Methods of International Payment in Vietnam | May 11 2012 | ACB| ASSIGNMENT: DOCUMENTARY COLLECTION IN ASIAN COMMERCIAL BANK (ACB) I. The necessary of international payment 1. Definition: International payment is the process executing obligations to payment and entitlements to benefits of money which results in economic and non-economic activities between organisations, individuals of different nationalities or between a nation and an international organisation through banks of related partners. 2. Roles of international payment For the economy International payment activity plays an important role in the economic development of the country.

A country cannot develop with closed policy, or only basing on the internal accumulation and exchange. It must develop comparative advantages and combine the power of the country with the international economic environment. In the current context when countries are putting external economic forefront, considering the external economic activity as the essential way in the development strategy of national economic activity, the role of international payment is increasingly confirmed. International payment is an important link in the chain of national economic activities.

International payment is an important step in trading goods and services between individuals and organizations of different countries. This contributes to settling the relationship between commodity and currency, creating a continuous production process and hastening the circulation of goods process on an international scale. If international payment activities are conducted fast and safe, the circulation of goods and monetary between buyers and sellers will be smooth and more secure. International payment increases economic exchanges relationships between countries, makes the payment process fast, safe, onvenient and reduces costs for participants. Besides, international payment activity increases the volume of non- cash payments in the economy, and attract a significant amount of foreign currency into Vietnam. For customers The role of payment intermediaries in the international payment activity of commercial banks makes the payment process requested by clients will be conducted quickly and accurately, safety, conveniently and cost savings up. In the process of making payment, if the customer does not have enough financial resources and needs financial support from the bank, the bank will discount the documents.

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By making a payment, the bank can monitor the business situation of enterprises to give advices to clients and customers and to adjust strategies. For the banks International payment is an activity related to the bank’s balance- sheet assets. International payment activity helps banks satisfy better the needs of customers for financial services related to international payment. On that basis, banks increase revenue, improve the bank’s reputation and build up the trust of customers.

It not only helps banks to expand their scale of operation but also be an advantage to form the competitiveness of bank in the market mechanism. International payment activity is not only a single activity but also a support activity to trading activities of banks. International payment activities being done well will extend credit for import-export operations, develop foreign exchange operations, bank guarantees in foreign trade, trade finance and other international banking activities. International payment activity increases liquidity for banks.

When conducting the international payment operation, banks can obtain foreign funds which are temporarily idle of businesses that in relationship with banks under form of escrow pending payment. International payment also creates good conditions to the modernization of banking technology. The banks will apply advanced technology to operate international payment be done quickly, promptly and accurately, in order to spread risk, contributing to expansion scale and banking networks. International payment activities also increase the foreign relations of the banks, strengthen the competitiveness of the bank, raise its reputation in he international arena, and thereby exploit the fund of foreign banks and the capital on international financial markets to meet the capital needs of banks. II- General information on the Asia Commercial Bank 1. Basic information Contact Info Address: 442 Nguyen Thi Minh Khai, District 3, HCMC Tel: (848) 3929 0999 Fax: (848) 3839 9885 Email: [email protected] com. vn Website: www. acb. com. vn Charter capital Since 31/12/2010 ACB’s charter capital is VND 9,376,965,060,000 (Nine thousand three hundred seventy six billion nine hundred and sixty-five million and sixty thousand) Main products and services Raising capital (customer deposits) in Vietnam dong, foreign currencies and gold * Use of capital (credit offers, investment, joint venture partnership) in VND, foreign currencies and gold * The intermediary services (make payments domestically and internationally, make treasury services, remittance and money transfer, life insurance through banks). *  Trading in foreign currencies and gold *  Issuing and accepting payments through credit card, debit card. Distribution network There are 327 branches and transaction offices in economically developed areas across the country. . Information on ACB’s Operation: 2011| 2010| Total Assets281,032,834 million VND| Total Assets205,102,950 million VND| Total Liabilities267,187,611 million VND| Total Liabilities193,726,193 million VND| Total Equities13,845,223 million VND| Total Equities11,376,757 million VND| ACB’s position compared to thefourStates Commercial Banks(Vietinbank, Vietcombank, BIDV, Agribank) By the end of2009, the fourlargestcommercial banksare estimated to haveabout51%of thedepositsmobilized fromresidents andeconomic organizationsand50% ofoutstanding loansofthe bankingsector.

Compared tothe size ofall fourbanksat the end of2009, total assets of ACB equalabout 13% (+ 3% fromlate 2008), depositsof population andeconomic organizationsequal about 12,5%(+3%), loansequal about7%(+2%) and profitbefore tax equalsaround 23%. ACB’s position compared tootherJoint-stock Commercial Banks: Compared to other Joint-stock Commercial Banks, ACBisthe leading bankin total assets, capitalraising,loansand profits. III- International Payments at Asia Commercial Bank:

The State Bank of Vietnam’s (SBV) governor on February 10, 2009 issued an Official Dispatch No 867/NHNN-CNH allowing Asia Commercial Joint Stock Bank (ACB) to launch international payment services. ACB is Vietnam’s unique bank to have an automatic international payment rate of 95 percent. The bank is now working with the international payment agent bank network across the world, including more than 800 dealers in 100 countries. International settlement turnover of ACB from 2008 – 30/9/2010 | 2008| 2009| 2010| International Payment revenue (mil VND)| 3. 454| 3. 72| 3. 034| International Payment fee(bil VND)| 87. 4| 292. 4| 106. 7| (source: ACB’s prospectus) 1. Remittances. In ACB, inward remittances are an important retail service by Vietnamese people residing overseas (when overseas Vietnamese send money home to their relatives). In the first eight months of 2009, ACB achievement in transferring inward remittances surpassed 30% of the plan thanks to US’s tighter regulations on unofficial money transference channels. The aggregate size of remittances may contract marginally in 2009 as a consequence of the global downturn.

Tellingly, fewer Vietnamese relocated overseas as laborers in 2008 compared with a year earlier, and fewer Vietnamese migrants (in US, France, Australia, Russia and elsewhere) travelled home for the lunar new year festival in January as their budgets were tightened. Nonetheless, inward remittances will remain a healthy source of business for ACB in the foreseeable future. Western Union, a subsidiary of Asia Commercial Bank ACB, has reported the remittance revenue increasing by 8% in the first six months of 2011 in comparison with the same period of the last year.

Earlier this year, ACB instructed Western Union to obtain a 10% growth rate in 2011. Benefits: * Receive money quickly. * Enjoy the serving from thoughtful and whole-hearted staff. * Safety and information confidentiality Processing: Customers only need to provide their partners with ACB’s information for remittance: Asia Commercial Bank 442 Nguyen Thi Minh Khai Street, District 3, Ho Chi Minh City, Viet Nam. SWIFT CODE: ASCBVNVX In addition, in order to reduce the cost and time of receiving money, customers can provide their partners with full information of foreign banks which ACB has accounts at.

Kindly contact the nearest ACB’s branch office or find the list below for your reference. Documents: In case customers request ACB to send the documents to the overseas buyers, the documents include: Written documents to request ACB to send documents to overseas buyers Documents of exported goods. Fee table: In addition, ACB Western Union have provided an instant overseas remittance service, in which remittance can reach the destination country in a mere 10 minutes.. Customers who use the service can remit a total of US $7,000, but not exceeding US $5,000 per day, to their relatives abroad to cover the costs of study, or medical treatment.

Fees vary from US $20-50 per transaction depending on the location. The service is available at any ACB’s branch. Customers’ information is updated in only five minutes and accessible via the Western Union computers’ network. Recipients in other countries can collect the money at any Western Union office. Some problems when making payment by remittance: – Risk of wrong acts in remittance: ACB received an instruction to transfer 500,000 EUR for beneficiary having an account which is opened at bank A in Germany but some mistakes happened by not checking carefully, thus the officer of ACB had sent it to bank B (also in Germany).

After checking it later and correcting the mistake, ACB instantly informed to bank B to required them sent back to ACB, simutinously used the money of bank to pay for beneficiary. 1 week later, bank B finally transferred money back but asked to pay service fee about 10 EUR from ACB. We can see in the above example, by making mistake in eplement, ACB has to face the risk of paying arise fee and being lower reputation. – Policy risk: It is the risk when the country of the beneficiary applies the embargo of changes the regulations. It will impact on the remittance processing of ACB. 2. Documentary Collection

There are 2 methods of Collection in Vietnam: Clean collection and Documentary collection. Clean collection: Financial documents are collected not accompanied by commercial documents. Customer tends to not use this method since it stands high risk of default. Therefore, clean collection revenue in Vietnamese bank has been insignificant, mostly gained from small transactions, commissions or correspondent banking fees Documentary collection: Is the collection in which financial documents are accompanied with commercial documents. Banks only play intermediary role in obtaining payment for customers without any payment obligation.

In ACB, documentary collection was operated merely at the same time with documentary credit. Unluckily, it contained implicit risk to both exporters and importers, making them an unattractive payment method in comparison with documentary credit; hence it was used much less frequently. In this method of international payment, the reputation of bank is significantly important. ACB has been the top leader in this field with revenue gained from servicing documentary collection increasing year by year Unit: mil USD Criteria| 2000| 2001| 2002| 2003| 2004| Import L/C| 1072| 1615| 2006| 2186| 2286| Export L/C| 495| 555| 732. 1| 753| 893|

Import collection| 50. 5| 26| 40| 71| 91| Export collection| 41. 5| 13. 4| 31. 9| 33| 39| Outward remittance| 201| 296| 331| 340| 420| Inward remittance| 192| 295| 359| 417| 471| International payment Revenue| 2052| 2800| 3500| 3800| 4200| 3. 1 Collection procedures In export activity Step 1: Customer submit the documents including collection instructions and all documents to bank Step 2: Professional staff collects the documents. If it is complying presentation, the staff then signs and seals the paper to confirm bank’s involvement in this transaction. Step 3: Send all documents to bank oversea under customer’s nomination.

After sometime, the foreign bank will reply. Step 4: In case the documents are refused, ACB then informs its customer to act. Step 5: On obtaining payment, the bank informs its customer to come get the money. In import activity Step 1: Bank staff collects the documents from bank oversea; check its presentation. If there is mistake, bank informs the foreign bank Step 2: Create collection instruction, inform customer Step 3: Depending on D/C or D/A term that the bank instructs its customer to make payment accordingly. On receiving payment, the bank transfer the money to bank oversea. If issuing bank amend its instruction about price of goods, payment date… or sends more additional documents, ACB must inform its customer * If issuing bank requires documents to be resent or no reply has been made after some certain time, ACB sends back all documents to issuing bank oversea and claims all fees 3. 2 Report on the operation of collection method In comparison with other international payment methods like remittance or documentary credit, customer less used collection since ACB opened this business. Revenue in relation with other methods’ often accounts for only1% – 2% Table: Revenue from Collection at ACB’s branch

Unit: thousand USD YearCriteria| 2005| 2006| 2007| 2008| Collection| 310,91| 788,80| 2. 020,78| 1. 679,35| Revenue| Amount| 17. 155,64| 96. 848,63| 203. 848,58| 284. 623,08| | Weight| 1,2%| 1,7%| 2,0%| 1,1%| Source: International Payment financial statement 2005, 2006, 2007, 2008 of ACB branch Although revenue was lower than other from other method of international payment, the growth rate was satisfactory, bringing significant income to ACB branch 3. 3 Collection in each process Documentary collection can be divided into 2 main types: Import collection and Export collection a. Import collection

Customers import goods by collection method and need a collecting bank to receive documents from foreign country, inform customers and make payment to foreign parties as instructed. With ACB’s Import Collection service, your needs will be satisfied in a timely fashion. With over-10-year experience in trade finance (from 1994) and the network of about 800 correspondent banks in over the world, customers and foreign partners will  be satisfied with the quality of services from ACB. Benefits: * Free-of-charge professional consultancy in order to minimize risks and expenses * Quick processing * Financial support through Import Finance program Safe and confidential Documents: * Legal documents * Sales contract * Import license/ quota (for goods that require import license/quota) * Documents that confirm loan registration, foreign loan payment of  the State Bank in case the payment deadline of the contract is over 1 year. * Bill of exchange accepted for payment by customers (for D/A documents) b. Export collection After exporting goods to foreign importer, customer will find himself in need of the exporting collection provided by ACB. ACB’s jobs are to send the documents to collecting bank and transfer payment to exporter’s account on receipt Benefits: Free-of-charge professional consultancy in order to minimize risks and expenses * Financial support through Import Finance program * Safe and confidential Documents: * Legal documents * Letter of documentary collection * Export license * Sales contract 3. 4 Arising problem in collection process Case number 1 ACB receives a set of documents with instruction “D/P 30 days after sight”. Staff can easily miss the condition D/P, instead he thinks this is a D/A term because of the phrase “30 days after sight” and follows a D/A process, by which customer is required to accept deferred B/L.

After 30 days, importer refuses to pay because of unqualified goods. When telegraphing to require payment from issuing bank, ACB receives telex asking for payment since this is a D/P term. Due to not complying with collection instruction, ACB faces the risk of taking its own money to pay for the importer. It takes time and cost to claim the money from importer Case number 2 ACB receives a set of documents with instruction “D/A against the collecting bank’s consent” according to which, ACB has the obligation to require importer sign deferred B/L and make payment to the issuing bank on due date.

Because staff does not fully understand the instruction, he does not request customer to make commitment to deposit money into the payment account and only asks importer to accept deferred B/L like other ordinary D/A terms. On due date, importer does not pay, while issuing bank keeps asking for payment for the documents. To maintain its reputation, ACB uses its own money to settle the payment. 2. 5 Proposal and Solutions – Build effective and specialized framework in managing the operation of international payment.

Namely: increase bank staff’s knowledge through training session and practice; improve quality of electronic system by technology innovation… – Establish clear regulations and processing instructions in doing international payment operation in compliance with international terms and conditions; complete related documents instructing IP process – Apply risk-management methods in doing international payment related business such as import-export financial support, monetary exchange… 3. Documentary Credit Documentary credit is the second most popular method of international payment after Remittance in Vietnam.

Given statistics have reported that 80% commercial banks use Remittance as the basic method, 15% belongs to documentary collection and other methods of payment account for 5%. 3. 1 Documentary credit procedures at ACB: 3. 1. 1 L/C procedures in export activity: Step 1 – Checking the documents’ legitimacy: Bank’s professors collect 2 copies of L/C and related documents from foreign issuing banks then check them all. Step 2 – Requesting: In case the documents miss any terms or conditions, ACB manages to correct and add additional data then send the documents to be checked and ask for immediate correction.

Step 3 – Sending telegraph: Payment staff send electronic directive to issuing bank to request payment. Step 4 – Verifying, post signature: Payment staff present documents to authorities so that documents are verified. Simultaneously, the authorities sign a post signature at the back of B/E, implying that ACB has the right to collect payment or to request payment from foreign issuing bank. Step 5 – Accounting: Payment staff record any incurring fee including L/C exporting fee, document checking and telegraphing fees.

Step 6 – Sending documents, telegraphing: Send documents to issuing bank as exporter’s request or telegraph to issuing bank like Step 3, using SWIFT payment program. Step 7 – Announcing: ACB makes announcement to customer that documents or telegraph has been sent. Customer is required to sign an L/C verification form that he knows the news Step 8 – Supervising: ACB supervises payment from foreign issuing bank. In case of late payment, ACB sends telegraphic mail to request payment; if issuing bank refuses to pay, ACB informs and waits for exporter’s decision.

Step 9 – Crediting: On receiving payment from issuing bank, ACB immediately credits exporter’s account and sends a notice to customer. Step 10 – Recording transaction: The transaction is recorded in “L/C folder”; information about number of L/C, date, currencies… is specified clearly on the folder’s cover sheet… 3. 1. 2 L/C procedures in import activities: Step 1 – Checking the documents: Documents sent by importer must be checked and verified by authorities Step 2 – Informing mistakes: In case mistakes are made in the documents, payment staff compose a notice of illegitimate documents and present to authorities and customer.

Step 3 – Refusing payment: In case customer fails to pay L/C fee (7 days after receiving documents) without any text notice, ACB telegraphs to customer to refuse doing business. Step 4 – Informing: The documents are legitimate, payment staffs present them to authorities for verification. Step 5 – Fee accounting: Before sending payment telegraph, banking staff record service fee into accounting book Step 6 – Telegraphing: ACB telegraph to beneficiary’s bank.

After sent, authorities signs the telegraphic bill, electronic mail is sent under SWIFT rules Step 7 – Recording transaction: Staff is obliged to record any incurring transaction and related documents. Step 8 – Deliver documents: In case B/E has not been signed, payment staff is obliged to have authority signed at the back of the B/E as followed: To order of… (customer’s name) ………………………………… Vietnam ACB Authorized signature (authority’s signature and seal) On delivery of documents to customer, payment staff must have customer verified the receipt of documents along with time, date and customer’s signature. . 2 The situation of using L/C at ACB 3. 2. 1 L/C in import: Turnover from import L/C has always overweighed that from export L/C thanks to its pre-eminence and because of Vietnam’s deficit trade balance, low reliability between Vietnamese corporations and foreign business partners. Nowadays, Vietnam has successfully integrated with world trade, making import-export turnover increase significantly. International payment activities have developed since then, widening relationship between banks and ACB branches. Therefore, the demand for opening L/C has continuously risen.

In terms of ACB branches, at first international payment service as well as L/C service in particular was not attractive to customers since corporations were used to doing business with conventional large banks such as VCB, ICB… Thanks to excellent strategies, ACB has achieved significant success in doing international payment services, gained more trust from business partners. Below is the table consolidating L/C operations of ACB in 3 years 2005, 2006, 2007 L/C import’s revenue and number of transactions Unit: USD Year| Import payment made by L/C| | Revenue | Number of transactions| 005 2006 2007| 9,468,299. 4011,569,744. 0051,332,065. 84| 106120134| (Source: Report of international payment activities at ACB) Observing the table, we can conclude that revenue of L/C payment increased from previous to next year, proving that ACB gained more experiences and prestige to customers. In 2009, ACB had the honor to receive City Performance Excellence Award for Bank with excellent international payment service awarded by City Group. Up till now, ACB has proved it is among the top class banks in Vietnam in terms of international payment service 3. 2. 2 L/C in export

Below is the table of L/C revenue in export activities L/C export’s revenue and number of transactions Unit: USD Year| Revenue and number of transactions| | Revenue| Number of transactions| 2005 2006 2007| 443,526. 33,521,099. 35264,918. 24| 171913| (Source: Report of international payment activities at ACB) As mentioned above, due to trade deficit and unreliability between Vietnamese partners with others, L/C revenue in export has outweighed that in import, ACB is not an exception to this trend. 3. 3 Problems and Causes: 3. 3. 1 Problems – Imbalances between export and import payment Poor types of products: In recent time, L/C opened by ACB is mostly irrevocable because of its safety and attractiveness to corporations. Because of few types of L/C products, customers do not have many choices to use for their specific businesses. To some extent, this is the reason for low competitiveness between ACB (in particular) or other commercial banks (in general) and foreign corporations. Because of this, ACB has yet to attract foreign customers. 3. 3. 2 Causes Subjective causes – ACB products appeared late in the market. Not until 1994 was international payment operated in ACB while the other banks had already had it.

This was a big disadvantage to ACB to catch up with its competitors – ACB paid insufficient attention to marketing strategy. Objective causes – Causes from the Government: Depending on economic policies at different period (fiscal, monetary policies) that affects international payment operations of ACB. – Incomplete legal framework for L/C method: As the matter of fact, Vietnam has yet to issue FOREX Act, cheque or B/E Act… There lack legal documents for international payment in import-export activity as well as agreements Vietnam actively engaged so that ACB can adjust its activities.

This is an obstacle which cannot be removed in place, however essential as a foundation for international payment activity. – Deficit trade balance and current account has caused imbalances between foreign currencies’ supply and demand, making Government intervene in the FOREX market which has affected trading in the foreign currency market of banks. 3. 4 Solutions – Strategy: effective contact with customers – Enhance labor force quality; productivity-based income distribution – Invest in new technologies – Raise capital from foreign currency Increase marketing activity – Stricter supervision 4. Methods of international payment at ACB To observe thoroughly international payment services’ results of ACB recently, we analyze the results collected from activities of 3 major methods that ACB is using: Remittance, Documentary Collection and Documentary Credit Sales from 3 International Payment methods Order| Criteria| 2005| 2006| 2007| | | Revenue(USD)| Transaction number| Revenue (USD)| Transaction number| Revenue(USD)| Transaction number| 1| T/T| 31,098,365. 25| 1231| 40,593,126. 55| 1701| 44,157,460. 7| 1960| 2| Export L/C| 443,526. 33| 17| 521,099. 35| 19| 264,918. 24| 13| 3| Import L/C| 9,468,299. 40| 106| 11,569,744. 00| 120| 51,332,065. 84| 134| 4| Export Collection| 25,000. 00| 1| 38,500. 00| 2| 280,750. 40| 27| 5| Import Collection| 2,539,499. 00| 90| 1,359,366. 23| 50| 1,748,593. 89| 70| 6| Export TT| | | | | 9,908,221. 32| 603| 7| Export revenue| 468,526. 33| 18| 559,599. 35| 21| 10,453,889. 96| 643| 8| Import revenue| 43,106,163. 65| 1,427| 53,522,236. 78| 1,871| 97,238,120. 59| 2164| 9| Total Import-Export| 43,574,689. 8| 1,445| 54,081,836. 13| 1,892| 107,692,010. 55| 2807| 10| Opened L/C| 8,952,644. 50| 105| 20,199,755. 63| 104| 47,252,624. 89| 122| (Source: International Financial Report – ACB). According to data shown in the table, sales gained from documentary credit increased rapidly during the years – implying that this method of International payment has been preferable to most customers. Sales from other methods (Remittance and Documentary Collection) also went up quickly, contributing to the total international payment revenue of ACB


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