865 solutions to improve international payment method by letter of credit at MB SGD1 branch

PAGE Figure 4.1.2: The total number of enterprises temporarily ceasing operations, waiting for dissolution and completing dissolution Figure 4.1.4.2: Percentage of each payment method fr

Academic year : 2017 - 2021

L

: Le Trung Kien : K20ATCC

Ha Noi, May, 2021

CERTIFICATE OF ORIGINALITY

I declare that this dissertation entitled “Solutions to improve International PaymentMethod by Letter of Credit at MB-SGD1 branch” is the result of my originalresearch work

The research is based on my reading and understanding of the original texts, and it

is not published anywhere The other books, articles, and websites, which I havemade use of are clearly referenced in the paper

For the present thesis, which I’m submitting to the Banking Academy of Vietnam,has not been submitted to this or any other universities before

Ha Noi, May 22, 2021

Author

Le Trung Kien

This part is dedicated to the following beloved people Without them, I could notcomplete my thesis

During the process of carrying out the final product of the research, I have received

a great deal of support Firstly, I would like to express the deepest and sincerestgratitude to my supervisor, Ms Can Thuy Lien I am so thankful for her valuableguidance and constructive suggestions when I’m working on my research Sheprovided me with knowledge that I needed to choose the right direction,methodology, and helped me to successfully complete my research

In addition, I would like to thank my coworkers from MB-SGD1 branch for theirhelps They were always supportive and eager to provide the information I need for

my study Moreover, having a chance to experiencing the working environment inTrade Finance Department of the branch also helps me a lot in understanding howL/C operations work

Finally, I would like to thank my parents and as well as my friends for theirsupports and encouragements throughout my study

TABLE OF CONTENTS

CERTIFICATE OF ORIGINALITY i

ACKNOWLEDGEMENTS ii

TABLE OF CONTENTS iii

LIST OF ABBREVIATIONS vi

LIST OF TABLES vii

LIST OF FIGURES viii

LIST OF APPENDICES xi

ABSTRACT CHAPTER I: INTRODUCTION 1

1.1 Introduction 1

1.2 Background of the Study 2

1.3 Objectives of the Study 3

1.4 Significance of the Study 4

1.5 Scope and Limitation of the Study 4

1.6 Definition of Terms 5

CHAPTER II: LITERATURE REVIEW 8

2.1 Literature Review 8

2.2 Theoretical and Conceptual Framework 12

2.2.1 Theoretical Framework 12

2.2.2 Conceptual Framework 13

CHAPTER III: RESEARCH METHODOLOGY 15

3.1 Locale of The Study 15

3.2 Research Design 15

3.3 Sources of Secondary Data 15

3.4 Evaluation Criteria of Secondary Data 15

3.5 Categories of Secondary Data for the study 16

3.6 Validity and Reliability 16

3.7 Self-Reflection on Secondary Data Collection Analysis 17

CHAPTER IV: RESULTS AND DISCUSSIONS 18

4.1 Results 18

4.1.1 Introduction of the profile of MBBANK and MB-SGDl branch 18

4.1.2 External factors affected trend of Trade Finance in Vietnam from 2018 to 2020 20

4.1.3 Results of L/C service operation at MB-SGD1 22

4.1.4 The percentage of L/C payment methods to other international payment methods at the branch 31

4.1.5 Competitiveness of MB-SGD1 branch through comparisons 35

4.2 Discussion 41

4.2.1 The L/C operation performance at MB-SGD1 41

4.2.2 The importance of L/C payment method at MB-SGD1 in comparison with other international payment methods 44

4.2.3 The fee policy of L/C service at MB-SGD1 branch 46

4.2.4 The market shares of import and export payment of MB-SGD1 in Hanoi city 48

CHAPTER V: CONCLUSION AND RECOMMENDATION 49

5.1 Summary of the Findings 49

5.2 Conclusion 49

5.3 Recommendations 50

5.3.1 To MB’S Head Office 50

5.3.2 To MB-SGD1 branch 52

REFERENCES

APPENDIX

WORD’S MEANING

PAGE

Table 4.1.3.1: Total Sales from L/C operation at MB-SGDl

branch in the period 2018-2020

23

Table 4.1.3.2: Net profits from L/C operation at MB-SGD1

Branch in the period of 2018-2020

24

Table 4.1.3.3: L/C issuing transaction processing time during 8

months in 2020 at MB-SDG1 branch

29

Table 4.1.4.1: Percentage of each payment method from 2018 to

2020 in terms of total sales

32

Table 4.1.4.2: Net profits of each kinds of international payment

method at MB-SGD1 branch from 2018 to 2020

Table 4.1.5.3: Total sales of international payment methods at

MB-SGDl branch in comparison with Hanoi’s total

import-export turnover

40

LIST OF TABLES

PAGE

Figure 4.1.2: The total number of enterprises temporarily ceasing

operations, waiting for dissolution and completing dissolution

Figure 4.1.4.2: Percentage of each payment method from 2018 to

2020 in terms of net profits

35

Figure 4.2.2: Proportion of total sales among methods of

international payments from 2018-2020 at VCB-SGD Branch

Appendix 1

2018 MB Consolidated Income Statement

Advisor: Ms Can Thuy Lien, the Dean of the Faculty of Foreign Languages,

Banking Academy of Vietnam

Key words: L/C payment service, solutions, MB-SGD1 branch

Abstract: L/C payment service plays an importance role in the International

Payment Operations of many banks in Vietnam Thus, the thesis was conducted toseek out the solutions to enhance L/C service performance at MB-SGD1 branch.Firstly, the dissertation introduced about the profile of MB and MB-SGD1 branch.Then, the research investigated about the trend of Vietnam’s trade finance marketduring the period 2018-2020 Afterwards, L/C operation of MB-SGD1 branch wascarefully assessed in terms of total sales, net profits, numbers of transactions andprocessing time Next, L/C payment method was compared with other internationalpayments method that the branch provides in terms of proportion of total sales andnet profits Moreover, the study evaluated the competitiveness of L/C service bycomparing the fee policy with other banks as well as the proportion of import-export payment of the branch with total turnover of Hanoi Finally, some solutionswere proposed to dealt with outstanding issues Through the research, someoutstanding problems related to L/C service at MB-SDG1 were pointed out Thefirst problem was the unstable increase level of the figures for L/C operation at eachyear The L/C processing time has not been reduced significantly and MB’s feepolicy was hard to compete with other banks’ Besides, the market shares of MB-SGD1’s L/C service at the area was quite small Luckily, many practical andcreative solutions were proposed at the end of the study, which could help toincrease L/C operation effectiveness at the branch positively

CHAPTER I: INTRODUCTION

1.1 Introduction

With the prospect of global trade getting better when the COVID-19 pandemic isunder control, the effective use of favorable conditions from integration strategiesand the framework of free trade agreements has helped Vietnam’s import andexport market develop significantly The country's import and export contracts areexpected to accelerate in 2021 and the following years As a result, there would be ahigher demand for trading relations and foreign investments between countries,which requires more international payment methods In Vietnam, Banks havebecome a reliable intermediary which provide various methods of internationalpayment for customers, and helped them to carry out millions of foreigntransactions Over the years, the banks have proven their importance in contributing

to the boosting of import and export activities of Vietnam Significantly,Vietnamese general statistics showed that the export turnover in 2020 was $281.5billion increased 6.5 percent in comparison to that figure in 2019 (General StatisticsOffice, 2021) That number is quite promising when other countries find it struggle

to overcome the complicate problems related to the COVID-19 pandemic Althoughthe world’s economy is being hit heavily by the COVID-19, Vietnam economicsituation is still stable and even on the stage of developing However, the effect ofCOVID-19 pandemic on the world trading market is terribly massive The partiallydisrupted global supply chain, and the worldwide circulation of goods, services andlabor is not the same as before, making all economic, trade and investment activitiesincomprehensible and efficient As a result, the world’s economy and internationaltrade cannot function properly Besides, the risks of falling into stagnation and thelong- term negative impacts of COVID-19 pandemic have already affected bothfinancial institutions and corporations in Vietnam, creating a foreseeable crisis inthe future Not only could this potential movement harm the stable operations of thebanks, but it also affects the whole banks systems in Vietnam, contributing to poorbank performances and raising the negative doubt of customers about theinvestment prospects as well as the prestige of credit institutions Consequently,

Vietnamese economics will have to overcome recession time and this is the worstscenario for both Vietnamese people and government Many analysts believe that, ifthe COVID-19 epidemic continues and the specialized vaccine for prevention andtreatment has not been produced, the world economy will fall into a period of "greatcrisis “ At that time, an urgent question was asked to the Vietnamese governmentthat how the leaders of a country would respond to the COVID-19 crisis In anycase, the economy needs support from nations and central banks, and transactionsmust be recovered from the collapse and broken businesses In order to prepare forthe unpredictable changes in the world import and export market, the banks need toadjust their international payment services, to which the documentary credit should

be paid the most attention to As a pioneer in providing preeminent and convenientinternational payment service, Vietnam Military Joint Stock bank should take

urgent actions to solve the existing problems Therefore, the topic “Some solutions

to improve the performance of LC payment service at MBBANK - SGD1 branch” has been chosen.

1.2 Background of the Study

The research took place at MBBANK-SGD1 Branch, one of the most historicalbranches of MBBANK’s systems MBBANK-SDG1 was established on November

4 1994 together with the establishment of Military Bank The branch firstly

specialized in trading in currency, credit and banking services for the purpose ofserving Military enterprises in defense production and economic work The firstlocation of the branch was at 03 Lieu Giai street, Ba Dinh district, Ha Noi After 20years, its location was changed to 21 Cat Linh, Dong Da district, Ha Noi, which was

at the same tower with the MB Headquarters Recently, MB-SDG1 branch has beenmoved to 18 Le Van Luong, Cau Giay District, Ha Noi, situated in the newest MBgrand tower In the early days of its establishment, the branch's main activities were

to provide credit loans and receive deposits from customers After the 2000s, whenMB's service diversification policy was applied, the branch gradually providedother services, including international payment services, and the most popularmethods at that time was telegraphic transfer However, in 2008, thanks to the

continuous advancement of technology, as well as the positive effects of theglobalization trend leading to increased demand for international payment methods,the branch was allowed to providing two more commercial finance services: letter

of credit and documentary collection Since its launch, the L/C method has quicklybecome one of the most popular payment methods among customers due to itssafety and flexible fee policy However, there is a fact that the total number oftransactions as well as the numbers of customers using MB international paymentmethods in general and L/C payment method in particular is still very small andunable to compete fairly with big banks like VIETCOMBANK orTECHCOMBANK Therefore, conducting practical solutions to improve theperformance of L/C service at MB-SGD1 could help the branch to strengthen theL/C operations and develop the international payment service at the branch ingeneral

1.3 Objectives of the Study

Recognizing the importance of L/C as a primary payment method in internationaltrade, the study assessed the reality of L/C operations at the branch and compared itwith other banks’ to search for solutions to overcome the existed weaknesses

In particular, there are five specific objectives of the thesis:

Firstly, introducing the profile of Military Bank and MB-SGD1 Branch

Secondly, identifying the trend of trade finance market in Vietnam from 2018 to2020

Thirdly, evaluating the operation of the payment method by L/C at the branch interms of:

• Total sales

• Net profits

Next, comparing the percentage of L/C payment methods to other internationalpayment methods at the branch.

Additionally, appraising the competitiveness by comparing:

import-export turnover of Hanoi

Finally, proposing solutions for the branch to deal with outstanding problemsrelated to L/C payment method

1.4 Significance of the Study

The study is being conducted at MB-SGD1 Branch with the aim to seek out newstrategies to improve L/C payment service at this institution As a result, once theresearch is finished, the International Trading Department of the branch will bedirectly benefited from it They could apply these solutions into the real situation ofL/C operations Eventually, by following the guidance of this thesis, MB-SGDl’sL/C operations can be improved The performance of this payment service mayincrease positively, contributing to higher numbers of customers using L/C service.Consequently, the branch will earn more income from the L/C service and haveenough money to develop the facilities serving for the operation of L/C payment.Other potential beneficiaries are students at Banking Academy and otheruniversities, who are searching for previous research about improving the efficiency

of L/C service This thesis would be a valuable source of data for them to a certainextent, which helps them to fully evaluate the topic they are writing about

After conducting the research, the researcher could gain some knowledge of L/Coperations at commercial banks like MB and understand deeper about the L/Ctransaction process

1.5 Scope and Limitation of the Study

Because the research mainly investigated the performance of a service at a branch

of a bank during a short period, so the scope of the study would be narrowed down

to the L/C service operation at MB-SGDl branch for a duration of three yearsstarting from 2018 to 2020 Besides, the study was not able to fully assess theinternational payment method at banks, in which L/C method only accounted for asmall part Therefore, there are some limitations in this study First is thegeographical location of the research The research took place at a branch ofMBBANK in Ha Noi city, which could not fully describe the L/C operation service

at MB in total as well as bring out practical solutions to improve the performance ofL/C operations at MBBANK in general Secondly, the research was conductedunder a short period of time which was exactly for three months, so the findings andresults from the study just provided some slides of the total scenario of L/C serviceoperation at MB-SGD1 branch Finally, the shortage of financial resource andCovid-19 epidemic context prohibited the study from getting access to the primarydata resource which was mainly come from direct survey with customers using L/Cservice at the branch If the study could make use of this kind of data, it would bevaluable information serving the L/C service evaluation process at the branch As aresult, most of data serving for the research came from secondary data provided byMB-SGD1 branch

1.6 Definition of Terms

Documentary Collection: refers to a process in which a seller instructs their bank to

forward documents related to the export of goods to a buyer's bank with a request topresent these documents to the buyer for payment, indicating when and on whatconditions these documents can be released to the buyer (Wikipedia, 2021)

Documents Against Acceptance (D/A): refers as a payment terms used in

international trade When applying this terms, the importer will receive a set ofdocuments when signing the promissory note (bills) to pay for the following goodsthrough the importing bank The payment time can be 30 days, 60 days or 90 days.(Vietnambiz, 2019)

Incoterms (International Commerce Terms): refers as a set of international trade

rules that regulate the responsibilities of the parties in a foreign trade contract.Incoterms are international trade terms that are standardized, and are widely

recognized and used by many countries and territories around the world (ContainerTransportation, 2021)

Letter of Credit: refers to a letter written by a bank authorizing another bank to pay

someone a sum of money Letters of credit are often used by importers andexporters (Collins Dictionary, 2021) It is also known as a documentary credit orbankers commercial credit, or letter of undertaking, is a payment mechanism used

in international trade to provide an economic guarantee from a creditworthy bank to

an exporter of goods

Military Bank: refers to an enterprise that is affiliated with the Ministry of Defense.

Full name is known as Military Commercial Joint Stock Bank

MB-SGDl Branch: refers to one of the biggest branches at MB Bank’s system.

This institution was established at the same day that MB was found It works as acommercial bank under the supervisor of State Bank of Vietnam

Net Income: refers to net profit, net earnings or the bottom line It is the amount an

individual earns after subtracting taxes and other deductions from gross income(Bankrate, 2021) For a business, net income is the amount of revenue left aftersubtracting all expenses, taxes and costs

Net Profits: refers to the difference between a business's total revenue and all

current expenses

Relationship Manager (RM): refers as Relationship Management specialist RM

usually works in large scale enterprises like commercial banks and big corporates(Topcv.vn, 2021) They play a role in maintaining and expanding business anddirect relationships with customers RM helps businesses grow sustainably andenhance their brands with their relationship improvement strategies

Regular Customer: refers to a person who purchases products or services from a

person or business frequently (Merriam-Webster, 2021)

Telegraphic Transfer: refers to an electronic method of transferring funds utilized

primarily for overseas wire transactions (Investopedia, 2021) These transfers are

used most commonly in reference to Clearing House Automated Payment System(CHAPS) transfers in the United Kingdom banking system After a long time ofdevelopment, the method has been successfully applied to almost every bank in theworld as a popular international payment method.

Total Sales: refers as the total amount of products or service sold by a company or

business in a certain period of time, which can be 1 month, 1 quarter or 1 year(123job.vn, 2021)

Trade Finance: refers to another form of commercial lending, which acts as a

payment intermediary between buyers and sellers in business operations(Nganhangvn, 2021) It is a common way of calling a lot of banking and financialproducts or companies used to carry out commercial transactions Moreover, tradefinance is considered a useful tool for international trading enterprises, helpingenterprises import and export transactions conveniently

UCP600: refers to the newest version of UCP UCP stands for "The Uniform

Custom and Practice for Documentary Credits" The first UCP was issued byInternational Chamber of Commerce in 1933 with the aim of overcoming conflictsover laws governing document credit between countries by developing a uniformrule for document credit activity

Chapter Summary

Chapter 1 provided the trend of Trade Finance at present and explained the reasonwhy improving L/C service at MB-SGD1 branch was the main target of theresearch Besides, there were five objectives stated in the study, and the scope andlimitations of the thesis were also indicated in this chapter

CHAPTER II: LITERATURE REVIEW

is tremendous

According to a previous research models of (Vladimir Anatolevich ERMAKOV,2018) about improving the efficiency of foreign trade transaction using letter ofcredit The analysis’s sequence of the writer contains four main steps Firstly, theERMAKOV’s research explored the current global trends in financing foreign trade.Next, the writer gave out some study about the legal framework and infrastructure

of financial support for international settlements in Russia, where the research tookplace Afterwards, the study focused on analyzing relevant international practice ofusing documentary L/Cs with source of information coming from secondary datathat the writer had collected carefully Finally, identifying the main problems andproviding further directions for improving the L/C service operations in Russia wasthe key goal that the research wanted to achieve

From the ERMAKOV’s research model, it can be seen that the initial step beforeevaluating how efficiency of a financial service operations is to determine the trend

of the market that directly related to this service For example, to assessingefficiency of selling fish at a local store, identifying consumer trends at the time ofresearch is vital At that time, if the buyer tended to prefer meat, the increaseddemand for meat resulted in a decrease in the number of people who ate the fish,making the sales of fish at that store decreased Similarly, ERMAKOV showed hisfindings about the change of Financing Foreign Trade that: “Global trade has beendeveloping along the trajectory of growth, both in volume and in value terms Thegrowth of the world economy is largely due to the expanded trade” As a result,both demand for using international payment methods and number of international

transactions increased, creating an optimistic trend which Letter of credit will provetheir importance as a safe and effective payment method for foreign tradetransaction This first step is often being recommended in every study However, ifthe trend of the service related to the thesis are putting together in the discussionpart, it will be more effective to show how these changes directly affect to thedevelopment of a service The second step in ERMAKOV study is to assess how L/

C activities are regulated when being bounded by international regulations and laws

as well as the policies of each country This is a good way to understand deeperabout the importance of rules and practices in protecting L/C operations frompotential threats which could be caused by unforeseeable risks relating tocustomers, banks etc Because ERMAKOV has put a lot of effort in conductingresearch about how laws and regulations affect the L/C operations, it is unnecessary

to study deeper in to this area

On the other hand, the last two steps in ERMAKOV’s study could be a valuableguidance for the future researcher In the research, the writer showed show statisticsabout payment transactions using L/Cs in Russia during a period, based on thesecondary data he gathered The data included number of L/C payments and itsvolumes Moreover, the numbers of new L/C transactions, the market share of L/Cpayment method in Foreign Financing Trade Market in Russia, and the proportion

of each L/C types in the market have been showed sufficiently Based on these data,ERMAKOV has exactly described the growth trend of L/C activities in Russia, aswell as assessed how the L/C performance affected the efficiency of this paymentmethod

After collecting enough data, a discussion was conducted by the writer.ERMAKOV stated that there are three problems that retard improving L/C paymentmethods in foreign trade transactions: Trade finance availability for SMEs, Cost andComplexity of Compliance with Regulatory Requirements and Growth of GlobalPolitical Risks and Credit Risks

ERMAKOV's research model is worth learning and analyzing The author seems to

be a person who has a very wide understanding of the topic as well as the scope of

the author's research in a country, so applying this model is really a big challengefor new learners However, there last two steps would be suitable for applying inresearch at a small scope like a branch of a bank Following the guidance of thisstudy, it could be more easy for researchers to evaluate the efficiency of the L/Coperations in their study locations Moreover, some new issues which affect thedevelopment of L/C payment activities would be found, and the future studentscould add more up-to-date solutions to improving the quality of internationalpayment services by letter of credit.

Every commercial bank is an economic entity which its main operating purpose isfor profit, so their function and features are not completely different from normalenterprises Unlike other corporates, a bank's business product is money and itsservices However, evaluating the performance of a bank branch as well asevaluating a company’s performance In order to assess the performance of L/Cpayment operations at bank, it is appropriate to use general performance analysismodels

According to a previous study of Robert S Kaplan and David P Norton at HarvardUniversity about measures that drive performance of a company, they devised a

‘‘balanced scorecard’’- a set of measures that gives top managers a fast butcomprehensive view of the business (Robert S Kaplan, 1992) The balancedscorecard includes financial measures that tell the results of actions already taken.And it complements the financial measures with operational measures on customersatisfaction, internal processes, and the organization’s innovation and improvementactivities which are operational measures that are the drivers of future financialperformance

The balanced scorecard allows readers to look at the business from four importantperspectives: Financial perspective, Customer perspective, Internal businessperspective and Innovation and learning perspective

Besides investors and managers can use the balanced scorecard to have a generalview of the company’s performance The company itself can use this scoreboard tocheck their performance followed by these four criteria The writer called it the

ECI’s Balanced Business Scorecard However, there are two perspectives ofscorecard that can be used to assess the performance of L/C operations at a bank.First is the financial perspective, the inventor of scoreboard showed some measuresfor this perspective: focusing on cash flow and the sales growth as well as the netincome and the increase of market share of the service If the manager can getaccess to these data of the company, he will be able to evaluate the performance ofthe company at financial perspective Therefore, applying those measures tomeasure the bank’s performance of L/C service at financial aspect in a smart waycould be practical Secondly, from the internal business perspective of thescoreboard, there is one measure to assess the working efficiency is the cycle time.This term refers to the time a worker creates a product The shorter the cycle time

is, the higher the performance To be more specific, the cycle time in L/C operationsmeans the time a staff conducts a L/C transaction and finishes it Thus, cycle timewould be valuable criteria for evaluating the performance of L/C payment method

at the bank

Besides the study taken by Harvard University, there are one research that hasbecome the initial foundation to measure the performance in business (T.J Brignall,1991) The research summarized the findings of recent CIMA-funded research intoperformance measurement in profit-based service business They have synthesizedsix performance dimensions when measuring the performance of a service.However, the only first one, which are competitiveness, could be useful for furtherstudy To exploit this dimension, it requires a basic model: Inputs-Process-Output.The model could be the main guidance for researcher who wants to study about themeasurement of business performance The inputs could be information which isboth financial and non-financial such as short-term profit, long-term market share orservice fees and service processing time Outputs of competitiveness dimensionrepresents the ability of the company to compete with other enterprises whichprovide the customers with the same service For example, a branch of a bankcompetes with other banks because it provides the same L/C service to potentialcustomers To assess the competitiveness of the L/C service at the branch, it is

crucial to look up at L/C sales growth, relative market share of L/C service in totaland the position of this service at the bank.

Recently, some researchers have given out their study about measuring businessperformance “Knowing your business’ strengths and weaknesses will help youmanage your business efficiently” (Coley and Carter, 2017) In order to knowwhether a service of a company is running well or not, it is vital to assess the howstrong the service is and find out any problems negatively affect the performance ofthe service In terms of finance aspect, the writers have point out significant criteriathat should be showed in any further study about evaluating the performance of acompany - Profitability Every business hopes to increase profits as these are thelifeblood of their company If the profits decreased, it would be a serious signtelling that the company is under recession and on the verge of bankruptcy Anumber of things were listed by the writer to assess the profitability such as grossprofits, return on assets, net profits etc

However, above four items listed, net profit is the one which plays an important role

in determining the success of a service operation in a specific period Therefore,using this item to assess the efficiency of the L/C payment service would besuitable

2.2 Theoretical and Conceptual Framework

2.2.1 Theoretical Framework

From the previous studies that were shown above, many research methods havebeen applied, creating a diverse and unique set of research models about how tomeasure the performance of a service as well as propose solutions to improve theservice’s efficiency In particular, EMARKOV’s study about improving theefficiency of foreign trade transaction using letter of credit followed the mostrelevant research model that the thesis can apply Firstly, the current research willfocus on analyze the current trend of global trading finance in Vietnam Skippingthe laws and documents part, the study will evaluate the operation of the paymentmethod by L/C from secondary data at a smaller scale- a branch of a bank, and notaim to assess the international practice of L/C payment method of a country

Specifically, the source of secondary data would be numbers of L/C transactions,total L/C sales and the market share of L/C payment methods in the Trade FinanceMarket The next step of the thesis will focus on analyzing L/C service performance

in terms of financial perspective and internal business perspective followed theECI’s Balanced Business Scorecard (Robert S Kaplan et al 1991) In particular, thestudy will focus on assessing the performance based on the service’s net profit andcycle time - the service processing time The net profits are also importance criteria

to determining the success of a service operation which are stated in Carter’s recentresearch in 2017 Therefore, this item would be mentioned in the thesis Finally, thethesis will assess the L/C service competitiveness with other banks in terms ofcompetitive dimension mentioned in previous study (T.J Brignall et al 1991) Thelevel of competition is reflected in the aspects of fee policy, import and exportmarket share of the local branch

Comparing and

contrasting figures in the 2018-2020 period Drawing new charts and tables

Outputs

Proposing solutions to improve the performance

of L/C service

at MB-SGD1 branch

With aims to figure out the solutions to improve the LC payment service, assessingthe reality of L/C operation in MB-SGD1 branch is crucial Initial input data of thethesis are income statement and balance sheet as well as other annual reports in theperiod of 2018-2020

After collecting data from official statement releases by MBBank-SGDl branch, thedata would be analyzed, and figures in the 2018-2020 period is also carefullycompared and contrasted Moreover, some charts and tables would be drawn to seefurther about the proportion and the trend of movement of the integer.

After bringing out new findings about the current situation of documentary creditoperations in MBBank-SGD1 Branch, solutions will be proposed to the existingproblems

2.3 Chapter Summary

According to the literature review, there were four studies that refer to the thesis.These previous researches provided suitable research models as well as analyzingsequences to the thesis EMARKOV’s research was the most valuable guidance forthe researcher to conduct the thesis The theoretical framework of the study showedthat there would be some research subjects in previous studies mentioned in thethesis Besides, the conceptual framework of the research followed the IPO process,

in which the inputs were mostly in type of secondary data Moreover, the researcherprocessed the inputs mainly by making comparisons between the figures related toL/C service at MB-SGD1 and using some applications to draw tables and charts As

a results, the outputs of the thesis were the solutions to the issues which happened atL/C operation of the branch

CHAPTER III: RESEARCH METHODOLOGY

3.1 Locale of the Study

The study is conducted is at MB-SGDl Branch, which is at 63 Le Van Luong, CauGiay district, Hanoi Additionally, most of the research will focus on the operation

of L/C payment service at the branch Therefore, the Trading Finance Departmentwhich has responsibility in the L/C process plays an essential role in providing data

as well as the place for further investigation

3.2 Research Design

The research method used in the study is quantitative method Data are in the form

of numbers and statistics, and arranged in tables, charts, figures, and other textual forms such as total sales, net profits and market shares of the L/C paymentmethod at the branch All the data come from secondary source which is provided

non-by MB-SGD1 branch The subjects or figures served for the study are measured ateach period of time, representing a descriptive study to establish the associationbetween the data and the performance of L/C service operation at the branch Inorder to fully exploit the value of the data, a few tools have been studied and used.Word and Excel applications that have been used quite often to help research canprovide readers with the clearest and most intuitive view of the L/C service at thebranch

3.3 Sources of Secondary Data

All the data served for the study’s purposes are collected directly from trade financedepartment of MB-SGD1 The information includes the branch income statementsand balance sheets as well as annual operation reports of trade finance departmentwhich related to the L/C services Moreover, the study searched for data which wasfrom 2018 to 2020 period to keep it being update and helped the study reflect thecurrent status of L/C operations at the branch

3.4 Evaluation Criteria of Secondary Data

The data was collected by the supervisor of Trade Finance Department at SGD1 branch Afterwards, he provided this source of information to the researcher

MB-to serve for the investigation of the study The data was collected in the period of2018-2020 in terms of numeric and proportion figures Besides, it was strictlyconsistent with the data that MB-SGDl’s Trade Finance Department sent to MB’sHead Office.

These figures were evaluated in different stages like 2018-2019 and 2019-2020 topoint out the differences of the data at each period Additionally, the study providedtables and charts built from data for each specific criteria in terms of the total sales,net profit as well as the number of L/C transactions and L/C processing time at MB-SGD1 In particular, the fee policy will also be maintained and further comparedwith other banks that research collected on the Internet

3.5 Categories of Secondary Data for the study

The types of qualitative data selected for the study are numbers, proportions whichare countable These kinds of figures come from business and economic sectors,and the data can be found in any balance sheet or financial report of an ordinarycompany There are four main sets of the data collected by the study:

import-export turnover of a city

3.6 Validity and Reliability

To assess the performance of L/C service at MB-SGD1, the research mainlyfocused on investigating the figures for total sales, net profits, processing time aswell as numbers of transactions at the branch Additionally, to fully exploit the datarelated to L/C service performance, the percentage of each international paymentmethods at MB-SGD1 was also measured carefully, along with an evaluation of the

branch’s total sales against the total import-export turnover of the city Moreover,all the research factors that were included in the study followed the guidance andanalyzing processes of previous studies.

This source of data gathered is strictly confirmed and allowed to get access by theGeneral Manager of MBBanks-SGD1 Branch All the data is directly collected fromthe Financial Trading Department at MB-SGD1 branch under the supervision of thehead manager Numbers and figures reflect the real situation of L/C operationservice at the branch and no data is fixed or corrected

3.7 Self-Reflection on Secondary Data Collection Analysis

Thanks to the enthusiastic help of the management department in the branch, theresearch has collected extremely valuable resources for L/C performanceevaluation All metrics are very specific, which can be used for direct analysis or tobuild comparison tables However, because the customer assessment data on servicequality at MB-SGD1 is almost absent and difficult to find, analyzing different viewsfrom customers about L/C service at the branch is an unanswered issue

Chapter Summary

This chapter explained clearly about the research methodology that the thesisapplied In particular, all the features relating to the data were stated The thesisfollowed the quantitative method and most of evaluations depend highly on thesecondary data The researcher also gave out his opinion about the research design

of the thesis as well as the possibility of the source of information which hegathered to investigate

CHAPTER IV: RESULTS AND DISCUSSIONS

On December 31, 2018, MB had 1 head office, 101 branches in Vietnam, Laos andCambodia, 197 transaction offices and 1 overseas representative office The totalnumber of employees at the bank is 8,897 with an average age of 30 years Inaddition, ATM systems are also installed throughout the country At the same year,the bank's chartered capital was 21,605 trillion VND, and the bank's total assets in

2018 reached 362,325 trillion VND The main shareholders of Military Bank areViettel, State Capital Investment Corporation, and Vietnam Helicopter Corporationand Saigon Newport Corporation

In addition to banking services, Military Bank also engages in securities brokerageservices, fund management, real estate business, insurance, debt management andasset exploitation by holding dominant shares of some businesses in this sector.After a long time of operation, the company has won many big and small awards ofdifferent national and regional caliber In 2018, MB won the following awards:

“Vietnam Gold Star Award”, “Bank with National Brand”, “Typical Digital Bank”,Top 10 “Prestigious Vietnamese Bank credit "," Typical Community Bank ", Top50" Best listed companies in Vietnam " Especially, MB ranked 3rd amongcommercial banks in Vietnam in the Top 500 Largest banks in Asia-Pacific region

MB-SGDl Branch

*History and Development of the branch

Military Commercial Joint Stock Bank - SGD1 Branch was established onNovember 4, 1994 This is the first branch under the control of MB Bank’s system.The initial name of this branch was So Giao Dich However, due to theestablishment of other branches in Hanoi, its name was changed to SGD1, whichaimed to distinguish with SGD 2 branch and SGD 3 branch After 25 years ofdevelopment, MB-SGD1 branch continue to maintain its position as the biggestbranch in MB Bank’s system In 2020, MB-SGDl’s total profits ranked the secondplace among all branches of MB The branch also received many awards, such asthe branch with the best performance in MB for three consecutive years.

*MB-SGDΓs servicess services

The branch provides the customers with various products which are listed below:

• Card services: issue international debit and credit cards, domestic debitcards

mortgage loans, loans for student, business loans, mortgage loans

materials or building factories

• Money-receiving services: receive money with many types such as termdeposits, non-term deposits and deposits for securities investment

• Payment and transfer: provide domestic remittance and internationalpayment methods such as Telegraphic transfer, Documentary collection andLetter of credit

*MB-SGDΓs servicess staff

MB-SGD1’s staff at the branch are all very young and enthusiastic Most of themare under 30 years old and willing to dedicate for the branch as long as they could.Discipline and always giving priority to customers are outstanding characteristics ofMB-SGD1 staff In addition to constantly improving labor productivity, they paygreat attention to charitable activities which contributing their efforts to creatingvalue in the community

4.1.2 External factors affected trend of Trade Finance in Vietnam from

2018 to 2020

The trend of Vietnam's merchandise imports and export plays an important role inpredicting the demand for using international payment methods like Letter of Creditfrom the customers According to the Export and Import Department (Ministry ofIndustry and Trade), in the context of the decline in aggregate demand of the worldeconomy, Vietnam's merchandise exports in 2019 still maintained a positive growthrate and achieved impressive results The statistics of the Import and ExportDepartment (Vietnam General Department of Customs, 2020) showed that theaverage import-export turnover in 2019 was about $43 billion/month The totalimport-export turnover in 2019 was estimated at $517.26 billion, increased by 7.6percent compared to 2018 The exports turnover increased highly with a totalturnover estimated at $264.19 billion, rose up by 8.4% compared to 2018 Whileimports were well controlled, the trade balance maintained a surplus for the fourthconsecutive year The trade balance in 2019 recorded a record trade surplus of $9.94billion, positively contributing to the balance of payments and stabilizing othermacroeconomic indicators of the economy As a result, due to a higher amount ofexport-import turnover, customers had to make more international paymenttransactions, and MB-SGD1 is the one who got benefits from this situation

Moving to 2020 with optimistic expectation that International Payment activitieswill be higher, Vietnam faced difficult time when the Covid-19 pandemic startedand continued to directly affect the economy as well as the import and exportactivities of the country From March 2020, the world witnessed huge fluctuationsthat have never been seen for decades due to the impact of the COVID-19pandemic, and Vietnam was not an exception Production and business were stalled,many economic, cultural and social activities were seriously affected and millions

of labors were in short supply, job loss, or income reduction According to the latestdata from the General Statistics Office, there was a total of 101,700 enterprisestemporarily suspending their business, or waiting for dissolution procedures andcompleting procedures in 2020 Here is a figure showing the total number of

companies which are temporarily ceasing operations, waiting for dissolution andcompleting dissolution procedures in 2020.

(Unit: company)

(Source: Vietnam General Statistics Office Website)

Figure 4.1.2: The total number of enterprises temporarily ceasing operations, waiting for dissolution and completing dissolution procedures in 2020

From the chart, it is clear to see that the number of companies which suspendedtheir businesses witnessed the highest figure in 2020 On compared with theprevious year, the amount increased by approximately 13.9 percent This is one ofthe most fluctuating years in record According the Ministry of Planning andInvestment, there were 46,600 enterprises suspended business for a definite period.Besides, nearly 37,700 enterprises stopped working and waited for dissolutionprocedures, and about 17,500 enterprises completed dissolution procedures Thus,the average numbers of enterprises withdrew from the market each month was8,500 This was an unprecedented number in the past 10 years Through 35 years of

achievements Economic growth has always been positive, and there have beenmany years of economic growth rate was very high, at around 8 percent Moreover,

the poverty rate fell sharply from 58 percent in 1993 to 11.3 percent in 2009 andless than 4 percent in 2019 People's income has improved markedly, and theirliving standards have also been improved significantly However, during more thanthree decades of renovation, Vietnam's economy was repeatedly affected byexternal shocks such as the Asian financial crisis in 1997, the world financial crisis

in 2008 and the global financial crisis The Covid-19 pandemic in 2020 is differentfrom the previous two shocks in Vietnamese financial and monetary market ThisCovid-19 shock is unprecedented, and it has a strong impact on many countries inthe world in general and Vietnam in particular

The increasing force of enterprises to suspend, wait for bankruptcy, completedissolution procedures at present reflects the difficulty of production and businessconditions in Vietnam As a result, production demand in many key industries hasdecreased significantly due to the impact of the Covid-19 pandemic This situationmade Vietnam’s import-export market faced with the hard time, in which the totalturnover of imports and export was maintained stable or even on the verge ofdecrease Consequently, the demand for using international payment methods at thecountry greatly decreased, affecting directly to the performance of L/C operations ingeneral

4.1.3 Results of L/C service operation at MB-SGDl

In terms of Total Sales

In LC service operations, all income which the commercial banks could get comesfrom the total fees of each letter of credit which is issued or received Notsurprisingly, MBBank-SGD1 Branch LC sources of revenue also depends on thesekinds of fee However, the amount of money each letter of credit contained plays avital role in determining how much the bank could earn when they issue the L/C.For example, the normal fee of issuing an L/C in MBBANK is 0.75 percent of theletter value It means that if an L/C with value of $1,000,000 is issued, the bank canearn $7,500 Therefore, identifying the L/C total sales of MBBANK-SGD1 branch

is a key to assess the profit it could get

_ , , „ , Sales from year N-Sales from year N-I - 1

Sales from year N-I

(Unit: USD million)

(Source: Financial Report of MB-SGD1)

Table 4.1.3.1: Total Sales from L/C operation at MB-SGDl branch in the

period 2018-2020

Overall, it can be seen from the table that the numbers for L/C Sales significantlyincreased over the period starting from the year 2018 One noticeable feature is thatthe amount of L/C sales in 2019 was almost double the figure for 2018 In 2018,MB-SGD1‘s Total Sales was quite modest and at only $38.2 million However, thefigure witnessed a dramatic change of jumping to $64.5 million in 2019, equivalent

to a 68.8 percent increase The numbers of total sales kept rising gradually with a

marginal increase of 27.1 percent and the total amount recorded at $82 million Inconclusion, the movements in total sales of MB-SGD1 branch over three recentyears simply reflected the unstoppable growth of the L/C operation at this branch.

In terms of Net Profits

To get a different view of the reality in the L/C operation at MB-SGD1, the amount

of net profits that the bank earns from this activity should be taken into accountseriously Although the currency of the L/C issues could be varied due tocustomer’s requirements, the currency of net profits from L/C transactions in MBmust be counted in VND The below table will represent how much profits MB-SGD1 branch earned during the period of 2018-2020 The differences of the profitmade each year will be applied with the same formula used for Total Sales

(Unit: Million VND)

(Source: Financial report of MB-SGD1)

Table 4.1.3.2: Net profits from L/C operation at MB-SGDl Branch in the period

of2018-2020

Overall, MB-SGD1 Branch showed a good performance when the net profitscoming from L/C service has gradually increased over the period of three years It isclear to see that the amount of L/C net profit of this branch in 2019 was slightlyhigher than the figure of 2018 at 2,109 million VND, increasing approximately by

14 percent However, the following year witnessed a smaller rise of the figure at

only 5 percent The number of the net profits from L/C service in 2020 was at 2,215million VND The non-stop increase of net profits from L/C service at the branchdraws a promising scenario of L/C operation at the branch Although the differences

of net profits at each year fluctuated slightly, L/C payment method was stillconsidered as a profitable service which could contribute more to the total income

of the branch in the future

In terms of Number OfTransactions

According to data from annual operation report of Trade Finance Department atMB-SGD1, a figure was built based on the numbers of L/C transactions from 2018

to 2020 at the branch

(Unit: Transaction)

(Source: Annual Report of Trading Finance Department at MB-SDG1)

Figure 4.1.3.1: Numbers of L/C transactions at MB-SGDl from 2018 to 2020

The given chart presents the number of L/C transactions over the past three yearsfrom 2018 to 2020 Take a glance at the graph, it can be clearly seen that the L/Ctransactions moderately increased over the period Starting at the point of 954

transactions in 2018, the number of L/C transactions then significantly rose up tomore than 1,821 cases in 2019 At this year, this figure was almost doubled, andgradually increased by 92 percent when compared to the previous year However,the growth trend of L/C transactions began to move slowly in 2020 The figure forL/C transactions in 2020 indicated that there were more than 2,456 L/C transactionscreated in this year, increasing by only 35 percent.

Thus, the numbers of L/C transactions gradually increased during the period andreflected the same growth trend with the trend of total sales and net profits

In terms OfProcessing Time

Time for processing a service is an essential measure to assess whether a company

is working efficiently or not The shorter the production time is, the more laborproductivities increase In particular, L/C service contains three independentprocesses: issuing an L/C, checking and adjusting the L/C and payment for an L/C

In order to provide a specific view in the time for processing an L/C transaction, theissuing L/C process was chosen as the main target for measuring

Before showing the results related to the time conducting an L/C issuingtransaction, it is vital to understand how many steps that this process includes andhow many parties are involved in it

Here is the process of issuing an L/C at MB-SGD1 branch:

Below is a description of the process:

(1) After the bank confirms to issue a letter of credit as the customer requests, thecustomer sends two copies of L/C documentary to Relationship Manager (RM)

(2) The RM receives two copies and sends one to the Documentary InspectionSpecialist in Trade Finance Department (TFD) of the branch

(3) After checking the documents carefully, the specialist of TFD sends them to thecontroller of this department If he/she approves, the documents are forwarded to

MB International Financial Department Headquarters (IFDH)

(4) The RM fills in necessary items of L/C contract and analyzes the L/C

documents, then sends them to Credit Support Center of MB Headquarters (CSC).Inspectors in CSC checks the condition terms of the documents based on

notifications which were approved the MB’s Leaders

Figure 4.1.3.2: The process of issuing an L/C at MB-SGDl branch

DEPARTMEN

After checking these documents, there are be two possible circumstances:

(5) If the controller of CSC does not accept the documents because they areunappropriated or insufficient, CSC returns the documents back to RM RMreceives the documents and complete them, then sends them again as step (4)

(6) If the controller of CSC accepts the documents, he/she approves to issue theL/C Afterwards, CSC sends an L/C issuing confirmation to IFDH via email,creating two possible circumstances:

+The controller of IFDH approves with CSC’s mail, and sends a telegraph toconfirm issuing the L/C

+(Step 7) The controller of IFDH does not approve with the issuance of L/Cbecause of unsuitable or wrong information, and this department sends thedocuments back to the Trade Finance Department of the branch for additionallyfixing or correcting When the staff of TFD completes the documents as the IFDHrequested, it comes back to step (3)

From the figure above, it can be seen that the L/C issuing process needs thecooperation of the employees at the MB-SDGl branch and MB’s Head Office

The below table will provide the processing time when issuing an L/C in eachmonth in 2020 In order to provide different views, the time is measured at the MB-SGDl branch and MB’s Head Office independently

Month February March April May June July August Septembe

r Average

(Source: Annual Report of Trading Finance Department at MB-SDG1)

Table 4.1.3.3: L/C issuing transaction processing time during 8 months in 2020 at

MB-SDGl branch

It can be seen that the amount of time for issuing an L/C gradually decreased during

2020 In particular, both the average processing time at Head Office of MB andMB-SGD1 branch ’s declined significantly

Take a look at the processing time in the first four months, the figures for totalaverage processing time and the average process time at branch both experienced adownward trend In contrast, the figure for average processing time at Head Office

from February to May fluctuated slightly In February, this figure was at 107minutes, then gradually decreased to 86 minutes in April After one month, theaverage processing time at Head Office surprisingly rose to 93 minutes A reasoncan explain for this trend is the inconsistent in the process between branch’semployees and Head Office’s employees The operating performance of eachemployee could be a factor creating the different trend of the figures In particular,

it took the staff at MB’s Head Office 86 minutes to conduct an L/C issuingtransactions in April However, due to the lower working efficiency, theseemployees spent more time in processing this transaction, which make the figureincreased by 8 percent, at 93 minutes

In June, it is easy to see that all the figures at the table increased when compared tothe previous month, except the average processing time at Head Office and theaverage time of 80 percent of transactions The total processing time rose from 188minutes to 237 minutes, increased by 26 percent Similarly, the time of conducting

an L/C at the branch also increased significantly by 60 percent, jumped from 95minutes to over 152 minutes Surprisingly, from June to September, all the figuresrelated to L/C issuing process except the last figure witnessed a downward trendand gradually decreased The decrease of each month was very similar, showingthat working efficiency as well as labor productivity of the staff at both the branchand MB’s head office have been improved positively September is the monthwhich the amount time related to L/C issuing process was at the lowest InFebruary, the total time for issuing an L/C was 316 minutes, which is equivalent toover 5 hours After seven months, the total processing time greatly reduced to only

197 minutes, and decreased by 37 percent Now, the customers have to wait for over

3 hours to conduct an L/C issuing transactions It means they can have more time towork or doing other things, instead of waiting the banks to process for at least 5hours

On the other hand, about 80 percent of L/C issuing transactions still needed moretime to process than the average time Over the period of 8 months, it can be seenthat the decrease of this figure was not stable The figure fluctuated greatly in Apriland July, then slowly decreased at the end of the year In September, the processing