sacombank- Thang Long .2 : The result of capital mobilization 2009-2011 .3 : The result of capital financing 2009-2011 .4 : The result of international payment 2009-2011 .1 : Time to open a L/C set .1 : The satisfaction degree of customers in L/C operation .2 : The quantity and profit of L/C transactions 2009-1011 .2 : The profit of import L/C and export L/C 2009-2011 .3 : The proportion of L/C profit in the total international payment operation of the branch .3 : The rate of errors in checking L/C documents .4 : The ratio of overdue debts in L/C payment. 22 EXECUTIVE SUMMARY The report aims to provide understanding of the important role as well as the reality of the Documentary Credit method for International Payment sector of Saigon Thuong Tin Commercial Bank – Thang Long Branch.
Also, the report gives some recommendations to help the branch improve the international payment activity by L/C. Apart from the introduction and conclusion, this report is divided into four chapters. The first chapter mentions the theoretical framework used as basis for the research. In this chapter, readers will have a deeper understanding of L/C including definition, characteristics, the process of a L/C transaction, types of L/C, norms reflecting the improvement of international payment by L/C as well as factors affecting the improvement of L/C payment in a bank.
The second chapter, the researcher gives an overview of Sacombank – Thang Long Branch and its results of some main operations. The third chapter provides analysis and findings of international payment using L/C at Thang Long branch. More specifically, this chapter points out the reality of import and export L/C. All achievements and drawbacks of this method are also disclosed.
Finally, in the fourth chapter, the researcher makes some recommendations to help the branch overcome the limitations and this kind of method become more effective. Research rationale In the trend of international economic integration, trade of goods among countries develops rapidly, which requires the international payment operation of banks to be complete. Nowadays, Vietnam has stepped up its international trade, as a result, its market is expanding globally and its partners are varied as well. Along with the development of international trade is the introduction of a range of payment methods, which are: Advanced payment, Open account, Remittance, Collection of payment, Documentary Credit.
Documentary Credit shows as the most advantageous method, which harmonizes the interests of both parties. Therefore, an estimated 90% of foreign trade contracts agreed upon payment by Letter of credit. Sacombank in general and Thang Long branch in particular are not the exception. After interning in the International Payment Department of Sacombank – Thang Long Branch, I recognized that the Documentary Credit method accounts for the largest proportion.
The branch has gained remarkable achievements, however , there are limitations needing to be addressed. Therefore, I have chosen “ Solutions to improve the international payment by Documentary Credit at Saigon Thuong Tin Commercial Joint Stock Bank-Thang Long Branch” as the topic of my graduation thesis. Research questions My research focuses on answering two main questions: - What is the current situation of international payment by documentary credit at Sacombank – Thang Long Branch? - What should be done to improve L/C payment at Sacombank – Thang Long Branch? 3. Research methodology To clarify the issue, I have used some methods to collect data.
One of the methods was observing daily operations of Thang Long branch, interviewing some officers. Meanwhile I got the data through figures and facts filed in the branch, sources such as books, magazines, newspapers and others related documents in the library of Banking Academy. All data were analyzed and made full use to create completion for this research paper. Giang Thị Nga ATC-B Page 1 4.
Scope of the research The research will concentrate on the reality of L/C payment at Sacombank – Thang Long Branch by analyzing facts, figures of the branch to assess the achievements as well as limitations. The study also provides some recommendations to address the issues. Giang Thị Nga ATC-B Page 2 CHAPTER 1 THEORETICAL FRAMEWORK 1. Letter of Credit 1.
Definitions of L/C According Article 2, UCP 600, Letter of Credit is defined as follows: “Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation.” Another definition which is found in “A short course in International Payments” is (Edward, 2002) “ A documentary L/C is a bank’s commitment to pay the seller a specific sum on behalf of the buyer under precisely defined conditions. The buyer specifies certain documents (including a title document) from the seller before the bank is to make payment, and the seller is assured that payment will be received after the goods are shipped so long as the specified documents are provided” From these definitions, it is can be seen that method of L/C reconciles the benefits and risks between exporters and importers, which is its advantages over other international payment methods. Exporters know just from the beginning of the LC process that they will be paid exact due amount without any delay as long as they comply letter of credit conditions. Importers know that banks will not be paying to the exporters if they fail to meet the letter of credit conditions.
Characteristics of L/C transactions -L/C is an economic contract between 2 parties : the issuing bank and the beneficiary. All requests and instructions of the applicant are performed by the issuing bank so the official voice of the applicant is not shown in the L/C. -L /C is independent of trade contract: L/C by its nature is a separate transaction from the sale or other contract on which it may be based. Once L/C is opened and accepted by the parties, the rights and obligations of the involved parties cannot be changed whether the content of L/C is in accordance with the contract of trade or not.
-L/C is only in form of documents and paid based on documents: on the basis of documents, the banks examine to determine whether it is a complying presentation. When the presentation is complying, the issuing bank has to unconditionally pay the exporter even if the goods are delivered or not right as stated on the documents. -L/C requires a strict adherence to the documents: as the parties deal with documents and not with goods, services or performance to which the documents relate, a strict adherence to the documents is the basic principle of the L/C transaction. Giang Thị Nga ATC-B Page 3 1.
Parties to the L/C transaction The Buyer (Applicant/Importer) The buyer initiates the documentary credit process by applying to his bank to open a documentary credit naming the seller as the beneficiary. The buyer, therefore, may be called the buyer in commercial terms, the importer in economic terms, and the applicant in banking terms. They are all one and the same. The Advising (Seller's) Bank Upon instructions from the issuing bank and the buyer, the advising bank (typically the seller's bank) advises the seller of the credit.
The advising bank is typically the seller's regular business bank and is in the seller's country. The Seller (Beneficiary/Exporter) The seller receives notification (advice) of the credit from the advising bank, complies with the terms and conditions of the credit, and gets paid. The seller is the beneficiary of the documentary credit. The seller, therefore, may be called the seller in commercial terms, the exporter in economic terms, and the beneficiary in banking terms.
They are all one and the same. Confirming Bank The confirming bank adds its guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment/negotiation acceptance under the credit, in additional to that of the issuing bank. The confirming bank plays an important role where the exporter is not satisfied with the undertaking of only the issuing bank.