I.

Overview of Factoring (in VCB)

Vietcombank offers factoring services on the basis that the seller (enterprise) assigns
to Vietcombank all rights and benefits of receivables arising from sales contracts on
credit terms (excluding deferred payment under Letter of Credit (L/C)).

1. Product Overview

Factoring is a package product that includes four basic services:

 Receivables tracking: Vietcombank will track receivables on behalf of the seller.

 Advance payment: Vietcombank will advance up to 90% of the value of the
assigned receivables to the seller.
 Debt collection: Vietcombank or its factoring agents will collect payments from
buyers on behalf of the seller.
 Buyer credit risk protection: In case the buyer defaults, Vietcombank or its
factoring agents will pay the seller 100% of the receivable value.

2. Factoring Products

 Domestic Factoring: Provided based on domestic trade contracts. With this

product, Vietcombank acts as both the seller's factoring agent and the buyer's
factoring agent.
 International Factoring: Provided based on international trade contracts.
Vietcombank cooperates with factoring agents to provide four basic factoring
services to businesses.
 Export Factoring: Vietcombank acts as the export factoring agent to provide
receivable tracking services, advance payments to the seller; represent the seller to
contact and transact with the import factoring agent to request debt collection
services and buyer credit risk protection.
 Import Factoring: Vietcombank acts as the import factoring agent to provide
debt collection services and buyer credit risk protection upon request of the export
factoring agent.

3. Strengths of Factoring

 Factoring helps service organizations establish and maintain relationships with

both small and large businesses, build a borrowing history, and cross-sell
products.

the law on secured assets ⇒ It can be applied more widely and conveniently.
 Factoring is fully purchased by the buying entities, without the need to adjust

4. Weaknesses of Factoring
  The debt collection source of the factoring company is more limited than

credit-based financing ⇒ When it is impossible to collect from the collateral, the

conventional lending: Factoring is often done in the form of non-recourse and

factoring company must bear all losses. Requires careful evaluation before making
a decision.
 The factoring company faces many credit risks:
o Fraud risk
o Risk of breach of contract by the seller
II. Opportunities & Challenges
1. Challenges
a. Legal Challenges:

There is a list of legal challenges affecting factoring services:

(i) The lack of uniformity in the concept of factoring according to international practice
leads to limitations in the scope of factoring activities;

(ii) There are not yet enough guiding documents for the Law on Credit Institutions 2010
on factoring activities; especially Clause 14 of Article 4 and Clause 1 of Article 94

(iii) The scope of factoring activities is still limited.

(iv) There are not yet enough regulations on confirmation documents and notification
documents of the buyer

(v) There are not yet enough regulations on factoring via electronic networks.

⇒ Up to now, the SBV still does not have a solid legal framework for banks to
deploy factoring activities most effectively.

b. Social Challenges
 Factoring does not only participate in the early stage of lending to sellers, but also
goes deep into the follow-up process with the aim of enabling the factoring

use of loan capital by businesses ⇒ The mentality of Vietnamese businesses still

company to control both buyers and sellers, especially to control the purpose of

organization to interfere in their business process ⇒ Factoring companies

does not want to publicize their operating status, do not want any

⇒ What operations do factoring units perform that affect the fear of businesses?
face many difficulties when marketing new products to customers.

 The characteristics of the Vietnamese market are full of risks ⇒ Vietnamese

banks attach great importance to collateral ⇒ Requires careful evaluation
before making a decision.

transfer, especially L/C ⇒ The reluctance of businesses towards new products

 Businesses are still accustomed to using traditional payment methods such as T/T
 contributes to stifling the dynamism, creativity and search for new products
and services of banks.
 The information environment of the economy has not been transparent, the
customer data infrastructure is available but still lacking, weak and not
concentrated. Currently, only the SBV's Credit Information Center (CIC) is the
most concentrated source of information serving the credit activities of banks.
However, information from CIC, for a number of objective reasons, still does not
adequately reflect the creditworthiness of customers.
c. Economic Challenges

Factoring is a credit service with many risks ⇒ require Relatively high costs, averaging
3-5% of revenue, including risk-bearing costs and other fees ⇒ Creates a sense of
hesitation for businesses when using the service

Example: ACB Bank's Factoring Fees (Not including other fees):

For domestic factoring:

Interest is calculated on the amount that ACB Bank advances to the seller. The interest
payable by the seller is calculated according to the formula:

Interest = [Advance amount x Interest rate (month) x Number of factoring days] / 30

Number of factoring days: is calculated from the number of days from the date ACB
Bank advances the money to the date the buyer and/or seller pays the receivable to ACB
Bank

In case the buyer does not pay the receivable on time according to the sales contract,
ACB Bank will charge overdue interest to the customer. Overdue interest is calculated
according to the formula:

Overdue interest = [Advance amount x Interest rate (month) x 150% x Number of

factoring days] / 30

Fees are calculated on the value of the receivable or on the approved factoring limit.
With a minimum fee of VND 200,000 or 0.2% of the value of receivables

For export factoring:

Interest is calculated on the amount advanced from the date of disbursement to the
exporter to the date of payment by the importer. Interest is calculated in the same way
as in the case of domestic factoring

Export factoring fees include: ACB Bank's export factoring fees and IF (Import Factors)
import factoring fees, with:
  ACB fee: 0.1%-0.15%
 IF fee: 0.5%-0.7%

Interest and fee collection:

Factoring fees are charged once when ACB Bank advances money to the seller

Factoring interest is charged when the buyer and/or seller pays the receivable

ACB Bank will not refund interest and fees to the seller for any reason

In addition, there are many other costs such as:

Money counting: VND: 0.3% (minimum VND 10,000, maximum VND 1,000,000) and
foreign currency (authentication): USD 0.2/note

Advance payment/advance payment for import contracts of goods and services 0.2-20%;
minimum USD 5

2. Opportunities

a. Completing the Legal Framework (Legal)

 The State Bank of Vietnam (SBV) is drafting a Circular on factoring and other
factoring-related services to replace Circular No. 02/2017/TT-NHNN
 The Credit Institutions Law 2024 has also been passed and will take effect on
July 1, 2024

⇒ Creating opportunities for commercial banks to deploy factoring services most

effectively

b. Changing Perceptions and Expanding Relationships (Social)

 The number of commercial banks interested in this service is increasing.
Currently, there are 8 Vietnamese commercial banks that are members of the
International Factoring Association (FCI), including 4 domestic commercial banks
and 4 foreign banks in Vietnam.
 Factoring services have been introduced to customers by many commercial banks

bank's website to encourage customers to use this service ⇒ The awareness of

through seminars, customer conferences, advertising, and instructions on the

Vietnamese businesses about factoring services has also changed significantly.

According to statistics from the International Factoring Association (FCI), Vietnam's

factoring turnover has gradually increased over the years and is still on an upward trend
in the future. Among domestic commercial banks, Vietcombank takes the lead in this
field, implementing it early and having the most obvious results.
⇒ Although factoring services still face many challenges, they are becoming
increasingly well-known and receiving special attention and monitoring from the
State and Government

→ Creating conditions to develop in a positive direction, ensuring supply capacity in

the current era of integration.

Foreign Currency Exchange

Challenges:
Strong increase in exchange rate of USD (
 Affected by the Covid-19, the Russia-Ukraine conflict => global inflation spiked
=> Fed increased interest rates to 4.25-4.5% => Other currencies declined
( Japanese Yen devalued 13.89%, Euro 6.7%, British Pound 12.39%...)
 Capital flow into Vietnam reversed, money flow transferred abroad appeared =>
foreign currency supply shortage, foreign exchange reserve decreased sharply =>
USD/VND exchange rate increased
 Some organizations and individuals take advantage of illegal foreign currency
trading, causing instability in the foreign currency market
Examples:
Vietcombank:
 01/01/2021: 1USD=23,005VND
 01/01/2024: 1USD=24,050VND
=> increase by 4,54%
Vietinbank:
 01/01/2022: 1USD=22,805VND
 01/01/2024: 1USD=24,215VND

⇒ Vietnamese people have to pay more to exchange from VND to USD

=> increase by 6,18%

=> This makes it difficult for not only foreign exchange services at VCB but also the
entire banking industry to cope with unpredictable market fluctuations.

Opportunities:
 VND only devalues about 2.9% compared to before 2021, this shows that VND is
a highly stable currency compared to other currencies in the world.
=> This will promote foreign investors into Vietnam's foreign exchange market, thereby
strengthening foreign currency conversion services at Vietnamese commercial banks
 Foreign exchange rates in Vietnam are still highly volatile, which will boost
profits from foreign exchange trading
=> Foreign exchange trading makes big profits
For example:
The second quarter 2023 financial reports of 27 listed banks and Agribank show that the
total net profit from foreign exchange trading in the first 6 months of 2023 reached nearly
12,000 billion VND, an increase of 18% over the same period last year - double more
than 7 times the growth rate of total operating income
Stable foreign currency capital
In 2023, in the context of difficult economies around the world, Vietnam recorded a high
increase in remittances, reaching 16 billion USD
=> increase by 32% compared to 2022
=> The increasing amount of remittances transferred to Vietnam not only helps banks
increase profits from service activities, but also serves the policy of attracting foreign
currency sources to increase national foreign exchange reserve
=> As for VCB, with its specific advantages and long-term operating experience in the
foreign currency market, this helps them to increase foreign currency capital, increase
profits from foreign currency exchange activities along with that is reaching households
to develop other services
GUARANTEE SERVICE
- Strength:
Authenticity and reliability
 Fast authentication time helps businesses feel secure in transactions
 Banks have a reputation and a long history of operation, so their
guarantee for guaranteed transactions will bring trust and peace of
mind to the parties involved.
Strengthen the capacity of businesses
 Increase the business's credibility with partners and the opportunity
to borrow capital when needed
 Help increase loan opportunities for businesses to serve production
and business.
 Help customers carry out customs clearance procedures and release
goods quickly and promptly. ( bảo lãnh thuế đối với hàng xuất
khẩu )
Simple and convenient procedure:
 There are many forms of issuance of letters of guarantee, including
written, electronic, and via SWIFT => The guarantee issuance
process is simple, helping to save time and effort for customers.
- Weakness
 Collateral: For issues requiring high-value or high-risk guarantees,
Vietcombank requires collateral.
* Opportunities:
Technology: Digital transformation of the banking industry → Develop electronic
bank guarantee forms → brings many benefits to customers and the community,
from convenience in transactions to easier access to financial services: On September
30, 2022, the Governor of the State Bank of Vietnam (SBV) issued Circular No.
11/2022/TT-NHNN regulating bank guarantees (Circular No. 11/2022/TT-NHNN) , in
which, in Article 9, there is a prominent new point: electronic guarantee activities. For
electronic guarantee activities, the law allows banks to decide on their own measures,
forms, and technologies to carry out electronic guarantee activities for all or each step in
the guarantee process and bear the responsibility themselves. risks arise (if any) and must
meet minimum requirements.
Example: In 2023, Vietcombank provided additional forms of issuance of letters
of guarantee in electronic form to bring convenience to customers.
Economic: Vietnam is going through a period of strong economic and trade
development → Demand for guarantee services is increasing: Vietnam is going
through a period of strong economic and trade development. The growth of businesses
and projects requires guarantee support from banks. Bank guarantee services will
continue to be popular to ensure payment and implementation of contractual
commitments.
Example: Revenue from bank guarantee services at Vietcombank has been
increasing in recent years after the difficult time of the COVID-19 pandemic.
* Challenges:
 Fierce competition: To attract customers and increase sales, banks are focusing
on expanding guarantee services and providing new products. “According to
information from the State Bank of Vietnam, there are currently about 40 banks
providing bank guarantee services in Vietnam.” These banks are all licensed to
operate by the State Bank and serve the guarantee needs of businesses and
individuals in commercial and financial transactions.
 Legal barriers :
Inadequacies and inconsistencies in bank guarantee regulations in the sale and lease
purchase of future housing (problems about the appropriate time to establish a guarantee
commitment): In Clause 1, Clause 2, Article 56 of the Law on Real Estate Business 2014
and Clause 1, Article 12 of Circular No. 07/2015/TT-NHNN, there is a problem.
Conflicts and incompatibilities regarding the appropriate time to establish guarantee
commitments in sales and lease purchases between project investors and commercial
banks.
- Strict requirements and high mandatory debt interest rates for small and medium-
sized enterprises that need loan guarantees →Loan guarantee service has decreased
over the years
“In Circular No. 47/2014/TT-BTC, small and medium-sized enterprises that want to be
guaranteed commercial bank loans must meet certain conditions such as: Having
minimum participating equity capital of 15% of the total investment of the project and
fully invested in fixed assets. Accordingly, in case the Bank pays the debt on its behalf,
the enterprise must accept the debt compulsorily with the Bank. Specifically, the
mandatory debt acceptance interest rate is equal to 150% of the term loan interest rate
applicable to economic organizations of commercial banks receiving guarantees for loans
of the same term at the time of compulsory debt acceptance”

- Unclear tax guarantees for exports between banks and the Law on Export Tax,
Import Tax and Customs Law → The number of businesses choosing this form of tax
guarantee is still very low, as in 2017 it was less than 1% of total state budget revenue.

The Law on Export Tax, Import Tax and the Law on Customs also do not have
provisions for insurance service organizations to represent the goods owner as a
guarantee for the tax amount payable. Currently, many commercial banks have made
connections and electronic payments with customs authorities, and most of these banks
have guaranteed the tax amount payable to businesses. However, businesses are still quite
hesitant about this new form