Tiểu luận current status of the international payment service of the commercial banks in vietnam

Method: There are many methods of payment such as money transfer method, method of recording books, method of collection, mode of credit voucher .... - Well-organized international payme

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BỘ GIÁO DỤC VÀ ĐÀO TẠO TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN

- -Current status of the international payment service of

the commercial banks in Vietnam

Giáo viên hướng dẫn: Nguyễn Thanh Dương Lớp: Ngân hàng CLC K56 NEU

Các sinh viên: Nguyễn Văn Quý

Nguyễn Ngô Quang Thắng

Lê Quỳnh Anh

Vũ Quỳnh Anh

Lê Thị Minh Ngọc Nguyễn Thị Hoàng Hà Nguyễn Thị Hồng Vân

Hà Nội, 2017

-Current status of the international payment service of the commercial banks in Vietnam

I Definition

1 Definition:

- International payment is the process of making international currency revenues and expenditures through the banking system around the world in order

to serve the international exchange relations arising among countries

- International payment is one of the bank's operations in paying the value of shipments between buyers and sellers in the field of foreign trade

2 Characters:

2.1 Payment relating to currency, place, means, modes and time of payment

a Currency: All parties in the international payment must agree on a currency

to secure the value of international transactions

- In general , there are two types of currency used in international payment: the currency of payment and the currency of caculation

+ Money for calculations: usually stable currency or strong currency (eg USD, EURO, )

+ Money for payment: the money that the two parties used to pay for each other The payment currency must be a freely convertible currency and then disseminated to the international payment practice

+ Payment currency and computed currency can be the same currency or 2 different currencies

b Means: The most means frequently used are drafts, bill of exchange, cash,

but the most common is BE

c Method: There are many methods of payment such as money transfer

method, method of recording books, method of collection, mode of credit voucher each mode has different advantages and disadvantages The conflicts of

benefit between the exporter and the importer The choice of payment method is specified in the foreign trade contract

d Place of payment: The parties can choose a place as payment facility, which

depends on the requirements of the business and the relationship between the parties

e Payment terms: can be prepaid, postpaid, or mixed Time limits are usually

the date of the draft, the date of acceptance of the draft, or any time frame agreed upon by the parties

2.2 International payment for external economic activities, non-trade, investment, finance

- Payment is an important step in the process of production and circulation of goods, especially for export and import activities

- Well-organized international payment => the value of goods exchanged and services performed between entities in different countries will be implemented, contributing to the development of foreign trade

- International settlement became an important factor in evaluating a nation's economic efficiency

- International payments also serve non-commercial non-commercial activities such as payment of expenses by diplomatic missions, etc

2.3 International payments are more risky than domestic payments

- Unlike domestic payments, international payments are more vulnerable to currency fluctuations, political instability, legal differences, and policy mechanisms across countries, due to Geographic distance between countries involved in international payment operations

As a result, exporters, importers and banks are passive in the fulfillment of their committed obligations, causing damage to the parties involved

II Methods of international payment

1 Bank transfer

b Definition : is a method of transferring money by instructing a bank to directly transfer funds from one bank account to another without the use of check

c Parties :

 Remitter

 Remitting bank

 Paying bank

 Beneficiary

d Types of bank transfer

Mail transfer Telegraphic transfer

Requirements of payment is

implemented through a letter

Requirements of payment is implemented through fax, Telex and using SWIFT system

Low expense High expense

Low time Fast time

e Procedure of bank remittance

f Advantages and disadvantages

Advantages Disadvantages

Fast transaction, few

documents

Exporter and importer trust each other

Have enough foreign currency

to pay

Exporter and importer trust partner

Pay at any branch of the bank

g Apply case in commercial activities

 Importer pay for the transaction when goods were loaded on board

 Exporter finish to delivery the goods

 Importer receive goods

 Importer pay partially of the international sale contract

2 Open account

a Definition: it means that the seller delivers goods or services to the buyer without receiving cash, a bill of exchange or any other legally binding and enforceable undertaking at the time of delivery, and the buyer is expected to pay according to the terms of the sales contract and the seller’s latter invoice

b Features

 It is the most advanteageous option to the importer in cash flow and cost terms

 It is the highest risk option for an exporter because his goods along with all the necessary documents are shipped directly to the importer agreeing to pay the exporter’s invoice at a future date

 Exporter should be absolutely confident that the importer will accept shipment and pay at agreed time and that the importing country is commercially and polically secure

 The exporter and importer trust another implicitly and they have traded together for a number of years

c Procedure of open account payment

d Advantages

Exporter Easiest payment method, low

expense, friendly payment method Reduce document expense Reduce goods prices

Increase exporter’s completion

in international market Importer Pay the goods after receiving all

of the cargo

To be credited by the exporter

in specific duaration time Both parties Reduce bank expense: Bnk does

not participate in open account method

There are only 2 parties to be exporter and importer

e Risks in method of open account payment

Exporter The exporter has not control

over the goods The exporter cannot be guaranted payment

The open account is perhaps the riskest method of trade available

Importer The seller annot deliver goods

on category, time, quantity and quality

f Apply cases

 Exporter and importer trust each other

 Use in regular transactions : from 6 months to 1 year

 Use in pay transport expense, commission expense, guarantee expense, interest rate expense

3 Collection of payment

a Definition: it is process, in which after deliver the goods The seller instructs

his bank to forward documents related to the export of goods to the buyer’s bank with a request to present these documents to the buyer for payment, indicating when and on what conditions these documents can be released to the buyer

b Features

 Collection order between exporter snd exporting bsnk is not a contract

 Banks are only intermediary in payment method

 It is only implemented after the seller delivers goods basing on issuing documents

c Documents in collection of payment

- Financial documents:

 banker’s bill of exchange, draft

 commercial promissory note

 Check

- Commercial documents:

 Transport documents: seaway bill, airway bill, post receipt

 Owning documents: trust documents, packing list, commercial invoice, CO

 Other cargo documents

d Parties

- Principal

- Remitting bank

- Collecting bank and presenting bank

- Drawee

e Types of collection of payment

4 Documentary credit

a Definition : it is the written promise of a bank undertake on behalf of a buyer, to pay a seller the amount specified in the credit

provided the seller complies with the terms and conditions set forth in

the credit The terms and conditions of a documentary credit revolve

ảound 2 issues: (1) the presentation of documents that evidence title to

goods shipped by the seller, (2) payment

collection of payment

clean collection: is

collection of financial documents without attached commercial documents

documentary collection: is

collection of financial documents, which may have attached commercial documents or collection

of commercial documents without

financial documents

D/P( dilivery documents aganist payment): the

collecting bank releases the documents to the buyer only upon full and immediate cash payment

D/P terms most closely resemble a traditional cash on delivery transaction

D/A( delivery documents against acceptance) : the

collecting bank is permitted to release the documents to the buyer

against acceptance( signing) of a bill of exchange or signing

of a time draft at the bank promising to pay at

a later date

D/OT or D/TC( delivery documents against other terms and conditions) : has

features from D/P and D/A

b Features of LC

- LC is different from international sale contract and it separates with sale

contract

- LC is considered to be an economic contract between importing bank and

importer

- Documents play a very important role in payment activities

- The documentary credit method is the safest payment method among parties

in international payment

c Parties

- Applicant

- Opening bank

- Beneficiary

- Advising bank

- Negotiable bank

- Confirming bank

- Norminated bank

- Paying bank

- Accepting bank

- Bank by deferred payment

d Standard types of LC

- Revocable LC: LC that may be amended or canceled any time by the buyer

without the approval of the seller

- Irrevocable LC: this LC cannot be canceled ( or its term amended) without

the seller’s prior written approval, and comes usually as a confirmed irrevocable letter of credit

- Confirmed Irrevocable LC: LC that adds the endorsement of a seller’s bank

to that of the buyer’s bank It provides the highest level of protection to the seller because not only the LC cannot be canceled unilaterally by the buyer, but also both banks involves in the transaction guaranty its payment on its due date

- Irrevocable without Recourse LC

e Procedure:

III Role of bank

The importance of the role played by banks in trade finance Commercial banks play an important role in international trade Commercial banks act as intermediaries between importers and exporters They have insight and wide practical experience in foreign trade coupled with legal knowledge of provision in different countries Banks have correspondents in most countries, through whom they deal woth the counter parties Some banks may have their own branches in other countries

Banks provide a multitude of services to every operator in the trade chain and for every stage of any transaction The most complex deals can require pre-shipment and post-shipment finance, advances against goods in transit, in warehouse, in customs or even in the consignee’s possession Apart from granting pure trade-related credit, banks protect their customers, whether exporters or importers, against every type of risk they are likely to encounter by employing a range of guarantees, standby credits and indemnities Particular mention must be made of the importance of documentary credits and the skill that bank operators

display when issuing and confirming credits, paying and negotiating documents Exporters are able to enjoy the guarantee of payment which banks provide and importers can be confident that the documentation they have demanded has been carefully scrutinized

In addition to finance, banks provide a number of support services essential to exporters and importers wishing to enter new markets Credit and status reports on foreign operators, advance details of overseas contracts and government tenders are regularly supplied to customers seeking trading opportunities

IV Services offered by commercial banks:

The finance of international trade forms an important part of any major bank’s service package Many have specialised departments to handle the various aspects involved, comprising experienced staff able to cope up with the demands

of customers with overseas business to transact Commercial banks offer various types of services to local and international business communities These services include financial facilities to exporters and importers by way of loán and overdrafts, discounting and purchasing of bill of exchange

- Trade Enquiries: Banks with overseas branch networks or correspondent

banking relationships are able to identify potential markets for their exporting customers, and assist to an extent with the introduction to their importing customer overseas

- Credit information: by using the standard form of bank-to-bank status

enquiry, it is posssible for banks based in the UK to obtain information on importers, for instance, in respect of their creditwwothiness, from banks overseas

- Economic and political reports: many large international banks employ

economists who provide reports on a number of countries, which are useful to exporters, particularly if the country concerned is politically unstable or its economy is weak

- Travel services: in addition to the usual services avaiable to the travelling

business executive, such as travellers’ cheques and foreign currency, the banks may also be able to provide a letter of introduction addressed to their overseas branch or correspondent This letter introduces the customer and requests that all possible assistance is given so that local trading terms and conditions may be fully understood

- Exchange control regulations: many countries have restrictions on the

amount of local and(or) foreign currency that can be taken into and out of the country at any one of time Consequently, an exporter who is unaware of the current situation may export goods to a country and then find that the importer is unable to transfer the funds due in settlement without the sanction of the Central bank Banks are able to provide their customers with advice to advoid such problems

- Sale and Purchase of foreign currencies/exchange contracts: banks sell

and purchase foreign currencies to and from their customers/non-customers and travellers An exporter may find that before payment in forein currency is received the exchange rate has reduced thus reducing profit on the transaction It’s possible for an exporter to enter into a forward exchange contract with a bank, which enables the bank to fix the exchange rate at which the currency will be converted

on a specified date in the future Then, the exporter can price goods safe in the knowledge that the rrate will not change whatever happens in the foreign exchange markets The bank covers its own commitment by matching deals in the market

- Collection of bills: a exporter who has drawn a bill of exchange on an

overseas buyer í able to obtain reimbursement by asking their bank to send the bill

to the importer’s bank i.e an exporter’s bank will collect the proceeds When a bank is asked to collect a bill of exchange, it acts as agent to the exporter

V Current status of international payment in Petrolimex Group Commercial Joint stock bank (PG Bank).

I Transfer money methods

At PG Bank, the main means used in the money transfer is Telegraphic Transfer, money transfer by mail is almost no longer used

The method of transfer money extremely quick and simple, the Vietnam export and import enterprises to choose to use for many years when working with foreign partners, on the basis of mutual trust And now this method is also applied quite popular, suitable for transactions with small and medium pay

In 2009 and 2010, remittance turnover accounted for a significant

proportion of total international payment at PG Bank

Sales

transfer

money away

Sakes

transfer

money to

12,509.7 5

5

.Money transfer activities at PG Bank are always highly reputable, with automatic and highly accurate transactions The transactions at PG Bank rarely cause errors in the operation, only sometimes when order money transfer is not made immediately due to slow internet connection

II Collection method with documents