LV thạc sỹ_Solutions to enhance the quality of international payment services using letter of credit in BIDV

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ACKNOWLEDGEMENT
This report would not have been possibly finished without the support
and orientation from many individuals who in one way or another way help
me to finish it.
First and foremost, I would like to express my gratefulness and sincere thanks
to my supervisor, Mrs…..
Last but not least, it is grateful to receive the interests and valuable comments
from all my honored readers.


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TABLE OF CONTENTS

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LIST OF ABBREVIATIONS
BIDV
ICC
L /C
SWIFT
UCP

Bank of Investment and Development of Vietnam
International Chamber of Commerce
Letter of Credit

Society for Worldwide Interbank Financial Telecommunications
the Uniform Customs and Practice for Documentary Credit

LIST OF FIGURES
Table 1.1: Results of business activities
Figure 2.1: The process of L / C payment
Table 3.1 Sales of L/C payment in the period of 2008 to 2010
Table 3.2: The amounts of import L/C in the branch
Table 3.4: The comparison of prices in some transactions of international payment
using L/C of BIDV with VIETCOMBANK and EXIMBANK

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EXECUTIVE SUMMARY
This report, with more than 30 pages in 4 chapters, analyses and re-evaluates
the reality of international payment using Letter of Credit in the Bank for
Investment and Development of Vietnam (BIDV) Thanh Hoa branch. On that basis,
I propose some solutions and recommendations to help the branch improve the
situation.
In order to achieve the above-captioned objectives, this report focuses on some
fundamental issues as follows:
* Analysis the reality of international payment using L/C in BIDV Thanh Hoa
branch in the period of 2008 to 2010
* Figure out the factors affecting the quality of international payment using
L/C
* Come up with solutions and recommendations which are sensible to solve
those problems

About the structure, apart from the Introduction and the Conclusion, the main
content is divided to 4 chapters. Firstly, an overview about the BIDV Thanh Hoa
branch and International payment using Letter of Credit is expressed in the chapter
1.
Secondly, the chapter 2 explains the theoretical framework of international
payment using Letter of Credit and makes clear about key terms definitions used in
the report. Thirdly, the chapter 3 shows anlysis and findings of the quality of
international payment services using Letter of Credit in BIDV Thanh Hoa branch
that I have examined in the period of internship time.
Lastly, the chapter 4 brings out solutions to enhance the quality of
international payment services using Letter of Credit in BIDV Thanh Hoa branch
with the hope of giving suggestions to improve the situation.

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PART I: INTRODUCTION
1. Introduction of the research topic
When trade between countries goes international, international payment
methods become useful tools to facilitate international trade process. Among of
which, L/C payment is the most popular because of its convenience and safety for
both importers and exporters. For commercial banks, L/C payment is important
because of the profit it brings up. So, the research to find methods to improve the
quality of L/C payment is necessary to attract more customers and establish firm
relations with agent banks all over the world.
BIDV Thanh Hoa branch is one of the first-level branches of BIDV system. In
recent years, the branch is seeking new customers and the new direction of market
access to enhance creativity in business. However, in the period of 2008 to 2010,

the revenue from international payment services using L/C is fluctuating and
unstable. The first cause is due to the economic crisis occurred worldwide in 2009
has led to the bankruptcy or the difficulties of many enterprises. It leads to the
reduction of import and export activities. The other cause comes from the branch
itself. The system which is not responsive to market changes and lack of effective
business strategies now just focuses on the traditional business. In this situation, the
branch should immediately find out ways to improve the quality of international
payment services to attract new customers as well as to develop a reputation and
trust in their loyal customers to survive in a dynamic competitive environment
between financial institutions.
Accordingly, I have chosen “Solutions to enhance the quality of international
payment services using Letter of Credit in the Bank for Investment and
Development Thanh Hoa branch” as my topic for the report with the hope of giving
suggestions to help the branch improve the situation.
2. Research questions
During the internship period in the BIDV Thanh Hoa branch I have observed
and analyzed the operations to find answers for these questions:
“What is the reality of L/ C payment in the BIDV Thanh Hoa branch?
“What are the fundamental factors influencing the quality of International
payment services using import L / C there?


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“What should the branch do to enhance the quality of import L/C payment
activities?”
3. Research methodology
The research is conducted by using comparing, analyzing and synthesizing
approaches to find out objective and subjective factors which directly influence the
revenue from L/C payment.

In this research the writer has used some methods to collect primary and
secondary data. The primary data are gathered through observations in daily
operations of the branch and interviews with some officers. The secondary data are
collected through facts and figures filed in the branch as well as those collected
from many websites, books, newspapers and other related documents in the library
of the National Economics University and Faculty of Foreign Languages.
4. Scope of the research
The research concentrates on the reality of international payment using L/C in
the branch through the period of 2008 to 2010 together with analyzing facts and
figures to find its strengths and weaknesses. From which, the writer comes to giving
solutions to solve the problems.

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PART II: MAIN CHAPTERS
CHAPTER I: INTRODUCTION OF BIDV THANH HOA
BRANCH AND INTERNATIONAL PAYMENT USING
LETTER OF CREDIT
1.1 Introduction of BIDV and BIDV Thanh Hoa branch
Bank for Investment and Development of Vietnam (BIDV) is the second
largest commercial bank and the fourth largest enterprises in Vietnam, calculated on
the total assets as reported by UNDP in 2007. BIDV was established on April, 26 th
1957 under the name Bank for Construction of Vietnam and then it changed into
Bank for Investment and Development of Vietnam in 1990. Its mission is to
diversify businesses, multi-disciplinary financial, monetary, credit, banking services
and non-bank in accordance with the law, constantly improve the profitability of
banks, thus contribute to the national monetary policy and economic development

to serve country. BIDV has business relations with more than 800 banks around the
world. It is a member of the Asian bankers Association, Bankers Association of The
Association of Southeast Asia Nations (ASEAN), the Association of Development
Finance Institutions in Asia – Pacific (ADFIAP) and Association of Bank of
Vietnam.
BIDV has been growing and improving its reputation on providing banking
products as well as confirming its brand values on the sector of serving projects and
programs of the country.
BIDV Thanh Hoa branch is derived from the point of the building bank Thanh
Hoa, founded in May 1957, on the basis of an allocation of financial department,
with the task: "in time to serve the mission of recovery and improvement for the
nation’s economy after the French resistance.”
To be complied with the 888 decision, Thanh Hoa branch was upgraded to a
first-level branch, enhancing the retail expansion. Therefore, in October 2010, the
branch has 3 transaction departments and 9 transaction points in Thanh Hoa City.
The qualifications of the staff are relatively simultaneous, with more than 90% of
staff with university or college degrees and the labor productivity is relatively high.

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1.2 The role of BIDV Thanh Hoa branch in the L/C payment process of BIDV
According to the Operating procedures of trade finance No. 5051/QD –
TTTM August 31, 2009 of Department of Services for Enterprise customers of
BIDV, the branch is not allowed to carry out the international payment operation
directly. All international payment transactions after being verified by the branch
must be transferred to the International Payment Centre to ensure the
centralization of the process in the whole system of BIDV. BIDV Thanh Hoa

branch is only authorized to:
* Directly receive and check the legality of records from customers or
financial institutions
* Perform the task correctly defined in the processing of transactions between
Trade Finance Center (TFC) and the source branch
* Provide information relating to proposed transactions comply with TFC
requirements
* Send the records to the TFC.
1.3 Background of International payment using L/C in BIDV Thanh Hoa
branch
In the last 3 years, the social and economic situation has changed as our
country became an official member of the World Trade Organization (WTO).
Especially in late 2007 and six first months of 2008 the world economic crisis
happened and had a widespread impact directly on our country. Although there are
many difficulties but the branch still fulfilled the criteria set out in business and
even very positively. It is specific as follows:
Table 1.1: Results of business activities
Unit: billion VND
Target

2008

2009

2010

Total assets

1.005

1.156

1.127

Revenue

29,7

31,5

42,7

Profit before tax

19,4

30,2

49,3

Source: Accounting Department of BIDV Thanh Hoa Branch
The total assets in 2009 have increased compared to 2008. It increases from
1005 billion to 1156 billion, up to 14.5%. While total assets in 2010 is lower than in
2009 by 2.5% in early 2010 due to the impact of severe economic crisis, but sales
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and profitability of the branch has achieved more than the year before, namely the

higher 2009 revenue in 2008 was 1.8 billion, up to 6%, while in 2010 higher than in
2009 with 11.2 billion, up to 35.3%, indicating the business of the branch is still
highly effective.
However, the revenue from international payment service using L/C has
decreased and proved to be unstable during that period. It can be seen that the
biggest external factor is the world economy crisis which made the import and
export activities face with difficulties. In other hand, the internal factor comes from
the bank itself. It was not sensitive with the changes of market to make the right
decision at the time. The sensitiveness is very important in any business, now it
proved to be more crucial to the bank’s performance. Therefore, the bank needs to
be clear about its weaknesses and solve the problems from the rout.
1.4 Key terms definitions
* International Chamber of Commerce (ICC): “The voice of world
business championing the global economy as a force for economic growth, job
creation and prosperity".1 This is the agency to release the UCP (Uniform Customs
and Practice for Documentary of Credits)
* UCP 600: is the latest revision of the Uniform Customs and Practice that
govern the operation of letters of credit (ICC, 2007)
* Issuing bank: the bank that issues a credit at the request of an applicant or
on its own behalf (UCP 600, ICC, 2007)
* Advising bank: the bank that advises the credit at the request of the issuing
bank. It may be asked to confirm and/or pay the credit (UCP 600, ICC, 2007)
* Confirming bank: the bank that adds its confirmation to a credit upon the
issuing bank’s authorization or request (UCP 600, ICC, 2007)
* Beneficiary: the person in whose favor a credit is issued (UCP 600, ICC,
2007)
* Bill of exchange: a written order that binds one party to pay a fixed sum
of money to another party at a predetermined future date
*Revocable L/C: an L/C that can be modified or cancelled without noticing
to the beneficiary. This type is only used in the delivery of goods between the parent

company and its subsidiaries or the buyer and the seller who have good relations.
* Irrevocable L/C: an L/C that cannot be cancelled. This type is widely used
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because it ensures the rights for both parties
* Deferred L/C: a kind of L/C which the applicant does not pay until a future
date determined in accordance with the terms of the L/C
* Acceptance L/C: a type of L/C that is paid by a time draft authorizing
payment on or after a specific date if the terms of the L/C have been complied with
* Red Clause L/C: a special type of L/C that permits the beneficiary to
receive funds for any purchase outlined in the L/C.
* Transferable L/C: this type of credit allows the seller to transfer all or part
of the proceeds of the original L/C to a second beneficiary, usually the ultimate
supplier of the goods. The second buyer bears the major risk.
* Back to back L/C: “Two letters of credit normally involving the same bank
which cover a single shipment of goods, involving a middleman. The second letter
of credit is issued only because its issuing bank is happy that the first letter of credit
represents goo security. In practice this can be hazardous and many banks are
unwilling to be involved in back – to – back transactions.”2
* Standby L/C: “an L/C which a bank issues on behalf of its customer to serve
as a guarantee to the beneficiary of the L/C that the bank's customer will perform a
specified contract with the beneficiary. If the customer defaults, the beneficiary may
draw funds against the L/C as penalties or as payments, whichever the terms of the
credit provide.”3

2
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CHAPTER II: THEORETICAL FRAMEWORK OF
INTERNATIONAL PAYMENT USING LETTER OF CREDIT
2.1 L/C definition
There are many ways to define the concept “L/C” in international payment.
The definition accepted widely is set by International Chamber of Commerce
(ICC):
“Credit means any arrangement, however named or described, that is
irrevocable and thereby constitutes a definite undertaking of the issuing bank to
honor a complying presentation
a. To pay at sight if the credit is available by sight payment
b. To incur a deferred payment undertaking and pay at maturity if the credit is
available by deferred payment
c. To accept a bill of exchange (“draft”) drawn by the beneficiary and pay at
maturity if the credit is available by acceptance” 4
This definition not only defines what L/C is but also gives three circumstances
for L/C settlement.
Another definition of L/C payment is “Contractual agreement between a
bank, known as the issuing bank, on behalf of one of its customers, and another
bank, known as the advising or confirming bank, authorizing the latter to make
payment to the beneficiary. The issuing bank opens the L/C upon the request of its

customer and commits to honor withdrawals made as a part of the credit agreement
subject to presentation of specified documentary evidence by the confirming bank.
The beneficiary is often a provider of goods and gets paid by the confirming bank
against evidence that he has indeed shipped the required goods to the purchaser.
The same documentary evidence is presented by the confirming bank to the issuing
bank for payment.” – Joseph Martial Ribeiro (2009)
It can be seen that, in this definition, the L/C is divided into 2 major kinds:
commercial letters of credits and stand-by ones. The commercial letter of credit is
the primary payment mechanism for a transaction, whereas the standby letter of
credit is a secondary payment mechanism.
Edward G.Hinkelman, in “A short course in International Payments” ( 2002)
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said: “ A documentary L/C is a bank’s promise to pay a seller on behalf of the buyer
so long as the seller complies with the precisely defined terms and conditions
specified in the credit”. It is a very short definition and easy to understand with
enough fundamental information about L / C.
With these three definitions, the overview of the L/C content has become more
clearly. To sum up, defined in any way, it can be understood that L/C is the
commitment to pay for the beneficiary of the bank on behalf of its customer so that
the benefits of the two parties in the trade can be guaranteed. The bank here plays
the role of intermediary, the bridge to facilitate the process of trading between the
seller and the buyer in different countries.
2.2 Process of L/C payment

There are 8 main steps in the L/C payment process and the process can be seen
as in the following diagram5:
Figure 2.1: The process of L / C payment

1. Issuing Bank issues a Letter of Credit according to the application
submitted by an Applicant and send it to the Advising Bank, which is located in
Beneficiary’s country, to formally advise the L/C to the beneficiary.
2. Advising Bank advises the L/C to the Beneficiary.
3. Once Beneficiary receives the L/C and if it suits his/ her requirements, he/
she prepare the goods and hands over them to the carrier for dispatching to the
Applicant.
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Website: o/e/a/title/Letter-of-Credit:-information;-types;-advantages-and-limitations

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4. He/ She then hands over the documents along with the Transport Document
as per L/C to the Negotiating Bank to be forwarded to the Issuing Bank.
5. Issuing Bank reimburses the Negotiating Bank with the amount of the L/C
post Negotiating Bank’s confirmation that they have negotiated the documents in
strict conformity of the L/C terms. Negotiating Bank makes the payment to the
Beneficiary.
6. Simultaneously, the Negotiating Bank forwards the documents to the
Issuing Bank to be released to the Applicant to claim the goods from the carrier.
7. Applicant reimburses the Issuing Bank for the amount, which it had paid to
the Negotiating Bank.

8. Issuing Bank releases all documents along with the titled Transport
Documents to the Applicant.
The above is the process of international payment using L/C. This is common
and applied in many countries and the banks in the world. From this diagram, it is
clearer about the role of the bank during the payment operation.
2.3 Criteria to assess L / C payment of a bank
To help the operations of quality management in enterprises be unified and
easily, the International Organization for Standardization (ISO) 9001 has adopted
the definition of quality. Accordingly, quality is the satisfaction level of a set of
attributes for the requests.6 Requests here are the needs and wishes of customers
which can be showed or not to be showed.
Due to international business activities is in the field of banking services,
which are intangible products so the quality of it is inconsistent and very difficult to
measure. There is currently no official document showing specific concepts and
rules stated clearly on the quality of international payments. It can only be inferred
from the common problems of the service sector.
Accordingly, the quality of international payments of the bank is the level
that the bank can meet the needs of customers in the performance of international
payments, to ensure rapid and timely, accurate, safe and private services with
affordable rates and making a good impression to customers.Product quality
becomes an important strategy to increase the competitiveness of the bank because
it makes appeals to customers, increase sales and profits for the bank. Improved
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Luận văn “ Nâng cao chất lượng hoạt động thanh toán quốc tế tại chi nhánh ngân hàng Công thương Đống
Đa, Hà Nội”, tác giả Phạm Thị Phương Hiền, Ngân hàng 45, 2007

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quality helps customers save time and effort. They get a lot more convenient, faster
responding, more fully and avoid risks from international payment partners.
Improving the quality of the international payment activities is an important
basis for promoting development in the process of integration and expansion of
relationship banking. Assessing the quality of international payments in terms of
qualitative indicators and quantitative targets reflect the demand satisfaction of
customers who are using international payment services of the bank.
2.3.1 The qualitative indicators
From the results of behavioral research and evaluation of the customer, the
American scholars A.Zeithaml, V.A Parasuraman and Leonard L.Berry gave 5
criteria for assessing service quality based on the views of customers. They are:
reliability, responsiveness, assurance, tangibles and empathy (RATTER)7
2.3.1.1 Reliability of the international payment operations
It is the ability to perform the services promised reliably and accurately. This
indicator is proportional with the quality of international payment services of the
bank. This indicator assessment is classified into three levels: high, medium and
low. Reliability criteria can be divided into five small targets. These are: the
consistency of the bank staff in the implementation of international payment
transactions, the proper implementation and proper function of the promises of
banks, the accuracy in the banking business that offers the secure international
payment services. In which the first three indicators have three levels: very
frequent, regular and occasional.
2.3.1.2 Assurance of the operation of international payment
They are the knowledge and behavior of employees and the ability to build
confidence and trust on customers. This indicator has 3 levels: high, medium and
low. If this criterion is a high it means that the quality of banking services is good
and vice versa. Employees ‘capacity are skills and knowledge needed to do the job.
Proper behavior is the politeness and respect to the customers in doing international

payments operations. It creates an impression of professionalism in the eyes of
customers.

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Tạp chí Phát triển KH & CN, tập 9, số 10 -2006

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2.3.1.3. Tangibility of the bank
It is the evidence of services, facilities, equipment and tools to conduct
services and material such as machinery and infrastructure. If the material symbol
of the bank as the logo or facilities is thorough, robust and high aesthetic, the bank
will attract the attention of customers. Customers will be assured of service and
have a better impression on the bank. In contrast, the bank can hardly provide good
international payment services with the poor and obsolete equipment and
consequently it also cannot receive the appreciation of customers.
2.3.1.4 The bank's empathy
It is the employees’ understanding of the interest and personal note to each
customer's. If the employee has empathy then the quality of services is high and
vice versa. The good care is expressed on the efforts to understand customer needs
and find out their problems and then the employee can give them the best means of
payment and help them solve the problems. Also it shows in the consultation and
explanation of the employees on the business process to help customers understand
clearly.
5. Responsiveness off the staff
It is the availability to help customers and provision of quick services. The

staff must be available to provide timely services. If the employees are responsible,
they will provide services at the right time and contribute to appreciation of quality
international payment activities.
It also expressed in the enthusiasm of employees. The enthusiasm makes
them be responsible for the high intensity at work, quick response customer's
requirements and pay attention to explore solutions to help them. They will receive
good remarks from customers. And in opposite, when the customers get the
ignorance of the staff, they will not be satisfied with banking services.
2. 3.2The quantitative indicators
2.3.2.1 The fluctuation of the amount of foreign currency for the business
activities of the bank
If the amount of foreign currency of the bank increases over the years, it is
proved that its quality generally increases. The bank then not only can meet the
needs of international capital payment of customers, but also build trust and
credibility on customers and keep and attract more businesses joining foreign
currency transactions with the bank.
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2.3.2.2 The fluctuation in the revenue from the international payment
activities
Customers participating in international payments not only help the bank get fee
income generated from fees but also generate other sources of income for the bank
such as the commissions in buying and selling foreign currencies. If the revenue
from international payment increases, the quality of international payments also
increases. The bank is currently keeping and attracting customers to the
international payment transactions.
2.3.2.3 The variation in the proportion of revenue from international

payments in the bank's total income
The increase in the proportion of revenue from international payments in the
total income of the bank demonstrates that the quality of international payment
services increases its role for the banks. If this proportion reduces then the profit
from international payment services cannot contribute much to the total income of
the branch.
2.3.2. 4The fluctuation in international payment sales of the bank
If the volume of sales from international payment of the bank increases then
the quality also grows. Because when the quality grows, there are more customers
going to have international payment transactions at the bank. If this criterion
volatilities or decreases then the quality of international payment services of the
banks tends to reduce or the bank is having difficulties.
Determining the correct targets is essential to improve the quality of
international payments. It shows the current status of the quality of international
payment services of the branch and its trends. After that, the bank must have a look
at the factors affecting the quality of international payments at the branch to find
solutions to improve quality.
2.4 Factors affecting the effectiveness of L/C payment in the bank
2.4.1 External factors
2.4.1.1 Economic situation
In the period the economic crisis has made the economic situation more
volatile, especially in export-import activities. This effected largely to the payment
activities of the bank, including L/C payment. While our country’s economy is still
in trade deficit, so import L/C contracts are limited. This factor affects the main
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source of profit of the bank from the international payment using L/C which comes

from import L/C.
2.4.1.2 Legal environment and institutional law
When there is a fact that information of law is very sensitive and crucial to
every economic field and especially to the bank performance, legal environment for
international payment activities in Vietnam is not complete and unified. Moreover,
administrative procedures are still cumbersome. There is no linkage of coordination
among government and departments, these provisions cause troubles and takes time
of customers.
2.4.1.3 Exchange rates
Exchange rates volatility and foreign un-developed exchange market also
affect the international payment of the bank. Volatility of the market has many
effects on export and import payment operations which use much foreign currency.
2.4.2 Internal factors
2.4.2.1 Marketing strategy
The branch is not aware of the importance of marketing in management. It can
be said this is a very large gap and is the main reason why the branch do not attract
large numbers of customers and not yet built up the reputation of it in international
payments. Despite being a huge bank but international payment is not really the
strength of BIDV.
Meanwhile, international payment using L/C is a fertile land with more people
who are exploited. The branch should keep its portion as well as expanding out
further. The branch has no long-term strategy to conduct research on market,
customers and competitors to make appropriate policy decisions. Marketing
activities are working to help it find a way in making the right match.
2.4.2.2 Human resources quality
Human are always the most important factor in any field of business.
However, there is a fact that not any business really care about the quality of staff
and most of all to receive their opinions to make the enterprise stronger. The most
common characteristics of workers in state agencies now are not proactive, creative
work. They still adhere to a rigid process. This causes major disadvantage for the

banking services field, which needs soft and agile skills to handle situations and
making customers satisfied. Moreover, when asked, the majority of employees
responded that although through the working process they also found many
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inadequacies in the management and transactions with customers but they do not
really brave to do something changing the situation. The branch should pay more
attention to employees and encourage them to contribute ideas for improving the
quality of work. It needs more access, frank exchanges between the senior and staff
to find practical solutions to improve the quality of banking services.
2.4.2.3 Level of technology
Technology it is still not strength of BIDV. Its facilities of the technology have
not changed significantly to keep up with the big banks with more modern
machinery and software. In addition, technical problems still occur frequently that
make employees complained and customers to wait long. The branch has not had
divisions in charge of repairing these defects in time. These defects are usually selfcorrected by the employees. This sometimes is effective only temporarily. In the
long term is not a sustainable method.

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CHAPTER III
ANALYSIS AND FINDINGS OF INTERNATIONAL
PAYMENT USING LETTER OF CREDIT IN BIDV
THANH HOA BRANCH

3.1 Reality of L/C payment in BIDV Thanh Hoa branch
The operations of international payment using L/C are the fundamental
activities and occupy a high proportion of the total payment of import and export
branch. It is also active to bring the bank a big profit from service fees. However,
this activity at the branch during this period is not really developed and stable. The
main cause is due to fluctuations of the economic situation in the country and the
world and partly due to the less nimble of the bank before the market's volatility.
Import L/C payment is one of the important activities of the branch. Open L/C
operations as well as L/C payment operations always occupy a large proportion of
total revenue from the L/C payment.
Table 3.1 Sales of L/C payment in the period of 2008 to 2010
Unit: million USD

Sales of import
L/C payment
% of increase,
decrease

2008

2009

2010

1,5

1,35

1,6

-10

18,52

Source: Department of Services for Enterprises Customers
It can be seen in the Table 3.1 that the sales of L/C payment of 2009 has
decreased a considerable amount in comparision with those of 2008. It is equivalent
to 10 %. The branch has lost an amount of profit from this fall. This can be
explained that the demand for international payment using L/C has also fallen. 2009
is quite a fluctuating year for international payment operations. The economic
situation has challenged the branch’s experience to deal with the difficulties.
However, the sales of 2010 seem to be brighter than the year before. It reaches 1,6
million USD which is equivalent to be more than 18,52 % in comparision with
those of 2009.
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Table 3.2: The amounts of import L/C in the branch
Unit: item
2008

2009

2010

Opening L/C

30

27

32

Payment L/C

24

29

38

-10 %

18,52 %

20,83 %

31,03 %

% increase or
decrease of
opening L/C
% increase or
decrease of
payment L/C

Source: Department of Services for Enterprises Customers
According to the table 3.2, the situation is most elastic in 2009, when the

number of L/C opened significantly reduced, down 10 % compared to 2008. This is
completely relevant. Sales of import and export payment of the branch in this year
also declined. This can be explained by the economic crisis occurred in 2009 has
reduced the import and export activities, which also reduced the branch’s revenue in
this sector. The number of both opening L/C and payment L/C has rised in 2010. It’s
due to the picture of foreign trade becoming brighter when the economy recovered
in 2010.
Through the above table we can see that the amount of international payment
using L/C items of the branch is still small compared with other banks. The sale is
not stable at the challenges of economic situation. It shows that the branch has not
had adequate policies to deal with the changes of market and it’s not a really strong
brand about international payment. So in general, the number of international
payment transactions is still small.

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Table 3.4: The comparison of prices in some transactions of international
payment using L/C of BIDV with VIETCOMBANK and EXIMBANK
Firstly, fees charged by the BIDV for L/C transactions are reasonable and
sometimes are lower than other banks with the same transaction as indicated in the
following table:
Banks
BIDV
VIETCOMBANK
EXIMBANK
Transactions
Issuance of pre

10USD/L/C
50USD/L/C
20USD/L/C
-advising L/Cs
Cancellation
of 10USD+Actual
20USD+Actual
20USD+Actual
L/C at customer’s arising costs/time
arising costs/time
arising costs/time
request
Source:tcombank/com.vn;;

In reality, the minimum discount is not always the best way attract customers.
Because many customers are still thinking that price is always associated with
quality. It means that low prices come along with low quality and vice versa.
Moreover, low cost policies will not guarantee profits for the branch in the long run.
However, the branch’s target is to attract as many customers as possible with pricing
policy as above.
3.2 Assessments of L/C payment in Thanh Hoa branch
We can see that international payment using L/C plays an important role in
import and export international payment of the branch. It occupies a considerable
proportion in international payment operation of the branch. Increasingly, it shows
the dominant characteristics in international payment activities in general. But when
going to find out each section of international payment, it is proved that this field is
still developing and a young operation in the branch. It is shown by the profits
earned from this service through the years.
3.2.1 Overall assessment about the quality of international payment
service using L/C

To assess the quality of international payments using L'C, we must apply the
criteria for assessing the quality of the following issues: customer satisfaction,
excellence of service provision, size and speed growth of income from services and
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competitiveness
3.2.1.1 Customer satisfaction
International payment using L/C services provided by the bank BIDV has
made a reputation among customers but it is not really largely developed. The bank
has not exploited a large number of potential customer especially small enterprises
and its ability to retain customers is still weak. To satisfy customers, the branch
needs to listen to their opinions about service quality. And on that base, it can meet
customer’s expectations in time and create a friendly, close atmosphere to the
customer and the bank to keep long-term relations with them.
3.2.2 Excellence of service provision
In recent years, the bank has not got significant risks in the international
payment using L/C. According to the payment process set out by the banks, the
payment speed is quite high. However, it remains quite confused with many errors
such as delaying payment, causing damage to the bank reputation. Moreover, types
of L / C are not really varied. The branch only made a number of common L / C. It
has not focused expansion and diversification of products yet. Besides, the branch
neither have a staff department which is responsible for international payments nor
experienced officers who not only guide the customers to make quick transactions,
but also counsel to help them choose the best options.
3.2.3 The size and growth rate of income from services and competitiveness
The income from the international payment using L/C occupies 10% of the
total income of the branch. This number is too small for a large bank as BIDV.

Because the branch does not expand and promote the quality and reputation of the
products and services so there are a small number of customers. That’s why the
profitability comes from this field is not significant for the bank. While this is a
potential area of the future and the bank has a big advantage on reputation. In terms
of competitiveness in the market, the BIDV bank is not outstanding in the field of
international payment, even it is a large bank. BIDV clearly can not compete with
banks renowned reputation in international payments, such as Vietcombank,
Eximbank - is continuously awarded by reputational banks and credit institutions
worldwide on merit quality international payment services. One of the measures to
attract new customers by BIDV is to reduce service fees. This may be a good
temporary measure to keep customers but in the long run it will not be good for
banks because it reduces revenue. The outstanding issue is the income from this
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decreased year by year.
3.2.2 Assessments of the quality international payment L/C payment in
Thanh Hoa branch
III.3.1 Achievements
The quality of international payment services using L/C provided by Thanh Hoa
branch has set a reputation on customers. In recent years, BIDV branches Thanh
Hoa has made a pretty strong foothold in the banking market. It is increasingly
expanding operations as well as increased charter capital. BIDV brings customers a
peace of mind, a certain confidence. The bank also made a sustained relationship
and credibility with other credit institutions in the area as PVFC, Agribank,
Vietinbank, Maritime, etc.
BIDV always know how to develop a reputation to keep tradition of customers
with dedicated attitude and friendliness at work of staff. A group of loyal customers

still keep along with BIDV over the years. Through conversations between
customers and employees, it can be seen that they actually have comfortable
relationships with employees as well as the branch and they always wants to have a
long term relationship and cooperation.
Apart from, in recent years, BIDV branch does not have any big risk of
international payment services using the L / C. The handling of the original
documents is the first employees follow strict procedures, closely applied to the
entire system.
In the last 3 years (2008-2010), the branch does not let major risk happen to
damage property and reputation of the bank. This is one of the biggest bank's efforts
to reduce risk and improve service quality. To achieve this it needs to mention the
efforts of the officers who are trained professional and dedicated to jobs. They are
always sticking to strictly payment process and closely examine the documents.
Moreover, the branch always set up good relations with agent banks to reduce risk
from agent banks.
3.3.2 Limitations
Beside the achievements above in L/C payment, the branch still has some
limitations:
• It has not exploited on a larger potential customers - small businesses and
the ability of customer retention is weak
The bank may have not the relevant strategies to this broad market share. This
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makes those enterprises get transactions with the bank only 1 to 2 times and then
switch to other banks. Annual number of customer transactions is rather high, but
the rate of new customer is the majority. The ability to keep customers is not very
good so the rate of traditional customers is only around 25 -30%. In the context of

Vietnam to be a member of WTO, the number of import and export grows strongly
and the market becomes more and more competitive. The branch should see this
opportunity before and change the marketing strategy to exploit this market. If the
bank cannot retain small customers, it cannot stand firmly in the market.
• It has occurred many confusions and mistakes which damage the reputation
and finance of the branch and customers
Some small mistakes still happened during the process of L/C. It costs too
much time of customers and the bank. These mistakes can come either from the
bank or the customers.
Sometimes it’s due to the ignorance of both customer and the officer of the
bank. That’s when the officer still goes through the wrong documents and it leads to
the unable payment of the partners. Although the bank keeps the goods but it’s hard
to consume.
• Types of L/C are not very various
The bank only concentrate on the traditional L/C and less pay enough attention
to other types of L/C which are very popular in the world. So it cannot bring
multiplied choices for customers. Now, due to technical factors, technological level
that BIDV as well as many other banks can not provide the type of L / C especially
L / C reserve, back to back L/C , revocable L/C etc, which the world has made a
long time before.
• The revenue from L/C has decreased year by year
It is clear that the decreased revenue from L/C is an outstanding issue in the
branch. Under the pressure of competition from other banks, the bank has to invest
more, at the same time reducing fees. The bank's fee is lower than other banks,
namely only 70% of Vietcombank. This is a good measure to keep customers, but
considering in the long term it will affect the profitability of the bank. It needs more
effective measures and strategies besides measures of short-term temporarily.

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CHAPTER IV
SOLUTIONS TO ENHANCE THE QUALITY OF
INTERNATIONAL PAYMENT SERVICES USING LETTER
OF CREDIT IN BIDV THANH HOA BRANCH
4.1. The goal of offering solutions
With the strategic objective is to build up a BIDV modern retail bank which is
known for excellent service quality and professional service style in the region,
BIDV must give much effort to be completed in each stage in order to meet the
needs of customers, even the most demanding customers, and especially in the field
of international payments, a key area of high profits for the bank.
4.2. Solutions to enhance the quality of international payment services
using L/C
4.2.1 Increasing the bank’s capital and control the foreign currency that
international payment needs at the same time
The capital has an important role to all the activities of the bank, among of
them is the international payment performance. The bank’s capital reflects its
financial strength. Being lack of funds will limit their ability to mobilize resources
as well as other business activities of banks. Undercapitalized banks cannot quickly
access to the most advanced technology and cannot carry out the big contracts that
require substantial financial resources. That would limit its ability to perform quick,
accurate and efficient payments. Therefore, the branch needs to promote
mobilization of capital. In addition to the increase in annual profits, the capital
increase from profits is an important factor as well. The deduction for profits to
fund growth capital needs to be at a reasonable rate and up to the specific situation
of the bank.
The control of the foreign currency source helps to make the bank more active
and reduce the cost. Because when foreign currency shortage happens the bank has

to borrow. It costs time and fees. The branch needs to promote the attraction of
foreign currency from citizens, from businesses and organizations, simultaneously
promote further business activities in foreign currencies.
4.2.2 Implementation of risk prediction
In the reality, the banks haven’t focused on risk management activities,
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