Developing noncredit banking service in techcombank

evaluated the current status of developing non-credit services of commercial banks through quantitative and qualitative methods of quality model of non-credit services of commercial bank

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LƯƠNG THỊ THU HƯƠNG

DEVELOPING NONCREDIT BANKING SERVICES

AT TECHCOMBANK

PHÁT TRIỂN DỊCH VỤ PHI TÍN DỤNG TẠI NGÂN HÀNG THƯƠNG MẠI CỔ PHẦN KỸ THƯƠNG

VIỆT NAM

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2019

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

LƯƠNG THỊ THU HƯƠNG

DEVELOPING NONCREDIT BANKING SERVICES

AT TECHCOMBANK

PHÁT TRIỂN DỊCH VỤ PHI TÍN DỤNG TẠI NGÂN HÀNG THƯƠNG MẠI CỔ PHẦN KỸ THƯƠNG

VIỆT NAM

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS PHẠM THỊ THANH HÒA

HÀ NỘI - 2019

DECLARATION

I pledge that this thesis is my own research which has been completed with the support of Assoc Prof Dr Pham Thi Thanh Hoa The data in the tables used for analysis and evaluation are true and correct and collected from different sources with sufficient citations The solutions stated in the thesis are drawn from the theoretical bases and the practical research process

Written by

Luong Thi Thu Huong

ACKNOWLEDGEMENTS

I would like to express my sincere gratitude to the lecturers in the 14th

MBA Program of the School of Business and Management, Vietnam National University, Hanoi (HSB, MBA 14) for dedicatedly teaching and imparting valuable knowledge to me during my time at the University Especially, I also give special thanks to Assoc Prof Dr Pham Thi Thanh Hoa for her thorough and dedicated guidance during this thesis completion

In addition, I would like to send my thanks to the Professors, Doctors and researchers who have made researches in the field of finance – banking, giving

me the information to complete this research

Despite all efforts, due to limited knowledge and time, the thesis has inevitably certain shortcomings I look forward to receiving the comments from the teachers and friends so that my research may be more perfect

Yours Sincerely, Hanoi, November 2018

Author

Luong Thi Thu Huong

TABLE OF CONTENTS

DECLARATION i

ACKNOWLEDGEMENTS ii

LIST OF ABBREVIATIONS v

LIST OF TABLES vi

LIST OF FIGURES vii

INTRODUCTION 1

CHAPTER 1: BASIC THEORETICAL ISSUES OF DEVELOPING NON-CREDIT SERVICES AT COMMERCIAL BANKS 9

1.1 OVERVIEW OF SERVICES OF COMMERCIAL BANKS 9

1.1.1 Concept of banking service 9

1.1.2 Characteristics of banking services 10

1.1.3 Classification of banking services by the nature of revenue sources 12

1.2 NON-CREDIT SERVICES OF COMMERCIAL BANKS 21

1.2.1 Concept of non-credit services of commercial banks 21

1.2.2 Non-credit service development of commercial banks 21

1.2.3 Risks in non-credit service development of commercial banks 38

1.3 EXPERIENCE IN DEVELOPING NON-CREDIT SERVICES AND LESSONS FOR VIETNAMESE COMMERCIAL BANKS 39

1.3.1 Experience in developing non-credit services of banks around the world 39

1.3.2 Lessons for Vietnamese commercial banks 41

CHAPTER 2: CURRENT STATUS OF THE DEVELOPMENT OF NON-CREDIT SERVICES AT TECHCOMBANK IN THE 2013-2017 PERIOD 43

2.1 General introduction of Techcombank 43

2.1.1 Summary of the establishment, development and organizational structure of Techcombank 43

2.1.2 Business results of Techcombank in the 2013-2017 period 49

2.2 Current status of the development of non-credit services at Techcombank in the 2013 – 2017 period 53

2.2.1 Analysis of the non-credit service development results at Techcombank in

the 2013 - 2017 period 53

2.2.2 Market share and the number of customers using non-credit services annually 63

2.2.3 Customer satisfaction of non-credit services of Techcombank 64

2.3 Evaluation of non-credit service development results of Techcombank in the 2013-2017 period 66

2.3.1 Non-credit service development achievements of Techcombank in the 2013-2017 period 66

2.3.2 Weaknesses and causes of limiting non-credit service development of Techcombank in the 2013 – 2017 period 67

CHAPTER 3: SOME SOLUTIONS TO DEVELOP NON-CREDIT SERVICES AT TECHCOMBANK 71

3.1 Non-credit service development strategy of Techcombank by 2017 and vision to 2020 71

3.2 Solutions to develop non-credit services of Techcombank 72

3.2.1 General solutions to develop non-credit services of Techcombank 72

3.2.2 Particular solution to develop each type of non-credit service at Techcombank 76

3.3.2 Recommendations for Vietnam Banks’ Association 82

CONCLUSION 84

REFERENCES 85

APPENDIX 88

LIST OF TABLES

Table 2.1 Some basic financial indicators of Techcombank from 2013 to 2017 49

Table 2.2 Revenues from non-credit services of Techcombank (2013-2017) 53

Table 2.3 List of non-credit products of Techcombank 54

Table 2.4: Revenues from cash and payment services of Techcombank ( 2013 -2017) 55

Table 2.5: Revenues from insurance commission of Techcombank ( 2013 -2017) 57 Table 2.6: Revenues from Securities issuance guarantee of Techcombank ( 2013 -2017) 58

Table 2.7 Foreign currency trading at Techcombank ( 2013- 2017) 59

Table 2.8: Card revenues of Techcombank in the 2013 – 2017 period 61

Table 2.9: The number of ATMs and POSs over the years 61

Table 2.10: Securities service of Techcom Securities in the 2013-2017 period 62

Table 2.11 Top 5 non-credit services at Techcombank 64

Table 2.12: Top 3 highest and lowest levels of agreement on facilities, staff and rationale of products and services 65

LIST OF FIGURES

Figure 2.1: Total assets of Techcombank ( 2013 -2017) 50 Figure 2.2: Total assets of Techcombank ( 2013 -2017) 51 Figure 2.3 Market share and the number of customers using non-credit services annually 63

INTRODUCTION

1 Rationale

The international integration process brings about Vietnamese commercial banks both many opportunities for development and many challenges Vietnamese commercial banks are required to strengthen and enhance their competitiveness through diversification and improvement of financial services

Inter-industry competition in Vietnam is no less severe Commercial banks in the whole country are competing with one another on an hourly basis by launching a series of new products and services, lowering interest rates, improving processes and applying modern banking technology Besides, domestic banks also have to cope with competition pressure in terms of technology, financial capacity, quality of services, professionalism in business that are always the strength of foreign banks One of the financial restructuring activities of credit institutions in the Restructuring Plan of Credit Institutions in the 2011-2015 period approved by the Prime Minister under Decision No 254/QD- TTg dated March 01, 2012 is “Step by step transforming the business model of commercial banks in the direction of reducing dependence on credit activities and increasing revenues from non-credit services” Developing non-credit services is the most effective way to change the structure of

a bank’s business performance rather than dependence on risky credit activities and securities business investment consultancy that is facing many difficulties at present

Vietnam Technological and Commercial Joint Stock Bank (Techcombank) was established on September 27, 1993 Initially, it had only three branches Now, it develops rapidly with a network of more than 300 branches nationwide serving more than 5 million of individual customers, SMEs, large enterprises and FDI enterprises By the end of 2017, Techcombank had earnings before tax of 7,500 billion dong, equivalent to 150% of the plan

At present, Techcombank’s non-credit services are diversified in the following major forms: payment services, foreign currency business, cards, asset management,

treasury, electronic banking, derivatives transaction, securities brokerage, Bancassurance, securities underwriting

From the above reality and my awareness from the objective reality, I chose

“Developing non-credit banking services at Techcombank” as a research topic

for my thesis The thesis will focus on analyzing the following main non-credit services of Techcombank, including: Payment, card, foreign currency trading, Bancassurance, Securities underwriting

2 Literature review

In recent years, the development of non-credit services in Vietnamese commercial banks have increasingly attracted interest from management levels as well from the commercial banks themselves and there have been many articles and scientific works that have been published, which are a valuable source for my thesis Some of them are as follows:

“Commercial bank” textbook by Phan Thi Thu Ha, Statistical Publishing House, Hanoi or Modern Banking Operations by Nguyen Minh Kieu, Statistical Publishing House, Hanoi The authors outlined the basic concepts of operation of commercial banks and clarified their nature, characteristics and types of services The textbooks provide a theoretical system for the issue

According to Dr Le Xuan Nghia, Director of the State Bank of Vietnam’s Strategy Department, lending is still the main activity in the Vietnamese banking system meanwhile the trend of banks around the world is based mainly on service activities For a couple of recent years, many domestic banks have strongly reformed, upgraded and promoted cooperation in services such as cash collection, payment, syndicated loan, finance capital support for projects, consumer finance, card issuance, ATM installation, etc.; however, the profit has been still at a modest level

Pham Anh Thuy (2013) “Developing non-credit services at Vietnamese commercial banks, Doctoral Dissertation in Economics, Banking University of Ho Chi Minh City The disseration provided the theoretical bases of the non-credit services, analysis of the current status of develloping non-credit services of commercial banks The author conducted surveys on non-credit quality and

evaluated the current status of developing non-credit services of commercial banks through quantitative and qualitative methods of quality model of non-credit services

of commercial banks in Vietnam, impact the quality of non-credit services of Vietnamese commercial banks on the customer satisfaction through cronbach’s alpha coefficient, EFA analysis and regression analysis Based on the current status

of developing non-credit services of Vietnamese commercial banks, the thesis summarized the service development strategy of Vietnamese commercial banks in

After reviewing the researches related to the thesis, the author found that previous studies provided the full foundation of theory of banking services in general and non-credit services in particular Besides, the indicators used to evaluate the development of non-credit services were also found out The researches provide the general theories about the factors that affect non-credit services Some of these researches built a model for evaluating the development of non-credit services to improve the efficiency of banks However, each bank has its own characteristics subject to the branch and the geographical area of operation and the corporate culture, so solutions cannot be applied uniformly to all banks

Therefore, the author wants to study and evaluate the development of non-credit services of a specific bank- Techcombank Based on its own characteristics and

competitiveness and financial position, the author provides useful solutions for the researched bank

The thesis is a comprehensive research into the development of non-credit services

of Techcombank to 2017 based on the analysis of factors related to its competitiveness and financial condition of banks, thereby finding out appropriate solutions and giving recommendations to the units in the system The recommendations and solutions in the thesis can be applied in the business practice

of banks to maximize the inherent capacity to develop sustainably as well as consolidate their prestige and competitiveness in the market

3 Research questions

The research topic is aimed at answering the following specific questions:

1 What is the development of non-credit services? What are non-credit services of commercial banks? What is the model for analyzing and measuring the development and quality of non-credit services at commercial banks?

2 What is current status of non-credit service development at Techcombank?

3 Along with the development orientation of Techcombank, what are solutions

to develop non-credit services at Techcombank?

4 Aims and Objectives

Research objectives: Through this thesis, the readers will understand the basic

aspects of non-credit services Besides, the evaluation of development of non-credit services at Techcombank in the 2013 - 2017 period will be introduced, thereby finding out solutions to further develop non-credit services until 2022

Research aims: To achieve the above reseach objectives, the following tasks should

be carried out:

Firstly, systematize the theoretical issues of banking services, non-financial services

in the system of commercial banks in Vietnam

Secondly, analyze and evaluate the current status of non-credit service development

at Techcombank in the 2013-2017 period, focusing on key services such as payment and money services, card, foreign exchange trading, life insurance distribution, bond brokerage

Thirdly, based on the current status and development orientation of the bank along with the comparison with other commercial banks, propose the solutions to develop non-credit services at Techcombank in the coming years

5 Subjects and Scope of study

The research subjects of the thesis is the theory and practice of non-credit service development at Techcombank; thereby proposing the solutions to develop non-credit services at banks, especially 5 main services such as payment services, cards, e-banking, life insurance brokerage and bond brokerage

Research space: non-credit activities at Techcombank

Research time: The thesis focuses on collecting, researching and using data related

to non-credit service development at Techcombank in the 2013-2017 period; thereby proposing the solutions to develop non-credit services in the coming years

6 Research methods

To evaluate and analyze the development of non-credit services of Techcombank, the author analyzed the annual reports and conducted a survey on customers using Techcombank’s non-credit products to see its development in an honest and objective way In this thesis, the author also gave financial solutions and recommendations to further develop Techcombank’s non-credit services in the coming time

6.1 Data collection and processing

For the purpose of research, the specific research methods associated with the data collection activities were used as follows:

Secondary data: collected from the General Department of the branch, summary reports of Techcombank In addition, the author used more information about products, services, financial reports, annual reports from the official portal of Techcombank

Primary data: collected by the researcher through a questionnaire after direct interviews with target customers The data were used in analysis to answer research questions

6.2 Interview

The interviews was well prepared from interview questionaire, time and method, etc Through the questionnaire, the author evaluated customers using non-credit services of Techcombank as well as its ability to meet the needs of customers Thereby, it is possible to find the cause and development orientation of non-credit services

Sampling:

Sample objects: Customers at the Transaction Offices of branches at the Main Operation Center and some branches such as Ba Trieu, The manor, Ciputra Samples were selected randomly based on age, gender, occupation to ensure the objectiveness of the survey

Questionnaire design:

The questionnaire design process can be divided into 7 steps as follows:

 Identify the data to be collected

 Specify the type of interview

 Assess the content of the questions

 Determine the type of answers

 Determine how the terms are used

 Determine the structure of the questionnaire

 Determine the format of the questionnaire

The questionnaire designed to interview customers has three parts to collect information

Sample size: The minimum size is 50 and the best size is 100 and the observation

rate on the measurement variables is 5: 1, which means that a measurement variable needs at least 5 observations The best observation rate is 10: 1 or higher There are

15 creterias analyzed in the best rate of 140

The total number of questionaires was 180, of which 80 were delivered at Techcombank’s Main Operation Center and the rest at Techcombank’s branches The author asked the officers of the Customer Service Department at the Main Operation Center, Ba Trieu, The Manor and Ciputra branches to directly deliver the

questionaire to customers when customers wait for the transaction The number of valid questionaires was 150 The remaining questionaires were not eligible because customers filled in insufficient information, so they cannot be evaluated in a comprehensive way

6.3 Statistics and comparison

Statistic method is a popular method in books, journals, dissertations, scientific research works

Statistical method is implemented based on Techcombank’s existing data in reports and some information and data collected through the Internet, books and newspapers The method of sythesizing and collecting data, documents and related information is widely used in economic analysis in general and financial analysis in particular throughout the analysis process

Comparison is also widely used in the analysis to clarify the differences or specific characteristics of the reseach subjects

Comparison techniques used in the thesis are:

- Absolute figure comparison: means the determination of the figure difference of indicators in the analyzed period and the initial period Comparative results show variation in the absolute number of the phenomenon being studied

- Relative figure comparison: means the determination of the increase or decrease percentage of the indicators between the initial period and the analyzed period

- Horizontal comparison: means the comparison of the chanes in both absolute and relative numbers of each indicator in each financial statement

- Vertical comparison: means the use of ratios and the coefficients that shows correlation between the indicators in the financial statements

7.Expected findings

Based on inheritance and development of the previous researches, the thesis continues to study into the development of non-credit services at Techcombank with the following contributions:

Firstly: Based on the theoretical bases of banking services, the author gives her

views on non-credit services and the development of non-credit services at

commercial banks as well as two sets of criteria for evaluating the development of non-credit services, including the qualitative indicators and quantitative indicators

Secondly: The thesis focuses on clarifying the factors affecting non-credit services

of commercial banks

The author conducted a survey by delivering questionnaires to bank officers as well

as customers and processed the data to show the impact of factors on non-credit services

Thirdly: The thesis also gives an evaluation of the current status of non-credit

service development at Techcombank in the 2013 – 2017 period; thereby some solutions have been found out to develop Techcombank’s five main non-credit services

Chapter 2: Current status of the development of non-credit services at

Techcombank in the 2013-2017 period

Chapter 3: Some solutions to develop non-credit services at Techcombank

CHAPTER 1: BASIC THEORETICAL ISSUES OF DEVELOPING

NON-CREDIT SERVICES AT COMMERCIAL BANKS

1.1 OVERVIEW OF SERVICES OF COMMERCIAL BANKS

1.1.1 Concept of banking service

At present, each country has an understanding of banking services but there is no agreement on definitions In the World Trade Organization’s classification of services, financial services are classified in the 7th sub-sector of the 12 service sub-sectors

WTO classifies services into 12 sectors: 1 Business services, 2 Communications services, 3 Construction services, 4 Distribution services, 5 Education services, 6 Environment services, 7 Financial services, 8 Health and social services, 9 Travel and tourism services, 10 Entertainment and sport services, 11 Transportation services, 12 Other services

According to the General Agreement on Trade and Services (GATS), banking services are included in the financial services According to this organization, financial services are any service that has the fiancial nature provided by a financial services provider of a member Financial services include all insurance services, all banking services and other financial services (except insurance)

In particular, banking services include: + Receipt of deposits or other payable payments from the public; + Loans in various forms, including: consumer credit, mortgage credit, debt collection and financing of commercial transactions; + Financial leasing; Payment and remittance services, including: credit cards, payment and debit cards, traveler’s checks and bank drafts; + Guarantees and commitments; + Trading in their own accounts or customer’s accounts, whether at trading centers or in the unofficial market, or other transactions involving money market and foreign exchange instruments; derivative financial products; forward contracts or option contracts; exchange rate and interest rate- based products, including swaps, forward foreign exchange rate contracts; transferable securities; + Involved in the issuance of all types of securities, including issuance underwriting

and offering as an agent and a supplier of relevant services; + Money broking; Asset management such as cash or portfolio management, pension fund management, storage and trust services; Financial asset settlement and payment services, including: Securities, derivatives and other payment instruments; Supply and transfer of financial information, processing of financial data and related software

by other financial service providers; Supply of consultancy services, brokerage services and other related financial services, including credit reference and analysis, investment and portfolio research, corporate strategy planning consultancy

The Law on Credit Institutions of Vietnam (2010) has not given a specific concept

or explanation for the concept of banking services but only referred to the term of

“banking operations” in clause 12, Article 4: “The regular business and supply of one or several of the following operations: Receipt of deposits; Credit granting, supply of payment service via account” However it is not clear what is the currency business and what is banking services, which is one of the shortcomings of the Law

on Credit Institutions of Vietnam

From the above definitions, although there are different ways of defining banking services, the banking services may be construed as follows:

Banking services are banking operations that provide customers with utilities such

as deposits, loans, payments, foreign exchange services, guarantees and consultancy, etc

1.1.2 Characteristics of banking services

a Invisibility

This is a characteristic of service in general and is the main factor to distinguish banking services from products of other material production industries in the national economy Banking products usually follow a process, not just the quality of services during or after use

Therefore, it is often difficult for customers to make the decision on choosing and using the products and services They usually evaluate services through the overall image of the bank As a result, banks must always build and consolidate customers’

trust in the quality of their services and attempt to develop tangible characteristics

of their products

b Inseparability

The process of providing banking products and services is usually carried out in accordance with certain procedures such as loan process, bank payment process, etc, which makes the bank have no unfinished products and inventories to directly provide for customers when they need

The inseparability of banking products and services is reflected in the combination, cross-linking, serialization of banking services and accompanying utilities such as deposits, payments, consultancy, etc

c Instability and difficult identification

Banking products and services are made up of a variety of factors, such as: business processes, qualification of staff, technology, etc At the same time, the difference in implementation method, implementation conditions and time, etc also makes the service quality unstable Therefore, banks need to standardize service delivery

d Heterogeneity

The intangible nature of banking services and customer engagement in service provision has created a diversity of customers’ perception of service quality In using the same service, knowledgeable and familiar customers will feel the service

is very convenient However, customers who are unfamiliar feel difficult As a result, banks need solutions that make the service easier to understand, easier to use and more practical for customers

e Two-way information

Banking service is not simply one-off purchases that involve a series of two-way transactions over a specified period of time This type of interaction provides banks with valuable information about customers related to preferences, needs, requirements of customers, etc so that banks can make appropriate adjustments in providing banking services

f Diversity and constant development

Today, there are from several dozens to several hunders of different types of banking services Banks are trying to develop in the direction of multi-functional business rather than merely performing traditional business operations as before For each type of service, banks try to diversify the forms of supply In addition, many banking services are launched and developed with the support of information technology Not only modern services use modern technologies but traditional services are also being improved with high technology contents

1.1.3 Classification of banking services by the nature of revenue sources

Based on the nature of revenue sources, it can be divided banking services into two forms: + Credit service + Non-credit service

1.1.3.1 Credit service

Providing credits to organizations in the forms of lending, discounting, guarantee, financial leasing and other forms as prescribed + Lending based on criteria of customer credit rating, commercial banks consider granting credit at the request of customers If based on the loan term, the loan consists of two types: short-term loans (usually for investing in current assets), medium and long-term loans for investment in fixed assets, investment and production and business development projects) Project loans: This type of loan is designed to help accelerate the investment in infrastructure and production development Accordingly, for the State

or enterprises’s investment projects of developing production and business, infrastructure, services and life, etc with expected economic efficiency, feasible but lack of capital, banks will provide investment project loans to help the investor have capital to complete it In essence, object financing is also a credit activity within traditional commercial banks Co-financing loan: In essence, co-financing loan is a credit product of traditional commercial banks However, the amount of capital required for a transaction is very large ($ 400-500 million) leading to a high concentration of risk Therefore, co-financing is a solution for capital providers to share risks for each customer and each transaction Retail loan: consumer loan, personal loans (study- abroad loans, auto loans, mortgage loans, specialized project financing, etc.), mortgage loans, household loans and SME loans Together with the

socio-economic development, the proportion of personal and family loans in outstanding loans of commercial banks has been increasing day by day Personal loans now account for a very important proportion in the portfolio of commercial banks + Discount: Banks discount other short-term valuable papers for large enterprises and can rediscount other commercial papers and other short-term valuable papers to other banks With this service, commercial banks help large enterprises restore their solvency, accelerate the capital transfer This service is preferred not only for customers but also for banks because of valuable paper collateral and low credit risks Bank guarantee is a commitment of a guaranteeing bank made in writing to commit to the beneficiary (referred to as the guarantee beneficiary) If, upon maturity, the obligee (guarantor) does not perform or improperly performs the commitments stated in the contract, the guaranteeing bank shall perform the obligation on behalf of the guaranteed In essence, this is a form of credit with signature, no capital but risk because the guaranteeing bank must fulfill the guarantee commitment when the guarantor for some reason fails or performs obligations improperly + Financial leasing: Financial leasing is a contractual transaction between two entities, including the asset owner and the asset user, in which the asset owner (lessor) transfers the asset to the lessee in a certain period of time and the asset user must pay the rent to the asset owner The nature of a finance lease is a form of financing where, at the request of the lessee, the lessor acquires assets and transfers them to the lessee for use + Factoring: This is a form of granting credit to the seller through the acquisition of receivables arising from the sale of goods agreed in the sales contract This service is provided by a “factor” company that helps businesses sell their existing debts to have capital The “factor” company considers and evaluates the purchasing partner If agreed to finance, it will sign a “factor” contract with the seller The difference between the invoiced value and the factoring cost that generates income for “factor” companies is the financial cost of the Seller, which is often not small

1.1.3.2 Non-credit service

 Deposit, Payment Accounts and Treasury

- Deposit service: Receiving deposit means the act of receiving money from organizations and individuals in the form of demand deposits, term deposits, savings deposits, certificates of deposit, promissory notes, bills and other forms of receiving deposits on the principle of full refund of principal and interest to depositors as agreed

- Account payment service means the type of service in which banks provide payment facilities; payment services for checks, payment orders, collection orders, bank cards, letters of credit and other payment services for customers through their accounts

Account payment service includes payment services through domestic and international accounts

Banks are aiming to developing a safe and efficient banking payment system in line with international practices and standards, focusing on upgrading the interbank payment system and internal payment systems of banks to encourage customers to pay via bank, limiting the use of cash in payment The Bank closely cooperates with agencies, enterprises, organizations in providing services, consumer goods and public services (supermarkets, restaurants, hotels, tourism, water supply companies, electricity compnies, postal services and telecommunications companies, etc) This service helps to exploit customer deposits at low cost meanwhile banks increase revenue from payment fees

International payment service: as a guarantee from the bank so that customers can buy deferred payment from foreign partners This service allows banks to charge payment fees and seek profits in the purchase and sale of foreign currencies of various types in payment transactions

- Treasury service: is beneficial for both customers and banks The bank provides cash management services for customers Cash receipt and payment can be made at the bank counter or at the location where the customer requests This service helps customers save time and effort in collecting and paying amounts with the bank’s safety security and interest payment The bank benefits from maintaining customers’ account balance

- Domestic payment cards are issued by domestic banks and used by customers to pay for goods, services, withdraw and deposit cash at ATMs To facilitate the cardholders, some banks issue debit cards but at the same time grant overdraft limit

to card users

- International payment cards are non-cash payment instruments circulated worldwide Currently, the typical international cards are Visa Card; MasterCard; JCB card; American Express

 E-banking

E-banking is a combination of banking services and utilities and a advance in the field of information technology to create modern and diversified services with various forms of transaction forms It is the bank’s act of providing banking services through support tools such as Internet, telephone, computer, network services and transmission lines, etc., which customers can carry out transactions at any time anywhere The bank must provide each customer with a name and passport and the customer is responsible for the confidentiality of the name and passport provided by the bank

- Internet banking: automatically provides information of products and services

through internet With a personal computer connected to the internet, the customer

can access the bank’s website anytime, anywhere to be informed and carry out transactions

This service allows customers to transfer money online through the accounts as well

as control the operation of these accounts To participate this service, customers visit the ban’s website and conduct financial transactions and query the information needed The information is very rich, from customers’ transaction details to other details of the bank Customers also have access to other websites to purchase goods and make payments through the bank account However, when connected to the Internet, the bank must have a strong security system to deal with the risks on a global scale, which is a big challenge for banks in Vietnam because it is expensive

to invest in such security system

- Home banking: is a service that allows customer carry out most of their bank

transfer and payment transactions via the network and specialized software that the bank has installed for them at home or at the company

With home banking, customers carry out transactions with the bank through Intranets separately built by the bank Transactions are carried out at home, office, company through a computer system connected to the computer system of the bank Through home banking, customers can make transactions such as money transfer, listing transactions, exchange rates, interest rates, debt note, credit note, etc To use this service, customers only need having a computer (at home or office) connected

to the bank’s computer system via a modem - a dial-up telephone line Customers have to register the telephone number that is only connected to the Home banking system of the bank

Phone banking is a 24/24 response system of commercial banks Customers can use the phone to hear information of banking products and personal account information When the customer presses the necessary keys on the phone according to the bank’s regulations, the system will respond to his/her request Phone banking only provides information already programmed in the bank’s automated information system

It is a fully automated phone banking product, so all types of information are automatically predefined, including information of exchange rates, interest rates,

securities prices, personal information of customers such as account balance, listing the last five transactions on the account, the latest notices, etc The system also automatically sends faxes when customers request the above-mentioned types of information Currently, through phone banking, information is updated more differently than before, customers only have information of the last day

- Mobile banking: is a banking service through Mobile phone Customers only need

to use mobile phone to text a message in the form prescribed by the bank and send it

to the number of services of the bank, their requirements will be satisfied; for example, personal account information, invoice payment, transfer from one account

to another, placing securities trading orders, gold trading orders

This service is designed to address the need to pay for micro payments or unmanned automated services To join this service, customers must register to be an official member, in which it is important to provide basic information such as cell phone number, personal payment account number Then, the customer is provided with an identification number (ID) by the service provider through this network This code

is not a phone number and it will be converted into a barcode for sticking to a mobile phone, which helps to provide customer information to make payments faster, more accurately and simply than the terminals of the points of sale or service supply In addition to the identification number, customers are also given a personal identification number (PIN) to confirm the payment transaction at request of the payment service provider After completing the necessary procedures, the customers will be an official member who is eligible to pay via mobile phone

- Call center: Due to the centralized data management, customers with accounts at any

branch still call a fixed phone number of this center to be provided every general and personal information Unlike phone banking, which provides only pre-programmed information, call center can flexibly provide information or answer customer inquiries The weakness of the call center is that people have to be on duty 24 hours a day

 Foreign exchange trading service

Foreign exchange trading services include services related to the purchase and sale

of foreign currencies, including trading in foreign currencies on the interbank

market and trading in foreign currencies with enterprises, organizations or individuals

Banks often trade foreign currency with enterprises in the field of import and export Exporters who receive foreign currency from customers or individuals who receive income or amounts remitted by their relatives abroad will sell foreign currency to buy Vietnam dong in order to meet their domestic spending demand The Importers buy foreign currency to pay for the sellers, etc Individuals buy foreign currency to meet the reasonable demands such as overseas business trip, travel, medical treatment, overseas education, etc

Foreign exchange services helps banks to earn Revenues from exchange rate differences in purchase and sales activities

Foreign exchange trading services include:

- Spot foreign exchange transaction: is a foreign currency sales or purchase agreement that the execution date will be two next working days after the transaction date The execution date may also be the same day or the working day immediately after the transaction date

- Forward foreign exchange transaction means a purchase or sale agreement of a defined amount of foreign currency to be paid in a local currency or another foreign currency at a specific future date/ period at an agreed exchange rate This tool helps customers prevent exchange rate risks

- Foreign currency swap transaction: is a simultaneous purchase and sale of the same currency at two different execution dates In other words, the buyer receives a currency for a limited time and when this period of time is due, he/she will have to pay this currency and take back the original currency

- Foreign currency derivatives:

Foreign currency swap: is the simultaneous purchase and sale of the same amount

of foreign currency (only two currencies are used in the transaction), where the maturity of two transactions is different and the exchange rate of the two transactions are determined at the time of signing the contract

Foreign currency option: is a transaction between the buyer (enterprise) and the seller (bank), in which the buyer has the right but no obligation to buy or sell a certain amount of foreign currency at an exchange rate determined within a pre-agreed period If the buyer exercises his option, the seller is obliged to sell or buy the amount of foreign currency in the contract at the pre-agreed exchange rate Future foreign currency transaction: means the foreign currency purchase and sale

at the exchange rate determined on the transaction date and the payment will be made at a future time as agreed

to be guaranteed by the bank

The legal obligations issued letter of guarantee by the bank are usually loan guarantee, payment guarantee, bid guarantee, contract performance guarantee, tax guarantee for import and export goods, advance payment guarantee, retained amount guarantee (Warranty guarantee), Counter guarantee, Guarantee for specific purposes, etc and the bank shall collect guarantee service charge Charges from guarantee services are recognized in non-credit services

 Trust service

As defined in the “Commercial Banks” book by Eward W Reed and Eward K Gill, the trust relationship arises from an agreement between the truster and the trustee This agreement is recognized in the trust contract and is protected by law A trust is the transfer of property from the truster to the trustee so that the trustee manages and administers the property for the interest of the truster, one or more beneficiaries

So, trust is an activity that clearly demonstrates the intermediary of trust service providers, including commercial banks

Personal customer trust services include asset liquidation, personal trust management, asset custody and preservation, representation trust, etc

Corporate customer trust services include retirement benefits, profit and dividend disstribution, bond issuance, fund redemption, payment, etc

The contents of the trust service include capital trust, investment trust, work performance trust

 Consultancy

The bank provides customers with consultancy services such as consultancy on deposit, term and effective amount of deposits; evaluation and re-appraisal of investment projects, financial options, economic and technical indicators of the project, risks of the project and financial options of the project; consultancy on financial investments in projects or enterprises; equitization consultancy; listing consultancy, securities registration consultancy; tax consultancy, etc

 Supervision banking services:

The bank provides depository services and supervises the management of public funds and securities investment companies Supervision banking services include depository assets of public funds and securities investment companies; separate management of assets of public funds, securities investment companies and other assets of the custodian bank Supervision is aimed at ensuring that the fund management company, director or general director of the securities investment company manages the assets of the company in accordance with the provisions of the Law on Securities and the Articles of Assocation; carries out the payment and transfer of money and securities related to the operation of public funds or securities investment companies at the lawful request of the fund management company or the Director/General director of the securities investment company

 Other non-credit services

Other non-credit services: Study abroad consultancy, multi-currency bankdraft, overseas remittance services, warehouse leasing and management services, asset valuation, brokerage and agent, insurance services, gold trading services, etc

1.2 NON-CREDIT SERVICES OF COMMERCIAL BANKS

1.2.1 Concept of non-credit services of commercial banks

In Barron Education Publishing House’s Banking Terminology Dictionary (the 5th edition), Thomas P Fitch defined “Non-credit banking services are charge-based banking services that are not related to the credit extension provided for the agent banks or corporate cusomers Revenues from non-credit services can be a significant source of revenue for banks and financial institutions For examples, non-credit services include trust and receivables related to investment, global cash management, foreign currency exchange, etc

According to Deloitte Touche Tohmatsu’s “Surveying and Evaluating Non-credit Service of Vietnamese banks” project documents, non-credit services are any service or product other than credit services provided by a bank or an organization Financial institutions that are not credit services Non-credit services are services provided by banks for customers to meet their financial and monetary needs in order

to directly or indirectly provide the bank with a certain amount of income, excluding credit service

So, non-credit services are all banking services excluding credit services and also has all the features of banking services The main difference between non-credit services and credit services is that when performing non-credit services, banks collects no interest but service charges

The author can generalize and conceptualize non-credit services as follows:

Non-credit services are banking services that provide revenue for banks in addition

to revenue from interest through proceeds from payment accounts, treasury service, chargable guarantee, consultancy, trust, foreign currency trading service, insurance brokerage fees, corporate bond brokerage fees

1.2.2 Non-credit service development of commercial banks

1.2.2.1 Concept of non-credit service development

From the point of view of dialectical materialism, development is a progression from low to high Development does not merely increase or decrease in quantity but also changes in the quality of things and phenomena Development is the tendency

to move from low to high, from simple to complex, from poor to perfect through resolution of conflicts, quality improvement and compliance with the “Negative of Negative” trend So, in the simplest way, development means an increase in quantity and quality

Service development in width: means an increase in the quantity of non-credit

service products

Service development in with has the same meaning as the service diversification Beside traditional activities, it is also required to have access to and development of modern non-credit services; In addition to traditional non-credit services such as payment, funds, money transfers, etc., modern high-tech non-credit services such as e-banking must be combined From the micro level, diversification of non-credit services helps banks diversify their income structure, reduce risk in business and strengthen brand and reputation in the market At the macro level, diversification of non-credit services contributes to the provision of utilities to the national economy and the population and the development of the country’s economy

In the current trend of banking development in the developed economies, the bank

is considered as a service supermarket, a financial grocery store with hundreds or even thousands of different services depending on the classification and depending

on the level of development of the bank The banking sector in Vietnam has grown rapidly in the number of banks and network expansion for recent years At the same time, each bank has its own strategies for diversifying non-credit services For example, deposit service programs, financial advisory services, treasury services, high-tech banking services are increasingly being applied in life These service have never developed by banks before

Non-credit service development in depth: The non-credit service development in

depth means that non-credit services are developted by creating new products based

on the existing products through increased utility and improved quality of existing non-credit services to increase customer satisfaction

Service quality is a very important concept in the process of branding and implementing the marketing strategy of the bank It is a factor that has a great

impact on the competitiveness of banks Many researchers around the world have made several definitions of the different aspects and levels of service quality When banks are no longer discriminated from one another based on the diversity of services, quality of service is vital to all banks Therefore, from the beginning, banks must have plans and strategies to continuously consolidate and perfect service activities on the basis of providing customers with fast, convenient and affordable utilities

In terms of quality of non-credit services, we refer to their utility In parallel with the development of non-credit services by scale, the quality of non-credit services is constantly increasing, helping customers become more satisfied with the benefits of non-credit services

According to Kotler (2000), satisfaction is determined on the basis of a comparison between the results obtained from the service and customer expectations and is considered based on the following three levels If the result is less than expected, the customer will feel dissatisfied

If the results are as expected, the customer will be satisfied

If the results are more than expected, the customer will be very satisfied and interested in that service Although there are many different concepts, the definition

of customer satisfaction is always associated with the following factors:

Sentiment/ attitudes towards service providers, customers’ expectations of the provider’s ability to meet the demand, Service performance results / values provided by the service, customers’ intention to continue using the service, the customers’ positive attitude towards the quality of banking services after using non-credit services When customers feel satisfied about the quality of the bank’s non-credit services, the bank has met the demand equal to/ exceeding their expectations and customers intend to continue using the services of the bank in the next time The author’s view on non-credit service development is as follows:

Development in both width and depth: Every bank must make a plan to develop a non-credit service system at the outset For existing non-credit services, it is imperative to improve them through the application of international standards and

practices and maximization of the efficiency of these services to strengthen customer trust and maximize investment efficiency On the other hand, to develop the customer network and expand the market, it is also required to approach new technology However, investment should not be spread out to avoid waste and low efficiency Therefore, it is necessary to combine both development in width and the depth, ensuring the diversification of services associated with service quality Development in line with the ability to control and market demand: The bank itself controls the arising risks and meet the needs of customers If the development is massive and out of control, it can lead to insecurity in one stage, on division or affect the whole operation of the bank

Nowadays, to improve competitiveness, commercial banks need to pay special attention to the development of services in depth or in other words, improve the quality of non-credit services

1.2.2.2 Necessity to develop non-credit services at commercial banks

 For banks

- Non-credit services are likely to bring high profits to banks thanks to low cost Non-credit services provide relatively high profits to banks thanks to low cost The bank is equipped with an initial physical infrastructure and human resources but can use a variety of cross-over and long-term non-credit products, so the cost of a service product is low The service fee is higher than the cost Unlike non-credit services, for credit services, the source of funds for providing loans are mobilized from customers, so the interest cost is quite high, not to mention the source of capital that have not been used to provide loans or are retained as the compulsory reserves for the purpose of maintaining its liquidity

- Non-credit services do not require banks to use more capital

Non-credit services do not require commercial banks to use more capital, which is

in line with the current status of capital resources of commercial banks in Vietnam and the stock market channel that is the leading channel of mobilization and distribution, redistributing most medium and long-term capital in the economy

- Non-credit services help banks to minimize risks thanks of their relative safety and low risk

Non-credit services help banks to reduce risk because credit fees are usually collected immediately or before providing services Meanwhie, for credit services, the bank has to spend money and then collects interest and principal later, so the bank bears interest rate risk, the risk of customers’ insolvency, the risk of currency devaluation due to inflation, etc So, the non-credit services are generally safe and have low risk

- Non-credit services help banks pay attention to the recruitment and retraining of staff Non-credit services require banks to recruit staff who have command of theoretical knowledge and actual operational processes Non-credit services are increasingly interested in developing modern banking services that help banks pay attention to the recruitment of new staff with good professional qualifications and retraining of existing staff to meet the customers’ higher needs of modern non-credit services These staff must show professionalism in communication skills, marketing skills and customer persuasion Therefore, in order to develop new non-credit services and gain market share in the increasingly competitive market, the banks must increasingly raise their recruitment standards and always pay attention to re-training

of their staff with professionalism, good operational affairs, good communication and the best customer service

- Non-credit services help banks be interested in promoting their brand and surveying market demand

Non-credit products are relatively new to many customers, especially modern credit products and services; therefore, banks need to create brand and prestige to create the impression in customers’ hearts and make them feel secure and reliable Brand must go with the quality of service, so the banks need to survey to catch up market demand, bring their brand to customers and ensure the proximity between the brand and customers

non Nonnon credit service development is in line with the development trend of the banking sector

The future development trend of commercial banks is to limit medium and term loans because the medium and long-term loans shall be provided by non-bank financial institutions Commercial banks should only provide commercial credit services (short-term credit) and mainly promote non-credit services

long-Risks in credit activity bring about huge losses to banks and the economy, leading

to the development trend of the banking sector towards more interest in developing non-credit services Non-credit service development helps banks reduce risks thanks

to its low risk

More developed the economy is, the higher the demand for modern banking services is Therefore, banks’s interest in developing non-credit services in line with the development trend of the banking sector

- Non-credit services help banks cooperate with each other for development

Non-credit services must ensure convenience for customers in transactions such as depositing money at one place and cash withdrawal at many places, even outside the banking system Therefore, the banks need to cooperate with each other for the mutual development such as establishment of card alliance, etc

 For the economy:

- Meeting the increasing demand for banking services of the economy

In the context of an open economy and increased financial liberalization and trade liberalization, the demand for financial services (where banking services are dominant) is increasing and may exceeds the supply capacities of the financial institutions of Vietnam, which becomes a valuable opportunity for international financial institutions to penetrate and dominate the domestic market when barriers are increasingly dismantled under the integration commitments In fact, the demand for banking services has increased rapidly, especially in urban areas

- Requiring to modernize banking activities to meet the requirements of building and developing the modern economy

The non-credit service development is necessary as it helps banks increase business efficiency, reduce risks on the basis of diversifying their business lines and their portfolio Thus, access to the modern banking market is an effective way to

restructure banking operations, reduce business risk and bad debt, contributing to clean the balance sheet of Vietnamese banks

Current business activities of banks are facing not only fierce competition among domestic banks or between domestic banks and foreign banks but also competition from other business organizations such as insurance companies, investment funds, financial companies, etc Therefore, banks that are interested in developing services

to satisfy the needs of customers will have many advantages in competing and gaining market share

 For customers

- Help customers save time and minimize cost

- Provide timely and effective information through the non-credit services provided

by the bank

1.2.2.3 Factors affecting the non-credit service development

Factors affecting the non-credit service development of commercial banks are divided into two groups:

 Subjective factors (Internal factors)

First, financial capacity

Financial capacity plays an important role in the operation of a bank Only when the financial capacity is strong enough, the bank has enough capital to equip the assets necessary to their business, including the modern information technology In addition, the capital is also used in other practical activities such as market research, new product research, advertising campaigns, promotions, etc More importantly, a bank with a large capital resource is easy to create trust in customers and partners at home and abroad Small capital will not be sufficient to diversify services and improve the efficiency of existing services In order to do so, each bank must take the initiative in developing long-term capital growth strategies according to the appropriate roadmap in line with the development needs and control capacity of each bank from time to time

Second, information technology infrastructure

Nowadays, when the science and technology grows fast, the demand for services and quality of banking services is growing rapidly, demand for services and quality

of banking services is increasing, requiring banks to develop and apply technology

in their operations Technology becomes the “foundation” for commercial banks to develop banking services Only the development and application of new technology allows banks to meet and provide the best products and services to meet the increasing needs of customers

Modern technology allows the commercial banks be able to develop new products

of unique characteristics, associated with creativeness and create the brand and very high reputation of the product

Modern technology improves service quality Service quality is associated with factors that bring about convenience to customers as well as utilities to the bank and customers Modern technology application has allowed commercial banks to develop reasonable and scientific business processes, typically the one-stop transaction model that help to save a lot of time for customers in transactions with banks

In addition, modern technology creates favorable conditions for commercial banks

to improve their operation efficiency and business efficiency thanks to the growth

of service revenue, cost savings and above all, risk reduction by diversifying their business operations

Third, management capacity and effective human resource management strategy

The development of the service system must be associated with the management capacity of each bank to ensure stable, safe, sustainable and self-regulated banking activities

To gain this goal, the bank managers and administrators must not only comply with laws but also have professional knowledge of banking operations and know how to analyze and evaluate the possible risks of each type of banking service as well as development trend of each type of operation, etc to take appropriate preventive measures and steps

At the same time, the bank must have a team of staff with broad professional knowledge Human resources are always considered as the most important factor of

all success In order to access new technologies, banks must have knowledgeable staffs to meet their work requirements, which requires banks to have a training plan for staff for the purpose of preparation of a team of qualified staff before development of new services

Fourth, distribution channels

The wide distribution network, distributed in the appropriate locations facilitates the transaction process and reduces the cost of providing services for customers On the other hand, the operation network is not only a distribution channel but also serves

as a channel for feedback on the products and services provided and a channel for receiving market information This feedback helps the bank make the appropriate strategic plans for developing non-credit services

Fifth, customer policy

Facing more fierce competition, significantly and increasingly changed banking technology in the world, the penetration of foreign banks and financial institutions that has made competition more and more fierce, the changes in traditional capital markets and the diversified demand of customers, it is time for banks to pay more attention to their customer policy Customer policy is the policy that banks apply to express marketing strategies at the customer level or customer segment based on decisions made to allocate their existing resources The ultimate goal is to provide services that maximize customer satisfaction, thereby achieving the Bank’s goal of maximizing profitability

Satisfying customer needs, enhancing customer perception and creating customer loyalty are always what banks need to do Therefore, it is necessary to have a reasonable and competitive customer policy in order to maintain and develop relationships with customers Customer policy helps the bank select the right customers to serve and create a traditional customer system, thereby improving the competitive position of the bank in the market With customer policy, the bank can take operational measures to guide its development For customers, customer policy gives them peace of mind, convenience, accuracy, time saving, thereby bringing them the highest satisfaction

Every bank has to identify the target customer group that its bank is aiming at in order to be able to come up with an appropriate marketing strategy to attract that customer segment For example, when the bank identifies the customers using credit services or non-credit services as its target customer, it is necessary to develop customer policies of these two group of customers When the bank has a clear understanding of their customers, it is easy to offer the services that best suits their needs

Moreover, as a service sector, customer service plays a very important role in the success of every bank Perfect product alone is not enough Good service quality is also a factor to retain customers for the bank, which is extremely beneficial for banks because retaining an old customer takes less time and money than finding out a new customer The more loyal the customers are, the more profitable the bank

is Once customers love the bank, they will introduce banking services to friends, relatives and do public relations work (PR) for the bank They even introduce friends to use the services of the bank Moreover, customers who have dealt with the bank will be familiar with all procedures and banking services, so bank officers

do not have to spend much time on introducing and consulting services As a result, the bank saves operating expenses

Sixth: risks in banking operations

The development of none credit banking service in particular and banking service in general always has potential risks The operation of banks in a market economy is a sensitive activity All fluctuations in the social economy quickly impact on activities of services and risks may occur unintentionally, affecting on business operations of the banks All banking services contain risks Therefore, each commercial bank needs to have effective preventive measures to minimize risks When considering risks, people often pay attention to cost factors, demages, losses Causes of risks in the banking services have many types, but in general, the types of risks are classified into the following main categories:

 Force majeure risks: Due to the fluctuation of the economy, due to natural disasters and war

 Due to the asymmetry of information: NH is not provided with the necessary information about customers leads to risks for banks

 Ethical risks: Customers or bank officials have committed violations banking agreement

 Due to changes in State policies, policies on foreign currencies, exports, import

 Due to political change

 The legal environment is not synchronous, incomplete, the law enforcement

is not yet high

 Loopholes in management and other operations

Seventh: marketing activities:

The basic elements of marketing marketing are market research, construction and made on the basis of market strategy Today, the marketing concept in the field of banking area includes:

Unravel the current market and its trends to supply service, choose the more profitable areas and identify the needs of customers at those sites That field to provide services, build short-term and long-term goals for development and offer new services Marketing is not just about performing services but also fighting each strategy and philosophy of each bank, it requires elaborate preparation, thorough analysis and positive of all departments from leadership to staff Marketing strategy has an important position in banking operations The goal of marketing services is

to develop and offer new types of banking services; public application modern banking technology to serve customers through the sale of services; improve competitiveness and expand customer base by attracting new customers those who have not used banking services; and finally increase the profit for the bank The mission of baking marketing is to identify potential service markets, select specific markets and clarify customer needs and most importantly A comprehensive program and work plan must be developed to ensure its main goals Thus, Banking marketing can be considered as a market search process (currently and the future)