Sourcing from Vietnam: Banking, payments & export documentation

This article is an excerpt from Sourcing From: Vietnam, a series of reports that provides buyers sourcing information from alternative manufacturing hubs in Asia. To read the entire articles, click on the following links: Banking & finance, Paying for your purchase and Export documentation.

The Sourcing From series is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia. It also produces industry-specific sourcing reports through Online Developing Country Sourcing.

BANKING & FINANCE

Vietnam's banking system continues to undergo vast reforms since the economy opened up from international isolation in the early 1990s. Although Vietnam is making progress toward developing a modern banking system and financial markets, it generally still lingers behind international standards.

Banking networks and services are expanding in an effort to tap the potential of providing retail banking services. Currently, three out of four people in Vietnam have never utilized banking services, while the remaining 25 percent of the population have not used the banking system to its full potential.

State Bank of Vietnam

The State Bank of Vietnam (SBV) is the main financial regulatory arm of the government. The SBV operates under the oversight of the government and is subject to prime ministerial approval or consultation, so it is not considered an independent body.

The SBV currently supervises two policy banks, five majority-owned state owned commercial banks, four joint venture banks, five wholly-owned foreign banks, 51 foreign bank representative offices, 50 branches of foreign banks, 18 financial companies and 12 financial leasing companies.

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Banking services

Currently, Vietnam's banking system includes six simultaneous payment systems including interbank e-payment, interbank e-transfer, clearing system, e-transfer systems of commercial banks, bilateral payment system and SWIFT.

The Second Payment System and Bank Modernization Project (PSBM2) has significantly improved the speed and reliability of interbank payments in Vietnam. PSBM2 has enabled a majority of banks to now offer e-banking services to customers.

In recent years, payment services in Vietnam have undergone significant changes and development. There are more new payment services to meet the diverse demands of customers. A united system connecting ATMs and POS systems has been increasingly perfected, as have card alliances including as Bancnet, VNBC and Smartlink. These provide solid infrastructure to develop a comprehensive and efficient payment system in Vietnam.

Current banking outlook

Vietnam's banking and finance situation is relatively stable. The SBV recently made changes in its monetary policies with the key objectives of controlling inflation, restructuring financial institutions, unlocking roadblocks in manufacturing, handling bad debts and others.

With these modifications, the SBV aims to improve certain difficulties of the economy such as unfreezing capital flows as well as ensuring benefits and safety of the banking and finance system. In 2014, Vietnam was ranked 42nd among 189 economies based on how easy it is to get credit, according to the World Bank.

PAYING FOR YOUR PURCHASE

International buyers conducting business in Vietnam can use a number of methods for payment including letters of credit (L/Cs), wire transfers and drafts.

Letter of credit

A documentary letter of credit (L/C) is an internationally accepted and commonly used method of export payment. In Vietnam, as in other parts of the world, an L/C is the most acceptable method of payment, offering protection to both buyer and seller. By using an L/C, not only do suppliers get their money but buyers get the title to the goods.

An L/C can take several forms. An irrevocable letter of credit is commonly used and can be amended or canceled only with the agreement of all parties concerned. It is important to specify that the credit is "irrevocable", otherwise it will be deemed revocable. It is generally accepted that the irrevocability of the credit starts when the credit is actually received by the supplier.

Vietnamese exporters prefer the irrevocable L/C as it is normally withdrawn only when the exporter does not meet the terms and conditions of shipment, leading to the rejection of documents by the bank. This type of L/C ensures payment to the exporter.

Vietnamese companies will often resist using a confirmed L/C due to the additional requirements and costs required by Vietnamese and international banks. In the past, Vietnamese companies have often requested deferred payment L/Cs, with extensions of up to 360 or even 540 days. Most lenders have stopped this practice. Currently, sight L/Cs and L/Cs with 60, 90, or 120 days are the most commonly used.

Opening a letter of credit (L/C)

Most exporters have found that Vietnamese banks operating in the major cities of Ho Chi Minh City and Hanoi are better equipped for handling L/Cs than Vietnamese bank branches located outside of the two commercial centers. Care should always be taken when selecting which bank will open your L/C.

Foreign banks located in Vietnam are promising options for opening L/Cs because they typically have greater capacities. Opening an L/C with a foreign bank also means transferring risk from a Vietnamese bank to a foreign bank. However, the cost of confirming an L/C with a foreign bank is much higher than opening one with state-owned or private commercial bank.

When opening an L/C, the simpler the better. Suppliers are not bound to accept the terms of an L/C and they may be inclined not to if there are many stipulations that they cannot or will not accept.

If suppliers are careful and do not start to fill an order until they has received the complete L/C and checked it for changes from the original order, the buyer could be involved in delays, particularly if amendments or corrections to the L/C are asked for before the supplier starts production.

EXPORT DOCUMENTATION

When exporting from Vietnam, certain export procedures must be followed. Exported goods must pass customs clearance that checks the quality, quantity, volume of goods and specifications standards according to the Customs Department of Vietnam.

Export procedure

There are common documents required by many countries to export goods. Exporting goods from Vietnam requires the following:

1. Customs declaration form for export goods (original)
2. Detailed packing list (original)
3. Export permit for goods requiring export permit (original)
4. Purchase and sale contract or equivalent documents (copy)
5. Other documents as stipulated by law for specific items (copy)

Companies regularly exporting and importing the same exact goods within a given period may use a single customs declaration form for carrying out relevant customs procedures goods are listed under the same purchase and sales contract and are delivered within the delivery time listed on the purchase contract.

Export shipment procedures are typically completed on the same day. Exporting one standard container of goods by sea takes 21 days for obtaining, filling out and submitting all documents, inland transport and handling, customs clearance and inspection, port and terminal handling, not including sea transport time.

Prohibited exports

Some goods are not allowed to be exported from Vietnam. Some of them include:

• Dangerous toys, toys harmful to personality and health education for children or to the social security, order and safety
• Wild plant and animal species (including also live plants and animals and their processed parts) on the lists of those provided for by treaties to which Vietnam is a contracting party, precious and rare plant and animal species on the lists of those banned from exploitation and use
• Aquatic resources banned from exploitation, aquatic products containing residues of toxic and hazardous substances exceeding the permitted limits

Certificate of origin

A certificate of origin is a document issued by an organization from a country or territory of the exporter to indicate the origin of the goods.

In Vietnam, the Ministry of Industry and Trade is in charge of drafting, submitting to authorities to issue, or issuing under its own authority, legal documents to prove the origin of the goods. The Ministry also authorizes the Vietnam Chamber of Industry and Commerce and other organizations to issue the certificate of origin.