A minor research on current situation and recommendations for the development of individual customer services in ocean bank – hanoi branch

ACKNOWLEDGEMENT First and foremost, my deepest gratitude goes to my supervisor – MA Tran Thu Hoai for her relentless encouragement and continual support Her tireless enthusiasm and patience in assisting me throughout the research process have always been graciously appreciated from the beginning to the end This dissertation would not have been possible without her insightful advice and guidance Ms Do Thu Phuong also deserves my utmost appreciation Her invaluable contributions and suggestions to research are highly valued, particularly during the qualitative phase of the study I am so greatly indebted to her for providing me extremely important and necessary information to accomplish this paper I would also like to acknowledge the thoughtful support and guidance of Mrs Pham Dinh Yen – the executive director Last but not least, I would like to express my heartfelt appreciations to my parents, my sister as well as Academy of Finance and its administrators who have all provider me with substantive support and encouragement throughout the investigation of customer service at Ocean bank I would have been impossible for me to have completed this work without them i ABSTRACT The graduation paper presents filtered data on Ocean bank’s annual reports and compatible information in academic books Through collecting and synthesizing data and raw materials, the paper conducts an investigation on the situation of customer service in retail banking system Subsequently, there is a more deeply analysis implemented in order to build the foundation of solutions in chapter The analysis concentrates on the current situation of the tree main sectors – savings, credit and card service In this way, the bank’s performance can be evaluated in accordance with a set of both quality and quantity criteria Hence, the paper indicates the strong and the weak points of the bank’s organization to have a comprehensive view of Ocean bank’s individual customer service The most important sector is focused on the recommendations for stimulating personal banking in Ocean bank including product, customer strategy, risk management, human resource development and some of proposals to the SVB ii LIST OF ABBREVIATIONS ATM Automatic Teller Machine GDP Gross Domestic Product HB Hanoi Branch HDR Human Resource Development IT Information Technology NPL Non-performance Loan POS Point of Sale SBV The State Bank of Vietnam SME Small – Medium Entrepreneur iii LIST OF FIGURES & TABLES Number Name Table 2.1 Profit result of Ocean bank – Hanoi Page 26 Branch Figure 1.1 Source of mobilization 29 Table 2.2 Fund raising from resident 29 Table 2.3 The data for total capital and total credit 32 in Ocean bank (HB) Table 2.4 Development of card operations 35 iv REFERENCES  Sources in English: Andres Kuusik (2007), Affecting customer loyalty, University of Tartu, 9-11 Bilal Afsar, Zia Ur Rehman, Jaweria Andleeb Qureshi and Asad Shahjehan (2010), Determinants of customer loyalty in the banking sector, Department of Management Sciences, Hazara University, Pakistan, 1041-1043 Beatriz Sanz Saiz and Pierre Pilorge (2010), Understanding customer behavior in retail banking, Ernst & Young Effie Xin, Lawrence Luo and Sky So (2010), Market risk management, Ernst & Young  Internet sources: Hiệp hội ngân hàng Việt Nam (2011), Phát triển dịch vụ ngân hàng bán lẻ, retrieved from http://vnba.org.vn/ Thanh niên news (2013), Bank bad debts remain serious challenge for Vietnam: ADB chief, retrieved from http://thanhniennews.com/ Ocean bank official website (2013), Overview of Ocean bank, retrieved from http://oceanbank.vn/  Vietnamese sources: Báo cáo thường niên Ocean bank (2010, 2011, 2012) Tạp chí Ocean times v TABLE OF CONTENTS ACKNOWLEDGEMENT i ABSTRACT ii LIST OF ABBREVIATIONS .iii LIST OF FIGURES & TABLES iv INTRODUCTION CHAPTER 1: LITERATURE REVIEW 1.1 Overview of a commercial bank 1.1.1 Definition of a commercial bank 1.1.2 Functions of a commercial bank 1.1.2.1 Primary functions 1.1.2.2 Secondary functions 10 1.2 Classification of services in a commercial bank 12 1.3 Individual customer service in a commercial bank 13 1.3.1 Definitions of customer service in a commercial bank 13 1.3.2 Individual customer services in a commercial bank 14 1.3.2.1 Savings service (Savings account) 14 1.3.2.2 Personal credit service 15 1.3.2.3 Payment service 15 1.3.2.4 Account service 16 1.4 Overview of developing individual customer service in a commercial bank 17 1.4.1 The importance of good customer service 17 1.4.2 Evaluation criteria for ability of building customer base 17 1.4.3 Factors influencing on remaining customer loyalty toward a bank 19 CHAPTER 2: CURRENT SITUATION OF THE DEVELOPMENT OF INDIVIDUAL CUSTOMER SERVICE IN OCEAN BANK - HANOI BRANCH 22 2.1 An overview of Ocean Bank – Hanoi Branch 22 2.1.1 An overview of Ocean Bank 22 2.1.2 An overview of Ocean Bank – Hanoi Branch 23 2.1.2.1 History of Ocean Bank – Hanoi Branch 23 2.1.2.2 Functions of Ocean Bank – Hanoi Branch 24 2.1.2.3 Organization of Ocean Bank Hanoi Branch 24 2.1.2.4 Performance of Ocean Bank – Hanoi Branch 25 2.2 Current situation of the development of individual customer service in Ocean Bank 27 2.2.1 Current situation of savings mobilization activities 27 2.2.1.1 Type of ordinary savings rendered by Ocean bank 27 2.2.1.2 Structure of mobilizing 28 2.2.1.3 Current situation in 2011 29 2.2.2 Current situation of personal credit 30 2.2.2.1 Personal credit product 30 2.2.2.2 Current situation in 2011 31 2.2.3 Current situation of card service 34 2.2.3.1 Types of card services 34 2.2.3.2 Current situation in 2011 35 2.3 Evaluation of current situation of individual customer service in Ocean Bank 37 2.3.1 Achievements 37 2.3.1.1 Quantity 38 2.3.1.2 Quality 39 2.3.2 Weakness and Causes 40 CHAPTER 3: RECOMMENDATIONS FOR DEVELOPING INDIVIDUAL CUSTOMER SERVICE IN OCEAN BANK – HANOI BRANCH 43 3.1 Developing orientation of individual customer service in Ocean Bank – Hanoi Branch 43 3.1.1 Developing orientation of retail banking in Vietnam 43 3.1.2 Developing orientation of individual customer service in Ocean Bank 45 3.2 Recommendations for further enhancement of individual customer services in Ocean bank 47 3.2.1 Product strategy 47 3.2.2 Customer strategy 49 3.2.2.1 Existing customer remaining 50 3.2.2.2 New customer developing 51 3.2.3 Risk management 52 3.2.3.1 Credit risk 52 3.2.3.2 Market risk 53 3.2.3.3 Operational risk 54 3.2.4 Human resource development (HRD) 56 3.2.5 Recommendation for the SBV 57 CONSLUSION 58 REFERENCES v INTRODUCTION RATIONALE OF THE STUDY In line with the development of Vietnam’s economy, banking system on the whole has been widening vertically and horizontally Its powerful influence on financial system has been making it one of the core parties of the economy contributing to the national growth In which, commercial banks are emerging as a new pillar of banking system in the 21st century The evolvement of commercial banks, in the context of international integration of Vietnam, needs creativeness in management style and sensitiveness in keeping up with the world’s situation An opening economy has been bringing opportunities and difficulties to the whole banking system due to an increasing number of internal and external “competitors” – financial intermediaries and institutions This requires commercial banks to be more active in order to accelerate added-value and expand the coverage of banking system through raising regulation capital Throughout two decades of development, Ocean commercial joint-stock bank is becoming stronger with the regulation capital of in and around 5,000 billion VND, offering various utility services, especially, E-banking (internet banking, home banking, e-loans), and having a strategic partnership with Petro Vietnam Like any other banks, Ocean Bank – Hanoi Branch are conducting numerous strategies and plans in which individual customer services have been taken into consideration as an inevitable laws of the market economy for the purpose of attracting customers Individual customer services in Ocean Bank – Hanoi Branch have reached some certain advances; however, there is a need to have a deep understanding of strength and weakness of the services and then to give out valuable recommendations to the board of director Recognition of the topic of relevance, I have decided to conduct a minor research on current situation of individual customer services in Ocean Bank – Hanoi Branch to have an overview as well as a comprehensive look into the growth of the services Subsequently, I would like to present some recommendations to enhance the services and operating efficiency AIMS OF THE STUDY The specific aims of the research are: - To present the background of banking system in general and commercial bank in particular - Next, to list common banking services and then a detailed look into individual customer service in Ocean Bank – Hanoi Branch - Afterward, to assess the current situation of the development of individual customer service in Ocean Bank – Hanoi Branch in a certain period of time - Ultimately, to submit some recommendations to improve efficiency and effectiveness of individual customer service in Ocean Bank – Hanoi Branch It is expected that this minor research might be helpful to the board of directors in developing strategic plans, exploring new market, and branch expansion strengths to accomplish the goals reaching the top ten leading banks in Vietnam regarding providing electronic banking services in the future 3.2 Recommendations for further enhancement of individual customer services in Ocean bank 3.2.1 Product strategy Fundamentally, product strategies have to aim at diversifying items, expanding the network of product distribution, transactions and branches as well as creating newly utilities for bank’s products and services in which the bank finds a prominent and key product group for further investment to highlight bank’s image and make impression on customers Below are some of specific solutions that focus mainly on addressing Ocean bank’s restrictions  Distribution channel The bank needs to attach special importance to electronic distribution channel via hi-tech application (internet/phone/sms banking) despite of high investment expense Currently, the number of Vietnamese using Internet is growing fastly (30.8 million people using the internet daily) resulting in the increasing developing of e-commerce Also, custom, tax-collecting, bidding activities through internet are being launched widely facilitating online payment service to blossom Nonetheless, expense matter needs to address by building partnership with major telecommunication corporations (FPT, VNPT, Viettel) to provide the electronic services with low fee - high benefit Through existing customer base in the corporations, the bank puts forward programs connecting the telecommunicating services with internet, mobile phone banking services to attract the customers 47 Besides, the risk of personal data security emerges from the expanding of internet banking service A coding system and digital signature are recommendations for enhancing the safety of client accounts With regard to card service, turning modern payment service into a common product is appropriate for Vietnam’s market Firstly, card payment services should be boosted by setting more ATMs, POSs at populated areas and working in collaboration with partners in amusing sectors such as: a series of famous restaurants, coffee shops, shopping malls, cinemas, music shows, etc to bring the highest benefits to dear customers of Ocean bank Secondly, in comparison to other “predecessor” banks, the number of ATMs in Ocean bank is still moderate High density of ATMs and POSs not only on street, but also on media helps the payment service without cash to be more widespread, concurrently, building an impressive appearance of “bank-small version” makes customers to pay more attention Thus, the bank has to make use of available financial source to invest in designing and setting up new ATMs with new brand image In addition to payment transactions via cards, the bank should launch expanding project on payment service via mobile for small transactions, propose an insignificant fee to develop the service in the beginning period  Interbanking activities Presently, the connection of domestic banks and Ocean bank has not been developed yet In the upcoming years, the bank needs to enhance interbanking relationship contributing to build a professional banking system and a major customer base for the bank Simultaneously, with sustainable financial source, 48 Ocean bank should open extra branches in foreign countries in order to diversify customer group, however, there is a need for carrying out thoroughly market researches to avoid the risks of market, competitors and international laws  Savings In 2013, economists state that the market has not been recovered rapidly, while real estate market, security market is being frozen; savings is considered as a safe investment option Consequently, Ocean bank needs to define “core product” which can make a difference and locate the bank’s brand Beside savings products for middle class, focusing on exploiting service for common group is a necessary strategy, at the moment because the majority of Vietnamese have not gotten used to use modern banking services, therefore, it is a prospective market helping to draw new customers Above all, the bank should simplify the procedures for registering and building an easy and quick approach, thereby, create outstanding value going with customer’s daily life 3.2.2 Customer strategy Customer satisfaction has been such a major concern for banking leaders Clients are requesting specialized products and high service quality, and these requirements need to be met to help reinforce trust and confidence for the bank The bank must now take a look at their customer base, examine what customers want, which customers belong to potential profitable group and which ones are non-profitable group for the bank However, customer strategy building bases on only two main directions that are existing customer retention and new customer base creation 49 3.2.2.1 Existing customer remaining In a difficult economic environment, it is essential that banks maintain strong and mutually beneficial relationships with their customers In order to so, there is a need to improve from external to internal To begin with, the bank should innovate around the customer experience, so as to improve one-to-one relationships with better use of expanding channels that are growing in popularity such as email, website or text message While face-to-face interaction is used to highly appreciate, today’s customer are often more concerned with streamlined web services and the ability to complete their needs across services, for example, filling out a form online, then going to the branch to discuss the next steps or calling a telephone advice line The bank can interact flexibly with their customers in order to fully understand what their personal service demands are Next, aiming at removing costs and paperwork that hold customers back from switching providers and getting the best deal It is stated that the new bank will act as the primary contact point for a customer wishing to move Thus, to maintain customer base, the bank should cut unnecessary expenses or restructure banking procedures Furthermore, the bank should make much more sophisticated use of data that they hold on each of their customers, then use it to analyze and respond to customer needs and future demands Besides, Ocean bank must conduct analysis to identify target resources towards key customers For example, an amount of money using to reward the customers for the depth and duration of their relationship with the bank by gift, shopping voucher, preferential services from partners or preferential interest 50 rate Currently, many banks have set up customer retention units that identify and react to dissatisfied customers and respond accordingly This can be an ideal solution to diminish gradually the factors that make customers to seek or buy other products from other providers 3.2.2.2 New customer developing Although, most of financial institutions, commercial banks are concentrating capital on SMEs to revive the economy, individual customers are a stable and long-term source that global retail banking is toward The fact points out that the percentage of people joining in using retail banking services occupies only 10%, therefore, the commercial bank - Ocean bank needs to focus on junior customer group-aged from 21 to 29 because 65% of Vietnam’s population are under the age of 30 who are extremely active against product approach and hold themselves in readiness for experiencing interesting services For instance, the development of card product for pupils and students can be considered as helping them to control personal spending via bill statements or phone messages and integrate themselves in the context of modernization Also, Ocean bank owns massive advantages in product and service marketing activities because the bank is a sub-system of Ocean Group including many other units like ocean media, ocean times, ocean hospitality, ocean security, etc, consequently, new customer attracting can be achieved through making use of supporting from the subsidiaries In addition, for the bank, it is imperative that there is a strategic focus, not only necessarily on increasing the size of the customer base, but also on 51 targeting and maintaining the right kind of customers, whether they are students with potential earning power or established high income individuals Thus, in addition to focuses on long-standing, loyal customers, Ocean bank needs to have plans that segment customer base to find new appropriate customers 3.2.3 Risk management In most of the banks, risk management strategies were imbedded in the business strategy since risk management is always a top priority task of the banks Despite of the low risk of individual customer service, managers need to have a strategic review on risk-governance to achieve target growth of the service At Ocean bank, risks are classified into the major clusters in order to be managed effectively, including: credit risk, market risk and operational risk 3.2.3.1 Credit risk The solutions to manage a good credit risk emerging from the experience of foreign banks like China banks, Japan banks or America banks are highly valuated and more likely to apply flexibly to the bank Firstly, safe standards for credit have to be complied strictly, concurrently, the bank should assess actively client’s potential or implicit risks in the future For instance, the profit of loans for expected asset coming from loan capital needs to avoid, instead, the bank reviews and supervises historical record of the loans as well as implements cautiously loan verification process for borrowers before advancing loans The solution that builds long-term and comprehensive relationship with borrowers and provides them necessary financial needs is applicable, as the result, lenders will have a deep understanding of client’s financial situation facilitate the loan process to be done safely and promptly 52 Secondly, supervising process after disbursement should be carried out appropriately through collecting constantly information of operating for housing business or controlling customer’s situation for consuming credit, especially, credit rating must be realized not only for big customers, but also for small ones like individuals Thirdly, avoiding brokerage or intermediaries is necessary because they tend to provide non-performance debts for banks Next, the bank verifies NPLs as soon as possible and speeds up bad debt recovery The best way of knowing signs is to keep in touch with the customers and not wait until the loan becomes an over-due debt Generally, for credit risks, the bank always have to be active and flexible to deal with unexpected events 3.2.3.2 Market risk The risk has rarely occurred in individual customer service, however, it might cause “the domino effect” if it happens, so the risk controlling process needs to set up even when there is not any bad signals of market Market risk management system which is done by the board of senior managers needs to reach certain objectives First of all, in order to help senior managers fulfill their responsibilities in risk taken and risk management, they themselves should have sufficient knowledge and expertise to comprehend the material risks exposed to the bank, both under normal and stressed market conditions It also means that they have to up-to-date all financial or banking market events or changes that may be adverse to the overall risk profile and financial position of the bank 53 Next, senior managers also should be involved in setting of risk appetite, based on the bank’s strategy and goal, and monitor how the risk appetite has been followed Then, there is a need of having a reporting system within the bank to provide sufficient information to the board of senior manager regularly It will enable them to exercise adequate oversight and make decisions relating to the bank’s market risk exposure  Market risks of product or transactions Leaders have to reinforce the quality of risk management system so that it is capable of measuring the market risks in accordance with the measurement methods or models approved to be adopted by the bank Then, the system conducts the data collection of products (services), trading revenue, counterparty, portfolio, trading unit and sub-unit, currency, etc Furthermore, interest rate factor is easily influenced by the changes of market, therefore, the bank should control actively so that the differences of interest rate not cause the confusion of customer’s attitude Last but not least, being aware of the sophistication of market risks, the board of senior managers needs respond actively and calmly, initiate timely specific solution in certain circumstances 3.2.3.3 Operational risk Operational risk can be defined as risks resulting from inadequate or failed internal processes, people and systems or from external events Ocean bank has paid special attention to these particular risks and reached some certain advancements by setting up the core programs of operational risk management 54 However, in order to improve the operational risk management efficiency, the bank should also examine several issues Firstly, the board of directors should take the lead in establishing a strong risk management culture They also should establish a corporate culture that is guided by strong risk management and that supports and provides appropriate standards and incentives for professional and responsible behavior In this regard, it is the responsibility of the board of directors to ensure that a strong operational risk management culture exists throughout the whole organization Secondly, the bank should develop, implement and maintain a framework that is fully integrated into the bank’s overall risk management processes The framework for operational risk management chosen by an individual bank will depend on a range of factors, including its nature, size, complexity and risk profile, therefore, it requires the board of senior management to have a comprehensive view Thirdly, senior management should ensure the identification and assessment of the operational risk inherent in all material products, activities, processes and systems to make sure the inherent risks and incentives are wellunderstood Lastly, they needs to implement a process to regularly monitor operational risk profiles and material exposures to losses Appropriate reporting mechanisms should be in place at the board of senior management and business line levels that support proactive management of operational risk Operational risk reports may contain internal financial, operational, and compliance 55 indicators, as well as external market or environmental information about events and conditions that are relevant to decision making Ultimately, the bank should have a strong control environment that utilities policies, processes and systems; appropriate internal controls and risk mitigation 3.2.4 Human resource development (HRD) The HDR policy in the banks has to act as an effective instrument to encourage employees, to show creativity, to reach for excellence and finally to render better customer service Thus, the HDR in Ocean bank has to have a clear strategy from recruiting to training after recruiting Initially, there is a need for the bank to invest in communication between departments, so as to improve the customer experience when an individual interacts with more than one department, and thereby develop a “single customer view” across channels, departments and divisions Now, many banks have set up customer retention units that identify and react to dissatisfied customers and respond accordingly These are focused too often in business units when they should, in fact, take a wholesale view of every customer’s dealings with all parts of the bank Then, the bank also should invest in and expand customer retention units to take an overall view of customer concerns across product areas Oversea training for senior staff is a good idea if the bank have a sustainable financial competency, however, there need specific constraints to avoid “blood brain barrier” Simultaneously, staff incentive programs should be considered to reward superior service quality and retain high-quality human resource 56 Moreover, the bank needs to develop new strategies to target disaffected customers and prevent attrition Improving customer service and service quality will have a major impact here Training courses for transaction employees is a typical example, whereby, to create a professional and friendly working environment when customers conduct transactions 3.2.5 Recommendation for the SBV The SBV needs to continue to perfect promptly legal document system in banking sector to disclose the performance of banks While addressing the immediate issues of the banking sector, the SBV should continue its effort to further strengthen its capacity to regulate and monitor banking sector risk, also The bank needs to implement comprehensive banking sector reforms to deal quickly with comprehensive NPL resolution measures in particular so that public confidence in the banking system is not affected Finally, a move forward international standards for commercial banks through legal document regulating bank’s activities is necessary for domestic banks to keep up with the development of e-banking of international banks 57 CONSLUSION The strong cooperation with Petro Vietnam, Ocean bank’s strategic shareholders and partners, have rendered the bank ready for a new objective of standing among the 10 leading banks in Vietnam and becoming the major bank for the petroleum industry and other key sectors by 2015 Ocean bank’s ultimate goal is to become a “trusted partner” to customers, partners and shareholders for all their business activities For Ocean bank-Hanoi Branch, after year-establishment, the bank has achieved major advancements and become one of the best branches of Ocean bank separated into an independent unit since 2011 It states that the branch are well-kept up with global banking trend-retail banking Especially, individual customer service is invested particularly resulting in the trust and loyalty of customers Through reviewing literature and researching the current situation of individual customer service in Ocean bank-Hanoi Branch, the graduation paper has been accomplished with three main ideas:  The paper presents the necessity of developing retail banking in general and individual customer service in specific in commercial banks  On the basis of the analysis of the current situation of individual customer service, the minor research gives assessment on strengths and weaknesses of the service in Ocean bank  Finally, the paper propose solutions and recommendations for further enhancement of individual customer service in Ocean bank-Hanoi Branch 58 59 60 61 ... Strongest Balance Sheet Award and ranked in the top 500 of Asia Pacific Largest Banks by the Asia Banker Journal (the leading Journal in the field of banking and financial services in Asia Pacific)... Functions of Ocean Bank – Hanoi Branch 24 2.1.2.3 Organization of Ocean Bank Hanoi Branch 24 2.1.2.4 Performance of Ocean Bank – Hanoi Branch 25 2.2 Current situation of the development. .. SERVICE IN OCEAN BANK - HANOI BRANCH 2.1 An overview of Ocean Bank – Hanoi Branch 2.1.1 An overview of Ocean Bank Ocean Bank was formally Hai Hung Rural Commercial Joint-Stock Bank which was established