Three banks from the two countries announce the launch of a new payment channel to facilitate trade growth.
At a conference held in Russia on November 12 on bilateral commercial transactions between the country and Vietnam, banks from the two countries committed to cooperating to boost transaction volumes in local currencies.
The Bank for Investment and Development of Vietnam (BIDV), the Vietnam-Russia Bank (VRB), and VTB Bank from Russia announced the launch of a new transaction channel between the two countries, with a target of 70 per cent of commercial transactions being conducted via the new channel this year.
“In 2014, commercial turnover between the two countries reached $2.6 billion and was $1.6 billion in the first nine months of this year, which remains modest compared to potential,” Mr. Tran Bac Ha, Chairman of BIDV, told the conference. In particular, bilateral trade turnover between two countries in 2014 accounted only for 1 per cent of Vietnam’s total trade turnover and 0.3 per cent of Russia’s. The target of increasing total two-way trade to $10 billion by 2020 is becoming an even more challenging task.
Mr. Ha said that the difficulty in making payments for imports and exports is a barrier to higher trade growth. Ninety per cent of payments for imports and exports are currently conducted by T/T payment, which makes exporters concerned about payments not being made or delayed after goods are sent. A representative from VRB said that many recipients fail to make the payment under the terms of the contract after receiving goods.
Enterprises in both countries lack information on customs procedures, quality checks remain complex, and logistics costs are high, forcing Vietnamese exporters to conduct business via go-betweens, which results in them knowing little about the actual market in Russia.
The exchange rate between the Rouble and the VND is another concern, as the former has been devalued by some 90 per cent in the last year. With sanctions also in place against the country, its economy may decline in the future and the concerns of Vietnamese exporters are understandable. This is also why banks are unwilling to provide suitable services and consultancy to enterprises from both countries.
Bilateral payment and card connections
After the FTA is signed between Vietnam and Russia and other countries in the Commonwealth of Independent States, the conference was told, trade flows will increase significantly and the creation of bilateral payment channel is a step in the right direction.
The main advantage of the new channel is in minimizing the risk of banks suddenly ceasing international payments and the risk of information on financial transactions being passed on to third parties. It will also reduce the cost of transactions, as customers do not have to pay the costs under the SWIFT channel.
Another advantage is that related parties are allowed to make payments in local currencies, reducing risk from exchange rate fluctuations. “Payment made in local currencies is a solution to promoting trade between the two countries,” said Mr. Vasily Titov, First Deputy President and Chairman of VTB Bank’s Board of Management.