THEORETICAL BASIS AND LITERATURE REVIEW FOR
INTERNATIONAL PAYMENT IN COMMERCIAL BANK
In today's global integration landscape, countries aiming for survival and growth must enhance cooperation with others worldwide International relations encompass various fields, including economics, politics, diplomacy, culture, science and technology, and tourism, with economic relations—primarily foreign trade—holding a pivotal position These economic ties serve as the foundation for the development of other international relations As international activities unfold, the necessity for payments among different countries arises, leading to the evolution of international payment systems, where banks act as intermediaries facilitating these transactions.
International settlement refers to the payment processes involved in monetary transactions that occur within economic, commercial, and various relationships among organizations, companies, and other entities across different countries, as defined by Associate Prof Dr Dinh Xuan Trinh (1996).
International Settlement, as defined by Assoc Prof Dr Tram Thi Xuan Huong (2006), refers to the execution of international monetary transactions through the global banking system, facilitating exchange relations between nations.
According to Nguyen Van Tien (2009), International Settlement refers to the execution of payment obligations and benefits in currency arising from economic and non-economic activities between entities within a country and those in other countries, or between a nation and an international organization, facilitated through the banking relationships of the involved nations.
Throughout years of development, International payment service nowadays has
International Settlement refers to the execution of payment obligations and currency benefits resulting from economic and non-economic activities between individuals and organizations across countries, facilitated through their respective banks This process encompasses both foreign trade payments and non-commercial payments, although the lines between these categories often blur in practice International settlements primarily arise from international trade, serving as the final stage in the exchange of goods and services Since direct payments between exporters and importers are not always feasible, commercial banks act as intermediaries, utilizing their global branch networks and correspondent banking systems to facilitate these transactions Today, banks play a crucial role in international trade by providing payment options, import and export financing, and ensuring the safety and interests of all parties involved, thereby fostering the growth and expansion of foreign trade relations worldwide.
International payments are characterized by the necessity of using currencies that are widely recognized and hold significant negotiating power Not all currencies are suitable for international transactions, as their acceptance can vary between countries Selecting the appropriate currency for a specific international payment can enhance efficiency, reduce risks, and align with the interests of all parties involved Consequently, when entering into credit commercial contracts or service agreements, it is essential for the parties to negotiate and agree on the currency to be used, whether it is the currency of the importing country or that of a third country.
International payment activities are regulated by international law, which addresses the complexities arising from the participation of various entities across different countries These differences in geography, customs, language, and legal interpretations can lead to significant disputes As a result, international payment processes must adhere not only to domestic laws but also to a variety of legal frameworks, including international law, the legal standards of partner nations, and the laws governing contracts and payments with international elements.
In the event of a dispute, it is essential to resolve it based on established legal provisions rather than simply relying on national laws Participants in international payments must agree on clear and comprehensive rules to avoid misunderstandings Additionally, certain countries have unique regulations regarding payment conditions and documentation requirements, making it crucial for banks and import-export businesses to thoroughly understand these aspects before entering into contracts to ensure smooth foreign trade operations.
International payments face various risks that differ significantly from domestic transactions, including currency fluctuations, political instability, and legal discrepancies Geographical distances can also hinder the assessment of debtors' reputations and payment capabilities Key risks for banks include discrepancies in payment documents related to letters of credit, errors made by bank employees during the payment process, and non-compliance with terms such as UCP600 These risks can potentially lead to economic crimes and substantial losses for both parties, although they can be mitigated with proper measures.
Ethical risks arise when participants intentionally neglect their obligations or provide false information, thereby harming the interests of others for personal gain This risk can originate from various parties, including importers, exporters, carriers, and banks.
In international trade, the ethical risks posed by importers can undermine trust between buyers and sellers, which is crucial for secure international payments When importers are unwilling to fulfill their contractual obligations, they may exploit minor document errors to negotiate discounts, delay payments, or even refuse payment altogether, placing significant financial strain on sellers and complicating the bank's role in the transaction.
Exporters face ethical risks when they deliver goods that are either unsuitable for the contract or intentionally not delivered, yet provide a complete set of documents that comply with payment terms Banks are obligated to pay sellers based solely on the documents presented, without inspecting the actual goods Consequently, importers may end up paying for goods they never receive, incurring additional bank fees in the process.
Ethical risks associated with carriers arise when sellers deliver goods to a carrier who then engages in deceitful practices, such as disappearing after receiving both the goods and payment or selling the items unlawfully In such scenarios, the goods never reach the buyer, despite the seller having fulfilled all shipping costs and delivery obligations Additionally, a carrier may engage in sophisticated fraud by swapping the goods provided by the seller during transit, resulting in illegal profits and significant harm to the seller.
Ethical risks in banking arise when an issuing bank delays or refuses payment on a documentary credit, despite the exporter fulfilling their obligations This situation may occur due to dishonesty from the remitting bank, yet the issuing bank may still choose to honor its reputation by making payments for the goods In cases of moral hazard, the bank is required to pay the beneficiary as per the letter of credit (L/C), even if the importer defaults on payment If the issuing bank intends to withhold payment, it should promptly inform the buyer to take appropriate legal action The root of moral hazard often lies in insufficient information and the disconnect between payment records and the actual goods involved.
Political risks arise from shifting policy mechanisms, particularly in countries with unstable legal environments that frequently undergo revisions Such changes can disrupt payment processes, leading to canceled transactions and financial losses for both exporters and importers The underlying causes of these socioeconomic and political events are often complex and unpredictable, including ethnic conflicts, strikes, protests, wars, and violence Additionally, a significant balance of payments deficit may compel a government to alter its foreign exchange and trade policies.
INTERNATIONAL PAYMENT SERVICE IN COMMERCIAL BANK
Theodore Levitt famously stated that "There are no such things as service industries; there are only industries whose service components vary." This perspective remains relevant today, as defining services can be complex due to the multitude of definitions available Ultimately, understanding the essence of services requires a closer examination of their foundational characteristics and their role across various industries.
Services encompass all economic activities that produce intangible outputs, which are typically consumed simultaneously with their production These services add value through aspects such as convenience, amusement, and comfort, making them distinct from physical products at the point of purchase.
According to Christopher Lovelock (2005), services are economic activities provided by one party to another, primarily utilizing time-based performances to achieve desired outcomes for recipients or for the assets that purchasers manage.
According to Lovelock (2005), service customers anticipate receiving value in return for their investment of money, time, and effort They seek access to goods, labor, professional skills, facilities, networks, and systems, but typically do not expect to own the physical components associated with these services.
Valerie A Zeithaml and Mary J Bitner (2000) define services as process behaviors aimed at creating value for customers and meeting their needs and expectations In contrast, Kotler and Armstrong (2004) describe services as activities or benefits that businesses offer to foster long-term relationships and collaboration with customers.
Services can be defined as all actions and reactions perceived by customers upon purchasing, encompassing acts, deeds, or performances.
1.2.2 Nature and characteristics of services:
It is very important to understand the nature and characteristics of services if we want to study the concept of services marketing There are five characteristics of service:
Services cannot be owned or stored like physical products; they are utilized for a specific duration For instance, when an individual engages an online trading platform, they access it only during market hours, expecting optimal performance throughout that time.
- Intangibility: Services cannot be seen, tried out, tasted, heard, touched or smelled before they are purchased or bought.
Services are inherently inseparable from their providers, whether those providers are individuals or entities This characteristic means that the quality and delivery of services are influenced by the provider, as well as the specific time and location of the service.
- Perishability: Services unlike goods cannot be stored Services can be availed only at the time of actually receiving it Thus services are developed and used almost simultaneously.
In addition, service quality is a notable and controversial concept in research literature because researchers face many difficulties in defining and measuring service quality without any consensus (Wisniewski, 2001)
Service quality varies in definition based on the context and focus of research, but it fundamentally represents how well a service fulfills customer needs and expectations (Lewis & Mitchell, 1990; Asubonteng et al., 1996; Wisniewski & Donnelly, 1996).
Service quality is defined as the degree to which a service meets customer expectations and fulfills their needs (1994) Parasuraman et al (1985, 1988) identified service quality as the gap between customer expectations and their perceptions of the service received Over the years, researchers have sought to define and measure service quality, with Lehtinen & Lehtinen (1982) emphasizing the importance of evaluating both the service delivery process and the service outcome Gronroos (1984) further categorized service quality into two dimensions: technical quality and functional quality Additionally, Parasuraman et al (1985) introduced the SERVQUAL model, which outlines five key components of service quality.
In my view, the quality of international payment services reflects the disparity between customer expectations and the actual experience with bank products involving foreign transactions This service quality can yield either positive or negative outcomes, varying based on individual customer perceptions.
INTERNATIONAL PAYMENT SERVICE QUALITY MEASUREMENTS
With the establishment of the MaL/Colm Baldrige Award in 1986 and the ISO
9000 standard in 1988, the business has gradually become more interested in
The SERVQUAL scale developed by Parasuraman et al (1988) is a widely recognized model for measuring service quality, emphasizing the gap between customer expectations and actual performance across five dimensions: Reliability, Responsiveness, Assurance, Empathy, and Tangibles However, some researchers argue that this model may not be universally applicable, highlighting the need for a broader understanding of service quality For instance, Sasser et al (1978) identified three key aspects of service quality: equipment, personnel, and materials, while Lehtinen (1982) expanded the concept to include the quality of equipment, company reputation, and the interactions between staff and customers.
However, the S ERVQUAL model is still one of the most prominent models and will be an omission if not mentioned.
Most generally, S ERVQUAL provides 10 general assessment criteria for all service sectors:
- Reliability: Ability to respond on time and quality expectation the first time using the service.
- Responsiveness: The willingness and willingness of service personnel to provide services to customers.
- Competence: The ability to specialize in a certain profession to perform services.
- Access: The level of ease of customer access to the service: fast time, suitable location, convenient time for customers.
- Courtesy: The right and friendly service attitude brings a sense of respect to customers.
- Communication: The level of comprehension in conveying information about services to customers, while also talking about the ability to listen, understand and answer customers' questions.
- Credibility: The level of customer trust in the company's brand, the company's physical assets before, during and after the service use process.
- Customer understanding: The ability to continually learn, understand and meet the changing needs of customers, makes them feel the attention of the company for them.
- Tangibles: The visible customer elements when exposed to services such as staff uniforms, decoration, colors, etc.
Despite its theoretical nature, the SERVQUAL model presents challenges in measurement and may contain components that lack discriminant validity Researchers have consistently examined this model and concluded that it comprises five fundamental elements essential for assessing service quality.
- Reliability: expressed through the ability to perform services appropriately and on time right from the first time.
- Responsiveness: expressed through the willingness of service personnel to provide timely services to customers.
- Assurance: expressed through the professional level and polite and affable way of serving customers.
- Empathy: showing care for the demand of individuals and customers.
- Tangibles: shown by appearance, attire of employees, equipment for service.
This research created a questionnaire featuring 22 questions across five components derived from the SERVQUAL model to assess customer perceptions The analysis of the collected data was conducted using qualitative criteria, providing valuable insights into customer satisfaction and service quality.
In addition, the effectiveness of international payment operations at commercial banks can be determined based on the following relative and absolute quantitative indicators:
The performance of international payment services is evaluated based on the revenue generated from various fees charged by banks, such as those for opening and editing letters of credit (L/Cs), processing entrustments, and service payments These fees, which can be a percentage of the total service cost or fixed amounts, are crucial for banks as they enhance profitability and operational efficiency As the demand for international payment services grows, banks experience increased revenue, yet each transaction incurs costs that must be managed Ultimately, the success of these activities is measured by the net profit, calculated as the difference between the revenue from international payments and the associated costs.
International payment efficiency = International payment revenue - International payment costs
This index shows the efficiency gained from the provision of international payment services, to see how much profit can 1 dollar of revenue earn.
This index show how much the cost accounts for in revenue, how much the revenue from international payments must cost.
- International payment revenue ratio (compare to total revenue)
This index helps determine the structure of revenue from international payment activities compared to the total revenue of the bank.
- International payment revenue ratio (compare with service revenue)
This index helps determine the structure of revenue from international payment activities compared to the service revenue only of the bank.
Chapter I has outlined the most general theoretical and general basis system of international payment and service quality such as concepts, characteristics, classification of forms, influencing factors or risks of international payments It can be seen that the current international payment is one of the most popular operations of commercial banks, playing an important role in the bank's product portfolio, which is a high profit source besides traditional credit Along with the legal documents system stipulated by the government and the SBV, the quality of international payment services has increasingly improved and developed, bringing a great income to the bank In addition, the effective operation of international payment activities will contribute to the prestige of the banking system to countries outside the territory and facilitate deep integration into the world economy The study of the contents presented in Chapter 1 will be the foundation for understanding the analysis of international payment operations at Joint Stock Commercial Bank for Foreign Trade of Vietnam more effectively, thereby proposing appropriate solutions to perfectInternational payment system for banks.
ACTUAL SITUATION OF THE EFFECTIVENESS OF
OPERATION’S OVERVIEW OF V IETCOMBANK
On April 1, 1963, the Bank for Foreign Trade was established under Decision No.115/CP by the Government Council, separating from the Foreign Exchange Management Department of the State Bank As the first and only Vietnamese bank focused on the foreign economic sector, it specialized in import and export financing, international payments, and foreign currency management Additionally, the bank served as an agent for the government in payment relations, loans, and aid to socialist countries, while also advising the State Bank's Board of Directors on policies related to foreign currency, gold management, and international financial relations.
Foreign trade bank was also a connection between the State bank and others international financial institutions.
Over 50 years of development, foreign trade bank has gradually transformed itself from a bank that specialized in international payment business to a multi- functional bank, which multidisciplinary works in order to provide customers full of financial services Vietcombank not only deliver leading services in term of international trade with excellent convenience but also give their customer the best services in traditional activities such as capital mobilization, credit, data financing, etc Along with the development of society and the increasing in customer’s demands,
Vietcombank has strengthened its position by providing superb and completed products in modern banking services such as foreign currency trading, derivative instruments, securities, card services and internet banking.
Vietcombank is committed to establishing international standards in its operations, earning a strong reputation and high-quality performance that is recognized not only by domestic customers but also by the prestigious international community From 2000 to 2012, the bank received numerous accolades, including the title of "Best Bank in Vietnam" from renowned international publications such as The Banker, Financial Times, EuroMoney, Asia Money, and Trade Finance Additionally, Vietcombank was awarded the "Labour Medal, Second Class" by the State, highlighting its excellence in the banking sector.
Vietcombank has consistently been recognized for its excellence in the banking sector, receiving the title of Best Bank in Vietnam by Asia Money Magazine in 1993 and EUROMONEY Magazine in 2003 The bank was honored with the Independence Medal, Third Class, by the Government in 1995 and its Connect 24 card earned the prestigious “Vietnam Golden Star” award in 2003 Over the years, Vietcombank has been named "The Best Bank" for five consecutive years by The Banker magazine and has garnered multiple awards, including "The Best Banks for Corporate Foreign Exchange Services" in 2007 and the "Business Stars Award of 2007." Additionally, it was recognized as one of the 10 largest enterprises in Vietnam in 2008.
Best Domestic Bank" award (2008), "Best Joint Stock Company in Vietnam", "The Best Domestic Trade Finance Bank in 2010" by Trade Finance Magazine (TFM) with
Vietcombank has achieved remarkable success by winning the titles of "Best Bank in Vietnam" and "Best Trade Finance in Vietnam" for three consecutive years As a leading brand in the region, Vietcombank consistently ranks among the top domestic banks, reinforcing its reputation for excellence in the financial sector.
Vietcombank, a leading commercial bank in Vietnam with over 15,000 employees and more than 500 branches, has established a global presence with correspondent banks in 176 countries Since entering a restructuring phase in 2015, the bank reported a pre-tax profit of approximately 18 trillion VND by the end of 2018, reflecting a remarkable growth of over 60% compared to 2017 and nearly triple its performance from 2015.
(about 7,4000 billion dong) These figures showed that the restructuring of Vietcombank was a wisely decision when brought about a good result for this firm.
Following its equitisation, Vietcombank has adopted a parent company model where the commercial bank serves as the parent entity, overseeing its core business operations Investors in Vietcombank shares hold both rights and responsibilities towards the bank and its subsidiaries, which are essential for capital contributions that support the bank's ongoing operations and profitability In alignment with government directives, Vietcombank's subsidiaries are also undergoing equitisation to diversify ownership structures and leverage the strategies and expertise of strategic partners, particularly foreign ones, to enhance the bank's operational efficiency.
By the end of 2018, Vietcombank successfully expanded its operations into real estate, insurance, and various financial services through its three subsidiaries: Vietcombank Securities (VCBS), Vietcombank Leasing (VCBL), and Cardif Life.
(Sources: Vietcombank’s company presentation (May, 2018)
Vietcombank entered strategic partner relationship with Mizuho Corporate Bank,
2011 and turn this bank into the second biggest shareholder after SBV.
Figure 2.2 Vietcombank shareholder structure Foreign Dnmestic investor investor,
(Sources: Vietcombank’s company presentation (May, 2018)
With the ambition to be the leading bank in Vietnam and rank among the world's top 300 financial institutions, the bank is committed to implementing global best practices and aims to pioneer the adoption of Basel II standards by 2018, followed by Advanced Basel II.
2020, Vietcombank has an ambition to restructure enterprises by 2020 as the
“Targeted corporation structure” picture below:
48,145,556 Figure 2.3 Targeted Vietcombank structure in 2020658 52,557,959 9T6 62,179,379 18.31
I J Domestic Subsidiaries ⊂ Joint Ventures □ Foreign Subsidiaries Joint Ventures □ Foreign Subsidiaries ɪ] Target businesses which VCB plans to Invest In sometime In the near future
(Sources: Vietcombank’s company presentation (May, 2018)
2.1.3 Actual situation of Vietcombank’s operation
Table 2.1 Growth of Vietcombank total assets and total equity
(Sources.: Synthesized from /∕etcombank , s financial statements in 2ƠĨ6,
When analyzing a bank's balance sheet, two key indicators to consider are total assets and total equity Vietcombank's recent report showcases impressive figures, reflecting consistent growth in both areas over the years.
Over the past three years, the bank has experienced a substantial increase in total assets, amounting to 286,091,472 million VND This consistent growth has resulted in a positive growth rate, reflecting the bank's rapid expansion during this period.
From 2015 to 2016, the bank experienced a modest asset growth of 16.84%, but this surged to an impressive 31.39% from 2016 to 2017, attributed to a successful four-year restructuring Since 2015, the bank's total assets have consistently increased year-on-year, positioning it as the third-largest bank in terms of assets, following BIDV and Vietinbank However, in 2018, asset growth slowed to below 4%, indicating a potential plateau or insufficient changes to adapt to the evolving business environment Despite this slowdown, the significant increase in total assets in prior years reinforces Vietcombank's strong reputation in the banking sector.
Vietcombank has experienced a significant increase in total equity alongside its total assets, with equity rising sharply and consistently over the years Between 2016 and 2018, the bank's equity grew by 1.5 times, reflecting a total growth rate of approximately 35% This growth indicates strong shareholder confidence in the bank's operations and an increasing number of quality investors, allowing Vietcombank to be more self-sustaining than in the past Furthermore, the substantial growth in equity has enhanced the bank's image and reputation, attracting more domestic and international investors Notably, after the successful capital sale to Mizuho, which generated an additional revenue of $567 million, Vietcombank's equity surged by 3.8 times over a decade, rising from VND 16,710 billion to around VND 63 billion.
Figure 2.4 Structure of Vietcombank’s total asset in 2016 - 2018
Amo unt % Amo unt % Amo unt % Gap
(Sources Synthesized from V∕etcombank , s f∕nanc∕a/ statements in 2ƠĨ6,
In general, the structure of Vietcombank’s balance sheet demonstrates different trends in each account.
Vietcombank's asset account exhibited a fluctuating trend in cash and due from banks, rising significantly from approximately 178,920 billion in 2016 to over 336,000 billion in 2017, before declining to around 274,000 billion in the following year As a result, the overall growth rate over the three-year period was a modest 2.16%.
Vietcombank has distinguished itself from other banks by prioritizing the securities sector, leading to the establishment of its dedicated subsidiary, VCBS Since its inception, VCBS has generated significant profits for Vietcombank, reflecting a strategic focus on investment in this area rather than traditional banking operations As a result, the financial performance has shown a consistent upward trend over the past three years.
EVALUATING THE QUALITY OF INTERNATIONAL PAYMENT
Vietcombank, the Joint Stock Commercial Bank for Foreign Trade of Vietnam, has consistently been recognized as one of the "Best Banks in Vietnam" over the years Its expertise in international payment activities has not only generated significant annual profits but also enhanced its marketing advantages, playing a crucial role in the growth of Vietnam's economy, particularly in fostering trade with foreign nations This success is evidenced by Vietcombank's impressive international payment sales and market share.
Vietcombank has a long-standing reputation and has a correspondent relationship with many banks around the world who are trusted by customers and(Unit: Trillion VND)
(Sources: Synthesizedfrom Vietcombank’s financial statements, company presentations, reports to the board of directors in 2016, 2017, 2018)
Total sales at Vietcombank have shown an upward trend over the years, although the growth rate has varied In 2016, international payment activities generated VND 54 trillion, marking a VND 9.3 trillion increase from the previous year and a growth rate of 1,208% Despite this, the growth was lower compared to 2015 Since 2014, Vietcombank's international payment revenue growth has remained relatively stable, fluctuating between 1.19% and 1.2% The performance improved in 2017, with revenue reaching VND 69.4 trillion, a more than VND 15 trillion increase from 2016, resulting in a growth rate of 1.285%, the highest in seven years However, by the end of 2018, the growth rate fell to 1.13%, the lowest in the past seven years, despite total revenue exceeding VND 78 trillion This modest increase did not translate into significant prosperity for Vietcombank's international payment activities, even as the global economy experienced robust growth and Vietnam's GDP rose by 6.81%, surpassing the National Assembly's target.
Over the past decade, inflation has been effectively managed, with the average expense in 2017 rising by just 3.53%, falling short of the 4% target The foreign exchange market has reached a notable USD 400 billion, accompanied by an export surplus of USD 2.91 billion, while foreign direct investment (FDI) has attracted a significant USD 35.88 billion.
Recent trends in export and import revenue reveal notable differences Export revenue has shown a gradual increase over three years, starting from 25.1 trillion VND in 2016, rising to 35.2 trillion VND by the end of 2017, and peaking at 40.6 trillion VND in 2018 Despite this upward trajectory, the growth rate in 2017 was significantly higher than in the other two years, with absolute growth reaching 10.1 trillion VND and relative growth at approximately 1.4 However, after this substantial increase, export growth declined in 2018, with absolute growth falling to 5.4 trillion VND and relative growth dropping to about 1.15 This indicates that while Vietcombank has achieved better results, it now faces increased competition, contributing to a slowdown in growth.
The Vietnamese government is actively promoting exports and seeking to expand foreign markets, which has led to increased export sales and established Vietcombank as a trusted partner for exporters With its rich history and experience, Vietnam has earned the confidence of export enterprises, supported by government policies aimed at enhancing international relations and export activities This effort has resulted in two consecutive years of trade surplus, a positive indicator for the banking sector However, challenges persist as the global and Vietnamese economies face difficulties, impacting the operations of import-export businesses Barriers imposed by other countries and high interest rates on export loans create obstacles for Vietnamese exporters, limiting their access to credit and hindering the growth of trading transactions, ultimately affecting the quantity and value of exports.
Revenue from importing also give out a downward trend in growth Even the revenue increase throughout three years, but it still not enough to increase the growth in
The economic growth observed in 2017 and 2018 shows a notable decline compared to 2016, with absolute growth decreasing from 6.4 trillion in 2016 to 5.3 trillion in 2017 and further down to 3.6 trillion in 2018 This trend has also impacted relative growth, which fell from 1.284% in 2016 to just 1.105% by 2018.
2018 The reason for that must be the number of opponents has risen.
Despite facing competition from numerous domestic and foreign banks, Vietcombank has managed to maintain a stable growth in its total revenue from international payments, solidifying its position as a leading bank for settlement services International payment operations have been a cornerstone of Vietcombank's offerings since before 1989, when it was the only bank authorized to conduct such transactions Although it no longer holds exclusivity in this area, Vietcombank continues to excel and lead in the market This achievement is particularly notable given the increasing competition from both newly established banks and those undergoing transformation, as well as the growing influence of corporations that serve as both shareholders and clients, drawing away some of Vietcombank's traditional customer base Many banks are now focusing on enhancing their international payment services, recognizing the significance of this sector.
(Sources: Vietcombank’s company presentation (May, 2018)
Despite stagnant performance, Vietcombank remains a major player in the banking sector, primarily due to its advantages in international payment activities Historically, Vietcombank was the sole bank authorized to conduct international payments before 1989, and although it no longer holds this exclusivity, it continues to dominate the market During periods of economic instability, Vietcombank's market share in international payments has approached 40%, but it has stabilized around 15-16% in recent years Notably, in 2017, the bank achieved its highest market share of 16.35%, slightly declining to 16.23% in 2018, reflecting its resilient position in the industry.
In a highly competitive banking environment, Vietcombank has achieved a remarkable feat by consistently maintaining the largest market share in international payments for import and export Despite the increasing presence of new and transformed banks, along with corporate shareholders who have attracted many of Vietcombank's traditional customers, the bank continues to excel Other banks are now focusing on international payment activities, investing and collaborating more with foreign partners, yet Vietcombank's strong position remains unchallenged.
Vietinbank recently announced its ambitious goal to capture 20% of the import and export payment market share, following a professional training course on international payment and trade finance for its northern branch's directors and department heads Currently, BIDV holds approximately 10 to 12% of the market share, while various joint-stock commercial banks like Eximbank, Sacombank, Dong A Bank, and VIB, alongside foreign banks such as HSBC, Standard Chartered, and ANZ, are enhancing their trade finance services with diverse product offerings to support import-export businesses Despite this competition, Vietcombank continues to dominate the market, consistently maintaining the largest share in international payments for imports and exports, which ranges from 16 to 17%.
The competition in the banking sector is intensifying as the robust development of payment services offers significant advantages to banks As institutions seek to enhance their income from credit activities, these services provide a reliable source of revenue Furthermore, a strong payment service portfolio reflects a bank's capabilities, showcasing its ability to engage effectively with global partners Additionally, these services contribute to stable foreign currency funds, further strengthening the bank's financial position.
In the near future, Vietnamese commercial banks will encounter significant challenges in retaining their market share in import and export payments against foreign banks To address this, they must allocate resources towards enhancing their technology infrastructure and fostering partnerships to drive development.
Total 54 ĨÕÕ 694 100 794 100 context of this shrinking capital, Vietcombank continues to maintain its position as a leading bank in serving ODA loan projects.
2.2.2 Evaluating the quality of international payment services through international method performances
Analyzing international payment operations requires a thorough examination of revenue generated from various payment methods At VCB, three primary international payment methods are utilized: Letters of Credit (L/Cs), Collection, and Cash-in-Advance Among these, L/Cs, particularly Irrevocable L/Cs, dominate the market, while the Telegraphic Transfer Remittance (TTR) is favored over Mail Transfer Remittance (MTR) in money transfers The revenue generated by each payment method is detailed in the accompanying table.
Table 2.5 Actual international payment sales through international payment (Unit: Thousand billion VND)
(Sources: Synthesizedfrom Vietcombank’s financial statements, reports to the board of directors in 2016, 2017, 2018)
The data indicates that Letters of Credit (L/Cs) were the predominant method of international payment, although their usage declined between 2016 and 2018 In contrast, the use of Collections has been on the rise, while Money Transfers remained stable Notably, 2017 marked a significant shift in the utilization of these three payment methods, revealing substantial differences in their adoption rates.
Letter of Credit (L/C) payments have consistently represented the largest share of total bank payments over the years In 2016, the volume of L/C payments reached 43.914 trillion VND, showing a slight increase in subsequent years.
EVALUATING THE QUALITY OF INTERNATIONAL PAYMENT
2.3.1 Achievements in international payment services.
There are eight achievements that Vietcombank has reached throughout years:
International payment activities are crucial for ensuring profitable and secure business operations while adhering to legal requirements and fulfilling obligations to the state bank These activities not only promote import and export businesses, maintaining high turnover rates over the years, but also enable Vietnamese companies to gradually integrate into the global economy This integration enhances their competitiveness and provides valuable insights into managing business relations with foreign partners.
International payment activities play a crucial role in Vietcombank's integration with the global financial community To enhance international cooperation, the bank continuously improves service quality and develops technology to meet the demands of international settlements Vietcombank has successfully established and expanded partnerships with banks and financial institutions, focusing on both broad and deep collaboration that emphasizes mutual respect and benefits.
At Vietcombank, most branches and subsidiaries lack a specialized international payment department, leading to a system where credit officers alternate in handling transaction records before they reach customer service for money transfers This approach resolves potential discrepancies between international credit and payment reports, as credit officers manage the creation, editing, and oversight of international payment records Consequently, this fosters a cohesive transaction process, enhancing overall efficiency in handling international payments.
Vietcombank recognizes that its employees are crucial to its success, prioritizing the development of human resources in both quantity and quality The bank emphasizes ongoing training and professional development to equip staff with the necessary skills for the evolving landscape As a result, Vietcombank's team possesses extensive knowledge, enabling them to effectively advise customers on international payments and resolve issues promptly The credit officers are known for their professionalism, friendly demeanor, and efficient work style, fostering trust and satisfaction among both current and potential clients Additionally, the international payment staff exhibit high levels of expertise and diligence in transaction processes, ensuring smooth operations through active communication with the credit department In a shift from previous practices, Vietcombank is now integrating younger, dynamic employees who excel in foreign communication and professional skills, enhancing the bank's responsiveness to customer needs and complaints while building credibility and satisfaction among service users.
Vietcombank offers a streamlined international payment process that prioritizes customer interests and minimizes risks The procedure is straightforward, with clear agreements between the bank and customers, ensuring efficiency and convenience during transactions Additionally, the bank places a strong emphasis on customer care post-payment, valuing feedback to enhance its international payment services and strengthen customer relationships.
Science and technology play a crucial role in the operations of commercial banks, including the Foreign Trade Bank Each branch staff member is assigned a personal data code to access the internal banking system, enabling credit officers to efficiently monitor customer information such as outstanding loans, payment history, and collateral values This system allows for accurate record-keeping and informed decision-making regarding payment methods for businesses Additionally, Vietcombank is committed to enhancing its technology infrastructure by conducting research, improving system quality, and collaborating with foreign companies to ensure smoother and safer international payment operations.
Vietcombank has significantly enhanced the quality of its international payment services, evidenced by a steady increase in international payment revenue over time Despite a slowing growth rate, the bank remains a leader in international payment operations, fostering strong credibility among customers This reputation attracts new clients, solidifying Vietcombank's position in an era of globalization The bank's international payment activities consistently meet customer needs, ensuring smooth transactions that build long-term trust Additionally, Vietcombank is committed to innovation, focusing on network organization, strategic planning, and the development of diverse products to better serve its clientele.
The correspondent banking system, both domestically and internationally, enhances Vietcombank's operational efficiency and bolsters its reputation among businesses By leveraging a global network of correspondent banks, Vietcombank streamlines payment processes, reduces costs, and minimizes risks Additionally, these partnerships facilitate stronger connections with foreign enterprises, enabling the bank to offer reliable geographic banking services for international transactions.
2.3.2 Restrictions exist in international payment services
Vietcombank is currently facing two significant challenges: a slow growth rate and a declining trend in corporate performance, along with an inadequate ability to respond to customer needs, as highlighted by the SERVQUAL analysis.
• Heterogeneity between service quality and cost
Despite a steady increase in revenue over the years, Vietcombank's high costs in international payment activities have hindered profit growth The bank has not updated its payment schedule for an extended period, resulting in a lack of significant improvements in service quality International payment services remain traditional and do not incorporate modern technology to enhance speed and convenience Consequently, a substantial portion of the expenses related to international payments is allocated to administrative costs rather than enhancing service quality, leading to inefficiencies and waste.
Vietcombank's revenue growth has been insufficient to offset costs, indicating that the fees generated from its current services remain low The bank's product portfolio lacks diversification, limiting options for customers and hindering potential revenue from service fees While popular international payment methods are available, Vietcombank has not expanded its offerings to include newer options such as Bitcoin payments or Open Accounts As a result, the bank struggles to attract young import-export businesses and foreign companies seeking innovative payment solutions.
The analysis of international payment proportions reveals significant year-to-year fluctuations, primarily driven by changing customer demands This variability poses a challenge for banks, as they struggle to implement comprehensive and uniform tracking for guarantees Furthermore, the declining growth rate of various payment methods necessitates that banks adopt closer monitoring and develop targeted strategies to stimulate growth once again.
Vietcombank's primary international payment service providers are small and medium-sized enterprises in the processing and manufacturing sectors While these customers generally maintain stable incomes and good credit statuses, the bank's reliance on a narrow business focus limits its potential benefits Additionally, businesses in emerging industries represent a smaller portion of the international payment customer base Consequently, despite a notable increase in income from international payments, rising costs have outpaced this growth, leading to a significant decline in profits and growth rates To enhance international payment sales and revenue, Vietcombank should consider expanding its client base to include larger enterprises with stronger credit profiles and higher incomes.
Vietcombank's operating expenses have significantly increased, reaching VND 3,985 billion in the recent period, which is VND 881 billion higher than the previous year Over the first nine months of 2018, total expenses amounted to VND 11,916 billion, reflecting a 26.3% rise compared to the same timeframe in 2017 This surge in costs, primarily driven by salary payments and management expenses, highlights the bank's ongoing challenges in establishing a comprehensive risk management system to optimize costs in international payments.
The bank's management is currently weak, particularly in risk and investment portfolio management, hindering its ability to develop long-term strategies and accurately forecast interest and exchange rates for sustainable investment The outdated training and management systems, coupled with an aging workforce, limit the staff's proficiency in international payment technologies and customer service, resulting in a slow and reactive approach Research indicates that the bank's human resources have not adapted to rapid social and economic changes, with a focus on quantity over international quality standards in business plans Additionally, the staff lacks updated knowledge in modern banking practices, and the IT department struggles with complex software design Most risk management systems rely on foreign technology, failing to align with local banking practices, while the absence of a dedicated risk analysis department further exacerbates operational inefficiencies The bank's cumbersome internal structure also negatively impacts its overall management effectiveness.