Identifying dimension of BIDVs trade finance services quality in hochiminh city area

This study applied the SERVQUAL model of Parasuraman 1988 to test the dimensions to have relationship to BIDV’s trade finance service quality in Ho Chi Minh City area.. Keywords: Custome

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

-

BI VU THANH XUAN

IDENTIFYING DIMENSIONS OF BIDV’S TRADE FINANCE SERVICES QUALITY

IN HOCHIMINH CITY AREA

MAJOR: BANKING AND FINANCE

MAJOR CODE: 60.31.12

MASTER THESIS INSTRUCTOR: DR TRUONG QUANG THONG

Ho Chi Minh City, 2011

My special gratitude is extended to all instructors and staff at Postgraduate Faculty, University of Economics Ho Chi Minh City (UEH) for their support and the valuable knowledge during my study in UEH

I also wish to thank to my colleagues in BIDV’s branches, who help me during the collection of data My thanks would also extend to the respondents, without them, my thesis could not have been done

Specially, my thanks go to Ms Vu Thi Bich Ngoc for their valuable and enthusiastic support for this research study as well as for their comments of English from early draft of my thesis

ii

Abstract

Maximizing customer satisfaction through service quality has been described as the ultimate weapon This study applied the SERVQUAL model of Parasuraman (1988) to test the dimensions to have relationship to BIDV’s trade finance service quality in Ho Chi Minh City area A study of 150 respondents from branches was conducted Multiple linear regression technique was used to test the hypotheses and research model The chosen model is modified from SERVQUAL model According to the results, empathy, responsibility, assurance, reliability were confirmed to have positive impact on service quality Some independent variables such as tangibility, price, portfolio have no enough evidence to conclude

to have relationship to service quality

Recommendations for related regression results are suggested to improve trade finance services quality and therefore BIDV can serve customers better

Keywords: Customer satisfaction, Service quality, trade finance, SERVQUAL

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CONTENTS

Acknowledgement i

Abstract ii

Contents iii

List of tables vi

List of Figures and Charts vii

Chapter I: INTRODUCTION TO THE STUDY 1

1.1 Rationale of the study 1

1.2 Problem statement 1

1.3 Research objectives 2

1.4 Scope 2

1.5 Research methods 2

1.6 Structure of the study 3

Chapter II: RELATED LITERATURE REVIEW 4

2.1 Understand service quality 4

2.1.1 Definition of service quality 4

2.1.2 The role of banking service quality 4

2.1.2.1 A significant source of competitive advantage and customer retention 4

2.1.2.2 Increase Bank brand 5

2.1.2.3 Profitability 5

2.2 Empirical evidence 6

2.2.1 Models 6

2.2.2 Summary and comparative evaluation of service quality models 13

2.2.3 Applications models in some countries 15

Chapter III: OVERVIEW TRADE FINANCE SERVICES IN VIETNAM 18

3.1 Trade finance in Vietnam 18

3.1.1 Exports 18

3.1.1.1 Some highlights in 2010 18

3.1.1.2 First haft of 2011 19

3.1.2 Imports 20

3.1.2.1 Some highlights in 2010 20

3.1.2.2 In the first half of 2011 21

3.1.3 Vietnam trade balance 22

3.2 Trade finance services in BIDV 23

Chapter IV: DATA ANALYSIS AND FINDINGS 28

4.1 Methodology 28

4.1.1 Data collection 28

4.1.2 Sample size 28

4.1.3 Questionnaire design 28

4.1.4 Variables 29

4.1.5 Measurement and scales 30

4.1.6 Tests Used for Data Analysis 30

4.2 Data analysis 30

4.2.1 Preliminary results 30

4.2.2 Hypotheses development 32

4.2.3 Regression results - test and analyze 32

4.2.3.1 Basic regression model 32

4.2.3.2 Optimal regression model 34

4.3 Findings 40

Chapter V: CONCLUSION AND RECOMMENDATIONS 41

5.1 Conclusions 41

5.2 Implications and recommendations 41

5.3 Assessment 42

5.3.1 Strength 42

5.3.2 Limitations 43

References 44

Appendix 48

Appendix I Database 49

Appendix II Questionnaire 55

Appendix III General statistic index 59

vi

List of Tables

Table 2.1: Definition of service quality 4

Table 2.2: Impact of quality improvement 6

Table 2.3 Comparative evaluation of service quality models .13

Table 2.4 Comparing service quality dimensions with past research (by rank) 17

Table 3.1: Top 10 import products in Vietnam in 1st haft 2011 22

Table 4.1: General information of customers 30

Table 4.2: Gap score for seven dimensions 31

Table 4.3: Compare service quality dimensions with Parasuraman’s research (by rank) 40 Table 5.1 The hypotheses testing results 41

vii

List of Figures and Charts

Figure 2.1 Service quality model 8

Figure 2.2 Gap analysis model 10

Figure 2.3 Attribute service quality model 12

Figure 2.4 Model of service quality, customer value and customer satisfaction 13

Figure 2.5 Model of service quality in internet banking 14

Chart 3 1: Major Export product of Vietnam in 2010 21

Chart 3.2 Top ten main exports of Vietnam in first quarter 2011 22

Chart 3.3: Vietnam import year 2010 23

Chart 3.4: Exports, imports and trade balance of Vietnam 25

From Jun 2010 to March 2011 Chart 3.5: Comparison export and import turnover of BIDV with some banks 29

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CHAPTER I: INTRODUCTION TO THE STUDY

1.1 Rationale of the study:

In a more globalized and integrated economy with increasing deregulation, competition in the banking industry has become significantly fiercer Banking industry in Vietnam has also grown rapidly especially in the growth of foreign banks This makes customers have many choices and compare the service quality among banks that they perceive Satisfying customers is one of the main objectives of every business Businesses recognize that keeping current customers is more profitable than having to win new ones to replace those lost Therefore, customer satisfaction and service quality are compelling to the attention of all banking institutions Service quality is the core problem for banks to differentiate, retain customers, make revenues and expand market share

Besides, since Vietnam joints in WTO, bilateral agreements, multilateral conventions, trade barriers have been loosen This encourages the international trade to grow rapidly Vietnamese businesses have opportunities to trade with foreign partners is very high Therefore, banks in Vietnam has focused their interest in trade finance services

to serve better the demand of customers This is the potential field business that banks should continue to explore

Among many kinds of banking services, trade finance services bring a large source of fees for banks It is better when Vietnamese banks wants to increase the fees from services and decrease the fees and commissions from credit This is completely suitable to international trends Beside, developing trade finance services also increase the Vietnamese banks position in international market

However, customers perception of service quality is a complex process Therefore, multiple dimensions of service quality have been suggested It is agreement that there is

no standard model to adapt to banking service quality measurement in a specific country Because of the role of service quality and optimism of trade finance development, this research aims to identify dimensions of BIDV’s trade finance services quality in Ho Chi Minh City area

1.2 Problem statement:

Service quality is an elusive concept It attracted the interest of academics and practitioners as well Service quality is a dynamic, multidimensional concept For instance, ‘… quality is what the customer says it is’ (Webster & Hung 1994) or ‘… a measure of how well the service level delivered matches the customer’s expectations’ (Lewis and Booms, 1983) Thereafter, some researchers suggest that service quality

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stems from a comparison of customers’ performance perceptions with expectations (Parasuraman, 1988) or from perceptions of performance only (Cronin & Taylor 1992)

In today’s competitive banking environment, delivering services with high quality

to customers is a must for success and survival With the significant findings in the financial service industry, it is important to understand how BIDV’s trade finance service quality is perceived by customers, and what are the elements considered to make sense to them Therefore, the thesis try to identify the dimensions that affect to BIDV’s trade finance services quality in Ho Chi Minh City area

1.3 Research objectives:

Objectives are understood to express the purpose of the research in measurable terms It defines standards of what the research should accomplish The research applied the SERVQUAL model proposed by Parasuraman (1988) and tests the model in a specific service (trade finance) at the branches of a specific bank (BIDV)

The objectives of the study are as follows:

 To examine how the customers perceive the BIDV’s trade finance service quality

 To determine the elements that influence to the BIDV’s trade finance service quality

 To contribute to the suitable recommendation for management implications

To serve these tasks, three research questions need to be answered:

 Does there exist the gaps in customers’ expectation and perception?

 What are the dimensions that correlate to the BIDV’s trade finance service quality?

 What are the main factors that have a high correlative relationship to the BIDV’s trade finance service quality?

1.4 Scope:

Because the limitation of time and budget, survey is done in BIDV’s branches in

Ho Chi Minh City area for corporate customers

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In the second phase, a quantitative approach was used Data were collected by interviewing bank’s customers The purpose of this phase was to answer three research questions

Multiple Linear Regression analysis was employed to test the research model and hypotheses Chapter IV will discuss the methodology for this study in more detail In this chapter, the author used data analysis tools to implement the research such as: descriptive statistics, multiple regression models with Eviews 7 for Windows

1.6 Structure of the study:

The structure of the study consists five chapters:

Chapter 1: Introduction

This chapter presents the rationale of the study, as well as, research problems, research objectives, research methodology and scope

Chapter 2: Literature Review

This chapter summarizes the related literature review and presents the fundamental ideas

on finding out the model that can be applied in this thesis

Chapter 3: Overview on trade finance in Vietnam

Some highlights in Vietnam export – import recently express that trade finance service is the potential field for BIDV to focus more This chapter also provides trade finance operation in BIDV with its strengths and weaknesses as well as the opportunities and threats

Chapter 4: Data analysis and findings

This is the main chapter of this study with the clear regression results This chapter aims to answer three research questions as above mention

Chapter 5: Conclusions, Recommendations

Chapter 5 presents main conclusions and recommendations based on the results of the previous chapters Besides, it gives the limitations of this study

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CHAPTER II: RELATED LITERATURE REVIEW

This chapter searches and reviews the relevant theories in the literature The aim of this review is to understand the conceptual service quality and to seek a research model of service quality that can be applied in the Vietnamese banks in general and in BIDV in particular to answer the research questions

2.1 Understand service quality

2.1.1 Definition of service quality

There are many opinions of quality It is a wide and difficult category Depending

on different positions, different opinions may be raised

Many researchers define service quality as follows:

Service quality: as the difference between customers’

expectations for service performance prior to the service

encounter and their perception of the service received

Asubonteng (1996)

Service quality: as the comparison that customers make

between the quality of the service that they want to

receive and what they actually get

Gefan (2002)

Service quality: as the difference between customer’s

expectations of services provider’s performance and their

evaluation of the services they receives

Parasuraman (1985, 1988)

Table 2.1: Definition of service quality (cited in Parmita Saha, Yanni Zhao, 2005, p.15)

In general, service quality is defined as how well the service meets or exceeds the customers’ expectations on a consistent basis However, the difficulty is that service quality, unlike product quality It is more abstract and elusive, because of unique features

to services: intangibility, inseparability, heterogeneity and perish ability Therefore, service quality is difficult to measure

2.1.2 The role of banking service quality

2.1.2.1 A significant source of competitive advantage and customer retention

The banking industry is highly competitive Banks not only compete among each other, but also with non-banks and other financial institutions Most of products that banks provide are nearly similar Therefore, they can only distinguish themselves based

on price (charges and interest rate) and quality - the important factor that customers can perceived When customers satisfy with the bank service quality, they stay to long term transaction with a bank They become loyal and use more and more services.So, service

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quality is considered as an essential determinant that allows one organization to differentiate from the others It helps an organization to gain sustainable competitive advantage

Cronin and Taylor (1994) also found that service quality has a significant effect on repurchase intention Moreover, many studies proved that the costs of acquiring new customers to replace those who have been lost are high Rust and Zahorik declared that the cost of attracting new customers may be five times of keeping existing customers (Cited in Mostafa Ghazizadeh, Ali Soleimani Besheli, Vajiheh Talebi, 2010, Assessing of bank Customers retention and loyalty, p.275)

2.1.2.2 Increase Bank brand.

One way for differentiation is through the development of brand Satisfied customers may create positive bank image by word of mouth promotion In Gronroos model (1984), the author pointed out the causality between the technical quality and image, also functional quality and image

2.1.2.3 Profitability

The relationship between service quality and profitability has attracted many researchers, managers According to Reichheld and Sasser (1990), profits increased between 25 to 125 percent when a company retained just 5 percent or more customers (Anthony Perrone and Antony Ward,1998, p.3)

Service quality actually affects on business profitability Some studies has been done to test this relationship The empirical study was in UK Newman and Cowling (1996) used SERVQUAL model and reported that profit increases substantial if service quality is improved It is estimated that an increase of 5 percent in customer retention is potentially worth £100 million per year

With respect to the quantitative benefits, a study was also conducted in 1988 of a particular US banks regarding the impact of service quality improvement on performance Before the quality had been improved, the bank had to pay for the cost of failures and corrections However, after the bank prevented errors and mistakes in serving customers or, in other words, improved its service quality, the cost of services systematically decreased while profit margins and earnings finally increased Accordingly, there was an increase in return on assets (ROA) from 1.05 per cent before improvement to 1.38 per cent after improvement and also a return on equity (ROE) from 16.10 per cent to 21.22 per cent respectively as shown in the following table (Harvey, 1996)

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Table 2.2: Impact of quality improvement

(Source: Harvey, T 1996, The Banking Revolution: Positioning Your Bank in the New

Financial Services Marketplace, Irwin Professional Publishing, USA, p 11 cited in

Chaisomphol Chaoprasert, 2002, p.83)

In the Taiwanese banking industry, Zeithaml (2000) also found evidence about the influence of service quality on profits and Heskett et al (1997) argued that a “direct and strong” relationship exists among service quality, customer satisfaction and profitability

2.2 Empirical evidence

2.2.1 Models

Because of the role of service quality and changes in the business environment, service quality actually becomes an interesting issue that takes attention to practitioners, researchers, managers There has been continued researches on the definition, models to measure the service quality During the period (1984 – 2003), nineteen conceptual service quality models were reported [Nitin Seth and S.G Deshmukh, Prem Vrat,2005, p.914] This paper attempts to review some selected models that can be applied in this practical thesis

Model no.1 Technical and functional quality model (Gronroos,1984)

Gronroos pioneered to propose and define the dimensions of service quality in global terms as comprising technical and functional parts According the author, three components of service quality are: technical quality, functional quality and image A service organization’s image functioned as a filter in the perception of service quality Finally, the model showed that service quality leads to customer satisfaction

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Figure 2.1 Service quality model

Technical quality is the quality of what consumers actually receive as a result of the interaction with the firms

Functional quality is as the manner in which the customer receives the service product (sometimes called the ‘process-related dimension’) (how customers get the technical outcome)

Image is very important to service business Image is an asset for any firm because image has an impact on customer perception of the communication and operations of the firm in many respects Image can be expected to build up mainly by technical and functional quality of service including the other factors (tradition, ideology, word of mouth, pricing and public relations)

Through the model, to manage perceived service quality, the firm has to match the expected service and perceived service to each other so that customers are satisfied

Model no.2: GAP model (Parasuraman, 1985)

Expected service Perceived service

quality

Perceived service

Image

Technical quality Functional quality

Traditional marketing activities

(advertising, field selling, PR,

Pricing) and external influence

by traditions, ideology and word

of mouth

contacts)

Perceived service

Expected service Personal needs Past experience

Translation of perceptions into service quality specifications

External communications

to the consumer

Management perceptions

of the consumer expectations

Figure 2.2 Gap analysis model

Here, I’d like to focus on gap no.5 expected service – perceived service gap which is defined as a method of service quality measurement

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Originally, Parasuraman et al (1985) introduced ten dimensions of service quality including reliability, responsiveness, tangibility, assurance, communication, competence, credibility, courtesy and security, empathy Later (1988), these dimensions collapsed into five named: reliability, responsiveness, tangibility, assurance and empathy The model of Parasuraman was also called SERVQUAL

Parasuraman et al (1988) identified a number of potential applications for the SERVQUAL model, including:

 It can be used on a regular basis to track customer perceptions of service quality

of a particular firm compared to its competitors

 It provides the opportunity for a firm to assess its service quality performance on the basis of each dimension individually as well as the overall dimensions

 It allows the firm to classify its customers into different segments based on their individual SERVQUAL scores

 It allows multi-unit retail companies to assess the level of service quality offered

by individual stores and to group them into different sectors with different quality images

The SERVQUAL technique has attracted a lot of attention for its conceptualization of quality measurement However, it has also attracted criticism

One of those is that the instrument mainly focuses on the service delivery process Therefore, Bahia and Nantel developed a specific new scale for perceived service quality

in retail banking The bank service quality (BSQ) model is an extension of the original ten dimensions of the model of Parasuraman They added some items such as Courtesy and access and items representing the marketing mix of the 7Ps (Product/ service, Place, Process, Participants, Physical surroundings, Price and Promotion) (cited in H Emari, S Iranzadeh and S Bakhshayesh, 2011, p 58)

Ladhari (2008) summarised a list of theoretical and empirical criticisms of the model First, he argued that the use of gap scores is not the right method because of the lack of the support in literature to consumers evaluating service quality in terms of perception-minus-expectation He recommended that service quality is more precisely and correctly evaluated by measuring only perceptions of quality In addition, he pointed out that the previous research suggested using perception-only scores rather than gap scores for the overall assessment of service quality.( cited in Tameem Al Bassam, Sarmad Al Shawi 2009, p.7)

Model no.3: Attribute service quality model (Haywood-Farmer, 1988)

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This model stated that a service organization got high quality if it met customer preferences and expectations consistently The separation of attributes into various groups step by step improves service quality Generally, services have three basic attributes: physical facilities and processes, people’s behavior and professional judgment Each attribute consists of several factors Too much concentration on any one of these elements to the exclusion of others may lead to a disaster

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Figure 2.3 Attribute service quality model

Model no.4: Performance only model (Cronin and Taylor, 1992)

The authors investigated the conceptualization and measurement of service quality and its relationship with consumer satisfaction and purchase intentions They argued that Performance instead of “Performance-Expectation” determines service quality as SERVQUAL model However, Cronin and Taylor (1992) did not conclude that it was

Professional Judgment

Diagnosis, competence, advice, guidance, innovation, Honesty, confidentiality, flexibility, discretion, knowledge

Physical facilities and

processes:

Location, layout, décor, size

facility reliability, process

flow, capacity balance,

control of flow process

flexibility, timeliness, speed

ranges of services offered

communication

Behavioral aspects:

Timeliness, speed communication (verbal, non – verbal), courtesy, warmth, friendliness, tact, attitude, tone of voice, dress, neatness, politeness, attentiveness, anticipation, handling complaints, solving problems

3

4

5

1 Short contact/interaction intensity – low customization, for e.g hardware/grocery shop

2 Medium contact/ interaction intensity – low customization

3 High contact/ interaction intensity – low customization, for e.g education

4 Low contact/ interaction intensity – high customization, for e.g Clubs

5 High contact/interaction intensity – high customization, for e.g Health care services

Figure 2.4 Model of service quality, customer value and customer satisfaction

Model no.6 Internet banking model (Broderick and Vachirapornpuk, 2002)

With the development of technology, internet serves as a modern delivery channel The research used participant observation and narrative analysis of UK internet web site community to explore how internet banking customers perceive and elements of this model Five key elements are treated as central influence on perceived service quality including: customer expectations of the service; the image and reputation of the service organization; aspects of the service setting; the actual service encounter; and customer participation

Actual price

Perceived price

Perceived Service quality

Perceptions

Perceived customer value

Customer satisfaction

Repurchase intention

Word of mouth

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Figure 2.5 Model of service quality in internet banking

2.2.2 Summary and comparative evaluation of service quality models

Model no Features Limitation Evaluation

Functional and technical quality

The model does not offer an explanation on how to measure functional and technical quality

1 – 2 – 3- 4

- 11

1 Identification of factors affecting service quality

2 Suitability for variety

of services in consideration

3 Flexibility to account for changing nature of

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Model no.2:

GAP model

+ Scale: Seven point Likert + Method of analysis:

principal axis factor

+ Measurement through: 5 elements

The model does not explain the clear

measurement procedure for the measurement of gaps at different levels

5 Suitability for developing a link for measurement of customer satisfaction

6 Diagnosing the needs for training and education

of employees

7 Flexible enough for modification as per the changes in the

environment/conditions

8 Suggests suitable measures for improvements of service quality

9 Identify future needs (infrastructure,

resources)

10 Accommodates use of

IT in services

11 Capability of being used as a tool for benchmarking

Physical facilities and processes, people’s behavior and conviviality, professional judgment

It does not offer the measurement

of service quality

It does not offer

a practical procedure capable of helping management to identify service quality problems

or practical means of improving service quality

principal axis factor

+ Measurement through: same as SERVQUAL but with

performance only statements

Need to be generalized for all types of service settings Quantitative relationship between consumer satisfaction and service quality need to be established

Through single item for

perceived price and

eight items for perceptions

be generalized for different types of service settings

Model variables are measured through relatively fewer items

Qualitative approach + Measurement through:

Through service setting,

services encounter, customer expectation and image

Not much empirical work carried out The model is based on the experience of one web site only,

needs to be validated with other

experiences

4 – 9 - 10

Table 2.3 Comparative evaluation of service quality models (source: Nitin Seth and S.G Deshmukh, Prem Vrat,2005, p.943]

2.2.3 Applications models in some countries

As mentioned in table 2.3, model no.2 - GAP model and model no.4 – Performance only model satisfy more criteria than others In practice, SERVQUAL has considered as the most popular measurement of service quality, special in banking industry SERVQUAL model has been applied in many countries

In retail banking - a case of Qatar, the authors applied the SERVQUAL model but modified to be suitable in this case They constructed four dimensions (reliability, competence, tangibility, and empathy) and designed 18 questions The result shows that the highest customers’ perceptions was demonstrated in the tangibility such as

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infrastructure facilities of the bank, modern equipment, followed by the empathy area such as convenient time of transaction On the other hand, the lowest perceptions was in the competence, such as the method of imposing service charges followed by reliability, such as customers’ guidance

In Malaysia, the authors also employed the SERVQUAL scale to measure the customer’s satisfaction and loyalty Regression analysis shows that tangibility had no significant impact on customer loyalty Reliability is found to have positive relationship with customer loyalty but not significant to customer satisfaction Findings also indicate that the relationship between responsiveness and customer loyalty was insignificant despite responsiveness found to have positive relationship with customer satisfaction Empathy, assurance had significant positive relationship with customer loyalty and customer satisfaction

In India, there was a research study on service quality gap in private sector banks The study evaluates the customers’ perceptions based on service quality gap analysis Data was collected from 200 customers of Private Sector Banks using structured questionnaire The result showed that the dimensions of service quality such as empathy and accessibility had more gap because the customers’ expectations were higher than their perceived service The result also indicated that empathy-reliability-assurance positively influences the service quality

In Canada, based on BSQ model, Bahia and Nantel (2000) conducted a research to develop a valid measurement of perceived service quality The questionnaire comprises

31 items classified across six dimensions as: effectiveness and assurance, access, price, tangibles, range of services offered and accuracy and reliability

Nowadays, with the strong technological development, business practices has changed Electronic banking is the result of the pressure from the increasingly competitive business environment and customers’ demand Many researchers examined the service quality in an e-banking environment by providing a review of how traditional service quality perceptions have evolved A specific study was done in Australia with database of 2500 business The authors showed how the expectation rank of the five service quality dimensions is compared to that of Berry and Parasuraman’s (1991) original research The results pointed that reliability remains to be the top most important aspect of service quality for the customer Responsiveness has moved down to third place while assurance has moved up to second place in terms of importance rank

Similarly, empathy has moved down a rank, while tangibles has moved up a rank Comparing the perceived performance ranking with the expectations ranking of this research, however, shows much larger discrepancies For the top two expectations,

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only assurance is perceived to be doing well, while in the bottom two expectations,

Tangibles seem to be overrated

Table 2.4 Comparing service quality dimensions with past research (by rank)

(cited in David H Wong, Nexhmi Rexha and Ian Phau, 2008, p 536)

Chapter conclusion

To sum up, this chapter gives the general knowledge of service quality It includes opinions, selected research models and practical researches in some countries It is very useful for shaping in my mind a model of Vietnamese banking service quality measurement: A case of BIDV trade finance services quality in Ho Chi Minh City area

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CHAPTER III:OVERVIEW ON TRADE FINANCE

IN VIETNAM

This chapter provides the overview on trade finance in Vietnam from 2010 and specially

in BIDV The analysis of BIDV’s strengths, weaknesses, opportunities, threats helps the readers understand the BIDV trade finance service position It is also one of reasons to measure the trade finance service quality and focus on enhancing the service quality

3.1 Trade finance in Vietnam

After the reformation in 1986, international trade had become an increasingly important part of the Vietnamese economy Vietnam promotes trade with various policy instruments such as implementing trade liberalization, including tariff reductions and other measures designed to relax import and export restrictions Trade liberalization of Vietnam results from bilateral and multilateral commitments With the release of trade barriers, the demand of international trade and Viet Nam’s economy target, trade finance development has still been interested in

3.1.1 Export

3.1.1.1 Some highlights in 2010

Export turnover of 2010 is estimated reaching USD 71.6 billion, increasing by 25.5% against 2009 The domestic economic sector gains USD 32.8 billion, up by 22.7%; the FDI sector (including crud oil): USD 38.8 billion up by 27.8% If crude oil is excluded, the FDI sector’s export turnover is USD 33.9 billion up by 40.1% against 2009

There is also a change in the export turnover structure for some groups of commodities Textile garment is the leading export industry Followings are footwear, aquatic products and crude oil

and sandals (USD 1.3 billion), seafood Followed by EU with USD 10 billion, accounting

for 13.9% and up by 15.9% with exported footwear turnover of USD 2 billion; textile USD 1.64 billion; sea food USD 1 billion; wood and wood products USD 594 million Exported goods to ASEAN gains USD 9.3 billion, accounting for 13% up by 19.6%, of which exported rice reached USD 1.5 billion; crude oil USD 1.4 billion; gasoline USD 653 million Exported goods to Japan reaches USD 6.9 billion, accounting for 9.6% and up by 23.6% against the same period last year; exported goods to China gains USD 6.3 billion, accounting for 8.8% and up by 48.6%

3.1.1.2 First haft of 2011

Customs statistic shows that in the 1st quarter of 2011, the total value of export is

up by 36.4% and reaches US$ 19.64 billion The main exports outpacing the threshold of

US $ 1 billion are: textiles and garments, crude oil, foot wears, fishery products and coffee The total value of these main exports was approximately US $ 8 billion, accounting for 40.6% of Vietnam total export value

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Chart 3.2 Top ten main exports of Vietnam in first quarter 2011 (source: www customs.gov.vn)

Total export revenue for the first six months of this year is estimated to reach US$41.5 billion, up 27.8 per cent against the same period last year Export average monthly turnover of over US$7 billion, which was higher than the average target of US$ 6.6 billion Exports to a number of large markets including the US, EU, Japan and China rose between 22-40 per cent

For the whole 2011, Vietnam is forecasted to earn $74.8 billion from exporting goods, up 10% from a year earlier

The group of processing industry would bring the highest export turnover of about

$43.5 billion Seafood export still meets difficulties due to criteria, rules…However, it is expected to increase lightly and brings about $5.2 billion in 2011, up 5 percent year-on-year Vietnam's traditional markets would be still maintained

3.1.2 Import

3.1.2.1 Some highlights in 2010

Import turnover of 2010 is estimated to reach USD 84 billion, up by 20.1% against

2009 The domestic economic sector gains USD 47.3 billion, up by 8.3%; and the FDI sector with USD 36.7 billion, up by 39.9%

China is still the largest market for Vietnam’s importation with total turnover of USD 17.9 billion, up by 23.4% against the same period in 2009; ASEAN with USD 14.5 billion, up by 18%; Republic of Korea with USD 8.7 billion, up by 42.4%; Japan with USD 8.1 billion, up by 21.7%; EU with USD 5.5 billion, up by 9%

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Chart 3.3: Vietnam import year 2010 (source: www.vietpartners.com/Statistic-imex.htm)

3.1.2.2 In the first half of 2011

The main import products in the first quarter of 2011 are: petroleum products, iron, steel, machine and equipment, plastics, textile, leather and foot wear material, and computer, electrical products, spare parts and components thereof

Total import revenue for the first six months of this year are up 26.4 per cent compared with the same period last year, at $49 billion

The country's import is expected at $93 billion in 2011, up 10.7 percent against 2010's

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Top 10 imports First quarter of

2011(million USD)

Compared with previous year (%)

Computer, electrical products, spare parts

and components thereof

Table 3.1: Top 10 import products in Vietnam in 1 st haft 2011( source: www customs.gov.vn)

3.1.3 Vietnam trade balance

In the first half of this year, trade gap is estimated at around $7.5 billion to account for 18 percent of the total export turnover

3.2 Trade finance service in BIDV

Payments for exports and imports in 2009 were approximately USD 1,200 million and USD 5,200 million, respectively Accordingly, net fees from trade finance gained over VND 230 billion, growing by 51% over that in 2008

As 2010, export and import turnover got over USD1,184 million and USD 4,391 million respectively Export turnover was down 3% and import turnover was down 14%, compared with 2009’s Fees from trade finance gained over VND 226 billion, decreased

by 2%in 2009

At the end of 2010, export - import financing volume got 26,900 billion VND and 13,905 billion VND, increased 5.9% and 52% respectively compared with 2009’s Export and import financing outstanding was 9,250 billion VND and 6,400 billion VND respectively In general, in 2010, import and export loans increase remarkably Export and import financing outstanding growth was 22 % and 98% respectively

Determining the key export products, BIDV provides an export package to stimulate and share benefits with exporters BIDV identifies that, in short and long term, the bank has still focused on supporting the key industries to enhance trade finance

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services fee and to contribute in economy development BIDV has financed continuously some industries as follows:

 Textile and garment industry: To the end of 2010, BIDV textile – garment export

loans volume increases 60% with 2009, took 17% total volume Textile and garment export turnover increase continuously year on year ( about 20%) Vietnam is one of the top five export countries of this industry in the world with 3 big partners: US, EU and Japan With the prediction of favorable conditions, the garment sector plans to earn more than $13 billion from exports in 2011 With the development policy of this industry and tariff barrier relaxation, Vietnam import and export prospect of textile garment industry continues to go up

 Rice industry: To the end of 2010, the number of customer set up the relationship

to BIDV is 45, increase 5 customers more than in 2009’s.While, up to date Vietnam has more than 300 companies to joint in rice export activity Clearly, this segment is still potential for BIDV to develop trade finance services

The main market is Asia, especially in ASEAN Rice export is assessed to be optimist thanks to following reasons:

+ World rice demand: According to prediction, the demand of world rice is still high due to the disadvantageous climate in many countries

+ The capacity of Vietnam rice production: The export and store quantity is about 11.4 million tons, in which the balance can be exported is 5.8 – 6.3 million tons in 2011

+ Expansion markets: Africa, Middle East, America are the new target markets

 Seafood industry: It is expected that seafood industry continues to have a

remarkable number thanks to world demand and expansion market to new area

To keep the strong brand position, to increase the trade finance service quality, BIDV continues to keep its promise as the slogan “share opportunities, share successes” BIDV takes opportunities, develops its strengths and gradually overcomes the weaknesses as well as threats

 Opportunities:

+ International Finance Corporation (IFC) has loaned a record US$505 million for the fiscal year 2011 Now, Vietnamese banks can help local companies increase foreign trade through its Global Trade Finance Program

+ The HSBC surveyed Trade Confidence Index Enterprises were asked about their six-month outlook on trade volume; buyer and supplier risks; the need for trade finance; access to trade finance; and the impact of foreign exchange and government trade regulations on their businesses The results were used to calculate an index ranging from 0 to 200, where 200 represents the highest confidence level, 0 represents the lowest

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and 100, neutral The results shows a slight decrease in the confidence of traders in Vietnam: in 1H10 Vietnam scored 132 (the peak in five survey periods), gradually slipping 10 points to 122 in 2H10 and then six points to 116 in 1H11 However the survey also shows that businesses in Vietnam are still optimistic about trade outlook and expect their trade volume to grow This clearly reflects the caution of Vietnam traders regarding the challenges ahead, especially their rising concerns on fluctuating exchange rates, high interest rates and buyer/supplier risks Although there was a slight decrease in the trade confidence index, Vietnam traders remain positive, with the majority of respondents saying that they expect trade volume to increase (70 percent in 1H11)

 Strengths:

+ Place (network distribution): By 2010-end, BIDV has 120 branches and 483 transaction offices The Bank’s network has covered 63 provinces/ cities, spreading from crowded residential and urban areas to commercial and financial centers nationwide To traditional distribution, BIDV ranks 3rd position in banking system

Besides, BIDV has expressed its international cooperation experiences by developing the correspondent banking relationship with over 1,600 financial institutions worldwide BIDV implements large projects with international financial institutions such

as WB, ADB, JBIC, IMF, ECB The bank also expands its business into: Cambodia, Myanmar, Lao, Russia…

+ People (human resource): BIDV has placed adequate emphasis on the recruitment and placement of qualified and professional staff for all positions to ensure sufficient staff to meet the demands of business development and network expansion At the end of 2010, the total number of employees was more 16,000 The quality of staff has been improved educationally and professionally The graduated and post-graduated employees accounted for 85.3%, increased by 2.69% compared to those of 2009 Their professional and managerial competence have been improved to enable them to master modern banking technology and adapt to the competitive working environment

+ Products: BIDV initially focus on diversification of trade finance products such as: discount without recourse, Trade card discount, import L/C finance for agricultural products through GSM 102 – 103 program of U.S Department of Agriculture