Developing retail banking services in vietnam technological and commercial joint stock bank,graduation thesis

THE STATE BANK OF VIETNAM BANKING ACADEMY FOREIGN LANGUAGE FACULTY  GRADUATION THESIS Topic: DEVELOPING RETAIL BANKING SERVICES IN TECHCOMBANK Student: Nguyen Thi Thuy Student ID: 13A7510179 Class: ATCB-K13 Supervisor: Ms Can Thuy Lien (MA) Hanoi, May 26, 2014 Graduation Thesis Banking Academy DEDICATION I dedicated the Graduation Thesis to my family members, my teachers and friends for their help Graduation Thesis Banking Academy ACKNOWLEDGEMENT I owe a debt of gratitude to many people who helped me complete this graduation thesis I would like to acknowledge the help of all First of all, I would like to express my deepest acknowledgement to my supervisor – Ms Can Thuy Lien who offered valuable guidance, comments and contribution to me My graduation thesis would not complete without her instructions and enthusiasm I take this opportunity to thank the place I belong to – Banking Academy of Vietnam, especially to my professors in the Foreign Languages Faculty who provide useful education for me to pursue my dream Last but not least, to my beloved family and my friends, I wish to extend my loving thanks for their encouragement They gave me strength and motivation to not only complete my graduation thesis but they also supported me during 4-year course Hanoi, May 26, 2014 Graduation Thesis Banking Academy TABLE OF CONTENTS DEDICATION ACKNOLEDGEMENT LIST OF TABLES, FIGURES AND DIAGRAMS LIST OF ABBREVIATIONS CHAPTER 1: INTRODUCTION 1.1 Background 1.2 Research objectives 1.3 Scope of the study 1.4 Research methodology 1.5 Thesis structure CHAPTER 2: OVERVIEW OF RETAIL BANKING SERVICES 2.1 Background of retail banking services 2.1.1 Definition 2.1.2 Characteristics of retail banking services 2.1.3 Benefits of developing retail banking services 2.2 Products of retail banking services 2.2.1 Capital mobilization 2.2.2 Retail credit 2.2.3 Card services 2.2.4 Payment services 2.2.5 Online banking services 2.2.6 Other services Summary Chapter CHAPTER 3: REAL SITUATION IN TECHCOMBANK’S RETAIL BANKING SERVICES 3.1 Background of Vietnam Technological and Commercial Joint Stock Bank Graduation Thesis Banking Academy 3.1.1 Brief history and development of Vietnam Technological and Commercial Joint Stock Bank 3.1.2 Techcombank’s scale 3.2 Achievements 3.2.1 Cash flows from retail banking services 3.2.1.1 Capital mobilization 3.2.1.2 Retail credit 11 3.2.1.3 Card services 13 3.2.1.4 Online banking services 13 3.2.2 Organization and management model 14 3.2.3 Developing the customer base 15 3.2.4 Marketing strategy and business network 15 3.2.5 Researching and developing new products 17 3.2.6 Technology Renovation 18 3.2.7 Customer care 18 3.3 Limitations 20 3.3.1 Customer segmentation 20 3.3.2 Customer care services 20 3.3.3 Product development 20 3.3.4 Service quality 21 3.4 Causes resulting in limitations 21 3.5 Reasons for Techcombank’s retail banking services development 22 3.5.1 Objective reasons 22 3.5.2 Subjective reasons 24 Summary Chapter 26 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS 4.1 Solutions to Techcombank 27 4.1.1 Improving quality of material facilities 27 Graduation Thesis Banking Academy 4.1.2 Improving quality of human resource 28 4.1.3 Improving quality of organizing and managing retail banking services system 29 4.1.4 Improving Techcombanks’ financial capacity 32 4.2 Recommendations to The State Bank of Vietnam 32 Summary Chapter 35 CONCLUSION 36 REFERENCES Graduation Thesis Banking Academy LIST OF TABLES, FIGURES AND DIAGRAMS List of tables Table 1: The growth of business volume of Techcombank from 2010 to 2013 Table 2: Interest policy of some commercial banks in July 2013 14 Table 3: Customer classification 19 List of diagrams Diagram 1: Complementary Dimensions of Retail Activities Diagram 2: Customer service triangle 30 List of figures Figure 1: The volume of capital mobilization from 2010 to 2013 10 Figure 2: Capital mobilization by types of customer in 2013 11 Figure 3: : Loan outstanding structure by products in 2012 12 Figure 4: Loan outstanding structure by types of customer in 2013 12 Figure 5: The quantity of retail customers from 2010 to 2013 15 Figure 6: The number of branches and transaction offices from 2010 to 2013 17 Figure 7: ATMs’ Distribution in 2013 21 Figure 8: Bad debt ratio in commercial banks in June, 2013 24 Graduation Thesis Banking Academy LIST OF ABBREVIATIONS ACB Asia Commercial Joint Stock Bank ADSL Asymmetric Digital Subscriber Line Agribank Vietnam Bank for Agriculture and Rural Development ATM Automatic Teller Machine BIDV Bank for Investment and Development of Vietnam CV Curriculum vitae ESB Enterprise Service Bus FIFA International Federation of Association Football FPT Financing Promoting Technology HSBC The Hongkong and Shanghai Banking Corporation IDG International Data Group IQ Intelligence Quotient KPI Key performance indicators MB Military Commercial Joint Stock Bank Navibank Nam Viet Commercial Joint Stock Bank Oceanbank Ocean Commercial Joint Stock Bank POS Point of Sales Sacombank Sai Gon Thuong tin Joint Stock Bank SBV The State Bank of Vietnam SEMs Small and medium enterprises SHB Saigon Hanoi Commercial Joint Stock Bank SMS Short Message Service Techcombank Vietnam Technological and Commercial Joint Stock Bank VAMC Vietnam Asset Management Company VIB Vietnam International Commercial Joint Stock Bank Graduation Thesis Banking Academy Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam Vietinbank Vietnam Joint Stock Commercial Bank for Industry and Trade VIP Very important person VND Vietnam Dong Graduation Thesis Banking Academy CHAPTER INTRODUCTION 1.1 Background Retail banking services play an important role in banking activities These services not only help banks earn a stable amount of profit, but they also contribute to market expansion, competitiveness improvement and stability in banking activities Especially in the context of economic crisis, the importance of retail banking services are emphasized and most domestic banks and foreign banks have focused on developing retail banking services Vietnamese market is evaluated as a potential retail banking market Vietnamese population reached 90 million people in November, 2013, but only 20% of them have bank accounts and one-thirds of population are accessing banking services Besides, awareness of people about hi-tech services and banking services and the living standard are gradually improving That’s why banks in Vietnam are attracted by the retail sector, which results in fierce competition among banks Therefore, the banks have planned and invested to develop retail banking services by expanding business network, renovating technologies, improving service quality, diversifying retail banking products Techcombank is not excluded from the common trend Techcombank is known as one of pioneers in developing retail banking services in Vietnam In recent years, retail banking services are highly appreciated in banking activities of Techcombank Achievements that Techcombank gained cannot deny However, Techcombank needs to deal with some issues to raise the competitive ability and fulfill the goal to become the best retail bank in Vietnam in coming years For the above reality, the quality of Techcombanks’ retail banking services needs to be recognized and evaluated Then proposals to improve these services should be given to help Techcombank as well as other banks exploit and optimize the Graduation Thesis Banking Academy 50% in total annual profits while in Vietnam this number is only 12%, so developing retail banking services in Vietnam is an obvious trend  Economic crisis which results in drawbacks when giving credit to companies In climate of recession, enterprises have difficulties in doing business and the credit growth is low, banks can’t lend money to make profits In Vietnam, banks have known with the lending function, so the main revenue comes from the interest income However, the economic crisis has had influence on all economies in the world since 2007, including Vietnam The result of that was the series of companies’ bankruptcy, others remained the business at an indifferent level and did not have enough ability to borrow capital to expand the scale of business, whereas the idle money stream in banks can’t circulate and make profit to cover the cost of fund mobilization and other costs Therefore, banks needs to find the other incomes and decreases the dependent level on credit  The potentiality of Vietnamese retail market Only 20 percent of 90-million-Vietnamese people have bank accounts, 30 percent of population access the bank services and the majority of people in the countryside not know about banking services Moreover, the living standard is rising, which can be described by the increase in the average income per capital, so people need the retail banking services to satisfy their demands That’s why Vietnamese retail market is very attractive to both foreign and domestic banks and potential in the near future  Information technology development Modern information technologies are innovated continuously, which leads to the convenient banking transactions For example, mobile phone and personal computer, the important means to access retail banking services, become essential devices with majority of population As said by Ministry of Vietnamese Information and communications, there were 105 million mobile users and 31 million Internet users in 2013 Meanwhile, new information technology products applying for banking activities are invented and used by international banks such as 23 Ebanking, core Graduation Thesis Banking Academy banking, ESB (Enterprise Service Bus) Therefore, information technology development has promoted the demands of using and developing retail banking services 3.5.2 Subjective reasons  Risk of doubtful debts when giving credit In the period of financial crisis, non-performing loans have become big concerns when bad debt ratio of commercial banks has an upward trend since 2008, which threatens the development of banks and Vietnamese economy as well Although Government gave policies to deal with this issue such as setting up the asset- management company, known as VAMC to buy doubtful debts from banks, the bad debt ratio in 2012 and 2013 was still high, about 4.08% and 3.79% respectively % 14 12.21 12 10 6.1 5.28 2.99 2.81 Bad debt ratio in commercial banks Figure 8: Bad debt ratio in commercial banks in June, 2013 (Source: An Update on Vietnam's Recent Economic Development June 2013 Report) 24 Graduation Thesis Banking Academy It can be realized from the chart that Techcombank was one of the top banks which had a high bad debt ratio, especially the bank also faces the 1,000 billion VND – Vanashin’s non-performing loan, which causes its prudence when giving credit LDR (Loan-To-Deposit Ratio) was very low, stood at 60% and CAR (Capital Adequacy Ratio) was 14%, higher in comparison with other banks, so the credit growth was rather modest, about 2.95 % in 2013 It can be clearly seen that the more loans are given, the more risk rises  The competition among banks Both domestic banks and foreign banks realize that developing retail banking services is an obvious trend in an open market Therefore, all banks invest a large sum of money to expand their retail network, modernize their technologies and enhance their competitiveness Up to now, 39 commercial banks are trying to gain the market share in retail banking market, especially the participation of over 10 foreign banks with professional staff and modern technologies makes the competition among banks become more cutthroat Briefly, Techcombank is required to perfect its retail banking services to speed up its competitiveness 25 Graduation Thesis Banking Academy SUMMARY CHAPTER In the open economy, the demands for retail banking services are arising and benefits from retail banking services are abundant All banks in Vietnamese banking system are trying their best to improve their competitiveness and gain achievements in retail market Techcombank is mixing with the common trend of banking activities as well To fulfill the target to become the best retail bank in Vietnam in coming years, Techcombank is improving its retail banking system, expanding its business scale, renovating technologies and perfecting customer care services Base on theoretical framework of retail banking services in chapter 2, chapter gives brief information about Techcombank Then it concentrates on analyzing achievements that Techcombank gained during recent years, some limitations needing to be paid attention the reasons of drawbacks and the reasons for developing retail banking services in Techcombank Thus, the last chapter offers some solutions to Techcombank and recommendations to SBV to enhance retail banking services in Techcombank 26 Graduation Thesis Banking Academy CHAPTER SOLUTIONS AND RECOMMENDATIONS 4.1 Solutions to Techcombank 4.1.1 Improving quality of infrastructure  Business premises should be expanded and moved to specialized offices or buildings to assure modern infrastructure for providing retail banking services to customers Modern and large transaction offices make customers feel comfortable when they carry out transactions The bank also places posters or advertisements to attract customers and a large space will serve a huge amount of customers coming to the bank  Techcombank needs to expand and develop its distribution network to provide customers with modern services That Techcombanks’ network has not covered all provinces in Vietnam leads to drawbacks when the bank introduces retail banking services to customers Therefore, Techcombank should open more branches and transaction offices or retail service centres in both cities and countryside while it should open representative offices or branches directly under Techcombank in other countries Besides traditional distribution channels, it also has to realize the importance of electronic distribution channels to maximize the number of customers  Updating and applying continuously new technologies is completely essential to remain Techcombanks’ position in retail market All banks invest a huge sum of money for technology innovation to improve their competitiveness in retail banking services That explains why Techcombank has to draw much attention on technology development by modernizing and syncing technology facilities in Techcombanks’ system, enhancing the cooperation with other banks to take advantage of financial and technological supports 27 Graduation Thesis Banking Academy 4.1.2 Improving quality of human resource Human resource plays an important role in developing retail banking services Reasonable recruitment, training and treatment policies help the bank get the best out of labour force Therefore, improving quality of human resource is a strategic mission to develop retail banking services in long term  Techcombanks’ recruitment process is highly appreciated because of its profession and modernism Applicants need to experience rounds including: CV, IQ Test, teamwork and interview before becoming Techcombanks’ staff However, Techcombank should depend on applicants’ position to give a suitable discussion question in teamwork  It is very important to improve staffs’ professionalism and update new skills and banking operations, so Techcombank established a training centre to execute courses for both new and existing staff Nevertheless, Techcombank also pays attention to some issues, including:  Evaluating the result of training course and staffs’ progress which bases on quality and effectiveness of work after training process  Proving further training such as domestic and oversea courses for the talents  Maintaining the cooperation with Bank Skills Training & Consultancy to supply well-trained banking staff  Techcombank needs to have a reasonable treatment policy which is suitable for each position to stimulate staff and ensure that good performers will deserve for their efforts to create their strong attachment to Techcombank It should offer a competitive level of salary to attract more and more well-trained staff while regulations concerning rewards and punishments need to be taken careful consideration For example, Techcombank offers the 13th month salary, KPI- 28 Graduation Thesis Banking Academy based bonus, profit-based salary, incentive, merit salary Besides, welfare schemes of Techcombank are flexibly designed to meet all employees’ needs such as: AON Insurance, birth allowance, retirement allowance, support to join Clubs, health care, sports, car support for eligible employees, benefit scheme to high performers, preferential loans to employees, contests, and collective activities across the system… 4.1.3 Improving quality of organizing and managing retail banking services system  Renovating management method in Techcombanks’ system, restructuring retail banking model matching with international standards and growth rate of Techcombanks’ retail banking services are top priorities The head office of Techcombank also needs to enhance its management ability to direct the activity of its branches Meanwhile, Techcombank continues perfecting the risk management apparatus and developing the information management system with the supervision of supervisory board  Techcombank must complete management retail banking services model and sync the retail banking activities from the head office to branches step by step to provide customers with a high quality services Regulations on function and task of each department need to be clarified to get the best results Branches and transaction offices become professional retail organizations with separate service department for individual customers  Customer care service should be paid more attention because customers’ satisfaction plays an important role in survival of the bank In the context of cutthroat competition, Techcombank should set up customer care centre to advise and answer the questions with polite, enthusiastic attitude of staff Complaints from customers need to be solved and the feedbacks have to be sent 29 Graduation Thesis Banking Academy to customers as soon as possible Gifts for VIP or potential customers should be cared to keep customers to be with the bank Managing the quality of service Retaining customers Satisfying customers Customer service Customer care Measuring service Customers’ value Diagram 2: Customer service triangle  Besides improving the quality of existing products, Techcombank also has to concentrate on researching and developing new retail banking products to attract customers  To offer customers a new product, role of market research and retail banking product department is very important This department will find out the customers’ taste basing on current products and Techcombanks’ advantages in retail market, which results in developing new retail banking products fitting with age, career, income…Techcombank should publish a list of various retail banking products which are different from 30 Graduation Thesis Banking Academy products of other banks, choose some strategic and profitable products for long – term investment and enhance cross – selling among clients  Diversifying kinds of saving accounts, retail credit with flexible interest rates and promotion programs will attract new customers Bancassuarance products and insurance partnership services need to be perfected and become popular with everyone Functions of ATM card and ATM should be renovated such as depositing in account at ATM Techcombank also should continue releasing cards which rely on the cooperation with other famous trade names (Vietnam Airlines – Techcombank Visa card, Mercedes-benz Techcombank Visa Credit Card) Moreover, integrating Techcombank ATM card with Bus card, Student card, Company card… will help Techcombank increase the number of card users and expand its retail network  Marketing activities should be professional and comprehensive from the head office to braches and transaction offices Techcombank should organize traditional events to introduce its banking products to customers In celebration of Techcombanks’ foundation or national festivals, Techcombank is able to offer some banking products with unexpected and preferential promotion programs to popularize its image in public Mass media namely television, radio, newspaper… or call, email, leaflet, brochure are effective channels to advertise Techcombanks’ products as well  Examinations and surveys of services’ quality should be carried out frequently to evaluate Techcombanks’ services and give solutions timely Techcombank may establish secret customers who carry out transactions in Techcombanks’ branches After that they will give comments and evaluations of knowledge, skill, attitude to customer and material facilities The bank can base on these surveys to improve its activities Furthermore, Techcombank should carry out surveys of customers’ satisfaction periodically through questionnaire, email, 31 Graduation Thesis Banking Academy phone or interview, which helps customers make their comments on products and retail banking services On these occasions, Techcombank can clear up queries and have plans to improve its retail banking services 4.1.4 Improving Techcombanks’ financial capacity Financial capacity is one of the competitive advantages in retail banking market, so Techcombank need to increase financial capacity to improve its strength and position  Firstly, Techcombank should rise owners’ equity In terms of internal sources, retained earnings – the main stream of funds contribute to owners’ equity in Techcombank Retained earnings decrease Techcombanks’ dependence on external sources and not lead to dilution effect that impacts the control of existing shareholders Hence, Techcombank needs to make reasonable decision relating to retained earnings ratio to increase its owners’ equity while it also ensures dividends to pay to shareholders In terms of external sources, Techcombank should issue stocks or transferable bonds to strengthen its financial capacity When Techcombank mobilizes funds from external sources, it should take notice to issuance fees, dilution effect… to choose suitable methods  Secondly, another solution that helps to improve financial capacity is intensifying the quality of assets Techcombank needs to deal with nonperforming loans as soon as possible by selling bad debts to VAMC, using its provision, confiscating and liquidating collaterals Besides that, credit process needs to be perfected and the quality of credit officers better to reduce credit risk 4.2 Recommendations to The State Bank of Vietnam  Vietnamese economy has faced many difficulties since the economic crisis in 2008 SBV has to make efforts to stabilize macro economy It should launch 32 Graduation Thesis Banking Academy bailouts or give policies to raise living standard and help corporations deal with finance and production problems  Reforming wordy administrative formalities and cutting down unnecessary formalities relating to retail banking services are very crucial, which is attractive to customers when they use banking services Moreover, clients are not only easy to access financial information but banks can also advertise their products thanks to establishment of modern financial information gateways  SBV needs to perfect the framework which is complying with rules and international standards and protect the customers’ benefit Meanwhile, it should release new regulations and common development strategies and exchange rate management mechanism to meet requirements of banking development and market fluctuations  It should enhance the project of reducing the cash-payment and holding cash in hand habit to stimulate the electronic payment in society SBV, press and communication agencies should take action together to propagate benefits of card services and electronic payment to citizens and change the payment habit In addition, guarantee for electronic banking services and customer’s information has to be paid attention It is also believed that polices which encourage individuals and companies to use card payment services such as decreasing tax should be put into practice  It is necessary for The State Bank of Vietnam, commercial banks to coordinate with General Statistics Office to complete a list of retail banking products accordance with international standards, which lays foundations for building a periodical report system relating to retail banking products That can help customers get information about banking services easily and improve management ability of banks  Equally important, SBV needs to focus on monitoring and supervising missions to assure the safety and soundness of banking activities Regulations on 33 Graduation Thesis Banking Academy adequacy of banking activity complying with international standards have to perfected as soon as possible Process and methods of monitoring and supervising should be taken careful consideration to become effective, whereas early risk alarming system may be set up soon to find out financial institutions which have difficulty through remote monitoring and credit rating 34 Graduation Thesis Banking Academy SUMMARY CHAPTER It is believed that retail bank is the major trend of commercial banks in next years The participation of foreign banks with professional knowledge and experience puts commercial banks in Vietnam in general and Techcombank in particular under competitive pressure Not only Techcombank but other banks need to learn experience and management skills and give strategic plans to developing retail banking services On the basic of analyzing the actual situation of Techcombanks’ retail banking services, the chapter of the thesis suggests some solutions to improvement of material facilities, human resource and financial capacity while it also recommends SBV for some measures to help Techcombank overcome its shortcomings and gain a strong position in retail banking market 35 Graduation Thesis Banking Academy CONCLUSION In the context of recession, commercial banks meet many difficulties in running their operation and they are changing their direction to retail banking services which are promised to bring a huge profit for banks Retail banking services mainly provide individuals, SMEs with various products via different delivery channels These services are beneficial to the economy, banks and customers In Vietnam, retail banking services have developed since 90s Until now, these services contributed remarkably to development of banking activities and system Position of the services is highly appreciated by commercial banks With awareness of the importance of retail banking services, Techcombank invested a huge amount of money to renovate technologies and improve its retail banking system However, to become the best retail bank in Vietnam, Techcombank needs to make much effort and have comprehensive strategies for retail banking quality The thesis topic entitled “Developing retail banking services in Techcombank” aims to analyze the actual situation of retail banking services in Techcombank in the period from 2010 to 2013, causes of limitations and give solutions and recommendations to improve the quality of the services in coming years as well During the research process, the thesis has certain restrictions I hope that teachers, lecturers and other readers can give me some comments and contributions to perfect my thesis Thank you! 36 Graduation Thesis Banking Academy REFERENCES Books and articles  Farjana Yesmin (2010) Enhancement of Retail Banking Operation of Commercial Banks in Bangladesh Journal of Business and Technology  Nguyen Dao To (2007) Developing retail banking services – Opportunity to commercials banks in Vietnam Monetary and financial market magazine, 23, 28-31  Nguyen Thi Huong Giang (2009) Diversifying retail banking services in commercial banks Banking Scientific Journal, National Economics University  Nguyen Tu (2013) How to develop card market in Vietnam Economy and Forecast Magazine, 17, 19  Pham Thu Hien (2011) Developing retail banking services in BIDV MA Thesis, National Economics University  Techcombanks’ annual report from 2010 to 1013  Tran Ha Nguyen Bo (2007) Retail banking services in Vietnam Hanoi, Vietnam Culture and Information Publishing House  Tran Thi Tram Anh (2011) Improving the quality of retail banking services in Eximbank MA Thesis, National Economics University  Vietnam's Recent Economic Development June 2013 Report Websites  www.kinhdoanh.vnexpress.net  www.luanvan.net.vn  www.techcombank.com  www.thanhnien.com.vn  www.tieudungvietnam.com  www.baoxaydung.com