2.8.1. External factors
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Economic - natural - social environment
Activities of commercial banks can be considered as a bridge between different areas of the economy, the stability or instability of economic - social impact on operations of bank. The macro variables such as inflation, economic crisis or social situation - war, insurrection, coup ... will impact significantly on the quality of international payments.
An economy with stable development can create a reputation and confidence with other economies around the world which will help the commercial trading activities develop rapidly. International payment operations of commercial banks will be boosted and raised the quality, scale. The economic crisis show that the balance of payments of the country lost its balance leading to the local currency depreciated sharply against foreign currencies and reduced the credit-worthiness of a buyer.
International payment activities are affected strongly by the natural and social environment. Big instability in social life such as war, riots and natural disasters can cause damages exporters, importers and banks easily. So, having no partners want to choose his partner in a country with political upheaval because they cannot get the goods (in the case of an importer) or not receive the money (in the case are exporters), there are unforeseen risks and no insurance for this type of risk
Foreign economic policy of the country
Government plays a very important role in planning macroeconomic policies, which affects on the entire operation of the economy in general and international payments operations in particular. Any changes in the external economic policies (such as opening of the economy, encouraging free trade) will create special advantages for different types of services such as international payments.
The legal environment is also a factor to ensure the quality of payment. In addition, the instability legal also caused difficulties for partners who take part in the international payment operations when not to react instantly to these changes.
All commercial banks are required to understand all their own legal to avoid risk for the customer and the bank.
Foreign currency management policy of the State
Foreign currency management policy refer to manage and control the movement of foreign exchange flows and within the country, it affects all the external economic relations with foreign currency. Moreover, it has an important role in stabilizing the currency in payment. If a foreign exchange management
23 policy of the state consisted with supply and demand in the market it would help banks in foreign currency balance to meet the needs of international payments and international payments by credit method.
Besides, the fluctuation of exchange rates directly affects on foreign trade activities of a country. When the exchange rate of increase, the volume of imported goods tends to go up and the exported goods go down. Besides, foreign trade transactions require more time to complete the procedure and if in this period sudden fluctuation of exchange rates occurs that lead to negative result in damage for the buyer or seller.
Moreover, international payment is the final stage that completes a transaction in international trade, which is the payment and foreign currency payments between related parties. The value of foreign currency earnings is influenced greatly by fluctuations in exchange rates so that in the case of exchange rate fluctuations that can encourage or restrict imported and exported activities and leading to the international payment operations of banks changes in trade.
With the banks, the volatility exchange rate affects on their income from fee of payment and foreign currency source to maintain the international payment operations which be disturbed. Because of keeping prestige, banks have programs may loss mitigation in some cases.
Factors from customers
In the international payments, operation happens quickly or slowly depends so much on the time of presenting documents as well as the perfection of the documents. Thus, the level of knowledge of customers in the foreign trade business is very important. The new customers who are week about professional, the international rules, international law and law partner countries inevitably lead to the loose contract, mistake and cause damage to themselves and the bank.
Furthermore, the customer's financial capacity is also a cause affecting on the quality of international payment by documentary credit method in commercial banks. When the financial capacity of customers is weak, with small impact from the outside that also may affect on the business situation and the ability of delivery or payment.
Besides, the ethics of business in our customers is a problem that all banks are concerned. In the international payments by means of documentary credit method which based on the documents, customers can set up fake documents to trick banks. Thanks to development of technology, the establishment of fake documents in payment become more sophisticated and requires the commercial
24 banks must have professional experience and good technique can detect cases which tried to fraud status of customer.
2.8.2. Internal factors
Potential finance of commercial banks.
International payments in general and the method of payment by documentary credit in particular, mostly related to foreign currency funds.
Document credit always requires the bank to have a large amount of foreign currency to meet its solvency. Thus, commercial banks have a large capital in foreign currency which will gain the advantage in the international payment operations. Firstly, with strong finance resources, the bank can expand scale and enhance ability to provide variety of international products and services which also impacts strongly on range of international payment operations by L/C method in a bank. Secondly, there is a way to build the reliable image for the bank in finance market. Moreover, strong finance resources can handle difficulties in market more easily. Due to the above reasons, the potential finance of commercial banks is a decisive factor in their own development and expansion of the settlement.
Reputation of the bank in domestic and global market
In term of financial field – monetary: the prestige and brand of commercial banks in the domestic market as well as on the international market is very important to confirm the bank‘s existence in global. Especially, the bank can attract more investors, customers and cooperate with partners easily with good prestige.
Furthermore, bank can operate effectively when receiving the confidence and trust of customers for products and services offered. When the reputation and brand has been confirmed and dominated the global market allowing operation in general and international payment operations of banks in particular to be significantly expanded.
Correspondent banking network of the bank
International payment operations by means of documentary credits relate to many countries, territories and many different areas, so the network of agent bank of the banks always occupy an important position. The bank has a network of correspondent banks throughout the world that facilitate the implementation of international payment transactions smoothly and efficiently. In contrast, if the network is limited which will make international payments business difficult to develop. In particular, in document credit transaction, if the transaction was conducted in a country where banks do not have correspondent bank or relationship with foreign bank, the time and cost will increase so much to receives the
25 document. It leads to waste time and cost for bank and customer from which customer will come to the bank have more correspondent bank and large network.
Qualifications of the bank’s staff
In any business operation, the human element is always placed on top important in any activities of most fields which are the decisive factor to performance. Especially, in the operation of commercial banks always need the good staff of professional who have a sense of responsibility and enthusiasm for the job because they are directly involved in the process of bringing products and services of the bank to customers. International payment operations by means of documentary credit is a complex profession therefore perverse things about the qualifications of the staff will impact strongly on the quality of services.
Technical equipment and payment technology
Currently, all banks are interested in technological innovation by international standards to meet the needs of customers. However, the unequal development of technology among banks may obstruct the professional application in the whole industry and causing difficulty to cooperative to exploit services.
International payment activity is one of the business requires the participation of communication equipment and machinery support system so that banks have a good material and technical basis and high technological payment level will have favorable conditions for development and expansion activities.
Marketing activities of the bank
It is undeniable fact that the commercial banks are now trying to build their brand through communications services, marketing and public relation. Marketing operations contribute to promote the image of the bank, make traditional customers confidence in products and services that banks have been offering. Moreover, right marketing strategy also helps to enhance trust in old customers, partners and to attract new customers, expands markets. So, the effectiveness of the marketing operations will contribute to develop the international payment operations by means of documentary credit in commercial banks.