Analysis, evaluations and solutions for improving effectiveness of the foreign currency business operation of the Vietnam bank for Agriculture and rural development

The commercial banks participate in the foreign exchange market to serve payment demand o f custom ers, insure the exchange rate risks and perform the foreign currency business.The compa

V IE T N A M N A T IO N A L U N IV E R S IT Y

HANOI SCHOOL OF BUSINESS

DANG VIET ANH

ANALYSIS, EVALUATIONS AND SOLUTIONS

FOR IMPROVING EFFECTIVENESS OF THE FOREIGN CURRENCY BUSINESS OPERATION OF THE VIETNAM

BANK FOR AGRICULTURE AND RURAL

DEVELOPMENT

M ajor: Business A dm inistration

Code:

MASTER OF BUSINESS ADMINISTRATION THESIS

S U P E R V IS O R : HOANG ANH TUAN

H A N O I, 2004

TABLE OF CONTENTS

A B S T R A C T Ui TÓM T Ắ T IV

A C K N O W L E D G E M E N T S V

P R E F A C E vi

TA B LE O F C O N T E N T S ix

PART I: BASIC CONCEPTS OF THE FOREIGN CURRENCY BUSINESS OPERATION AND INTERNATIONAL PAYMENT 10

1.1 F O R E IG N E X C H A N G E M A R K E T 10

1.1.1 B asic co n cep ts o f the foreign ex ch an g e m a rk e t 10

1.1.2 P articip an ts in the fo reign ex ch an g e m a rk e t 11

1.1.3 F u n ctio n s o f th e fo reig n exchange m a rk e t 12

1.2 SO M E B A S IC D E F IN IT IO N S O F T R A N S A C T IO N S O N T H E FO R E IG N E X C H A N G E M A R K E T 12

1.2.1 S pot foreign ex ch an g e tra n s a c tio n 12

1.2.2 F orw ard tra n s a c tio n 13

1.2.3 S w ap tra n s a c tio n 13

1.2.4 F u tu res tra n s a c tio n 13

1.2.5 O ptions tra n s a c tio n 14

1.3 IN T E R N A T IO N A L P A Y M E N T O P E R A T IO N S 14

1.3.1 D efin itio n o f in tern atio n al p a y m e n t 14

1.3.2 Role o f international paym ent tow ards op eratio n s o f

com m ercial banks .15

PART II: OVERVIEW OF FOREIGN CURRECY BUSINESS OPERATION AND ITS ENVIRONM ENT 18

2.1 SO C IA L E C O N O M Y E N V IR O N M E N T A N A L Y S IS 18

2.2 B U S IN E S S E N V IR O N M E N T A N A L Y S IS 19

2.2.1 M a rk e t 19

2.2.2 M arket s h a r e 20

2.2.3 C om petition in the b an k finance m a rk e t 21

2.2.4 SW O T a n a ly s is 24

PART III: THE FOREIGN CURRENCY BUSINESS REAL SITUATION OF AGRIBANK 27

3.1 A C H IE V E M E N T S A F T E R 12 YEARS ( 1992-2004) IM PL E M E N T T H E FO R E IG N C U RREN CY B U SIN E S S O PE R A T IO N IN A G R IB A N K SY S T E M 27

3.2 A G R IB A N K ’S R E ST R IC T IO N S IN TH E FO R E IG N C U R R E N C Y B U SIN E S S O P E R A T IO N 29

3.3 R EA SO N S O F R E ST R IC TIO N S IN FO R EIG N C U R R E N C Y O PE R A T IO N OF A G R IB A N K 34

PART IV: RECOMMENDATIONS AND CONCLUSIONS 43

O B JE C T IV E S 43

R E C O M M E N D A T IO N S 46

C O N C L U S IO N S

LIST O F R E F E R E N C E S

A P P E N D IX E S

The foreign markets are truly global in that they trade the currencies o f the majority

of nation states The foreign exchange markets never close; som ew here in the world participants are trading currencies twenty-four hours a day The price o f one currency relate to another (that is, the exchange rate) changes all the time As new economic, political, financial and social inform ation is released to the markets, dealers reassess the value o f a currency

1.1.1 Basic concepts o f the foreign exchange market

The foreign exchange m arket is place where execute trade m oney o f the different countries There are tw o types to organize foreign exchange market:

- Exchange Trading Floor: this type has specific place and time o f transactions were also defined specifically

- Over The C ounter (OTC): M arket where transactions are conducted over the telephone and com puter network o f dealers, rather than on the floor o f an exchange

The derivative product transactions as swap, futures and options are traded at over the counter market

Spot foreign exchange and forward transactions are also traded at over the counter market on the w orldw ide scope; operate continuously during 24 hours by uneven time zone betw een different areas Thus when a market closed, other market is still operating.

The operation schedule o f some big foreign exchange market following will show operation continuously o f the foreign exchange market

1.1.2 Participants in the foreign exchange market

The core members o f the foreign exchange market including:

BIS Central Bank Survey 1995

The commercial banks participate in the foreign exchange market to serve payment demand o f custom ers, insure the exchange rate risks and perform the foreign currency business.

The companies participate in the foreign exchange market to serve demands about investment and com m erce operations

1.1.3 Functions o f the foreign exchange market

Foreign exchange m arket exists and develops to serve the following demands:

- Trade and investm ent demand: the import export companies need foreign currency to serve the payment demands

- Hedging demand: the members participate in the foreign exchange market with purpose is exchange rate risks reducing

- Speculation demand: entrepreneurs exploit the exchange rate changing to get profit

1.2 SOME BASIC DEFINITIONS OF TRANSACTIONS ON THF FOREIGN EXCHANGE M ARK ET

1.2.1 Spot foreign exchange transaction

Spot foreign exchange is the purchase or sale o f an amount o f one foreign currency against an am ount o f another currency, the exchange rate is determ ined at transaction date, for which settlement takes place one or two business day(s) later depending on the currencies involved

1.2.2 Forw ard transaction

Forw ard contracts are agreem ents directly entered into betw een a buyer and a seller, calling for delivery o f a specified am ount o f a specified asset at a specified, future date The exchange rate is determ ined at transaction date The buyer and the seller are direct contractual counterparties to one another

1.2.3 Sw ap transaction

This term is used in many contexts In general it is the simultaneous purchase and sale o f foreign exchange or securities, with the purchase being affected at once and the sale back to the same party to be carried out at a price agreed upon today but to

be com pleted at a specified future date Swaps include interest rate swaps, currency

sw aps, and credit swaps A "swap rate" is a forward foreign exchange quotation expressed in term s o f the num ber o f points by w hich the forward rate differs from the spot rate

1.2.4 Futures transaction

An agreem ent to buy or sell a set amount of a com m odity or security in a designated future month at a price agreed upon today by the buyer and seller A futures contract differs from an option because an option is the right to buy or sell, whereas

a futures contract is the prom ise to actually m ake a transaction A future is pan o f a

1.2.5.1 Call option

An option that gives the buyer (holder) the right, but not the obligation, to purchase

a specific asset or obtain a long futures position at a fixed price w ithin a specified period o f time

1.2.5.2 Put option

An option that gives the option buyer the right, but not the obligation, to sell the underlying futures contract at a particular price on or before a particular date

1.3 INTERNATIO NAL PAYM ENT OPERATIONS

1.3.1 Definition o f international payment

International paym ent is currency payment obligations which arise from the economic relations, com m erce and other relations betw een subjects o f countries Different with local payment, international paym ent has special features following:

- Subjects participate in the international paym ent operation at various countries Each international payment transaction relates at least two countries

- International paym ent operation relates legal system o f various countries, even contrast Thus each subject usually selects unify the legal procedures and accordance w ith international standards

Popular language is used in the international paym ent is English

International paym ent operation requests high professional ability and

technology have to match with international

1.3.2 Role o f international paym ent towards operations o f com m ercial banks

1.3.2.1 International paym ent creates condition to attract custom er, expand the business market share o f com m ercial banks

The commercial banks are financial middleman, execute the business functions in currency field, credit and provide the banking services Through the business operations, commercial banks established relationships not only organizations, local custom ers but also other international business organizations and becom e a subject participate in the international payment operation

In the international paym ent field, commercial banks are not only payment middleman but also consultant for customers about paym ent conditions, ask

m anagem ent

In a fierce competitive environm ent o f banking sector, especially participation of joint venture banks, foreign banks’ branches, foreign trade developm ent trend and international financial investment, international payment operation is indispensable for a commercial bank to maintain traditional custom ers and attract new customers

1.3.2.2 International paym ent contribute increase profit for com m ercial bank

International payment is not only increase mobilization capital source, expand credit operation but also create measurable income by paym ent service charges, export sponsor and foreign currency business

1.3.2.3 International paym ent will reduce risks

Through international payment operation, banks can control use borrowing capital and supervise custom er’s business activities, create condition to manage and raise the investment effectiveness On the other hand, business in fields will disperse risk

in business operation o f banks

1.3.2.4 International paym ent raises liquidity

International paym ent operation is not only create condition to attract customer, raise the payment deposit but also create cheap capital source and relative stable by implement the international payment method for custom er, especially letter o f credit method as importers have to collateral to open the letter o f credit

1.3.2.5 International paym ent raises the foreign affairs relationship

International payment create condition to banks integrate w ith international banks, raising prestige Since then, bank develops the correspondent banking relation;

exploit the sponsor sources from the international financial m arket and international banks to satisfy the capital demands

PART II

OVERVIEW OF FOREIGN CURRECY BUSINESS OPERATION AND ITS ENVIRONMENT

2.1 SOCIAL ECO NO M Y ENVIRONM ENT A N A L Y SIS

During last period, although incur influenced by som e difficult as flu epidemic, disadvantage happening o f the basa catfish suit, shrim p dum ping into the United States market and some other products into the European market, consum er price index was high in agriculture and food products w hich created influences on export performance, but import and export activities o f V ietnam during six months o f this year achieved good result: total export-import turnover reach USD 25.96 billion Including total export turnover reached USD 11.8 billion, an increase o f 19.8% against same period o f last year; total import turnover reach USD 14.6 billion, an increase o f 14.7% against the same period o f last year

In the recent years, Vietnam has integrated the world econom y; trade free; investment encouragement; foreign affairs relation reinforcem ent Participate the international and local trade agreements as AFTA, CEPT, and W T O ; encourage the export and foreign investment In the next years, w hen the American-Vietnam trade agreement has entire validity, the financial b ank sector will confront many difficulties with strongly participant o f the foreign b ank into local market

Vietnam is implementing the economy innovation, private econom y development encouragement This is good motivation to prom ote the econom y developm ent in

the near future and also create opportunities in order to local banks have condition

to develop

Furthermore, business environment o f bank sector was loosened according to rule

as bank has self-control right and they bear full responsibility for their business operation Com petition o f bank sector in Vietnam is increasing by system expansion strategies, m odem technology applying and reinforce the new service product promotion strategies The participant o f bank in V ietnam finance market is diversification as foreign commercial banks, joint-venture banks, state commercial banks, and joint stock commercial banks

2.2 BUSINESS ENVIRONM ENT AISALYSIS

2.2.1 M arket

2.2.1.1 Local m a rket

Nowadays, the state bank o f Vietnam allowed the com m ercial banks can implement the foreign currency business types as: spot; forward; swap and option right transactions But have little foreign companies w hich w ere used to using the exchange rate insurance instrument as forward, option, V ietnam companies only implement the spot foreign currency transactions when requests This is development restriction o f market; it makes the foreign currency market don’t operate effectively Because Vietnam is a developing country, carrying out the industrialization and modernization, Vietnam econom y always are excess o f imports over exports Thus, the foreign currency dem and always is larger than foreign currency supply in the future Tne State Bank o f V ietnam controls the rate

o f exchange vibration amplitude between USD and VND; it creates advantage conditions and also brings challenges for the com m ercial banks in order to guarantee the custom er’s payment demands and avoid losing by the rate o f exchange fluctuation

From internal mobilization standpoint and the international econom y background as today, Vietnam has more big local projects o f the important econom y sectors need

to sponsor by domestic capital Practically, in the recent years, borrow ing demand

o f the big projects increase quickly, especially foreign currency demand

For this reason, any banks in Vietnam if promote and gain the initiative in the foreign currency business operation, these banks have m ore opportunities to occupy the local market, expand and raise the business effectiveness

2.2.1.2 E xternal m arket

Vietnam time zone is difference from other countries, thus V ietnam ’s banks have many advantages in the foreign currency business perform ance on the international market to get profit and enhance effectiveness to control the b a n k ’s assets Up to now, Agribank has established the agency relationship w ith 854 foreign banks in the world biggest finance centre (New York, London, Singapore, Hong Kong, Frankfurt ), many foreign banks have granted the foreign currency business limits and the import-export sponsor borrowing limits for Agribank This is advantage condition to develop the A gribank's business operation

2.2.2 Market share

Although the foreign currency business operation o f Agirbank in the recent years achieved high grow th speed but the A girbank’s m arket share in the foreign currency field only occupy small rate in total turnover o f export and import o f Vietnam.

Total turnover o f export and import in 2003 reached USD 24.955 billon, export turnover o f the whole year reached USD 19.780 billion, while the A girbank’s foreign currency business turnover only reached USD 1.5 billion that mean only reached about 6% o f turnover o f import or about 7.5% o f turnover o f export Thus if eliminate the foreign currency which bought from the State Bank o f Vietnam, overseas national currency exchange and other com m ercial banks, the total o f the foreign currency that bought direct from export custom ers is not much compare with V ietnam ’s total turnover o f export and import This number showed that Vietnam was excess o f imports over exports reached USD 5.058 billion in 2003

Nowadays, had 6 State commercial banks, more than 30 foreign bank branches and

28 joint stock com m ercial banks operate in Vietnam The competition between banks in the foreign currency business operation is increasing Because o f the history and m echanism features, the Vietcombank are State commercial bank had the largest advantage com petition in the foreign currency business field

2.2.3 C om petition in the bank finance market

Bank finance m arket is competing fiercely Some banks as Citibank, ANZ, Vietcombank, A C B achieved some success and lead in creative dynamic in their business Those banks developed rely on the m odem technology, interested the

wholesale m arkets and invested the technology to develop the retail markets by thegood services, w idening agency system On the other hand, also have the small joint stock banks confront difficultly in business.

When evaluate the competition competence o f banks on the market, we need to examine the follow ing elements:

- Capital, strategies and development capability

- Technology quality

- M anagem ent and human resources

- Services product

Branch system, services product distribution

- ‘Promotion advertisem ent operations

Hence, A gnbank reinforced, maintained and developed relationship with the banks and financial organizations in the world as: expanded the cooperation relation; diversified the relation field; diversified the services, products; increased the turnover and profit; especially A girbank’s prestige was raised, created the good condition for A gribank’s integration process On the other hand A gnbank still had many restrictions, d o n ’t have much advantage competition compare with other banks and A gn b an k has consolidated to development Hence, each A gribank’s staff needs to follow to catch information, market changes and must implement their mission, strategies to improve and develop A girbank’s business operation on the market

2.2.4 SW OT analysis

Strengths

Agribank is a com m ercial bank which has the biggest branch system in Vietnam

- Agribank is one o f the com m ercial banks have good prestige in Vietnam

Agribank occupied most agriculture and rural market which are interested o f theinternational organizations as well Vietnam government

- The foreign currency business operation o f A gnbank is grow ing

W eaknesses

- Prestige o f A g n b an k is low on international market

- The foreign currency business market share is small

A gnbank's markets usually confront with objective risks by natural calamity

- The staffs who have experiences, good specialized, good foreign language arelittle

- Information technology is not modem

Opportunities

- With indispensable integration trend o f all eras, Vietnam is active to prepare the necessary conditions to integrate in local and international community, in there have integration o f the banking-finance system

Before international integration requesting, Vietnam government is innovating financial, banking system in accordance with the international standard Vietnam

is perform ing m easure to reorganize the financial system V ietnam government

is interested in the innovation process in banking system; it is important field in economy innovation process to prom ote the growing o f V ietnam

International integration will create opportunities and potential to exchange and cooperate international in financial field As the sam e time, it will raise international position o f A gnbank in international finance transaction

In the new period, international integration will create condition to Agribank approach the international capital sources and international technology assistance to A g n b an k satisfy better capital demand for local economy

Integration requesting will m otivate promote the innovation process o f Vietnam banking system; raise the managem ent ability, staffs’ standard in according with international standards

Information technology field on the world is developing strongly; create the advantage condition for integration process and technology transfer

Foreign policy o f V ietnam is expanding with guideline “cooperation, integration and developm ent” , V ietnam is official joint AFTA, APEC and prepare participate W TO The V ietnam -A m enca trade agreement has effected

Politics and econom y environm ent o f Vietnam are stable The administrative formalities and investm ent environm ent are innovating strongly

Relationship betw een V ietnam and European, ASEAN, A m erican North areasare more and more improving

Agribank was official member o f the international credit organizations as APRACA: C IC A -

T h re a ts

- Compare with the State commercial banks, A gribank is w eaker m any aspects as

m any staffs but management standard and business are limit The financial index

is weakness, profitable ability is low The com petitive advantage will be weakness in international process

- A gribank’s business system is wide but operation m arket share only concentrate

on rural areas w here degree o f understanding about financial is low not is familiar with financial instruments

Up to now, V ietnam has 6 State commercial banks, a policy bank 4 joint venture banks 28 foreign bank branches 34 joint stock banks and 42 representative offices o f foreign banks These foreign banks are occupying about 10% market share In Vietnam financial markets d o n ’t open entirely towards the foreign financial institutions, above market share is large if com pare with other countries which opened entirely financial market as G erm any (4%), Korea ( 12%), Southeast Asia countries about (16-18%) Thus, from now to 2006, when all regulations about banking business restriction towards A m erican's banks will

be loosening, com e to abolish entirely in 2010, m arket share o f foreign banks will be higher

" Asian Pacific Rural A griculture Credit Association

J Coniédéaiion international du C redit Agricole

- Infrastructure and inform ation technology are limits.

- Financial fraud activity appearance, money laundering

- International terrorism develops strongly, threat peace and security on the world

- Fierce com petition not only custom er attraction field but also “brain-drain” field

In general, the foreign banks operate in V ietnam are large banks, high prestige on local and international markets so competition from these banks are fierce At present, custom ers o f the foreign banking branches are the foreign investment capital area and Vietnam com m ercial banks are confronting with lose m arket share

in local market Including the foreign currency business operations are the fiercest competition field

PART III THE FOREIGN CURRENCY BUSINESS REAL SITUATION OF AGRIBANK

3.1 ACH IEVEM ENTS AFTER 12 YEARS (1992-2004) IMPLEMENT THE FOREIGN CURRENCY BUSINESS OPERATION IN AGRIBANK SYSTEM

Agribank changed from planning mechanism, subsidy to the market mechanism in February 1992, together with other banks as: Vietcombank, Vietnam Investment

B ank w ere allowed to carry out the foreign exchange business operations by the

G overnor o f the State Bank, created the legal status to expand the new business operations to become the modem commercial banks

After 12 years o f the foreign currency business implement, Agirbank has achieved following:

The fir s t, Agribank succeeds with purpose is service product diversifying by success

o f the new foreign currency business operations as the foreign currency credit; foreign projects; international o f payment; guarantee; foreign currency mobilization; foreign currency business; and other operations as the international credit card; overseas national currency exchange

The achievements o f the foreign currency operation field up to 31 December 2003:

- Foreign currency capital: reached USD 780 million, accounting for 9% o f totalcapital o f Agribank

- Total foreign currency outstanding loans: reached USD 632.6 million, accounting for 8.5% o f total credit Including, the medium and long term loan reached 47.9%

- Guarantee operation: reached USD 20.3 million

- International payment: total payment o f export and import in 2003 reached USD 3.1 billion (not including o f cross-border payment betw een Vietnam and China reached USD 340 million, accounting for 70% o f total cross-border payment through Vietnam bank system)

- Foreign currency business operation: the total o f foreign currency transactions

o f whole system reached USD 6.3 billion Along with domestic foreign currency business to satisfy the custom er’s export-im port payment demand, in

2003 A gribank established a Dealing Room in the A gribank’s headquarter in order to concentrate on the foreign currency business operation and capital on the international market

- Overseas national currency exchange service: reached USD 300 million in

2003, accounting for 11% market share in Vietnam bank system

- Receiving and implementing foreign projects: Agribank received 26 investment projects with total value reached USD 660 million On other hand,

A gnbank perform ed much other service as correspondent bank for 20 projects with total value reached USD 1 billion

The second, foreign currency operation developm ent contributed increase prestige, raise the com petition capabilities, develop the A g n b a n k ’s market share From the foreign currency operations, A gribank approached and familiarize A gribank’s staffs with the international bank operations, created good condition to receive more foreign projects Furtherm ore, through these operations, have more foreign banks know A gribank as the bank participates the international commercial sponsor field Thus, A gnbank has received the effectiveness help from the international banks with thousand o f A gribank’s staffs were participated the training programs, organize the external and internal seminars w hich help to raise the operation treatm ent skills o f A g n b a n k ’s staffs specialize in the foreign currency business.The third, through the foreign currency business operation A gribank’s prestige was increased The foreign com panies believed the payment transactions which were perform ed by A gnbank The international paym ent turnover o f A gnbank rose quickly The A g n b an k ’s correspondent bank system has expanded in order to serve for the international payment, up to now A gribank has established 854 correspondent banks in 110 countries and tem tories In the first quarter, Agribank received two awards by HSBC and Standard Chartered Banks

3.2 A G R IB A N K S R ESTRICTIO NS IN THE FO REIGN CURRENCY

BUSINESS O PER A TIO N

A gnbank implemented most foreign exchange business operations in accordance with business license but together with good developm ent operations as investment

m andate capital managem ent, loan the foreign currency capital o f internal and external organizations A gribank still confront the challenges following:

3.2.1 Total o f foreign currency capital o f A gribank is not much, up to 30 June

2000, foreign currency capital source reached about USD 930 million, accounting for 10% total o f capital (compare with total o f foreign currency capital source o f Vietcom bank reached USD 4 billion), including the fund raising from inhabitants reached 46.7% and the credit organizations reach 20% Only 33.3% capital source structure was m obilized from the economy organization, it is one o f reasons that made the input average interest rate o f A gribank is higher than other commercial banks With small foreign currency capital source and high input interest rate made reduce the com petition, investment, payment capability o f Agribank

3.2.2 The foreign currency business operation o f A girbank achieved high grow speed in the recent years, but A gribank’s m arket share in V ietnam only reach a small rate in total turnover o f export and im port (only reached about 6% o f turnover

o f import or about 7.5% o f turnover o f export)

3.2.3 A gribank’s international payment turnover grew steady in the recent years but value total o f settlem ent is small, accounting for 6.8% total turnover o f export and import in 2003 On other hand, in A gribank had big imbalanced o f settlement turnover between export and import In 2002 and 2003, settlement turnover o f export was increasing but it is slower than settlem ent turnover o f im port Total different value betw een export and import paym ent reached USD 1.1 billion in whole Agribank system or an increase o f USD 406 million against 2002 International paym ent activities were quick but unstable, not safety guarantees

3.2.4 A gribank’s branches are interested in the overseas national currency exchange payment operation Especially after Agribank has perform ed the Western Union fast money transfer service in whole A gribank’s system Overseas national currency exchange payment turnover increased in the first 6 months o f 2004 but it is lower compare with A gribank’s capabilities Although have advantages about branch system but A gnbank only reached about 10% o f overseas national currency exchange transfer in Vietnam every year.

According to the statistic of State Bank branch in Ho Chi Minh City, the overseas national currency exchange value transferred to Ho Chi Minh area reached USD

900 million, accounting for 70% overseas national currency exchange o f Vietnam Among them, value total transfened the East Asia Bank reached USD 300 million; Thuongtin Saigon Bank reached USD 240 million; A gribank's branches only reached nearly USD 2 million By exploiting the larger overseas national currency

exchange, the banks created foreign currency sources to com pensate the export payment dem and Turnover o f W estern U nion fast m oney paym ent service on the Hanoi and Ho Chi M inh City areas also reached from 6 to 8% o f w hole A gribank’s system

Through the statistic data about A gribank’s overseas national currency exchange payment operation showed:

- The m oney volum e was transferred from A m erican m arket reach the largest: 54.6%

- Asia m arkets: 23.5%

European market: 15.9%

- Other m arkets (A frica, O ceania ): 6.1%

On other hand, if analysis profit from the service fees, the Am erican and European market brought the biggest profit by high service fees (The American market contributed 43.3% total o f the service fees; The European m arket reached 40.3% and the Asia m arket only reached 10.6 %)

From the analysis above, the A gribank’s custom ers in overseas national currency exchange operation field are rural areas, most m oney sources that transferred in Vietnam are incom e from export labors, but this field was prom oted from Western Union with low service fees Thus, to raising income Agribank needs to concentrate on attraction the overseas national currency exchange sources that are transferred from the A m erican and European m arkets Furtherm ore, Agribank

3.2.6 A gribank had perform ed some operation as issuing and foreign currency issuing agency; discount; rediscount; commercial paper m ortgage and other but its volume is inappreciable.

3.2.7 Providing the consultation services for custom ers are restriction, not professional thus do not create the high prestige Example, the foreign banks usually play the part o f important role in the financial consultation for their customers beginning building project, consult the contract conditions (credit structure; payment conditions; risk management instruments; insurant; and interest rate ) and together with their custom er participate in the negotiation and sign contracts to perform this project On the contrary, all most o f the V ietnam com m ercial banks usually was passive and only contact with customers after contract finished The bigger projects are the more customers need consult and support o f banks

3.3 REASONS OF RESTRICTIO NS IN FO REIGN C U R R EN C Y BUSINESS OPERATIO N OF AG RIBANK

3.3.1 Cause for aw areness idea

To originate in cause for awareness idea o f some leader in A gribank’s branch level who was not aw areness o f important role o f foreign currency business so didn’t have the detail strategies to develop the foreign currency operation Thus these branches were not interested in the foreign currency operation

3.3.2 Staffs’ professional ability

Agirbank staffs’ professional ability in foreign currency business operation is limit because they trained advantage about modem bank operations, d o n ’t have enough understanding about international legal, and foreign language skill The transaction style was not good compare with the foreign ban k s’ branches, including the Vietcom bank and other joint-stocks commercial banks

M ost leader o f A gnbank branches do not train about foreign currency operation so they are confused while manage the operation, is not self-confident enough when contact with the custom ers, especially with the foreign company Thus, easy confront with two situations: do not perform the foreign currency operation or implement but high risk

The international paym ent operation usually brings high effectiveness but high risk According to the prelim inary statistic, whole A gribank’s system have about 450 staffs who are perform ing the international payment operation, including specialist staffs reached 46% The staffs who graduated the Foreign Trade University reached

4.07% ; the foreign trade operation short-term course reached 63.9% and 32% staffs who were not training About the foreign language o f this staffs following: university graduation: 17.3%, intermediate level; 43.8% and other are primary level With human resources above, Agnbank is difficult to increase competition capabilities through operation qualities

In the foreign currency business field: Agribank participated in the foreigncurrency business on the foreign exchange market including: (i) foreign currency business with custom er’s payment demand; (ii) foreign currency business with purposes as foreign indirect or direct investment; (iii) foreign currency business in order to reduce the foreign exchange risks; and (iv) foreign currency business in order to speculate in rate o f exchange In the above operations Agribank perform operations (i), (ii), (iii) in Agribank’s branches Especially fourth operation, because this operation is high risk so it was only performed in the A gribank’s headquarter

Up to now, many A gn b an k ’s branches have frbm one to two foreign currency treasurer staffs In 2003, Agirbank organized 3 training courses about foreign currency identifying skill for thousand o f the treasurer staffs but still have many transaction point can ’t perform the foreign currency transaction Furthermore, Agribank don't have experts who research this field so Agnbank is passive because Agribank must depend on experts o f other banks when open the training courses

In the investment consultant operation and grant credit for big projects: Agnbank have many expenence experts in tradition credit operation field, but now !he