LV Thạc sỹ_The international payment development at the Agribank Bac Ninh branch

ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the
possibility to complete this thesis. I want to thank all lecturers from Faculty of
International Education – ….. who have given me a lot of useful and interesting
knowledge of various subjects.
….
Especially, I would like to give my special thanks to all of my classmates
and wish them a lot of success in the future.


CHAPTER I
EXECUTIVE SUMMARY

The axle of this study is to have a clearer picture of how banks (of which
Agribank - BacNinh) manage their international payment. In this light, the study
in its first section gives a background to the study and the second part is the
current situation of development international payment in Agribank- Bacninh.
The third part of this study is the suggestions to improve the development
international payment in Agribank- Bacninh. This leads us to conclude in the last
section for banks to have good development international payment.
This thesis starts with the current Vietnam banking industry. Banking in Vietnam
has a long history. Having experienced a quite long development period, the
banking industry has grown strongly with a lot of big, medium and small banks.
Therefore, competition for survival and development becomes an extremely high
pressure for banks, especially for small and medium size banks. Such
competition pressures come from other existing banks in Vietnam, new coming
financial institutions; suppliers including fund supplier and other suppliers,
customers, partners… As a result, all banks try to improve their service quality,
diversify their product to attract more and more customers. Under such
circumstance, development international payment is drawing larger attention
because banking is relating to international payment. The more banking activities

expand.
International payment including four methods: letter of credit, remittance,
collection and opening account.
This thesis applies methods of systematization, statistics, comparison and
analysis to process information, data collected on the status of international
payment to see clearly specific problem in international payment development at
the Agribank- Bacninh:
 Small scale
 Limited objects
 Monotonous international payment methods, without many various and
affluent payment methods
 Human resource quality is also a challenge and should be given more
attention


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The International Payment development at the Agribank – Bac Ninh Branch

To deals with such problems, suggestions have been made in the third section.
Those suggestions aims at not only Agribank – Bacninh but also SVB ‘s all
branches and head office. They are:
 Perform appropriate customers policy
 Push up information technologies, modernization of bank operations
 Focus on training, reinforcing the qualification of a team of officers
working international payment
 To promote the mobilization of capital in foreign currencies for the
internatinal payment activity
Such suggestions will be presented in details in chapter III of this thesis.

TABLE OF CONTENTS

ACKNOWLEDGEMENT
EXECUTIVE SUMMARY
LIST OF ABBREVIATIONS
INTRODUCTION...............................................................................................1
CHAPTER I: BASIC THEORETICAL ISSUES ON INTERNATIONAL
PAYMENT...........................................................................................................4
I.1 Overview on international payment.............................................................4
I.1.1 Definition of international payment......................................................4
I.1.2 Roles of international payment..............................................................5
I.1.3 Forms of international payment.............................................................6
I.1.3.1 Letter of credit.................................................................................7
I.1.3.2 Remittance....................................................................................10
I.1.3.3 Collection......................................................................................12
I.1.3.4 Open-account................................................................................15
I.2 Development of international payment of commercial banks....................17
I.2.1 Concept on the development of international payment of commercial
banks............................................................................................................17
I.2.2 Measuring of the development of international payment....................18
I.2.2.1 Measuring of the Qualitative.........................................................18
I.2.2.2 Measuring of the Quantitative.......................................................21
I.3 Factors affecting the development of international payment......................25
I.3.1 Subjective factors................................................................................25
I.3.2 Objective factors..................................................................................27
I.3.2.1 Economic environment.................................................................27
I.3.2.2 Politic environment.......................................................................28
I.3.2.3 Legal environment........................................................................28
CHAPTER II: CURRENT STATUS OF INTERNATIONAL PAYMENT
DEVELOPMENT AT VIETNAM BANK FOR AGRICULTURE AND

RURAL DEVELOPMENT – BAC NINH BRANCH.....................................29
II.1 Background on Vietnam Bank for Agriculture and Rural Development –
Bac Ninh Branch.............................................................................................29
II.1.1 Establishment and development.........................................................29
II.1.2 Bussiness performance.......................................................................32
II.1.2.1 Capital mobilization.....................................................................32
II.1.2.2 Lending and investment...............................................................34
II.1.2.3 Provision of services....................................................................36


II.1.2.4 Business results............................................................................37
II.2 Current status of the International Payment development at Agribank - Bac
Ninh branch.....................................................................................................39
II.2.1 Legal basis of international payment..................................................39
II.2.2 Legal basis of application for international payment at Agribank - Bac
Ninh branch.................................................................................................41
II.2.3 Current status in the development of international payment at
Agribank - Bac Ninh branch........................................................................43
II.2.3.1 Satisfaction of customers to International Payment activity:.......43
II.2.3.2 Prestige and trademark of the bank increase:...............................46
II.2.3.3 The increase in scale of International Payment activity...............47
II.2.3.4 The increase in the quality of International Payment activity:.....54
II.3 General assessment...................................................................................58
II.3.1 Results attained..................................................................................58
II.3.1.1 The International Payment activity has been improved and
developed more and more........................................................................58
II.3.1.2 International Payment contributes to increase income for the bank. 58
II.3.1.3 International Payment activity has contributed to heighten the
prestige of Agribank - Bac Ninh branch...................................................59
II.3.2 Limitations and reasons......................................................................59

II.3.2.1 Limitations...................................................................................59
II.3.2.2 Reasons........................................................................................61
CHAPTER III: SOLUTIONS FOR INTERNATIONAL PAYMENT
DEVELOPMENT AT VIETNAM BANK FOR AGRICULTURE AND
RURAL DEVELOPMENT – BAC NINH BRANCH.....................................64
III.1 Orientation of international payment development at Agribank - Bac Ninh
branch..............................................................................................................64
III.1.1 General orientation............................................................................64
III.1.2 Orientation for International Payment professions............................66
III.2 Solutions for international payment development at Agribank - Bac Ninh
branch..............................................................................................................66
III.2.1 Perform appropriate customer policy................................................66
III.2.2 Push up information technologies, modernization of bank operations
..................................................................................................................... 68
III.2.3 Focus on training, reinforcing the qualification of a team of officers
working in international payment................................................................69
III.2.4 To promote the mobilization of capital in foreign currencies for the
International Payment activity.....................................................................70
III.3 Some proposal.........................................................................................71


III.3.2 Proposals to Agribank Vietnam.........................................................72
III.3.2.1 Agribank Vietnam should promptly adjust and supplement
documents and regimes in accordance with the laws and international
common practices.....................................................................................73
III.3.2.2 Agribank Vietnam should build up and develop the trade mark
named Agribank Vietnam to the international level..................................73
CONCLUSION..................................................................................................77
REFERENCES..................................................................................................................78

LIST OF ABBREVIATIONS

IT

: Information Technology

L/C

: Letter of credit

D/P:

: Collected from Document against payment

T/T:

: Collected telegraphic Transfer

SBV

: State Bank of Vietnam

Agribank

: Viet Nam Bank for Agriculture and Rural Development

JSCB

: Joint Stock Commercial Bank

SWIFT

: Society of World Interbank Financial Telecommunications

TGD

: General Director

UCP

: Uniform Customs and Practice for Documentary Credits

IPCAS:

: Intra- Bank payment and customer accounting system


LIST OF FIGURES, TABLES AND CHARTS

Chart 1.2: Professional procedure for remittance................................................11
Chart 1.3: Professional procedure for clean collection........................................13
Chart 1.4: Professional procedure for documentary collection............................14
Chart 1.5: Professional procedure for documentary collection............................16
Chart 2.1: Organization mechanism of officers in Agribank – Bac Ninh Branch 31
Chart 2.1: Business growth rate in the period of 2007-2009...............................39
Chart 2.2: International Payment revenues at Agribank - Bac Ninh branch........51
Chart 2.3: The increase of customers in Agribank - Bac Ninh branch.................52
Chart 2.5: Structure of Income from International Payment................................56

Table 2.1: Summary of capital resources mobilized............................................32
Table 2.2: Account outstanding in economic sectors...........................................34
Table 2.3: Business Result...................................................................................38
Table 2.4: Revenue of International Payment......................................................47
Table 2.5: Number of International Payment items in Agribank - Bac Ninh
branch................................................................................................................. 54
Table 2.5: Income of International Payment........................................................55


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The International Payment development at the Agribank – Bac Ninh Branch

INTRODUCTION

1. The necessity of the research
Under

the

conditions

of

globalization,

internationalization,

the

international economy is operating more and more strongly, each nation should

positively and actively join to obtain a favorable position in the international
labor allocation and commercial exchange. That means each nation needs to
develop strongly the external economic field.
For our nation, the external economic development is an objectively
obvious matter aiming at serving the cause of economic development and
construction of the nation under the orientation of Socialism. Particularly, in the
current period, we are still in the process of performing the nation
industrialization and modernization. Only through the activities external
economic activities may we create a necessary source of foreign currencies for
importing modern techniques, technologies, equipment, and simultaneously
promoting the nation potentials, utilizing foreign capital and technologies to
speed up the nation industrialization and modernization, shortening the gap of
backward, and make our economy step by step integrate with the regional and
international economies.
As an indispensable change link in the external economic activities, the
International Payment activity of each Bank has been getting more and more
important position and role. It’s considered as an instrument, a bridge in the
external economic relationship, economic and commercial relationship among
nations in the world.
International Payment is one of the important activities of the Bank, as it
is related to many other activities of the Bank such as credit activity for foreign
currencies, mobilization of capital in foreign currencies…
Though Agribank- Bac Ninh branch has just entered into performing
International Payment, it has attained some certain achievements. Nevertheless,
International Payment activity of the branch with a small scale and many
difficulties, the International Payment development is very necessary and
imperative. It not only create conditions for activities of export and import,
external economic activities, contribute to the performance of the renovation

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The International Payment development at the Agribank – Bac Ninh Branch

policies by the Party and the State, but also is an important and obvious matter
decisive to the survival and development of the Bank in the market mechanism,
helping Agribank – Bac Ninh branch to soon integrate with the system of
domestic and international banks.
International Payment is really complicated and remains many
inadequacies in regimes, profession, as well as in the organization and
implementation. Thus, we need to research and work out remedies. Basing on the
said issues and as an official working in the Bank, I have chosen the thesis “The
International Payment development at the Agribank – Bac Ninh branch” for my
research.
2. Objectives of research
- To research basic theoretical issues on International Payment of
Commercial Bank
- To analyze and assess the International Payment development at the
Agribank– Bac Ninh branch.
- To propose solutions to the International Payment development at the
Agribank– Bac Ninh branch in time to come.
3. Object for and scope of research
- The object for research of this thesis is the International payment Bank at
the Agribank – Bac Ninh branch.
- Scope of research: the current status of the International Payment at the
Agribank – Bac Ninh branch in the period of 2006-2009
4. Methods of research
This thesis applies methods of systematization, statistics, comparison and
analysis to process information, data collected on the status of International
Payment to see clearly the resuls as well as the limitations of the Agribank – Bac
Ninh branch in this activity; at the same time, to research on the orientations,

strategies for the International Payment development at the branch in the coming
time; from then on, to work out some solutions, proposals for the International
Payment development at the branch.


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The International Payment development at the Agribank – Bac Ninh Branch

5. Contribution of the research
- To systematize and clarify more some concepts, features, natures and
roles of International Payment ; on such basis, to clarify the issue on the
Internationa Payment development of Commercial Bank
- To analyze, assess the current status of International Payment
development at the Agribank – Bac Ninh branch in the period of 2007-2009; on
such basis, to highlight the obtained results and remaining inadequacies aiming at
helping the branch to draw experience and considerable matters in the
International Payment development.
- To propose some viewpoints and solutions for the International Payment
development at the Agribank – Bac Ninh branch, contributing to the sucess of the
strategy on turning Agribank into a multifunctional financial group of the
regional and international levels.
6. Structure of thesis
Besides the sections such as Introduction, Conclusion, this thesis includes
the following 3 chapters:
Chapter I: Basic theoritical issues on international payment
Chapter II: The current status of the international payment development
at the Agribank – Bac Ninh branch.
Chapter III: Solutions for the international payment development at the
Agribank – Bac Ninh branch.

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The International Payment development at the Agribank – Bac Ninh Branch

CHAPTER I
BASIC THEORETICAL ISSUES ON
INTERNATIONAL PAYMENT
I.1 Overview on international payment
I.1.1 Definition of international payment
In the trend of current globalization, there is rarely a nation producing
itself all the things it needs. Each nation has its comparative advanges in some
kinds of goods compared with other nations and it shall produces these kinds of
goods in exchange for other kinds of their disadvantage. The exchange exceeding
the borders of a nation constitutes the export and import activities; and the result
of these activities is the payment between subjects from different nations. On
such basis, International Payment
profession is formulated, in which
Commercial Bank act as intermediary bridge.
International Payment is the performance of obligations in payment of
currencies arising out of economic, commercial, financial, credit relationships
and non-trade services between organizations, individuals from different nations
to finish an operation process in the external economic field by different payment
methods such as remittance/telegraphic transfer, collection, letter of credit... It’s
shown from the above concept that, International Payment serves two fields of
economic and non-economic activities. In reality, there is often the interference
between these two fields. International Payment is formed on the basis of foreign
trade activities and server mainly foreign trade activities, thus, they devide
International Payment into two clear fields: foreign trade payment and nonforeign-trade payment.
Foreign trade payment is the performance of payment on the basis of
export and import goods and commercial services provided to foreign buyers at

the prices in the international market. The basis on which the parties perform
purchase and sale and payment to each other is a foreign trade contract.
Non-foreign-trade payment is the performance of payment in no relation
with export and import goods as well as labor provision to foreign nations,
meaning payment activities without marketability. Such payment is made for
expenses of overseas national diplomatic authorities, expenses for traveling,
accommodation of state delegations, organization and individuals; sources of
gifts and souvenirs, allowances by foreign individuals to domestic individuals,
funds by a foreign charity organization to domestic organizations, communities...


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The International Payment development at the Agribank – Bac Ninh Branch

As a whole, foreign trade activity has some feature basically different to
domestic trade activity, including:
- Buyers and sellers from two different nations or nationalities.
- The currency used in payment may be that of one of two nations and of
a third nation.
- Goods sold or purchased are often moved across the borders between
nations, from the nation of the seller to the nation of the buyer.
- The laws governing the contractual relationship of purchase, sale and
payment contain international factors: the control of foreign exchanges, exchange
rates and policies restricting foreign trade by the Government.
I.1.2 Roles of international payment
- International Payment for the economy: In the trend of integration into
the international economy, every nation pays a great attention to the external
economic development. International payment is the bridge between domestic
and foreign economies, useful to push up the activities of goods and service
export and import, foreign investment, overseas national inward remittance and

other financial and international credit relationships. International payment is
more and more confirmed in the national economy in general and the external
economic activity in particular. Especially, in the current context, every nation
regards external economy as a leading priority, consider the external economic
activities as the indispensable way in the economic development strategy of each
nation.
International Payment is an important phase in the process of goods and
services purchase and sale between organizations, individuals from different
nations. But for International Payment, external economic activity shall be
difficult to exist and develop. If International Payment is performed quickly,
safely, efficiently it shall solve the relationship of goods – currency circulation
between buyers and sellers smoothly and efficiently.
- International Payment for the business operations of Commercial Bank :
International Payment activity helps Commercial Bank to attract many more
customers with demand for payment exceeding the borders of a nation, creating
competitive advantage in the market economy. In addition, International Payment
enable Bank to perfect and diversify business services such as foreign currency
business, guarantee profession and other services aiming at meeting better and
better the demands of the economy, establishing trust in customers, and on such
basis, heightening the prestige for customers


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The International Payment development at the Agribank – Bac Ninh Branch

Due to the International Payment promotion, Commercial Bank have
developed the international credit activity, financed for export and import as well
as increase sources of capital mobilization due to utilizing the capital resource
from customers deposits upon their participation into International Payment or
upon the flow of foreign currencies through the way of overseas national inward

remittance or payment of export goods.
International Payment helps Commercial Bank to raise their prestige and
advantages in the international market; so that Commercial Bank may exploit
sponsorship capital resources from foreign bank and the international financial
market to domestic meet credit demand, collect many payment service fees such
as L/C payment fees, collection fees, remittance fees, overseas national currency
remittance fees, guarantee fees... contributing a considerable part into the
revenue and profit of the bank
- International Payment for export and import enterprises: International
Payment is the final phase in the performance of a foreign trade contract; it
closes a process of goods and service purchase and sale. This is a complicated
profession, hiding many risks beyond expectation, so, even when any two parties
have agreed on prices, payment methods, payment time, risks still may happen
due to objective reasons or Force Majeure events. Accordingly, a requirement to
International Payment is to ensure the security for foreign trade contracts,
collecting and receiving goods fully in accordance with the provisions under such
contracts.
Through International Payment activity with foreign partners, enterprises
of conditional export have conditions to catch information on the market, know
more about partners; on such basis, to balance potentials, set out appropriate
business strategies, preventing and limiting risks.
As International Payment is getting more development, International
Payment is required to renovate in accordance with International Trade. Thus, the
research of International Payment and related issues like currencies, exchange
rates... is always the serious concerns of economist, bank and export and import
enterprises
I.1.3 Forms of international payment
Forms or methods of International Payment are the whole contents,
conditions and ways for Bank to perform their payment obligations between
individuals, organizations from different nations and territories.

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The International Payment development at the Agribank – Bac Ninh Branch

The selection of payment methods proper with each trade affair,
relationship between contractual parties is a factor contributing to limit risks in
International Payment. Current payment methods: letter of credit, remittance,
collection and opening account.
I.1.3.1 Letter of credit
a/ Definition of Letter of credit
A letter of credit is an agreement, of which at the request by a Customer
(L/C applicant), a Bank shall issue a letter, called as L/C (Letter of Credit)
thereby this Bank (called as L/C issuing bank ) commits to pay to or accept draft
of a third party (L/C beneficiary) agaist the presentation to Issued Bank a full set
of payment documents in accordance with the terms and conditions provided in
the L/C.
According to Article 2, UCP 600 “A letter of credit is any agreement,
whether described or called whatsoever, indicating a firm and irrevocable
confirmation by Issuing Bank on the payment agaist proper presentation”.
b/ Professional procedure of a letter of credit:
(2)
Issuing Bank
L/C

(8)

(7)

(1)

Advising Bank
L/C

(5)
(6)

(6)

(5) (3)

(4)
Importer

Exporter

Diagram 1.1: Professional procedure of a L/C

(1) An importer applies for a L/C issuance at its Bank requiring for the
opening of a letter of credit in favor of an exporter.
(2) Based on the application for L/C issuance, the L/C issuing bank shall
issue a letter of credit and through its agent bank in the country of the exporter
notify of the L/C issuance and transfer the letter of credit to the exporter.


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The International Payment development at the Agribank – Bac Ninh Branch

(3) Upon the receipt of this notice, the advising bank shall notify the
exporter of the entire contents on such L/C opening; and upon the receipt of the

original L/C, the issuing bank shall immediately transfer to the exporter.
(4) The exporter shall conduct the delivery if it accept such L/C, otherwise
it shall request the importer through the L/C issuing bank to amend, supplement
the L/C in accordance with the contract.
(5) After the delivery, the exporter shall prepare a full set of documents
under the requirements of the L/C, present it through the Advising Bank to L/C
Issuing Bank as a payment request.
(6) The L/C Issuing Bank shall examine the set of documents and make
payment to the exporter in case of finding such set of documents to be in
accordance with the L/C. Otherwise, the Bank shall refuse to pay and return the
whole set of documents to the exporter.
(7) The L/C Issuing Bank shall ask for payment to the importer and
transfer the whole set of documents to the importer upon its receipt of document
or acceptance of payment.
(8) The importer shall examine the documents and make payment in case
of conformity with the L/C; otherwise the importer shall be entitled to refuse to
pay.
c/ Some considerable points in using L/C:
- The popular international legal document of letter is “The Uniform
Custom and Practice for Documentary Credits, No. 600, amended version of
2007” by the International Chamber of Commerce (abbreviated as UCP 600).
This written rule is legally optional; meaning in order to apply it, the applying
parties shall mutually agree on and refer it in L/C. Now in our nation,
Commercial Bank and export and import business units have agreed on the use of
this written Rule as a legal document governing kinds of letter of credit applied
in International Payment between Vietnam and other nations.
- Characteristics of L/C transaction:
+ L/C is a two party economic contract: Many people are confused to say
that, L/C is a three party economic contract, including: L/C applicant, Issuing
Bank and the beneficiary. Actually, L/C is an independent economic contract

with only two parties including the Issuing Bank and the beneficiary. All
requirements and instructions of the L/C applicant are represented by the Issuing
Bank, therefore, the official voice of the L/C applicant is not shown in L/C. This
understanding is very important; as many exporters think that L/C belongs to


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The International Payment development at the Agribank – Bac Ninh Branch

them and the Bank just provide such service for fee; thus, only the agreements
between the importer and the exporter are important, then the acceptance by the
Bank depends only on the factor of payment fee. Let’s image that, a L/C
amendment has been agreed by the exporter and the importer, but without the
acceptance thereof by the Bank, would such acceptance become valid?
+ L/C is independent to the basic contract and the goods: This is
confirmed in the versions of UCP. Essentially, L/C is a transaction totally
independent to the foreign trade contract or any other contract which is the basis
to establish L/C transaction. In all circumstances, the Bank is not related to or
bound on such contract, even when L/C includes any references to this contract.
Accordingly, a L/C has important characteristics, it forms on the basis of a
foreign trade contract, but after being established, it turns out to be independent
to this contract. Once a L/C has been opened and accepted by the parties,
whether the contents of such L/C are in accordance with the contract or not, it
shall not change the rights and obligations of the parties relating to it.
Some importers don’t understand or neglect this rule, upon the occurrence
in the basic contract, turn back to claim or prevent the Bank from payment
against an appropriate set of documents. This is unallowable.
In reality, a importer may use L/C as a provisional instrument to embody,
elaborate or supplement terms omitted by commercial contracts; additionally, to
correct, amend unfavorable contents in the signed foreign trade contracts.

Nevertheless, this may only help to avoid from opening a L/C in favor of the
exporter, but the exporter may take the importer to the court basing on the terms
of the commercial contract.
- A L/C is transacted only be documents and paid only on the basis of
documents; the Bank bases only on inspecting presented documents to determine
if such documents on their surfaces may constitute a proper presentation or not.
Thus, documents in L/C transaction have a special importance, being the
evidence on the delivery by the seller, representing for the goods value delivered;
therefore, they become the basis for the Bank to pay, for the importer to
reimburse the Bank, and the shipping documents for the importer… The
possibility of collecting payments depends only on the proper presentation of
documents, at the same time, the Bank also make payment against proper
documents. It means the Bank are not possible for the truth of the goods
represented by any documents.
When presented documents are proper, a Issuing Bank shall make
unconditional payment to the exporter, despite the fact that the goods may not be


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The International Payment development at the Agribank – Bac Ninh Branch

delivered or delivered fully in accordance with what written on documents. Thus,
L/C payment can not base on the real status of the goods, if the goods do not
match with the documents, the seller and the buyer shall mutually resolve on the
basis of the sales contract, without any relation with the Bank. Only in case of
improper documents, and the Bank still make payment to the exporter, the Bank
shall take all responsibilities therefore, as the importer shall have the right to
refuse to pay back to the Bank.
- The content of a L/C and the set of documents mush not be contradict to
each other: As the transaction bases only on documents and the payment bases

only on documents, so the requirement of strict compliance by the documents is
the basic principle of L/C transaction. For payment, the exporter must present a
proper set of documents, comply strictly with the terms and conditions of L/C.
- L/C is an instrument of payment for restricting risks or an instrument for
refusing payment and doing fraudulence? In terms of being an instrument of
payment and precaution against risks to the exporter and the importer, L/C has an
outstanding advantage compared with other payment methods. Thus this method
has existed and developed as it’s seen today. However, in the reality of
international trade, due to changes of the market, prices of goods… L/C may be
availed to become an instrument for refusing the delivery of goods, the payment
and an instrument for cheating and doing fraudulence.
From the virtue of L/C is just to transact by documents and the
examination of documents bases only on the surface of the documents without
considering the features “inside the documents”. For this reason, there are not
few disputes arising due to the strict compliance of the documents. In reality, the
preparation of a perfect set of documents without any errors is not easy;
furthermore, the gap between the compliance and “error” is really slim,
depending on custom, qualification, viewpoints, motivation of related parties.
Additionally, due to the independence of L/C to the basic contract, a fraudulent
person may not perform the delivery or perform an improper delivery, while he
still prepares a proper set of documents for payment. There have been many
circumstances like that in the real world.
I.1.3.2 Remittance
a/ Definition
To be a payment method in which a customer (the remitter) requires a
Bank to serve him to remit a certain amount to another person (the beneficiary) at
a certain address and within a certain time.


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The International Payment development at the Agribank – Bac Ninh Branch

It’s possible to say that, remittance is a simple payment method, in which
the remitter and the beneficiary perform payment directly to each other. The
Bank during the remittance plays only a role as an intermediate under
authorization for commission and without being bound to any responsibilities for
the remitter and the beneficiary.
b/ Sequence of profession performance:
Payment Bank

Remitting Bank
(3)

(2)

(4)
(5)

Remitter

Beneficiary
(1)

Chart 1.2: Professional procedure for remittance

- (1) This step is only performed in the existence of a foreign trade
contract. After signing the foreign trade contract, the exporter shall perform the
delivery, simultaneously send to the importer a full set of documents (invoice,
B/L…)
- (2) After examining the set of documents (or goods), if the importer

decides to pay, the importer shall prepare a remittance request and send to the
Bank for serving him.
- (3) After examining the documents and remittance documents as
stipulated, in case of compliance and eligibility for payment, the Bank of the
importer shall perform the remittance.
- (4) The remittance Bank orders the Bank which serves the importer to
pay the beneficiary.
- (5) The remittance Bank shall entry credit to the account of the
beneficiary and send written notice to the beneficiary.
c/ Advantages, disadvantages of remittance:
+ Advantages:
For the remitter: normally, in foreign trade, remittance shall be performed
after the completion of goods delivery, thus the importer may avail on the capital
of the exporter as he doesn’t have to pay immediately. Besides, the expenses for
remittance are always cheaper than those for other payment methods like letter of
credit.


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The International Payment development at the Agribank – Bac Ninh Branch

For the beneficiary: As well as the remitter, the beneficiary shall pay fewer
expenses, less time and shorter time for procedure than in other payment methods
due to saving work and money.
+ Disadvantages: May result in the appropriation of capital between the
two parties: the buyer and the seller.
I.1.3.3 Collection
a/ Definition
Collection is a payment method, in which the seller (the exporter) after his
delivery of goods or provision of services, entrust the Bank to serve him in

presenting the set of documents through the collection Bank of the buyer
(importer) for payment, acceptance of draft or acceptance of other terms and
conditions.
In order to make collection into an efficient payment method, the buyer
and the seller must agree on details of payment terms as stipulated in the foreign
trade contract. On the basis of this agreement, the seller perform the collection
through the Bank serving him.
The legal document governing collection is ICC Uniform Rules for
Collections effective from June 1995 (abbreviated as URC 522). When URC 522
is referred to the Collection order, all the related parties shall perform their rights
and obligations properly under these Rules. However, if the parties otherwise
agree on the Rules or the Rules are contradict to national laws, the Rule shall not
be applied; it means that the related parties shall have the right to agree
particularly on the collection; simultaneously national laws must always be
respected beyond these Rules. This happens because URC 522 is only optional, it
comes into effect upon the agreement of application by the parties and being
referred in collection. Thus, in application of URC 522, the related parties always
have to consider about the legal features of the nations relating to the collection.
Collection includes two kinds: Clean collection and documentary
collection
b/ Clean collection: To be the method in which a seller entrust the Bank to
collect money for him from a buyer basing on the draft prepared by hime, and
directly send shipping documents to the buyer, not through the Bank.
- The performance sequence of clean collection profession include the
following steps:


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The International Payment development at the Agribank – Bac Ninh Branch

+ The seller, after dispatching the goods and shipping documents to the
buyer, prepares a draft asking for money from the buyer and entrust his Bank to
collect such money for him by a collection order.
+ The Bank serving the seller send a trust instrument of collection against
a draft to the Bank representing him in the country of the buyer for the collection
of money for the seller.
+ The agent Bank requires the buyer pay for the draft (in case of at sigh
draft) or accept to pay for the draft (in case of deffered draft).
+ The agent Bank remits the money collected to the seller, in case of
acceptance against draft, the Bank keeps the draft and forward it to the seller.
Upon the due date, the Bank shall ask for many from the buyer and make
payment to the seller.
The following is the chart for the professional procedure of clean
collection:
(2)

Document forwarding
Bank
(1)

(4)

(4)
(4)

Seller

Collection and
Document presentation
NH

(3)
Send goods
and
documents

Buyer

Chart 1.3: Professional procedure for clean collection

(1) Request for collection against a draft
(2, 3) Ask for money from the buyer
(4) The buyer pay the seller
- Cases for the application of clean collection:
+ The seller and the buyer believe in each other and have joint venture
relationship between parent company, subsidiaries or branches.
+ For payment of services relating to the goods export, as this payment
does not need attached documents such as transport fee invoices/receipts,
insurance policies, penalty records, compensation records…
The clean collection is not applied much in trade payment, as it can not
protect the rights of the sellers, in which the taking of delivery by the buyer is
entirely separate from the payment phase, thus, the buyer may take the delivery


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The International Payment development at the Agribank – Bac Ninh Branch

without payment or late payment. For the buyer, the application of this method
also brings him risks, as if the draft comes earlier than the documents, the buyer
shall have to pay immediately without knowing about the compliance with the

contract of the delivery buy the seller.
c/ Documentary collection: To be a payment method, in which the
documents sent for collection include: either commercial documents with
financial documents; or only commercial documents without financial documents
enclosed. The collection Bank shall deliver the set of documents to the importer
only after the importer has made payment or accepted to pay for the draft.
- The following is the chart for the professional procedure of documentary
collection:
(2)

Document forwarding
Bank
(1)

(4)
Seller

(4)
(4)

Collection and
Document presentation
NH

(3)
Send goods
and
documents

Buyer

Chart 1.4: Professional procedure for documentary collection

This procedure is also like that of clean collection, just different in the
phase (1) to prepare a set of documents and send to the Bank for collection. The
set of documents includes draft and shipping documents attached, in the phase
(3) the agent Bank deliver the shipping documents to the buyer if the buyer
makes payment or accept to pay for the draft.
In documentary collection, the seller entrust the Bank, apart from the
collection, to control the shipping documents to the buyer. This is the basic
difference between documentary collection and clean collection. With this way of
document control, the rights of the seller are more secured.
- The seller through the Bank may control only the right of determining
the goods, but can not control the payment of the buyer. The buyer may extend
the payment by temporarily not receiving the documents or not performing
payment, when the market is adverse to them.
- In this method, the Bank plays only the role of an intermediate for
collection, without responsibility for the payment of the buyer.
d/ Issues of using collection:


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The International Payment development at the Agribank – Bac Ninh Branch

- The popular legal document of the collection method is ICC Uniform
Rules for Collection, 1995 Revision No. 522 by the International Chamber of
Commerce.
These Rules are optional so to apply it, the buyer and the seller must
agree and stipulate on it in the contract.
- The seller must prepare a collection order and sent to the Bank

representing for him for collection. In such collection order, the seller must set
out terms of collections which must be accepted by the Bank. This is a specific
legal document governing the relationship between the seller and the Bank
serving the seller.
The contents of such collection order often include the following
conditions: payment terms of either D/A or D/P. In the term of D/P (Documentary
against payment: to make payment in exchange for the documents), the buyer
shall receive documents from the Bank only by paying for the draft. In the term
of D/A (Documentary against acceptance: to accept payment in exchange for the
documents), the buyer shall receive documents from the Bank only by accepting
to make payment.
I.1.3.4 Open-account
a/ Definition: To be a payment method, in which the seller opens an
account (or a book) to entry debit of the buyer after the seller has completed
delivery of goods or services, until the due date, the buyer shall pay the seller.
b/ Characteristics of open-account method:
- There is no participation of Bank with the function of opening an
account and performing payment. There are only two parties participating in the
payment including the exporter and the importer.
- Just open a unilateral account, not open a bilateral account. If the
exporter opens an account to entry debit, this account is only for monitoring, not
valid for payment.
- The two parties must really believe in each other.
- Apply mainly in barter sale or for series of shipments performed
regularly and periodically in a certain time.
- Goods prices in this method are often higher than those in at sigh
payment method as it takes into account for interest rates and credit risks.
Currently, England or EU countries usually apply this payment method
as between these countries there is a similarity of culture, customs in business,

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The International Payment development at the Agribank – Bac Ninh Branch

laws, and customers have traditional, regular and long-term business relationship
on the basis of mutual belief.
c/ Professional procedure:
Bank of the seller

Bank of the buyer
(3)

(3)

(3)
Seller

(2)

Buyer

(1)
Chart 1.5: Professional procedure for documentary collection

(1) Delivery of goods or services along with sending goods documents
(2) Direct debit notification
(3) The buyer apply remittance to pay on due date
d/ Cases for application
- Usually applied for domestic payment
- The seller and the buyer really trust each other

- Applied for barter sales, or for series of shipments performed regularly
and periodically in a certain time (6 months, 1 year).
- This method is favorable only to the buyer
- Applied for payment of consignment payment in foreign countries.
- Applied for payment of non-trade such as: freight charges, insurance
premium, commission in brokerage, assignation, and interest from loans and
profits from investment.
c/ The considerable points in application are as follows:
- Agreed stipulations on currencies written on account.
- Basis for debit entry of the seller is usually commercial invoice.
- Basis for debit acceptance of the buyer, either is the value of invoices, or
the results of taking delivery in places of delivery.
- Remittance method either by mail or by telegraph must be agreed
between the parties.


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The International Payment development at the Agribank – Bac Ninh Branch

- The goods prices in this open-account method are often higher than
those in at sight payment method. This difference is the interest arising out of the
open-account amount within duration equal to period payment period under the
interest rate agreed by the buyer.
I.2 Development of international payment of commercial banks
I.2.1 Concept on the development of international payment of commercial
banks
To understand clearly what International Payment is, it’s required to start
from the concept of development. Under the Vietnamese polytechnic dictionary,
development is deemed as to change or make changes from little to much,
narrow to large, low to high, simple to complex.

This concept shows that in order to refer to the development of a
specific object is to indicate the increase both in quality and quantity of such
object.
For example, talking about the economic development is understood as
talking about the process of increase in all aspects of the economy. Economic
development is considered as the process of changing both in quantity and
quality; it is the close combination of the completion process of the two issues in
economy and society of each nation.
So the concept of International Payment development is the increase in
quantity and quality of this activity. International Payment development in
quantity show that the payment of currency obligations arising in relation with
economic, commercial relationships and other relationships among different
organizations, companies, and subjects of different countries is increasing. This
increase is shown through number of items, amounts of every period higher than
those of the previous period, of every year higher than those of the previous year.
In this meaning, International Payment development is almost the extension of
operation scale, the development in width. However, International Payment
development in width can not prove the quality and safety of this operation. Due
to the characteristic of International Payment is related to foreign factors, the rate
of risks is very high. So, besides the extension of operation scale, Commercial
Bank can not omit the quality. And it’s the International Payment development in
quality. To upgrade the quality of International Payment, Commercial Bank
should have many efficient measures; it’s possible to list some of such measures
as follows: