The determinants of customer satisfaction on banking services the case of commercial banks in hochiminh city luận văn thạc sĩ

The purposes of this research are to determine the main factors affecting customer satisfaction on banking services including basic facilities, convenience, employee competence, the envi

VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE DETERMINANTS OF CUSTOMER SATISFACTION ON BANKING SERVICES: THE CASE OF COMMERCIAL

BANKS IN HO CHI MINH CITY

By

NGUYEN THANH NIEN

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, MAY 2011

VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE DETERMINANTS OF CUSTOMER SATISFACTION ON BANKING SERVICES: THE CASE OF COMMERCIAL

BANKS IN HO CHI MINH CITY

A thesis submitted in partial fulfillment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

NGUYEN THANH NIEN

Academic Supervisor:

Dr CAO HAO THI

HO CHI MINH CITY, MAY 2011

Ho Chi Minh City, May 2011

NGUYEN THANH NIEN

Second, I would like to thank to all lecturers and staffs of the Vietnam- Netherlands Programme

Third, I also send my gratefulness to my colleagues in the Department of Individual Customer Relationship, Bank for Investment and Development of Vietnam -Transaction Center 2 Branch for their supports during my study

Especially, many thanks are respectfully sent to my parents for motivating me to

I

complete the thesis

Finally, I give my special thanks to my wife who is always supporting me to finish this re~earch

ABSTRACT

Nowadays as globalization and liberalization of financial institutions accelerate, competition among banks becomes more intense Therefore, in order to face with , that fierce competition, commercial banks in Vietnam in general and Ho Chi Minh City in particular always strive to improve access through expansion of Automatic Teller Machines (ATMs) and branch network; introduce new features for both deposit and loan products at attractive rate; and develop new electronic banking facilities like telephone banking, home banking, SMS banking and Internet banking

However, in reality, there are so many complaints of customers related to the products and services of banks Those show the dissatisfaction of customers, lead to losing customers and cause negative effect on the market share and the profitability

of commercial banks

The purposes of this research are to determine the main factors affecting customer satisfaction on banking services including basic facilities, convenience, employee competence, the environment of bank, transaction cost; and the relationship between these factors and customer satisfaction The research is carried out by using questionnaires, designed according to five-point Likert scale It is based on a survey of245 customers in Ho Chi Minh City Data obtained from the customers were used for conducting reliability, factor and regression analysis through SPSS software

Research findings show that the most important factors influencing customer satisfaction on banking services are the environment of bank and employee competence, convenience and transaction cost

However, this research still has some limitations First of all, data collection is restricted within a few commercial banks in Ho Chi Minh City only Secondly, according to the result of survey, majority of respondents are only from 30 to 50 years old, may be fail to represent for total the actual situation Finally, this research determined the basic factors affecting customer satisfaction on banking services, but there are still lacked of other factors not be identified

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION !

1.1 Problem statement I 1.2 Research objectives 2

, I 1.3 Research questions 2

1.4 Research scope 2

1.5 Research structure 2

CHAPTER 2: LITERATURE REVIEW 4

2.1 Conceps 4

2.2 Literature review of customer satisfaction 5

2.3 Overview of commercial banks in Ho Chi Minh City and the present main banking services 11

2.4 Summary 14

CHAPTER 3: ANALYTICAL FRAMEWORK AND METHODOLOGY 15

3.1 Analytical framework 15

3.2 Research methodology 18

3 2.1 Research approach 18

3.2.2 Research process l9 3 2.2.1 Step I: Generation of items 19

3.2.2.2 Step 2: Pilot survey 19

3.2.2.3 Step 3: Survey 20

3.2.3 Measurement scales of the questionnaire 20

3 2.4 The components of questionnaire 22

3.2.4.1 Open letter 23

3.2.4.2 Specific questions 23

3 2.4.3 Demographic questions 23

3.3 Sampling 24

3.4 Data collection 24

3 5 Statistical methods 24

3.6 The scale testing 25

3.7 Assessment of scale's uni-dimensionality, discriminant validity and convergent validity 25

3.8 Multiple regression analysis 26

3.9 One-way ANOV A 26

3.10 Summary 27

CHAPTER 4: DATA ANALYSIS AND RESEARCH RESULTS 28

4.1 General information of respondents 28

4.1.1 Type of contact with the bank 28

4 1.2 Age group of customers 29

4.1.3 Gender of customer 30

4 1.4 Type of ownership of the bank 31

4.1.5 The number of bank's operation year from the foundation day 32

4.2 The results of pilot survey ~ 33

4.2.1 Descriptive statistics 33

4.2.2 Results ofthe scale testing 35

1 4.2.3 Factor analysis 36

4.2.3.1 Criteria of factor analysis 36

4.2.3.2 Results of factor analysis (pilot survey) 37

4.3 The results of main survey 39

4.3.1 Reliability analysis 39

4.3.2 Factor analysis 40

~I 4.4 Hypothesis testing 45

4.4.1 Adjusted measurement scales 45

4.4.2 Regression model 45

4.4.3 Hypotheses testing 4 7 4.5 Hierarchical regression analysis 49

4.6 Summary 52

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 53

5.1 Conclusions 53

5.1.1 Main findings 53

5.1.2 Managerial implications , 53

5.2 Recommendations 54

5.3 Limitations 55

REFERENCES 57

APPENDICES 6·0 LIST OF FIGURES Figure 2.1 Capital mobilization status of commercial banks from 2005 to 2009 12

Figure 2.2 Credit operation status of commercial banks from 2004 to 2009 13

Figure 3.1 Research model 18

Figure 3.2 Research process 19

Figure 4.1 Relative frequency of respondents' type of contact 29

Figure 4.2 Relative frequency of respondents' age group 30

Figure 4.3 Relative frequency of respondents' gender 31

Figure 4.4 Relative frequency of banks' type of ownership 32

Figure 4.5 Relative frequency of number of bank's operation year from the foundation day 33

LIST OF TABLES

Table 2.1 Literature review summary on customer satisfaction 10

, Table 3.1 Measurement scales 21

Table 4.1 Frequency of respondents' type of contact with the bank 29

Table 4.2 Frequency of respondents' age group 29

Table 4.3 Frequency of respondents' gender , 30

Table 4.4 Frequency ofbanks' type ofownership 31

Table 4.5 Frequency of number of bank's operation year from the foundation day 32

Table 4.6 Descriptive statistics 34

Table 4.7 Summary of the Cronbach's alpha result (pilot survey) 36

Table 4.8 Factor analysis of independent variables 3 8 Table 4.9 Factor analysis of customer satisfaction on banking services 39

Table 4.10 Result of reliability analysis 40

Table 4.11 Factor analysis of independent variables (EB5 excluded) 41

Table 4.12 Factor analysis of independent variables (EB5 and TC2 excluded) 42

Table 4.13 Factor analysis of the customer satisfaction criteria 44

Tabie 4.14 KMO and Bartlett's Test of independent variables 44

Table 4.15 KMO and Bartlett's Test of customer satisfaction on banking services .45

Table 4.16 Adjusted measurement scales 45

Table 4.17 Model summary 46

Table 4.18 ANOVA 46

Table 4.19 Result of coefficients 47

Table 4.20 Summary of hypotheses testing 49

Table 4.21 Determinants of customer satisfaction on banking services 49

Table 4.22 Hierarchical regression analysis of customer satisfaction 50

Table 4.23 Coefficients of independent variables and moderate variables 51

"

ABBREVIATIONS

Agribank : Vietnam Bank for Agriculture and Rural Development

Vietcombank :Joint Stock Commercial Bank for Foreign Trade of Vietnam

Eximbank :Vietnam Export- Import Commercial Joint Stock Bank

Sacombank : Sai Gon Thuong Tin Commercial Joint Stock Bank

Techcombank :Vietnam Technological and Commercial Joint Stock Bank

._

Lien VietBank : Lien Viet Commercial Joint Stock Bank

Ocean bank :Ocean Commercial Joint Stock Bank

Hong Leong : Hong Leong Bank Vietnam Limited

ATM : Automatic Teller Machine

SPSS : Statistical Package for Social Science

:J

~~

I._

Howe"er, in reality, there are so many complaints of customers related to the products and services of banks as well as the way of service of bank's employees such as the continual failure of A TMs, too high loan interest rate, too low deposit interest rate, too high cost of service, complex procedures, the rudeness of employees, etc Those show the dissatisfaction of customers, lead to losing customers and cause negative effect on the market share and the profitability of commercial banks Hence it is very necessary for commercial banks to focus on learning the demand of customers, studying the factors influencing their satisfaction Banks must consider satisfying customers as a vital task

Currently, there are not many researches on the determinants of customer satisfaction on banking services at the commercial banks in Ho Chi Minh City Therefore, this paper will contribute to find out the factors that significantly impact

on customer satisfaction at the commercial banks in Ho Chi Minh City The result

of this study is crucial for management of commercial banks in Vietnam in general

I

-The determinants of customer satisfaction on banking services: -The case of commercial banks in Ho Chi Minh City

' and Ho Chi Minh City in particular to produce important policies to consolidate and

1

continual enhance their banking services

I

1.2 Research objectives

The main objectives of this research are:

To determine the main factors affecting customer satisfaction on banking services

To determine criteria of customer satisfaction

To measure the strength of the relationship between the factors and customer satisfaction

To suggest recommendations for banks to improve customer satisfaction

1.3 Research questions

This research will focus on answering the following questions:

Which factors affect customer satisfaction on banking services?

What are criteria of customer satisfaction?

Which factors are most strong?

What recommendations for banks to improve customer satisfaction?

Given the research purpose, the paper is structured into 5 chapters

First chapter begins with introduction, referring problem statement, research objectives, research questions, research scope

I

,

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Second chapter is named literature review This chapter presents definitions of customer satisfaction and banking services Theoretical framework regarding the determinants of customer satisfaction, and empirical studies are also reviewed in this chapter Finally, overview of commercial banks in Ho Chi Minh City and the present main banking services are showed

Third chapter begin with the analytical framework Next is research methodology It

covers background of research place, sampling method and sample size to survey Besides, variable description with descriptive statistics and a regression model to examine the distribution level of each factor to customer satisfaction are presented

Next chapter is data analysis and research results

Finally, conclusions and recommendations follow

In summary, chapter of introduction presents problem statement, objectives of research, research questions, scope of research and research structure To understand clearly about theoretical framework, and empirical studies, the next chapter will present

This chapter starts with definitions of key concepts related to this research such as customer satisfaction, banking services Secondly, literature review of customer satisfaction is introduced Thirdly, the overview of commercial banks in Ho Chi Minh City and the present main banking services are presented Finally, the summary of literature review concludes the chapter

I)

~ II

~,

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

2.2 Literature review of customer satisfaction

Cardozo may be considered as the first person carried out the study of customer satisfaction In the research on customer effort, expectation, and satisfaction in

1965, he found that customer satisfaction was affected by the efforts expended to obtain the product, and the expectations related to that product In detail, customer satisfaction with a product will be higher when they spend substantial attempts to acquire that product than when they only spend modest attempts His findings were contrary to usual concepts of the convenience of customers and the marketing effectiveness Besides, his research also indicated that customer satisfaction was higher when the product satisfied expectations than when the product did not reach the expectations

Parasuraman, Zeithaml and Berry (1985 and 1988) developed a 22-item scale SERVQUAL with five dimensions (reliability, tangibles, assurance, responsiveness, and empathy) to evaluate the perceptions of consumers on service quality in the retail and service companies on the basis of results of a survey of 200 consumers (greater than or equal to 25 years old) in a shopping mall in a major metropolitan area in the Southwest of the United States From the discrepancy be.tween the expectations and perceptions of consumers of services, they measured the level of consumer satisfaction

However, in a research of the correlations between servtce quality, customer satisfaction and purchase intentions in 1992 through analyzing 660 questionnaires gathered from customers of four different service industries (fast food, pest control, banking, and dry cleaning) in a medium-sized city in the Southeast of the United States, Cronin and Taylor focused on measuring the quality of service based on the actual performance to assess the level of customer satisfaction instead of comparing the perception and expectations

Anderson and Sullivan (1993) used the database of a survey with 22,300 customers via telephone from 1989 to 1990 at 57 firms in Sweden in order to determine the

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

antecedents and consequences of customer satisfaction These firms belonged to many various service industries such as supermarkets, banks, insurance, airlines, gas stations, cars, etc Alternative hypotheses were also tested on the basis of the satisfaction literature The key findings of their research indicated that the satisfaction of customers was not directly influenced by expectations Thus, firms need to have good customer service as well as solving customer's complaints cleverly aimed at preventing damage to customer satisfaction In addition, they stated that this was a very important issue because meeting well all the requirements

of the current customers and making them feel satisfied would help to bring the high profitability for firms in the future

Customer satisfaction has become an extremely important subject for marketers in many different service industries around the world In the retail banking sector, Levesque and McDougall did a research of the main determinants of customer satisfaction in Canada in 1996 on the basis of data collected approximately 325 usable questionnaires in total of 400 delivered questionnaires through the survey method At last, they found that there existed a very strong relationship between service problems, service recovery ability and customer satisfaction Besides, products, service features, and service quality dimensions were also determined as the important factors affecting customer satisfaction but at a lower extent

Andaleeb, in his research on the main factors influencing on the satisfaction of

1 patients with the hospitals in the health care service industry at a large city and its suburt in Pennsylvania (northeastern and mid-Atlantic area of the United States) in

1998, carried out analyzing the data with 130 accepted questionnaires of 390 delivered questionnaires These questionnaires were collected from patients of four hospitals, including two hospitals with 100 beds and two hospitals with 450 beds

He chose the probability sample and tested the hypotheses by the multiple regression model The findings of his research showed that five factors had significant impact on the satisfaction of patients, namely the competence of the

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

staff, quality of the facilities, communication with patients, the demeanor of the staff, and perceived costs

An another research conducted by Ribiere et al (1999) also in the health care service sector in the United States, focused on analyzing the data gathered from a survey of internal customers (physicians, pharmacists, nurses, quality department, and laboratory technologists) And they revealed that accuracy, timeliness, and completeness were major determinants of customer satisfaction on hospital information systems

Sonne ( 1999) executed an empirical research with the aim of finding out the main factors influencing on the satisfaction of customers of Norwegian Institute of Fisheries and Aquaculture Ltd with consultant services in Tromso, Norway The customers of institute were asked about their perception and assessment on different facets for finished projects through the questionnaire with the Likert scale of seven Threugh factor analysis on the basis of collected data, her study showed that the competence of consultants and technical reliability had substantial effect on

1 customer satisfaction

1 In the tourism industry, a research was done by Ekinci aimed at investigating factors affecting customer satisfaction in 2003 Through using the structural equation modeling, ten various hypotheses were tested The results identified that the satisfaction of tourists was mostly influenced by service quality

Meanwhile, Jamal and Naser (2003) undertook a study on the main determinants of

! customer satisfaction in the retail banking industry in Pakistan By concentrating on , analyzing the data collected from 165 completed questionnaires of 300 distributed questionnaires at a branch of the First Women Bank Ltd in a major northern city of Pakistan according to the multivariate regression model, they found that the contractual (core) and the customer-employee relationship (relational) of the service ' had significant impact on customer satisfaction However, they also indicated tl1at

-The determinants of customer satisfaction on banking services: -The case of commercial banks in Ho Chi Minh City

there did not exist a significant link between tangible aspects of the service environment and customer satisfaction

I Eboli and Mazzulla (2007) used the structural equation model to measure and find out the key factors influencing on the satisfaction of students on the bus service in the public transportation sector in the urban area of Cosenza, South Italy In their research, a survey was conducted with 763 students aim at understanding clearly about the expectations and needs of students towards the bus service Based on the analytical results, they identified that there was a strong link between service quality attributes (cleanliness, personnel security, information system, helpfulness of personnel, physical condition of bus stops, availability of shelter and benches at bus stops, overcrowding, and safety) and the students' satisfaction on the bus service

Also in the public transportation service industry, Agarwal attempted to provide a model of six major factors affecting consumer's satisfaction on the railway services

in India in 2008 Simultaneously, she concentrated on analyzing the database of 500 respondents who came from Lucknow City according to the survey method And then she determined the satisfactory level of consumers through understanding their perceptions towards the performance quality of proposed factors closely

The analytical results showed that all six factors had positive impact on overall customer satisfaction Among them, employee behavior and customer-oriented basic platform services were two most important factors The remaining factors included reservation counters, services on trains, tangible platform amenities, and

the availability of trains and tickets

Especially, a recent research of customer satisfaction with the performance of banks was done by Jham and Khan in the retail banking sector of India in 2008 Through the systematic methodology, they analyzed the data of 555 respondents gathered from five Indian banks (two national banks and three private banks) In their study, the level of customer satisfaction was assessed through measuring the satisfactory degree with the quality of services, the satisfactory degree with the transaction of

The dete~minants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

services, the satisfactory degree with loans facility, and the satisfactory degree with general services From that, they explored four key factors affecting the satisfaction

of customers, namely basic facilities (or traditional facilities) of the bank, convenience (convenient transactions for customers no need to go to the bank), the behavior of employees, and the bank environment

Morecver, nowadays in the service industries, when doing the economic exchange, thing which customers take interest in very much is transaction cost Beside the meaning of transaction cost is cost by money which customers have to pay to get a product or service, it still refers to cost of time as well as the efforts of customers to perform transactions Therefore, transaction costs are always costs exceed the cost

of products or services And they have a significant impact in adjusting consumer's behavior Ronald Coase (1937 and 1960) used the term "transaction cost" in order

to expand the theoretic framework aimed at forecasting when economic tasks were carried out by business firms, and when they were carried out on the market Accordingly, every company will extend so long as the activities of that company may be done within the company cheaper than by outsourcing from external companies Transaction costs theory usually concentrates on diminishing costs and mentions that the hierarchical incentives may encourage the economic collaboration

in which market incentives can lead to economic outcomes inefficiently

A study on the transaction cost approach was done by Williamson in the United States in 1981 The results of his research indicated that transaction costs were influenced by specificity, frequency, opportunistic behavior, limited rationality and uncertainty And through his transaction cost approach, transactions related to buying and selling as well as informal exchanges of gift and emotional interactions were explained obviously

Meanwhile, Cheung ( 1987) carried out a research on economic organization and transar-tion costs in Hong Kong and found that transaction costs were costs people may not aware

r

The determinants of customer satisfaction on banking sen, ices: The case of commercial banks in Ho Chi Minh City

Table 2.1 provides a summary of researches on the determinants affecting customer satisfaction in the context of many various services The heterogeneous service contexts are taken for developing a sound theoretical base for the present research

Table 2.1: Literature Review Summary on Customer Satisfaction

Competence of the staff, quality of the facilities,

Andaleeb (1998) communication with patients, the demeanor of the

Health care staff, and perceived costs

Accuracy, timeliness, and completeness of hospital Ribiere et al ( 1999) information system

Proj~ct

Competence of consultants and technical reliability Sonne (1999) consultancy

Cleanliness, personnel security, information system, Eboli and Mazzulla helpfulness of personnel, physical condition of bus

(2007) stops, availability of shelter and benches at bus

Public stops, overcrowding, and safety transportation Employee behavior, customer-oriented basic

platform services, reservation counters, services on

Agarwal (2008) trains, tangible platform amenities, and the

availability of trains and tickets

Service problems, service recovery, products, Levesque and McDougall service features, and service quality dimensions (1996)

Banking Reliability, assurance, empathy and responsiveness Jamal and Naser (2003)

Basic facilities (or traditional facilities), convenience (convenient transactions for customers), the behavior of employees, and the bank

Jham and Khan (2008) environment

To sum up, there are many factors affecting customer satisfaction in the banking sector such as service problems, service recovery, products, service features, service quality dimensions, basic facilities (or traditional facilities), convemence (convenient transactions for customers no need to go to the bank), the behavior of

employees, and the environment of bank

•

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

2.3 Overview of commercial banks in Ho Chi Minh City and the present main banking services

At present, the commercial bank system in Ho Chi Minh City including 3 owned commercial banks (Agribank, BIDV, MHB), 39 joint-stock commercial banks (in which I 0 largest banks are VietinBank, Vietcombank, Eximbank, ACB, Sacombank, MB, Techcombank, SeABank, Lien VietBank, Oceanbank), 5 wholly foreign-owned banks (HSBC, Standard Chartered, ANZ, Shinhan, Hong Leong), 5 joint-venture banks (IVB, VID PB, SVB, VSB, VRB) and over 40 branches of foreign banks that always plays an important driving impetus of the economy

state-Mobilizing capital and lending are two major activities of commercial banks However, these activities had the tendency of significant decline in the recent years

In the case of capital mobilization activity, they mobilized significant domestic and foreign funds, increased savings of the economy Mobilized capital of the banking systew has increased over the years from 2005 to 2007 In 2005, the capital mobilization growth rate was 32.1 % One year later, the growth rate of mobilizing capital slightly increased to 36.5% Then the capital mobilization growth rate reached to the peak approximately 54% in 2007 And from then onwards, capital mobilization status of commercial banks declined clearly in the period from 2007 to

2009 due to high inflation and the impacts of global economic depression The capital mobilization growth rate decreased to 20% in 2008 and to 10% in 2009

Details are showed in Figure 2.1

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Capital mobilization growth rate(%)

60.0

53.9 50.0

Figure 2.1: Capital mobilization status of commercial banks from 2005 to 2009

Source: State Bank of Vietnam (20 1 0)

In the case of lending activity, commercial banks contributed to strengthen the investment for lending to satisfy the demand of capital for the economy This helped businesses to maintain the stability of production, technology investment, changing machines and equipments, thereby enhanced the production capacity of the ecvnomy The source of investment capital for the economy through the credit institutions over the years was divided into three periods In the first period from

2004 to 2006, the credit growth rate had a slight decrease but still maintained at the quite high level of over 25% In the second period from 2006 to 2007, the lending activity developed quickly with a very high growth rate approximately 54% But in the third period from 2007 to 2009, the lending activity was controlled closely and significant declined to 11.2% in 2009 Details are illustrated in Figure 2.2

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Figure 2.2: Credit operation status of commercial banks from 2004 to 2009

Source: State Bank of Vietnam (2010)

Beside the banking services related to capital mobilization and lending activiti~s, there are still many other services related to cards, treasury, remittance, etc

Banking services are also classified into personal banking services and business banking services Details will be shown obviously in the Appendix 1

In addition, banks always study, develop and apply new products and services especially electronic banking services such as home banking, internet banking, telephone banking, and SMS banking, etc These are the most modem banking technology services of commercial banks With online processing feature, the electronic banking service provides inquiry and payment utilities for all types of customers (individuals, businesses, financial institutions, etc.) who have opened accounts at the banks

I

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Statistically, the banking system had approximately 32 million individual accounts;

Especially, the system of commercial banks has enhanced an important role in administrating monetary policy of the State Bank, from that affecting the economy

2.4 Summary

The literature review of customer satisfaction in various service industries was presented in this chapter In there, service problems, service recovery, products, service features, service quality dimensions, basic facilities (or traditional facilities), convenience (convenient transactions for customers no need to go to the bank), the behavior of employees, and the environment of bank are main factors affecting customer satisfaction in the banking sector The next chapter will present the analytical framework, research methodology and set up the questionnaire to conduct

a survey with customers of their evaluation on banking services

1

Source: Annual Report 2010, State Bank ofVietnam

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The d~terminants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

CHAPTER3 ANALYTICAL FRAMEWORK AND METHODOLOGY

At first, this chapter presents the analytical framework Next is the research methodology in order to empirically test the research model Thirdly, the sampling

is introduced Fourthly, the result of data collection is presented Fifthly, various statistical methods are mentioned Sixthly, the way to test the suitability of the scale

is introduced Next are the assessment of scale's uni-dimensionality, discriminant validity, convergent validity; multiple regression analysis and one-way ANOV A Finally, summary of analytical framework and research methodology concludes this chapter

3.1 Analytical Framework

Based on the literature review of customer satisfaction, there are many factors affecting customer satisfaction in various service industries In particular, in the banking sector, service problems, service recovery, products, service features, service quality dimensions, basic facilities (or traditional facilities), convenience (convenient transactions for customers no need to go to the bank), the behavior of employees, and the environment of bank are main determinants of custorr.er satisfaction This paper proposes a model for testing the determinants of customer satisfaction on banking services in Ho Chi Minh City The model can be described

as follows:

- Dependent variable: Customer satisfaction

It is measured by the Likert scale with five-point (similar to the paper of Jham and Khan, 2008)

- Independent variables: basic facilities, convemence, employee competence (behavior of employees), the environment of bank (similar to the paper of Jham and

- - - - - -

-I The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Khan, 2008), employee competence (professionality of bank staff) (New) and

1 transaction cost (New)

1

Basic facilities

Basic facilities (or traditional facilities) are interactions with the bank such as demand draft facility, fixed deposits, money transfer, locker facility, and ATM When these traditional facilities are performed well, this will make customers feel satisfied; and on the contrary, customers will not satisfy Thus, the following hypothesis is proposed:

H1: Basic facilities have positive effect on customer satisfaction with banking services

Convenience

Convenience mentions convenient transactions for customers no need to go to the bank It is named as multichannel banking including debit card, credit card, telephone banking, and internet banking When these convenient facilities are performed well, this will also bring customers the satisfaction; and on the contrary, customers will not satisfy Hence, the following hypothesis is proposed:

H2: Convenience has positive effect on customer satisfaction with banking services

Employee competence

Employee competence 1s represented through behavior of employees and the professionality of bank staff In fact, human is always a key factor which leads to the success in any service industry When the staff of a bank has a high professionality and good behavior towards customers, this will certainly make them feel respected and happy to do transactions with that bank Simultaneously, this will also contribute to improve and enhance the satisfaction of customers; and on the contrary, when the staff of a bank does not have a high professionality and bad behavior towards customers, they will feel dissatisfied Therefore, this paper

proposes the hypothesis as follows:

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

H3 : Employee competence has positive effect on customer satisfaction with banking services

The environment of bank

The environment of bank includes five items that related to service scape, parking space, dissemination of information, query handling, and networking of branches

At present, in the context of banking sector, these are also very important things that directly influence on customers When the environment of bank is frequent upgraded and attached much importance, this will certainly bring customers the good impression and make them feel comfortable and satisfied On the contrary, they will dissatisfy Hence, the following hypothesis is proposed:

H4 : The environment of bank has positive effect on customer satisfaction with banking services

Transaction cost

Transaction cost is the expense that customers have to pay to do transactions with the bank This is not only cost by money (such as loan rate, cost of service) but also cost of time (such as waiting time, time for procedure) According to common sense, banks apply low loan rate, high deposit rate, low cost of service, the least waiting time, and the fast time for procedure, will bring customers the more satisfaction than ones with high loan rate, low deposit rate, high cost of service, the long waiting time, and the slow time for procedure Therefore, this study proposes the hypothesis as follows:

H5: Good transaction cost has positive effect on customer satisfaction with banking servtces

Details will be made clear in the questionnaire (Appendix 3)

In the context of this research, customer satisfaction on banking servtces is the result of satisfaction in three different aspects: the satisfaction with the quality of services; the satisfaction on loan facilities as well as transactions of services

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

provided by the bank; and the satisfaction with general services The model of this research is illustrated in the following figure:

The research approach is often either quantitative or qualitative The quantitative and qualitative methods refer to the means through which one chooses to discuss and analyze the selected data The best approach to use for a study depends on that study's research purpose and the accompanying research questions (Yin, 1994) Because one of the major objectives of this study is to determine the main factors affecting customer satisfaction on banking services, hence the quantitative method was also used as the main tool in order to describe and measure the strength of the relationship between the factors and customer satisfaction

In this study, the questionnaire was used as the tool to collect primary data because

it can cover a large number of populations; and collected data can be measured a11d analyzed by using statistic software

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Pilot Survey

In-depth Interviews

Reliability Analysis

Reliability Analysis

+

Factor Analysis

Confirmatory Factor Analysis (CFA)

I

Figure 3.2: Research process 3.2.2.1 Step 1: Generation of items

Regression Analysis

The first step involves item generation of the survey From the literature review, five factors affecting customer satisfaction on banking services are determined In order to explain obviously the concepts used in the conceptual framework and get the ideas from the respondents, the interviews with experienced individuals in banking sector are also undertaken Almost respondents agree with the proposed determinants of customer satisfaction on banking services The questionnaire of in-depth interview is presented in the Appendix 2

3.2.2.2 Step 2: Pilot survey

The second step involves pilot survey, with the sample size is 50 respondents who are well-informed about the banking sector The purpose of this step is to provide preliminary evaluation and refinement of the measurement scale Reliability

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

analysis is first used to exclude items with the low Item-Total Correlation (i.e less than 30) according to Nunnally (1978) After that, through Factor Analysis, items with low factor loadings (i.e less than 50) will be removed according to Hair et al (1998)

3.2.2.3 Step 3: Survey

The survey is conducted with individuals who have transactions with any commercial bank in Ho Chi Minh City It can be state-owned commercial bank, joint-stock commercial bank, wholly foreign-owned commercial bank, and joint venture bank In this research, sample size is 245 respondents The measures of the constructs were further refined via the Cronbach's alpha and Factor Analysis based

on the data of this survey Next, confirmatory factor analysis (CF A) was used to affirm the validity of these measures Finally, regression analysis is conducted to examine relationships among observed items This is the final step in the research process

3.2.3 Measurement scales of the questionnaire

On the basis of the theories and researches mentioned in the previous chapters together with information collected from preliminary interviews, the measurement scales of the questionnaire were adapted and developed in Table 3.1

I

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Table 3.1: Measurement scales

BFl Demand draft facility of bank A is very good

Fixed deposits schemes of bank A are very

BF4 Locker facility of bank A is very good BF5 A TM of bank A is very good

CONI Debit card of bank A is very good

Jham and Employee ECl Attitude ofbank A's staff is very good

Khan (2008) competence

EC2 Professionality ofbank A's staff is very high New

Jham and EBl Service scape of bank A is very good

Khan (2008)

environment EB3 Dissemination of information of bank A is Jham and

Khan (2008) EB5 Networking of branches of bank A is very Jham and

CSI I totally satisfy with general services of bank

A Customer I totally satisfy with transaction of services, Jham and

CS3 I totally satisfy with quality of services of

bank A Scales measurements for independent variables were adapted from sample questions

by Jham and Khan (2008) and two new scales In detail, there were five scales for independent variables, including three scales with five items (basic facilities, the environment of bank, and transaction cost), one scale with three items

;

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The determinants of customer satisfaction on banking sen ices: The case of commercial banks in Ho Chi Minh City

, (convenience), and one scale with two items (employee competence) The scale measurement for dependent variable was adapted from sample questions of Jham ' and Khan (2008) with three items These scales were used in the form of five-point

I

Likert technique The survey questions were anchored by five levels from "1" to

"5" (1 = strongly disagree; 2 = disagree; 3 = neutral; 4 = agree; 5 = strongly agree) Additional measurements on demographic factors were represented as follows: The ownership of the bank was divided to four categories: (i) joint-stock (measured with value equal to "1 "); (ii) state-owned (measured with value equal to "2"); (iii)

wholly foreign-owned (measured with value equal to "3"); and (iv) joint-venture (measured with value equal to "4")

The number of bank's operation year from the foundation day was classified into:

I (i) Under 5 years (measured with value equal to "1 "); (ii) from 5 to 10 years

I

I (measnred with value equal to "2"); (iii) from 10 to 15 years (measured with value equal to "3"); (iv) from 15 to 20 years (measured with value equal to "4"); and (v) over 20 years (measured with value equal to "5")

Jype of contact with the bank was divided to (i) individual (measured with value equal to "1 "); and (ii) business (measured with value equal to "0")

Age was classified into three separate groups: (i) under 30 (measured with value equal to "1 "); (ii) from 30 to 50 (measured with value equal to "2"); and (iii) over

50 (measured with value equal to "3")

Gender was divided to (i) male (measured with value equal to "1 "); and (ii) female (measured with value equal to "0")

3.2.4 The components of questionnaire

The questionnaire of this survey was developed based on the infonnation obtained from the interviews, including 23 specific questions and 7 additional questions, and started with the brief open letter The questionnaire was adapted and developed in English However, the respondents were Vietnamese customers Hence, the

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

1 questionnaire had been translated into Vietnamese as understandable as possible

operation year from the foundation day, type of contact with the bank, age, gender,

and an open question

50 observations, and preferably the sample size should be larger than or equal to

100 In the factor analysis, we need 5 observations for one item This study has 28 observed items, the sample size must be at least 140 Therefore, the sample size is approximately 245 is acceptable

3.4 Data collection

The survey was conducted during the period from 16th to 28th February, 2011 Thirty questionnaires were sent to individual customers at some commercial banks in Ho

t;~hi Minh City in order to test and ensure that the content of questionnaire was easy

to unuerstand Together with comments and suggestions from experts, the -questionnaire was adjusted

final questionnaires were directly delivered to and collected from the respondents 'The questionnaire was requested to be returned only after two days upon receipt This gave respondents time to think and fulfill the questionnaire

250 samples were returned After collecting and checking, 5 samples were rejected because they were not complete Finally, 245 samples were used The valid

response rate attained 98%

3.5 Statistical methods

In this study, various statistical methods have been used such as frequency distribution tables, percentages, variance, and standard deviation in order to examine and compare the collected data from the questionnaires For data analysis,

the SPSS software version 16.0 has been used

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The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

3.6 The scale testing

1 The Cronbach's alpha coefficient was used to test the suitability of the scale The , higher coefficient indicates the higher homogeneity of measurement items According to Nunnally (1978), the scale will be chosen when the Cronbach's alpha coefficient is greater than 60 and Corrected Item-Total Correlation coefficient must

be larger than 30 if not that item will be eliminated out of the scale

3.7 Assessment of scale's uni-dimensionality, discriminant validity and convergent validity

Hair et al (1998) indicated that uni-dimensionality means all items in a scale have strongly associated with each other

! Neuman (1999) also said that one of the more advanced techniques, namely factor

1

analysis that is often used in order to test the uni-dimensionality of data Discriminant validity means that items of one construct hang together, but also diverge or are negatively associated with opposing construct Meanwhile, convergent validity assesses the degree to which two measures of the same concept are correlated

Principle component factor analysis with the Varimax rotation is mainly used to measure uni-dimensionality aimed at reviewing almost all the original information into a smaller number of variables for the purpose of prediction (Hair et al., 1998) While common factor analysis is often used to measure discriminant validity and

1 convergent validity and explore the talent dimensions represented in the original : variables (Conway and Huffcutt, 2003) Therefore, it is appropriate for the current

1 research to take advantage of common factor analysis with the principle axis factoring and based on eigenvalue (must be greater than or equal to 1.00) as a criterion to identify the number of extracted factors Accordingly, all factors which have eigenvalue less than 1.00 will be removed from the research model

When the scale for one construct under the investigation is uni-dimensional, factor analysis will only give the result of one extracted factor This is very necessary

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

becau~e all major constructs in the theoretical framework are uni-dimensional In addition, items with low factor loading (less than 50) will be eliminated since they (to not converge properly with the talent construct they were designed to measure

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For reliability analysis, Cronbach's alpha is applied to each scale aimed at assessing and refining the measurement items According to Hair et al (1998), the scale for each construct has to reach a minimum Cronbach's alpha coefficient of 60; and items which have low Corrected Item-Total Correlation coefficient (less than 30)

will be removed

From that, different assessments can be made Firstly, no item loads highly on grea~er than one factor to indicate uni-dimensional measurement i.e one item measures only one construct (Anderson and Gerbing, 1988) Secondly, all items of a scale must load highly on one factor representing the basic construct High loadings of all items show the convergent validity, while loading on only one factor indicates uni-dimensional construct Thirdly, no factor includes two sets of items loading highly on one factor to indicate discriminant validity (Hair et al., 1998)

3.8 Multiple regression analysis

The main statistical analysis to be used is multiple linear regressions to explore the correlation and estimate the prediction level of the five independent variables on the dependent variable In this research, in order to test the causal hypotheses that we have, after refinements were done, we summed up the items that make up each of the concepts and then run a multiple regression with them as independent variables and customer satisfaction as the dependent variable

; 3.9 One-way ANOV A

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After determining the important factors affecting customer satisfaction, one-way ANOV A will be applied to find whether there is a significant difference about the satisfactory level among groups of customers in relation to the ownership of the bank, the number of bank's operation year from the foundation day, type of contact

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

with the bank, age, gender The results are expected to be useful for the ' management in imprqving the degree of satisfaction for each type of customer

3.10 Summary

This chapter presents the analytical framework of the study The research model and main hypotheses are also proposed The design to carry out the research is introduced clearly in this chapter Besides, this chapter also presents measurement scales as well as components of the questionnaire The sampling method, result of data collection, statistical methods, the way to test the suitability of scale and factor analysis, multiple regression analysis, one-way ANOV A are mentioned in the last part of this chapter

The next chapter will present the data analysis of the survey and explain the statistical results of the hypothesis testing

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The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

CHAPTER4 DATA ANALYSIS AND RESEARCH RESULTS

The main focus issue of this chapter is on the analysis of the research data and explanation of the model results This chapter starts with the introduction of general information of respondents Secondly, the results of pilot survey are presented Thirdly, the results of main survey follow The Cronbach's alpha was used to check reliability and factor analysis was used to reduce variables into meaningful sub-sets

of factors Next is hypothesis testing through adjusting measurement scales and using the multiple regression model Testing results will show which hypotheses are supported/rejected and rank of importance of factors Then the hierarchical regression analysis is used to examine the direct relationship between the independent factors and customer satisfaction on banking services Finally, the confirmatory factor analysis is conducted to confirm the validity of the measures of the constructs used in this research

4.1 General information of respondents

In this section, the data related to type of contact with the bank, age, and gender of respondents will be described Besides, other information such as type of ownership

of the bank, the number of bank's operation year from the foundation day will also

be shown This information will be made clear through the frequency tables of each item and illustrative charts

Total of 250 samples were collected However, 5 samples were rejected because they were not completed Finally, 245 samples were used to analyze

4.1.1 Type of contact with the bank

The frequency result of respondents' type of contact with the bank is presented in Table 4.1

The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City

Table 4.1: Frequency of respondents' type of contact with the bank

Frequency Percent Valid Percent Cumulative Percent

Among 245 respondents, 127 customers came to the bank for individual contact, occupied 51.8%; 118 customers came to the bank for business contact, occupied 48.2% The comparison of types of contact with the bank is showed in Figure 4.1

Figure 4.1: Relative frequency of respondents' type of contact

4.1.2 Age group of customers

The frequency result of respondents' age group is presented in Table 4.2

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Table 4.2: Frequency of respondents' age group

Valid Cumulative Frequency Percent Percent Percent

The determinants of customer satisfaction on banking sen>ices: The case of commercial banks in Ho Chi Minh City

Most of respondents belonged to the age group from 30 to 50 with 167 customers, occupied 68.2% The quantity of respondents over 50 years old was 70, occupied 28.6% There were only 8 respondents under 30 years old, occupied 3.2% The comparison of respondents' age groups is showed in Figure 4.2

From 30 to SO yrs old Over 50yrs old

Figure 4.2: Relative frequency of respondents' age group

4.1.3 Gender of customers

The frequency result of respondents' gender is presented in Table 4.3

Table 4.3: Frequency of respondents' gender

Among 245 respondents, 118 customers were male, occupied 48.2% The remaining

127 customers were female, occupied 51.8% The comparison of respondents' gender is showed in Figure 4.3