LV thạc sỹ_Recommendations to enhance international payment by LC in SHB

NATIONAL ECONOMICS UNIVERSITY
FACULTY OF FOREIGN LANGUAGES
ENGLISH FOR BUSINESS DEPARTMENT
------ ***-----

Hanoi, May,


NATIONAL ECONOMICS UNIVERSITY
FACULTY OF FOREIGN LANGUAGES
ENGLISH FOR BUSINESS DEPARTMENT
------ ***-----

RECOMEMDATIONS TO ENHANCE INTERNATIONAL
PAYMENT BY L/C IN SAI GON - HA NOI JOINT STOCK
COMMERCIAL BANK, THAI HA SUB-BRANCH

Field : English for Business Studies
Code :

Supervisor:, M.A

Hanoi, May,


iii

ACKNOWLEDGEMENT

After a period of studying theoretical framework and researching real status in SHB
Thai Ha sub-branch, I have finished my report: “Recommendations to enhance

international payment by L/C in Sai Gon Ha Noi joint stock commercial bank,
Thai Ha sub-branch”. To fulfill this research, I have received great help and
encouragement from many people.
Foremost, I would like to thank the teachers and supervisors of Faculty of Foreign
Languages, National Economics University for highly valuable knowledge imparted
to us for the past 4 years. It is the important foundation supplying me with sufficient
knowledge to carry out this research.
Next, I would like to express my deep thanks to Ms
Last but not least, I am very grateful to my parents and my friends for all invaluable
encouragement and support during my lifetime. They are always by my side and the
motivation for me to never give up and complete my research as best as possible.
With all my heart, I wish all of them will be healthy, happy and successful in whole
life.


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`TABLE

OF CONTENTS

ACKNOWLEGEMENT….………………………………………………………..i
TABLE OF CONTENTS....……………………………………………..………...ii
LISTS OF ABBREVIATION…………………………………………...…….….iv
LIST OF TABLES AND CHARTS.......................................................................iv
2.5.1. Evaluation through banks......................................................................................................10
2.5.2. Evaluation through customers...............................................................................................11
The safety degree of L/C transaction process................................................................................11

2.6.1. External factor............................................................................................12

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LISTS OF ABBREVIATION
 ABA: Asian Banker Association
 SHB: Saigon - Hanoi Joint Stock Commercial Bank
 L/C: Letter of Credit
 ICC: International Chamber of Commerce.
 UCP: The Uniform Customs and Practice for Documentary Credits
 SWIFT: Society for Worldwide Interbank Financial
Telecommunications

LIST OF TABLES AND CHARTS
Table
1 The value of Import & Export L/C in SHB
Chart
1
2
3
4
5

Issuance of a Letter of Credit
Payment under Letter of Credit
The reality of Import & Export L/C in SHB
The total revenue from L/C payment in SHB
The proportion of revenue in Thai Ha sub-branch

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EXECUTIVE SUMMARY
For many decades, Letter of Credit (L/C) is used as an effective tool to boost
economic exchange and to facilitate a variety of financial transactions, either as a
method of payment or as a credit enhancement, within as well as across the borders
of countries in the world. Not only in Vietnam, but also in Vietnam, Letter of Credit
quickly becomes popular in import-export activities. This report mainly focuses on
the reality and how to improve the effectiveness of L/C payment in SHB Thai Ha
sub-branch.
Apart from Introduction and Conclusion, my report is divided into 4 chapters.
In the first chapter, the reader is oriented forwards background of SHB and Thai Ha
sub-branch as well as the international payment activities of Thai Ha sub-branch.
The second chapter, providing theoretical framework about Letter of credit
including process, criteria of assessment and factors affecting on L/C payment is
considered as the premise for next part. The next chapter about the findings and
analysis collected during my internship is also the centre of this study. The author
will show readers the reality of L/C payment and give deep assessment on L/C
payment’ efficiency of Thai Ha sub-branch. Finally, in the last chapter, some
recommendations to enhance international payment by L/C in Thai Ha sub-branch
will be presented.
This report is carried out with the aim to find out really effective and practical
way to boost L/C payment in Thai Ha sub-branch. The author hopes that this
research will be useful not only with SHB but also in other banks in Vietnam.


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INTRODUCTION
Introduction of the research topic

Nowadays, trading overseas has opened great opportunities and issued outstanding
challenges for not only enterprises but also banks worldwide. Therefore, selecting
the most appropriate payment method and ensuring accuracy in dealings, can make
the difference to enterprise’s success – minimizing the risks to business while
maintaining the goodwill of customers. The method chosen will depend on the
reliability degree between the parties, credit capacity, local export-import
regulations and the nature of the goods.
Among methods of international settlement, L/C is appreciated by its convenience
and safety for all parties. This method has been a time-tested instrument and has
proved its preeminence in international trade. Hence, L/C plays a critical role in
boosting trading overseas in the economic integration of Vietnam. Finding answer
for the question: “How to improve L/C payment?” becomes a pressing task in any
bank. This motivates me to choose “Recommendations to enhance international
payment by L/C in Sai Gon Ha Noi joint stock commercial bank, Thai Ha subbranch” as the topic of my research. This research will supply reader findings and
analysis to have a deep sight on reality of L/C payment and suggest some useful
solutions to improve L/C settlement in Thai Ha sub-branch.
Figures in this report are collected by combining two methods: observing, talking
for primary data and gathering based information from books, magazine as well as
books for secondary data.
Rationales
For a long time, international trade has become an essential part in the world
economics in general and Vietnam in particular. Especially when Vietnam joined
the World Trade Organization, the door of foreign trade has open for banks and
financial organizations of Vietnam. Sai Gon–Ha Noi bank (SHB) also has provided
many international payment methods: advanced payment, open account, letter of
credit...to meet the demands of customers. However, being a new comer in
international payment services, SHB had to face and overcome many difficulties
due to limitation of technology, knowledge of staff, and reduction of risks…

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This study is not only derived from the author’s interest but more important is from
the necessity of L/C payment’s improvement in Vietnam. Findings and
recommendations are given to improve L/C transactions in SHB as well as other
banks. After observation, collection and assessment, some effective solutions will
be presented to improve L/C payment as well as international payment of Vietnam.
Research Questions
During the time of internship in SHB Thai Ha sub – branch, I have observed,
collected and analyzed to find the answer for these questions:
1. What’s the reality of L/C transactions of Thai Ha sub –branch?
2. What are the reasons of limitations of SHB in L/C transactions?
3. What should SHB do to enhance international payment by L/C?
Scope of the research
In the scope of the research, I focus on the real status of Thai Ha sub-branch in L/C
payment activities and also give some evaluation on achievements and limitations
of this activity in the period from 2007 - 2010. In the last part of research I
recommend some solutions to boost L/C payment in Thai Ha sub-branch as well as
whole SHB in Vietnam.
Methodology
In this research, I collect information and data form 2 sources: primary and
secondary. Firstly, to gather primary information I have observed daily operations
of Thai Ha branch. I also talked with some officers and some customers of SHB
Thai Ha to collect details about L/C transactions.
Secondly, secondary information is collected through reports and figures of SHB
and Thai Ha sub – branch in particular. In addition, I also find lots of information
from books, magazines, newspapers and internet.


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CHAPTER I
INTRODUCTION OF SHB AND SHB THAI HA SUB – BRANCH
1.1. SHB and Thai Ha sub- branch overview
1.1.1 SHB overview
Saigon - Hanoi Joint Stock Commercial Bank (SHB) was established in 1993 with
headquarter at Can Tho city. Starting from a rural commercial bank, SHB has
developed constantly and achieved many valuable awards from high-renown
organizations: “Best bank in Vietnam in 2010”, “National famous branch 2010”
“Top 20 biggest banks in Vietnam”...With proper competitive strategy, modern
technology and professional working style, SHB has taken leading position in
Vietnam banking and provide customers with superior banking services.
At present, SHB has more than 100 branches and sub- branches in many big cities
and provinces of Vietnam with high growth speed. The SHB customers include
thousands of small & medium enterprises, households & individuals, stated
groups…The main banking operations of SHB are: mobilizing capital, giving short
–medium-long terms loan, dealing international payment, discounting commercial
documentaries, dealing foreign exchange…In future, SHB aims to become one of
the ten best retail banks in Vietnam and a strong financial holdings group to meet
the requirement of world economic integration.
Being successful as today, SHB has overcome many challenges and followed
principle in core values.
The core values:
▪

Customers: SHB pledges to supply various, safe, secure, friendly & prompt
products/ services because “The customer’s satisfaction is the SHB’s
success”

▪

Shareholders: SHB ensures to grow constantly and maximize return to
shareholders.

▪

Staff: SHB creates dynamic, professional working environment and bring
developing opportunities for every staff.


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▪

Business principle: SHB improves the transparency and integrity in every
activities of bank.

▪

Innovation: SHB encourages research and innovative approach to develop
new products & services and make differentiation.

▪

Brand value: SHB becomes modern and reputed retail bank with slogan
“Solid partner, Flexible solutions”.

1.1.2. SHB Thai Ha sub-branch overview
According to Decision 49/ NHNN – HAN7 of Sai Gon – Ha Noi Joint Stock
Commercial bank, Thai Ha sub-branch was established on January 15 th, 2007. This

branch is located on 17 Thai Ha Street, Dong Da District, Ha Noi and is the first
sub-branch of SHB in Ha Noi capital. Thai Ha sub-branch mainly performs
activities relating to capital mobilization, loan project and international payment. In
addition, the sub-branch also hold training courses, recruit new staff and research
products development to support for headquarter. With the positive performance in
consecutive years, SHB Thai Ha has remarkable contribution to the development
and reputation of SHB. Thai Ha sub-branch is also considered as one of the most
effective sub-branch in the sub-branch system of SHB in Ha Noi. In coming years,
the sub-branch has intended to expand customer network, increase its
competitiveness and enhance activities to become the best sub-branch of SHB.
1.2. Background of International payment by L/C in Thai Ha sub-branch
Before 2008, all international payment transactions of SHB had to be carried out
through other banks (Military Bank, Vietcombank). However, SHB has been
officially allowed to perform international payment services directly after the State
Bank passed through the SHB’s requirement of implementing international payment
transactions in 2008. Although SHB has just entered international trade directly for
only 3 years, the bank has received positive recognition from famous organization:
“Bank has excellent international payment service” by Wachovia Bank in June
2009, “Best Trade finance Banks and Providers of Vietnam” by Global Finance…
SHB’s international payment system now applies three methods of payment:


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Remittance, Collection of payment and Documentary Credit. Among these methods,
Documentary credit or Letter of Credit cover a large percentage because of its
advantages in processing and reducing risks.
As a later comer in financing and banking market in Ha Noi, SHB Thai Ha mainly
focuses on capital mobilization and credit projects. Therefore, L/C payment
operation has not been attached pertinent importance and the revenue from L/C

payment makes up a modest part in total revenue of sub-branch. These
shortcomings have shown the inappropriate strategies of SHB Thai Ha in
international payment operation.
According to the SHB’s regulation about international payment, Thai Ha subbranch is only responsible for verifying and transferring documents to the
International Payment Department. Although SHB Thai Ha only participates in the
first steps during L/C payment process, SHB Thai Ha has an essential part in the
whole development of L/C payment operation.
During my time of internship in SHB Thai Ha, I decided to choose
“Recommendations to enhancing L/C in international payment in SHB Thai
Ha sub-branch “as my topic with the aim to recommend some effective solutions
to improve and expand L/C payment in Thai Ha sub-branch & in SHB in general.
1.3. Key term definitions
Advising bank means the bank that advises the credit at the request of the issuing
bank. (ICC, 2007. UCP 600)
Applicant means the party on whose request the credit is issued. (ICC, 2007. UCP
600)
Banking day means a day on which a bank is regularly open at the place at which
an act subject to these rules is to be performed. (ICC, 2007. UCP 600)
Beneficiary means the party in whose favor a credit is issued. (ICC, 2007. UCP
600)
Complying presentation means a presentation that is in accordance with the terms
and conditions of the credit the applicable provisions of these rules and
international standard banking practice. (ICC, 2007. UCP 600,)


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Confirmation means a definite undertaking of the confirming bank, in addition to
that of the issuing bank, to honor or negotiate a complying presentation. (ICC,
2007. UCP 600)

Confirming bank means the bank that adds its confirmation to a credit upon the
issuing bank’s authorization or request. (ICC, 2007. UCP 600)
Issuing bank means the bank that issues a credit at the request of an applicant or on
its own behalf. (ICC, 2007. UCP 600)
ICC: means International Chamber of Commerce - The body which published the
Uniform Customs and Practice for Documentary Credits, the Uniform Rules for
Collections, the Uniform Rules for Reimbursements, Incoterms 2000 and other
works commonly used in international trade.
UCP 600: means The Uniform Customs and Practice for Documentary Credits,
2007 Revision, ICC Publication no. 600


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CHAPTER II
OVERVIEW OF LETTER OF CREDIT
2.1. Definition of Letter of Credit
Letter of Credit is a popular international payment method in the world, so that
variety of definitions is supplied by many researchers. In the scope of this research I
would like to give some most popular definitions.
According to “Uniform Customs and Practice for Documentary Credits” (UCP),
published by International Chamber of Commerce, L/C is known as Credit:
“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
Honor means:
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”
(ICC, 2007, UCP 600: Article 2)

In the book “Multinational business finance” of Eiteman, Letter of credit is defined
as following:
“ A Letter of Credit, abbreviated L/C, is a bank’s conditional promise to pay
issued by a bank at the request of an Importer (Applicant / Buyer) in which the
bank promise to pay an Exporter (Beneficiary) upon presentation of documents
specified in the L/C”
(Eiteman, Moffett and Stonehil, 2003: 719)

From these definitions, letter of credit can be understood as a bank–to-bank
commitment of payment in favor of exporter, guaranteeing that payment will be
made against certain documents that are in compliance with terms set by the
buyer. It means that bank act as an intermediary, ensuring benefit of both parties:
exporter will receive payment and importer will take goods. However, a key
principle underlying L/C is that banks deal only in documents but not in goods
and they are not responsible for quality of goods.


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2.2.

Types of L/C

Growth of international payment and diversification of goods require different types
of L/Cs to maximize profit and minimize the risks. At present, banks in over the
world have introduced and applied many types of L/Cs to meet the high demand of
customers. In this report, I would like to give the most popular L/Cs in Vietnam
banking. The definition of these types of L/C is retrieved from the book “A short
course in International payments” of Edward G.Hikelman.
 Irrevocable - A L/C that cannot be amended or cancelled without prior mutual
consent of all parties to the credit. This is the most popular form of letter of
credit.
 Revocable – A L/C that may be amended or canceled by issuing bank without
prior notice to the exporter (beneficiary).
 Confirmed Irrevocable: An irrevocable L/C opened by an issuing bank whose
authenticity has been confirmed by the advising bank and where the advising
bank has added its confirmation to the credit.
 Unconfirmed Irrevocable: An irrevocable L/C opened by an issuing bank in
which the advising bank does not add its confirmation to the credit.
 Transferable - A L/C that can be redirected at the seller’s request. These are
used when an export broker is involved. Once all conditions on the letter of
credit are met, the broker's bank receives the payment, takes out his
commission, and completes the transaction as negotiated.
 Back-to-back: A L/C that is issued on the strength of another L/C.
 Revolving: An agreement in which the buyer is allowed to replenish the credit
after it is drawn down by buyer.
 Standby: A Letter of Credit under which payment is made available to the
Beneficiary against presentation of a draft, simple statement, or other

documents.
Among types of L/C above, SHB’s customers mainly use irrevocable L/C,
confirmed irrevocable L/C and revolving L/C because these L/C have low level of
risks and they are also suitable with the business features of Vietnamese enterprises.


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2.3.

The Process of L/C

In general, a typical L/C transaction involves four parties and two periods. The
participants includes: the buyer (Applicant), the issuing bank, the advising bank and
the seller (Beneficiary). Two periods including 9 small steps: Issuance of a L/C and
Payment under L/C. The following is a step-by-step description of a typical L/C
transaction, which is retrieved from “A guide to Letter of credit”
 Issuance of a Letter of Credit
BUYER/ APPLICANT

(1)

SELLER/ BENEFICIARY

Purchase & Sales
Agreement

(2)

(4)

Request for a L/C

ISSUING BANK

Advise for L/C
Request to advise
& confirm L/C
(3)

ADVISING BANK

Chart 1: The Issuance of a Letter of Credit
(Source: The TD Bank, 2007:5)

1.

Buyer and seller agree to terms including means of transport, period of credit
offered (if any), and latest date of shipment acceptable.

2.

Buyer applies to bank for issue of letter of credit. Bank will evaluate buyer's
credit standing, and may require cash cover and/or reduction of other lending
limits.

3.

The Issuing bank issues L/C, sending it to the Advising bank by airmail or
electronic means such as telex or SWIFT.

4.

The Advising bank will verify the letter of credit for authenticity, then informs
seller (beneficiary).


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 Payment under Letter of Credit

BUYER/ APPLICANT

(6)

SELLER/ BENEFICIARY

Shipment of Goods

(6)

Documents

(9)

(9)

Payment

Documents

Payment

(7)

Payment
ISSUING BANK

(8)
(7)

ADVISING BANK

Documents

Chart 2: Payment under Letter of Credit
(Source: The TD Bank, 2007: 6)

5.
6.

7.

8.

9.

Seller should now check that LC matches commercial agreement and that all its
terms and conditions can be satisfied.
Seller ships the goods, then assembles the documents called for in the LC

(invoice, transport document, etc.) and makes demand under the L/C by
presenting the documents within the stated period and before the expiry date to
the “ available with” bank ( Advising bank/ Confirming bank.)
The Advising bank checks the documents against the LC. If the documents are
compliant, the bank pays the seller and forwards the documents to the Issuing
bank.
The Issuing bank now examines the documents to ensure they comply with the
L/C terms and conditions. If they are in order, it reimburses the seller's bank
immediately.
The Issuing bank debits the buyer and releases the documents (including
transport document), so the buyer can claim the goods from the carrier.


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2.4.

Advantages and Disadvantages of L/C to parties

The letter of credit is one of the oldest forms of trade finance still in existence.
Because of the protection and benefits it accords to both exporter and importer, it is
a critical component of many international trade transactions. However, L/C
payment also includes risks, especially for importer.
2.4.1. For Importer
Using L/C has brought some advantages for importer especially assurance of
receiving goods, which other tools can’t give.
• The importer is assured that its bank will refuse payment to the exporter
unless the seller’s documents comply with the terms and conditions of the
L/C.
• The importer can seek to minimize the risks of not receiving the goods

ordered by requirement of compliant documents. The Importer may also
impose conditions on the manner and dates in which the goods are to be
shipped.
• The importer is able to negotiate more favorable trade terms with the
exporter when payment by L/C is offered.
Nevertheless, the importer has to bear considerable risks due to incorrect goods or
the lack of credit facilities.
• A L/C assures correct documents but not necessarily correct goods. It means
that L/C does not offer protection to the importer against the exporter
shipping inferior quality goods and/or a lesser quantity of goods.
• The Importer must have a line of credit with a bank before the bank is able to
issue a L/C. The amount outstanding under each Letter of Credit issued is
applied against this line of credit from the date of issuance until final
payment.
2.4.2. For Exporter
In comparison to Importer, Exporter seems to have more advantages:
• The exporter will receive payment under the L/C provided that he meets all
terms and conditions of the L/C.
• The exporter can reduce the risk that payment might be delayed or otherwise
jeopardized by political or foreign exchange problems in the Importer’s
country.


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•

The exporter is not obligated to ship against a L/C if the L/C is not issued as
agreed (no matter what all requirements for payment under L/C are accepted
in advance by exporter).

• The exporters can rely on a bank’s creditworthiness rather than an unknown
importer. The exporter is more confident when it has a bank’s commitment to
pay upon presentation of complying documents.
However, Exporter still has difficulties in preparing documents or meets risks in
political situation & foreign exchange.
• Documents must be prepared in strict compliance with the requirements
stipulated in the L/C. Non-compliance leaves exporter exposed to risk of
non-payment.
• Some importers may not be able to open L/C due to the lack of credit
facilities with their bank which consequently inhibits export growth.
• The exporter assumes any political and foreign exchange risk affecting the
issuing bank’s obligation
2.5.

Criteria to evaluate L/C payment of a bank

There are many ways to evaluate L/C payment of a bank, in this report I present the
main criteria, which are widespread in many famous organizations. Assessment will
be carried out through two sides participating in L/C payment transaction: banks
and customers.
2.5.1. Evaluation through banks
 The scale of L/C payment operation
The scale of L/C payment operation is expressed through the growth of: quantity of
transactions, value of transaction and the proportion of L/C payment in total
operation of the bank. These indicators for assessment of L/C payment are visible to
measure because the three factors are characterized by specific figures. Thereby, it
is easy way to assess the effectiveness of L/C payment by comparing figure
between financial periods. In some cases, the increase of three factors above is not
equal. For example, the quantity of L/C transactions reduces but the revenue
increases and vice versa. Therefore, in specific cases depending on the importance

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of criteria, we can give the correct conclusion. Among indicators, the scale of L/C
payment operation is shown mainly by value of L/C.
 The degree of risk minimization in L/C payment operation
International trade transactions carry inherently more risks than domestic trade
transactions because of differences in culture, business processes, laws and
regulations. It is important for traders to ensure that payment is received for goods
dispatched and the goods received must comply with the contract of sale. Although
L/C is used to reduce financial risk for exporters, there are distinct risks that must
be considered by all parties. These risks can be divided into 4 types: technical risks,
political risks, economic risks, fraud.
The assessment of L/C payment operation is not carried out only by the quantity
and the turnover, but one factor is very important is risk management of the bank. If
a bank cannot do this task well, it can cause considerable losses for both bank and
their customer. In conclusion, bank should pay attention to risk limitation in L/C
payment that can create trust from customer and partners. From that, bank can
expand their activities in international payment and make more profit.
2.5.2. Evaluation through customers
 The fee
In the process of L/C payment, customer must pay following certain charges:
notification fee, opening fee, discount fee, amendment fee…Companies always
want to maximize the profit as well as minimize the risks by both reducing cost and
ensuring safety. Therefore, companies pay attention to the cost to answer questions:
whether the fee is high or low, it is reasonable to the complex level of transaction.
If customer find the service quality they receive is worthy of the money they paid,
they will choose the bank.
 The safety degree of L/C transaction process

In the current economic context, the international payment transactions need be
"quickly and accurately." Due to the difference of distance as well as information,
transactions sometimes are carried out at wrong deadlines and cause significant
losses for clients. If the bank and their staff can perform transaction accurately, it
will help customers save time, money and feel safe.


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Customers and staff must pay attention to some special dates: Expiry Date, Latest
Date for Presentation, Latest Shipping Date…to operate transactions accurately and
timely.
 The convenience in L/C payment
The transaction office is near or far from customer’s company? Transaction time is
suitable with company’s working time? Facilities are enough modern and good?
The attitude of the staff is good? These are normal questions when customers decide
to choose their suppliers. If bank can meet demand of customer about place, time,
reputation, and attitude of staff and their service is convenient with the activities of
customer, the bank will be chosen.
2.6.

Factors affecting the efficiency of L/C payment in the bank

There are many factors influencing on the effectiveness of L/C payment, we can
divide into 2 main groups: external factors and internal factors.
2.6.1. External factor
 Economic and political situation in the world
L/C settlement operation is intensively affected by economic and political situation
of partner’s countries. Any economic or political changes also have impact on
payment capacity and willingness of both parties. For example, economic crisis and

wars will influence negatively on free trade trend, production & business
performance and international payment activities. Therefore, if the economic and
political status is stable, L/C payment activities will be speeded up.
 Macroeconomic policy of government
Macroeconomic policy of government is very important factor, which has direct
impact on activities performance of import-export enterprises and banks. These
policies include: forex-management policy, tax policy and foreign policy. Firstly,
international payment activities relate to currency circulation, so it is under control
of government’s forex policy. Secondly, through high or low tax rate on products,
government will show encouragement or restriction on particular products. Finally,
if government applies free – trade motivation policy, import-export activities will be
promoted.


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 Customer’s experience, competence and reputation
In market-economics, customers are essential and decisive factor in banking in
general and L/C payment activity in particular. The process and efficiency of L/C
depend on the competence, experience and prestige of customer. If customer is
prestigious and high ethic, fraud risks will be reduced and vice versa. If the
customer acts fraudulently, bank’s reputation also is affected and it is easy to be
stuck in legal proceedings.
2.6.2. Internal factors
 Human resources quality
Quality and attitude of staff take an important and positive role in making
impression on customer about bank’s image. They are expressed in communication
style, technical knowledge, experience, etc.
In international payment, officers must be good at technical & financial knowledge,
foreign language and information technology skill. Besides, officer should be

confident, careful and experienced to perform transactions. Not many banks in
Vietnam have professional and competent staff, which is the reason why efficiency
of L/C payment is still low. Therefore, banks should invest in improving human
resource quality to facilitate L/C payment.
 Technology, facilities
Technology is visible tool, which helps international transactions be carried out
quickly and accurately. Through technology customer can evaluate how modern and
professional a bank is. Technology and facilities include transaction process and
support means like Internet, supporting machines…Nowadays, technology is
developing and becoming a main factor to improve service quality, supply accurate
information and create trust in customers.
 Network correspondent banks
Network of correspondent bank takes an important role in trade exchange among
countries in the world. Large range of correspondents will speed up the transactions,
increase accuracy, reduce the cost and minimize risks. On the contrary, bank can
facilitate mandatory service of correspondent bank to enhance international
payment using L/C.


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 Cooperation with other supporting activities
In each bank, apart from international payment operation, there are some other
activities. Other business activities such as import-export credit, foreign exchange
will support international payment operations. If these activities perform well, it
will bring more customers and expand L/C payment operation as well.


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CHAPTER III
REALITY AND EVALUATION OF INTERNATIONAL PAYMENT BY
L/C IN THAI HA SUB-BRANCH
Reality of L/C payment in SHB Thai Ha sub-branch
3.1.1. The process of L/C transaction

3.1.

The process of L/C transaction in SHB includes 2 periods: issuance of L/C and
payment under L/C. The sub-branch only takes responsibility in two first steps of
Issuance period. It is to receive customers’ demand in international payment, verify
and transfer to the International Payment Department. The officers in Thai Ha subbranch always endeavor to settle this step as soon as possible in order to save time
and money for customers. This task is normally completed in the first day of
requesting. However, main tasks belong to International Payment department and
customers often take a lot of time to prove reliability of theirs documents such as
bills, contracts.... Consequently, some customers do not satisfy and complain that
the process of L/C payment in SHB is rather long. At present, SHB is trying to
reduce the process time and make the procedure as simple as possible. With the
plan to invest in technology and hire specialists in international payment, L/C
payment transaction will be improved in near future.
3.1.2. Products of L/C payment in SHB
Despite of new establishment, SHB has tried to give a wide range of L/C payment
products to serve for export and import activities. However, in fact, the customers
of SHB almost use basic L/Cs such as irrevocable L/C and confirmed irrevocable
L/C for their export and import transactions. Some other L/Cs such as: standby
L/C, back to back L/C, revolving L/C, and transferable L/C are rarely used in Thai
Ha sub- branch. This is due to these kinds of L/C are not suitable for business’s
feature of customer and the customer’ demand is low. Last but not least, there is a
question of SHB’s reputation in international payment in comparison to other

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famous banks like Vietcombank, Eximbank, Saccombank…As mentioned in
Chapter I, international payment in SHB has just been officially operated for nearly
three years, it will take a more time to build a reliable image about international
payment service. Some customers still haven’t felt safe yet when they use L/C
payment service of SHB and many of them choose other famous banks in
international payment. Therefore, one important matter of SHB is to create a well –
known image in international payment as well as diversify products of L/Cs to
attract more customers with perfect and profitable services.
3.1.3. The scale of L/C payment
 The quantity & the revenue of L/C payment transaction in SHB
Import L/C
Value
Quantity (million USD)

Export L/C
Value
Quantity
(million USD)
93

2007

294

216.9

80.9

2008

310

290.6

87

74.4

2009

696

554.1

205

195

2010

1098

860.3

278

269.9

Total
Revenue
297.8
365
849.1
1130.2

Table 1: The reality of import & export L/C
(Source: SHB annual report 2007 – 2010)

From the Table 1, we can see the total revenue is mainly made up by import L/Cs.
The quantity of import L/C increases rapidly and contributes significantly in total
volume. On the other hand, the export L/C transactions cover a little part not only in
value but also in the quantity of transactions. Although the quantity of export
transactions has gone up years by years, it can’t keep pace with growth speed of
import L/C. Especially, the number of export L/C transaction in 2010 is only as
much as import L/C one in 2007.


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Chart 3: The value of Import & Export L/C in SHB
(Source: SHB annual report 2007 – 2010)

The chart 3 above shows the comparison in value between Import and Export L/C
transactions. In general, both L/C transactions have relatively stable growth. From
2009 – 2010, export L/C has gone up intensively and overshot up to 860.3 million
dollar in 2010. Meanwhile, the number of export L/C transaction has grown
gradually and accounted for a modest part in total revenue. Import L/C transaction

always covers higher density than export L/C transaction, usually more three or four
times. The number from revenue and quantity of L/C shows an imbalance between
import and export L/C.
Basing on factors affecting L/C transaction listed in the previous chapter like
economic status, government policies, customer’s habit…, we can see two main