Luận văn thạc sỹ: IMPROVE PERSONAL LENDING PRODUCTS IN RETAIL BANKING OF ANZ BANK

The Vietnamese economy is now on the hot growth with GDP in 2009 of 5.32% and in 2008 of 6.78%. Along with the GDP growth, Vietnam banking industry is now growing very fast. Until May, 2008 Vietnam has 36 Joint stock commercial banks, 5 Stated – owned commercial banks, 6 Joint venture banks and 44 branches of foreign commercial banks with hundreds branches nationwide and numerous of banks and financial companies are waiting effort the license (World Bank, 2007).Vietnam banking sector has been scaling up recently and even, state-run banks, which are busy with equitisation continue opening more branches, transaction offices. However, commercial joint stock banks have still seen the strongest growth when they continue aggressively developing their operation networks and established more new banks. Additionally, many foreign banks are actively speeding up pace of establishing branches or 100%-foreign owned subsidiaries. Such a move is attracting significant attention of the public. By the end of 2007, it is estimated that total transaction offices, branches of commercial joint stock banks nearly doubled the figure of 2006. The possibility of the prime minister’s approval for the government proposal to hike the limit on foreign holding from 10% to 15% or even 20% would prove to be another powerful incentive for overseas banks to anticipate fresh competition. Moreover, under WTO commitments in banking sector, Vietnam approved oversea banks to set up their 100% foreign owned subsidiaries in the country from 1 April, 2007. This is an incentive for them to speed up their business activities in Vietnam. As of now, many foreign banks have expressed their interest in taking advantage of the 100% foreign –owned bank policy of Vietnam. Vietnam is becoming more and more attractive for overseas banks as it provides a competitive base to these banks due to healthy economy and government policies. In Intellasia news, they call Vietnam a perfect market to give competitive ground to international banks due to the country’s fast growing economy, thriving financial and stock markets and initiation of government policies aimed at opening the market. Being a wholly foreign owned bank makes a debut for ANZ a potential to support the growth of its retail business. ANZ is operating over 153 years in banking experience, ANZ believe that they has contributed a creditable success to the Vietnam’s economy and committed to develop more by enhance their activity, services and especially in retail banking. ANZ gained constantly “Best retail bank 2008, 2009” reward in two years. In earlier 2010, ANZ has implemented a new strategically development on retail banking to expand its business and managerial capacity to become a top four foreign bank in Vietnam by 2012. In this road map, ANZ focus on retail banking, consolidating operation of retail, reforming sales force, balancing lending and capital mobilizing. In fact, ANZ has developed more consumer lending products to meet more customers’ needs by launching new mortgage loan, car loan, and wealth and financial advisory in order to approach new customers. The consumer lending section in ANZ has achieved some significant in area of new customer, credit risk management. After three years, there are more than 5,000 customers getting home loan approval, growth rate is about 10%/year. However, the consumer lending products are still poor, it seem to be so basic and simple, no niche products to various segments so the actual gained is still far from target. Moreover, lending process at ANZ also face many difficulties in adapting with local market practical that block ANZ access deeply retail market such as assessment of borrowers’ income based on bank account only. The problem is how ANZ operation can be adjusted to adapt the practical in Vietnam. In order to improve consumer lending product, ANZ must create an appropriate policy which is rooted from the fundamental of ANZ bases and the emerging market of retail banks in Vietnam.

BUSINESS SCHOOL

  

NGUYEN DOAN KHANG

IMPROVE PERSONAL LENDING

PRODUCTS

IN RETAIL BANKING OF ANZ BANK

MASTER OF BUSINESS ADMINISTRATION THESIS

From experience I can tell that this thesis has depended on the generoussupport, help of many people Throughout the thesis I have able to improvethe knowledge regarding managing services of banking industry

Firstly, I would like to thank my supervisor Dr Pham Truong Hoang forhis guidance through the process of the research

My thanks are also given to my friends and teachers in Business School

in helping me during this course

Lastly, I would like to thank to my colleagues, manager in ANZ andespecially customers, for contributing me worthwhile feedback

ABREVIATIONS

LIST OF FIGURES

LIST OF TABLES

EXCUTIVE SUMMARY 1

CHAPTER 1: INTRODUCTION 3

1.1 RATIONALE 3

1.2 RESEARCH OBJECTIVES 5

1.3 RESEARCH QUESTIONS 5

1.4 RESEARCH METHODOLOGY 6

1.4.1 Research process 6

1.4.2 Data sources 7

1.4.3 Data analysis 9

1.5 RESEARCH SCOPE 9

1.6 RESEARCH STRUCTURE 9

CHAPTER 2: THEORETICAL BACKGROUND ON PERSONAL LENDING PRODUCT 10

2.1 RETAIL BANKING OF COMMERCIAL BANK 10

2.1.1 Definition of retail banking 10

2.1.2 Services of retail banking 10

2.2 PERSONAL LENDING PRODUCTS 15

2.2.1 Concept of personal lending product 15

2.2.2 Characteristics of personal lending product 16

2.2.3 Types of personal lending products 17

2.2.4 Marketing mix and its application for personal lending activities 19

2.2.5 Personal lending product development 25

2.3 FACTORS EFFECT DEVELOPING PERSONAL LENDING PRODUCTS 29

2.3.1 Internal Factors 29

2.3.2 Activity environment of bank 31

2.3.3 Factors about customers 33

CHAPTER 3: ANALYZING PERSONAL LENDING PRODUCTS IN RETAIL BANKING OF ANZ BANK 34

3.1.2 ANZ’s brand 35

3.1.3 ANZ’s Core Activity Standards 35

3.1.4 ANZ’s Governance 35

3.2 ANZ IN VIETNAM 37

3.2.1 ANZ Vietnam Structure 38

3.2.2 Performances of ANZ Vietnam 39

3.3 PERSONAL LENDING PRODUCTS IN RETAIL BANKING INDUSTRY IN VIETNAM 41

3.3.1 Snapshots on retail banking industry in Vietnam 41

3.3.2 Products of main competitors 44

3.4 ASSESSING PERSONAL LENDING PRODUCTS IN RETAIL BANKING OF ANZ BANK 46

3.4.1 Customer and market 46

3.4.2 Analyzing personal lending activities in retail banking of ANZ 47

3.5 SUMMARY OF FINDINGS 64

CHAPTER 4: RECOMMENDATIONS TO IMPROVE PERSONAL LENDING PRODUCTS IN RETAIL BANKING OF ANZ BANK 65

4.1 STRATEGIC ORIENTATION OF ANZ IN DEVELOPING PERSONAL LENDING PRODUCT 65

4.1.1 The economic – banking and financial trends 65

4.1.2 Strategic orientation of ANZ in developing personal lending products 67

4.2 RECOMMENDATION TO IMPROVE CURRENT PERSONAL LENDING PRODUCTS OF ANZ VIETNAM 68

4.2.1 Diversifying and improving services/products 69

4.2.2 Developing modern distribution network 73

4.2.3 Developing human resource 75

4.3 RECOMMENDATIONS TO DEVELOP NEW PERSONAL LENDING PRODUCTS 77

4.4 CONDITIONS TO IMPLEMENT RECOMMENDATIONS 78

CONCLUSION 81

LIST OF REFERENCES 82 APPENDIX

ATM: Automatic Tellers Machine GDP: Gross domestic product

JSCB: Joint Stock Commercial BankNPD: New Product DevelopmentSBV: State Bank of Vietnam

SME: Small and Medium EnterpriseSOCB: State Owned Commercial BankSOE: State Owned Enterprise

WTO: World Trade Organization

Figure 2.1: Service marketing mix 19

Figure 2.2: Product development process, Philip Kotler 26

Figure 3.1: Organization of ANZ Vietnam 38

Figure 3.2: Numbers of branches of some main banks in Vietnam 43

Figure 3.3: Total asset of 4 large local banks, US$ billion 43

Figure 3.4: Structure of customer of retail banking of ANZ Vietnam 46

Figure 3.5: Structure of retail banking loans 51

Figure 3.6: Lending process at ANZ Vietnam 53

Figure 3.7 Mortgage interest rate competitor matrix – as at 15th August 55

Figure 3.8: Customer satisfaction of service quality 62

Figure 3.9: Customer’s evaluation about the successful transactions 62

Figure 3.10: Customer’s willingness to continue to use other services of ANZ 63

Figure 3.11: Customer introduce ANZ to friends and relatives 63

Table 1.1: Data sources & method to collect data 8

Table 3.1: ANZ Vietnam’s Business result in 2010 40

Table 3.2: Product categories of some main banks 44

Table 3.3: Personal lending products at ANZ 48

Table 3.4: Number of loans at ANZ Vietnam 50

Table 3.5: Respondent’s evaluation for quality of product and service 56

Table 3.6: Respondent’s evaluation of customer care 58

Table 3.7: Respondent’s evaluation of convenience at branches 60

Table 3.8: Respondent’s evaluation for interest and fees at ANZ 61

EXCUTIVE SUMMARY

The thesis was conducted to study about the current situation of personallending activities in retail banking of ANZ Vietnam; the thesis also proposedsome possible solutions for developing personal lending product policies atANZ Vietnam

The research objectives of the thesis are to study and analyze currentsituation of personal lending product policies at ANZ Vietnam Otherobjectives of thesis are to assess the quality of personal lending service atANZ and propose solutions to improve personal lending product at ANZVietnam

The research is mainly based on in-depth interviews and questionnairewith existing and sales staff The research methodologies used in the thesisare comparisons Real figures and documents were collected from the annualreport and newspaper as well as reports that are published in order todetermine factors that effect the developing of personal lending activities andpropose solution to develop retail banking operations

The thesis divides into four chapters as follows:

Chapter 1 introduces main points of the study This chapter provides overview information about Vietnam’s banking industry development, and also presents the background, the questions and the objectives of this

research

Chapter 2 refers to concept, operations and personal lending products ofretail banking of commercial bank This chapter consists of three parts Thefirst part is to study retail banking and all operations of retail banking Thesecond part relates to personal lending products of retail banking The last

part goes into factors affecting developing personal lending products Thispart will conduct all factors that affect personal lending products

Chapter 3 analyzes current situation of personal lending products inretail banking of ANZ bank This chapter will outline overview about ANZglobal and ANZ Vietnam; it also summaries the current situation at ANZretail banking Besides, the thesis examines and assesses personal lendingproducts in retail banking of ANZ bank These assessments will supply threemajor findings surrounding product itself, process and service of ANZ’spersonal lending products Personal lending products are very poor, notattractive compared with other competitors Process is closely control ANZapplies inflexible personal lending policy so that very few customers canaccess the capital The branch of ANZ Vietnam is very few There are only 8branches in all Vietnam area It will make customers difficult to find theoffice to do the transactions and not attract new customers

Chapter 4 proposes solutions to improve personal lending products inretail banking of ANZ bank The chapter researches all solutions based onstrategic orientations of ANZ retail banking and the economic – bankingtrends These solutions include in diversifying and improvingservices/products, developing modern distribution network and developinghuman resource, which based on theoretical aspect and the assessment reality

of retail banking

CHAPTER 1 INTRODUCTION

1.1 RATIONALE

The Vietnamese economy is now on the hot growth with GDP in 2009 of5.32% and in 2008 of 6.78% Along with the GDP growth, Vietnam bankingindustry is now growing very fast Until May, 2008 Vietnam has 36 Jointstock commercial banks, 5 Stated – owned commercial banks, 6 Joint venturebanks and 44 branches of foreign commercial banks with hundreds branchesnationwide and numerous of banks and financial companies are waiting effortthe license (World Bank, 2007).Vietnam banking sector has been scaling uprecently and even, state-run banks, which are busy with equitisation continueopening more branches, transaction offices

However, commercial joint stock banks have still seen the strongestgrowth when they continue aggressively developing their operation networksand established more new banks Additionally, many foreign banks areactively speeding up pace of establishing branches or 100%-foreign ownedsubsidiaries Such a move is attracting significant attention of the public Bythe end of 2007, it is estimated that total transaction offices, branches ofcommercial joint stock banks nearly doubled the figure of 2006

The possibility of the prime minister’s approval for the governmentproposal to hike the limit on foreign holding from 10% to 15% or even 20%would prove to be another powerful incentive for overseas banks to anticipatefresh competition

Moreover, under WTO commitments in banking sector, Vietnamapproved oversea banks to set up their 100% foreign owned subsidiaries in

the country from 1 April, 2007 This is an incentive for them to speed up theirbusiness activities in Vietnam As of now, many foreign banks haveexpressed their interest in taking advantage of the 100% foreign –owned bankpolicy of Vietnam

Vietnam is becoming more and more attractive for overseas banks as itprovides a competitive base to these banks due to healthy economy andgovernment policies In Intellasia news, they call Vietnam a perfect market togive competitive ground to international banks due to the country’s fastgrowing economy, thriving financial and stock markets and initiation ofgovernment policies aimed at opening the market

Being a wholly foreign owned bank makes a debut for ANZ a potential

to support the growth of its retail business ANZ is operating over 153 years

in banking experience, ANZ believe that they has contributed a creditablesuccess to the Vietnam’s economy and committed to develop more byenhance their activity, services and especially in retail banking ANZ gainedconstantly “Best retail bank 2008, 2009” reward in two years

In earlier 2010, ANZ has implemented a new strategically development

on retail banking to expand its business and managerial capacity to become atop four foreign bank in Vietnam by 2012 In this road map, ANZ focus onretail banking, consolidating operation of retail, reforming sales force,balancing lending and capital mobilizing

In fact, ANZ has developed more consumer lending products to meetmore customers’ needs by launching new mortgage loan, car loan, and wealthand financial advisory in order to approach new customers The consumerlending section in ANZ has achieved some significant in area of new

customer, credit risk management After three years, there are more than5,000 customers getting home loan approval, growth rate is about 10%/year.However, the consumer lending products are still poor, it seem to be so basicand simple, no niche products to various segments so the actual gained is stillfar from target.

Moreover, lending process at ANZ also face many difficulties inadapting with local market practical that block ANZ access deeply retailmarket such as assessment of borrowers’ income based on bank account only.The problem is how ANZ operation can be adjusted to adapt the practical inVietnam

In order to improve consumer lending product, ANZ must create anappropriate policy which is rooted from the fundamental of ANZ bases andthe emerging market of retail banks in Vietnam

1.2 RESEARCH OBJECTIVES

The detail objectives of the research are:

- To summary theoretical background on lending products of retailbanking;

- To analyze current situation of personal lending at ANZ;

- To recommend solutions to improve personal lending products in retailbanking of ANZ bank

1.3 RESEARCH QUESTIONS

The research will focus on studying factors that driving the improvement

of lending products at ANZ and propose some solutions to future enhancedproducts at ANZ Thus, the research will try to answer the following

How many kind of consumer lending product in Vietnam market?

What is difference between lending product at ANZ Vietnam compared

to competitors’ products?

What ANZ’s product is most suitable for Vietnam market?

1.4 RESEARCH METHODOLOGY

1.4.1 Research process

The research process is illustrated as below:

Being a wholly foreign owned bank makes a debut for ANZ a potential

to support the growth of its retail business ANZ is operating over 153 years

in banking experience, ANZ believe that they has contributed a creditablesuccess to the Vietnam’s economy and committed to develop more byenhance their activity, services and especially in retail banking ANZ gainedconstantly “Best retail bank 2008, 2009” reward in two years

In earlier 2010, ANZ has implemented a new strategically development

on retail banking to expand its business and managerial capacity to become atop four foreign bank in Vietnam by 2012 In this road map, ANZ focus onretail banking, consolidating operation of retail, reforming sales force,balancing lending and capital mobilizing

In fact, ANZ has developed more consumer lending products to meetmore customers’ needs by launching new mortgage loan, car loan, and wealthand financial advisory in order to approach new customers The consumerlending section in ANZ has achieved some significant in area of newcustomer, credit risk management After three years, there are more than

5,000 customers getting home loan approval, growth rate is about 10%/year.However, the consumer lending products are still poor, it seem to be so basicand simple, no niche products to various segments so the actual gained is stillfar from target.

Moreover, lending process at ANZ also face many difficulties inadapting with local market practical that block ANZ access deeply retailmarket such as assessment of borrowers’ income based on bank account only.The problem is how ANZ operation can be adjusted to adapt the practical inVietnam

In order to improve consumer lending product, ANZ must create anappropriate policy which is rooted from the fundamental of ANZ bases andthe emerging market of retail banks in Vietnam

1.4.2 Data sources

1.4.2.1 Secondary data:

The data of thesis consists of two sources, including primary data and

secondary data The secondary data is collected from newspapers, annualreports, magazines, internet, books… The primary data is summed frominterview and questionnaire research will be conducted as followed:

The data is collected through delivering questionnaire Thisquestionnaire includes 49 items General information asks about thebackground of respondents and The main part of the questionnaire, whichsurveys about the service quality and customer satisfaction, was designedbased on the given variables and measured by a five-point Likert’s scale from

1 (strongly disagree) to 5 (strongly agree)

1.4.2.2 Primary data

- In- depth interview

- Survey

Table 1.1: Data sources & method to collect data

No Methods Data Source /

Respondents

Sample Size Information collected

1 Secondary data

ANZ annual reports, documents and business plan

Guideline and models on business strategy, products, process, competitors’ branches, products

10 persons

Find-out their agrees & disagrees on product and service

2.2 In-depth

interviews

Managers, staff at ANZ, potential customers

10 persons

To know their perspectives and opinions on the bank’s business

1.4.3 Data analysis

The result of the interview will be developed through Statistical Packagefor the Social Sciences (SPSS) program in order to bring out the objectives ofthis research In addition, the Microsoft Excel and Microsoft Word softwareversion 2003 was used to group items and draw charts.

1.5 RESEARCH SCOPE

This research focuses on the development of the lending products inretail banking at ANZ Individual borrower is major objective of the researchespecially whose loan limit approved by ANZ Lending for SME andcorporation is excluded

The subjects of study in this research involve individual borrowers inHanoi only

ANZ’s business reports from 2009 -2011, banks and regulatingauthorities were collected as secondary data for the research In-depthinterview and questionnaire was conducted and summarized from March toMay 2011 for primary data

1.6 RESEARCH STRUCTURE

Chapter 1: Introduction

Chapter 2: Theoretical background on personal lending products

Chapter 3: Analyzing personal lending products in retail banking ofANZ bank

Chapter 4: Recommendation to improve personal lending products inretail banking of ANZ bank

Conclusion

CHAPTER 2 THEORETICAL BACKGROUND ON PERSONAL

LENDING PRODUCT

2.1 RETAIL BANKING OF COMMERCIAL BANK

2.1.1 Definition of retail banking

There are several definitions of retail banking ranging from verysimple to comprehensive

“Retail banking is typical mass-market banking where individualcustomers use local branches of larger commercial banks Services offeredinclude: savings and checking accounts, mortgages, personal loans, debit

cards, credit cards, and so”, Shelagh Heffernan (2005), Modern Banking, John

Wiley & Son Ltd, England

According to ninth report of session 2010-11, volume 1, Competition

and Choice in Retail Banking, Treasury Committee, House of Common,

Great Britain has categorized banking services into two broad areas:

 Core banking services: personal and business accounts, overdraft

and saving products traditionally associated with bank

 Secondary services: unsecured and secured loan to personal and

SME customer including credit card and mortgage

2.1.2 Services of retail banking

In retail banking, the services are main factors that determine businessactivities and profit of any retail banking The typical services offered inVietnam retail banking segment are housing loans, cards, educational loans…

Generally, the services comprise some main groups as follows:

 Commercial Banking

 Corporate and Institutional Banking

 Global Markets

 Global Payments and Cash Management

 Trade and Supply Chain

of deposits The source of this mobilization is small but stable Therefore, allretail banking focus on the number of customer to increase capital

In the contrary, corporate banking mobilizes capital from organizations,companies in the economy The bank mobilizes through account and depositcontract of organizations and companies This mobilization is large butunstable It depends much on some large organization and companies

In near years, mobilizing capital from individuals has sharplycontributed for increasing capital for almost banks Moreover, mobilizingcapital has also added to move capital structure Therefore, almost banks,especially retail banks concentrate on rising capital based on diversifying anddeveloping saving deposit services.

For retail banking, saving deposits are developing both quality andquantity, consisting of basic saving deposit service such as term or non-termsaving deposit by VND, USD, EUR, gold-denominated deposit, savings forlottery… Nowadays, retail banks invest more and more technology in order toenhance and expand many types of saving deposit services as well as highquality for its services

In future, Vietnamese banks have also reached and supplied many types

of saving deposits based on high technology for individuals; these productswill be more attractive, comfortable and higher benefit for customers

2.1.2.2 Lending activities

Lending activities is main basic activities for all banks and deliverslarger profit of any banks Lending activities is understood as the bank usefund mobilization in order to lend for all sectors in the economy or invest inproject of individuals, organizations or companies Lending activities supplyfor demands of objectives of customers like consumers, businessdevelopment, automobile purchasing… This activity brings main profit forthe bank Through lending activities and supplying services for customers, thebank gains profit from interest and fee of services With this profit, the bankwill use to reinvest in business activities such as technology, expand branchesand services… to enhance its position in banking market as well as developbusiness activities of bank

For the economy, through lending activities of bank, all countries candevelop the economy and approach many objectives in the society Besides,lending activities help the government control economic development throughmany monetary policies and other policies such as securities policies, realestate policies… The government also implements many social objectives likeimproving living standard…

Generally, lending products are many types, focusing on many kinds ofcustomers and they have differentiation among banks

The same as capital mobilization, lending activities of corporate bankingand retail banking have no differences However, it has a difference about thesources of capital For corporate banking, lending activities focus onfinancing for projects, working capital, business capital for organizations andcompanies to develop business activities of organizations and companies aswell as social purpose For this mobilization, the type of mobilizationdiversifies with many types of customers However, retail banking focuses onlending activities for individuals, households, SMEs to satisfy demands ofconsumers Some of these lending products that supply for individuals are:-Commercial papers mortgage loan

- Installment loan for home, home-base purchasing, home constructionand renovation

- Installment loan for automobile purchasing

- Consumption loans and consumer installment loans

- Loans for developing business activities

- Securities and value paper loans

- Loans for overseas study

For corporate banking, lending activities consists of many risk compare

to retail banking Because corporate banking often finances for many bigprojects or business capital and it also concentrates on some of customers,especially big companies or organizations For retail banking, the amount ofmoney for financing projects of customers is often smaller than the amount ofmoney for organizations and companies Therefore, the risk of lendingactivities for retail banking is smaller than corporate banking

Besides, retail banking can diversify lending activities by financingcapital for many types of customers Therefore, retail banking can share riskwith customers by increasing more customers Nowadays, the bank focuses

on retail banking and because of high risk of corporate banking; market issaturated with high competitiveness of many banks

Naturally, the customers of lending activities are also various, who comefrom many different jobs, ages, class, position, educational level… lendingproducts are poor and not attractive to almost people, especially in Vietnamesebanks In portfolio, installment loan for home and automobile purchasing aremore attractive to many people, it accounts for big percentage of lendingproducts Besides, the consumption installment loans also are developing andthese loans will be main activities of retail banking in near future

2.1.2.3 Other services

Other services focus on supplying for individuals, households This is adifference between retail banking and corporate banking Corporate bankingconcentrates on providing services for organizations, companies but this type

of bank cannot provide services for individuals and households Thecharacteristics of these services are used modern technology and informationtechnology At present, many banks use high technology to satisfy increasing

demands of customers and these services also bring much profit for the bank.These services consist of services of payment, financial consultant, ATM,Post, Visa card…

In these services, card market is facing high competition of other banks.Card service is a modern banking service for individuals and it is fiercecompetitive field among banks Card portfolio includes domestic credit card,international credit card, domestic debit card, ATM Some banks, which havedeveloped technology supply payment card, global card that used in theworld Besides, almost banks focus on researching new features for its cards,improving card as the versatile card that help people execute many services,such as seeking money balance, fund transfer and payment bills…

In recent years, the Vietnamese Government has encourageddevelopment of non-cash payment to reduce using cash in public Thegovernment has had many environment and policies in order to enhancegrowth of non-cash payment, especially card products Therefore, retail bankshave invested more in expanding card produces parallel with empoweringinfrastructure and card alliance among banks

Besides services mentioned above, retail banking also providesnumerous other services, such as remittance service (including overseas,outward, inward remittance), Western Union… Some modern services consist

of home banking; mobile and internet banking are expanding with highinvestment in technology

2.2 PERSONAL LENDING PRODUCTS

2.2.1 Concept of personal lending product

A personal lending product is a type of debt Like all debt instruments, apersonal lending product entails the redistribution of financial assets over

time, between the lender and the borrower George E Ruth, (1999)

Commercial Lending, American Banker Associate, Washington D.C

In a personal lending product, the borrower initially receives

or borrows an amount of money, called the principal, from the lender, and isobligated to pay back or repay an equal amount of money to the lender at alater time Typically, the money is paid back in regular installments, or partialrepayments; in an annuity, each installment is the same amount

The personal lending product is generally provided at a cost, referred to

as interest on the debt, which provides an incentive for the lender to engage inthe loan In a legal loan, each of these obligations and restrictions is enforced

by contract, which can also place the borrower under additional restrictionsknown as loan covenants Although this article focuses on monetary loans, inpractice any material object might be lent

Acting as a provider of loans is one of the principal tasks for financialinstitutions For other institutions, issuing of debt contracts such as bonds is atypical source of funding

2.2.2 Characteristics of personal lending product

Personal lending product is an intangible Services have four distinctivecharacteristics that greatly affect the design of marketing programs:intangibility, inseparability, variability, and perish ability

- Intangibility: Unlike physical products, services cannot be seen, tasted,felt, heard, or smelled before they are bought The person getting a face-liftcannot see the results before the purchase, and the patient in the psychiatrist'soffice cannot know the exact outcome

To reduce uncertainty, buyers will look for evidence of quality They willdraw inferences about quality from the place, people, equipment,communication material, symbols, and price that they see

- Inseparability: Services are typically produced and consumedsimultaneously This is not true of physical goods, which are manufactured,put into inventory, distributed through multiple resellers, and consumed later.

If a person renders the service, then the provider is part of the service.Because the client is also present as the service is produced, provider-clientinteraction is a special feature of services marketing

- Variability: Because services depend on who provides them and whenand where they are provided, they are highly variable Some

- Perishability: Services cannot be stored

2.2.3 Types of personal lending products

- Secured: A secured loan is a loan in which the borrower pledges someasset (e.g a car or property) as collateral for the loan

+ A subsidized loan is a loan that will not gain interest before you begin

to pay it It is known to be used at multiple colleges

+ An unsubsidized loan is a loan that gains interest the day ofdisbursement.

+ A mortgage loan is a very common type of debt instrument, used bymany individuals to purchase housing In this arrangement, the money is used

to purchase the property The financial institution, however, is given security

— a lien on the title to the house — until the mortgage is paid off in full Ifthe borrower defaults on the loan, the bank would have the legal right torepossess the house and sell it, to recover sums owing to it

In some instances, a loan taken out to purchase a new or used car may besecured by the car; in much the same way as a mortgage is secured byhousing The duration of the loan period is considerably shorter — oftencorresponding to the useful life of the car There are two types of auto loans,direct and indirect A direct auto loan is where a bank gives the loan directly

to a consumer An indirect auto loan is where a car dealership acts as anintermediary between the bank or financial institution and the consumer

A type of loan especially used in limited partnership agreements is therecourse note

+ A stock hedge loan is a special type of securities lending whereby thestock of a borrower is hedged by the lender against loss, using options orother hedging strategies to reduce lender risk

+ A pre-settlement loan is a non-recourse debt, this is when a monetaryloan is given based on the merit and awardable amount in a lawsuit case Onlycertain types of lawsuit cases are eligible for a pre-settlement loan This isconsidered a secured non-recourse debt because if the case reaches a verdict

in favor of the defendant the loan is forgiven

- Unsecured: Unsecured loans are monetary loans that are not secured

against the borrower's assets These may be available from financialinstitutions under many different guises or marketing packages:

2.2.4 Marketing mix and its application for personal lending activities

The service marketing mix is also known as an extended marketing mixand is an integral part of a service blueprint design The service marketingmix consists of 7 P’s as compared to the 4 P’s of a product marketing mix.Simply said, the service marketing mix assumes the service as a productitself However it adds 3 more P’s which are required for optimum servicedelivery

Figure 2.1: Service marketing mix

Source: Hitesh Bhasin, 2011

The product marketing mix consists of the 4 P’s which areProduct, Pricing, Promotions and Placement These are discussed in my article

on product marketing mix – the 4 P’s.

The extended service marketing mix places 3 further P’s which includePeople, Process and Physical evidence All of these factors are necessary foroptimum service delivery Let us discuss the same in further detail

2.2.4.1 Product

The banks primarily deal in services and therefore, the formulation ofpersonal lending product is required to be in the face of changing businessenvironment conditions Of course the commercial banks have launched anumber of policies and programs for the development of backward regionsand welfare of the weaker sections of the society but at the same time it isalso right to mention that their development-oriented welfare programs arenot optimal to the national socio-economic requirements A proportionalcontraction in the number of customers is found affecting the business ofcommercial banks The changing psychology, the increasing expectation, therising income, the changing lifestyles, the increasing domination of foreignbans and the changing needs and requirements of the customers at large make

it essential that they innovate their service mix and make them of workedclass The development of new generic product, especially when the businessenvironment is regulated is found a difficult task

In the formulation of personal lending, the banks can follow twoguidelines, first is related to the processing of product to market needs and thesecond is concerned with the processing of market needs to product In thefirst process, the needs to the target market are anticipated and visualized andtherefore, we expect the prices likely to be productive In the second process,the banks react to the expressed needs and therefore we consider it reactive It

is essential that every product is measured up to the accepted technical

standards This is because no consumer would buy a product, which containstechnical faults Technical perfection in service is meant prompt delivery,quick disposal, and presentation of right data, right filing, properdocumentation or so

2.2.4.2 Place

Place in case of services determine where is the service product going to

be distribute The best place to delivery banking to customer can be branches

A place where there is professional image, sophisticated equipment,convenient seats and full knowledge staff Similarly a software company will

be better placed in a business hub with a lot of companies nearby rather thanbeing placed in a town or rural area

2.2.4.3 Promotion

Promotion includes in advertising, publicity, sales promotion, word – of– mouth promotion, personal selling and telemarketing Each of these servicesneeds to be applied in different degree These components can be useful in thebanking business in the following ways:

Advertising is paid form of communication Banking organizations usethis component of the promotion mix with motto of informing, sensing andpersuading the customers While advertising it is essential to be aware of keydecision making areas so that instrumentally helps banks at micro and macrolevels

Public Relations is found in high magnitude It is in this context thatdifference is found in designing of the mix for promoting the bankingservices

Telemarketing is a process of promoting the business with the help of

sophisticated communication network Telemarketing is found instrumental inadvertising the banking services and the banking organizations can use thistool of the promotion mix both for advertising and selling This minimizes thedependence of banking organizations on sales people and just a counter orcenter as listed in the call numbers may service multi- dimensional services.Telemarketing is likely to play an incremental role in marketing the bankingservices The leading foreign banks and even some of the private sectorcommercial banks have been found promoting telemarketing and they havebeen getting positive results for their efforts.

Word-Of- Mouth is much communication about the banking serviceswhich is also known as word- of- mouth promotion The oral publicity plays

an important role in eliminating the negative comments and improving theservices This also helps the banker to know the feedback, which maysimplify the task of improving the quality of services This component ofpromotion mix is not to influence budget adversely or generate additionalfinancial burden By improving the quality of services and by offering smallgifts to the word- of- mouth promoters, bankers can get more businesscommand in their area

2.2.4.4 Price

In the formulation of marketing mix, the pricing decisions occupy a place

of outstanding significance The pricing decisions include the decisionsrelated to interest and fee or commission charged by banks Pricing decisionsare found instrumental in motivating or influencing the target market TheRBI regulates the rate of interest and the SBV controls other charges

Pricing policy of a bank is considered important for raising the number

of customer vis-à-vis the accretion of deposits Also the quality of serviceprovided has direct relationship with the fees charged Thus while decidingthe price mix customer services rank the top position Banks also have to takethe value satisfaction variable in to consideration The value and satisfactioncannot be quantified in terms of money since it differs from person to person.Keeping in view the level of satisfaction of a particular segment, the bankshave to frame the pricing strategies.

2.2.4.5 People

Sophisticated technologies no doubt, inject life and strength to ourefficiency but the instrumentality of sophisticated technologies start turningsour id the human resources are not managed in a right fashion We can’tdeny the fact that if foreign banks are performing fantastically; it is not onlydue to the sophisticated information technologies they use but the result of afair synchronization of new information technologies and a team of personallycommitted employees The moment they witness lack of productive humanresources even the new generation of information technologies would hardlyproduce the desired results In addition to the professional excellence, theemployees working in the foreign banks are generally value- based Thequality for banking sector is an aggregation of all the properties, which arefound essential for generating the efficiency and projecting a fair image

2.2.4.6 Process

• Flow of activities: all the major activities of banks follow RBIguidelines There has to be adherence to certain rules and principles in thebanking operations The activities have been segregated into variousdepartments accordingly

• Standardization: banks have got standardized procedures got typical

transactions In fact not only all the branches of a single-bank, but all thebanks have some standardization in them This is because of the rules they aresubject to Besides this, each of the banks has its standard forms,documentations etc Standardization saves a lot of time behind individualtransaction.

• Customization: There are specialty counters at each branch to deal withcustomers of a particular scheme Besides this the customers can select theirdeposit period among the available alternatives

• Number of stores: numbers of steps are usually specified and a specificpattern is followed to minimize time taken

• Simplicity: in banks various functions are segregated Separate countersexist with clear indication Thus a customer wanting to borrow money goes to

‘lending’ counter and does not mingle elsewhere This makes procedures notonly simple but consume less time

2.2.4.7 Physical evidence

The physical evidences include signage, reports, punch lines, othertangibles, employee’s dress code etc The company’s financial reports areissued to the customers to emphasis or credibility Even some of the banksfollow a dress code for their internal customers This helps the customers tofeel the ease and comfort

Signage: each and every bank has its logo by which a person canidentify the company Thus such signages are significant for creatingvisualization and corporate identity

Tangibles: banks give pens, writing pads to the internal customers Even

the passbooks, cheque books, etc reduce the inherent intangibility of services.Punch lines: punch lines or the corporate statement depict the philosophy andattitude of the bank Banks have influential punch lines to attract thecustomers.

Personal lending service is help borrower to lend money from a bank,assessing the present and future needs of customers, setting businessdevelopment goals, making plans-all in the context of changing environment

2.2.5 Personal lending product development

In Retail banking business, new product development (NPD) is the termused to describe the complete process of bringing a new product to market Aproduct is a set of benefits offered for exchange There are two parallel pathsinvolved in the NPD process: one involves the idea generation, productdesign and detail engineering; the other involves market researchand marketing analysis Banks typically see new product development as thefirst stage in generating and commercializing new products within the overallstrategic process of product life cycle management used to maintain or growtheir market share

New product development (NPD) is a key source of competitiveadvantage for individual firms (Verona, 1999) Successful NPD requires firms

to develop routines and practices to collaborate with suppliers, customers, andinternal cross-functional employee teams

The process can be described as below:

Figure 2.2: Product development process, Philip Kotler

Source: A Frame work for Marketing, Philip Kotler

- Idea generation

The new-product development process starts with the search for ideas.Some marketing experts believe that the greatest opportunities and highestleverage with new products are found by uncovering the best possible set ofunmet customer needs or technological innovation New-product ideas can

come from interacting with various groups and from using generating techniques.

The purpose of screening is to drop poor ideas as early as possible Therationale is that product-development costs rise substantially with eachsuccessive development stage Most companies require new-product ideas to

be described on a standard form that can be reviewed by a new-productcommittee The description states the product idea, the target market, and thecompetition, and roughly estimates market size, product price, developmenttime and costs, manufacturing costs, and rate of return

- Concept development and testing

Attractive ideas must be refined into testable product concepts A productidea is a possible product the company might offer to the market A productconcept is an elaborated version of the idea expressed in consumer terms.Concept testing involves presenting the product concept to targetconsumers and getting their reactions The concepts can be presentedsymbolically or physically The more the tested concepts resemble the finalproduct or experience, the more dependable concept testing is

- Business analysis

After management develops the product concept, it can evaluate theproposal's business attractiveness Management needs to prepare sales, cost,and profit projections to determine whether they satisfy company objectives

If they do, the concept can move to the development stage As newinformation comes in, the business analysis will undergo revision andexpansion

- Estimating total sales: Total estimated sales are the sum of estimatedfirst-time sales, replacement sales, and repeat sales

- Estimating costs and profits: Costs are estimated by the R&D,manufacturing, marketing, and finance departments

- Customer and market testing

Customer testing: When the prototypes are ready, they must be put

through rigorous functional tests and customer tests Alpha testing is the namegiven to testing the product within the firm to see how it performs in differentapplications After refining the prototype further, the company moves to betatesting with customers It enlists a set of customers to use the prototype andgive feedback

Market testing: After management is satisfied with functional and

psychological performance, the product is ready to be dressed up with a brandname and packaging, and put into a market test The new product isintroduced into an authentic setting to learn how large the market is and howconsumers and dealers react to handling, using, and repurchasing the product

- Commercialization

If the company goes ahead with commercialization, it will face its largest

costs to date The company will have to contract for manufacture or build orrent a full-scale manufacturing facility Plant size will be a critical decision Most new-product campaigns rely on a sequenced mix of marketcommunication tools.

- When (Timing): In commercializing a new product, market-entrytiming is critical Suppose a company has almost completed the developmentwork on its new product and learns that a competitor is nearing the end of itsdevelopment work

- Where (Geography strategy): The company must decide whether tolaunch the new product in a single locality, a region, several regions, thenational market, or the international market Most will develop a plannedmarket rollout over time

- To whom (Target market prospects): Within the rollout markets, thecompany must target its initial distribution and promotion to the best prospectgroups

- How (Introductory market strategy): The company must develop anaction plan for introducing the new product into the rollout markets

2.3 FACTORS EFFECT DEVELOPING PERSONAL LENDING PRODUCTS

Lending activities of retail banking are influenced by many factorsincluding objective factors such as activity environment of bank, factorsbelong to customers, and subjective factors of bank

2.3.1 Internal Factors

These are the factors which affect directly to lending activities of retail

banking Lending activities are influenced much by credit policy, financialcapability of bank as well as the qualification of bank officers.

Financial capability of bank:

Financial capability of bank is determined by some factors such asowned equity, profit growth rate, the density of overdue loans in total loans,quantity of liquidated assets If the bank has big owned equity, high profitgrowth rate, low overdue loans, large liquidated assets, high mobilizationcapital ability in short time, it is considered to have strong finance power.When bank has strong finance power, it will have ability to provide manydiversified products

Credit policy of bank:

Credit policy is the system of guideline which affects credit activities It

is given by board of directors in order to use effectively the capital whichfunds for enterprises, households, and individuals In general all mattersrelated to fund credit are considered and examined in credit policy such asobject of loans, method to manage credit activities, types of credit productswhich bank provides, source of capital to fund, method to manage loanscatalogue, loan period and loan conditions applied to different credit products.Credit policy depends on the scale and strategic management of bank ineach period Banks usually determine their position as well as theiradvantages in the market and developing strategy in the future to give theappropriate credit policy in order to exploit the maximum of their resources.And only when the bank intends to expand the consumer lending activities, itjust concentrate its abilities to develop this field So that, if there are types ofconsumer lending which are not in lending policy of commercial bank,individuals and households can not access to the capital which funds for theirconsumer demands

On the other hand, if bank already had diversified consumer lendingproducts with high service quality, it would be easier and more favorable toexpand than bank which had simple products Because of criticalcompetitiveness among banks, banks always have to improve the quality ofproducts and diversify products in order to strengthen and expand the marketshare, maintain competitive ability.

 Qualifications of credit officers:

In any field, people are always the most important part, especially in thefield of providing services as banks Credit officers with virtuous characterand their professional qualifications is the factor which affected the mostdirectly to lending activities They contact directly with customers, assessapplications, make the decision to fund credit, collect debt and handle if there

is any problem So that they are the people who implement credit policy themost actively If bank builds a team of credit officers with excellentprofessional qualifications, good virtuous character, it will improve theservice quality of lending products Moreover, credit officers also contribute

to build up the image of bank and improve the competitiveness of bank’sproducts

2.3.2 Activity environment of bank

Bank is the monetary business organization which has important position

in economy Bank activities are sensitive with the economic events, economicand monetary policy, politic, society, law, progressive science technology

2.3.2.1 Economic environment

Economic environment is assessed quite important In the period ofeconomic growth and stability, consumer activities increase because theincome and living standard of people are improved Therefore, it encourages

lending activities of bank Besides, if bank operates in high developedeconomy, lending activities will be more diversified and more developed.Economic environment is expressed by economic variables such as grossdomestic growth (GDP), speed of gross domestic growth, the income perperson and the increased and decreased rate of unemployment…

2.3.2.2 Law environment

Bank is financial intermediate where concentrates a huge capital andassets in the economy, so that the activities of bank are controlled closely bythe law and the appropriate authorities This is not only to ensure safety forbank but also for customers to carry out the transaction as well as the stabilityfor the economy Each country has different regulations about the activities ofbank and lending activities If these regulations are sufficient, close andappropriate; it will create good conditions for bank activities and lendingactivities to develop

2.3.2.3 The development of science technology

It can not deny the role of science technology in the development ofbanking system In credit activities, the breakthroughs of science technology,especially computer helps bank decrease transaction time of customers,saving time and increase the precision in credit analyzing, assessing, limit therisk Nowadays, banks build up plentiful database about customer informationwith advanced and effective management method Therefore, bank canexpand lending products and provide new products which applied thebreakthroughs of science technology such as credit card

2.3.2.4 The culture and social environment

The culture and social factors such as the habit of using banking services,the rate of saving, education level, and taste… affect much on making

decision to choose the type of lending The opinion about bank is familiar orstrange, safe or unsafe, the habit of using cash are also the factors whichaffect much because it limits the approach banking services.

2.3.3 Factors about customers

Customers are the final people who decide to choose type of lending sothat the factors belong to customers have the great effect on expandinglending activities of bank

2.3.3.1 The customer’s ability to satisfy lending conditions of bank

It is not enough to find out the lending demand It is more important forbank to find out the demand which has ability to pay Because by satisfyingthe demand which has ability to pay, bank can get profit The demand whichhas ability to pay in lending activities can be understood as the lendingdemand of customers which is sure to be paid in the future It means thatcustomers satisfy the bank’s conditions about the guarantee assets as well asthe documents which prove the proprietary rights, and regular income…

2.3.3.2 The capital demand of customers

The capital demand of customers is the deciding factor for types oflending The customers’ demand about capital is the platform base to build upstrategy for developing lending products of bank Customers of lendingproducts are households and individuals which have diversified demand Theliving standard is more improved; the demand for superior services is higher.However, each period of development will appear the demand which needs to

be funded The problem is how to discover these demands the most quickly tosatisfy timely because the pioneers will have advantage in attractingcustomers