7 CURRENT STATE OF THE USE OF BANK TRANSFER IN INTERNATIONAL TRADE FINANCE BY VIETNAMESE BANKS.... Among various payment methods, bank transfers play a crucial role in international trad
Definition about bank transfer
Bank transfer is a secure method of non-cash payment where funds are electronically sent from a payer to a beneficiary’s account This transaction involves the account holder authorizing the bank to debit their account and credit the recipient’s account accordingly As a result, the payer’s account balance decreases while the beneficiary’s account is credited with the transferred amount Bank transfers have become a standard banking operation, enabling quick and efficient fund transfers between individuals and businesses.
Under Vietnamese law, authorized institutions such as the State Bank of Vietnam, the State Treasury, and licensed credit institutions facilitate account management and bank transfers for both individuals and organizations In developed economies, these non-cash payment methods, including bank transfers, are widely adopted, highlighting the importance of efficient and secure payment systems.
Bank transfers are essential for fulfilling diverse financial obligations, including payments to the state budget, government disbursements, and contributions to labor unions They also facilitate payments for utilities such as housing, electricity, and water bills for organizations and businesses, ensuring smooth financial operations.
Role of bank transfer icici ccecceeeceeseseeeeseceneesecnesnecesieeesnecnecreneseecieneesneenneenes 5 3 Differentation of bank transfer
One of the primary advantages of bank transfers is their security Since payments ar made electronically and routed through established banking networks such as SWIFT (Society for Worldwide Interbank Financial Telecommunication), the risk of fraud, loss, or theft is significantly reduced Unlike cash transactions or informal payment methods, bank transfers provide a legally recognized and traceable means of settling international trade payments b Facilitating Speed and Efficiency
Bank transfers allow businesses to send and receive payments quickly, often within hours or a few business days, making them a faster alternative to traditional methods like checks or documentary collections that can take weeks This rapid transaction process is essential for international trade, helping companies maintain supply chains and production schedules efficiently Additionally, timely payments through bank transfers enhance trade relationships and build trust between business partners, fostering stronger and more reliable commercial connections.
Timely and reliable payments are crucial for building strong relationships between importers and exporters, as they foster trust and confidence Bank transfers enable swift invoice settlements, reducing payment delays and disputes, which enhances overall trade efficiency When exporters receive prompt payments, they are more likely to develop long-term business partnerships with reliable buyers This trust is especially vital in international trade, where differing legal and regulatory frameworks can increase risks Supporting regulatory compliance and risk management through secure, timely payments helps ensure smooth cross-border transactions and strengthens global trade connections.
International trade finance must adhere to strict regulatory requirements such as anti-money laundering (AML) and counter-terrorism financing (CTF) laws Banks are essential in maintaining compliance by verifying parties’ identities, monitoring transaction patterns, and reporting suspicious activities Using bank transfers helps businesses comply with global financial regulations, minimizing the risk of penalties and legal issues Additionally, this approach can reduce transaction costs, making international trade more efficient and secure.
Bank transfers are generally more cost-effective than other trade finance instruments like letters of credit (L/C) and bank guarantees, as they involve lower processing fees and administrative costs While letters of credit require banks to provide guarantees and verify documents, leading to higher expenses, bank transfers offer a simpler and more affordable option for businesses aiming to reduce transaction costs Additionally, bank transfers enhance transparency and record-keeping, ensuring clear documentation for international payments.
Bank transfers provide a transparent and verifiable transaction history, offering detailed payment confirmations, transaction records, and statements crucial for accurate accounting, financial reporting, and auditing This enhanced transparency enables businesses to effectively track cash flows, manage financial risks, and ensure compliance with tax and regulatory requirements Moreover, electronic records facilitate easier dispute resolution for payment discrepancies, supporting seamless global trade connectivity.
Bank transfers facilitate seamless cross-border transactions, allowing businesses to trade with partners in different parts of the world Through international payment networks like SWIFT, SEPA (Single Euro Payments Area), and Fedwire, businesses can send payments to almost any country This global connectivity enhances the ease of doing business across different regions, promoting economic growth and international trade expansion h Supporting Various Trade Finance Structures
Bank transfers are highly flexible and can be used in various trade finance arrangements, including:\n- Advance Payments: Exporters may require importers to make bank transfers in advance before goods are shipped, reducing the seller's risk.\n- Progress Payments: In large-scale projects or bulk shipments, payments can be made in installments through bank transfers as specific milestones are reached.\n- Final Settlement Payments: Once goods are delivered and verified, final payments can be settled via bank transfer This adaptability makes bank transfers a preferred choice for many businesses engaged in international trade
International trade requires transactions in multiple currencies, making effective management of foreign exchange (FX) risks essential for businesses Bank transfers, paired with comprehensive foreign exchange services offered by many banks, enable companies to lock in favorable exchange rates and hedge against currency fluctuations This proactive approach helps businesses mitigate potential financial losses caused by exchange rate volatility, promoting financial stability Embracing digital transformation in trade finance further enhances these processes, leading to more efficient and secure international transactions.
The rise of financial technology (FinTech) is revolutionizing bank transfers through innovative digital solutions like real-time payments, blockchain-based transfers, and AI-driven transaction monitoring, which are transforming international trade finance Businesses utilizing these advancements can streamline operations, improve efficiency, and gain a competitive edge in the global market.
3 Differentation of bank transfer a Classification by Destination
Depending on the geographical location of the payer and the beneficiary, bank transfers can be classified as follows:
0 National Transfers: These involve transactions where both the payer and the beneficiary are located within the same country
0 International Transfers: In this case, the beneficiary is located outside the country of the payer, requiring cross-border financial transactions b Classification by Ordering Method
Bank transfers can also be differentiated based on how they are initiated The commonly used methods include:
0 Online Transfers: Transactions conducted through internet banking or mobile banking applications
0 Branch Transfers: Transfers ordered in person at a physical bank branch
0 ATM Transfers: Transactions performed through an automated teller machine
0 Phone or Fax Transfers: Transfers requested via telephone banking services or fax communication c Classfication by Processing Time
The speed at which a bank transfer is completed varies based on the urgency a banking regulations Transfers can be categorized into the following types:
0 Ordinary Transfers: These adhere to standard processing times, typically taking one or more business days as per current banking regulations
0 Urgent Transfers: The funds reach the beneficiary's account on the same day the transfer is ordered, ensuring faster transaction processing
0 Instant Transfers: The transaction is completed in real-time, with the funds being credited to the beneficiary's account immediately upon initiation
This classification system helps in understanding the different types of bank transfers, allowing individuals and businesses to choose the most suitable option based on ther needs and requirements
CURRENT STATE OF THE USE OF BANK TRANSFER IN
INTERNATIONAL TRADE FINANCE BY VIETNAMESE BANKS
Over the past decade, Vietnamese banks have demonstrated substantial progress in leveraging bank transfers to facilitate international trade finance a Facilitation of International Trade Growth
Vietnamese banks have been essential in facilitating the country's integration into global trade networks SWIFT bank transfers serve as a reliable foundation for cross-border trade settlements, ensuring efficient import and export transactions for businesses This financial infrastructure supports Vietnam's growing participation in international commerce and strengthens its global trade presence.
Vietnam's reliable and fast bank transfer systems have played a crucial role in strengthening trade relationships with key partners like the US, China, the EU, and ASEAN countries Additionally, improved accessibility for SMEs has fostered broader participation in international trade, boosting the country's economic growth and global integration.
Small and medium-sized enterprises (SMEs) in Vietnam have significantly benefited from the widespread adoption of bank transfers Vietnamese banks have implemented streamlined processes and offered competitive fees, enabling SMEs to actively engage in international trade with greater ease and efficiency.
This has contributed to the diversification of Vietnam's export base, with SMEs now accounting for a larger share of the country's trade volume c Improved Transaction Efficiency
The adoption of digital banking platforms and integration with global payment networks like SWIFT gpi has significantly accelerated international transfers These advancements enable transactions that previously took several days to be completed within a few hours This development enhances the efficiency and speed of cross-border payments, benefiting both consumers and businesses worldwide.
Real-time tracking of payments has also enhanced transparency, reducing the risk of errors and delays d Strengthened Foreign Exchange Management
The State Bank of Vietnam (SBV) has adopted effective foreign exchange management policies to ensure the stability of the Vietnamese Dong (VND) against major currencies such as the USD and EUR, promoting economic stability and investor confidence.
This stability has minimized exchange rate msks for businesses engaged in international trade, making bank transfers a more reliable payment method e Reduction in Transaction Costs
While bank transfer fees remain a concern, especially for smaller businesses, Vietnamese banks have made progress in reducing costs through technological advancements and partnerships with global financial networks
This has made international trade more accessible to a broader range of businesses, further boosting Vietnam's export-driven economy.
Achievement
These developments underscore the progress of Vietnamese banks in leveraging bank transfers to facilitate international trade finance: a Growth in Total Assets of Major Banks
Vietnamese banks have significantly expanded their asset bases, strengthening their capacity to support international trade finance As of November 2024, BIDV led the sector with total assets of approximately 2.6 quadrillion Vietnamese dong, followed by VietinBank with 2.2 quadrillion and Vietcombank with 1.9 quadrillion Vietnamese dong Additionally, the adoption of SWIFT Global Payments Innovation (GPI) has enhanced the efficiency and transparency of cross-border payments for Vietnamese banks, further bolstering their support for international trade activities.
Vietnamese banks are adopting SWIFT gpi to improve the speed and transparency of cross-border payments In June 2018, Vietcombank became the first in Vietnam to receive the SWIFT Global Payments Innovation (gpi) certificate, joining over 50 banks worldwide that are enhancing their international payment services This move signifies a broader implementation of financial reforms aimed at modernizing banking infrastructure and increasing operational efficiency.
Vietnam has implemented comprehensive financial reforms to stabilize and strengthen its banking system, thereby boosting international trade finance Supported by the International Monetary Fund (IMF), World Bank, and other international donors, these reforms focus on restructuring joint-stock banks, equitizing state-owned commercial banks, and enhancing regulatory frameworks to promote financial stability and growth Additionally, Vietnam has expanded foreign bank participation to foster greater competition, innovation, and integration into the global financial market.
The presence of foreign banks in Vietnam has significantly strengthened the country's international trade finance capabilities As of 2024, Vietnam's banking sector includes 49 banks, comprising joint venture banks and foreign bank branches, which enhance financial diversity and stability Their integration into the global financial system supports Vietnam's economic growth and facilitates cross-border trade and investment opportunities.
Vietnam's banking sector has become more deeply integrated into the global financial system, enhancing the facilitation of international trade The State Bank of Vietnam oversees all banking organizations to ensure proper currency issuance, maintain price stability, and enforce compliance with monetary policies This regulatory framework aligns Vietnam's banking practices with international standards, supporting sustainable economic growth.
Il Drawbacks, limitations and risks
Vietnamese banks play a vital role in facilitating international trade finance, but several challenges limit the efficiency of bank transfers a Foreign Exchange Controls
Vietnam maintains strict foreign exchange controls managed by the State Bank of Vietnam (SBV) to stabilize the Vietnamese dong (VND), which is not freely convertible These controls restrict the flow of foreign currencies, impacting the efficiency of international bank transfers and limiting overseas remittances The non-convertibility of the VND often requires currency conversions, leading to delays and additional costs Additionally, Vietnam has a limited correspondent banking network, which further complicates and slows down international transactions.
Vietnamese banks have a relatively limited correspondent banking network compared to global standards, which can increase reliance on intermediary banks, leading to higher fees and longer international transfer times Major state-owned banks such as Vietcombank, VietinBank, and the Bank for Investment and Development of Vietnam maintain active relationships with U.S banks, but the overall network remains constrained Additionally, regulatory and compliance challenges further impact the efficiency and expansion of Vietnamese banks' international banking capabilities.
Vietnam’s banking regulations are constantly evolving, with a focus on strengthening anti-money laundering (AML) and counter-terrorism financing (CTF) measures Financial institutions, including state-owned and joint-stock banks, must quickly adapt to these regulatory changes to stay compliant, often facing resource challenges that can impact the efficiency of international transfers The State Bank of Vietnam (SBV) oversees various banking institutions to ensure they adhere to these stringent regulations Additionally, technology gaps within the banking sector can hinder effective implementation of AML and CTF measures, highlighting the need for technological advancements to enhance compliance efforts.
Vietnamese banks have invested in modernizing their systems; however, disparities in technological capabilities still exist, affecting the efficiency of international money transfers Some banks lack advanced infrastructure, leading to delays and potential errors in cross-border transactions For example, banks like Techcombank provide 24/7 international money transfer services, but overall technological adoption varies across the banking sector, resulting in reliance on intermediary banks for smoother transactions.
Vietnamese banks often rely on intermediary banks for international transfers due to limited direct correspondent relationships, which can add complexity, increase transaction costs, and prolong processing times, ultimately impacting the efficiency of trade finance operations Additionally, the limited use of trade finance instruments further constrains the effectiveness of trade transactions, highlighting areas for potential improvement in the country's financial infrastructure.
Vietnamese companies often hesitate to utilize confirmed Letters of Credit (L/Cs) due to the additional costs and collateral requirements imposed by banks This reluctance to adopt secure trade finance instruments can elevate risks in international transactions Consequently, it may undermine foreign trading partners' confidence and hinder smoother international trade operations for Vietnamese businesses.
Bank transfers are a key method for settling international trade transactions in Vietnam However, several risks affect their efficiency and security a Foreign Exchange Risk
The Vietnamese Dong (VND) is not freely convertible and cannot be remitted overseas, which presents significant challenges for international transactions This lack of convertibility can make it difficult for businesses to exchange VND for foreign currencies, potentially impacting cross-border trade Additionally, the Vietnamese Dong carries a credit risk that international investors and businesses must consider when engaging in financial activities involving Vietnam.
Vietnam's banking sector experienced a rise in non-performing loans (NPLs) from 2.03% at the end of 2022 to 4.55% at the end of 2023, indicating increased borrower default risk This surge in NPLs threatens financial stability within the banking industry and hampers banks' ability to support trade finance activities Additionally, the growing NPL ratio heightens regulatory and compliance risks for financial institutions, emphasizing the need for strengthened risk management strategies.
Vietnamese banks are now required to adhere to strict international anti-money laundering (AML) and counter-terrorism financing (CTF) regulations to ensure compliance with global standards The increased compliance demands from organizations like SWIFT and the Financial Action Task Force (FATF) have added substantial operational burdens, potentially leading to transaction delays and increased costs Additionally, cybersecurity risks pose a significant threat to financial institutions, emphasizing the need for robust security measures to protect sensitive data and maintain compliance with evolving international regulations.
Cyberattacks targeting Vietnamese banks have surged in 2023, resulting in a 35% increase in fraudulent transactions compared to 2022 Cybercriminals often monitor banking communications to execute scams, raising significant concerns about financial liability and transfer risks The rise in cyber fraud highlights the urgent need for enhanced cybersecurity measures to protect customer assets and prevent financial losses in Vietnam's banking sector.
Development orientation of the use of bank transfer in international trade finance
Enhancing traditional bank transfer services is essential to meet evolving customer needs, while simultaneously developing and expanding innovative transfer methods Emphasizing secure payment options beyond basic T/T transfers can ensure safer transactions, as demonstrated by the Minh Phu case Prioritizing secure and efficient transfer solutions will boost customer confidence and support the continuous growth of financial services in a competitive market.
Increase transfer transaction volume and diversify transfer types, while maintaining appropriate risk controls and fee structures that reflect service quality and security levels
Strengthen relationships with traditional customers while expanding to new potential customers, with particular focus on supporting SMEs who currently face limited access to trade finance services
Modernize infrastructure serving bank transfer operations to match international standards and support real-time transaction processing
Maintain safety standards and prevent disputes through enhanced risk management systems
II Solutions to develop the profession of the use of bank transfer in international trade by Vietnamese banks
Strengthen Staff Training Programs Vietnamese commercial banks can apply specific policies:
0 Reform transaction styles, implementing "civilized communication" for all staff
0 Regularly conduct training courses on international transfer operations to update and disseminate new regulations about payment methods and risk management
0 Implement diverse training strategies, including both domestic and international training Banks can select promising young staff members for overseas training opportunities
0 Particularly focus on improving foreign language skills for transfer operation staff while emphasizing recruitment of personnel skilled in both operations and languages
Banks must conduct comprehensive customer and transaction assessments to ensure transfer security and compliance For foreign enterprises, this process is more challenging due to limited access to complete information; therefore, banks should establish information-sharing networks with foreign banks, partners with prior transfer history, and Vietnamese organizations abroad to gather accurate and reliable data.
High-credibility enterprises must meet criteria including:
0 Effective business operations with market-accepted products and good reputation, while maintaining profitability
0 Stable financial situation with guaranteed payment ability and good credit history with customers and banks
0 Compliance with laws and banking regulations, maintaining continuous relationships with financial institutions
Banks must strengthen their Risk Prevention Information Systems by establishing robust mechanisms to deliver timely updates on government policies, central bank regulations, and industry standards to designated officers Ensuring real-time communication of these critical policies enhances risk awareness and enables proactive decision-making Implementing comprehensive information systems helps financial institutions stay compliant and respond swiftly to regulatory changes, ultimately reducing operational risks and safeguarding financial stability.
Banks must closely monitor global economic fluctuations to stay informed about industry trends and potential market risks affecting their customers Maintaining detailed transfer records and regularly updating transaction-related information are essential for tracking project progress and performance This proactive approach allows banks to identify potential issues early, ensuring effective risk management and supporting their clients’ financial stability.
Banks can organize workshops for experience sharing among international trade finance staff and create a “common experience handbook" for reference
Banks should proactively expand partnerships with the Vietnam Banks Association, foreign banking associations, and international banks to stay updated on industry trends and share best practices Collaborating with auditing and insurance companies can enhance risk assessment and support the development of effective prevention strategies, strengthening overall banking stability and resilience.
Implementing targeted marketing strategies in international transfer operations enables commercial banks to diversify their markets and transfer types effectively To achieve this, banks must conduct comprehensive market research to understand customer motivations and needs, systematically collect customer data—particularly focusing on transfer history and credit records—and utilize this information to enhance their promotional efforts By leveraging customer feedback and insights, banks can strengthen their brand image, expand market reach, and improve the efficiency of international transfer services.
Marketing's role in banking activities in general and international transfer operations in particular is to plan customer strategies, product strategies, pricing strategies, and promotion strategies
Building a digital ecosystem in banking is a key goal for all commercial banks, enabling quick and convenient payment services Advanced information technology supports international trade finance operations by verifying documentation and reviewing transfer contracts, which reduces operational and documentation errors Moreover, leveraging data analysis tools enhances risk management, boosts operational efficiency, and enables banks to provide superior customer service.
III Recommendations for related fields in developing the use of bank transfer in international trade finance
0 Provide Information Provide truthful information about financial capacity, production, and business situation to help banks make accurate assessments,
28 make appropriate transfer decisions, and provide timely assistance to businesses
When selecting partners, it is essential to thoroughly research and evaluate their businesses to ensure reliability and payment capability before signing any contracts Key steps include reviewing their payment history, assessing their financial position, and considering their overall reputation to mitigate risks and establish trustworthy partnerships.
Businesses engaged in international trade finance must establish dedicated legal departments with comprehensive knowledge of regulations and standards related to bank transfers A thorough understanding of terms, conditions, and bank procedures is essential to ensure compliance and facilitate smooth cross-border transactions.
0 Build Relationships with Banks Businesses need to establish and maintain close relationships with banks experienced in international transfers This helps businesses recetve support, advice, and latest information from banks
Vietnamese banks currently lack a comprehensive legal framework governing international transfers, relying primarily on sub-law documents such as regulations and operational guidelines The frequent changes and rigid nature of the existing legal system create significant challenges for banks in complying with international transfer procedures Establishing comprehensive banking laws is essential to provide a clear legal corridor for domestic and international operations, ensuring consistency and legal certainty for banks conducting cross-border transactions.
The government must strengthen supervision and control while promoting transparency in risk information, requiring credit institutions to disclose detailed data about their risks and financial status This proactive approach enables stakeholders to effectively assess the safety, stability, and reliability of banks, fostering a more transparent and secure financial environment.
To foster a favorable business environment, the government must establish policies and regulations that attract investment and promote bank transfer activities This involves minimizing risks for commercial banks, ensuring monetary policy stability, and supporting efficient dispute resolution mechanisms Creating such an environment encourages financial activity, enhances investor confidence, and drives overall economic growth.
Q Support Information Technology offers government-backed assistance to enhance banking operations through advanced information systems and technology Their solutions focus on improving risk management, minimizing paperwork, and increasing transparency in transaction processing, ensuring more efficient and secure banking services.
To strengthen international cooperation, governments should collaborate with global organizations such as the International Monetary Fund (IMF), Bank for International Settlements (BIS), World Bank (WB), and World Trade Organization (WTO) These partnerships provide valuable insights into successful banking practices, legal frameworks, and standards for international transfers, facilitating knowledge exchange and fostering a more integrated global financial system.
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Trade.gov Available at: https://www.trade.gov/country-commercial-guides/vietnam-trade-financing
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Vietnam's new banking law, introduced in 2024, significantly enhances the opportunities for foreign investors by expanding market access and easing licensing procedures, thereby promoting a more open financial sector The legislation emphasizes improved regulatory transparency and introduces clearer provisions to protect investor rights, fostering a more secure environment for foreign capital Notably, it updates foreign ownership limits and licensing requirements, allowing increased foreign participation in banking activities The law also encourages technological innovation within banks and seeks to strengthen risk management frameworks to ensure financial stability Overall, these key changes are designed to attract more foreign investment into Vietnam’s banking industry, making it a highly promising market for international financiers.
11 AFP Online (2020) Vietnam Country Handbook Available at: pacific: handbook _ vietnam pdf? sfvrsn=2
12 Investopedia (n.d.) Transfer Risk Available at: https://www.investopedia.com/terms/t/transfer-risk.asp
13.U.S Department of State (2024) 2024 Investment Climate Statements: Vietnam Available at: https: T 2024-in nt-climate- ments/vi