Guarantee Operations at Agribank – Current Situation and Recommendations.doc

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ACKNOWLEDGEMENTS
Actually the thesis is the process of my collecting information, choosing data,
analyzing figures and especially asking for valuable helps of many people. I
could not have finished my thesis without the great support and guidance of my
supervisor, Ms. Nguyen Hoang Giang. Therefore, I would like to give my
warmest thanks to her.
I would like to express my deep gratitude to Mr. Ngo Xuan Quang, the credit
staff of the credit department at Agribank, who spent much time explaining,
suggesting, and providing me with valuable information. I also would like to
give my big thanks to other staffs of Agribank credit department such as Ms.
Linh, Ms Hue and Mr Long who are enthusiastic to help me complete the thesis.
Last but not least, I wish to pay tribute to my friends and relatives, who gave me
encouragement to overcome many obstacles during writing process.
Despite my own effort and others the thesis unavoidably contains errors and
limitation because of time limit and my inexperience. I am really willing to
receive constructive comments and contributions from the readers.
Tran Thi Hoai Thu
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INTRODUCTION
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1. Rationale
Becoming the full member of WTO marks a mile-stone for Vietnam in its
transitional period of economy, which creates a great deal of unprecedented
opportunities and major challenges for the domestic economy. To overcome the
difficulties, a smooth and quick capital turnover especially bank credit capital is
necessary. By covering some of the risks that the market is not able to bear or
adequately evaluate, the bank guarantee can attract new sources of finance,
reduce financing costs, and extend maturities. Guarantee operations, therefore, is

one of the three basic modes of credit operations (together with loans and equity
investments.) for a developed economy.
Bank guarantee operations appeared firstly in US in the early of the 1960s
under the form of Standby Letter of Credit. Until the early of the 1970s it really
became common in every developed country. Nowadays, guarantee plays a more
and more vital role in the international economic transactions and in the bank
activities all over the world with the participation of 6-9% total a bank’s
revenue.
1
Guarantee, however, is quite new to Vietnam commercial banks. It has
just been implemented for the last few years. It means that, in Vietnam,
guarantee operations have just been at the primary stage of development. There
are a lot of weakness and shortcomings leading to considerable losses for the
banks because of its new, complicated and risky characteristics. As a result,
ceaseless enhancement in bank guarantee operations is an urgent requirement for
Vietnam commercial bank.
It cannot be denied that, in the integration economy, the development of
guarantee operations in specific, and credit operations in general are
indispensable and objective requirement in order to push banking as well as
Economic activities stronger forward. So how to improve and promote bank
guarantee operations, how to guarantee banks’ safety and avoid risks are the
1
Aniston, S. (2004). The history of the bank guarantee operations. Retrieved June 8, 2004 from
the World Wide Web: www.powerhomebiz.com
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concern not only of authorities, policy-makers but also of any students like me.
Moreover, after reading this issue in a banking finance book, I am really
interested in and I desire to learn more about it.
Probating at Agribank Operation Centre gives me a good chance to study

about guarantee activities, which offers me a new and comprehensive insight
into bank operations. In the short period of probation at Agribank, one of the
top commercial bank in Vietnam, with the enthusiastic help of Ms Hoang
Giang and the staffs in the credit department, I have completed this report:
Guarantee Operations at Agribank – Current Situation and
Recommendations
2. Aims of the study
2.1 Objectives of the study
• Sharing ideas of guarantee operations and analyzing the
theoretical base and the practical factors related to the bank
guarantee operations.
• Broadening the knowledge of the bank guarantee activities
particularly in Agribank and clearing up any misunderstandings
of this.
• Suggesting some measures to improve the bank guarantee
operations’ development
• Improving the skills of research, for example, learning how to
collect information sufficiently, assess information correctly,
analyze figures completely and so on.
2.2 Research questions:
(1) What is the definitions of bank guarantee operations?
(2) What is the functions of guarantee operations in the bank services?
(3) How many types of bank guarantee?
(4) What are the determinants of bank guarantee development?
(5) What is the overview of guarantee operations at Agribank?
(6) What is about the regulations of guarantee activities at Agribank?
(7) What is the current situation of guarantee activities at Agribank?
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(8) What are the achievements and weakness of guarantee operations at

Agribank?
(9) How to improve the guarantee operations at Agribank?
(10)What are proposals to the Government, State Bank and others
organizations for developed guarantee operations?
3. Methodology
Based on knowledge at university, books and self-accumulation, several
methods of studying the thesis are used as follow:
• Figures collection: from websites of the banks, books, trade
journals, bank magazines and internet.
• Inductive, deductive and statistical method.
• Figure comparison.
• Data evaluation, judgment and conclusion.
4. Scope of the study
Bank guarantee operations are quite new and complicated in Vietnam so
materials of this subject are not much abundant and available. As a result, the
study just concentrates on guarantee operations of Agribank and Vietnam
commercial banks recently (figures almost of three years 2005-2007). The thesis
focuses on the analysis, evaluation of the basic guarantee operations factors
mainly at Agribank and suggestions to develop this activity there.
5. Structure of the study
Besides the Contents, Introduction, Conclusion and References, the thesis
consists of 3 chapters.
Chapter 1 gives the overview of guarantee operations at commercial banks
including the general definitions and the definition of Vietnam State Bank, the
functions and types of bank guarantee operations and the determinant of
guarantee operations’ development.
Chapter 2 is the main part of the thesis. It is about the current situation of
guarantee activities at Agribank. This chapter refers to the overview and general
regulations including guarantee types, manners, conditions, fees, files of
application, activity environment and procedures of issuing guarantee at

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Agribank. After analyzing the qualitative and quantitative indicators of guarantee
activities at Agribank and the central part of chapter 2 reveals the achievements,
weakness and causes of the weakness of these activities at Agribank.
C hapter 3 gives the solutions to improve guarantee operations at Agribank.
The recommendations includes marketing, human solutions, flexible guarantee
mechanism, IT applications and other solutions. In addition, this chapter also
refers to some proposals to the government, the state bank, Agribank and the
enterprises for the guarantee development.
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Chapter 1
OVERVIEW OF GUARANTEE OPERATIONS AT
COMMERCIAL BANKS
1.1. DEFINITION OF BANK GUARANTEE
The more developed the economy is, the larger scale and higher value of the
international commercial transactions are. To avoid and reduce potential loss, the
banks have used various measures such as more legal procedures on dispute
settlement promulgation, using mortgage property, and delegating the third party
which is reliable, specialized, well-qualified and well-financial ability to
guarantee to make up for the loss party. Guarantee appears as an objective,
indispensable factor to prevent risks in financial and nonfinancial transactions.
In term of definition, bank guarantee can be looked at from different angles.
1.1.1. General definitions
In theory, bank guarantee is a form of signature credit. It is a lucrative
activity without providing capital of a bank. In other words, it uses prestige of
the bank to guarantee somebody's obligation.
With regard to international commerce, bank guarantee is considered to be a
foreign trade sponsor form which aims to protect guarantee beneficiary party

from loss because of the breach of related partners’ duty.
Besides, there are several definitions of bank guarantee on some popular
websites.
A commitment made by a bank to a foreign buyer that the bank will pay an
exporter for goods shipped if the buyer defaults.
1
A bank guarantee is the bank's promise to repay the debt of another person
if that person does not pay the debt.
2
1
www.powerhomebiz.com/Glossary/glossary-B.htm
2
www.investor-info.ca/glossary.asp
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An undertaking by a bank to be answerable for payment of a sum of money
in the event of non performance by the party on whose behalf the guarantee is
issued.
1
A guarantee from a lending institution ensures that the liabilities of a debtor
will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.
2
1.1.2. The definition of Vietnam State Bank
According to bank guarantee operations status (enclosed with the decision
number 283/2000/QD-NHNN on 25
th
August, 2000 of the Governor of Vietnam
State Bank.),
“Bank guarantee is committed to paper by credit organization (the
guarantor) and the beneficiary. The commitment is about the financial duty

performance on be half of the customer (the principal) when the customer does
not perform his duty or has done wrongly according to the commitment. The
customer has to admit and return this loan to the credit organization with the
amount of money equal to which has been paid.”
In guarantee operations, there are at least 3 participating parties. They are:
The Guarantor: the party issues guarantee may be the bank, credit
organization or financial organization which are generally called bank. guarantee
bank must be prestigious, financial-worthy and accepted by the beneficiary.
The Principal: the party requires customers to open letter of guarantee.
According to guarantee status (enclosed with the decision number 283/2000/QD-
NHNN 14), the principal includes: state-owned enterprises, other legal types of
enterprise (according to Vietnamese law): co-operative, nonstate-owned
enterprises, foreign enterprises joining in join-venture cooperation, credit
organization, private-owned business…
The Beneficiary: all organizations or individuals who have legal capacity
and civil capacity. The beneficiary enjoys benefit from guarantee contract.
1
www.cma-cgm.com/shipping/lexiqueB.asp
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1.2. THE FUNCTIONS OF BANK GUARANTEE:
1.2.1. Guarantee is a security instrument:
It is the most fundamental function of guarantee. Guarantee target is
providing the beneficiary with a guarantee to refund his loss in case of the breach
of contract caused by the principal.
According to statistics in US, only 1% of the total issued guarantee is
required to pay by the beneficiary
1
. It reveals that guarantee is a security

instruments rather a payment one. Furthermore, guarantee is used in some
contracts such as work execution contract, product warranty contract and
building tender contract. They are not sales or payment agreements but only a
guarantee for a smooth and safe transaction.
In international trade, the first requirement so that a contract will be signed
is the guarantee of banks in different nations. Guarantee is only used for security
of the beneficiary when the principal violates the contract.
1.2.2. Guarantee is a financing instrument:
Some major import-export projects and long-term construction contracts need
financing to perform. The construction company or the exporter may bargain with
the investor or the importer about the amount of money in the form of advanced
sum which is guaranteed by a bank. Thus, payment guarantee of the bank can be
described as a financing instrument so that the construction company and exporter
receive the advanced money from the importer or the building manager.
1.2.3. Guarantee is a supervising and speeding up contract performance
instrument:
The guarantee payment bases on the breach of contract of the principal. In
other words, the beneficiary has the authority to ask for payment when the
principal breaks the contract in the period of guarantee validity. The principal is
always under the guarantee refund’s pressure (the rate of guarantee loan is much
higher than normal rate) if he violates the contract or performs it lately.
Guarantee, consequently, has a function of supervising and speeding up the
principal to perform the contract completely.
1
World Bank-Policy Based Guarantees (R99-53), approved April 20, 2004
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Nevertheless, the beneficiary still wants the principal to perform the contract
rather than receives the financial refund from the guarantor. Requiring the
guarantor to pay is only the last resort.

1.3. GUARATEE TYPES
1.3.1. In terms of issue method
a. Direct guarantee
It is the kind of guarantee that the bank promises to pay directly to the
beneficiary if the principal defaults.
Diagram of direct guarantee:

(2)
Guarantor

(1)
(3)

(1) The principal and the beneficiary sign an origin contract which assigns
that the A party (the principal) has to open a guarantee.
(2) The principal offers the bank to issue a banking guarantee.
(3) The guarantor follows through its commitment to settle the debt for the
principal in the event of the breach of the contract.
Principal
Beneficiary
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b. Indirect guarantee
That is issued by a correspondent bank (usually the guarantee beneficiary's
bank) upon the counter-guarantee of the guarantee applicant's bank. This type of
guarantee is more convenient for the beneficiary in transaction and getting
money back in the event of the A party’s breach of the contract.
Diagram of indirect guarantee:
(3)
The correspondent bank

(6)
(7) (2) (4) (5)

(1)
(1) The principal and the beneficiary sign an original contract which
includes guarantee clauses and duration.
(2) The principal proposes the correspondent guarantee bank asking
another bank (usually the guarantee beneficiary's bank) to issue a
bank guarantee.
(3) The second bank acts as a guarantee for the beneficiary.
(4) The beneficiary requires the main guarantee bank to carry out
financial duty in the event of the contract breach.
(5) The main guarantee bank pays the beneficiary.
(6) The main guarantee bank asks the correspondent bank the money
back.
(7) The correspondent bank asks the principal to return the guarantee
amount.
The main guarantee bank
The principal

The beneficiary
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It depends on the specific conditions to choose the better one: direct or
indirect guarantee. Remember that the conditions and letter form suitable to the
beneficiary’s bank and the guarantee type can be used flexibly in direct
guarantee.
c. Confirmative guarantee
It is a banking guarantee which issued to the confirmed party by the credit
organization (the confirming party). In case the principal fails to implement

committed duty with the confirmed party, the guarantee confirming party has to
carry out the guarantee confirmed party’s duty.
d. Co-guarantee
In this case, several banks act as guarantees for a customer through a clue
bank. Co-guarantee is carried out when the guarantee value exceeds the current
guarantee budget or required rate of a bank. An individual bank is unable to act
as a guarantee so it offers the others to do together. The co-guarantee banks often
choose the most prestigious and experienced one to play as the clue bank which
presides over guarantee issue.
Diagram of co-guarantee:
Bank I
(2)

(1)
.........….…………........
(3)
The principal
Bank II
The beneficiary
Bank
N
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(1) The principal and the beneficiary sign an original contract
including bank guarantee clauses.
(2) The principal asks the banks to acts as his guarantee.
(3) The guarantee banks pay to the beneficiary when their customer
fails to perform the contract.
1.3.2. In term of guarantee purposes
a. Payment/Trade debt guarantee

Payment/Trade debt guarantee is often used to cover the non-payment of a
debt arising under a transaction or over a period of time. This type of guarantee
provides financial security to the beneficiary should the applicant fail to make
payment for the goods or services supplied. Such guarantees will invariably run
up to the final scheduled date of payment, plus a grace period to allow the
beneficiary to make demand in the event of non-payment.
b. Tender guarantee/Bid bond
Bid bond is usually issued for an amount equal to between 1 and 2 percent
of the contract value and often called for in support of contract tenders,
particularly in international trade situations. It gives the employer compensation
for additional costs if the party submitting the tender does not take up the
contract and it must be awarded to another party. Bid bond normally submitted
with the other documents called for in the invitation to tender and remain valid
during the period of tender, plus a grace period to allow the beneficiary to make
demand.
c. Performance bond
Performance bond is the most common form of guarantee and used in
variety of situations. Normally issued for an amount equal to between 5 and 10
percent of the contact value, this guarantee assures payment to the employer in
the event that the contractor fails to fulfill contract obligations. This is required
at the time of commencement of the contract and will extend over the duration of
the contract, plus a grace period to allow the beneficiary to make demand in the
event of non-performance of the obligations covered by the guarantee.
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d. Facility guarantee
Facility guarantee is usually not trade related. Its purpose is to provide
security to another bank to advance money to an individual or company. It is
often used when a company does not have any credit record and wishes to
expand offshore. This guarantee enables an applicant to secure banking facilities

for a subsidiary/associate company, or personal account, in other countries.
1.3.3. In term of payment conditions
a. Conditioned guarantee (Guarantee against documents)
Conditioned guarantee requires the third party’s documents confirming the
breach of the principal when the beneficiary asks for payment or other
documents proving that the principal clearly fails to follow through
commitments, for example, winning the contract without executing the work (in
bid bond), failing to perform the contract (in performance bond) or to pay the
debt to the beneficiary (in payment guarantee).
The beneficiary, however, only needs to make the required guarantee
documents not the detailed documents of demonstration or description of the
principal’s breach. The third party’s documents and other documents can be an
assessing certificate of a dependent assessing company. One of the greatest
disadvantages of this guarantee is the beneficiary’s lengthened payment period.
The beneficiary can not receive the guarantee amount in case there is any
upheaval. L/C is a typical guarantee against documents in which the beneficiary
must present essential documents required in the L/C for payment.
1
It is more advantageous for the principal to use conditioned guarantee
because it prevents him from the fraud of the beneficiary. On the contrary,
conditioned guarantee brings no benefit for the beneficiary. If the regulations are
not obvious enough it easily causes in dispute in payment procedures, thus, deals
a fatal blow on beneficiary’s finance and prestige. As a result, conditioned
guarantee is hardly used in bank guarantee operation.
1
Tien, N. V. (2006). International Payment. International Payment and Foreign Sponsor (pp
15,36-58. Hanoi: Foreign Trade University Press.
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b. Unconditioned guarantee:

Unconditioned is the type of guarantee in which the guarantee issue bank
has to carry out its guarantee duty as soon as the beneficiary asks for without
delay provided that the principal’s breach is shown. This is also known to be the
unconditional payment order without documents. There is, therefore, no way for
the bank to shirk its financial duty for its customer.
Unconditioned guarantee is used popularly as its convenience and advantage
for the beneficiary. Nevertheless, dishonest beneficiary may leads to financial
fraud just because compensation is compulsory for the bank when the principal
violates the contract.
1.4. DETERMINANTS OF GUARANTEE OPERATIONS’ DEVELOPMENT
1.4.1 Bank
a. Bank staffs’ skill
Bank staffs are the people who are directly related to the bank guarantee
operations. After transactions, the customers can discover the bank’s working
style, whether it is convenient, quick or not. It is out of question that the inner
characteristic of the customers is disloyalty. If they find the bank’s working style
bureaucratic, wordy, slow…they will switch to other banks with better services,
higher quality, and friendlier staffs. The bank’s prestige, consequently, is eroded.
If the staffs are bad at assessment phase of finance situation, business or
production situation, customers’ prestige, they are unable to evaluate the
customers’ potential and realize possible risks as well. This, therefore, causes in
immeasurably severe consequences. The assessment staffs need to have far-
reaching knowledge because the projects belong to different fields. They might
come up with difficulties in project feasibility assessment should they be aware
of these.
b. Bank marketing
Standing in a fierce competitive environment, their image is getting gloomy
if they do not assert their selves prestige and position. A banking product, in
nature, is easily copied. A recent invented product may be copied just in the
twinkling of an eye. The latter products are even more complete and preeminent.

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As a result, if the bank does not pay high-level attention to marketing
development its numerous competitors will attract its potential customers
immediately and it will be kicked out of the field. Furthermore, bank guarantee is
a new service so the customers are not familiar with this product. They may
hardy know about its importance, regulations as well as procedures. Thus, the
customers’ knowledge can be sufficiently fulfilled through marketing. They can
find out essential information with the help of marketing such as interest,
guarantee fee, and mortgage assets. The far-reaching and popular development
of the bank guarantee, so, depends much on bank marketing. Banks should not
hesitate to attach special importance to marketing.
Besides the two referred factors, there are many inner factors of a bank
which influent on guarantee operations development such as:
- Company running capacity of the manager board
- Organizational scale and financial situation of the bank
- Financial structure
- Banking technology and information system
1.4.2 Customers
a. Customers’ financial capacity
Customers’ financial capacity is embodied in their own fund and production
scale. The higher these elements are, the better customers’ financial ability is.
Beside financial ability, the bank is still interested in production ability and
capital turnover rate. If the financial ability is great, capital turnover rate is quick
the return rate of customers will be high and customer business can be expanded.
Thank to this, credit repayment capacity for the bank should be high.
The customers’ prestige is also a decisive factor of guarantee operations
extension. A customer considered creditworthy, still try to cover the debt despite
facing with risks in business. The bank, as a result, can not only eliminate risks
but also maintain the good relationship with its customers.

b. Project’s feasibility
The customer must prove that his project (has signed with the third party) is
feasible in order to be guaranteed. A feasible project should include these
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factors: market demand satisfaction, urgent and necessary performance, the
economic development orientation suitability and especially lucrativeness. In a
cut-throat competition, many enterprises go bankrupt because they fail to
calculate exact essential capital and forecast the future market fluctuation. This
leads to loss-making situation and consequently, has an adverse impact on the
bank activity including guarantee operations.
c. Mortgage assets
Bank guaranty operations hold a great deal of substantial risks. Mortgage
assets are the necessary requirement for banking credit activity as well as
guarantee operation. Mortgage assets protect the bank against terrible risks and
are the driving force to encourage customers to avoid non-fulfillment of the
contract.
Up to different customers, the bank has a particular regulation of mortgage
assets so that it fits their business features and the general law.
1.4.3. Environments
a. Economic and political environment
It is undeniable that no type of business is out of the surrounding
environment’s control. Economic environment has major implication for
commercial banks’ activities including credit operation. In this operations, the
bank may encounter significant threat unless they foresee fluctuation of
economy.
Influencing directly on customers’ financial strength, economic environment
causes in success or failure of customers’ business. In boom conditions, the
customers get profits from their business so they implement the contract
completely. This increases profits for the bank while eliminates risks. Thus, the

bank can expand its scale including guarantee operation. In contrast, in crisis
time the bank’s customers are under severe threat of loss. The customers will
have difficulties in carrying out the contracts. In this case, it is the banks that
bear all the risks of financial duty on behalf of its customers. Guarantee
operation, hence, is held back from development.
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Politics is the matter of all investors’ interest. They always want to invest on
the country with stable politics. Thanks to foreign investment, domestic
enterprises will do business more effectively. This, therefore, creates good
conditions for guarantee activities development. Any tiny change in political
policy may have crucial impact on all activities of the bank let alone guarantee
operations, which causes in loss, prestige erosion in the whole banking system.
b. Legal system
Like economic environment, legal environment plays an significant part in
business activities of commercial banks. It may be driving force or restraining
force for enterprise development. Legal environment, in this thesis, just refers to
the law system and legal documents related to banking activities in general and
guarantee operations in particular. These activities are pushed stronger forward
as long as the law system is progressive, coherent, and complete. Nowadays, law
always goes hand in hand with the market mechanism under the government’s
control. Almost activities of the economy become chaotic and uncontrollable
without a complete law system. Law creates a legal corridor so as to promote
convenient and effective production. Guarantee operations are not the exception,
only when customers implement strictly and clearly can the bank bear fruits from
its business activities.
Incomplete law system will pose challenge to the banks in signing and
performing guarantee contracts. In fact, banking law in Vietnam now still
remains incomprehensive and weak. This leads to low quality of management
activity of guarantee operations.

The regular changes in the government policy also have influence on
guarantee activities effect. The changes of any industry’s law can be attributed to
negative repayment ability of enterprises; this is not to mention the changes
inside the banking law. For instance, the sudden changes in export-import policy
disorder the business activity of enterprises, which prevents the enterprises from
selling their product or push them on the edge of bankruptcy. As a consequence,
the enterprise is unable to follow through commitment in the contract and it is
the bank that carries out the financial duty on behalf of its customers.
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Chapter 2
CURRENT SITUATION OF GUARANTEE OPERATIONS
AT AGRIBANK
2.1. OVERVIEW OF GUARANTEE ACTIVITIES AT AGRIBANK
2.1.1. General introduction about Agribank
Agribank has a full name: Vietnam Bank for Agriculture and Rural
Development (VBARD) whose predecessor was the Vietnam Agriculture
Development Bank. It was set up on 26
th
March, 1998 according to the decree
number 53/HDTB of the President of Minister Community, now is Prime
Minister, in the period of transforming the bank system from grade 1 into grade
2. It operates as a state-owned general company model according to the note
number 90/TTG on 7
th
March, 1994 of Prime Minister and the regulation
approved by the Vietnam State Bank governor.
1
Agribank is the largest commercial bank of Vietnam in term of capital,
property, activity network, staffs and customers. As of March 2007, it still

maintains the top position with the total capital of VND267,000 billion, total
balance of VND239,000 billion and bad debt rate of 1.9%. Agribank has
achieved remarkable success to contribute to the national industrialization-
modernization stage and was offered the title: “Hero of Labor in the New Age”
2
In the process of international integration, with the signatory VN-US trade
pact, AFTA participation and WTO membership, all the foreign banks have
rights to carry out full duties as other Vietnam banks in following years. It
enhances opportunities as well as challenges for Vietnam commercial banks
including Agribank. Hence, they need crucial reforms to sharpen the
competitiveness so as to consolidate its position.
2.1.2. The orientation of guarantee operations at Agribank
1
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Operation Centre is oriented to be prestigious in Vietnam and over the world
1
.
Thus, it should promote the quality of its services; extend operation fields by
performing some new services as following:
• Continue improving Guarantee quality by simplifying
procedures, applying IT and giving a priority to bank security.
• Diversify guarantee forms and develop new services.
• Implement customer policy, push marketing strategy forward
to hold traditional customer and attract more new.
• Modernize guarantee activity quickly; computerize bank
technique for an accurate and prompt service.
• Train and manage the bank staff, attach importance on
fostering guarantee knowledge for them.

Base on overall target, the specific targets for guarantee in 2007 are:
• guarantee turnover increases 15%
• profit of guarantee increases 20%
2.2. GENERAL REGULATIONS OF GUARATEE OPERATIONS AT AGRIBANK
2.2.1. Types of guarantee
 Guarantee for capital loan
- Guarantee for domestic loan
- Guarantee for foreign loan
 Guarantee for payment
 Guarantee for bidding
 Guarantee for performance bond
 Guarantee for product quality
 Guarantee for repayment
 Guarantee for warranty
 Guarantee for maintenance
 Other kinds of Guarantees
1
Hai, L.V. (2007). Golden stars in Vietnam. Labor, 3-4.
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2.2.2. Manners of guaranty
o Guaranty is issued in letter/ telegraphic (telex, swift)
o Guaranty is issued in form of counter-guaranty or on the basis
of counter-guaranty of other credit institutions.
o Advice of guaranty
o Confirmation of guaranty or guaranty confirmation on drafts.
o Other manners of guaranty in accordance with the laws.
2.2.3. Terms and Conditions
 The customer shall have legally civil competence, civil
behaviour and civil obligation in accordance with laws;

 Having creditworthiness in credit, guaranty and payment
relations with Agribank.
 The customer shall have legal security for the guaranty in line
with requirements of Agribank.
 Having feasible and effective investment projects, manufacture/
business plan.
 For guaranty for drafts: the customer shall meet requirements of
laws on commercial papers.
 In case of foreign loan, the customer shall follow regulations of
the law on management and repayment of foreign loan.
 Customers as foreign economic organizations shall be allowed
to invest, to do business or to bid in Vietnam in accordance with
Vietnamese laws.
2.2.4. Fees of guarantee
The fees shall be agreed by both parties, the maximum shall not exceed 2%
per year over guaranteed amount, and the minimum is VND 300.000.
1
In
addition, some other reasonable fees related to guarantee Issuance shall be paid
under the written agreement between the two parties.
2.2.5. Files of application for guarantee
Files of Application for guaranty of the customer may include:
1
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a. For legal entity, incorporate, private enterprise:
* Legal documents
Notarized photocopies of documents proving the legal status:
- Legal decision on the establishment of the institution.
- Enterprise Charter (Except for private sector enterprise).

- Decision of Appointment of General Director (Director); Chief Accountant
or Director of Accounting Department or Accountant of the organization; Or
Decision of Recognition of Board of Management, Director of the Co-
operatives.
- Business registration certificate
- Operation license. (If the law requires)
- Investment License (For foreign invested enterprises only)
- Record on capital contribution contract; List of founding members of
enterprise, (company limited, joint-venture, incorporate…)
- Accounting procedures as stipulated in AGRIBANK Guideline: submitting
sample documents of the enterprise’s stamp and account holder or authorized
person(s) signature(s); Letter introducing the transacting staff’s name, ID
number, signature…, Registration form of opening deposit account (if not yet)
Apart from those above mentioned, other documents concerning Request for
guarantee issuance are required (if any and vary depend on kinds of guarantee):
- Guarantee for bidding: Invitation for bid; Complete Set of bidding
Documents.
- Guarantee product quality: agreement on product quality.
* Economic files:
- Feasible and effective investment projects, manufacture/business (For
Loans borrowing guarantee).
- Financial Record of the previous period as of guarantee application time.
Apart from documents as mentioned above, in specific circumstances, it is
needed to supply the followings:
- Guarantee for performance bond: Contract made between tender caller and
the bidding winner.
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- Guarantee for domestic loan: Contract for loans borrowing (Original copy).
- Guarantee for foreign loan: Projects with investment time over 12 months

need to be approved by the relevant authorities, Documents allowing borrowing
and making payment (Limitation and Conditions) for foreign loan of the SBV in
accordance with existing laws on Management of foreign loans and repayment,
Contract for loans borrowing (Original copy in accordance with universally-
recognized customs and procedures; Decree on Economic Contract).
* Other related documents:
- Request for Guarantee Issuance (In form).
- Security documents or deposit for guarantee issuance.
b. For individual business, collectives
* Legal documents:
- Personal Identification of individual or residency file (notarized copy).
- Business Certificate.
- Cooperation Contract (For co-operatives only).
- Authorized Representative in transactions with AGRIBANK.
* Related documents:
- Request for Guarantee Issuance (In form).
- Effective & feasible investment projects, manufacture/business plan;
(Guarantee for loans borrowing).
- Security documents or deposit for guarantee issuance.
Documents concerning Request for guarantee issuance (if any and vary
depend on kinds of guarantee).
2.2.6. Activity environment of guarantee operations at Agribank
a. Legal foundation
The legal documents regulate and instruct the implementation of guarantee
operations at Agribank:
- Decision of the governor of the state bank number 283/2000/QD-
NHNN14 on August 25
th
2000 and the promulgation of bank
guarantee operation status. This status assigns the implementation

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of guarantee operation between the credit organization and its
customers.
- Decision of the governor of the state bank number 386/2001/QD-
NHNN on April 11st 2001 on changes and supplement of some
clauses in the bank guarantee operation status enclosed with
decision number 283/2000/QD-NHNN14.
- Decision of the governor of the state bank number 112/2003/QD-
NHNN on February 11
th
2003 on changes and supplement of
some clauses in the bank guarantee operation status enclosed with
decision number 283/2000/QD-NHNN14.
- Decision of the directors board number 09/QD-HDQT-05 on
January 18
th
2001 on “promulgation of instruction in guarantee
operation in the Agribank system.”
- Decision of the directors board number 398/QD-HDQT-TD on
May 02
nd
2007 on changes and supplement of some clauses in the
decision number 09/QD-HDQT-05.
- Regulations of organization and activities of Agribank enclosed
with decision number 117/QD-HDQT-NHNN on June 03
rd
2002.
b. Guarantee fund, guarantee level and mortgage assets
Based on the usable capital in business, Agribank anticipates the amount of

money in its guarantee fund. The total guarantee level is calculated basing on the
guarantee fund projection and the capital’s safety rate in guarantee (but not
exceed 20 times of guarantee fund projection.) The guarantee fund is entered in
the separated account with the minimum rate at 5% of the total guarantee
revenue. It is used to pay the beneficiary in the event of non performance by the
party on whose behalf the guarantee is issued.
Given the customers’ production situation, financial capacity, prestige…the
Agribank managers can choose the method for security such as guarantee
deposit, and mortgage. However, the guarantee deposit plus mortgage assets
must be more valuable than guarantee money.
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2.2.7. Orders and procedures of issuing guarantee at Agribank
According to the latest decision number 398/QD-HDQT-TD on May 2
nd
2007, the guarantee issue process must have the participation of three grades:
credit staffs, head of credit department and the manager of Agribank’s branches.
a. Credit staffs
- Instruct the regulations of guarantee operation at agribank to the
customers.
- Collect information of customers as well as the duty of guarantee.
- Assess the guarantee conditions.
- Make an assessment report showing specific ideas about accept or
refuse to issue guarantee. Be responsible for this assessment then
send this report to the credit department (or business planning
department.)
- After receiving the manager or director-general’s decisions:
+ draw up a document to inform the customer of the bank’s decision
(accept guarantee or not), then present to the manager for signing and
send to the customer at last.

+ draw up guarantee letter (or indirect guarantee later in case
Agribank plays as a correspondent bank), or guarantee contract and a
contract of guarantee security, then present for signing.
+ give one guarantee engagement to the guarantor and the other to
the customer according to agreement in the contract. Give a guarantee file
(including above referred documents) to the secretary after the guarantee
engagement has been signed.
- Keep the guarantee file according to Agribank’s current
regulations and open a guarantee ledger control account.
- Supervise and speed up the duty implementation of the customer
according to the related guarantee contract. Propose appropriate
measures to deal with problems if happened. Follow through the
credit manager and manager-general’ measures.
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b. Head of credit department (or business department)
- Check all the guarantee proposal file and assessment report of the
credit staffs; write the idea clearly on the assessment report (for or
against guarantee issue). Assess directly if necessary.
- Examine the content of draft guarantee letter, guarantee contract,
guarantee issue contract and the contract of guarantee security,
whether they fit current guarantee regulations of Agribank or not.
- Present to the manager-general for signing (if acceptable) or ask
the credit staffs for changes and supplements to complete the
documents.
- Supervise and speed up the duty implementation of the customer
together with credit staffs, propose measures if needed.
- Be responsible for every tasks and content implemented.
c. Manager-general of Agribank’s branch
- Examine the draft guarantee file made by credit staffs and credit

manager (or business manager) and decide whether to issue
guarantee or not.
- Sign the guarantee letter, guarantee contract, contract of guarantee
security if agree.
- In case the Agribank branch manager can not decide because it
exceeds his authority, he should draw up a statement and transfer
all related documents (the signed and sealed copy ones.)
- Direct the staffs to implement approved guarantee.
- Follow through instructions and requirements of Agribank
manager-general about the signed guarantee.
- Supervise and speed up the customers’ implements together with
the credit manager and staffs.
- Be responsible for all decisions.
2.3. CURRENT SITUATION OF GUARANTEE OPERATIONS AT AGRIBANK
Operation Centre is a unit directly under Agribank. Inheriting and promoting
the Agribank’s strength, it can implement a new service of modern bank so as to