Vietnam banking sevice quality in trend of international integration

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS VIETNAM BANKING SERVICE QUALITY IN TREND OF INTERNATIONAL INTEGRATION A STUDY IN COMMERCIAL BANKS IN HO CHI MINH CITY A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS i I I By I •i i il' I' AU BAO HOANG ANH I Academic Supervisor: NGUYEN MINH KIEU I, HO CHI MINH CITY, October 2011 STUDENT DECLARATION I confirm that this research titled "Vietnam banking service quality in trend of international integration- a study in commercial banks in Hochiminh city" is my own work I hereby declare all of the detailed content of this research is the process of extensive research, data collection and analysis of relevant documents All data, resources, references using in this research are clearly identified I bear full responsiveness for commitments Hochiminh city, October 2011 Au Bao Hoang Anh ACKNOWLEGEMENT In order to accomplish this thesis, apart from my own efforts, first of all, I would like to express my sincere gratitude to my supervisor Associate Professor PhD, Nguyen Minh Kieu, for his great guidance, helpful advice and encouragement during the whole process of my study I also would like to express my gratitude to professors, tutors of Economics University in general and of Vietnam - Netherlands Programme in particular who have delivered valuable experiences, knowledges, assistance and enthusiastic guidance to me during the course and my study I am very thankful to my family for the support and encouragement in so many ways I also sincerely thank classmates of Vietnam - Netherlands master programme course 15 and colleagues at Vietnam Eximbank in supporting me their best to complete this thesis Finally, I would like to thank domestic and foreign banks' customers for their cooperation and to share experiences and opinions My deep thanks to all of you! Au Bao Hoang Anh Hochiminh City, October 2011 TABLE OF CONTENTS LIST OF FIGURES i LIST F TABLES ii ABSTRACT iii CHAPTER 01: INTRODUCTION I 1.1 RATIONALE OF TIIE STUDY 1.2 STATEMENT OF PROBLEM 1.3 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS 1.3.1 Research objectives 1.3.2 Research questions 1.4 RESEARCH METHODS 1.5 SCOPE AND OBJECTIVES OF TIIE RESEARCH 1.6 TIIE STRUCTURE OF TIIE RESEARCH CHAPTER2: LITERATURE REVIEW 2.1 SERVICE 2.1.1 Service definition 2.1.2 Service characteristics 2.2 BANKING SERVICE 2.2.1 Banking service definition 2.2.2 Types of banking products and services 2.2.2.1 The traditional bank services 2.2.2.2 The recently developed banking services 2.3 SERVICE QUALITY 2.3.1 Service quality definition 2.3.2 Service quality dimensions in banking sector 10 2.3.3 Models of service quality 13 2.4 SERVICE QUALITY AND SATISFACTION OF CUSTOMER IN BANKING SECTOR 16 2.4.1 Satisfaction and the views of customer satisfaction 16 2.4.2 Service quality and customer satisfaction in banking sector: 17 2.5 INTERNATIONAL INTEGRATION 20 2.5.1 International integration definition 20 2.5.2 Banking integration is part of economic development 21 2.5.3 Impact of international integration to banking sector: 21 CHAPTER 3: RESEARCH METHODOLOGY 24 3.1 RESEARCH MODEL 24 1.1 Proposal of research model 24 1.2 Research Hypothesis 25 3.2 RESEARCH DESIGN 25 3.2.1 Research approach 25 3.2.2 Research process 26 3.3 OFFICIAL RESEARCH 27 3.3.1 Measurement scale 27 3.3.2 Adjustment scale 29 3.3.3 The questionnaire design 31 3.3.4 Research sample 31 3.3.5 Sampling 31 3.3.6 Size of sample 31 3.4 RESEARCH ANALYSIS 32 CHAPTER 4: DATA ANALYSIS AND FINDINGS 33 4.1 SAMPLE CHARACTERISTICS 33 4.2 DATAANALYSIS 36 4.2.1 Reliability evaluation through Cronbach's Alpha 36 4.2.2 Evaluation the measurement scale by using Exploratory Factor Analysis (EFA) 38 4.2.2.1 Some rules in EFA test 38 4.2.2.2 EFA for dimensions of service quality 39 4.2.3 The adjusted research model 41 4.2.4 Analysis of the difference in perception of customers on foreign and domestic banking service quality 42 4.2.4.1 Analysis ofthe difference in mean value between foreign and domestic banking service quality 42 4.2.4.2 Hypotheses' test with independent t-test analysis approach .45 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 51 5.1 CONCLUSIONS 51 5.2 RECOMMENDATIONS 53 5.3 LIMITATION & FUTURE RESEARCH 56 REFERENCE 58 APPENDIX 63 APPEND IX 63 APPENDIX • • 66 LIST OF FIGURES Figure 2.1: Model of service quality gaps (Parasuraman at el., 1985) 15 Figure 3.1: Suggested research model 24 LIST OF TABLES Table 3.1: Research Design 26 Table 3.2: The first service quality scale 28 Table 3.3: The adjustment service quality scale 30 Table 4.1: Sample characteristics 35 Table 4.2: Reliability test of dimensions of service quality 37 Table 4.3: EFA analysis result of service quality factors .40 Table 4.4: Meanscore of customer's perception on service quality 43 Table 4.5: Independent t-test results of comparison of domestic bank's and foreign bank's service quality 46 ii AS TRACT Nowadays, integration is an issue taken place in all most economic industries, including service industry as banking For banking industry, integration has led to more intense competitive pressure than ever and "service quality" is considered as one of the effective means in building a competitive position in the market This study, conducted in Hochiminh City, aims to investigate banking service quality in Vietnam in the trend of international integration and to make a comparison of banking service quality perceptions between domestic bank section and foreign bank section joining into Vietnam The study samples are customers of two kind banks, one of which is domestic owned and one of which is foreign owned In detail, customer survey will be carried out and analyzed based on the collected data Questionnaires used in survey rely mainly on Servqual model Finally, Vietnam banking service quality scale is identified comprising jive dimensions with twenty-one items - Responsiveness, Reliability, Empathy, Tangibles and Network j Besides, the result of research also concludes that the customers' perception about the service quality of the bank they patronised, showed some significant differences The foreign bank section's service quality is perceived well against the banks owned domestic at aspects belong to technology, behaving and attitude ofstaff Based on the result, some recommendations on how to improve Vietnam banking service quality in general and domestic bank section's service quality in particular are suggested in order to reduce the risk of occupying market offoreign bank section once the full integration iii CHAPTER 01: INTRODUCTION 1.1 RATIONALE OF THE STUDY • Commercial bank plays a significant role in the economy Each year it contributes over 10% of the total growth of the country It also makes up one of the biggest provider of services in Vietnam economy Today, international integration is an inevitable trend of international economic relations And in the accelerating process of economic integration, the number of commercial banks in Vietnam has also increased sharply Therefore, competition becomes more intense not only among domestic banks each other but also among domestic and foreign commercial banks In this context, we often wonder that why there are some banks attracted the great amount of customers while the other the amount of customers is virtually not worth considering Is there service quality of these banks better than the others? Or these banks provide many different kinds of banking service products to satisfY full need of customers than the others? Or are the foreign banks with modem technology better the domestic banks in customer satisfaction and they are gradually occupying market share? So, in order to improve the effectiveness of business activities in the process of international economic integration requires commercial banks need to increase competitive capacity to meet the development requirements in the background modem economy Derived from the developmental requirements of integration, one of the solutions to improve competitive ability of commercial banks is develop banking service quality Nowadays, service quality has become an increasingly important factor for success and survival in the banking sector Strategy focus on service quality helps banks build a new image, make a big difference and improve competitive advantage in the market - - - - - trust of customers to the bank, directly affects the decision process to use the services and affects the business performance of banks Thus, employees must respect and be courterous with customers, know how to behave cleverly, flexible and satisfy customer; know how to use language easily understood, welcome customers with a warm, enthusiastic, friendly, comfortable and smiling, attitude In addition, employees should be show attention to customer, they also need to listen and receive feedback from customers to exchange information with friendly attitude to check out the reasons for further improvement to the products and services and propose reducing administrative procedures not necessary in the transaction Aso employees need to be honest with customers During delivering process, bank's staffs must inform customers if the promotion and benefits are available and pay more attention to customers' benefits by explaining and helping them to choose the best service which is convenient and bringing more benefits to them in any transactions Moreover, modem bank officials not only have professional expertise but also have knowledge of many areas, as consultants, marketing In order to attain that, the important thing is how the banker can optimize human performance, effort, thinking and innovation, which make the services more different or better Therefore, banks need to align staffs appropriately, strongly promoted The commercial banks may have to organize continuously training courses of professional knowledge and communication skill to their staffs With the good knowledge of services, friendly attitude and professional behaviors, bank's staffs can instill confidence to customers In addition, as mentioned above, Empathy is the demension evalutated lowed of service quality scale So, it should be more promoted In this dimension, along with human factor, price factor is also considered Application of competitive fees and appropriate interest rates attracting customers to open accounts, combined with the payment services and other services should have a clearly defined plan In the aspect of technology, we can look into the dimensions "Tangibles" comprises items related to Vietnam commercial banks' tangibles that customers 54 perceived when in contact with them This is also the important factor of Vietnam banking service quality scale need to be maximized It is necessary to arrange physical facilities professionally and conveniently which can create comfortable environment to customers come to the transaction In addition, the modem and advanced technology should be equipped and upgraded to avoid mistakes and minimize the waiting time in the queue The banks need to design and layout service counters in many places in order for the most convenience This affects to the attractions of the bank A modem bank, with full amenities and convenience of their transactions could not have customers if you not have a safe parking place In addition, the need to make some small service in the meantime (books, drinks ) is also a way to attract customers All these factors can make a friendly atmosphere and help to remove "barriers" between customers and bank employees Another factor concerns to domain of technology is function of ATM system, internet banking belong to dimension Responsiveness It is necessary for the banks, especially domestic section to invest in a modem advanced system to create comfort in transaction and confidence of customers Moreover, in this domain of technology, we also realized that the foreign bank is also perceived higher than domestic one (ATM system, internet banking are always functioning properly; the bank has modem looking equipment; external and internal physical features are convenient, professional) So, it implies that the domestic banks have not yet brought high technology into their application popularly This also reflects the Vietnamese banking market still has great potential in using new, modem technology to attract customers This is really an opportunity for domestic bank section in acquiring modem technology from foreign banks in Vietnam Lastly, the other essential matter in the process of perfect service quality development is the matter of building and developing brand The study indicated that most customers evaluated foreign banking service quality better than domestic ones Perhaps, these biases of the respondents derived from Vietnamese people's 55 preference of foreign brand-names products and furthermore, most foreign banks operating in Vietnam are world well- known Admittedly, a bank's reputation and brand name can effect customers' perceptions Therefore, banks in Vietnam, ,- especially domestic ones, should have specific marketing campaigns as well as attractive branding activities to promote their image more effectively and suitably; surely the customers also show their better feelings about service quality once their bank has a well-reputed brand-name in the market 5.3 LIMITATION & FUTURE RESEARCH This research helps to find out the important role of service quality and factors which most effect to service quality From that, given solutions to improve domestic banking service quality in particular and Vietnam banking service quality in general and increase the level of customer satisfaction in integration trend However, because of reasons, this study has some limitations need to notice for further research The first limitation is related to the sample used Due to the time constraints, the sample size is relatively small and the population of this research is limited by customers using services of some foreign and domestic commercial banks in Ho Chi Minh City, not the whole country, so, results of the study can be extrapolated to other bank formats, service types and cities The study would be generalized higher if it was conducted with wider respondents of kinds of foreign and domestic banks in other different cities throughout Vietnam This is a direction for future research Evaluation of the difference between domestic banks' service quality and foreign banks' one is based on samples that are different customers having different characteristic belong to 02 different kinds of banks The next research direction is studying of the same kind customers patronizing with both of 02 kind banks It will bring out more unprejudiced results 56 Besides, the sample in the study conducted by the most convenient way So, the next sample should be sampling the probability to increase the ability to generalize the overall nature of the sample studied Moreover, the last one, this study is mostly based on the defmitions and theories of SERVQUAL and its variation - SERVPERF Therefore, using and applying some other different theories regarded to service quality should be also considered in future research 57 REFERENCES • Al-Hawari, M., Hartley, N & Ward, A., 2005, "Measuring Bank's Automated Service Quality: A confirmatory Factor Analysis Approach", Marketing Bulletin, 16, Article • Allred, A and Addams, H.L, 2001, "Service quality at banks and credit unions: what their customers says?" 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International Journal of Bank Marketing; Vol 15 No 6, pp.217- 223 • Zeithaml, M Bitner, and D.Gremler, 2000, Service marketing (4th edition) • Zeithaml, V., 1987, Defining and Relating Price, Perceived Quality and Perceived Value, Marketing • http://en.wikipedia.org/wiki/Main Page • http://luattaichinh.wordpress.com • http://www.bankingvn.com.vn • http://www investinvietnam • http://www marketresearch.com • http://www.sbv.gov.vn • http://www.tailieu.vn • http://www.vietnamnet.vn • http://www.vnba.org.vn • http://vneconomy.vn/ 62 - - APPENDIX APPENDIX 1: QUESTIONNAIRE "VIETNAM BANKING SERVICE QUALITY IN TREND OF NTERNATIONAL INTEGRATION" Dear Sir/mardam, I am a student from the Vietnam - Netherlands Programme for M.A in Development Economics Realizing the importance of service quality in banking sector in the economic integration, I decided to carry out the study research about this topic Please take a few minutes to share your experiences and opinions when doing transactions in domestic banks and foreign banks in Vietnam Your answers to the following questionnaire are important and useful for the research in improving service quality The result of this research will contribute to development orientation for Vietnam banking industry now Thank you very much for your cooperation! PART 1: GENERAL INFORMATION Please providing following information, all these information are valuated in this research I commit to keep security your personal information Full name: No.: • .•• Gender: r Male r Female Age group 63 Phone r Below 25 r 25-35 r Married r r 36-49 above 50 Marital status r Single Education r r r r Not graduate high school High school Bachelor Post graduate Profession r r Student Manager r r Service Home-marker r r r r Office staff Retiree Worker Other What kind of commercial banks you work most? r r Domestic banks Foreign banks • PART 2: SERVICE QUALITY Please rate the following instruments by circling number to reflect your perceptions of service quality from the bank you work most 1: Strongly disagree 2: Disagree 4: Agree 5: Strongly agree physical are convenient, professional such as counter location, ATM The bank's reception desk employees are appealing and neat 64 3: Not care/Neutral The bank's website, brochures, statements are visually appealing, clear and easily understanding a problem, the bank shows a sincere interest in solvin.IZ it The bank keeps promise to something in a certain time The bank provides the service correctly at the first time banking 5 5 are to answer customer's 20 21 Staff guide procedures for customers fully and understandable Bank provides appropriate information on financial prc)du.cts and services 65 APPENDIX 2: VIETNAMESE QUESTIONNAIRE BANG CAU HOI KHAO SAT VE "CIIA T LUONG DICH VU NGAN HANG VI)j:T NAM TRONG xu THE HQI NH~P QUOCTE" Xin chao cac anh/ chi Toi la sinh vien chuong trinh cao hQc hgp tac Vi~t Nam - Ha Lan - D~;ti hQc Kinh T€ TPHCM, hi~n toi dang thl,l'c hi~n d~ tai nghien c(ru v~ "Chdt lu(Yrlg djch vtt ngan himg Vi?t Nam xu thi h(ji nhgp qu6c ti" Xin anh/chi vui long danh chut thai gian de chia se quan diem cling nhu kinh nghi~m Cac sir d\ffig dich v1,1 cua ngan hang nu&c va nu&c ngoai t~;ti Vi~t Nam y ki€n dong g6p cua anh/chi cho nhiing vfrn d~ bang cau hoi du&i day se rfrt quan trQng va hiiu ich vi~c dua dinh huang phat trien cho ho~;tt d()ng ngan hang t~;ti Vi~t Nam hi~n Rftt mong nh~ duqc S\1' hgp tac va giup cua anh/chi Xin chan cam on! PIIAN 11 THONG TIN CHUNG: Xin anh/ chi vui long cho bi€t nhiing thong tin du&i day, mQi thong tin rna anh/ chi cung cfrp deu c6 gia tri bai nghien ciru va toi xin cam k€t bao m~t nhiing thong tin ca nhan clia anh/ chi HQ va ten: S6 di~n l~;tc: Gi6i tinh: r Nam r Nu r 25-35 D(} tu8i: r Du&i 25 Tinh r tr~ng D()c than r bon nhan r Da k€t hon 66 36-49 r tren 50 tho~;ti lien Tinh trv.ng hqc vin • r r r r Chua t6t nghi~p trung hQc ph6 thong Trung hQc ph6 thong D,i hQc/ Cao d~ng Tren d,i hQc Ngh~ Nghi~p hi~n tv.i r r Sinh vien Quan' ly' r r Dich V\1 r Nhan vien van phong r N" 91 trq r Nghi huu r Ngh~ khac Cong nhan Ngin hang thtrong mv.i rna anh/chj thtrirng xuyen giao djch nhit r r Ngan hang nu&c Ngan hang nu&c ngoai PIIAN 2: ellAT LUQNG DICH VV Xin anhlchi vui long cho bi€t nh?n thuc clia anh/chi v~ chdt luqng djch V\1 t,i ngan hfmg cua anh/chi thu0ng giao djch nhdt • Xin vui long khoanh tron diu tni ICri CUa anh/chi vao thang danh gia CUa khach hang, v&i: • 1: Haem taem khong adng y 4: Ddngy 2: Khong adng y 5: Haem taem adng y 67 3: Binh thucmg/Trung hoa Ngan hang thvc hi~n djch ket v&i khach hang (thai thai 13 14 15 • 5 18 Giii' bi m~t tai khofm cua khach hang, cac giao djch va tin lien uan den khach Nhan vien ngan hang luon than thi~n va ljch sv v&i khach ca khach hang Nhan vien phvc V\1 cong 19 Nhan vien c6 du 5 5 5 16 17 thu tvc 20 21 23 24 25 Ngan hang c6 M may ATM va phong giao djch (J cac dja di€m thu~n ti~n cho tdt ca khach hang cuaminh lQi ich cua khach hang la tam Ngan niem cua Nhan vien ngan hang ro nhu cua khach hang (Cung dp cho khach hang nhii'ng san phdm nhAtv&ikhach " 68 ... cooperation in the banking field in order to enhance the credibility of the Vietnam banking system and positions of banks in international financial transactions Vietnam banking industry have taking... recommendations indicates the main findings of the research and gives out some suggestions to improve Vietnam banking service quality in the trend of international integration Finally, this chapter... conducted in Hochiminh City, aims to investigate banking service quality in Vietnam in the trend of international integration and to make a comparison of banking service quality perceptions between domestic