VIETNAM GENERAL CONFIDERATION OF LABOUR TON DUC THANG UNIVERSITY DEPARTMENT OF BUSINESS ADMINISTRATION SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY EXPORT LETTER OF CREDIT IN MEKONG HOUSING BANK (MHB) - CHO LON BRANCH Thesis submitted as a requirement for the degree Bachelor of Business Administration Supervisor:NGUYỂN PHƯỚC KINH KHA, MSc Student: NGUYỄN TẤN KHANG Student ID:70900089 Intake: 13 HO CHI MINH CITY, 2013 ACKNOWLEDGEMENT Firstly, I would like to express my deepest appreciation to board of rectors as well as Head of Business Administration faculty of Ton Duc Thang University, for all their help for me to complete this thesis. Dean of faculty provided me favorable conditions and arranged supervisor for me in order to complete it in the best way possible. Secondly, I would like to give my sincere thanks to my supervisor, MSc. Nguyen PhuocKinhKha, for all his help and guidance has given me during last semester.
He also contributed helpful feedback and help me overcome shortcomings to complete the thesis. Thirdly, I would also like to acknowledge with much appreciation the crucial role of the staff of International Payment Department and Sales Department of Mekong Housing Bank – Cho Lon Branch, who gave permission to reach necessary materials and real experience to complete this study. Finally, despite I am given the valuable support from my instructor and the best effort of myself, but there are still unavoidable shortcomings. Therefore, I am looking forward to hearing from your comments to improve the thesis in the best way.
Sincerely, PLEDGE THIS STUDY IS COMPLETED AT TON DUC THANG UNIVERSITY I undertake that this study is my own research under the scientific guidance of Mr. Nguyen PhuocKinhKha, MSc. The contents and results of this study are faithful and not published in any form before. The data in the tables which used for analyses, comments, evaluations are collected from various sources by author have stated clearly in the references.
In addition, the thesis also uses some comments, evaluations as well as data from other authors, agencies and organizations. These information are quoted and annotated the sources. If there are any faud, I will bear full responsibility for the thesis contents. Ton Duc ThangUniveristyis not involved to any violation of copyright caused by me during the implementation process (if any).
Ho Chi Minh City, July, 12nd, 2013 Author NGUYEN TAN KHANG JURY’S COMMENTS Student: Nguyễn Tấn Khang Student ID: 70900089 Class: 09070101 Course: 2009 - 2013 ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… ……………………………………………………………………………… SUMMARY Foreignbecome more and more important of modern ecomomy. Expandingforeigntradeis not only profit seeking of firms but alsoaccelerate the economicgrowth of country. Since the implementation of policy innovation, import and export companies in Vietnam have expanded business with lot of countries in the world. Expanding business internationallythatwe have to comply the international regulationsincluding international paymentregulations.
Although MHB Cho Lonbranchis a youngbranch of theyoungbank, it hashad certain developmentrecentyears, especially in international payment. This studyprovideus information about thedevelopment of MHB Cho Lonbranch as well as the result in international payment services recentyears. International paymentdepartment has provedits important role in the business activites of the branch. The mostpopularpaymentmethodwithhighest value in thisdepartmentis export L/C, thismethodincreasesyears by yearsboth in value and revenue.
However, there are obstaclesstillexist and consistrisk for the international payment, especially in export L/C. By theoryframework in documentarycredit, evalulationcriteria in bothquantitive and qualitive, author has basis to evaluate the result of export L/C service. According to the current situation and business report in the past, somedisadvantages come fromlack of foreigncurrencyreservation, lack of marketing in international settlements, dependent in somespecific large customers, lack of knowledgefrom the customers. There are alsorisks come from the exchange rate, fraudulentpartnersoverseas.
Based on disadvantages and predictedrisk, thesisgivessome solutions to handle issues and minimize the risks. The integratedstrategiesfrom the strengths, weaknesses, oppotunities and threatsalsohelpful in providing solutions to improve the international payment in MHB Cho Lon. One of the core solutions to improvethe international payment in thisbranchisimproving the financialcapability in foreigncurrency, thisis the prerequisite conditions of the improvement in international payment. Moreover, some solutions in expand the customertarget, increase the amount of exportcustomer, improve the ability of staff of departmentshouldbefocused to improve the effective of the export L/C in particular and international payment in general of MHB Cho Lon.
CONTENTS Page INTRODUCTION. 1 CHAPTERI: THEORETICAL FRAMEWORK. Overview of International Payment. Definition of International Payment.
Characteristics of International Payment. Roles of International Payment. International Payment Conditions. International Payment Methods.
Overview of Documentary Credit and Export L/C. Definition of Documentary Credit. Involved parties in Documentary Credit. Letter of Credit (L/C).
Role of bank in Letter of Credit. Export Letter of Credit. Evaluation methods of international payment in commercial banks. 18 SUMMARY OF CHAPTER I.
21 CHAPTERII: OVERVIEW OF MEKONG HOUSING BANK (MHB). Introduction of Mekong Housing Bank. History and development. Toward the future.
Overview of Mekong Housing Bank – Cho Lon Branch. History and development. Organizational structure and human resources. Roles of departments.
Business report – MHB Cho Lon Branch. 29 SUMMARY OF CHAPTER II. 33 CHAPTER III: THE CURRENT SITUATION OF EXPORT L/C SERVICE IN MHB – CHO LON BRANCH. Export L/C process in MHB – Cho Lon Branch.
Analysis of current situation of export L/C in MHB – Cho Lon. Evaluation of export L/C service in MHB – Cho Lon Branch. Limited of MHB Cho Lon branch. Current situation of export in Vietnam.
67 SUMMARY OF CHAPTER III. 71 CHAPTER IV:SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY EXPORT L/C SERVICE IN MHB – CHO LON BRANCH. Development orientation of international payment by Letter of Credit in MHB – Cho Lon. Risk management in export L/C service.
Political and social risk. Exchange rate risk. Risk from the limitation of exporter’s knowledge. Importer lose ability to pay.
Operational risk from bank. Recommendation for MHB – Cho Lon Branch. SWOT and integration strategies. Improving financial capability – strengthen foreign currencies.
Providing other package services. Staff development and training policy. Customer attraction strategies. Determine the customer target.
Recommendation for the state management. 82 SUMMARY OF CHAPTER IV. 86 LIST OF ABBREVIATIONS D/A Document Acceptance D/P Documents against Payment FX Foreign Exchange HCMC Ho Chi Minh City MHB Mekong Housing Bank L/C Letter of Credit SMEs Small and Medium Enterprises SWIFT Society for Worldwide Interbank and Financial Telecomunication T/T Telegraphic Transfer LIST OF TABLES Table 2: Income statement 2011-2012 – MHB Cho Lon .1: Fee schedule in L/C method in MHB Cho Lon Branch.2: International Payment value from 2010 to 2012 in MHB Cho Lon .3: Documentary credit service value and proportion in MHB Cho Lon.4: Changes of documentary credit service value in MHB Cho Lon .5: Amount and total value of L/C in several years .6: Total revenue from the export L/C and international payment .7: Growth of export L/C revenue in recent years.8: Proportion of export L/C revenue .9: Total revenue from the export L/C comparison with the total income in service provisions in MHB Cho Lon. 62 Table 4: SWOT and the recommended integration strategies for MHB Cho Lon76 LIST OF FIGURES Figure 1: The general process of documentary credit .1: MHB assets in several years .2: Organization structure of MHB – Cho Lon branch .1: Announcing and payment process of export L/C in MHB Cho Lon .2: Proportion of 3 main international methods in MHB Cho Lon .3: Value of documentary credit from 2010 to 2012 in MHB Cho Lon .4: Export proportion 2012 based on the economic area .5: Total value of major export categories in 2011 and 2012.
The neccessity and significance of topics International payment has become a vital service of each commercial bank in Vietnam. It has an important role to promoteother business in the bank as well as import/export companies. International paymentisestablishedbased on foreigntrade. However, the foreigntradedevelopmentdepends on the smoothly, timely, safely and accurately of international payment.
For manyyears, Vietnamese commercial banks as well as MHB have continuouslyimproved the effectiveness of international paymentoperations and diversifiedpaymentmethodssuch as remittance, collection, documentarycredit. DocumentaryCreditmethodis one of the basic and secure instruments available to foreign traders. DocumentaryCreditwith lot of advantages has high demandfromenterprises and growingrapidlydays by days, itis a high potentialincome of the banks as well. Mekong Housing joint stock commercial bank (MHB) – Cho Lon Branch is a young branch, however, it has remarkable achievements especially in international trade such as trade credit, import/export payment, foreign exchange.
Located in the center of an active commercial area in Ho Chi Minh City, MHB – Cho Lon has good opportunities to reach target customers. However, results in international payment recent years have not stable and consist lot of threat. In summarize, I want to have more insight about international payment by documentary credit and give some solutions to improve this instrument through the study: “Solutions to improve the international payment operation by documentary credit in Mekong Housing Bank (MHB) – Cho Lon Branch. Targets of study 2 - Understand the international payment operations by documentary credit (letter of credit) in Mekong Housing Bank – Cho Lon.
- Analysis and evaluate the current situation of international payment operation by documentary credit. - Propose solutions to expand and improve the international payment operation by document credit. Limitation of study - International payment operation in MHB – Cho Lon branch from 2010 to 2012 - Limitation of study: focus on documentary credit (L/C) instrument 4. Methods of study There are 2 stages in this study, preliminary research and official research.
- In preliminary research: collect information related to international settlements and letter of credit from newspaper, magazine, internet and from experts (specialists in banks). In this stage, author has overview about the current situation of international settlements in Vietnam. - In official research: collect information from reports, documents from the branch. Observes, analyses, combine and count to understand the current situation of branch then combine the quantitative and qualitative criteria to evaluate the international payment especially in export L/C.
Scope of the report CHAPTERI: THEORETICAL FRAMEWORK CHAPTERII: OVERVIEW OF MEKONG HOUSING BANK (MHB) CHAPTER III: THE CURRENT SITUATION OF EXPORT L/C SERVICE IN MHB – CHO LON BRANCH CHAPTER IV:SOLUTIONS TO IMPROVE THE INTERNATIONAL PAYMENT BY EXPORT L/C SERVICE IN MHB – CHO LON BRANCH 3 CHAPTERI: THEORETICAL FRAMEWORK 1. Overview of International Payment 1. Definition of International Payment With the development of commercial, trading are not confined in a small country, it is worldwide expanded. Today, trading is taking place between different countries and region around the world.
International business has originated income and expenses between countries. In this network, countries must establish common rules when doing business overseas such as: objectives, currencies, payment methods. These terms are combined as international payment between countries. In summarize, international payment is the process executing obligations to pay the monetary benefits which results in economic and non-economic activities between organizations, individuals of different nationalities or between a countrywith an international organization via banking system of related countries.
The formation of modern commercial banks has promoted international settlements between countries faster, more convenient and more accurate to ensure the right of involved parties. Banks are financial intermediaries, they have experience in financial and monetary sectors and wide correspondent relations with other banks. Banks are able to apply high technologies solutions to support the international payment operation quickly and accurately. So, almost the international payment methods need the involvement of banks.
Characteristics of International Payment - International payment takes place on worldwide, it serve for trade, investment, international cooperation via global banks system. - International payment is different from domesticpayment, international payment involves the exchange currency from a country to another currency from another country.