Tiểu luận risks in international payment operations in vietnam and the restrictions

ACTUAL SITUATION OF INTERNATIONAL PAYMENT OPERATIONS OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM ………..……….…..…8 I.. SOLUTIONS TO STRENGTHEN RISK IN INTERNAIONAL PAYMENT O

INTERNATIONAL FINANCE

Group :

Risks in international payment operations in

Vietnam and the restrictions

A,OVERVIEW……… ……… ……….………1

B, RISK IN INTERNATIONAL PAYMENT ……….……… 3

I, Based on main cause……… ……… ……….……….3

1.Commercial Risk……… ……… ……… ……… ………3

2.Risks in exporting credit loan ……… ……… ………… ……….……….4

3.Risks in exchange rate ……… ……… ……… ………… 4

4.National risks ……… ……… ……… ……… ……….5

5.Moral hazard ……… ……… ……… ……… 5

6.Legal risk ……… ……… ……… ……….5

7.Operational risk……… ……… ……… ……….……….5

II, Based on payment methods ……… ……… ……… ………6

1,Risk of Remittance……… ……… ……… ……….……….6

2,Risk of Open-account method……… ……… ……….…….6

3,Risk of Collection ……… ……… ……….……… 6

4,Risk of Document credit method ……… ……… ………7

C ACTUAL SITUATION OF INTERNATIONAL PAYMENT OPERATIONS OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM ……… ……….… …8

I OVERVIEW OF BUSINESS ACTIVITIES OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM ……… ……… ……… 8

1 Overview on the process of formation and development…… ……….…8

2 Some basic indicators… ……… ……… 8

II ACTIVITIES OF INTERNATIONAL PAYMENT OF VIETCOMBANK IN 2008-2010……….…….8

1 Activities of payment for import and export……… 8

2 Payment cart operations ……… 9

3 Exchange rate risk prevention ……… 9

4.Exchange rate risk governance in payment of import and export operations……… ….9

III FACTORS IMPACT ON ACTIVITIES OF INTERNATIONAL PAYMENT ……… 10

1.Factors from outside of bank……… ….10

2.Factors from inside of bank……… …… 11

IV SOLUTIONS TO STRENGTHEN RISK IN INTERNAIONAL PAYMENT OPERATIONS OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM……… 11

1 Diversification of international payment services ………11

2 Development of the Bank agent system………12

3 Strengthen to attract customers in the various economic sectors ….……… 12

4 The capacity of payment officer……….……….………12

5 Improving technological innovation of payment………….………12

IV SOME RECOMMENDATIONS……….………12

1 Recommendations for the Government ……….………12

2 Recommendation for the State Bank……….………13

D Limits on international payment ……….……… 14

E, RESTRICTIVE MEASURES AND PREVENTING RISKS IN INTERNATIONAL PAYMENT ……….……….………16

I, For commercial banks ……….………16

II, For the state bank ……….………16

III, For the Goverment……….……….17

IV For importers and exporters ……….……… 17

1, General solution……….……… 17

2, Solutions to limit the risk to the importer……… 18

3, Solutions to limit the risk to the exporter ……… ……… 18

A Overview

- Risks are sudden occurrences that cause damage to people and property

+ The risk is unpredictable The risk has unpredictable consequences

+ Risk raise damage to humans and asset

+ Risk is an unexpected event

- A international payment system is a system used to settle financial transactions in bond markets, currency markets, and futures, derivatives or options markets, or to transfer funds between financial institutions

- Risk of international payment operations :

+ Are the economic risks arising in the process of making international payments It is due to issues arising from parties involved in international ypayment operations

(exporters, importers, banks, intermediaries, etc.) or objective factors such as natural disasters, war ,

+ Risk of international payment operations It is related to trading nations It is like the risk of domestic commercial transactions, but more complicated due to geographic distance, cultural and laws

B, RISK IN INTERNATIONAL PAYMENT

I Based on main cause:

1 Commercial Risk:

- This risk appears in almost every transactions between traders, so it has to

be considered in different ways from exporters and importers1.1 To the exporters, risks came from these reasons:

 The weakening in buyers’ financial (importers) In this situation, the buyers unexpectedly become inability to pay in the maturity time, they will propound to extend the payment Sellers have to accept if the buyer cannot reform their financial situation

 Legal regulations: if the buyers pronounce that they are not able to afford the debt, that corporation will be dissoluted based on law The debt from importing transaction will only be paid after priority debt such as wage, tax, debt from social organization,… so there will be less chance to retrive the amount of money from the buyer

1.2 To the importers, risks came from these reasons:

 Delivery time: Based on the contract, the importers must receive the goods during the time to maturity Every delay in the transporting process from the exporters will make it difficult for the importers to receive, therefore, will have a damage

 The change in rules and time: Sometime the signed commercial contract clearly stated time and conditions, however, the exporters unilateral change, forcing the importers to pay all the amount one time to receive the goods This makes buyers not afford to solve and have to borrow money from the bank to make a payment If the amount is too large, buyers may not be able to borrow, this will affect

to the transporting process

 Price element: During the implementing process, with specific reasons such as politic , calamity, the exporters will offer the importers to pay a higher price the in the contract In this situation, the buyers can refuse and find new exporters, however, this will be slower Most of the time, buyers have no choice and obliges the high price which deprives the profit

 Insurance risks: In the signed commercial contract, if there are’t any strict managerment in both parties, the transporting process will havestrong consequence Even the goods will have the compensation fromthe insurance companies, however, it will be lower than the real price

 Quality and source of the goods: Goods which cannot reach the standard in the contract or in the name will be problems for importers in relationship with customs, taxes,… For example, the contract pronounces that the goods are taken in A countries, exporters cannot take from the B countries If customs find out, importers have to pay the fees

2 Risks in exporting credit loan:

- Risks happen when commercial bank accepted to make a credit for customer

 The affair of payment conditions, change in L/C, endorsment and BL guarantee

 Objective

 Banks depends on the commitment to pay for the beneficiary

if they can show the documents Banks, in that situation, both provide credit for the opener and make the payment

 The bank negotiation, after discount, if there is a mistake or preserve the recourse from the exporters, can take the risks ofnot being paid by the issuing banks or refunding banks

3 Risks in exchange rate

- Exchange rate risk is the risks happen when the payments are fixed by

foreign currency When the rate fluctuated comparing with the price in the exporting contract will effect on both importer and exporter

- Effect:

 To the exporter, the change in price will break the plan, such as the domestic currency is higher than foreign, the amount of money they get will be less which make the enterprise to be lost Furthermore, it will affect the funding in domestic from banks to manufaturing business

 To the importer, the currency to make payment and in counting are not the same will make risks for the importers when there is a change

in exchange rate If the domestic currency are lower than foreign currency, the amount of money they have to pay is higher than the real price

 To the commercial bank, the management of foreign currency and foreign currency trading is very important If the rate is higher, there will not be enough money to provide and on the contrary, if the rate

is lower, there will be a loss in price

4 National risks

- National risk is the risk involve in the change in politic, economics, foreign exchange and trade management of a countries will affect both exporter (cannot take the money) and importer (cannot take the goods)

- These risks are from objective causes such as war, politic crisis, embargo and low foreign exchange reserve

- Moreover, the carrier can take the money from the seller and disappear or sell it to another buyer, and the bank can delay, or take too much time or refuse to make payment for the exporter

 External Factors

External factors such as natural disasters, political upheavals, weakfinancial policies of the state, and criminal fraud have onlycompounded operational risks.

- Most organizations accept that their people and processes will inherentlyincur errors and contribute to ineffective operations In evaluatingoperational risk, practical remedial steps should be emphasized in order toeliminate exposures and ensure successful responses

- Poor operational risk management can hurt an organization's reputation andcause financial damage

- To the Importer: after payment, buyer goes to bankrupt or makes wrongquantity, low quatlity or delay as agreement

- To the exporter: if importer makes the payment after transaction, the capitaltie-up easily spreads

- To the impoter’s bank: risk happens when banks lease buyers to receiptgoods but their quality is not well, making the insovent of the buyers thenleads to the loss

- To the exporter’s bank:

o Risk happens when the bank lease to export goods but the buyer cannot retire the money

o Also, out-dated technology in transfering money leads to the wrongplace and the amount of money

2 Risk of Open-account method

Only buyers get risk in this method: although goods are sold, sometimesExporter did make the transfer of ownership but the payment is notguaranteed

3 Risk of Collection

Essentially, exporters get risk

o Non-acceptance of documents risk

- To the immediary banks

 Selling bank: risk happens when the bbank discount the documents but theimporter refuse to make the payment or accept bill of exchange

 Collecting bank: risk happens when supply credit for customer but importer’sgoods are difficult to sell

4 Risk of Document credit method

- To the issuing bank: in this type of payment, banks are not only theintermediary but also attenders, who make the deal to pay on thebehalf of buyer, which means the issuing bank would pay forbeneficiary even though the applicant do not pay or do the L/Ctransaction

- Also, if L/C could not cancel after issued, issuing bank has no right todeclne or fix the content, but only notice the mistake within 7 daysafter receive relatng documents And if out of that date, the issuingbank lose the right to refuse and the bank must bear all risks

- To the notifying bank: the notifying banks must define the encoding

of issuing bank, if not, notifying bank must note in L/C notice to theexporter If the bank do not notice carefull, rosk would happens forbith notifying bank and exporter

- To the negotiating bank: If banks attending the transaction could notnotuce the mistakes or pass small ones, after the transacion,negotiating bank would bear all risks of issuing bank refuse thepayment

- To the exporter: Banks only do the transaction according to thedocuments, thus exporters must pay even the goods at bad situation.Also, if the buyer intiatively create fake documents, importers wouldbear all risk and loss

C ACTUAL SITUATION OF INTERNATIONAL PAYMENT OPERATIONS OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM

I OVERVIEW OF BUSINESS ACTIVITIES OF JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM

1 Overview on the process of formation and development

VCB, formerly Foreign Exchange Management Department under the Vietnam National Bankwas established on January 20, 1955 under Decree 443/ TTg of the Prime Minister In May

2008, VCB completed equitization process in the form of retaining state capital and issuing newshares representing 30% of charter capital, officially moved into Joint Stock Commercial Bankfor Foreign Trade of Vietnam

2 Some basic indicators

2.1 Scale of total assets and equity

Total asset growth is quite stable over the years, but VCB’s equity has disproportionate growth

in the period of 2009-2015

2.2 Scale of total assets and stock market capitalization

In the period of 2009-2015, the scale of assets and market capitalization of VCB havestable growth in conditions of banking operations with many difficulties and bank businessenvironment with complicated changes, diversified risk, stock market fluctuation

2.3 Some other targets and business activities

The basic indicators on outstanding loans to profit before tax and after tax increased quitestably, at a high level over the years of 2009-2015, the target of net profit after tax is basicallystable, increasing slightly in the years of 2014-2015

Vietcombank securities trading company- VCBS with profit before tax reached 119.68 billion dong;

in 2015 reached over 92.0 billion dong The most recent time that is the end of 2015, the companyimplement financial leasing with more than 41.0 billion dong in pretax profit, without reaching theplan

II ACTIVITIES OF INTERNATIONAL PAYMENT OF VIETCOMBANK IN 2008-2010

1 Activities of payment for import and export

2006 2007 2008 2009 2010 Payment for

export

Payment for

import

In 2010, VCB reached sales of payment for import and export is 19% and 20%

2 Payment cart operations

The number of international cards developed by VCB accounts for 34%, domestic cards account for 19% and VCB's international payment cards account for 53% of the national card market share

3 Exchange rate risk prevention

VCB full issued regulations on foreign business executive direction, about the purchase ratesand sale rates, on foreign currency trading with customers in international settlementoperations, open L/ C guarantee under the provisions of the Foreign Exchange ManagementOrdinance, the provisions of the State Bank and other relevant provisions of law andmonitoring implementation and full implementation, seriously issued regulations VCBimplements flexibly monitoring of the fact Besides, exchange rate risk preventive activities havealso many inadequacies, in the period of 2009-2015, many of the document have been refusedpayment by abroad bank Overall, during the period of 2009-2015 by different ways VCBperformed exchange rate management, but not really completion

4.Exchange rate risk governance in payment of import and export operations

In the period of 2009-2015, despite many difficulties, challenges from the economic contextand the increasingly fierce competition from rivals, along with measures to basic exchange raterisk prevention to be deployed has a positive impact on the operational results of import-exportpayments and foreign currency trading, the two fields are still growing through the years

Chart 2.1 Developments of international payment services and trade finance among

months in 2015 of VCB

In 2015, VCB reached sales of foreign currency trading increased 3.7% compared to the year of

2014, remittance increased 11.8%

III FACTORS IMPACT ON ACTIVITIES OF INTERNATIONAL PAYMENT

1 Factors from outside of bank

1.1 Macroscopic policy from State

- Foreign exchange management policy

- Tax policy

- External economics policy

1.2 The change of political regime economy of others country

The economic slowdown will adversely affect the

commercial liberalization, woolenbusiness activities of

enterprises from which affect international payment operations Changes in a country's policy

as changing the storage regulations, taxation, foreign exchange, import and export charges orsimply legal environment, the economy of a country is not yet stable and frequently changemakes the partners do not foresee the situation affecting the ability to pay Thus causingdamage to the parties involved in that Bank

1.3 Factors from customers

If the Bank can collect large amounts of shouted regular customers have active export business will develop international development payments In addition the situation

import-in production and busimport-iness activities, fimport-inancial capabilities, professional level of foreign