Banking Services at Commercial Banks in Vietnam

To find the level of influence of factors, the following indicators must be ensured:

Adjusted R square (also known as adjusted R square): reflects the level of influence of the independent variable on the dependent variable.

Dubin Waston (DW) is used to test the autocorrelation of adjacent errors (also known as first-order serial correlation) with values ranging from 0 to 4; if the error parts do not have first-order serial correlation with each other, the value will be close to 2 (from 1 to 3); if the value is smaller, closer to 0, the error parts are positively correlated; if it is larger, closer to 4, it means the error parts are negatively correlated.

The sig value of F test <= 0.05 shows that the factor is significant in the model.

Standardized regression coefficient Beta, factors with larger Beta coefficient will have higher influence. Factors with negative Beta coefficient will have opposite influence and vice versa.

VIF value to check for multicollinearity. VIF < 10 means there is no multicollinearity between variables.

CHAPTER 2 SUMMARY

In this chapter, the author has clarified the basic issues of research methods:

Firstly, the thesis builds a research model framework, which serves as a basis for applying appropriate research methods.

Second, the thesis presents in detail the entire research process, from problem discovery to

research topic until research results are presented.

Third, the qualitative research process has synthesized and selected appropriate scales to evaluate customer satisfaction with the service provided to customers, while adding some new factors (service safety and security) as well as modifying the wording to suit the Vietnamese writing style. On that basis, 8 independent factors and 2 dependent factors with 42 observed variables were proposed, specifically:

- The factor of accessibility to banking services includes 5 observed variables;

- The physical factor includes 4 observed variables;

- The service scope factor includes 4 observed variables;

- Investment consulting quality factor includes 5 observed variables;

- The safety and security factor includes 4 observed variables;

- The asset portfolio outcome factor consists of 3 observed variables;

- The customer manager factor includes 7 observed variables;

- Service price factor includes 4 observed variables;

- Customer satisfaction factor includes 3 observed variables;

- Customer loyalty factor consists of 3 observed variables.

Fourth, the thesis presented the content of using qualitative and quantitative research methods to evaluate and verify the research model. The results of the thesis are presented in the following chapter.

CHAPTER 3

CURRENT STATUS OF BANKING SERVICE DEVELOPMENT FOR HIGH-CLASS CUSTOMERS AT COMMERCIAL BANKS IN VIETNAM

3.1. Banking services at commercial banks in Vietnam

3.1.1. Overview of commercial banks in Vietnam

3.1.1.1. The formation and development of the commercial banking system in Vietnam

The State Bank of Vietnam was established on May 5, 1951 under Decree 15/SL of the President of the Democratic Republic of Vietnam. During the period 1951 - 1987, a single-tier banking system was established in Vietnam, in which the State Bank of Vietnam (SBV) was both the central bank and a commercial bank. When our country shifted its economy to a market mechanism, the single-tier banking system was converted into a two-tier banking system including management and business. After Decree No. 53/HDBT was issued on March 26, 1998, the banking apparatus was organized into a unified system throughout the country, including two levels: the SBV and specialized banks. At that time, a commercial bank was: "a monetary business organization whose main activity was to receive deposits from customers with the responsibility of repaying and using that money to lend, perform discounting tasks and act as a means of payment" (according to Banking Ordinance No. 38 - LTC/HDNN8 dated May 24, 1990).

In the late 1990s, the Asian financial crisis impacted the domestic economy, along with weaknesses in management, causing bad debts in the banking sector to increase rapidly, negatively affecting the country's economic development in general and the banking sector in particular. Faced with this situation, the Government decided to handle bad debts and restructure commercial banks by merging inefficient commercial banks or placing them under special control. As a result, the number of joint stock commercial banks decreased from over 50 to about 34 after a few years. In addition, state-owned commercial banks also restructured capital sources and strengthened management capacity. The issue of policy lending was focused on when separated from commercial lending, accordingly, the Vietnam Bank for the Poor was officially established (later renamed the Vietnam Bank for Social Policies).

In the trend of international economic integration, in 2001, Vietnam signed the Agreement

Vietnam-US bilateral trade agreement and then joined the WTO in 1995.

2007. Accordingly, Vietnam committed to opening the market and allowing the establishment of 100% foreign-owned subsidiary banks in Vietnam, while gradually removing barriers and restrictions on the operations of foreign bank branches. Faced with increasing competitive pressure from foreign banks and strengthening the financial potential of domestic commercial banks, in 2005, State-owned commercial banks were restructured and equitized, becoming commercial banks in which the State holds controlling shares (over 50% of charter capital).

In 2011, the world economy fell into a state of crisis, with a series of challenges such as the serious public debt crisis in the Eurozone, the slow recovery of the US economy, the prolonged deflation of the Japanese economy, continuous inflation and the risk of a bubble in the Chinese real estate market, the slowing growth of emerging economies... In the country, the difficulties, limitations, and weaknesses accumulated over many years have increased fluctuations in the macro economy, affecting production and people's lives. In that context, the financial and banking market has seen major fluctuations. The liquidity of the Vietnamese banking system is often in a state of tension, interbank interest rates are high, bad debts are increasingly serious, some weak banks have very poor asset quality, and are at risk of collapse at any time. In that context, the Prime Minister signed Decision No. 254/QD-TTg dated March 1, 2012 promulgating the Project "Restructuring the system of credit institutions in the period of 2011-2015" to implement the restructuring of the system of credit institutions in Vietnam by 2015, in which the merger and consolidation of credit institutions is encouraged and solutions are implemented to improve the financial and operational health of the system, ensuring safety and more sustainable development. In nearly 4 years of implementing this Project, the system of credit institutions has sharply reduced in number, accordingly, 17 credit institutions and foreign bank branches have decreased due to merger, consolidation or revocation of operating licenses, a number of credit institutions have converted their model from joint stock commercial banks to single-member limited liability banks owned by the State. As of December 31, 2016, the commercial banking system includes 04 State-owned commercial banks, 31 joint-stock commercial banks (including 03 commercial banks in which the State holds more than 50% of charter capital), 08 100% foreign-owned banks and 02 joint-venture banks.

Table 3.1. Number of commercial banks in Vietnam over time

STT

Type of commercial bank	1997	2007	2010	2011	2012	2013	2014	2015	2016
1	State Commercial Bank	5	5	3	3	1	1	1	4	4
2	Joint Stock Commercial Bank*	51	34	39	39	38	38	37	31	31
3	100% foreign owned bank	0	0	5	5	5	5	5	6	8
4	Joint venture bank	5	5	5	5	4	4	4	2	2

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Source: State Bank of Vietnam website, Report No. 49/BC-NHNN 2009 of the State Bank on reviewing 10 years of implementing the Law on Credit Institutions.

* Joint stock commercial banks include joint stock commercial banks in which the State owns more than 50% of charter capital.

3.1.1.2. Characteristics of commercial banks in Vietnam

a. Financial capacity

In terms of total assets, commercial banks with more than 50% of charter capital owned by the State still hold the leading position, followed by a number of joint stock commercial banks, especially banks that have increased in size thanks to mergers and consolidations in recent times such as Saigon, Saigon - Hanoi, and Sacombank.

In terms of capital scale, most commercial banks in Vietnam currently ensure the charter capital level according to current regulations (over 3,000 billion VND). As of the end of 2016, the group of State-owned commercial banks is the group with the largest charter capital, over 20 trillion VND (Vietinbank, BIDV, Vietcombank, Agribank); The group of joint-stock commercial banks has 06 banks with charter capital from 10 trillion to 20 trillion VND (MB, SCB, Sacombank, Eximbank, MSB, SHB), 12 banks with charter capital from 5 trillion to 10 trillion VND, the rest have charter capital under 5 trillion VND. However, commercial banks in Vietnam generally have low charter capital and there is a large gap between the group with the highest charter capital (usually commercial banks with more than 50% of charter capital owned by the State) and the group with charter capital just enough to meet legal requirements.

In terms of business performance, many banks have achieved high profits in recent times. According to data compiled from the annual reports of banks in 2016, VietinBank has been leading in terms of profits for many years with pre-tax profits of VND8,530 billion. Following that are Vietcombank (VND8,212 billion), BIDV (VND7,734 billion), then VPBank (VND4,900 billion), Techcombank (VND4,000 billion).

In terms of asset quality and safety assurance, banks faced many difficulties during the period 2011 - 2015. However, up to now, along with signs of economic recovery and measures taken by the State Bank, the asset quality of banks has been enhanced, ensuring safety ratios in banking operations are complied with. According to the State Bank, the bad debt ratio of the credit institution system has decreased from 17.2% in 2012 to 3.72% in June 2015 and decreased to 2.55% at the end of 2015; by September 2016, the bad debt ratio of the credit institution system was 2.53%. Meanwhile, the system's minimum capital adequacy ratio increased from 12.75% in 2014 to 13.00% in 2015 and stood at 12.84% at the end of 2016.

b. Network operations

Network operations are one of the important strategies to expand and develop the bank's business activities. Therefore, since its establishment, banks have set goals and continuously expanded their networks, including branches and transaction offices to serve the needs of customers anywhere.

Although the network unit growth rate is quite fast among commercial banks, the network size of banks today has quite clear differences. In which, State-owned commercial banks (including commercial banks in which the State holds more than 50% of charter capital) still dominate. According to the latest data in the annual reports of banks, Agribank currently has the largest number of branches, transaction offices, and transaction points, up to 2,300 points spread across the country, followed by Vietinbank with 1,152 points. BIDV is currently the bank with the third largest number of branches and transaction offices nationwide with 127 branches, 584 transaction offices and 16 savings funds.

Meanwhile, the joint stock commercial banking sector has also stepped up the opening of branches and transaction offices to enhance competitiveness. Some banks have a relatively large number of branches such as Sacombank, VIB... In particular, Lien Viet Post Bank, through the acquisition of the postal savings system of VNPost in 2011, has expanded its network nationwide with more than 13,000 transaction points.

The network of branches and transaction offices of 100% foreign-owned banks has not increased significantly in recent times. The reason for this situation is mainly because banks are still in the market exploration stage, partly due to the policy and regulations restricting and strictly controlling the expansion of the network of commercial banks in recent times by the State Bank. Therefore, up to now, the total number of branches of 100% foreign-owned banks accounts for only 0.9% of the total number of branches in the whole system.

In terms of location, branches and transaction offices of banks are mainly concentrated in large, densely populated cities (central streets, industrial parks, etc.), where people have high incomes, high spending levels, and high education levels such as Hanoi, Ho Chi Minh City, Da Nang, etc. However, recently, in order to restructure the banking system, the State Bank has adopted a policy of limiting the opening of networks in locations such as Hanoi and Ho Chi Minh City. Accordingly, banks have expanded their locations to provinces and cities outside Hanoi and Ho Chi Minh City, focusing more on rural areas, remote areas, contributing to poverty reduction and increasing the rate of access to banking services of people here.

d. Regarding management capacity:

In order to integrate with the world economy, most banks have focused on strengthening their management and operational capacity to improve their competitiveness with domestic and regional banks. In recent times, banks have focused on perfecting their key personnel and senior personnel to improve the quality of management and operations. In addition, joint stock commercial banks have become more aware of improving the quality of operations through consolidating and improving the efficiency of the risk management system, internal control and audit systems; amending, supplementing and perfecting internal policies and procedures, especially credit granting, investment and capital mobilization. However, some joint stock commercial banks have also revealed weaknesses in management and operations due to pursuing profits at all costs, regardless of legal regulations, especially the violations of some key bank officials while the risk management process still has many shortcomings. Therefore, in recent times, especially during the restructuring of the banking sector, banks have had to strengthen the restructuring of governance and operations, in which the requirement to approach international practices on risk management as well as transparency and publicity in banking operations is inevitable (currently, there are 10 banks piloting Basel II as required by the State Bank (including Vietinbank, Vietcombank, BIDV, MB, Sacombank, ACB, VPBank, VIB, MSB). This demonstrates the efforts of banks in further improving governance capacity as well as the level of safety and soundness of banks, in order to enhance competitiveness in the market).

3.1.2. Banking services at commercial banks in Vietnam

Along with the enhancement of financial capacity and strong expansion of operating network, commercial banks provide many banking services to customers.

For deposit receiving services: Recently, bank deposits have tended to increase rapidly and are an important source of mobilized capital for banks.

business development. According to the annual report of the State Bank, by the end of 2014, the growth rate of mobilized capital was 17% and is still a good growth rate compared to the current interest rate reduction level.

Compared to the corporate customer segment, deposits from individual customers have continued to grow and have been quite stable over the past time. At some banks, deposits from individual customers account for over 50% of the total value of the bank's deposits (such as BIDV 54%, Techcombank 65%...)

Table 3.2. Deposits of individual customers at some commercial banks in Vietnam in the period 2011 - 2015

Unit: billion VND

2011	2012	2013	2014	2015
Vietinbank	131,297	149,658	198,835	236,752	276,968
Vietcombank	121,586	162,079	173,141	226,222	275,797
BIDV	128,794	175,593	203,580	248,961	310,223
MB	30,533	41,032	50,031	66,245	72,989
Sacombank	58,805	85,858	109,747	136,467	-
ACB	102,498	110,452	115,094	127,620	143,492
Techcombank	57,636	77,056	79,005	88,336	93,598
VPBank	19,047	37,876	54,446	63,371	77,290
VIB	26,102	22,681	23,091	25,193	27,984
MSB	24,527	33,065	36,977	36,142	39,515

Source: Annual financial reports of banks

To attract customers, the bank has focused on developing many services for different customer groups such as individual customers (payment deposits (card issuance, check issuance, overdraft combination, regular salary receipt, etc.), savings deposits (bonus savings, periodic interest savings, prepaid interest savings, savings for children, ladder interest deposits), and at the same time has quite flexible deposit attraction policies to suit the general context of the market in the form of incentives with the bank's deposit products and services.

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