Vietnam banking sevice quality in trend of international integration

INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS VIETNAM BANKING SLKVICE QUALITY IN I KFiND OF IN l“£i RNATIONAL INTEGRATION A STUDY IN COMMERCIAL BANKS IN HO CHI MINH CITY A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By AU BAO HOANG ANH Academic Supervisor: NGUYEN MINH KIEU HO CHI MINH CITY, October 2011 I STUDENT DECLARATION I confirm that this research titled “Vietnam banking service quality in trend of international integration- a study in commercial banks in Hochiminh city” is my own work I hereby declare all of the detailed content of this research is the process of extensive research, data collection and analysis of relevant documents All data, resources, references using in this research are clearly identified I bear full responsiveness for commitments Hochiminh city, October 2011 Au Bao Hoang Anh ACKNOWLEGEMENT In order to accomplish this thesis, apart from my own efforts, first of all, I would like to express my sincere gratitude to my supervisor Associate Professor PhD, Nguyen Minh Kieu, for his great guidance, helpful advice and encouragement during the whole process of my study I also would like to express my gratitude to professors, tutors of Economics University in general and of Vietnam - Netherlands Programme in particular who have delivered valuable experiences, knowledges, assistance and enthusiastic guidance to me during the course and my study I very thankful to my family for the support and encouragement in so many ways I also sincerely thank classmates of Vietnam - Netherlands master programme course 15 and colleagues at Vietnam Eximbank in supporting me their best to complete this thesis Finally, I would like to thank domestic and foreign banks’ customers for their co- operation and to share experiences and opinions My deep thanks to all of you! Au Bao Hoang Anh Hochiminh City, October 2011 TABLE OF CONTENTS ' LIST OF FIGURES i LIST OF TABLES ii ABSTRA CHAPTER 01: INTRODUCTION .1 1.1 RATIONALE OF THE STUDY 1.2 STATEMENT OF PROBLEM 1.3 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS 1.3.1.Research objectives 1.3.2 Research questions 1.4 RESEARCH METHODS 1.5 SCOPE AND OBJECTIVES OF THE RESEARCH 1.6 THE STRUCTURE OF THE RESEARCH CHAPTER2: LITERATURE REVIEW l SERVICE 2.1.1 Service definition ' 2.2 BEHIND SER CE''$.!'$.::: :::::: :::::::::::: ::::::::::::::::::::::::::::::: :::::: :: ::: : ::7 2.2.1 Banking service definition 2.2.2 Types of banking products and services 2.2.2.1 The traditional bank services .8 2.2.2.2 The recently developed banking services 2.3 SERVICE QUALITY 2.3.1 Service quality definition 2.3.2 Service quality dimensions in banking sector 10 2.3.3 Models of service quality 13 2.4 SERVICE QUALITY AND SATISFACTION OF CUSTOMER IN BANKING SECTOR 16 2.4.1 Satisfaction and the views of customer satisfaction .16 2.4.2 Service quality and customer satisfaction in banking sector: 17 2.5 INTERNATIONAL INTEGRATION 20 2.5.1 International integration definition .20 2.5.2 Banking integration is part of economic development 21 2.5.3 Impact of international integration to banking sector: .21 CHAPTER 3: RESEARCH METHODOLOGY .24 3.1 RESEARCH MODEL 24 3.1.1 Proposal of research model 24 3.1.2 Research Hypothesis 25 3.2 RESEARCH DESIGN 25 3.2 Research approach 25 3.2.2 Research process .26 3.3 OFFICIAL RESEARCH .27 3.3.1 Measurement scale 27 3.3.2 Adjustment scale 29 3.3.3 The questionnaire design 31 3.3.4 Research sample 31 3.3.5 Sampling 31 3.3.6 Size of sample 31 3.4 RESEARCH ANALYSIS 32 CHAPTER 4: DATA ANALYSIS AND FINDINGS .33 4.1 SAMPLE CHARACTERISTICS 33 4.2 DATA ANALYSIS 36 4.2.1 Reliability evaluation through Cronbach’s Alpha 36 4.2.2 Evaluation the measurement scale by using Exploratory Factor Analysis (EFA) .38 4.2.2.1 Some rules in EFA test 38 4.2.2.2 EFA for dimensions of service quality .39 4.2.3 The adjusted research model 41 4.2.4 Analysis of the difference in perception of customers on foreign and domestic banking service quality 42 4.2.4.1 Analysis of the difference in mean value between foreign and domestic banking service quality .42 4.2.4.2 Hypotheses' test with independent t-test analysis approach .45 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 51 CONCLUSIONS 51 5.2 RECOMMENDATIONS 53 5.3 LIMITATION & FUTURE RESEARCH 56 REFERENCE 58 APPENDIX APP APPENDIX 66 LIST OF FIGURES • Figure 2.1: Model of service quality gaps (Parasuraman at el., 1985) 15 Figure 3.1: Suggested research model 24 LIST OF TABLES Table 3.1: Research Design .26 Table 3.2: The first service quality scale 28 Table 3.3: The adjustment service quality scale .30 Table 4.1: Sample characteristics .35 Table 4.2: Reliability test of dimensions of service quality 37 Table 4.3: EFA analysis result of service quality factors 40 Table 4.4: Meanscore of customer’s perception on service quality 43 Table 4.5: Independent I-test results of comparison of domestic bank’s and foreign bank’s service quality .46 ASTRACT Nowadays, integration is an issue taken place in all most economic industries, including service industry as banking For banking industry, integration has led to more intense competitive pressure than ever and “service quality” is considered as one of the effective means in building a competitive position in the market This study, conducted in Hochiminh City, aims to investigate banking service quality in Vietnam in the trend of international integration and to make a comparison of banking service quality perceptions between domestic bank section and foreign bank section joining into Vietnam The study' samples are customers of two kind banks, one of which is domestic owned and one of which isforeign owned In detail, customer survey will be carried out and analyzed based on the collected data Questionnaires used in survey rely mainly on Servqual model Finally, Vietnam banking service quality scale is identified comprising five dimensions with twenty-one items — Responsiveness, Reliability, Empathy, Tangibles and Network Besides, the result of research also concludes that the customers perception about the service quality of the bank they patronised, showed some significant differences The foFeign bank section ’s service quality is perceived well against the banks owned domestic at aspects belong to technology, behaving and attitude ofstaff Based on the result, some recommendations on how to improve Vietnam banking service quality in general and domestic bank section’s service quality in particulaF are suggested in order to reduce the risk of occupying market of foreign bank section once the full integration CHAPTER 01: INTRODUCTI ON 1.1 RATIONALE OF THE STUDY Commercial bank plays a significant role in the economy Each year it contributes over 10% of the total growth of the country It also makes up one of the biggest provider of services in Vietnam economy Today, international integration is an inevitable trend of international economic relations And in the accelerating process of economic integration, the number of commercial banks in Vietnam has also increased sharply Therefore, competition becomes more intense not only among domestic banks each other but also among domestic and foreign commercial banks In this context, we often wonder that why there are some banks attracted the great amount of customers while the other the amount of customers is virtually not worth considering Is there service quality of these banks better than the others? Or these banks provide many different kinds of banking service products to satisfy full need of customers than the others? Or are the foreign banks with modem technology better the domestic banks in customer satisfaction and they are gradually occupying market share? So, in order to improve the effectiveness of business activities in the process of international economic integration requires commercial banks need to increase competitive capacity to meet the development requirements in the background modern economy Derived from the developmental requirements of integration, one of the solutions to improve competitive ability of commercial banks is develop banking service quality Nowadays, service quality has become an increasingly important factor for success and survival in the banking sector Strategy focus on service quality helps banks build a new image, make a big difference and improve competitive advantage in the market In the aspect of technology, we can look into the dimensions “Tangibles” comprises items related to Vietnam commercial banks’ tangibles that customers 54 perceived when in contact with them This is also the important factor of Vietnam banking service quality scale need to be maximized It is necessary to arrange physical facilities professionally and conveniently which can create comfortable environment to customers come to the transaction In addition, the modern and advanced technology should be equipped and upgraded to avoid mistakes and minimize the waiting time in the queue The banks need to design and layout service counters in many places in order for the most convenience This affects to the attractions of the bank A modern bank, with full amenities and convenience of their transactions could not have customers if you not have a safe parking place In addition, the need to make some small service in the meantime (books, drinks ) is also a way to attract customers All these factors can make a friendly atmosphere and help to remove "barriers" between customers and bank employees Another factor concerns to domain of technology is function of ATM system, internet banking belong to dimension Responsiveness It is necessary for the banks, especially domestic section to invest in a modern advanced system to create comfort in transaction and confidence of customers Moreover, in this domain of technology, we also realized that the foreign bank is also perceived higher than domestic one (ATM system, internet banking are always functioning properly; the bank has modern looking equipment; external and internal physical features are convenient, professional) So, it implies that the domestic banks have not yet brought high technology into their application popularly This also reflects the Vietnamese banking market still has great potential in using new, modern technology to attract customers This is really an opportunity for domestic bank section in acquiring modem technology from foreign banks in Vietnam Lastly, the other essential matter in the process of perfect service quality development is the matter of building and developing brand The study indicated that most customers evaluated foreign banking service quality better than domestic ones Perhaps, these biases of the respondents derived from Vietnamese people’s 55 preference of foreign brand-names products and furthermore, most foreign banks operating in Vietnam are world well- known Admittedly, a bank’s reputation and brand name can effect customers’ perceptions Therefore, banks in Vietnam, especially domestic ones, should have specific marketing campaigns as well as attractive branding activities to promote their image more effectively and suitably; surely the customers also show their better feelings about service quality once their bank has a well-reputed brand-name in the market 5.3 LIMITATION & FUTURE RESEARCH This research helps to find out the important role of service quality and factors which most effect to service quality From that, given solutions to improve domestic banking service quality in particular and Vietnam banking service quality in general and increase the level of customer satisfaction in integration trend However, because of reasons, this study has some limitations need to notice for further research The first limitation is related to the sample used Due to the time constraints, the sample size is relatively small and the population of this research is limited by customers using services of some foreign and domestic commercial banks in Ho Chi Minh City, not the whole country, so, results of the study can be extrapolated to other bank formats, service types and cities The study would be generalized higher if it was conducted with wider respondents of kinds of foreign and domestic banks in other different cities throughout Vietnam This is a direction for future research Evaluation of the difference between domestic banks’ service quality and foreign banks’ one is based on samples that are different customers having different characteristic belong to 02 different kinds of banks The next research direction is studying of the same kind customers patronizing with both of 02 kind banks It will bring out more unprejudiced results 56 Besides, the sample in the study conducted by the most convenient way So, the next sample should be sampling the probability to increase the ability to • , generalize the overall nature of the sample studied Moreover, the last one, this study is mostly based on the definitions and theories of SERVQUAL and its variation - SERVPERF Therefore, using and applying some other different theories regarded to service quality should be also considered in future research 57 • Al-Hawari, M., Hartley, N & Ward, A., 2005, “Measuring Bank’s Automated Service Quality: A confirmatory Factor Analysis Approach”, Marketing Bulletin, 16, Article • Allred, A and Addams, H.L, 2001, “Service quality at banks and credit unions: what their customers says?” Managing service quality, Vol 10, No 1, pp 52-60 • Arasli, H., Mehtap-Smadi, S., and Katircioglu, S.T., 2005, “Customer Service Quality in the Greek Cypriot Banking Industry”, Managing Service Quality, Vol 15 No pp 41 -576 • Astrid, A Dick, 2007 “Market Size, Service Quality, and Competition in Banking”, Journal of Money, Credit, and Banking, Vol 39, No I, pp 49-81 • Asubonteng, P., McCleary, K.J and Swan, J E., 1996, “Servqual Revisited: A Critical Review Of Service Quality” The Journal of Services Marketing, 10 (6), 22-45 • Athanassopoulos, A.D, 2000, “Customer satisfaction cues to support market segmentation and explain switching behavior”, Journal of business, Vol 47, 191-207 • Avkiran, N.K., 1999, “Quality customer service demands human contact”, International Journal of Bank Marketing, 17, 2, 61-71 • Babakus, E and Boller, G W., 1992, “An Empirical Assessment of the Servqual Scale”, Journal of Business Research, 24, 253-268 • Bachelet, D (1995), Measuring Satisfaction; 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PART 1: GENERAL INFORMATION Please providing following information, all these information are valuated in this research I commit to keep security your personal information Full name: No.: Gender: Male " Female Age group 63 Phone " Below 25 " 25-35 " 36-49 " above 50 Marital status " Single Married Education " Not graduate high school "High school " Bachelor " Post graduate Profession " Student " Manager " Service " Office staff " Home-marker " Retiree " Worker " Other What kind of commercial banks you work most? Domestic banks Foreign banks PART 2: SERVICE QUALITY Please rate the following instruments by circling number to reflect your perceptions of service quality from the bank you work most Strongly disagree Agree i , Disagree 5.’ StFongly agree CONTENT Not careMeutral Customer’s perceptions The bank has modem looking equipment External and internal physical features are convenient, professional such as counter location, waiting- seat, parking, ATM The bank’s reception desk employees are appealing and neat appearing employees 64 2 3 4 5 The bank’s website, brochures, statements are visually appealing, clear and easily understanding Widen banking and ATM network When customers have a problem, the bank shows a sincere interest in solving it The bank keeps promise to something in a certain 5 1 2 3 4 5 1 1 2 2 3 3 4 4 5 5 16 Keep confidentiality of customers’ accounts, concern 17 18 19 1 2 3 4 5 5 5 1 2 3 4 5 5 10 12 13 14 IS ' • 20 21 22 23 24 25 26 • 27 time (card delivery time, problem solving time) The bank provides the service correctly at the first time The bank’s documents maintains error-free records The bank advertises of its products and services reflect reality ATM system, internet banking are always functioning properly Bank staff giving prompt service to customers Bank staff always being willing to help customers Bank staff is prompt response to customer’s requests Bank staff to settle complaints quickly and reasonable information and transaction Staff being consistently courteous with customers Staff serves justice to all customers Staff having the knowledge to answer customer’s questions satisfactorily Staff guide procedures for customers fully and understandable Bank provides appropriate information on financial products and services Bank staff gives customers individual attention (staff recognize customer and call customer by name) The bank has ATM and branch locations convenient to all its customers The bank has the customer’s best interests at heart Bank staff understanding the specific needs of customers (offer customer the product which best suits customer) The bank always offers good services at reasonable fees The bank always offers attractive interest rates 65 APPENDIX 2: VIETNAMESE QUESTIONNAIRE BANG CAU HOI KHAO SAT VE “CAT LJQNG DICH VU NGAN HANG VIET NAM TRONG XU THE H I NH(AP QUOC TE” Xin chao ciic anh/ ch| Tfii la sinh vién chuong trinh cao hpc hpp tiic Vi(t Nam — Ha Lan — Dai hpc Kinh Té TPHCM, hi(n tfii dang thuc hi(n de Hi nghién ct: ve “Chat firing dich vu ngcin hcing Via:I Nam xu thé hoi nhap quoc té” Xin anh/ch| vui long danh chut thoi gian de chia sé quan diem ciing nhu kinh nghi(m sit ding d|ch vu ciia ngan hiing nuoc va nu‹ic ngoai tai Vi(t Nam Cac y kién dong gop cua anh/chi cho nhiing van de bring cau hoi duoi day sC rat quan trpng va hihi ich vi(c dna dinh huéng phiit trién cho hoat dong ngiin hang tai Vi(t Nam hi(n it mong nh(an duqc sq hpp I:ie va gitip d‹i ciia anh/chi Xin chan thénh cém on! PIN 1/ THONG TIN CHUNG: Xin anh/ ch| vui long cho biét nhiing thong tin duoi day, mpi thong tin ma anh/ ch| cung cap déu co gi:i tr| bai nghién cthi va toi xin cam két bao mat nhiing thong tin c:i nhiin cfia anh/ chi Hp va ten: .So di(n thoai lac: Giéi tinh: " Nam Dg tuoi: " Duéi 25 " 25-35 " 36-49 3.Tinh trpng hfin nhan ' Doc than hon " Da két 66 " trén 50 lien Tinh trpng hgc van Chua tot nghi(p trung hpc thong " Trung hpc thong " Dai hoc/ Cao dang " Trén dat hpc " Qu:in ly " Noi trp " Nghi huu " Nghé khiic Ngan hfing thiroog mii mii anh/chJ thwimg xuyen gian dJch nhat Ngdn h:ing nuoc Ngiin hing nuoc ngoai PIN 2: CAT LtlQNG DICH Vt,J Xin anh/chi vui long cho biét nha( n thuc ciia anh/ch| ve chat lupng d]ch vp tai ngén hang ciia anh/chi thuéing giao dich nhat , Xin vui long khoanh tron céu tr:i léii cfia anh/chi vao thang d:inh gi:i cfia khach hiing, véi: Hoan toan khéng dong j Khong dong j Binh thvé'ng7Trung hoa STT NQI DUNG Nganhangcotrangthiétbihi(n dai Ctich bay tri bén ngoai va bén ngan hang chuyen nghi(g va thuan ti(n nhu v| tri quay giao dich, hang ghe ch6, cho dau xe, in:iy ATM Trang phuc nhan vién gpn gang chuyen nghi(p Cdc trang web ciia ngan h:Ing, Hi 1i(u qudng cao, to roi hap dan, ro rang v6 de hieu Mang ludi chi nh:inh va ATM rong khap ' • 1 2 3 4 5 1 2 3 4 5 Khi kh:ich hang c6 mqt v5n de, ng5n hang cho thay m9t s;; quan trim chan vi(c giai quyet n6 67 hi(n d)ch v;; diing thcri gian da cam ket vcri khach hdng (their gian giao the, théi gian gfri ké, thoi gian gi:ii quyet van de, g an hang cun cap dich v;; diin lan dau tien C:ic chfmg tit duoc ngan hang Inn gift, tri de khon x:I sai sét Ngan hdng quang cdo ph:In dnh thjrc té H( thou ATM, internet bankin luon hoat d9ng tot Nhan vién ngan héng thuc hi(n d)ch vu, xfr ly giao dich nhanh chon cho kh:ich han Nhan vién ngan hang luf›n slin sang giiip dO kh:ich h:in Nhan viéii ngan hang nhanh chdng d:ip i’mg yéu cau ciia kh:ich hang Nhan vién ngan hang giai quyét khiéu nai mot c:ich nhanh ch6n va h 16 18 Gifr bi mat tai kho:in ciia khdch hang, cdc giao d)ch viI thong tin lien quan den kh6ch hang Nhan vién ngan hang luon than thi(n va l|ch su voi kh:1ch hang Nhan vien phuc vu cong bdng cho tét ca kh:ich hang 19 Nhan vién c6 du hie‘u biét vé kie‘n thi:c de tr:I Hi c:ie 20 can h6i cua khach hang thoa dang Nhan vién ngan hang tu van va hudng dan thii tuc cho khdch han d:iy dii va de hiéu Ngan hang cung cap thong tin thich hpp ve c:ie san ham tai chinh va dich vu cho kh:ich han Nhan vién ngan hang thé hi(n su quan tain c:i nhan dot vdi kh:ich hang (nhan vién nhan khach hang va 9i hp theo ten) Ngan hang c6 h( thong may ATM va ph6ng giao dich d ciic d|a diam thuan ti(n cho tat c:I kh:ich hang ciia mlnh Ngan h:Ing lay lpi ich cua kh:ich hang la diéu tain niém cua ho Nhan vién ngan hang hiéu rG nhu cau cua kh:ich hfing (Cung cap cho kh:ich hang nhfmg s:In pham dich vu hit hpp nhat voi kh:ich hang) 26 Ngan hang luon cung cap d|ch vu tf›t ft muc phi giao dich h Ngan hang luon :ip d9ng mtic lai suat cho vay, tien fit dan, canh tranh 68 ... INTEGRATION 20 2.5.1 International integration definition .20 2.5.2 Banking integration is part of economic development 21 2.5.3 Impact of international integration to banking. .. cooperation in the banking field in order to enhance the credibility of the Vietnam banking system and positions of banks in international financial transactions Vietnam banking industry have taking... recommendations indicates the main findings of the research and gives out some suggestions to improve Vietnam banking service quality in the trend of international integration Finally, this chapter