BIDV Export Pack 2011: Minimising Risks in International Payments

 

According to a global survey, up to 60 - 70 percent of documents presented for payment in the form of letters of credit (L/C) are initially rejected by banks because of discrepancies. This costs businesses both time and money, each correction of such documents usually costs US$50 – US$100.

 

A director of a garment and textile company says: "It is very hard to understand all regulations concerning international payment operations. We wish to be advised when we sign a contract including the method of payment, particularly L/C, with a foreign partner in order to limit risk.” An owner of a food exporter has a different concern: "Our company exports rice and maize to many different countries, but each country has different payment procedures. Thus, we sometimes deliver our commodity although the payment process is unguaranteed and this affects our capital recovery and reproduction plans.”

 

It is obvious that exchange rate and interest rate risks in international payment are a genuine concern for any businesses. To mitigate these risks, in addition to understanding the financial capacity and operating profile or history of their partners, they must strictly define contracts and follow international standards. Thus, there is a need for an “expert” who can advise as well as support the completion of international payments in an effective and timely manner.

Actually, a single banking product or service cannot solve all difficulties and risks in international payment that exporters face. Thus, a combination of banking products and services for international payment will become the pre-eminent solution. The BIDV Export Pack 2011 of the Vietnam Bank for Investment and Development (BIDV) is one example. The payment process for exported cargo will be made quickly and risk will be minimised while exporters always receive incentives for fees, rates and counselling services.

 

Specifically, with “export payment services in the form of L/C, collection and telegraphic transfer reimbursement (TTR),” exporters will be offered many incentives such as free cash transfer fees, L/C advising fees, L/C amending fees and 50% discount on export fees.

 

In addition, exporters will be assisted in creating and correcting export documents via email or facsimile to shorten the time for payment documentation. Particularly, this service also provides exporters with information on foreign partners, helping them find business partners and determine the most suitable payment methods.

 

With “Post-delivery export financing” products, exporters will be given more opportunities to boost their capital turnover. By discounting, with or without recourse, of export documents in such payment forms as L/C, collection, TTR and TradeCard, exporters will have access to capital at discount interest rates which are 2 percent below normal lending rates of VND and 1 percent from normal lending rates of USD. The discount validity is at most 360 days and the highest discount ratio is 98 percent of documents value.

 

The BIDV Export Pack 2011 will also help exporters minimize exchange rate and interest rate risks by offering “Foreign currency buy/sell and derivatives services.” For example, a company can export a shipment worth VND10 billion with a floating interest rate and a five-year term. As the income is in US dollars and the floating rate loan is in Vietnamese dong, the company is subject to exchange and interest rate risks in the long term. To address these risks, if the company uses cross-currency swap with BIDV, it and BIDV will sign a cross currency swap contract with a maturity equalling the maturity of its VND-denominated loan. Accordingly, the company will have their periodic floating interests paid by BIDV and pay fixed rate interests in USD to BIDV. Principals are not swapped at the beginning of the term, but swapped at the end of the term at an exchange rate and a time fixed by the both sides. So, with this contract, the exporter has hedged exchange rate and interest rate risks, and enjoys the differential in interest rates between VND and USD to reduce borrowing costs through the validity of the contract.

 

With "export cargo insurance", the company will be insured from risks that may cause damage and costs arising from exports like the vessel collision, fire, rough sea, storm, general average, theft and pilferage in the course of international shipping. Notably, the combined cargo insurance on domestic transportation and international shipping, or in other words two types of insurance on the same policy, will help customers save time, effort, procedures and costs. Using insurance in the BIDV Export Pack 2011, customers will enjoy a 10 percent discount of premiums in comparison with existing premiums of the same insurance conditions, or will be refunded 10 percent of cargo insurance premium incurred in 2011 provided that they have signed a cargo insurance contract with BIDV Insurance Corporation. Free professional support and advice on cargo insurance, including support for vessel reference information, is a useful information channel for customers to use suitable insurance terms and conditions to prevent potential disadvantages associated with carriers, particularly whole shipments of high value.

BIDV Export Pack 2011 proves BIDV’s strengths in meeting the demands of enterprises and its flexibility in building new products, services and incentives. This will be a "solution package" for trouble-incurring exporters and a contributor to increasing national export turnover.