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Guarantee Operations at Agribank – Current Situation and Recommendations
A2-K43 BBE Trần Thị Hoài Thu ACKNOWLEDGEMENTS Actually the thesis is the process of my collecting information, choosing data, analyzing figures and especially asking for valuable helps of many people I could not have finished my thesis without the great support and guidance of my supervisor, Ms Nguyen Hoang Giang Therefore, I would like to give my warmest thanks to her I would like to express my deep gratitude to Mr Ngo Xuan Quang, the credit staff of the credit department at Agribank, who spent much time explaining, suggesting, and providing me with valuable information I also would like to give my big thanks to other staffs of Agribank credit department such as Ms Linh, Ms Hue and Mr Long who are enthusiastic to help me complete the thesis Last but not least, I wish to pay tribute to my friends and relatives, who gave me encouragement to overcome many obstacles during writing process Despite my own effort and others the thesis unavoidably contains errors and limitation because of time limit and my inexperience I am really willing to receive constructive comments and contributions from the readers Tran Thi Hoai Thu A2-K43 BBE Trần Thị Hoài Thu INTRODUCTION ****@@@**** Rationale Becoming the full member of WTO marks a mile-stone for Vietnam in its transitional period of economy, which creates a great deal of unprecedented opportunities and major challenges for the domestic economy To overcome the difficulties, a smooth and quick capital turnover especially bank credit capital is necessary By covering some of the risks that the market is not able to bear or adequately evaluate, the bank guarantee can attract new sources of finance, reduce financing costs, and extend maturities Guarantee operations, therefore, is one of the three basic modes of credit operations (together with loans and equity investments.) for a developed economy Bank guarantee operations appeared firstly in US in the early of the 1960s under the form of Standby Letter of Credit Until the early of the 1970s it really became common in every developed country Nowadays, guarantee plays a more and more vital role in the international economic transactions and in the bank activities all over the world with the participation of 6-9% total a bank’s revenue.1 Guarantee, however, is quite new to Vietnam commercial banks It has just been implemented for the last few years It means that, in Vietnam, guarantee operations have just been at the primary stage of development There are a lot of weakness and shortcomings leading to considerable losses for the banks because of its new, complicated and risky characteristics As a result, ceaseless enhancement in bank guarantee operations is an urgent requirement for Vietnam commercial bank It cannot be denied that, in the integration economy, the development of guarantee operations in specific, and credit operations in general are indispensable and objective requirement in order to push banking as well as Economic activities stronger forward So how to improve and promote bank guarantee operations, how to guarantee banks’ safety and avoid risks are the Aniston, S (2004) The history of the bank guarantee operations Retrieved June 8, 2004 from the World Wide Web: www.powerhomebiz.com A2-K43 BBE Trần Thị Hoài Thu concern not only of authorities, policy-makers but also of any students like me Moreover, after reading this issue in a banking finance book, I am really interested in and I desire to learn more about it Probating at Agribank Operation Centre gives me a good chance to study about guarantee activities, which offers me a new and comprehensive insight into bank operations In the short period of probation at Agribank, one of the top commercial bank in Vietnam, with the enthusiastic help of Ms Hoang Giang and the staffs in the credit department, I have completed this report: Guarantee Operations at Agribank – Current Situation and Recommendations Aims of the study 2.1 Objectives of the study • Sharing ideas of guarantee operations and analyzing the theoretical base and the practical factors related to the bank guarantee operations • Broadening the knowledge of the bank guarantee activities particularly in Agribank and clearing up any misunderstandings of this • Suggesting some measures to improve the bank guarantee operations’ development • Improving the skills of research, for example, learning how to collect information sufficiently, assess information correctly, analyze figures completely and so on 2.2 Research questions: (1) What is the definitions of bank guarantee operations? (2) What is the functions of guarantee operations in the bank services? (3) How many types of bank guarantee? (4) What are the determinants of bank guarantee development? (5) What is the overview of guarantee operations at Agribank? (6) What is about the regulations of guarantee activities at Agribank? (7) What is the current situation of guarantee activities at Agribank? A2-K43 BBE Trần Thị Hoài Thu (8) What are the achievements and weakness of guarantee operations at Agribank? (9) How to improve the guarantee operations at Agribank? (10)What are proposals to the Government, State Bank and others organizations for developed guarantee operations? Methodology Based on knowledge at university, books and self-accumulation, several methods of studying the thesis are used as follow: • Figures collection: from websites of the banks, books, trade journals, bank magazines and internet • Inductive, deductive and statistical method • Figure comparison • Data evaluation, judgment and conclusion Scope of the study Bank guarantee operations are quite new and complicated in Vietnam so materials of this subject are not much abundant and available As a result, the study just concentrates on guarantee operations of Agribank and Vietnam commercial banks recently (figures almost of three years 2005-2007) The thesis focuses on the analysis, evaluation of the basic guarantee operations factors mainly at Agribank and suggestions to develop this activity there Structure of the study Besides the Contents, Introduction, Conclusion and References, the thesis consists of chapters Chapter gives the overview of guarantee operations at commercial banks including the general definitions and the definition of Vietnam State Bank, the functions and types of bank guarantee operations and the determinant of guarantee operations’ development Chapter is the main part of the thesis It is about the current situation of guarantee activities at Agribank This chapter refers to the overview and general regulations including guarantee types, manners, conditions, fees, files of application, activity environment and procedures of issuing guarantee at A2-K43 BBE Trần Thị Hoài Thu Agribank After analyzing the qualitative and quantitative indicators of guarantee activities at Agribank and the central part of chapter reveals the achievements, weakness and causes of the weakness of these activities at Agribank Chapter gives the solutions to improve guarantee operations at Agribank The recommendations includes marketing, human solutions, flexible guarantee mechanism, IT applications and other solutions In addition, this chapter also refers to some proposals to the government, the state bank, Agribank and the enterprises for the guarantee development A2-K43 BBE Trần Thị Hoài Thu Chapter OVERVIEW OF GUARANTEE OPERATIONS AT COMMERCIAL BANKS 1.1 DEFINITION OF BANK GUARANTEE The more developed the economy is, the larger scale and higher value of the international commercial transactions are To avoid and reduce potential loss, the banks have used various measures such as more legal procedures on dispute settlement promulgation, using mortgage property, and delegating the third party which is reliable, specialized, well-qualified and well-financial ability to guarantee to make up for the loss party Guarantee appears as an objective, indispensable factor to prevent risks in financial and nonfinancial transactions In term of definition, bank guarantee can be looked at from different angles 1.1.1 General definitions In theory, bank guarantee is a form of signature credit It is a lucrative activity without providing capital of a bank In other words, it uses prestige of the bank to guarantee somebody's obligation With regard to international commerce, bank guarantee is considered to be a foreign trade sponsor form which aims to protect guarantee beneficiary party from loss because of the breach of related partners’ duty Besides, there are several definitions of bank guarantee on some popular websites A commitment made by a bank to a foreign buyer that the bank will pay an exporter for goods shipped if the buyer defaults.1 A bank guarantee is the bank's promise to repay the debt of another person if that person does not pay the debt.2 www.powerhomebiz.com/Glossary/glossary-B.htm www.investor-info.ca/glossary.asp A2-K43 BBE Trần Thị Hoài Thu An undertaking by a bank to be answerable for payment of a sum of money in the event of non performance by the party on whose behalf the guarantee is issued.1 A guarantee from a lending institution ensures that the liabilities of a debtor will be met In other words, if the debtor fails to settle a debt, the bank will cover it.2 1.1.2 The definition of Vietnam State Bank According to bank guarantee operations status (enclosed with the decision number 283/2000/QD-NHNN on 25th August, 2000 of the Governor of Vietnam State Bank.), “Bank guarantee is committed to paper by credit organization (the guarantor) and the beneficiary The commitment is about the financial duty performance on be half of the customer (the principal) when the customer does not perform his duty or has done wrongly according to the commitment The customer has to admit and return this loan to the credit organization with the amount of money equal to which has been paid.” In guarantee operations, there are at least participating parties They are: The Guarantor: the party issues guarantee may be the bank, credit organization or financial organization which are generally called bank guarantee bank must be prestigious, financial-worthy and accepted by the beneficiary The Principal: the party requires customers to open letter of guarantee According to guarantee status (enclosed with the decision number 283/2000/QDNHNN 14), the principal includes: state-owned enterprises, other legal types of enterprise (according to Vietnamese law): co-operative, nonstate-owned enterprises, foreign enterprises joining in join-venture cooperation, credit organization, private-owned business… The Beneficiary: all organizations or individuals who have legal capacity and civil capacity The beneficiary enjoys benefit from guarantee contract www.cma-cgm.com/shipping/lexiqueB.asp http://www.answers.com/topic/bank-guarantee?cat=biz-fin A2-K43 BBE Trần Thị Hoài Thu 1.2 THE FUNCTIONS OF BANK GUARANTEE: 1.2.1 Guarantee is a security instrument: It is the most fundamental function of guarantee Guarantee target is providing the beneficiary with a guarantee to refund his loss in case of the breach of contract caused by the principal According to statistics in US, only 1% of the total issued guarantee is required to pay by the beneficiary1 It reveals that guarantee is a security instruments rather a payment one Furthermore, guarantee is used in some contracts such as work execution contract, product warranty contract and building tender contract They are not sales or payment agreements but only a guarantee for a smooth and safe transaction In international trade, the first requirement so that a contract will be signed is the guarantee of banks in different nations Guarantee is only used for security of the beneficiary when the principal violates the contract 1.2.2 Guarantee is a financing instrument: Some major import-export projects and long-term construction contracts need financing to perform The construction company or the exporter may bargain with the investor or the importer about the amount of money in the form of advanced sum which is guaranteed by a bank Thus, payment guarantee of the bank can be described as a financing instrument so that the construction company and exporter receive the advanced money from the importer or the building manager 1.2.3 Guarantee is a supervising and speeding up contract performance instrument: The guarantee payment bases on the breach of contract of the principal In other words, the beneficiary has the authority to ask for payment when the principal breaks the contract in the period of guarantee validity The principal is always under the guarantee refund’s pressure (the rate of guarantee loan is much higher than normal rate) if he violates the contract or performs it lately Guarantee, consequently, has a function of supervising and speeding up the principal to perform the contract completely World Bank-Policy Based Guarantees (R99-53), approved April 20, 2004 A2-K43 BBE Trần Thị Hoài Thu Nevertheless, the beneficiary still wants the principal to perform the contract rather than receives the financial refund from the guarantor Requiring the guarantor to pay is only the last resort 1.3 GUARATEE TYPES 1.3.1 In terms of issue method a Direct guarantee It is the kind of guarantee that the bank promises to pay directly to the beneficiary if the principal defaults Diagram of direct guarantee: (2) Guarantor Principal (1) (3) Beneficiary (1) The principal and the beneficiary sign an origin contract which assigns that the A party (the principal) has to open a guarantee (2) The principal offers the bank to issue a banking guarantee (3) The guarantor follows through its commitment to settle the debt for the principal in the event of the breach of the contract A2-K43 BBE Trần Thị Hoài Thu b Indirect guarantee That is issued by a correspondent bank (usually the guarantee beneficiary's bank) upon the counter-guarantee of the guarantee applicant's bank This type of guarantee is more convenient for the beneficiary in transaction and getting money back in the event of the A party’s breach of the contract Diagram of indirect guarantee: (3) The correspondent bank The main guarantee bank (6) (7) (2) (4) The principal (5) The beneficiary (1) (1) The principal and the beneficiary sign an original contract which includes guarantee clauses and duration (2) The principal proposes the correspondent guarantee bank asking another bank (usually the guarantee beneficiary's bank) to issue a bank guarantee (3) The second bank acts as a guarantee for the beneficiary (4) The beneficiary requires the main guarantee bank to carry out financial duty in the event of the contract breach (5) The main guarantee bank pays the beneficiary (6) The main guarantee bank asks the correspondent bank the money back (7) The correspondent bank asks the principal to return the guarantee amount A2-K43 BBE Trần Thị Hoài Thu checking the accuracy of the project’s data Thence, possibility of the project is assessed in all aspects: technique, finance, and economy-society so as to make the most precise guarantee decisions To guarantee operations, guarantee property is significant because it reduces risk for the bank in case of the breach of contract between customer and the third party and the bank has to pay debt instead All customers want to pay as security at the lowest because it does not lead to frozen capital To be on good term with customers, Agribank should consider all factors carefully; define the right risk level of guarantee contract to offer rational deposit level Then customes are able to expand their business Furthermore, the bank need investigate and demonstrate the validity of mortgage to avoid any dispute later So, it is vital for Agribank to assess property frequently based on the market price, extract depreciation, and forecast changes as fluctuation 3.2 OTHER SOLUTIONS 3.2.1 Spread risk in guarantee operations Guarantee is one of the risky operations of banking services When the principal is unable to (or in some cases intentional not to) carry out completely his duties with the beneficiary, it is the bank who covers the debt for him Like other enterprises, the bank must be safe and lucrative in operations to be and develop Thus, measures for eliminating guarantee risks are essential The bank can transfer partly to the third party, for example, it may sell one guarantee right for the third bank at a lower price It is utterly different from reguarantee because re-guarantee is only implemented in case the partner does not rely on the Agribank’s financial situation and other banks must re-guarantee With regard to selling guarantee right, Agribank absolutely takes the initiative So Agribank should strengthen the relationship with other banks to implement co-guarantee for the major projects with a big guarantee sum of money in order to spread the risk The bank would also participate in futures market or implement SWAP operation.1 Teasdale, T., & Crowther, J.M (2006) The new opportunity for foreign banks Journal of Finance and Currency Market, 42, 301-317 A2-K43 BBE Trần Thị Hoài Thu 3.2.2 Improvement of the guarantee’s effect evaluation Agribank needs to check constantly the issued guarantee items, update and work out fully the guarantee document to keep track of the rate of implementation progress It also needs to strengthen the mortgage document guarantee solution If the guarantee items come to the due date but the principal does not settle and the bank has no option but to pay for him, the bank, somehow, must try to sell or lease the mortgage to reduce loss Furthermore, with regard to compulsory loans (which may be changed into bad debts) Agribank should keep contact with the legal office to call in bad debts 3.2.3 Extension of cooperation with other banks According to Agribank guideline for guarantee operations implementation number 09/HDQT-05 enclosed with decision number 283/2000/QD-NHNN14 of the state bank governor, the total guarantee debit balance of Agribank is allowed not to exceed 15% its own fund Thus, it is not easy for Agribank solely to carry out enormous guarantee contracts The suggested measure is co-guarantee It not only enables Agribank to take part in significant projects with limited capital but also spreads the risks to other banks thank to coordination of experience, strength, capacity, and mutual support among the banks Agribank needs to create a cooperation strategy in detail, for instance: - On the front of branches in the same system: join hands closely with each other to implement customer policy, interest policy, capital source… so as to sharpen the whole system’s competitiveness - On the front of other banks: team up with other banks basing on healthy competition and mutually beneficiary basis Negotiate to carry out the enormous projects which are out of ability of a sole bank - Moreover, cooperation should not be limited in the inland scope but need to be expanded into international scale because guarantee operations regularly exceed one country’s border As a A2-K43 BBE Trần Thị Hoài Thu result, it is vital to establish the credible partnership among international banks 3.3 SOME PROPOSALS 3.3.1 Proposals to the Government and state organs a Establishing a stable environment for banks Convenient activity environment is crucial for developed guarantee operations in the bank system The government should improve the activity environment of the bank system; lay the ground for them to assert their central position in the economy Banks act as intermediary role of all economic sectors Hence, completion of market mechanism is the firstly needed, that means improvement of the system of credit-currency-price The government should also concentrate on applying and improving the open market to catch up with the general developing trend of international financial markets In addition, it needs to find out appropriate solutions for Vietnam securities market This market is not only important to the economy but the guarantee operations as well It is the ground for new guarantee types such as bill of exchange guarantee (medium-term and long-term) and valuable certificates Besides, the State needs attach importance on reforming foreign policy and following through open- market policy as well as economy cooperation policy Export-import policy is vital to take into account basing on export encouragement and import control so as to foster economy growth Thank to this, the bank can implement some guarantee types for export products or financing the projects from production stage to consume stage It is a long-term strategy and needs good preparation and experience in export-import activity In term of guarantee operations, it is under influence of exchange rate policy and interest policy The two policies have a direct implication for banking guarantee scope and quality In the past, Vietnam banks applied the largely differential loan rate between VND and foreign currency so the enterprises tended to borrow abroad Thus, a stable and healthy exchange rate policy paves the way for export-import activity and guarantee operations as well A2-K43 BBE Trần Thị Hoài Thu The government must also level the playing field among economic sectors and banks to fuel the competition and improve the bank services’ quality Moreover, a stable economy and good conditions for business activity are essential to reduce risks for banks and enterprises The government should only intervene in banking activities moderately, for instance, promulgating macro management policy like legal environment and mechanism b Promulgating a sufficient guarantee operations law system However much banking activities and guarantee operations change they can not separate from the government mechanism and policy Thus, a developed guarantee operation not only needs the bank itself effort but also a complete and comprehensive legal environment In present, banking laws namely the law of the bank state and the law of financial organization come into force In fact, they lack of detailed regulation in every particular field In spite of regular changes, they still remain shortcoming, unreasonable and rigid issues When carrying out services based on these laws the bank meets numerous obstacles In the bank guarantee operations, Vietnam financial hubs have just been adjusted by the sub-law document of the state bank and related industries Many complex aspects of guarantee, therefore, have not been instructed by the sub-law documents such as the third party legal status, dispute settlement, and guarantee forms The government should pay more attention on promulgating clear, specific guarantee law to avoid loss and disputes, for example: - Guarantee operations need its own law which shows clearly, particularly duty and rights of parties, related definitions…It must be a standard legal frame work for the parties to compare and a coherent document for the banks in guarantee operation In stead of the sub-law documents in banking system, guarantee law will assure the unity of all industries in guarantee operations and related activities - Promulgate instruction documents of assurance form for guarantee operations and mortgage disposal as soon as possible Besides, regulations of mortgage list registration, asset selling A2-K43 BBE Trần Thị Hoài Thu procedures and asset bidding procedures are also needed to solve the current problems of receiving and processing with mortgage assets in guarantee operations - Through many Vietnam related laws such as civil law, commercial law, financial law, law of procedure, economic dispute settlement, and the government should create a convenient legal environment for guarantee operations by intensifying performance sanction and making a sound legal frame work for assurance of duty implementation in the contract In fact, the breach of contract is popular; regulations for customers have not been abided seriously and completely Besides, the contrary, overlapping documents in the law system make the customers unwilling to pay the bank They are the reasons of this proposal - Promulgate regulations of international investment and cooperation to promote international commercial transactions as well as banking guarantee operations - Nowadays, Vietnam Ministry of Finance allows the enterprises to use public assets for mortgage in banking credit operations If a state-own enterprise goes bankrupt its assets are disposed according to current bankruptcy law for sate-own enterprises of Vietnam However, mortgage of the state-own is still formalistic In fact, the bank can not sell these assets because the Capital and Asset Management Head Office does not admit “acceptance for mortgaging these assets” but only admit “these assets belongs to the enterprises’ management and use.”1 Thus, in the event of risk, the enterprise is unable to cover debts the bank is also unable to recover the bad debts by selling mortgage As a consequence, it is the bank that bears all the loss The suggested solutions include: Regulations of organization and activities of Agribank enclosed with decision number 117/QD-HDQT-NHNN on June 03rd 2002 A2-K43 BBE Trần Thị Hoài Thu + Maintain the law of sate-own mortgage but the Capital and Asset Management Head Office allows banks to sell these mortgage assets to recover bad debts If not, it must be responsible for compensating on behalf of the bankrupt enterprises + Hastening the equitization process, specify clearly the legal ownership of enterprises with the mortgage - Promulgate regulations to simplify the mortgage disposal procedures and facilitate the bank to recover bad debts 3.3.2 Proposals to the State Bank a Diversifying guarantee types Besides improving the guarantee process’s simplification, coherence and safety, guarantee types need to be diversified The revenue of bid bond, payment and performance bond, for instance, are very low comparing with their potential In the near future, the state bank should push traditional guarantee types stronger forward and also instruct the banks to apply guarantee operations on bill of exchange with foreigners, guarantee by drawing term liability certificate with foreigners so as to satisfy requirements of exchange and borrowing control In addition, it must be also well prepared to promulgate regulations of new guarantee types such as security guarantee, bill of lading guarantee and bill of exchange guarantee The securities companies have just been set up and the Vietnam enterprises’ prestige is not very high so the bank guarantees in securities issue and distribution of the enterprises are very crucial b Guarantee fee and fund The current regulation requires the guarantee fee of 2%/year of the guarantee amount This fee rate can not highlight the difference in risk among guarantee types and preferential policy of the bank for prestigious enterprises The state bank, therefore, should not fix the guarantee fee in the regulation but let the commercial banks be flexible and active in business The state bank should only focus on macro management, check, scrutiny, risk protection through the regulations of guarantee deposit A2-K43 BBE Trần Thị Hoài Thu The state bank need promulgate specifically regulations of guarantee fund in commercial bank system c Guarantee conditions for the joint venture In fact, many contractors coordinate with each other to submit a tender and ask for banking guarantee According to the decision number 283/2000/QDNHNN14 of the sate bank governor, however, there is no guarantee instruction (about guarantee conditions, legal position…) for the joint ventures Thus, it is difficult for the bank to issue this kind of guarantee The state bank should promulgate regulations of this guarantee type d International credit and credit guarantee The international payment normally operates according to international practice like UCP 500 Nevertheless, Vietnam banks must be under pressure from many sides for its weakness such as small charter capital, inexperience and low prestige Consequently, in foreign capital borrowing guarantee, the foreign party usually forces Vietnam banks to according to their banks’ regulations which bring benefit for them The comprehensive regulation of foreign guarantee, therefore, is essential to assure inland banks interests as well as facilitate the foreign banks in guarantee transactions with Vietnam banks e Systematization of guarantee assessment’s information An information system for assessment process is needed to establish so as to provide sufficient information for related office and banks Therefore, the state bank must: - Implement annual compulsory audit for every enterprise - Reinforce and improve the role of consultant companies to make sure supply accurate and timely statistics to help the bank assessment staffs completing their jobs - Set guarantee limit and maximum loan for a customer according to his possessive capital Allow customers not to implement guarantee operation in many branches of the same bank A2-K43 BBE - Trần Thị Hoài Thu Promulgate a general manual of assessment process and content so that it is suitable for Vietnam practice and integrate in international practice The state bank functional offices must regularly keep track and present to the governor to solve the problem of guarantee The inspector of the state bank need scrutinize guarantee activities at banks and financial organizations to discover their mistakes, then presents to the governor to have timely solutions The state bank branches in provinces and cities need improve their management and scrutiny toward financial organizations in term of guarantee operation They must also collect and analyze guarantee report of these organizations to present the central state bank 3.3.3 Proposals to Agribank The central operation is directly under the Agribank’s management; Agribank should pay attention to some issues to boost guarantee operations: - Establish a specific guarantee process for the central operation and branches; improve guarantee procedures to be convenient but safe - Intensify internal management, direction, investigation, and audit They should be done regularly and comprehensively from examination to issue of a guarantee item It is necessary to coordinate between Agribank and its branches Thank to this, low quality guarantee items will be eliminated - Remove the regulation of maximum period of guarantee The guarantee period depends on the basic contract period It should allow the central operation and the branches decide this issue - Enable the central operation to partner with other banks in coguarantee for a long-term and valuable guarantee item, which protects the central operation from risks - Modernize the banking system by applying new technologies and communicating via Internet A2-K43 BBE Trần Thị Hoài Thu 3.3.4 Proposals to enterprises Enterprises are the bank customers They ask the bank for guarantee They use capital directly in the business activity so they must be aware completely of their duties and rights in guarantee operations to carry out the commitment sufficiently Before asking the bank for guarantee, the enterprises should study this operation carefully through related documents including guarantee regulations and import-export activity regulations The enterprises need to plan a clear business strategy basing on the market demand, financial capacity, and technology and business partners before signing the guarantee contract They must also be fully aware of borrowing and payment duty; avoid borrowing or being guaranteed at any costs but neglecting the problem of settlement Furthermore, regulations of deposit and mortgage and other duties and commitments must be done without any hesitance or reluctance Recruitment and staffs training in export-import operations is vital for the enterprises They need diffuse the staffs’ knowledge of project assessment, foreign languages, IT, laws in orders to serve the national and international transactions, manage the borrowing capital, avoid wasteful spending and assure payment on schedule In addition, being a subject of guarantee relation, the enterprise must have an intense awareness in economics and a strong financial capacity to make best use of guarantee operations and expand its business scale A2-K43 BBE Trần Thị Hoài Thu CONCLUSION ***@@@*** In Vietnam, bank guarantee is taking shape and developing to serve the trade transactions It is a product of market economy Together with globalization, bank guarantee is developing more and more strongly to contribute to the business improvement of economic sector However, it still has a long way to go because it is quite new Beside considerable achievements, Transaction Office has not completely met the market demand After researching and studying from material and real situation at Agribank Operation Center, the thesis could: Give some basic concepts and show the necessity of guarantee operations in commercial transactions Show demonstrations, figures reflecting real situation of guarantee operations in Agribank in the last years Analyze the advantages and disadvantages as well as the reasons of its weakness Propose measures and solutions to improve guarantee operations Nevertheless, as of my limited time and ability, my writing is unable to embrace all sides of this subject My subjective evaluation can not avoid A2-K43 BBE Trần Thị Hoài Thu mistakes and errors I hope my teachers, specialists interested in this subject will contribute, supplement, correct to make it better I, thence, have a more comprehensive and deeper view toward this subject I would like to thank once more all of you who helped me to complete this thesis REFERENCES Aniston, S (2004) The history of the bank guarantee operations Retrieved June 8, 2004 from the World Wide Web: www.powerhomebiz.com Binh, D.D (2006).Guarantee operations and its position in Vietnam commercial banks Bank Magazine, ‘Decision number 398/QD-HDQT-TD of promulgating bank guarantee regulations at Agribank system’ (2007), 1-21 ‘Decision of the governor of the state bank number 283/2000/QD-NHNN14’ (2000), 1-18 ‘Guarantee’ (2008) Retrieved January 21, 2008 from the World Wide Web: http://www.agribank.com.vn ‘Guarantee activities report of the Credit Department at Agribank’ (2005, 2006, 2007), 1-11 Ha, P.T (2005) Operations in Commercial Bank Commercial Bank: Administration and Operations (2nd ed ), (pp 4, 7-36) Hanoi: National University Press Hai, L.V (2007) Golden stars in Vietnam Labor, 3-4 ‘Regulations of Agribank operations and organization’ (2005) Guarantee operations, 22-36 A2-K43 BBE Trần Thị Hoài Thu Teasdale, T., & Crowther, J.M (2006) The new opportunity for foreign banks Journal of Finance and Currency Market, 42, 301-317 Tien, N V (2006) International Payment International Payment and Foreign Sponsor (pp 15, 36-58) Hanoi: Foreign Trade University Press Valerie, S.R (2007) The World Bank Guarantees: Leveraging Private Finance for Emerging Markets Retrieved May 22 2007 from the World Wide Web: http://web.worldbank.org TABLE OF CONTENTS A ACKNOWLEDGEMENTS INTRODUCTION .2 ****@@@**** .2 1.RATIONALE 2.AIMS OF THE STUDY 2.1 Objectives of the study 2.2 Research questions: 3.METHODOLOGY .4 4.SCOPE OF THE STUDY 5.STRUCTURE OF THE STUDY Chapter OVERVIEW OF GUARANTEE OPERATIONS AT COMMERCIAL BANKS 1.1 DEFINITION OF BANK GUARANTEE .6 1.1.1 General definitions 1.1.2 The definition of Vietnam State Bank 1.2 THE FUNCTIONS OF BANK GUARANTEE: 1.2.1 Guarantee is a security instrument: 1.2.2 Guarantee is a financing instrument: 1.2.3 Guarantee is a supervising and speeding up contract performance instrument: 1.3 GUARATEE TYPES 1.3.1 In terms of issue method .9 1.3.2 In term of guarantee purposes 12 1.3.3 In term of payment conditions 13 1.4 DETERMINANTS OF GUARANTEE OPERATIONS’ DEVELOPMENT .14 1.4.1 Bank 14 1.4.2 Customers 15 1.4.3 Environments 16 Chapter 18 CURRENT SITUATION OF GUARANTEE OPERATIONS AT AGRIBANK .18 A2-K43 BBE Trần Thị Hoài Thu 2.1 OVERVIEW OF GUARANTEE ACTIVITIES AT AGRIBANK .18 2.1.1 General introduction about Agribank 18 2.1.2 The orientation of guarantee operations at Agribank .18 2.2 GENERAL REGULATIONS OF GUARATEE OPERATIONS AT AGRIBANK 19 2.2.1 Types of guarantee 19 2.2.2 Manners of guaranty 20 2.2.3 Terms and Conditions 20 2.2.4 Fees of guarantee 20 2.2.5 Files of application for guarantee 20 2.2.6 Activity environment of guarantee operations at Agribank 22 2.2.7 Orders and procedures of issuing guarantee at Agribank 24 2.3 CURRENT SITUATION OF GUARANTEE OPERATIONS AT AGRIBANK 25 2.3.1 Qualitative indicators 26 2.3.2 Quantitative indicators 27 2.4 ANALYSIS OF GUARATEE ACTIVITIES AT AGRIBANK OPERATION CENTER 35 2.4.1 Achievements: 36 2.4.2 Weakness: 37 2.4.3 Causes: 39 Chapter 43 SOLUTIONS TO IMPROVE GUARANTEE OPERATIONS AT AGRIBANK 43 3.1 SOME RECOMMENDATIONS FOR GUARANTEE DEVELOPMENT AT AGRIBANK 43 3.1.1 Apply marketing to guarantee activities 43 3.1.2 Human solutions 45 3.1.3 Make a flexible guarantee operations mechanism 46 3.1.4 Apply IT to guarantee activity 47 3.1.5 Improve assessment process and guarantee property administration 48 3.2 OTHER SOLUTIONS .49 3.2.1 Spread risk in guarantee operations 49 3.2.2 Improvement of the guarantee’s effect evaluation 50 3.2.3 Extension of cooperation with other banks .50 3.3 SOME PROPOSALS 51 3.3.1 Proposals to the Government and state organs 51 3.3.2 Proposals to the State Bank .54 3.3.3 Proposals to Agribank .56 3.3.4 Proposals to enterprises 57 CONCLUSION .58 ***@@@*** 58 REFERENCES 59 TABLE OF CONTENTS 60 A2-K43 BBE Trần Thị Hoài Thu LIST OF TABLES AND FIGURES Table 1: Guarantee debit balance through years 26 Table 2: Guarantee turnover against total 28 Table 3: Guarantee balance of each type 31 Table 4: Economic sectors in guarantee structure 33 Figure 1: Guarantee debit balance through years .27 Figure 2: Guarantee turnover against total .30 Figure 3: Guarantee balance of each type 33 ... bank guarantee development? (5) What is the overview of guarantee operations at Agribank? (6) What is about the regulations of guarantee activities at Agribank? (7) What is the current situation. .. completed this report: Guarantee Operations at Agribank – Current Situation and Recommendations Aims of the study 2.1 Objectives of the study • Sharing ideas of guarantee operations and analyzing the... guarantee activities at Agribank? A2-K43 BBE Trần Thị Hoài Thu (8) What are the achievements and weakness of guarantee operations at Agribank? (9) How to improve the guarantee operations at Agribank?