STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF BANKING AND FINANCE ---------- Graduation thesis INTERNATIONAL PAYMENT USING LETTER OF CREDIT AT JSC BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM Student Phan Thị Châu Giang Class K19CLC-NHA Course 2016-2020 Student ID 19A4010130 Thesis supervisor Associate Professor, Ph.D Nguyen Thuy Duong Hanoi, Jun 8th, 2020 DECLARATION I declare that this Graduation Thesis has been composed by myself under the support of instructors and does not copy the work of others. The secondary information data used in the treatise is derived and clearly cited. I take full responsibility for this declaration! Hanoi, June 7th, 2020 Signature Phan Thi Chau Giang ii ACKNOWLEDGMENTS Firstly, I would like to express my sincere thanks to Associate Professor, Ph.D Nguyen Thuy Duong, who guided me through the research of my thesis. Thanks to her advice, I was able to find my mistakes and shortcomings to promptly correct them to complete the thesis as good as possible.
I would also like to thank the Board of Directors of the Banking Academy, the teachers in the Banking Department for helping me directly and indirectly for me to complete my thesis. In addition, I would like give my appreciation for the staffs at the Investment and Development Joint Stock Commercial Bank for helping me in the process of learning and providing practical materials so that I can complete the thesis. However, during the course of doing the thesis, due to the limited knowledge, research ability as well as practical experience, this thesis cannot avoid shortcomings, I hope to receive the comments and suggestions from teachers. iii Table of Contents DECLARATION ACKNOWLEDGMENTS ABBREVIATIONS LIST OF TABLES AND FIGURES INTRODUCTION:.
1 CHAPTER 1: OVERVIEW OF INTERNATIONAL PAYMENT USING LETTER OF CREDIT. Definition of International Payment:. Role of International Payment:. Common international payment methods:.
International Payment by Letter of Credit:. Types of L/C used in bank sector:. Parties and procedure:. Main contents of an L/C:.
Terms and conditions:. Advantages, Disadvantages/Risks of L/C:. Evaluate the performance of international payment activities using L/C method: 19 1. Factors affecting the performance of international payment activities using L/C method:.
22 CHAPTER 2: ACTUAL SITUATION OF INTERNATIONAL PAYMENT USING L/C AT BIDV:. Overview of BIDV:. Business performance of BIDV in the period of 2017 – 2019:. Actual situation of L/C used in International Payment at BIDV in recent years: 36 2.
Operation model of trade finance center (TFC) at BIDV:. Main international payment services:. L/C payment process at BIDV:. Some results of international payment activities in recent years:.
Achievments aquired by using L/C in International Payment:. Factors that affecting the efficiency of L/C in International Payment at BIDV: 56 CHAPTER 3: IMPLICATIONS AND RECOMMENDATIONS:. Solution of training management:. 61 CONCLUSIONS v ABBREVIATIONS Short form Long form BIDV Investment and Development Joint Stock Commercial Bank L/C Letter of Credit TFC Trade Finance Center B/E Bill of Exchange UCP Uniform Customs and Practice for documentary credits ISBP International Standard Banking Practice for the Examination of Documents Under Documentary Credits ISP Institute of International Banking Laws and Practice SWIFT The Society for Worldwide Interbank Financial Telecommunication D/P Documents against payment D/A Documents against acceptance B/G Bilateral Guarantee vi LIST OF TABLES AND FIGURES Table 2.1 - Capital mobilization activity (VND million) .2 - BIDV Loans from 2017 to 2019 (VND billion) .3 - BIDV Bussiness Result from 2017 to 2019 (VND billion) .4 - BIDV Net revenue from service activities from 2017 to 2019 .5 - BIDV Export payment turnover from 2017 to 2019 .6 - Revenue and profit from L/C .7 - Number of customers using L/C at TFC from 2017 to 2019.1 - Basic process of an L/C payment.1 - BIDV structure model is shown as the following diagram .2 - BIDV Credit Growth from 2017 to 2019 (VND billion) .3 - Net service fee from 2017 - 2018 (VND billion).4 - BIDV Import - Export payment turnover from 2017 to 2019.
Statement of the problem and rationale for the study Facing the internationalization trend of the current world economy, Vietnam has long carried out the renovation, boosted the international economy, diversified foreign relations, and then expanded foreign activities of domestic enterprises. The exchange of goods between countries around the world is happening more and more strongly and quickly, making the international payment demand of businesses in all countries increase significantly. Commercial banks act as intermediaries for payment, together with deep understanding of the international market, have become an indispensable link in the international payment market. By its international payment methods, commercial banks make payment between countries much easier and more convenient.
Currently, to meet the international payment needs of each business, banks have offered a variety of international payment methods: remittance, collection of document, letter of credit, etc. in which the letter of credit method is used more by the outstanding advantages, especially the safety when used in transactions between the two businesses for the first time cooperating or not understanding each other well. However, this is a complex method that requires a detailed understanding and unavoidable problems to overcome. The Bank for Investment and Development of Vietnam JSC (BIDV) is a major commercial bank which was established more than 60 years ago.
BIDV is constantly innovating and developing to maintain its position and improve the quality of operations as well as create its competitive advantage in the economic market. Knowing the importance of international payment to the domestic economy in particular and the global economy in general, BIDV always tries to focus on developing international payment activities, especially by the documentary credit method yet inevitably encountered shortcomings that reduce the effectiveness of this method. 1 Based on the knowledge I learned, practical knowledge and documents collected during the internship at the commercial finance center of BIDV, I chose the content "International payment using Letter of Credit at JSC Bank for Investment and Development of Vietnam" as the subject for my graduation thesis. Literature Reviews In the trend of globalization and international trade development nowadays, international payment activity plays an indispensable role in commercial banks.
In particular, letter of credit is one of the most popular international payment methods. By fulfilling its customers' demand for letter of credit method, the bank has affirmed its role as an intermediary of payment in international payment activity and contributes a part to the development of the economy, bring benefits for customers and for itself. Bui Thi Hong Mai (2007) – “Improve the quality of letter of credit method and collection method at Bangkok Bank PLC in Ho Chi Minh City”, Master’s thesis in economics, Ho Chi Minh City University of Economics. The dissertation presented the letter of credit method in international payment and the role of the bank when participating in the implementation of this method as well as analyzed the risks that may be encountered when applying the method.
The thesis gave an understanding of the origin of risks in foreign trade transactions from the endogenous and exogenous factors of the voucher credit method in international payment. Cao Xuan Quang (2007), - “Law on Letter of Credit in Vietnam for international economic integration”, Master's thesis in jurisprudence, Hanoi National University. The author pointed out that the regulations on L/C payment in Vietnam in were very lacking and weak which needed to be studied and analyzed to find the cause and complete solutions. By systematically researching the theoretical basis for L/C payment as well as considering the current status of current regulations in Vietnam and the practical application of these regulations, the author clarified the theoretical basis, the nature of the regulations on payment by letter of credit and proposed directions for the completion of these regulations.
2 In addition, there are various scientifics works, articles on improving the efficiency of Letter of Credit in international payment activities in Vietnam: Nguyen Minh Trang (2014), “Improving the efficiency of international payment activities at Jsc Bank for Investment and Development of Vietnam – Dong Do branch”; Nguyen Mai Ly (2012), “Solutions for developing international payment methods of document credits at Lien Viet Post Commercial Joint Stock Bank”, etc. However, with the rapid development of the economics nowadays, customer needs are changing fast and most of the research has become outdated and needs innovation. The above studies have contributed to solving the theoretical and practical of international payment using Letter of Credit in commercial banks: addressing the risks and disadvantages and causes of these risks/disadvantages. The authors also proposed various solutions to limit risks and develop the effectiveness of L/C in international payment activity of commercial banks to meet customers' need, therefore, revenue of banks for this activity would increase.
From the data collected, the author has learned the experience of other banks and come up with suitable recommendations for BIDV. Objectives - Systematize the knowledge of payment method by documentary credit and related issues. - Analyze the status of international payment activity using letter of credit at BIDV. - Proposing solutions and recommendations to improve the international payment using letter of credit at BIDV in the future 4.
Scope of the study The study focuses on researching the effectiveness of International Payment using Letter of Credit at JSC Bank for Investment and Development of Vietnam. Research space: Trade Finance Centre – BIDV. Research time: Analysis of bank data in 3 years 2017, 2018, 2019. Data collection and methodology 5.
Data collection: This section describes how the author collect data to support the empirical research of the thesis. The thesis gathered primary and secondary data from various sources. Primary data Since having three months internship at the trade finance center of BIDV, the author tried to conduct interview with people who are currently working at BIDV to understand more about the efficiency of international payment using L/C and their opinions in improving the effectiveness of this method. There are many reasons why the author decides to use interview and observance as a method to collect data.
People that have been interviewed are the one who currently in charge of dealing with L/C (issuing, amending, cancelling, etc.) therefore they know the strength and problems that need addressing. Consequently, it would be easier for the author to recommend some solutions for the bank. Secondary data The first step of research is a collection of secondary data, meaning a desk research was conducted by gathering and measuring existing data from open sources (Saunders et al. Beside primary data, secondary data also pay an integral part in any research.
In this research, there are many sources that author used to collect data as below: BIDV annual report 2017, 2018, 2019. Methodology: In this research, quantitative method has been used to analyze data from various resources 6. Organization of the thesis CHAPTER 1: OVERVIEW OF INTERNATIONAL PAYMENT USING LETTER OF CREDIT 4 CHAPTER 2: ACTUAL SITUATION OF INTERNATIONAL PAYMENT USING LETTER OF CREDIT AT BIDV CHAPTER 3: IMPLICATIONS AND RECOMMENDATIONS 5 CHAPTER 1: OVERVIEW OF INTERNATIONAL PAYMENT USING LETTER OF CREDIT 1. Definition of International Payment International Payment involves payment obligation and intitlements to monetary benefits arising from economic and non-economic activities between organiztions and individuals of different nationalities or between a nation and an international organization through the banking systems in related countries.
Role of International Payment 1. To the economy With the globalization as well as economization, countries all around the world are striving to develop market economy, openness, cooperation and integration. Therefore, international payment becomes an important services, a bridge between domestic economy and global economy. International payments promotes the import and export of goods and services, foreign investment, overseas remittance attraction and other credit and financial relations.
Nowadays, since foreign economic is the priority in most countries, the importance of international payment is more evident in the national economy in general and foreign economic activities in particular.