International payment service by opening Letter of Credit at Vietnam Eximbank Hanoi Branch.doc

Mai Thi Hai Yen – A2/K44/BBE
ACKNOWLEDGEMENTS
For much of improvement during the time when I took my apprentice at
Vietnam Eximbank-Hanoi Branch along with a well-spring of helps and
encouragements from all people around me, this 2009 internship report has been
completed on time.
First of all, I would like to express my gratitude to the Business English
Faculty for providing best conditions for me during my study in Foreign Trade
University for four academic years and now giving me a chance to practice my
academic knowledge, skills and profession in reality in this final internship.
I also wish to give my special thank to Ms Nguyen Thi Diem Ha, my dedicated
instructor for her invaluable suggestions and continuing supports while this report
was in progress. She was always available to input her constructive ideas and
better edition to make my writing become more enjoyable.
My heartfelt gratitude also goes to Ms Le Kim Lien – Manager of the
international settlement department and all staff there who gave me a good
opportunity to use my economic knowledge and face with the real facts and
difficulties at the banking environment. Throughout my internship here, they have
treated me as their real colleague, they are always ready to assist me to finish my
task and supply me with valuable materials related to my report.
Hanoi, May 4, 2009
Student
Mai Thi Hai Yen
Field Study Report 2009 - 1 -
Mai Thi Hai Yen – A2/K44/BBE
CONTENTS
ACKNOWLEDGEMENTS……….……………………………………………………i
LIST OF ABBREVIATION..............................................................................................iv
LIST OF FIGURES AND TABLES…..............................................................................v
INTRODUCTION..............................................................................................................vi
PART 1: LITERATURE REVIEW OF IMPORT AND EXPORT L/C......................1

I. INERNATIONAL PAYMENT BY LETTER OF CREDIT........................1
1. Letter of credit.........................................................................................................1
1.1. Definition of Letter of Credit...................................................................................1
1.2. Role of Banks in Documentary Letters of Credit....................................................3
1.3. The Documentary Credit Cycle...............................................................................3
2. Import LC................................................................................................................5
3. Export LC................................................................................................................7
II. HISTORY AND DEVELOPMENT OF EXIMBANK.................................8
1. General information................................................................................................8
2. Development process...............................................................................................8
3. Vietnam Eximbank Services.................................................................................9
3.1. Vietnam Eximbank -Hanoi Branch..........................................................................9
3.2. Services of Vietnam Eximbank Hanoi Branch........................................................9
PART II: THE CURRENT SITUATION OF LETTER OF CREDIT PAYMENT IN
VIETNAM EXIMBANK – HANOI BRANCH..............................................................11
I. THE CURRENT SITUATION OF L/C PAYMENT IN HANOI
BRANCH.........................................................................................................11
1. Payment method by Import L/C in Vietnam Eximbank..................................12
1.1 L/C Issuance….......................................................................................................12
1.2. B/L endorsement/guarantee issuance.....................................................................12
1.3 Documents Processing and Payment......................................................................13
2. Procedures of Export LC settlements.................................................................14
3. Development of L/C payment in Vietnam Eximbank.......................................14
3.1 Analysis on the current Import L/C payment activities at Hanoi Branch..............15
3.2 Analysis on the current Export L/C payment activities at Hanoi Branch..............18
Field Study Report 2009 - 2 -
Mai Thi Hai Yen – A2/K44/BBE
II. ESTIMATION OF L/C PAYMENT SERVICES IN HANOI BRANCH.19
1. Vietnam Eximbank’s strengths in L/C payment services...................................19
1.1 Predominant credit & Wide operation network......................................................19

1.2 Leading technology & Advanced technology level...............................................20
1.3 Abundant service content........................................................................................20
2. Limitations in L/C payment services.....................................................................21
2.1 Document problems................................................................................................21
2.2 Ineffective marketing activities...............................................................................21
2.3 Limited working conditions....................................................................................22
PART III: DEVELOPMENT ORIENTATION AND PROPOSALS TO
IMPROVING INTERNATIONAL PAYMENT SERVICE AT EXIMBANK HANOI
BRANCH............................................................................................................................23
I. DEVELOPMENT ORIENTATION OF HANOI BRANCH.....................23
1. Opportunities and challenges in new context of Vietnam’s economy.............23
1.1 Opportunities...........................................................................................................23
1.2 Challenges...............................................................................................................24
2. Vietnam Eximbank Hanoi Branch’s development orientation to 2010..........24
2.1 General orientation..................................................................................................25
2.2 Economic development targets..............................................................................25
II. PROPOSALS FOR IMPROVING THE QUALITY OF LC
SETTLEMENT AT EXIMBANK HANOI BRANCH...............................27
1. Bettering the working conditions & improving the capabilities of the staff and
efficiency of its transactions.......................................................................................27
2. Simplifying the documents and payment process................................................28
3. Upgrading IT system to develop the international payment .............................29
4. Promoting Hanoi Branch’s band name, products and services.........................29
5. Combining Export-Import Package Service........................................................30
CONCULSION.................................................................................................................31
REFERENCES..................................................................................................................32
Field Study Report 2009 - 3 -
Mai Thi Hai Yen – A2/K44/BBE
LIST OF ABBREVIATION
1. L/C: Letter of Credit........................................................................................2

2. D/C: Documentary Credit................................................................................2
3. UCP: Uniform Customs and Practice for Documentary Credits…...................2
4. T/T: Telegraphic Transfer..............................................................................10
5. D/P: Document Against Payment – D/P.........................................................10
6. D/A: Document Against Acceptance..............................................................10
7. B/L: Bill of Lading........................................................................................13
8. AWB: Airway Bill.........................................................................................13
9. WTO: World Trade Organization..................................................................16
10. GDP: Gross Domestic Products.....................................................................19
11. SWIFT: Society for Worldwide Interbank Financial Telecommunication.....20
12. STP: Straight-Through Processing.................................................................20
13. HR: Human Resource...................................................................................21
14. MA: Master of Arts.......................................................................................21
Field Study Report 2009 - 4 -
Mai Thi Hai Yen – A2/K44/BBE
LIST OF FIGURES AND TABLES
1. Figure 1: The Documentary Credit Cycle......................................................4
2. Figure 2: The operation flow of opening Import LC.....................................7
3. Figure 3: The official logo of Vietnam Eximbank..........................................8
4. Table 1: The total volume of Import L/Cs payment mode recently..........15
5. Table 2: Volume of Import L/Cs in comparison with the total value of
Export Import international settlement services.............................................17
6. Table 3: Volume of Export L/Cs in comparison with the total value of
Export/Import international settlement services.............................................18
Field Study Report 2009 - 5 -
Mai Thi Hai Yen – A2/K44/BBE
INTRODUCTION
For several recent years, Vietnam economy has much developed along with
many domestic and international significant events, especially become the official
member of WTO. The amount of trading with foreign companies has got a sharp

increase, and the volume of imported and exported goods and services has also
increased considerably. Therefore, the international payment with foreign
companies becomes very important for settling a long time business trading.
Acknowledging these requirements, Vietnam Eximbank has made a strong focus
on its international settlement department to help the foreign trade carry out as
quickly and smoothly as possible.
After a short time as an intern at Vietnam Eximbank Hanoi Branch, I have
gained a lot of practical experiences and learnt that the international payment by
opening Letter of Credit is the most favorable method to be transacted between
Vietnamese companies and other foreign companies through Hanoi Branch of
Eximbank’s services.
Being aware of the importance of international settlement in international
business, I have decided to choose topic “International payment service by
opening Letter of Credit at Vietnam Eximbank Hanoi Branch” for my field study
report.
The main focus of this report is designed in three parts:
Part I: Literature review of Export and Import LC and Overview of Eximbank-
Hanoi Branch.
Part II: The current situation of L/C payment at Eximbank-Hanoi Branch.
Part II: Development orientation and proposals to improve the international
settlement services of Eximbank Hanoi Branch.
Field Study Report 2009 - 6 -
Mai Thi Hai Yen – A2/K44/BBE
PART I
LITERATURE REVIEW OF IMPORT AND EXPORT L/C
I. INTERNATIONAL PAYMENT BY OPENING LETTER OF CREDIT
1. Letter of credit.
1.1 Definition of Letter of credit
According to Wikipedia, the free encyclopedia “the
English name “letter of credit” derives from the French word “accreditation”

which means a power to do something, and in turn is derivative of the Latin word
“accreditivus” which means trust. The application can use this like any defense
relating to the underlying contract of sale. This is as long as the seller performs
their duties to an extent that meets the requirements contained in the LC.”
However, A.Asley (2003, p.155) explained more clearly about the term “Letter
of Credit” in Oxford Handbook of Commercial Correspondence as follows:
“Letters of Credit have been used for centuries in one form or another to enable
travelers to obtain money from foreign banks. The process begins with the traveler
asking their bank to open letter of credit in their favor. (…). The bank then drafts
a letter, which will allow the traveler to draw money on foreign banks with whom
the traveler’s home bank has an agreement. The foreign banks will then draw on
the home bank to recover their payments. For individual travelers, credit cards,
eurocheque, and traveller’s cheques have largely replaced this method of
obtaining money, but documentary credits (letters of credit accompanied by
documents) are widely used in foreign trade.”
Additionally, the definition stated in an article by the famous website
has demonstrated “Letter of Credit” term at other
aspect: “Letter of Credit can be understood as a binding document that a buyer
can request from his bank in order to guarantee that the payment for goods will be
transferred to the seller. Basically, a letter of credit gives the seller reassurance
that he will receive the payment for the goods. In order for the payment to occur,
the seller has to present the bank with the necessary shipping documents
Field Study Report 2009 - 7 -
Mai Thi Hai Yen – A2/K44/BBE
confirming the shipment of goods within a given time frame.” (Source:
/>A letter of credit is the most widely used trade finance instrument in the world.
It has been used for the last several hundred years and is considered a highly
effective way for banks to transact and finance export-import trade and to
eliminate risks such as unfamiliarity with the foreign country, customs, or political
instability. The letter of credit is a formal bank letter, issued for a bank's customer,

which authorizes an individual or company to draw drafts on the bank under
certain conditions. It is an instrument through which a bank furnishes its credit in
place of its customer's credit. The bank plays an intermediary role to help complete
the trade transaction. The bank deals only in documents and does not inspect the
goods themselves. Thus a LC (as it is commonly referred to) is a payment
undertaking given by a bank to the seller and is issued on behalf of the applicant
like the buyer.
A letter of credit is a document issued mostly by a financial institution, used
primarily in trade finance, which usually provides an irrevocable payment
undertaking (it can also be opened under other conditions like revocable,
unconfirmed, transferable, back to back, etc. but the most common way is
irrevocable/confirmed) to a beneficiary against complying documents as stated in
the Letter of Credit.
Letter of Credit is abbreviated as an LC or L/C and often is referred to as a
Documentary credit, abbreviated as DC or D/C, documentary letter of credit, or
simply as Credit. Documentary credits are governed by the International Chamber
of Commerce code of practice, known as the Uniform Customs and Practice for
Documentary Credits. The current code is ICC publication No.500 and is generally
referred to as UCP 500 and UCP 600 and e-UCP600 in payment via the Internet.
The LC can also be the source of payment for a transaction, meaning that
redeeming the letter of credit will pay an exporter. Letters of credit are used
primarily in international trade transactions of significant value, for deals between
a supplier in one country and a customer in another.
Field Study Report 2009 - 8 -
Mai Thi Hai Yen – A2/K44/BBE
The parties to a letter of credit are usually a beneficiary who is to receive the
money, the issuing bank of whom the applicant is a client, and the advising bank
of whom the beneficiary is a client. The buyer is the Applicant and the Seller is the
Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which
is generally in the country of the Buyer. The Bank that Advises the LC to the

Seller is called the Advising Bank which is generally in the country of the Seller.
Almost all letters of credit which are irrevocable can not be amended or canceled
without prior agreement of the beneficiary, the issuing bank and the confirming
bank.
1.2 Role of Banks in Documentary Letters of Credit
Compared to other payment forms, the role of banks is substantial in
documentary Letter of Credit transactions.
Firstly, the banks provide additional security for both parties in a trade
transaction by playing the role of intermediaries. The issuing bank often works for
the importer and the advising bank works for the exporter.
Moreover, the banks assure the seller that he would be paid if he provides the
necessary documents to the issuing bank through the advising bank.
And the banks also assure the buyer that his money would not be released
unless the shipping documents evidencing proper and accurate shipment of goods
are presented.
1.3 The Documentary Credit Cycle
The specified bank makes the payment upon the successful presentation of the
required documents by the seller within the specified time frame. Note that the
Bank scrutinizes the “documents” and not the “goods” for making payment. Thus
the process works both in favor of both the buyer and the seller. The Seller gets
assured that if documents are presented on time and in the way that they have been
requested on the LC the payment will be made and Buyer on the other hand is
assured that the bank will thoroughly examine these presented documents and
ensure that they meet the terms and conditions stipulated in the LC.
There are many steps involved in opening an account for letter of credit. The
letter of credit can be opened by mail or by cable. When the letter of credit is
Field Study Report 2009 - 9 -
Mai Thi Hai Yen – A2/K44/BBE
opened by mail, the buyer's bank sends the letter of credit and two carbon copies
of the letter to the importer. The importer then dispatches the letter of credit to the

exporter in foreign country by mail or air mail. One carbon copy of the letter of
credit is kept for record and the second after signing is sent to the bank by the
importer. If an importer directs the bank to open letter of credit by cable the
buyer's bank sends a cable to the corresponding bank in the foreign country with a
request to notify the exporter of the letter of credit and the terms and conditions
which are laid therein. The expense of the telegram is met by the importer. The
bank also mails the written confirmation of the cable to the corresponding bank for
forward delivery to the exporter. The bank also sends a copy of the cable and the
written confirmation to the importer of the merchandise.
Figure 1: The Documentary Credit Cycle
Typically the documents often requested in a Letter of Credit are the following:
- Commercial invoice
- Transport document such as a Bill of lading or Airway bill
- Insurance document
Field Study Report 2009 - 10 -
Mai Thi Hai Yen – A2/K44/BBE
- Inspection Certificate
- Certificate of Origin
- Other documents
The LC could be “irrevocable” or “revocable”. An irrevocable LC cannot
be changed unless both the buyer and seller agree. In a revocable LC, changes to
the LC can be made without the consent of the beneficiary. A “sight” LC means
that payment is made immediately to the beneficiary/seller/exporter upon
presentation of the correct documents in the required time frame. A “time” or
“date” LC will specify when payment will be made at a future date and upon
presentation of the required documents.
A letter of Credit may be payable either at sight or at extended payment
terms (payment at a future date). A payment at sight means that the payment is due
upon the presentation and receipt of documents after shipment of the goods and/or
services are provided. On the other hand, if the exporter (seller) allows the

importer (buyer) an additional period after presentation of documents to pay the
credit at a future date, then the credit is payable at 30, 60 or 90 days after
presentation and acceptance of documents (Bill of Lading Date or whatever
payment terms have been agreed upon).
2. Import LC
Import Letters of Credit provide importers the most widely used and
accepted international trade payment mechanism and finance instrument. Letter of
credit is an undertaking of a bank for account of the importer to pay the foreign
exporter the value of the goods provided the required documents are submitted and
the terms of the credit are complied with.
With an Import Letter of Credit, importers request that their bank guarantee
payment for the goods, provided that certain documentary conditions are met. A
fast and secure method of guaranteeing payment to suppliers to expedite shipment
from overseas, the Import Letter of Credit brings such features and benefits as
giving variable terms and new products via access to foreign suppliers, ensuring
Field Study Report 2009 - 11 -
Mai Thi Hai Yen – A2/K44/BBE
that buyer only be required to pay if conditions of credit are met, improving cash
flow management, minimizing financial risks to your business, and eliminating
extensive credit investigations by the seller of the importer.
A process of opening Import L/C can be undertaken through following
eleventh steps. First of all, buyer and seller agree to conduct business. The seller
wants a letter of credit to guarantee payment. At the second step, buyer applies to
his bank for a letter of credit in favor of the seller. Thirdly, buyer's bank approves
the credit risk of the buyer, issues and forwards the credit to its correspondent
bank (advising or confirming). The correspondent bank is usually located in the
same geographical location as the seller (beneficiary). At the fourth step, advising
bank will authenticate the credit and forward the original credit to the seller
(beneficiary). And next, seller (beneficiary) ships the goods, then verifies and
develops the documentary requirements to support the letter of credit.

Documentary requirements may vary greatly depending on the perceived risk
involved in dealing with a particular company. At the sixth step, seller presents the
required documents to the advising or confirming bank to be processed for
payment. After that, advising or confirming bank examines the documents for
compliance with the terms and conditions of the letter of credit. At the eighth step,
if the documents are correct; the advising or confirming bank will claim the funds
by debiting the account of the issuing bank or waiting until the issuing bank
remits, after receiving the documents or else reimbursing on another bank as
required in the credit. Next, advising or confirming bank will forward the
documents to the issuing bank. At the tenth step, issuing bank will examine the
documents for compliance. If they are in order, the issuing bank will debit the
buyer's account. Finally, issuing bank then forwards the documents to the buyer
and the buyer gets the consignment by presenting the shipping documents to the
shipping company.
Field Study Report 2009 - 12 -
Mai Thi Hai Yen – A2/K44/BBE
Figure 2: The operation flow of opening Import LC
Import Letter of Credit is used when bank’s guarantee is needed to provide a
sense of comfort to the importer and the exporter in the trade transaction with
payments made upon receipt of the right set of documents including the title of
goods; and the imported commodities are in the seller’s market, and the exporter
insists on payment on L/C; or current capital is not sufficient and the importer
intends to make use of convenience of trade finance.
3. Export LC
An Export Letter of Credit enables an exporter to substitute its buyer’s credit
with that of the buyer's bank, providing a higher level of assurance that payment
will be received while protecting the title to their goods.
An Export Letter of Credit makes doing business globally easier and more
secure. When dealing with an unknown buyer or a buyer in a new or emerging
market, an Export Letter of Credit provides a high level of assurance to an

exporter that he or she will be paid for goods and services provided to a buyer.
Export Letters of Credit will give the domestic enterprises the ability to sell in new
Field Study Report 2009 - 13 -
Mai Thi Hai Yen – A2/K44/BBE
markets and to new customers; governed by internationally-accepted rules; can be
confirmed by Exporter’s Bank, thus eliminating foreign risk completely
II. HISTORY AND DEVELOPMENT OF EXIMBANK
1. General information
Vietnam Eximbank is one of the first commercial joint- stock banks in
Vietnam and it has a lot of strengths in settling export-import payment, doing
business in foreign exchange trading, and other financial product services.
The Vietnamese name in commercial trading is “Ngân Hàng Thương Mại
Cổ Phần Xuất Nhập Khẩu Việt Nam” while its English name is “Vietnam Export
Import Commercial Joint Stock Bank”, and this name is shortened to “Vietnam
Eximbank”
The Bank’s head office is located at 07 Le Thi Hong Gam St., Dist. 1, Ho Chi
Minh city. The bank has 29 nationwide branches. Its commercial website is on
. This website has officially been in order from July
2001 to supply its customers with all information about the bank in both
Vietnamese and English. And the logo of bank is very popular and easy for
everybody to remember.

Figure 3: The official logo of Vietnam Eximbank

2. Development process
Vietnam Eximbank was established on May 24
th
, 1989 under the decision
No. 140/CT signed by the Chairman of the Council of Ministers under the name of
VIETNAM EXPORT IMPORT BANK and being one of the first joint-stock

commercial banks of Vietnam. VIETNAM EXPORT IMPORT BANK officially
came into operation on January 17
th
, 1990.
Field Study Report 2009 - 14 -
Mai Thi Hai Yen – A2/K44/BBE
On April 6
th
- 1992, under license No. 11/ NH-GP signed by the Governor
of the State Bank of Vietnam, the Bank was allowed to operate with a term of 50
years and its charter capital registered at 50 billion VND (equivalent called 12.5
million USD) and its name changed to VIETNAM EXPORT IMPORT
COMMERCIAL JOINT-STOCK BANK (shortly called VIETNAM
EXIMBANK).
Since December 2007, Eximbank’s chartered capital amounted to
2,800,000,000,000 VND. Vietnam Export Import Commercial Joint-Stock Bank
has a nationwide network with its Head Office located in Ho Chi Minh City and
64 Branches in Ha Noi, Da Nang, Nha Trang, Can Tho city, Quang Ngai, Vinh,
Hai Phong city, Quang Ninh, Dong Nai, Binh Duong, and Ho Chi Minh city.
VIETNAM EXIMBANK has established correspondent banking relationships
with over 735 banks in 72 countries worldwide.
3. Vietnam Eximbank – Hanoi Branch and its services
3.1 Vietnam Eximbank -Hanoi Branch
Vietnam Eximbank has one head office in Ho Chi Minh City and 27
Branches with 39 Transaction Offices across the country. Among them, Eximbank
Hanoi Branch in Hanoi city is one of the most successful branches and always
exceeds their goals.
The trading name of Hanoi Branch in Vietnamese is “Ngân hàng thương
mại CP xuất nhập khẩu Việt Nam-CN HàNội” and in English is “Vietnam Export
Import Commercial Joint-Stock Bank-Hanoi Branch”. The short name of branch is

“Vietnam Eximbank-Hanoi Branch”. The office is located at 19 Tran Hung Dao
St., Hoan Kiem Dist., Hanoi City.
3.2 Services of Vietnam Eximbank Hanoi Branch
Hanoi Branch of Vietnam Eximbank provides its customers with the same
main banking services as its Vietnam Eximbank head office.
Firstly, the traditional services of Hanoi Branch are mobilizing, savings
deposits, demanding deposits from individuals and entities in VND; providing
short, medium and long term loans; syndicating loans, overdraft loans, consuming
Field Study Report 2009 - 15 -