MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMIC HOCHIMINH CITY j PHAN MANH HA INTERNATIONAL SETTLEMENT OPERATION: A CASE STUDY OF AGRIBANK CHO LON In Banking and Finacial Ology code: 60.31.12 MASTER’S THESIS Supervisor : Dr.TRAN HUY HOANG Ho Chi Minh City – 2010 i Acknowledgment The process of this master thesis writing was a wonderful learning experience on my academic life which was filled with challenges and rewards. The completion of the present study leads a new beginning and a step forward towards my future. This preface provides a welcomed opportunity and chance to acknowledge the help and assistance of the people who with their intellectual insights or constructive criticism, other times in the form of friendship have helped me to develop this research. Specially, I would like to extend my appreciation to Mr. Jerry and Mr.Gary for their valuable and enthusiastic support of English. First, I would like to express my sincere gratitude to supervisor, Associate Professor Ph.D. Tran Huy Hoang at the Faculty of Banking, for his valuable supervision, never-ending support and encouragement during this process. I am very thankful to him, that he has given me this pleasure to use his valuable comments, feedbacks and suggestions during the time that I have been working on this thesis and he has presented a new world for my further academic research . Outside of academia, I would like to thank all my friends and colleagues for their fully support and finally, the great thanks are directed to my family; My father; that have taught me to get the priorities straight and to focus on the whole instead of getting lost in the details; My mother who has meant me the real meaning of patience and helped me by her advices to have this thesis finished on schedule and finally; my brothers and sisters for continues support along the way. Finally warm thanks go to University of Economic HoChiMinh City for having developed this post-graduate course in English the first time and sharing consideration during this period of hard work. Phan Manh Ha August 2010 HoChiMinh City, Vietnam ii Table of Contents Acknowledgment i Table of contens ii List of tables vii List of diagrams vii List of charts viii Introduction 1 1. Rationale of thesis 1 2. The thesis’s research questions and research objectives: 2 2.1. Research questions 2 2.2. Research objectives 2 3. Scope and limitation of thesis: 3 4. Research Methodology 3 5. The thesis’s structure: 4 Chapter 1: International settlement operation of commercial banks in context of international economic integration 5 1.1 Integration into the world economy in field of banking and finance 5 1.1.1 Common issues of integration into the world economy 5 1.1.2 Economic integration in field of banking and finance 6 1.2 The international settlement operation of commercial banks 9 1.2.1. Concepts 9 1.2.2. Role and the objective necessity of developing and improving international settlement operation of commercial banks 10 1.2.2.1 For the economy 11 1.2.2.2 For the enterprises 11 1.2.2.3 For the state management 12 1.2.2.4 For commercial banks 12 1.2.3 Means of international settlement operation 13 iii 1.2.3.1 Bill of exchange 13 1.2.3.2 Promissory Note Payment: 15 1.2.3.3 Check 15 1.2.3.4 Payment card 16 1.2.4. Common methods of international settlement operation 16 1.2.4.1 Remittance 16 1.2.4.2 Collections 18 1.2.4.3 Documentary credit 21 1.3 Factors influencing international settlement operation of commercial banks 26 1.3.1. Objective factors 26 1.3.1.1 Globalization and economic integration. 26 1.3.1.2 Development of information technology 26 1.3.1.3. Practices and standards of international settlement operation. 26 1.3.1.4. Level of development and open of economy 28 1.3.1.5. Macro economic policies of government 28 1.3.1.6. Competition of other commercial banks 28 1.3.2. Subjective factors 29 1.3.2.1. Policy of customer care and developing products, services of commercial banks 29 1.3.2.2. Policy of foreign affairs 30 1.3.2.3. Development level of banking technology 31 1.3.2.4. Structure of organization and management for international settlement operation 31 1.3.2.5. Knowledge, ability of dealers in international settlement operation31 1.3.2.6 Other activities in relation with international settlement operation of commercial banks 31 1.4 Some standards to evaluate the performance in international settlement operation of commercial banks 32 1.4.1. Security and exactness 32 iv 1.4.2. Quickness and Timeliness 33 1.4.3. Logic settlement process 33 1.4.4. Satisfaction of Customer 34 1.5 Some experience of developing and improving international settlement operation of other commercial banks in the world 34 1.5.1. Citi Bank 34 1.5.2. Hongkong and Shanghai Banking Corporation 36 Conclusion of Chapter 1 37 Chapter 2: Research Methodology 38 2.1. Research design 38 2.2. Data collection 40 2.3. Data Analysis 44 Conclusion of Chapter 2 47 Chapter 3: Current status of international settlement operation at Agribank Cho Lon 48 3.1 Overview of organization and activities at Agribank Cho Lon 48 3.1.1. History of foundation and development 48 3.1.2. Organizational structure 49 3.1.3. Review of some main business activities of Agribank Cho Lon 49 3.1.3.1. Capital Mobilization 49 3.1.3.2. Loan 51 3.1.3.3. Foreign exchange trading and international settlement operation 53 3.2 Current status of international settlement operation at Agribank Cho Lon 55 3.2.1. Legal basis of international settlement operation at this branch 55 3.1.1.1. International legal documents 55 3.1.1.2. National legal documents 56 3.2.1.3. Agribank’s documents of internal regulations of international settlement operation 56 v 3.2.2. Current status of international settlement operation at Agribank Cho Lon 57 3.2.2.1. Customers of international settlement operation at this branch 57 3.2.2.2. Current status of some main methods of international settlement operation deployed at the branch 62 Remittance 62 Collection 65 Letter of credit 66 3.3 General comments of international settlement operation at Agribank Cho Lon 68 3.3.1. The results 68 3.3.2. Shortcomings 71 3.3.3 Causes of shortcomings 74 3.3.3.1 Objective causes 74 3.3.3.2. Subjective causes 77 Conclusion of Chapter 3 80 Chapter 4: Solutions for developing and improving international settlement operation at Agribank Cho Lon 81 4.1 Some orientation of international settlement operation at Agribank Cho Lon81 4.1.1. Some orientation of foreign economic development of Vietnam from 2006 to 2010 81 4.1.2. Main orientation of international settlement operation at Agribank Cho Lon 82 4.2 Some viewpoint of international settlement operation 83 4.3 Solutions for developing and improving international settlement operation at Agribank Cho Lon 84 4.3.1. Establishing customer policy and marketing policy suitable for diffusion of products and services of the branch 84 4.3.2. Modernization of banking technology 86 vi 4.3.3. Proposing a policy of service diversification 88 4.3.4. Improving management model, procedure of international settlement operation 90 4.3.5. Well organizing foreign exchange trading, acting on initiative to have foreign currency source suitable for requirement of the international settlement operation at the branch 93 4.3.6. Solution for increasing quality of human resource 94 4.3.7. Increasing quality of control and internal audit 96 4.3.8. Constantly paying attention to establishment of business culture style at the branch 96 4.4 Recommendations 98 4.4.1. For the government, ministries, departments and industries concerned 98 4.4.2. For State bank 99 4.4.3. For customers 100 4.4.4. For Agribank 100 Conclusion of Chapter 4 101 Conclusion 102 Appendices 103 List of References 110 vii List of Tables 1. Table 2.1. Exhibition of payment sales under method of remittance 45 2. Table 3.1. Capital source of Agribank Cho Lon in recent years 50 3. Table 3.2. Some items of outstanding debts at Agribank Cho Lon 2006-2009 52 4. Table 3.3. Some main items of foreign exchange trading and international settlement operation at Agribank Cho Lon 54 5. Table 3.4. Sales of some main customers in international settlement operation at the branch in 2009 58 6. Table 3.5. Sales of some main import export commodities at the branch 61 7. Table 3.6. Payment sales under method of remittance 63 8. Table 3.7. Payment sales under method of collection 65 9. Table 3.8. Payment sales under method of letter of credit 67 10. Table 3.9. Some indicators of loans for import and export at the branch 70 11. Table 3.10. Some key indicators for comparison 72 12. Table 3.11. Comparison of export payment and import payment at the branch .73 List of Diagrams 1. Diagram 1.1. Process of remittance operation 17 2. Diagram 1.2. Process of collection operation 19 3. Diagram 1.3. Process of documentary credit 23 viii List of Charts 1. Chart 3.1. Capital source of Agribank Cho Lon 2006-2009 51 2. Chart 3.2. Outstanding debts at Agribank Cho Lon 2006-2009 53 3. Chart 3.3. Main items of foreign exchange trading and international settlement operation at Agribank Cho Lon 54 4. Chart 3.4. Sales of some main customers in international settlement operation at the branch in 2009 59 5. Chart 3.5. Customer’s assessment of international settlement operation 60 6. Chart 3.6. Sales of some main import export commodities at the branch 62 7. Chart 3.7. Payment sales under method of remittance 64 8. Chart 3.8. Payment sales under method of collection 66 9. Chart 3.9. Payment sales under method of letter of credit 67 10. Chart 3.10. Some key indicators for comparison 72 11. Chart 3.11. Comparison of export payment and import payment at the branch .73 1 I I I N N N T T T R R R O O O D D D U U U C C C T T T I I I O O O N N N 1. Rationale of thesis Vietnamese economy has widely integrated itself into the regional and world economy. Along with other activities, foreign trade has constantly affirmed to an important role in Vietnam economic development. Commercial banks, by launching the international settlement operation have, according to the “Open Door Policy” on integration, become undeniably essential to the development of the economy of this country. In addition, to better promote their role and position in speeding up foreign trade activities, the system of commercial banks in Vietnam have continuously worked to develope and improve the international settlement operation. In these recent years, the efforts of the system of Vietnam commercial banks have fostered advantageous conditions for the international settlement operation to become increasingly enhanced day by day, fulfilling the basic requirement of open process and integration of economy. However, international settlement operation must undergo legal systems and complicated overseas practices, if it was not to be fully understood, risks that include economic, politic and social losses would inevitably arise. Lessons learned from the past strongly suggest that the working of Vietnam commercial banks are not to be ignored. The international settlement operation of Agribank has now been deployed for 10 years, yet Agribank has been encountering countless difficulties and insufficiencies in the widening of its active market share. In the context of integration into the world economy alongside tough competition, commercial banks must incessantly develop and widen their trade activities. Among those banks, the international settlement operation was utilized in order to broaden and improve to meet customer needs. Furthermore, the operation helped increase the bank’s income and enhance [...]... follows: Chapter 1: International settlement operation of commercial banks in context of international economic integration Chapter 2: Research Methodology Chapter 3: Current status of international settlement operation at Agribank Cho Lon Chapter 4: Solutions for developing and improving international settlement operation at Agribank Cho Lon 5 Chaptter 1:: Intternattiionall settttllementt operattiion off... has affected the activities of the commercial banks in general, the operation of international settlement in particular The international settlement operation has basic changes in comparison to past traditional payment Many centers of clearing payment have been established in Europe and America The appearance of Society for worldwide interbank financial telecommunication (SWIFT) allows the international. .. investigate the performance of the international settlement operation at Agribank Cho Lon Variables such as ratios of import export payment, ratios of commodities, and ratios of payment methods were derived from annual reports from Agribank Some comparisons were depicted in tables Procedures of the international settlement operation were outlined by diagrams Source of information: Source of data was collected... availability of competition Now, however, all banks in Vietnam and Agribank Cho Lon in particular are facing a great deal of difficulty as they put forth their efforts to overcome this obstacle Evaluating the efficiency of the international settlement operation at Agribank Cho Lon leads to the realization that improvements to this operation must be scientifically based From above mentioned practical... the population and the subject of study In addition, they are more appropriate in cases where there is a lack of 4 secondary data In this case, secondary data concerning performance and performance measurement of the international settlement operation at Agribank Cho Lon was insufficient, making it necessary to conduct a survey to gather the needed information The secondary data method was also used... subject of this thesis International Settlement Operation – A case study of Agribank Cho Lon was taken into consideration for more in-depth research This research evaluates the performance of international settlement operation at Agribank Cho Lon, and proposes possible solutions for the development and improvement of the operation 2 The Research Questions and Objectives: 2.1 Research questions A research... Agribank Cho Lon The questionnaires were designed to collect data related to international settlement operation at Agribank Cho Lon Also discussions with experts were taken to identify the appropriate performance measurement of the international settlement operation at Agribank Cho Lon Surveys by questionnaires were used because they provide quick, efficient and accurate means of accessing information about... international settlement operation to be carried out quickly and safely 1.3.1.3 Practices and standards of international settlement operation The international settlement operation will be affected or governed by national laws first, then by a system of customs, international practices that are very complicated 27 and frequently amended to adapt to the development of international commerce Some of the basic... of the international settlement operation applied at Agribank Cho Lon in period of time between 2006 and 2009 - To suggest solutions for developing and improving the international settlement operation 3 Scope and limitation of the thesis: The thesis mainly focuses on development and improvement of the international settlement operation at one bank, Agribank Cho Lon in period of time between 2006 and... import and export enterprises as well as the growth of commercial banks 1.2.2.1 For the economy The international settlement may be the last stage in the international exchange of goods and services, but it is certainly one of the most important stages of all If not for the international settlement operations, the international commercial operations in particular and the external economic operations . 3.2 Current status of international settlement operation at Agribank Cho Lon 55 3.2.1. Legal basis of international settlement operation at this branch 55 3.1.1.1. International legal documents. standards for evaluating the quality of the international settlement operation - To analyze actual efficiency of the international settlement operation applied at Agribank Cho Lon in period of time. Chapter 3: Current status of international settlement operation at Agribank Cho Lon Chapter 4: Solutions for developing and improving international settlement operation at Agribank Cho Lon