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International payment service by opening Letter of Credit at Vietnam Eximbank Hanoi Branch
Mai Thi Hai Yen – A2/K44/BBEACKNOWLEDGEMENTSFor much of improvement during the time when I took my apprentice at Vietnam Eximbank-Hanoi Branch along with a well-spring of helps and encouragements from all people around me, this 2009 internship report has been completed on time.First of all, I would like to express my gratitude to the Business English Faculty for providing best conditions for me during my study in Foreign Trade University for four academic years and now giving me a chance to practice my academic knowledge, skills and profession in reality in this final internship.I also wish to give my special thank to Ms Nguyen Thi Diem Ha, my dedicated instructor for her invaluable suggestions and continuing supports while this report was in progress. She was always available to input her constructive ideas and better edition to make my writing become more enjoyable. My heartfelt gratitude also goes to Ms Le Kim Lien – Manager of the international settlement department and all staff there who gave me a good opportunity to use my economic knowledge and face with the real facts and difficulties at the banking environment. Throughout my internship here, they have treated me as their real colleague, they are always ready to assist me to finish my task and supply me with valuable materials related to my report.Hanoi, May 4, 2009StudentMai Thi Hai YenField Study Report 2009 - 1 - Mai Thi Hai Yen – A2/K44/BBECONTENTSACKNOWLEDGEMENTS……….……………………………………………………iLIST OF ABBREVIATION ivLIST OF FIGURES AND TABLES… vINTRODUCTION viPART 1: LITERATURE REVIEW OF IMPORT AND EXPORT L/C 1 I. INERNATIONAL PAYMENT BY LETTER OF CREDIT 11. Letter of credit .11.1. Definition of Letter of Credit .11.2. Role of Banks in Documentary Letters of Credit 31.3. The Documentary Credit Cycle .32. Import LC 53. Export LC 7II. HISTORY AND DEVELOPMENT OF EXIMBANK .81. General information 82. Development process .83. Vietnam Eximbank Services .9 3.1. Vietnam Eximbank -Hanoi Branch 9 3.2. Services of Vietnam Eximbank Hanoi Branch 9PART II: THE CURRENT SITUATION OF LETTER OF CREDIT PAYMENT IN VIETNAM EXIMBANK – HANOI BRANCH 11I. THE CURRENT SITUATION OF L/C PAYMENT IN HANOI BRANCH .111. Payment method by Import L/C in Vietnam Eximbank 12 1.1 L/C Issuance… .12 1.2. B/L endorsement/guarantee issuance .121.3 Documents Processing and Payment 132. Procedures of Export LC settlements .143. Development of L/C payment in Vietnam Eximbank .143.1 Analysis on the current Import L/C payment activities at Hanoi Branch 153.2 Analysis on the current Export L/C payment activities at Hanoi Branch 18Field Study Report 2009 - 2 - Mai Thi Hai Yen – A2/K44/BBEII. ESTIMATION OF L/C PAYMENT SERVICES IN HANOI BRANCH.191. Vietnam Eximbank’s strengths in L/C payment services .191.1 Predominant credit & Wide operation network 191.2 Leading technology & Advanced technology level .201.3 Abundant service content 202. Limitations in L/C payment services .212.1 Document problems 212.2 Ineffective marketing activities .212.3 Limited working conditions 22PART III: DEVELOPMENT ORIENTATION AND PROPOSALS TO IMPROVING INTERNATIONAL PAYMENT SERVICE AT EXIMBANK HANOI BRANCH 23I. DEVELOPMENT ORIENTATION OF HANOI BRANCH .231. Opportunities and challenges in new context of Vietnam’s economy .231.1 Opportunities .231.2 Challenges .242. Vietnam Eximbank Hanoi Branch’s development orientation to 2010 242.1 General orientation 252.2 Economic development targets 25 II. PROPOSALS FOR IMPROVING THE QUALITY OF LC SETTLEMENT AT EXIMBANK HANOI BRANCH .271. Bettering the working conditions & improving the capabilities of the staff and efficiency of its transactions .272. Simplifying the documents and payment process 283. Upgrading IT system to develop the international payment .294. Promoting Hanoi Branch’s band name, products and services .295. Combining Export-Import Package Service 30CONCULSION .31 REFERENCES 32Field Study Report 2009 - 3 - Mai Thi Hai Yen – A2/K44/BBELIST OF ABBREVIATION1. L/C: Letter of Credit 22. D/C: Documentary Credit 23. UCP: Uniform Customs and Practice for Documentary Credits… .24. T/T: Telegraphic Transfer 105. D/P: Document Against Payment – D/P .106. D/A: Document Against Acceptance 107. B/L: Bill of Lading 138. AWB: Airway Bill .139. WTO: World Trade Organization 1610. GDP: Gross Domestic Products .1911. SWIFT: Society for Worldwide Interbank Financial Telecommunication .2012. STP: Straight-Through Processing .2013. HR: Human Resource .2114. MA: Master of Arts .21Field Study Report 2009 - 4 - Mai Thi Hai Yen – A2/K44/BBELIST OF FIGURES AND TABLES1. Figure 1: The Documentary Credit Cycle 42. Figure 2: The operation flow of opening Import LC .73. Figure 3: The official logo of Vietnam Eximbank 84. Table 1: The total volume of Import L/Cs payment mode recently 155. Table 2: Volume of Import L/Cs in comparison with the total value of Export Import international settlement services .176. Table 3: Volume of Export L/Cs in comparison with the total value of Export/Import international settlement services .18Field Study Report 2009 - 5 - Mai Thi Hai Yen – A2/K44/BBEINTRODUCTIONFor several recent years, Vietnam economy has much developed along with many domestic and international significant events, especially become the official member of WTO. The amount of trading with foreign companies has got a sharp increase, and the volume of imported and exported goods and services has also increased considerably. Therefore, the international payment with foreign companies becomes very important for settling a long time business trading. Acknowledging these requirements, Vietnam Eximbank has made a strong focus on its international settlement department to help the foreign trade carry out as quickly and smoothly as possible.After a short time as an intern at Vietnam Eximbank Hanoi Branch, I have gained a lot of practical experiences and learnt that the international payment by opening Letter of Credit is the most favorable method to be transacted between Vietnamese companies and other foreign companies through Hanoi Branch of Eximbank’s services. Being aware of the importance of international settlement in international business, I have decided to choose topic “International payment service by opening Letter of Credit at Vietnam Eximbank Hanoi Branch” for my field study report.The main focus of this report is designed in three parts:Part I: Literature review of Export and Import LC and Overview of Eximbank-Hanoi Branch.Part II: The current situation of L/C payment at Eximbank-Hanoi Branch.Part II: Development orientation and proposals to improve the international settlement services of Eximbank Hanoi Branch. Field Study Report 2009 - 6 - Mai Thi Hai Yen – A2/K44/BBEPART I LITERATURE REVIEW OF IMPORT AND EXPORT L/CI. INTERNATIONAL PAYMENT BY OPENING LETTER OF CREDIT1. Letter of credit.1.1 Definition of Letter of creditAccording to Wikipedia, the free encyclopedia http://en.wikipedia.org/: “the English name “letter of credit” derives from the French word “accreditation” which means a power to do something, and in turn is derivative of the Latin word “accreditivus” which means trust. The application can use this like any defense relating to the underlying contract of sale. This is as long as the seller performs their duties to an extent that meets the requirements contained in the LC.” However, A.Asley (2003, p.155) explained more clearly about the term “Letter of Credit” in Oxford Handbook of Commercial Correspondence as follows: “Letters of Credit have been used for centuries in one form or another to enable travelers to obtain money from foreign banks. The process begins with the traveler asking their bank to open letter of credit in their favor. (…). The bank then drafts a letter, which will allow the traveler to draw money on foreign banks with whom the traveler’s home bank has an agreement. The foreign banks will then draw on the home bank to recover their payments. For individual travelers, credit cards, eurocheque, and traveller’s cheques have largely replaced this method of obtaining money, but documentary credits (letters of credit accompanied by documents) are widely used in foreign trade.” Additionally, the definition stated in an article by the famous website http://www.investorwords.com/ has demonstrated “Letter of Credit” term at other aspect: “Letter of Credit can be understood as a binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents Field Study Report 2009 - 7 - Mai Thi Hai Yen – A2/K44/BBEconfirming the shipment of goods within a given time frame.” (Source: http://www.investorwords.com/2774/letter_of_credit.html)A letter of credit is the most widely used trade finance instrument in the world. It has been used for the last several hundred years and is considered a highly effective way for banks to transact and finance export-import trade and to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability. The letter of credit is a formal bank letter, issued for a bank's customer, which authorizes an individual or company to draw drafts on the bank under certain conditions. It is an instrument through which a bank furnishes its credit in place of its customer's credit. The bank plays an intermediary role to help complete the trade transaction. The bank deals only in documents and does not inspect the goods themselves. Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant like the buyer. A letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking (it can also be opened under other conditions like revocable, unconfirmed, transferable, back to back, etc. but the most common way is irrevocable/confirmed) to a beneficiary against complying documents as stated in the Letter of Credit. Letter of Credit is abbreviated as an LC or L/C and often is referred to as a Documentary credit, abbreviated as DC or D/C, documentary letter of credit, or simply as Credit. Documentary credits are governed by the International Chamber of Commerce code of practice, known as the Uniform Customs and Practice for Documentary Credits. The current code is ICC publication No.500 and is generally referred to as UCP 500 and UCP 600 and e-UCP600 in payment via the Internet.The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. Field Study Report 2009 - 8 - Mai Thi Hai Yen – A2/K44/BBEThe parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. The buyer is the Applicant and the Seller is the Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller. Almost all letters of credit which are irrevocable can not be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank.1.2 Role of Banks in Documentary Letters of CreditCompared to other payment forms, the role of banks is substantial in documentary Letter of Credit transactions.Firstly, the banks provide additional security for both parties in a trade transaction by playing the role of intermediaries. The issuing bank often works for the importer and the advising bank works for the exporter.Moreover, the banks assure the seller that he would be paid if he provides the necessary documents to the issuing bank through the advising bank.And the banks also assure the buyer that his money would not be released unless the shipping documents evidencing proper and accurate shipment of goods are presented.1.3 The Documentary Credit CycleThe specified bank makes the payment upon the successful presentation of the required documents by the seller within the specified time frame. Note that the Bank scrutinizes the “documents” and not the “goods” for making payment. Thus the process works both in favor of both the buyer and the seller. The Seller gets assured that if documents are presented on time and in the way that they have been requested on the LC the payment will be made and Buyer on the other hand is assured that the bank will thoroughly examine these presented documents and ensure that they meet the terms and conditions stipulated in the LC.There are many steps involved in opening an account for letter of credit. The letter of credit can be opened by mail or by cable. When the letter of credit is Field Study Report 2009 - 9 - Mai Thi Hai Yen – A2/K44/BBEopened by mail, the buyer's bank sends the letter of credit and two carbon copies of the letter to the importer. The importer then dispatches the letter of credit to the exporter in foreign country by mail or air mail. One carbon copy of the letter of credit is kept for record and the second after signing is sent to the bank by the importer. If an importer directs the bank to open letter of credit by cable the buyer's bank sends a cable to the corresponding bank in the foreign country with a request to notify the exporter of the letter of credit and the terms and conditions which are laid therein. The expense of the telegram is met by the importer. The bank also mails the written confirmation of the cable to the corresponding bank for forward delivery to the exporter. The bank also sends a copy of the cable and the written confirmation to the importer of the merchandise.Figure 1: The Documentary Credit CycleTypically the documents often requested in a Letter of Credit are the following:- Commercial invoice- Transport document such as a Bill of lading or Airway bill- Insurance documentField Study Report 2009 - 10 - [...]... PART II INTERNATIONAL PAYMENT METHOD BY OPENING LETTER OF CREDIT IN VIETNAM EXIMBANK HANOI BRANCH I THE CURRENT SITUATION OF L/C PAYMENT IN VIETNAM EXIMBANK With a network of more than 750 correspondent banks in over 72 countries worldwide, Eximbank Hanoi Branch ensures that the international settlement transaction will be carried out swiftly and effectively The mode of payment by Letter of Credit is a... required time frame A “time” or “date” LC will specify when payment will be made at a future date and upon presentation of the required documents A letter of Credit may be payable either at sight or at extended payment terms (payment at a future date) A payment at sight means that the payment is due upon the presentation and receipt of documents after shipment of the goods and/or services are provided On the... trading name of Hanoi Branch in Vietnamese is “Ngân hàng thương mại CP xuất nhập khẩu Việt Nam-CN HàNội” and in English is Vietnam Export Import Commercial Joint-Stock Bank -Hanoi Branch” The short name of branch is Vietnam Eximbank- Hanoi Branch” The office is located at 19 Tran Hung Dao St., Hoan Kiem Dist., Hanoi City 3.2 Services of Vietnam Eximbank Hanoi Branch Hanoi Branch of Vietnam Eximbank provides... after presentation of documents to pay the credit at a future date, then the credit is payable at 30, 60 or 90 days after presentation and acceptance of documents (Bill of Lading Date or whatever payment terms have been agreed upon) 2 Import LC Import Letters of Credit provide importers the most widely used and accepted international trade payment mechanism and finance instrument Letter of credit is an... DEVELOPING L/C PAYMENT SERVICE AT EXIMBANK HANOI BRANCH I DEVELOPMENT ORIENTATION OF HANOI BRANCH 1 Opportunities and challenges in new context of Vietnam s economy 1.1 Opportunities Looking at these recent years, Vietnam Eximbank has enjoyed a great deal of opportunities from dramatic development created by Vietnam further economic growth, political stability, and better approach to integrate international. .. attract the interest of large and small domestic import companies Vietnam Eximbank Hanoi Branch has continually renovated management mechanism, enhanced its risk management activities in credit, liquidity, market, operations, etc to strictly observe regulations by the State Bank of Vietnam and international standards of risk management of Vietnam Eximbank Actually, high growth rate, effective operations... PERFORMANCE IN EXIMBANK- HANOI BRANCH 1 Strengths of Eximbank Hanoi Branch in L/C payment services 1.1 Predominant credit & Wide operation network After a long time operating in banking field, Eximbank Hanoi Branch has distributed much to Vietnam Eximbank s success especially in the international settlements and has been awarded many prizes and honors such as “Excellent International Payment Quality 2006” by HBSC... L/C, L/C amendment and Documents required by the L/C Upon receipt of credit advice from the foreign bank, Eximbank will promptly credit in accordance with customer’s order in compliance with regulations by the State Bank of Vietnam after deduction of all arising fee(s) 3 Development of L/C payment in Vietnam Eximbank International settlements have always been Eximbank s traditional strength from the... 789.89 (Source: Annual report of Vietnam Eximbank Hanoi Branch) Import L/C / Ex-Import Bill 48% 51% 50% This comparison indicates that Import L/C is always the main mode of international settlement at Hanoi Branch of Eximbank The total volume of import L/C in a year often occupies nearly a half of total turnover of both Export and Import bill Especially in 2007, the Import L/C payment performance is really... Chi Minh city VIETNAM EXIMBANK has established correspondent banking relationships with over 735 banks in 72 countries worldwide 3 Vietnam Eximbank – Hanoi Branch and its services 3.1 Vietnam Eximbank -Hanoi Branch Vietnam Eximbank has one head office in Ho Chi Minh City and 27 Branches with 39 Transaction Offices across the country Among them, Eximbank Hanoi Branch in Hanoi city is one of the most successful . II INTERNATIONAL PAYMENT METHOD BY OPENING LETTER OF CREDIT IN VIETNAM EXIMBANK HANOI BRANCH. I. THE CURRENT SITUATION OF L/C PAYMENT IN VIETNAM EXIMBANKWith. IMPORT AND EXPORT L/CI. INTERNATIONAL PAYMENT BY OPENING LETTER OF CREDIT1 . Letter of credit. 1.1 Definition of Letter of creditAccording to Wikipedia,