correlation of depositors’ behavior and bank patronage in the inner districts of ha noi (3)

The banking sector in Viet Nam consists of 5 state owned banks, 37 commercial joint stock banks, 53 foreign – related banks, 30 financial companies and finance lease companies, 1 Central

CHAPTER I INTRODUCTION

Fund mobilization is essential to banks’ success Recently, banks face with strong competition in attracting and retending depositors Many banks fail to mobilize funds while others are able to understand better depositors and depositors’ behavior in bank patronage and take advantadge of their knowledge to win the game In the study, the researcher would like to address the issue of depositors’ behavior and bank patronage

1.1 Background of the Study

Vietnam economy has been in the fast growth track for a decade Vietnam GDP growth is mainly come from government capital expenditure and private sector investment The fast infrastructure development and urbanization process require huge source of funding One of the engine to lure the growth is the expansion of credit by banking sectors

The banking sector in Viet Nam consists of 5 state owned banks, 37 commercial joint stock banks, 53 foreign – related banks, 30 financial companies and finance lease companies, 1 Central People Credit Fund and 1,057 local people credit funds (Nguyen C.T., 2011) The number is quite big giving the Vietnam’s GDP per capital is 1,300 USD by 2011 (Dantri, 2011) The competition is high in the sector, especially in main economic and political areas like Ha Noi and Ho Chi Minh cities The interest income contributes a major part of banks income Most banks have their income heavily dependent on lending activities with interest income to total income ratio of some banks reaching above 90% in 2010 (Quach, 2011) This causes many

banks concentrating on fund mobilization One of key sources of fund would be the depositors’ funding The source of fund is viewed as a stable funding and counts for a big part in banks’ balance sheet Many strategies that banks persuad to lure their deposit growth including branch network expansion, high interest rate offer, attractive promotion campaigns

Due to the fact that the banking sector plays a key part in the economic activities and economic development, and social stability as well, the banking activities in Vietnam have been highly regulated There are still many different experts’ opinions on if the banking sector needs to be moving more deregulation or regulation However, taking the reason to prevent banks’ failure, the State Bank of Viet Nam put in place a very high level on banks supervision Some regulations that directly affect banks’ expansion of credit and fund mobilization include control of capital adequacy, bank liquidity ratio, and the banks’ branch network expansion Even though, the State Bank of Viet Nam tries to communicate and act to prevent the banks’ failure in the future However, depositors are always facing with risk of losing their fund in case of banks’ run or bankruptcy For deposit insurance, the depositors can receive is 30 million VND at maximum as per law

To study the depositors’ behavior is always necessary for banks to serve better their clients In fact, a few information of depositors’ behavior have been made available in public sources in Viet Nam Information is normally in the form of observation and experts’ opinion In late 2013, there is a doctorate study on individual customers’ depositing behavior at banks made by Le Thi Thu Hang, which is available at the Viet Nam Instiute of Social Science Le T.T.H (2012) scoped her study at nationan-wide scale and focused on individuals who had or did not have a deposit at banks However, there has not been a similar study of the correlation

between depositors’ behavior and bank patronage in Ha Noi that the researcher could identify in the public sources In addition, depositors’ behavior would always reflect through certain factors Therefore, the study of the correlation of depositors’ behavior and bank patronage should be a key success factor for banks to win in the deposit competition race in Ha Noi and for those who want to get knowledge of the study

1.2 Objectives of the Study

The main objective of the study is to determine and analyse the correlation of depositors’ behavior and bank patronage in the inner districts of Ha Noi Besides, the search aims to achieve the following objectives:

1 To describe the background of the general economic environment and the banking industry in Ha Noi

2 To determine and analyse comsumer behavior model and to determine depositors’ behavior model

3 To characterise the profile of the depositors in Ha Noi

4 To identify the factors that influence the depositors’ behavior in selecting banks in the inner districts of Ha Noi

5 To determine the correlation of depositors’ behavior and bank patronage in the inner districts of Ha Noi

6 To identify the winning strategies for banks in fund mobilization

1.3 Statement of the Problem

Funding mobilization is very ctitical to banks in Vietnam, especially in Ha Noi

as a large number of banks with too high credit growth (Quach, 2011) with the limited source of owners capital need to maintain their growth and liquidity by seeking

deposits from public In addition, banks face with stiff competition in deposit mobilization and this makes banks more difficult in attracting and keeping depositors

Ha Noi is a big city where all banks have presence and try to gain advantage over competitors Understanding depositors’ behavior in Ha Noi would help banks adapt their funding strategies accordingly However, there is a very limited knowledge of depositors’ behavior available in the research or at bank strategists’ desk Therefore, it should be an opportunities for researchers to study the depositors’ behavior and make

it useful to all stakeholders

To understand the depositors’ behavior in bank patronage The following questions will be addressed:

1 What is the background of banking industry in Ha Noi?

2 What are the profile of depositors in Ha Noi?

3 What are the implications of depositors’ behavior?

4 How are the depositors’ behavior and bank patronage correlated?

5 What are the factors that influence the depositors’ behavior in selecting banks?

6 How do depositors prioritize the factors?

7 What are the winning strategies for the banks in fund mobilization?

1.4 Hypotheses of the Study

The following hypotheses will be tested:

Hypothesis 1: Depositors’ behavior in bank patronage is positively correlated to the

level of interest rates that banks offer for taking deposits

Hypothesis 2: Depositors’ behavior in bank patronage is positively correlated to the

availability of the bank

Hypothesis 3: Depositors’ behavior in bank patronage is positively influenced by

referral from friends or relatives

Hypothesis 4: Depositors’ behavior in bank patronage is positively correlated with the

promotion campaigns that banks offer to depositors

Hypothesis 5: Depositors’ behavior in bank patronage is positively correlated with the

bank reputation in the market

Hypothesis 6: Depositors’ behavior in bank patronage is positively correlated with the

service quality that depositors experience with banks

Hypothesis 7: Depositors patronize the banks when their deposit is secured

1.5 Significance of the Study

The study is important as it addresses to answer several key questions and it benefits researchers and banks in setting up their strategy in fund mobilization

The study is to identify the factors that influence depositors’ behavior in selecting banks for placing their deposits

For the banking industry’s regulator, it finds out the gap between the fact and polices for fund mobilization, implication for strenthening the policy environment

For the banks, they understand factors to influence the depositors’ behaviors; through which banks would be able to address key issues that influence depositors in bank patronage and able to reshape their policies and strategies to win the competition

For marketers, the understanding of depositor behavior and influencing factors would help them to develop suitable and effective marketing campaigns

For researchers and students, they would have a valuable information about depositor behavior in Ha Noi and apply in the work and study

1.6 Scope and Limitation of the Study

The study focused on the Ha noi urban city area where the competition among banks is fierce and the main source of bank funding come from The subject is on depositors who used to or place their deposits at financial institutions in Ha Noi urban areas

The survey questionnaire is developed to address several factors influencing depositors’ behavior The direct interview method is used to collect primary data from depositors The questionnaire could be handled directly by the researcher or agents The interviews would be conducted from November 2012 to February 2013 within the inner districts of Ha Noi city

The limitations that have direct bearing on the results of the study consist of the following: (i) Duration of the study is short and resource is limited, these would not allow a large scale interview to be made Therefore a reasonable sample size is expected to fit with the scope of the study; (ii) Ha Noi is a big city and it has just merged with Ha Tay province where over 80% population living in rural areas with limited access to banks, the study is only to conduct in the inner districts of Ha Noi urban city areas where population is highly condensed and well informed of banks and their services; (iii) Depositors are selected randomly and due to a low ratio of deposit access, it is not easy for interviewers to approach successfully interviewees at any time, hence it would take time and resources; (iv) there is limited information on the research available and there has not been any official research made, the identification of factors could be come from the review of literature and researcher’s experienced observations

3 Bank patronage is a business give to a bank by its customers

4 Behavior is simply a response of an individual or a group to an action, environment, person or stimulus

5 Commercial bank is a bank which is allowed to provide all kinds of banking activities for profit

6 Credit Institution is an entity to involve in one, some or all banking activities Credit institutions include banks, non-bank credit institutions, micro finance institution and People’s credit funds (Law on Credit Institution, 2010)

7 Customer behavior is response that customer reveals during the process of acquiring goods or services and usage and influenced by subjective and objective factors

8 Deposit is an amount of money that a depositor places in bank with expectation to add value, keep secure and convenient for use

9 Depositor is a person/individual who places his/her money at banks in term of savings, or buys banks’ term deposit certificate or bond

10 Depositors’ attitudes are defined as depositors’ evaluation of the banks in terms of service quality and bank brand, operating conditions

11 Depositors’ behavior is the depositor’s selection of bank, kind of money, term, and kind of deposit, originated from his motivation, perception and attitudes and the behavior is influenced by subjective factors such as age, professional, work

experiences and income, and objective factors like bank influencers, social and economic environment

12 Depositors’ motives are to seek for value added, to ensure safety and convenience for their money

13 Depositors’ perception is defined as the depositors’s understanding and knowledge of banks and their products and services

14 Foreign banks are are commercial banks having branches or establishing own banks in Viet Nam

100%-15 Funds mobilization is banks’ activities to mobilize funds or deposits from different sources including funds from depositors

16 Gross Domestic Product (GDP) is the market value of all officially recognized final goods and services produced with a country in a given period of time

17 Human behavior refers to the range of behaviors by humans and influenced by culture, attitudes, emotions, values, ethics, authority, rapport, hypnosis, persuasion, coercion

18 Interest rate is the price that banks offer to pay depositors for taking deposits with commitment to return deposit amount in full plus interest at the end of deposit period

19 Joint Stock Banks are the commercial banks established in Viet Nam with capital contribution from individuals and entities

20 Non-performing Loans (NPL) is the loans at banks that overdue more than 90 days

21 Promotion is the marketing campaigns adding more value to depositors that banks offer to them

22 Referral is recommendation or advice from depositors’ friends or relatives to use a bank or products

23 Reputation is the bank image and brand name

24 Service quality is the quality of products or services that banks offer and could

be measured through depositors’ satisfaction

25 State Owned banks are the commercial banks established in Viet Nam with the state controls more than 50% owner capital

26 The State Bank of Viet Nam (SBV) is the central bank of Viet Nam who is responsible to manage and supervise the banking system of Viet Nam

27 Viet nam dong (VND) is the official currency of Viet Nam

28 Viet Nam General Statistical Office (GSO) is the government entity providing the statistical data

29 United States Dollars (USD) is the official currency of the United States of America

CHAPTER II REVIEW OF LITERATURE AND STUDIES

The chapter presents the discussion of the overview of Viet Nam economic development and the literature review of banking industry, the consumer behavior model, similar studies of depositors behavior and, the review of influencing factors to depositors as well Deposit formulates a key part in banks’ balance sheet Banks are only able to fund its growth of balance sheet size by attracting more deposit Giving the strong competition in the banking industry, banks’ survival in the long- run would very much depend on whether they are able to attract depositors and retain them Therefore, the study on the depositors’ behavior in bank patronage is the key to help

the researcher and banks to address better the issue of winning depositors’ interest

2.1 Economic Development

2.1.1 Viet Nam Economy

Viet Nam population is 86.9 million, of which 30% lives in urban areas and 70% lives in rural areas (General Statistic Office (GSO), 2010)

The country has experienced bouts of macroeconomic turbulence in recent years—double-digit inflation, depreciating currency, capital flight, and loss of international reserves—eroding investor confidence Rapid growth has revealed new structural problems The quality and sustainability of growth remain a source of concern, given the resource-intensive pattern of growth, high levels of environmental degradation, lack of diversification and value addition in exports, and the declining contribution of productivity to growth Vietnam’s competitiveness is under threat because power generation has not kept pace with demand, logistical costs and real

estate prices have climbed, and skill shortages are becoming more widespread (world Bank (WB), 2012)

The Socio-Economic Development Strategy 2011-2020 gives attention to structural reforms, environmental sustainability, social equity, and emerging issues of macroeconomic stability It defines three "breakthrough areas": (i) promoting human resources/skills development (particularly skills for modern industry and innovation), (ii) improving market institutions, and (iii) infrastructure development The overall goal is for Vietnam to lay the foundations for a modern, industrialized society by

2020 (WB, 2012)

2.1.2 Ha Noi Economic Development

Ha Noi is the capital of Viet Nam In 2008, Ha Noi expanded in geographical area by merging with Ha Tay province, extending to 3,3 million km2 with population

of 9 million (GSO, 2012) The average GDP growth rate per annum: 10% 2015), 9% (2016-2020), and about 8% (2021–2030) and GDP per capita: about US

(2011-$3,300 (by 2015), US $5,300 (2020) and US $11,000 (2030 as projected (Xuan Hong, 2009)

According to the strategy on socio-economic development to 2030, Ha Noi continues to function as the country’s administrative and political center and an ecological city of thousand-year civilization Hà Nội will focus on building a knowledge economy, nurturing talents and skilled human resource, so as to become a high-grade training center in the region The city will further prioritize hi-tech industries and modern services, especially finance, banking, insurance, securities, post and ICT, health, education and scientific services Meanwhile, agriculture will be

modernized through applying technical advances Under the strategy, Hà Nội will be

an urban complex with modern technical infrastructure (Xuan Hong, 2009)

2.2 Regulation of Banking Industry

2.2.1 Background of Vietnam Banking Industry

Vietnamese banking sector consists of 99 banks and foreign bank branches including 6 state owned banks (including VCB and CTG), 34 jointstock commercial bank, 55 foreign banks and foreign bank branches, and 4 joint venture banks Only 11 out of 40 domestic banks (25.6%) have chartered capital of VND5,000 billion and above Small banks account for a large proportion in the banking sector currently Most of these were initially rural commercial banks but are now pursuing the strategy

of becoming national banks This transition enabled them to achieve fast expansion in terms of assets and high growth of loans within a short time, however, risk management and corporate governance were not accordingly improved to mitigate risks (Quach, 2011) Banks have strongly grown not only in number but also in size of operating network However, the development strategy of each bank determines the way it expands the geographical coverage of branches, transaction offices and ATMs

Table 1 bellow provides classification of banks by ownership and some key indicators of the banks in Viet Nam There are only 6 SOBs but they dominate the market with nearly 40% marketshare while 34 JSCBs also have the same portion of market share and the remaining 10% for foreign banks and joint ventrure banks The Appendix A.1 to A.5 provide details of name, capital, location of head office and some key information of all participants in the banking industry It is obvious that most of the banks based their head offices in Ha Noi and Ho Chi Minh Cities where having concentration of commercial and economic activities and big size of healhy

population Some few JSCBs locate their head offices in provinces, mainly

historically for license in the fast, but their operation also concentrate in Ha Noi and

Ho Chi Minh and some other healthy areas

Own Capital

(billion VND)

Statutory Capital

(billion VND)

Jointstock Commercial Banks

Source: The State Bank of Viet Nam

2.2.2 Key Challenges Facing the Banking Industry

According to Quach, 2011, the Viet nam baking sector is summarized by the

following characteristics : (i) Banking sector experienced dramatic growth in both

quantity and total assets during 2005 – 2010, (ii) High NPL ratio, small size, credit

growth much higher than deposits and GDP growth, and income heavily depending

on lending are key characteristics of the banking sector NPL ratio of the whole sector

was 3.1% in June 2011 and is expected to reach 5% in 2011 year end Average credit

growth during 2000-2010 was 32%, higher than 29% of deposit growth and 7.15% of

GDP growth, which might cause negative impacts on the health of the economy (iii)

Since the beginning of 2011, the banking sector has gone through hard times, due to

instability of the interest rate and multiple changes in the credit policy The SBV has

continually adjusted policy rates and imposed a rate cap on VND and USD deposits in

an effort to control inflation and stabilize the macro economy Credit growth was slow during the first 7 months of 2011 due to inefficient capital flow among banks and markets Interest rate racing among banks and a large gap maintained between USD and VND credit growth were highlights in this period

After the too fast expansion and growth of the banking industry, it is projected that the banking industry would face with a consolidation period The clear signals were starting from mid of 2012 as (i) the banking industry faced with serious liquidity problems and many of them had to ask for the help of last resort from State Bank, (ii) the Sate Bank of Viet Nam stopped giving licenses for banks to open new branches, (iii) the governor of the State Bank of Viet Nam warmed that strong actions should be taken with weak banks through restructuring process or mergered with other banks and there would be 5 to 8 banks should be mergered in 2012, following of the merger

of 3 banks in 2011 including SCB, Ficobank and VNtinnghia bank

According to Vu H., 2013, 9 weak banks have been placed under restructruring program innitiated by SBV, including (i) the merger of three banks (SCB, Ficombank, and Vntinnghia bank, (ii) the merger of Habubank into SHB bank, (iii) restructure of Trust bank, and (iv) the merger of Western bank and PVFC – a financial company Besides, DaiA Bank and HDBank annouced their merger at shareholders’ meeting on 15 June 2013 (Giaoduc.net.vn, 2013) Also, Vu H., 2013 mentioned that the restructuring of banks has made significant progress as the safety

of banking system improves, the signal of banking system colapse is over, deposit withdrawal is served on time, and the money market is stabilized

Even during financial crisis time and consolidation of the banking system, the figure showed an increase of public deposits in banking system This indicated the depositors’s confidence on the banking system in general The increase of deposits in

the banking system was by 11.23%, while credit increased only by 1.4% at of August

2012, in compared with the year beginning (Vneconomy.vn, 2012) Other inplication

of the situation is that depositors might not have better choices of investment, rather than making deposits at banks

2.3 Background of Ha Noi Banking Industry

2.3.1 Banking Industry in Ha Noi

According to SBV HN (2012), in Ha Noi, there are 2,041 branches and transaction offices, belong to 403 credit institutions Total assets of all credit institutions are 1,455,497 billion VND, of which 471,296 billion VND for sate owned banks, 566,294 billion VND for joint stock banks, 153,571 billion VND for foreign banks, 5,726 billion VND for joint venture banks, 132,834 billion VND for financial companies, and 115,330 billion VND for others

Ha Noi is Viet Nam’s capital where most of banks locate their head office Banks are providing full range of banking products and services According to Kim C., 2013, total fund mobilization in Ha Noi reaches 857,473 billion VND while credit reaches 616,600 billion VND as of the end of February 2013 This figure indicates that a part of funds mobilized in Ha Noi should be used to fund credit growth in other markets As Ha Noi is considered as a pool of funds, all banks concentrate in the market and competion become very strong

2.3.2 Practice in Deposit Mobilization in Ha Noi

For a long period of time from 2005 – 2011, the average credit growth rate of the banking system is 30% per year This causes the fierce competition among credit

institution to mobilize fund for their asset growth In consequence, the competition in saving mobilization is very strong and always causes the increase of interest rates

To prevent the over-increase of the cost of funds that would negatively impact the economy and economic activities, the State Bank of Viet Nam set the cap on deposit rates At the same time, SBV also regulated to limit the withdrawal of deposit before due by applying the demand rates which are low to every before-due withdrawal In fact, deposits at credit institutions are mainly short term deposits less than 3 months (SBV HN, 2012) Due to the regulated cap on deposit rates, small banks are loosing advantage in compared with bigger banks To attract deposits and keep depositors, small banks use many ways to compensate depositors, which eventually increase the cost of fund much higher than the cap

Given the difficulties in the banking system and the economy, the fund mobilization in Ha Noi for the first half of 2013 increases by 5.74% compared with 31 December 2012 while credit increases ony by 1.8% (Nguyen T., 2013) This means that depositors still increase their deposits at banks and consider banks as an attractive channel for investment or keep their money safe

2.4 Consumer Behavior

Consumer behavior is a complex process involving the activities people engage in when seeking for, choosing, buying, using, evaluating and disposing of products and services with the goal of satisfying needs, wants and desires Arnould, Price & Zinkhan (2002) defines consumer behavior as individuals or groups acquiring, using, and disposing of products, services, ideas, or experiences A range of factors; both internal and external take to influence consumer behavior These factors range from short‐term to long‐term emotional concerns Understanding the process of

how a purchase decision is reached is fundamental as this forms the foundation that

can be used to analyze any given product or services

In the following, the researcher discusses two conceptual models of

consumer behavior that form the foundation of the study, namely the Engel, Kollat

and Blackwell model and the Hawkins, Best and Coney model

Hawkins, Best & Coney (1998) presents a conceptual model of consumer

behavior External and internal factors contribute to the formulation of self-concept

and lifestyle, which take an impact on the consumer decision process During this

process, experiences and acquisitions update the original external and internal

influences

Figure 1

Conceptual Model of Consumer Behavior

Source: Hawkins, Best & Coney (1998)

In the model, the individual's self-concept and life-style will be influenced by

both external and internal factors The external influences are mainly sociological and

demographic, including constructs such as culture, demographics, social status, reference groups and family The internal influences are mainly psychological and physical, including constructs such as perception, learning, memory, motives, personality and attitudes According to the conceptual model, the individual's self-concept and life style generate needs and desires, some of which are satisfied by consumption decisions The individual is confronted with situations that trigger the consumer decision process The stimuli may include products, retail outlets, sales personnel, advertisements, etc The consumer responds to the stimuli after following

a problem-solving process which includes problem recognition, information search, alternative evaluation and selection, outlet selection and purchase, and post purchase processes The stimuli is said to activate and create a state of dissatisfaction or problem that the consumer will engage in solving In this conceptual model the general structure of the stimulus-organism-response models, wherein the internal processes leading to the individual's response are stated in terms of information-processing and problem-solving or decision-making

Hawkins, Best, & Coney (1998) in bellow also describes a conscious problem solving and learning model of consumer behavior This model shows the development

in customer behavior In the model there are five stages, this involves problem recognition, alternate evaluation, search for alternatives and purchase and outcomes

It is not essential for the customers to go through all those stages

Figure 2

Conscious Problem Solving and Learning Model of Consumer Behavior

Source: Hawkins, Best, & Coney (1998)

The customers would get data from marketing and non marketing research;

this would influence the problem recognition This is the first stage of the decision

making process for the customer If the customers have still not come to a final

decision, the consumer would go to the next stage of the model This model has a

good description of active information seeking and evaluation processes of consumer

The information processed in this model is the stimulus The consumer decision

processes act upon this stimulus in order to determine a response to it The model attempts to explain each stage and shows interrelated between the stages of consumer buyer behavior from the stimulus, through the purchase to post purchase behavior

2.5 Review of Related Studies

There are many related studies available in the public sources, both overseas studies and domestic studies There is not a same captioned studies of the correlation between depositors’ behavior and bank patronage However, the depositors’ behavior had been studied by many scholars or researchers in conjunction with economic environment, insurance system, during a financial crisis time, and with bank characteristics

According to Schmukler S., Peria M.S.M., and Levy E (2009), depositors respond to increases in bank risk- reflected in bank-specific characteristics by demanding higer interest rates on their deposits or by withdrawing their funds, penalizing managers for excessive risk-taking Macroeconomic risks can influence depositors action, both regardless of and through bank-specific characteristics The effects can take place when worsening macroeconomic conditions directly threathen the value of market participants’ assets such as bank deposits Macroeconomic factors are significant drivers of depositor behavior in crisis periods, at times overshadowing the role of bank-specific characteristics

Babolola (2009) mentioned that although trust is the conerstone of the banking industry, the perceptual factors influence the customers’ choice of banks Attitudes are important in a consumer environment and attitudes influence thoughts, feelings, and most importantly behavior Also, the overriding choice of the customers may depend on a number of external factors

Looking at the intervention from policy makers, Kotaro T (2003) confirmed

in his study that depositors expecting ―too-big-to-fail‖ policy by the government tended to opt for larger banks regardless of their risk exposures and performance However, in other study, Fueda I (2006) confirmed the greater the extent of unsoundness of a bank’s financial conditions, the greater is the extent of deposit withrawal Also, bank switching depends on a bank’s financial conditions and size And the less sound the banks’ financial conditions, the higher was their interest rates

on large, fixed term deposits; similar results were abtained with respect to large, fixed term deposits of 1 month, 3 months, 1 year, and 2 years

Some studies and observations have been made on the depositors’ behavior in Viet Nam Minh D (2008) conducted an online survey on the internet at Vneconomy.vn, of which 6,000 opinions have been obtained within 1 month The survey result come out with main factors influencing depositors in selecting banks for their deposits The factors include interest rates as number one in mind, reputation, and promotion Other observation made by NHDMoney (2012) identified 5 factors including reputation, convenience, purpose of depositors, interest rates, and service quality

There is a doctorate study on individual customers’ depositing behavior at banks made by Le Thi Thu Hang in late 2012, which is available at the Viet Nam Instiute of Social Science Le T.T.H (2012) concentrates the study to two aspects (i) the attributes of individual customers’ depositing behavior (including external attributes and internal psychology characters) and (ii) key factors influencing the individuals’ depositing behavior

According to Le T.T.H (2012) individual customers’ depositing behavior could be understood as the customers’ selection of banks for doing transaction,

selecting kinds of deposits, terms, currencies The behavior originates from customers’ perception and attitudes From observations, Le T.T.H (2012) concludes that customers’ behavior is to (i) select to make deposits at state owned banks more than at joint stock banks and foreign banks, basing on the safety and convenience customers have; (ii) customers make deposits in VND more than in foreign currencies; (iii) customers mainly select less than 1 year term; and customer commonly select the regular saving accounts than other products From the aspect of analyzing the internal psychology characters, Le T.T.H (2012) discovers that (i)

―benefit‖, ―safety‖, and ―convenience‖ are three key motivations to drive customers’ behavior in making deposit at banks; (ii) perception and knowledge of customers are neutral; (iii) and they are in general not happy with banks, especially the quality of services and staff attitudes Besides, There are 8 basic factors which have a high correlation with customers’ behavior, including good service, attractive promotion, high prestigious, convenience for travel, simple procedure, large branch network, and high interest rates The characters of social psychology and economic environment have very low impact on customers’ behavior

2.6 Psycological Attributes of Depositors’ Behavior in Bank Patronage

2.6.1 External Psychological Attributes

The depositors’ behavior appears externally in the forms of the depositors’ selection of banks, kinds of deposits, terms of deposits, and the currencies

For the selection of banks, based on each individual depositor’s purposes,

depositors’ behavior expresses the following psychological charateristics: (i) depositors want to keep their money in safe place, hence they tend to look for the best reputation bank, the bank in big size and long existence; (ii) depositors want the

convenience of bank branches giving the conplicated transportation and the problem

if they bring a big amount of cash in a long travel in Viet Nam; (iii) depositors also look for more value, they tend to select the banks that give high interest rates and interesting promotion

For the selection of the kinds of deposits, depositors normally look for

deposit products offered by banks that they mostly like such as savings deposits or certificates of deposits and fit their value expectation and future flexibility of withdrawal

For the selection of the deposit terms, depositors’ practice is go for a short

term, mainly from 1 to 3 months This reflects this psychological characteristics that (i) depositors want to deposit in a short period of time because their money is idle temperarily or in case they want cash for their other own businesses; (ii) the interest rates offered by banks for 1 to 3 months deposits are similar to other longer term

For the selection of currencies, the interest rates for deposits in foreign

currencies receive much lower interest rates in compared with deposits in VND, this might explain why most of depositors choose VND Other reason is depositors’ trust

in VND is high and the trade of foreign currencies at free market is not allowed by the government so depositors have no choice to convert VND into other currencies if they

do not want to invest their money in other investments such as gold or real estates

2.6.2 Internal Attributes

The depositors’ behavior is always drived from their internal motives like looking for higher interest rates, for safety of their money, for convienience, depositors’ perception of banks and products, and their attitudes as well

For depositors’ motives, their motives are basically classified into three

categories: (i) looking for more value added as depositors might have many choices

of investment, they might seclect deposits insteed of other investment channels; (ii) to secure their money insteed of keeping their money at home; (iii) to be convenient as they can need to use the money at any time and banks are flexible and channel of payment It depends on which motives are strong influencers, the depositor might make decisions on banks, terms of depisits, currencies, and selection of interest rates

For depositors’ perception, understood as their knowledge on banks and bank

products and services The understandings about banks are om the bank type, financial and operating conditions, size and bank posisioning in the market The depositors would favor the banks that they have information and interest in bank offerings

For depositors’ attitudes, depositors’ attitudes or evaluation that are good or

not good on banks could be very much influencing their decision of selecting banks, products and services The evaluation could be on the banks’ service quality, banks’ people, physical and operating conditions

2.7 Factors Influencing Depositors’ Behavior in Bank Patronage

2.7.1 Subjective Factors

The main subjective factors include sex, maritual status, age, professional, and income The observations are that the older people have more savings than the younger and are likely to save at banks while professional and high income people are tendency to have account at banks and they normally have more options to invest their money

2.7.2 Objective Factors

The objective factors are the socio-econimic environment factors and related factors The socio-economic factors include the macro economic environment factors, the customs and social psychology As mentioned in the previous sectons, these socio-economic factors are slightly influencing depositors’ behavior and even not affecting the amount of money depositors place at banks during a finanacial crisis The following analysis would focus more on the bank-ralated factors that directly influence the depositors’ behavior in bank patronage

bank-For interest rates, deposit interest rate is a key factor influencing depositors’

decision of selecting banks to place their deposit According to a survey made online

in vneconomy.vn, depositors become more realistic Accounting for 45.41% in 6,160 responses, it is said that interest rate is the highest priority criteria when they decided

to select banks for deposits (Minh Duc, 2008) Due to the fierce competition for deposit, banks usually look at others to set interest rates and sometimes banks raise the rates up to 21% per year (Laisuat, 2011) while cap deposit rate agreed by banks was 14% from December 2010 (Thuy D., 2011) and officially regulated by State Bank of Vietnam from March 2011 (Thuy, 2011)

The cap on interest rates would prevent banks falling into a race of raising rates and influences depositor to seek for other influence factors However, the cap

on deposit rates would not last for long The State Bank of Viet Nam eased the cap on medium and long term rates from 12 months and above (Tue & Le, 2012) Some banks claimed if market rates increased they should not stay beside the race (Tue, 2012) As the rates on medium and long term deposit raise, the depositors would start

to look again on the rate factor After the ease of the cap, the medium and long term deposits at banks increase slightly just within a few day (Tue, 2012)

For the bank availability, depositors normally visit banks’ branches To serve

growth strategy, banks expand their reach near to depositors’ home The bank branch located near to depositors’ home is a very important factor to influence selection behavior Attractive interest rates, trust and simple efficient processes are the key drivers for choosing a savings account Stated owned banks are also preferred to foreign banks due to their security, while branch locations are not as important as for ATMs (Nielsen, 2011)

For referrals, relationship banking is an important characteristics of banking

industry in Viet Nam Human being can easily be influenced by people around The recommendation from friends or relatives can give weight on depositors’ bank selection

For bank promotion, at present, depositors become more realistic when

selecting banks for deposit Many have intention not only looking at interest rates but also on bank reputation and promotion and incentive However, as interest rates are going down, the promotion and incentive policies offered by banks would become more attractive to depositors (Taichinhcanhan, 2012) However, according to Minh Duc (2008), depositors are sensitive to certain kind of promotion Lucky withdrawal with very low probability of win is not attractive but incentive by cash or gifts could draw more attention

For bank reputation, bank reputation plays a key role, especially during a

financial crisis According to Minh (2008) 32,6% of respondents preferred to bank image in their selection, which is ranked second bellow interest rates It means that many depositors are always looking at bank reputation, even though regulators and supervisors protect Reputation is similar to banks’ own values, competitive

advantages and state own banks normally have the heritage as they own ―State‖ in people mind for along time

For bank service quality, Vietnam Banking Association recommended that as

the cap on deposit rates are set, depositors are encouraged to select banks which have good service quality (Cafef, 2011) Service quality is a key to sustain banks’ competitive advantage and have banks gaining loyalty from customers

One of key factors helping banks to gain customers’ preference is to understand customers’ need, The effort to add values would bring close connection and loyalty (Trang B., 2012)

For bank safety, Vietnam Banking Association also recommended that it is

not necessary to treat unequally between big and small banks to prevent the flow of deposit which is not necessary and costly to depositors (Cafef, 2011) However, as State Bank never discloses safety score or liquidity quality of banks, depositors in a difficult position to think out of the headline ―big is safe‖ (Nguyen H., 2011) Depositors are scare of the danger of losing their money if they unfortunately deposit

at banks which in a warning group But some expert claim that depositors would never lose their money and their deposits are always secured (Dinh B., 2012) The argument is not always true One of the evidence is that deposit insurance only covers

a maximum of 30 million VND for a depositor

2.8 Conceptual Framework

There are several factors influencing depositors’ behavior in bank patronage

As mentioned in the chapter 1 and 2, the factors are normally positive correlative with depositors behavior The conceptual framework can be described in the following:

Figure 3

Conceptual Framework

Depositors’ profiles (sex, age, maritual status, education, professional,

Socio-economic factors (macroeconomics, customs, socio- psychology)

CHAPTER III METHODOLOGY

The chapter will present the methodology used The following steps are to create search design, determine the sample size, sampling design and technique, the subject, research instrument, data gathering procedure, data processing method, and statistical treatment

3.1 Research Design

As research objectives are to identify the factors influencing depositors’

behavior in bank patronage, the researcher would use the structured survey method to collect primary data related to problem study The researcher or interviewers would approach directly with interviewees to conduct an interview process to answer the questionnaire

A standard questionnaire is developed for all respondents All kinds of question consist of opened-end, closed-end or combination of both could be used in the

questionnaire to collect the data needed

3.2 Determination of Sample Size

Research area is Ha Noi urban city All banks locate branches in Ha Noi The competition is very high The total population of Ha Noi is over 3.3 million people;

of which 34 % of the population have use of bank services and of which 25% uses saving account or deposit certificate with banks (Nielsen Green report for VIB June 2009) Due to the scope of the study, the researcher will only select those who used

to or use to deposit at banks Therefore, it means the population of the study will reach 280,500 people

Due to the population size is big, the determination is to use the Slovin’s formula to identify the sample size:

3.3 Sampling Design and Techniques

The stratified random sampling Techniques is applied The stratified random sampling is a sampling technique where the samples are gathered in a process that

As the subject is unknown at first glance The researcher has to rely on the convenience and quota techniques to select sample subjects Ha Noi urban city

divided into several district areas The sample targeted divided among district areas

To set up interviews, the researcher or interviewees need to approach respondents at their home or seek to interview them at banks’ location

3.4 Subject of the Study

The selected respondents should be those who used to have deposit at banks or have existing deposits at banks

3.5 Research Instrument

The closed-ended questions are asked to filter if respondents are eligible or not The scaled – response questions will be regularly used in the questionaire The scale from 1 to 5 is used, of which 1 is unlikely and 5 is most likely The questions will reflect all the factors

3.6 Data Collection Method

Descriptive research with the use of structured survey is used to collect data Data collection is conducted by access to respondents who live in different areas of

Ha Noi with a questionnaire Ha Noi consists of 29 districts, of which 12 districts are inner city of Ha Noi and 02 rural districts are in the north of Ha Noi and 15 other districts were recently merged into Ha Noi from Ha Tay province

The respondent will be spreaded over in 12 inner districts of Ha Noi City The stratified random sampling can be used in this study, it is more conclusive to consider

all kinds of depositors availing service from different types of banks The list of districts that researcher approaches respondents for interview is as follows:

3.7 Data Processing Method

Once data collection has been completed and questionnaires have been returned, the work of data analysis will start The common procedures for data analysis are done as follows:

- Validation and editing (quality control): a process of examining the collected raw data to detect errors and omissions and to correct these when possible

- Classification: a process of arranging data in groups or classes on the basis of

common characteristics.

- Tabulation: Tabulation-Tabulation is the process of summarizing raw data and displaying the same in compact form for further analysis It is an orderly arrangement of data in columns and rows The SPSS program is used to input data and run the data

- The statistical analysis, normal statistics, descriptive statistics, chi-square and correlation analysis are used as this method is most suitable for large well designed and well administered surveys using properly constructed and

worded questionnaire Data can be analyzed with the help of a computer The most common software is SPSS for windows

CHAPTER IV RESULTS AND DISCUSSION

In the Chapter, the result of survey would give the thorough analysis of depositors’ profile and how they behave subject to various influence factors The researcher applied some kinds of data collection methods including direct interviews, email response As a long time involvement in the banking sector, the researcher is able to approach directly to depositors at various banks in Ha Noi for interviews

4.1 Depositors’ Profile

Table 2 describes the profile of 257 respondents or depositors to complete their answers with 90 males and 167 females 49.81% of respondents have age range from 25 to 34 19.46% have the age range from 35 to 44; and the range from 45 to 54 represents 9.73%; 55 to 64, 9.97%, and from 65 and over, 3.5% 68.48% of

respondents hold university graduates which mean the depositors’ level of education

in Ha Noi is quite high This also implicates that depositors would have the ability to access more information and to better analyse the deposit-related data they receive 52.53% of respondents work in business sector while 14.4% are retired persons Depositors’ income per moth less than 20 million VND accounted for 89.5% The main part of depositors in the midle and income proves the fact that they are young working proffessionals

The actual sample exceeding the target of 204 This could create more

confidence for researchers to get the best result 79.38% of depositors are married The number of female respondents accounted for 64.98%, which might mean females might dominate the deposit market and they are more likely to make savings The

depositors’ age is in young range and their income per month is in low range; it might

show the depositors have a clear awareness of savings The figures clearly indicate

that the young well-educated professionals in the low to midle income range would be

the good target market for banks to focus on as they dominate the deposit market The

matured depositors with the age range from 35-64 account for 39.41% of total sample;

this figure is important as the matured persons would have stable family and higher

imcome so the need for savings is high as well

Your marital Status

Your age range:

4.2 Depositors’ Distribution by Districts

Table 3 and Appendixes B.1, B.2.B.3, and B.4 bellow describe the distribution

of depositors by districts and by their background The depositors are spreaded over

the districts and their distribution is not even among districts The districts of Dong

Da, Cau Giay, Hai Ba Trung, and Thanh Xuan have from more than 12% to 15%

depositors each while others have bellow 10% The random selection of depositors

explains the reason why depositors are not evenly disstributed Besides, interviewers

were only able to identify the depositors’ district when they started the interview

Table 3

Distribution of depositors by gender and marital status

Count Column N % Count Column N % Count Column N % Count Column N % Count Column N % Count Column N %

Source: SPSS

4.3 Attributes of Depositors’ Behavior in Bank Patronage in the Inner Districts of Ha Noi

4.3.1 External Attribute Implication of Depositors’ Behavior

4.3.1.1 Depositors’ Selection by Specific Banks and Type of Banks – Foreign

Banks, State Owned Banks and Joint Stock Banks

Table 4 shows the selection of banks by ownership There are three group of banks by ownership The foreign and joint venture bank group serves mainly foreign corporate and individuals; this group only accounted for 1.5% of the choices The main reason for a very low share of foreign banks id that they are not active players in the retail market, especially in fund mobilization State owned bank group consisting

of 4 big banks (Agribank, BIDV, Vietcombank, and Vietinbank) accounted for

29.5% The remaining group consisting of 34 joint stock banks, which actively

expand their market share in last five years, accounted for 68.9% Given the fact, it is obviously that the SOBs group are losing its historical role as main group with the biggest market share and the JSCBs group emerges to become active players The big number of JSCBs branches and transaction offices have reflected the expansion strategies of JSCBs during last few years and contributed the JSCBs dominance as depositors could easily find a bank offfice nearby their home

Table 5 shows the distribution of depositors by banks There are around 99 banks in the banking industry 22 key banks are listed down in the questionnaire for selection There are 528 choices for banks depositors have currently deposited It means each depositor has relation with an average of 2 banks The maximum number

of bank on depositor has is 4 The implication of the fact is that banks encouter with the depositors’ loyalty issues and the bank-switching behavior The more number of

banks depositors have accounts, the more difficult banks gain loyalty from

depositors

Besides 31.82% of selection for VIB Bank, it is clear to see that big banks in the market got more selection than smaller banks The big banks such as Agribank, Vietcombank, Techcombank, BIDV, ACB, Vietinbank have the selection portion of 9.66%, 8.9%, 8.14%, 6.63%, 5.49%, and 4.36% respectively

Appendix B.5, Appendix B.6, Appendix B.7, and Appendix B.8 describe the distribution of depositors’ selection in the consequence of time Depositors’ first, second, third and fourth choices are decreasing with 253 choices, 170 choices, 82 choices and 24 choices relatively It is observed that the percentage of each bank group from first choice to fourth choice is different in trend The selection of foreign bank group slightly increases from 2% to 4% and for joint stock bank group from 68% to 71% while the selection of state owned bank reduces from 31% to 25%

gender

Table 5

Distribution of depositors by banks

Count Column N % Count Column N % Count Column N %

4.3.1.2 Time Span Depositors Began Relationship with Banks

Table 6 shows the time period depositors start relationship with a bank The time they work with banks are mainly under 3 years From 1 to 3 year has 35.2% of depositors started banks’ relation within 1 to 3 years while 22.4% of them started fron

6 months to less than a year has 22.4%, and the rest of 16% from less than 6 months The banking industry has just expanded fast during last few year which give better

access for individuals This should be the main reason Also, the short time span is

observed in close relation with the depositors’ young age range

Tables 7, 8 and 9 bellow show and confirm the relation between the

demographic variables of age range, marital status, professional and employment with

the time period that depositors work with banks The Pearson Chi-Squares are

two-sided measured with Asymp Sig less than 0.05 or the confidence level is 95%

Table 6

The period of time that depositors maintain relationship with banks

Count Column N % Count Column N % Count Column N % Count Column N % Count Column N % Count Column N %

Source: SPSS