EVALUATING THE IMPACTS OF SOCIAL CAPITAL TO ACTIVITIES OF COMMERCIAL BANKS IN HO CHI MINH CITY

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY VU CAM NHUNG EVALUATING THE IMPACTS OF SOCIAL CAPITAL TO ACTIVITIES OF COMMERCIAL

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

VU CAM NHUNG

EVALUATING THE IMPACTS OF SOCIAL CAPITAL TO ACTIVITIES OF

COMMERCIAL BANKS IN HO CHI MINH CITY

SUMMARY OF DOCTORAL THESIS

Major: Finance - Banking

Code: 9.34.02.01

Academic advisor: Assoc Prof Dr Nguyen Thi Nhung

Dr Huynh Thanh Dien

HO CHI MINH CITY - 2018

CHAPTER 1: INTRODUCTION

1.1 The urgency of the research topic

The activities of business in general and commercial banks in particular are dominated by all social relationships In the process of its operation, banks are able to link well with customers, partners, projects and programs, the mobilization of capital, loans, investment is also more convenient

Beside the positive side, the relationships also show the negative side In the last period, the phenomenon of mutual acquisition between banks, take advantage of relationships with officials to serve the interests of the individual group, causing market manipulation and psychological insecurity for market participants (Nguyen Duc Chien 2013) Recent economic cases involving bank leaders have caused thousands of billion loss

to the economy, partly due to social ties, including relationship of bank leaders At the same time, there are still phenomena of internal collusion for funds, fake record for savings, loans causing loss of reputation for banks and affecting to the banks ‘s development In particular, fraudulent lending in developing economies such as Vietnam is quite high, influence the results of the bank deeply (Leonard Onyiriuba 2016) After the crisis in 2007-

2009, confidence in the financial services industry has been severely diminished (Benamati

et al 2010) Trust is an important foundation for the bank's sustainable development

Faith is also the basic core to building and developing a network of relationships (social capital) (Dasgupta 2002; Koniordos 2005 quoted in Crystal Holmes Zamanian & Lisa Åström 2014) The study of social capital for the banking sector in the context of low credibility, such as the banking industry (one of the least reliable with 49% compare with technology, or electronic production with 70-73% in the world ranking (Edelman Trust Barometer 2013) is essential and this research is also potential to clarify social capital for the financial services industry and contribute to the current context, when the faith is affected after the crisis (Maskell 2000)

Social relationships are both positive and negative Especially, last time the negative

in the banking sector is a big problem for the society, so the banks themselves and the government need a theoretical framework to realize the impact of these relationships on the

bank's operations as well as solutions to promote positive effects and limit negative effects from these social relationships This helps commercial banks to effectively use these relationships in their business operations

The relationship between social capital in the banking sector, there have been studies

in the world and in Vietnam, such as Xie Wenjing (2013; Crystal Holmes Zamanian and Lisa Åström (2014); Heru Sulistyo and the authors (2015); Justin Yiqiang & the authors (2017); Huynh Thanh Đien (2011) Most of the research is qualitative and only deals with some aspects of the relationship between social capital and banking, and there is no study evaluating the relationship between social capital and the activities of Bank That's the space for the researcher

Starting from the above mentioned, the author has chosen to study the topic of

"Evaluating the impact of social capital to the activities of commercial banks in Ho Chi Minh City"

1.2 Research objectives and questions

General goal:

Assess the impact of social capital on business activities of commercial banks in order

to exploit the positive role and limit the negative impact of social capital on business activities of commercial banks in Ho Chi Minh city

Detail goal:

- Discover and measure the composition of the bank's social capital and business activities of Vietnamese commercial banks

- Accreditation of the scale and model testing about banks ‘s social capital affect

to the activities of commercial banks in Vietnam, typical case: commercial banks in Ho Chi Minh City

- Suggesting policy to help commercial banks in Ho Chi Minh City improve their performance through the use of social capital At the same time, suggest policy to help policymakers and government support Vietnamese commercial banks develop positive forms of social linkages and limit the form of negative social linkages

Research question:

To achieve the above objectives, the topic should answer the following research questions:

- How are the social capital of the bank and the activities of the commercial banks recognized and measured?

- How is the model of research on social capital affecting the operation of commercial banks built in Vietnam?

- What are the policy implications of improving the performance of commercial banks through the use of social capital?

1.3 Research subject, scope and research method

Research subject:

The research is to study the impact of social capital on the activities of commercial banks in Ho Chi Minh City The surveyed subjects are leaders (directors/deputy directors of branches) of commercial banks in Ho Chi Minh City

1.4 The main contribution of the thesis

The scientific contributions:

- The first contribution of the thesis was to build up a full social capital scale in all three aspects of the internal, external networks and the bank leadership on the basis of theoretical and qualitative research, private features of Vietnam banking

- The research identified the basic groups of commercial banks as capital mobilization, using capital and providing service activities The scale of commercial banks' activities has been tested for credibility in the case of Vietnamese commercial banks, ensuring the value and reliability of their assets so that they can be inherited for related research in Vietnam

- The research results show the direct and indirect effects of social capital on the groups operating in commercial banks, thus confirming that social capital is a resource that banks need to plan for its business strategy is to be able to exploit and use effectively in the business process of the bank The results of the model test for the typical case of Ho Chi Minh City have contributed to the theoretical as well as the scientific basis, contributing to the foundation of further research about the relationship between social capital and business activities is not only in the banking industry but also in other economic sectors

Practical contributions

- The thesis has built and tested the social capital scale on all three aspects include of the inside, out side and the bank leadership, which helps the bank to identify the framework for creating, using, development and assessment of social capital in the bank Banks will then devise strategies to exploit, develop and use social capital to promote business activities

- The dissertation has developed and tested the scale of commercial banks' business groups, while pointing out the link between all activities through out the theoretical and practical accreditation activities in Ho Chi Minh City This will help banks to evaluate more comprehensive operational groups

- The thesis also shows the positive and negative effects of social capital in the banking sector This will help state management agencies at all levels to recognize the importance and motivation of this resource to timely formulate policies to promote positive forms of social cohesion Limited form of negative social capital in the banking sector of Vietnam

- The results of the thesis also support the association of Ho Chi Minh City Bank and the Vietnam Bankers Association in recognizing the importance of social capital as well as creating value from the affiliate networks Members of the association can exploit the benefits of these networks for the business process

1.5 The organization of the study

Chapter 1: Introdution

Chapter 2: Theoretical foundation and analytical framework for the relationship between social capital and commercial banking activities

Chapter 3: Research method

Chapter 4: Accreditation modeling research and discussion Chapter 5: Conclusions and recommendations

CHAPTER 2: THEORETICAL AND ANALYSIS FRAMEWORK THE

RELATIONSHIP BETWEEN SOCIAL CAPITAL AND COMMERCIAL BANKS’

ACTIVITIES

2.1 SUMMARY OF SOCIAL CAPITAL AND SOCIAL CAPITAL IN BANKING 2.1.1 Social capital concept

The concept of social capital was first mentioned in 1916, by Lyda Judson Hanifan,

an American educator He uses the notion of social capital to refer to friendship, mutual understanding, and interaction between individuals or families According to Bourdieu.P (1986), social capital is the resource that exists in relationships between individuals or organizations (collectively referred to as the subject), thereby benefiting all stakeholders Beneficial in mobilizing resources Similarly, the views of Nahapiet & Ghosal (1998), the authors argue that social capital is the resource that exists within the social networks of the organization or individual (collectively referred to as the subject) This social network helps social stakeholders to mobilize more resources According to Aslaninan (2011), social capital is the value created when individuals join together in a group or network, a social network where resources and information are invested

In summary, it is possible to understand that social capital is the resource of an individual or group or organization (collectively referred to as the subject) formed and developed on the basis of interrelated networks of mutual trust each other (quality relations networks)

2.1.2 Previous studies related to the topic:

Xie Wenjing (2013), in his thesis exploring the relationship between social capital and banking risk The empirical results show that banking risk is lower in countries with higher social capital, mean in areas with high social capital, banks are far from being at risk

of bankruptcy

Crystal Holmes Zamanian and Lisa Åström (2014) analyze the social capital investment of banks Research also shows that the benefits of building and nurturing social networks (or social capital) are important to banks The study also shows that banks need to

invest more deeply in relationships and provide technology to help banks build relationships with partners

In the study by Heru Sulistyo et al (2015), examined the role of social capital in the loyalty of Islamic banking customers in Central Java The results show that social capital has a significant and positive impact on customer loyalty to the bank

Justin Yiqiang et al (2017), in a study of the relationship between social capital and bank stability, the authors point out that banks in higher social capital areas are less likely

to fail and face to less financial problems during the 2007-2010 crisis than banks in low social capital areas

Most of the research works are qualitative and handle only some aspects of the relationship between social capital and economic development, as well as the banking sector

Huynh Thanh Dien (2011) in the thesis analyzing the contribution of social capital to Vietnam’ real estate companies in Ho Chi Minh City The research has built up the scale of social capital is more complete when mentioned to all three aspects of internal, external and business leaders network Research results also show the direct and indirect contributions

of social capital to the operating groups of the real estate business The results of this study will suggest that the authors study the impact of social capital on the banking sector

2.1.3 Social capital in banks

2.1.3.1 The concept of social capital in banks

Social capital in banks is the sum of the resources of an individual, group, or organization that exists in relationships that link, share, and trust each other in accordance with accepted social norms

2.1.3.2 The meaning of social capital in banks

- Social capital reduces the cost of information, transaction costs and monitoring costs

- Social capital contributes to reducing financial costs, credit costs

- Social capital helps reduce loan losses

- Social capital increases the supply of credit

- Social capital encourages customers to use the bank’ products and services

2.1.3.2 Character of social capital in the operation of commercial banks

-Ttwo-sided (positive and negative)

- Profitability

- Replacement / addition of other capital types

- Cohesiveness

- Bridging

- Accumulated over time

2.1.4 The basic component of social capital in the bank

2.1.4.1 Social capital of bank leaders

Social capital of the bank leaders is mentioned as the network and the quality of relationships of bank leaders

The author Tushman & O'Reilly III (1997), pointed out that a network of leaders including relatives, friends, business partners, colleagues, press agencies, and officials members of the state management agencies, research institutions, clubs

2.1.4.2 External social capital of the bank

External social capital of the bank is referred to as the network and the quality of external relationships of the bank

Kaasa's (2007) study, pointed out that external social capital includes relationships with friends, colleagues, relatives and neighbors

Landry et al (2000); Jansen et al (2011) and Yang et al (2011), in their studies, have identified components of a horizontal corporate external network of customers, investors, corporations, consulting firms, clubs, competitors in the same industry; and vertically composed of parent companies - children in the same corporation and government at all levels Joanna Wyrwa (2014) mentions social capital outside the enterprise as the quality of external corporate networks associated with its activities (involving stakeholders such as customers, suppliers , Business Partners); environment (institutions, competitors, government officials, media); and the market (current customers, prospects, clubs)

2.1.4.3 Internal social capital of the bank

Internal social capital of the bank is referred to as the network and the quality of relationships inside the bank

Authors Cheng & colleagues (2006), Goyal & Akhilesh (2007), Nisbet (2007), and Schenkel & Garrison (2009) in their studies have shown that the horizontal is the quality of relationships between employees and functional departments; and vertically is the quality

of the relationship between the upper level individual and the lower level individual, between the superior functional department and the lower level functional unit

2.2 BASIC ACTIVITIES OF COMMERCIAL BANKS

Activities of commercial banks include: (1) capital activities: equity, mobilized capital, loans, other capital; (2) using capital activities: fixed asset acquisition, reserving, credit granting, investment; (3) providing service activities: treasury services, payment services, collection and payment, safes, financial consultancy, investment advisory, securities brokerage, insurance, foreign currency trading

General understanding of the basic operation of commercial banks is through the implementation of professional operations capital resources, operations using the capital and professional services to maximize profits

2.3 ANALYTICAL FRAMEWORK OF RESEARCH

From the theoretical relationship, in chapter 2, the thesis explored the framework for analyzing the relationship between social capital and commercial banking activities

Figure 2.1: Framework for analyzing the relationship between social capital and commercial bank activities

: expression / mention

Source: the author's thesis proposal

Bank’ social capital Commercial banks’ activities

Capital activities

Using capital activities

Providing services activities

Commercial bank’

activities

Social capital of the bank leader

Bank’ social capital

Internal social capital

of the bank

External

social capital

of the bank

CHAPTER 3: RESEARCH METHODS

3.1 Research methods

The dissertation uses the following research methods:

Qualitative research method: using in-depth interview and group discussion with experts to develop the research scale and hypothesis

Quantitative research method: primary data survey questionnaire (through questionnaire survey) Data collected, after testing, will be processed by SPSS software The subject will test the hypothesis of the study using the SEM model with the help of SPSS and Amos software

3.2 Method of building and accreditating the scale

3.2.1 Method of building the scale

The method of building the scale is summarized in Table 3.1

Table 3.1: Method of building the scale

- Combined with the recognition of expectations of bank leaders

in these activities -> form the scale of activities of commercial banks

Source: synthesis of the thesis author

3.2.2 Method of measuring preliminary measurement

The evaluation was based on the data of 120 directors, deputy directors of commercial banks in Ho Chi Minh City Reliable coefficients (Cronbach's alpha) and Exploratory Factor Analysis (EFA) are two tools used in preliminary quantitative research

3.2.3 Scale test method for case study

Cronbach's alpha, Exploratory Factor Analysis (EFA), and Confirmatory Factor Analysis (CFA) will be used to test the scale Use CFA to get a final conclusion on the value

of the scale (Hurley et al., 1998, cited in Nguyen Dinh Tho & Nguyen Thi Mai Trang 2008)

3.3 Hypothesis and research model

3.3.1 Hypothesis and research model development

The model of research with the hypotheses of social capital impact on the operation

of commercial banks is based on theoretical and qualitative research for the second time

In this thesis, 5 hypotheses are given as follows:

H1: Increasing social capital of the bank has a positive impact on the results of capital activities

H2: Increasing social capital of the bank has a positive impact on the results of using capital activities

H3: Increasing social capital of the bank has a positive impact on the results of providing services activities

H4: Increasing in operating results of capital activities having the same effect with the increasing in the results of using capital activities

H5: Increasing in operating results of using capital activities having the same effect with the increasing in the results of providing services activities

3.3.2 Hypothesis testing and case study model

Verification of the hypotheses is done by two methods: (1) the non-parametric quantitative method used to test relationships with observable variables by means of quantitative indicators, mainly tools used are descriptive statistics and correlational analysis; (2) qualitative methods with descriptive, categorical, and connected procedures for exploring relationships (Corbin & Strauss 1990; Finch 2002)

To confirm the fit of the theoretical model, SEM is used for accreditation The model was considered appropriate for the data when the CFI index was 0.9 to 1 (Hu & Bentler

1999), CMIN / df ≤ 2 (some cases CMINs / df could be ≤ 3 (Carmines & McIver 1981 Kline 2010) and RMSEA ≤ 0.08 (Hu & Bentler 1999), (RMSEA case 0.08 -> 0.1: moderate fit model (MacCallum, Browne & Sugawana 1996)

3.4 DESINGING OF RESEARCH SAMPLES

3.4.1 Sample design for construction and preliminary measurement

Targeted sampling methods were used in this period (Creswell 2009) Sample size is not limited until no new problems are detected (Finch 2002, Creswell 2009 & 2011)

Non-probability stratified sampling methods (directors, deputy directors of commercial banks in Ho Chi Minh City) were conducted with a sample size of 120 observations

3.4.2 Sample design methodology for scale testing and theoretical modeling for case studies

The research model was tested on the selected sample using the non-probability stratification method (according to the commercial bank branch) The surveyed subjects were the directors and deputy directors of commercial banks in Ho Chi Minh City

This sampling is for testing the model for a typical case, not for the purpose of accreditation for the entire banking industry of Vietnam

The Structural Equation Modeling (SEM) will be used to test the theoretical model

CHƯƠNG 4: TESTING THE RESEARCH MODEL AND DISCUSSION

4.1 DESCRIPTION OF RESEARCH SAMPLES

303 questionnaires were distributed and 271 ballots were collected After withdrawal,

28 invalid ballots should be rejected In the rejected ballots there were 12 ballots with empty more than 10% and 16 ballots with inappropriate answers (not members of the board of directors) The subject will use 243 samples to process

4.2 ACCREDITATION SCALE WITH CRONBACH'S ALPHA, EXPLORATORY FACTOR ANALYSIS (EFA)

The results show that the observed variables are consistent with the study's concepts with confidence coefficients greater than 0.6 and the total correlation coefficient is less than 0.35 The EFA results show that the social capital scales separate into eleven factors, none

of which is eliminated with all factor weightings greater than 0.5, the covariance deviation

is greater than 50%, the KMO coefficient is greater than 0.5 and the significance level of the Bartlett test is less than 0.05 Observational variables will continue to be tested by means

of Confirmatory Factor Analysis (CFA)

4.3 ACCREDITATION SCALE WITH CONFIRMATORY FACTOR ANALYSIS (CFA)

4.3.1 Accreditation scale the third dimension of the concept of social capital

4.3.1.1 Accreditation scale of the leader’ social capital

The CFA results show that the model achieves market relevancy, with 2

(42)= 109,521 (P = 0.000); TLI = 0.918; CFI = 0.948 and RMSEA = 0.080; CMIN / dF = 2.608 The results also show that the CFA weights of all observed variables are greater than 0.5 (the smallest

is 0.510), which confirms the uniqueness and convergent value of the observed variables of the components of leaders’ social capital Next, the correlation coefficient of the components of leader’ social capital is less than 1 unit with a significance level of 1% Therefore, these components achieve distinct values in the same concept