Issues in credit granting process in VP bank

Branch manager A said that one of the main reason for lower lending size in 2018 was the credit growth rate cap by State Bank of Vietnam SBV.. He took an example of Agribank since this b

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

LE HUNG CUONG Student ID: 22170008

Issues in Credit Granting Process in VP bank

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – 2019

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

LE HUNG CUONG Student ID: 22170008

Issues in Credit Granting Process in VP bank

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Prof TRAN HA MINH QUAN

Ho Chi Minh City – 2019

in coming years Based on that, the researcher proposes set of solutions to help VPBank to further decrease the time required for document processing and to reduce adverse impact from wrong information provided by sales officers The set of solutions are translated to change plan with detail solutions, detail actions, people management, and communication

PART I - BACKGROUND

1.1 Company background

1.1.1 History of establishment and development

Vietnam Prosperity Joint Stock Commercial Bank (VPBank) was established in 1993 Over

25 years of doing business in Vietnamese financial and banking industry, the bank achieved outstanding result since its charter capital was reached US$681.49 million and total asset was more than US$12 billion in the financial year of 2018 VPBank has been listed in Ho Chi Minh Stock Exchange (HOSE) with 1.33 billion shares were issued to public investors VPBank conducted the transformation in 2010, remarked by new logo and brand identify as well as the focus on modern retail banking business under the consultation from McKinsey & Company In 2011, the bank implemented different business initiatives consulted by McKinsey & Company and successfully raised charter capital to balance with new business capacity and development In 2012, VPBank achieved national brand value and it established risk management division to monitor risk issues

in bank wide level In 2013, VPBank was rated at B3 by Moody and it conducted Information Technology and Risk Management Master Plan In 2014 and 2015, VPBank focused on mass consumer market by establishing VPBank Finance Company Limited (FECredit) and the bank was among largest corporate income tax payers in Vietnam The year of 2016 remarked a big leap since VPBank moved to new head office and total asset was over US$8 billion The bank also received

a loan from International Finance Corporation (IFC) with cheap price In 2017, VPBank conducted Initial Public Offering (IPO) and it successfully issued 1.33 billion shares and raised nearly US$300 million from public investors Moody rated VPBank as B2 which was known as an upgrade from the last rating in 2013 Digital banking services have been developed in order meet new business opportunities in the market

1.1.2 Market share

An illustrative way to capture market share of VPBank is through its market capitalization

in comparison with other banks and financial institutions listed in Vietnam stock exchanges According to the data obtained from cophieu68.com, there are 26 listed banks and financial institutions with total market capitalization of US$39 billion Currently, VPBank has been ranked

at 6th position with US$2.1 billion, lower than VCB (US$10.8 billion), BIDV (US$5.2 billion), TCB (US$3.8 billion), CTG (US$3.5 billion) and BVH (US$2.8 billion) Based on this statistics, current market share of VPBank is 5% in term of total market capitalization value

1.1.3 Vision, mission, core values

The vision of VPBank is to become one of the 5 largest joint-stock commercial banks and one of the 3 leading retail joint-stock commercial banks in Vietnam To support this business vision, the bank conducts two different missions The first mission is to conduct aggressive organic-growth with high attention to retail, small and medium enterprises (SMEs), consumer finance, and corporate segment The second mission refers to strong investment and continuous development of foundation systems, including human resource, information technology, risk management, and operation Moreover, there are 6 core values which are being maintained in VPBank, including make the difference, ambition, customer focus, trust, people development, and productivity Toward the long-term and sustainable development, VPBank committed to deliver banking products and services to the customers with professionalism, simplicity, dedication, and difference

Figure 1: Organization structure of VPBank

Source: VPBank’s annual reports (2017)

1.2 Symptom

During the period of 2014-2018, business performance of VPBank is summarized below:

Table 1: Business performance of VPBank

The comparison between the target and actual result for the financial year of 2018 provided more detail about the symptom of the bank

Table 2: 2018 target vs actual performance of VPBank

In March 2018, VPBank delivered a business plan for 2018 in which total asset was expected at US$15,598 million but actual result was captured at US$14,028 million or the actual result is 10.1% lower than the target Similarly, saving size and loan size were lower than the target

of 9.2% and 4.7% Profit before tax was not achieved the target since it was US$399 million and

it was lower than the target by nearly 15% Lending is key symptom since lending is important item of total asset and the lower lending size affects to total asset In addition, saving was decreased but it was not the issue since the bank has good funding resources from Internal Finance Corporation When lending size is decreased, the profit from interest income is decreased From

2014 to 2018, the structure of net interest income of VPBank is presented below:

Table 3: Structure of net interest income of VPBank

Source: VPBank’s annual reports (2019)

It was observed that net interest income of VPBank was increased only 18.11% in 2018 compared to 2017 and it was a big drop compared to 33.88% as growth rate of net interest income

in 2017 It was captured that the growth rate of net income has been decreasing and the trend has been continuously since 2016 Moreover, lower net interest income is not by high interest expenses Table above shows that interest expenses in 2018 increased 27.14% and 13.61% in 2017 but interest income increases 31.27% and 16.30% Therefore, it is concluded that the weaknesses

in lending activities is the business symptom in the case study of VPBank It is translated to the fact that when the bank has lower lending volume, its net interest income will be decreased and it reduces the bank’s profits since large of income source is from lending activities In the next section, the initial cause-effect map is prepared and it is developed to point out what the main reasons of lower growth rate in lending portfolio of the bank A focus group of discussion was conducted between the researchers and some branch managers of VPBank and the findings are categorized into several causes or explanatory factors

1.3 Initial cause-effect map

As mentioned earlier, the interviews with focus group of branch managers helps to capture initial causes that leader to lower lending growth of VPBank during 2018 5 branch managers were participated into the interviews To protect the personal information of branch managers, the researcher codes the name of each branch manager as A, B, C, D, and E For all interviewees, an interview question of what the causes of lower lending size during 2018 was asked and their answers are summarized below

Branch manager A said that one of the main reason for lower lending size in 2018 was the credit growth rate cap by State Bank of Vietnam (SBV) He mentioned that SBV only allowed local commercial banks to grow their credit at maximum of 14% However, VPBank was exceeding this level since the third quarter of 2018 He provided the credit growth rate of VPBank was more than 15% after quarter III of 2018 and therefore, the head office team asked him to postpone disbursement activities

Branch manager B indicated that his branch faced with the shortfall in unsecured lending due to the new peer-to-peer lending activities in the North of Vietnam He noted that Vietnam has

a population of about 96 million, GDP per capita in 2018 is nearly US$2,590 so that Vietnam is considered a potential market for retail banking, and this trend is expected to continue Moreover,

a large number of Vietnamese people have not yet access to banking products and services, and will become a source of retail banking In particular, in the era of information technology, retail banking activities will be strongly supported when there are millions of new customers from rural

to urban areas and having quick access to financial products through the application of new technology He confirmed that there are new players in Vietnamese financial market with high investment funded from foreign investors in order to provide super convenient unsecured loans to lower income customers Normally, the third and the last quarter of a year was good time for unsecure lending due to the customers wanted borrowing money to purchase some stuffs (i.e smartphone, durable goods) but his branch suffered a big drop in customer demand His sale officers could not achieve the sales target for the third and the fourth quarter because of peer-to-peer lending form He also noted that peer-to-peer lending platform is faster compared to traditional banking process as the customers can receive the loan in less than 24 hours while the normal disbursement time of VPBank is about 2 days However, he questioned about the quality

of peer-to-peer lending since it has very high interest rate (i.e more than 60% per annum)

Branch manager C provided the same reason as Branch manager A and B She noted that her branch could not grow lending portfolio due to SBV’s cap and the raise of peer-to-peer lending has been a threat Moreover, she emphasized the overlap in product structure of VPBank Currently, retail banking division provides unsecure lending to individual and household customers SMEs banking division also provides loan to micro-SME customers which is quite similar to household customers VPBank has FECredit which is providing unsecured lending to individual customers She explicated that the bank should review product policy and to combine products from different division into single package She concerned that the overlapping leads to future business growing issues She often faced up with the situation of one customer is categorized

as household business and retail customers, leading to different loan booking for two segments

Branch manager D has strong experience in banking and finance He mentioned that the demand for banking services has been increasing recently, especially retail banking services Focusing on retailing activities is becoming a trend of commercial banks to diversify revenues, increase business efficiency and reduce operational risks Only in the period of 2016-2018, the income from retailing activities of banks increased every year with a large growth rate He indicated that VPBank cannot compete with bigger banks like BIDV, Agribank and Vietcombank

in term of interest rate Generally, the interest rate of VPBank is always higher than BIDV, Agribank, and Vietcombank due to these banks have cheaper sources of funds He took an example

of Agribank since this bank is offering the loan package to lower income customers with interest rate is much cheaper than current 25% as unsecure lending interest rate of VPBank BIDV and Vietcombank are providing auto loan and home loan with cheaper interest rate compared to VPBank His concern was further expanding to current operating cost of VPBank was high since the bank has been conducting fast growing business strategy with number of branches and network have been increasing rapidly The bank did not care about the growth quality for the last few years and it might be the issue in the long run perspectives

Branch manager E provided another reason for lower lending growth rate She indicated that document processing time in VPBank was higher than other banks He noted that TPBank offered loans to the customers in 1.5 days while her branch’s average document processing time

is 3-5 days, depending on lending products A home loan may take more than 1 week to finish and

to disburse to the customers She provided another concern related to collections activities of VPBank Some customers went to her branch and claimed for impolite debt collection reminders

and they would like to terminate the loans even they were only 1 day of late payment She mentioned that VPBank may face up with higher loan attrition rate if debt collections activities are not reviewed immediately She also implicated that foreign banks allow their customers to make a late payment within specific time without impolite reminders

Based on the interview with 5 branch managers, an initial cause-effect map is prepared and

it is depicted below:

Figure 2: Initial cause-effect map

Source: Prepared by the research (2019) The interviews with 5 branch managers help to recognize 6 initial causes of lower lending growth rate in VPBank These causes are SBV’s credit growth cap, the raise of peer-to-peer lending, overlapped products, lower lending interests from bigger banks, higher document processing time, and impolite collections activities Among these initial causes, 3 causes are from the market (SBV’s credit growth rate cap, peer-to-peer lending, and lower interest rates from bigger banks) and 3 are from internal business activities of VPBank (overlapped products, higher document processing time, and impolite collections activities) However, the researcher perceives that there are potential other causes for the decline in lending growth rate of VPBank They are not able to identify through the interviews with branch managers but it can be detected through literature reviews Therefore, the researcher collected previous empirical evidences about factors affecting lending activities of commercial banks and determine potential causes Then, these factors are validated by developing interviews with 5 branch managers in another interview batch

Lending growth rate decreased

SBV’s credit growth

cap Peer-to-peer lending Overlapped products

Lower lending interest rate from bigger banks Higher document processing time Impolite collections

1.4 Updated cause-effect map

Many empirical evidences which were developed by previous researchers highlighted the important factors affecting the decision of the consumers to uptake products and services, including credit, from the banks Boyd et al (1994) identified that key factors influencing young customers to select credit services were banks’ characteristics such as location of the banks, reputation level of the banks, convenient of the services, and interest rate Surprisingly, the customers were less affected by the banks’ employee attitude and the banks’ physical aspects However, Cicic et al (2004) obtained contradicted result since the main reason why the customers leaved the bank was the banks’ employees were less courtesy to them Similar finding was obtained

by Maddern et al (2007) Mokhlis (2009) asserted that the recommendation from reference people was main factor influencing customer decision to select credit services from the banks Despite Gerrard and Cunningham (2001) highlighted that young customers were less effected by the recommendations from their friends or relatives when they select credit services Al-Ajmi et al (2009) identified three factors influencing the choice of credit services from particular bank were religious belief, pricing, and corporate social responsibility Kamakodi and Khan (2008) developed

a questionnaire among 292 banking customers in India and they found some factors affecting to the customer decision to select banking products and services, including the proximity to their workplace, reputation of the banks, friendly banks’ employees, personal attention, ATMs quality, timely services, and pleased services Coyle (1999) confirmed the role of technologies, speed of services, and effective bank staffs to future banking development Kazeh and Decker (1993) indicated that the main reason of up taking credit were service charges, reputation, interest charged

on loans, quick loan approval and friendly bank staff Privacy is determined as one of the reason

of choosing a bank for credit services and it was highlighted by Haron et al (1994) and Holstius and Kaynak (1995) Frangos et al (2012) grouped influent factors to demographic factors, service quality of banking services, the performance and effectiveness of bank policies, and customer satisfaction and perception towards how their benefits were increased by keeping relationship with the banks After reviewing literatures, the researcher is able to update the causes that possibly affect to credit growth reduction in VPBank These factors are summarized in the table below:

Table 4: Literatures about factors affecting credit reduction

(1981) Recommendation from reference people

Al-Ajmi et al (2009) Religious belief, pricing, and corporate social responsibility

Kamakodi and Khan

(2008)

The proximity to their workplace, reputation of the banks, friendly banks’ employees, personal attention, ATMs quality, timely services, and pleased services

Coyle (1999) Technologies, speed of services, and effective bank staffs

Huu and Kar (2000) Suitable interest rates and reduced service charges, speedy service and availability of ATMs Kazeh and Decker

(1993)

Service charges, reputation, interest charged on loans, quick loan approval and friendly bank staff

Frangos et al (2012) Demographic factors, service quality of banking services, bank policies, and customer benefits

Source: Prepared by the research (2019) Table 4 updates the causes leading to lower credit growth of a bank and key factors are technologies (including ATMs quality), bank reputation level, quality of banking services (including bank employee), and location of the banks These factors are updated in cause-effect map below:

Figure 3: Updated cause-effect map

Source: Prepared by the research (2019)

INITIAL CAUSES

Lending growth rate decreased

Technologies Bank location Services quality Bank reputation

SBV’s credit growth

cap Peer-to-peer lending

Overlapped products

Lower lending interest

rate from bigger banks

Higher document

processing time

Impolite collections

Then, the researcher continues to validate how the impact of these factors are visible to credit growth reduction in VPBank and it can be done by conducting interviews with 5 branch managers Each interview with branch manager was developed in the way of exploring how their opinion towards VPBank’s technology performance, bank location, service quality, and VPBank’s reputation

Table 5: Summary of interview for VPBank’s technology performance

Interviewee Summary of interview content

Branch manager A

I don’t think VPBank’s technology is weak In fact, the bank is among top leading technology absorption in Vietnam with the introduction of Timo which is known as the first digital banking services provider We deliver internet banking to both retail and SMEs customers

Branch manager B

VPBank’s technology level is good in overall The time to access internet banking is fast and responsive user interaction through mobile banking application It is available in both Android and iOS mobile platform So, I don’t think there are any issues with

VPBank’s technology performance

Branch manager C

Sometimes I got a customer complain about they could not access to VPBank’s mobile internet banking in specific time Generally, it was happened during salary pay day and there were often large transactions which were carried out by both salaried customers and VPBank’s employees transferred money to others or paid the bills

However, I believe that other banks also introduce the same services

to their customers The main thing here VPBank has lack of innovative technological based products and services to the customers For example, I saw that TPBank introduces a service all Live Banking whether the customers are able to take payment cards immediately in this bank’s live counters

Branch manager E

My customers sometimes go to the branch and asked for the issue of they did not receive SMS to know their repayment information I checked with IT support and found that it was delayed by the system error I believed that if the bank could not fix this issue, the

customer would not satisfy with VPBank’s service quality It is my major concern Other while, I don’t think there are other issues in VPBank’s technologies

Source: Prepared by the research (2019) Throughout the discussion with 5 branch managers, it is identified that VPBank does not face many issues related to the bank’s technology performance Main complaints from the

customers were the delayed SMS notification about payment term and slow mobile Internet banking during salary pay date It is also updated that VPBank does not have innovate Live Banking services like TPBank although Timo was introduced as first digital bank in Vietnam Therefore, the researcher decides to update technology factor to slow SMS notification and mobile Internet banking and the lack of live banking services

In term of bank location, the interview with 5 branch managers returned following findings:

Table 6: Summary of interview for VPBank’s location

Interviewee Summary of interview content

Branch manager A

I think VPBank does not have good location compared to other banks like Agribank since Agribank has better network coverage For instance, my branch has small size and it creates the concern to the customers since it is often full of people to transact

Branch manager B

My branch is located in District 1 of HCMC and the bank network is quite good compared to other banks like Vietinbank or BIDV I think branch location is important to almost customers since Vietnamese people prefer going to the branches rather than doing everything in Internet banking

Branch manager C

VPBank’s branches are not covered well in the district Only one branch is there to compete with three branches from TPBank I believe that if VPBank does not open more branch in this district, TPBank will take over my clients soon

customers

Branch manager E

I believe that VPBank has good location I have no concern about the branch coverage Current branch can serve well current customer base even we can provide services more to the customers

Source: Prepared by the research (2019) The discussion with 5 branch manager in term of VPBank’s location turns out the truth that VPBank has quite good location although there are some concerns to be remarked by the branch managers The first concern is the location of the bank is not competing well with richer distribution from financial companies Second, the branch location is not sizeable to fit the demand

of more customers These two issues will be updated to cause-effect map

In term of service quality, 5 branch managers provided contradicted viewpoint and they are summarized below:

Table 7: Summary of interview for VPBank’s service quality

Interviewee Summary of interview content

Branch manager A

VPBank currently provides wide range of banking services to the customers such as home loan, auto loan, unsecured loan, etc I think VPBank is doing a good job in term of service quality All the customers’ complaints are effectively resolved by my staffs I am not allowing my staffs to take hidden fees from the customers from taking a credit If I know someone did that, I will fire them

Branch manager B

I am very concern about service quality of VPBank The bank is growing very fast recently and it seems no one take care for service quality I received a complaint from the customers and asked them

to call to customer service hotline but they had to wait more than 2 week to get appropriate resolution I think VPBank should review the quality of customer complaint handling

Branch manager C

I found that the ATMs have been overloaded many times My customers could not withdraw money in specific time or the ATMs did not return the cards to the customers In this month, I have received four complaints about ATMs issues My staffs have apologized to the customers and it was a shame

Branch manager D

Service quality of VPBank is improving over the time although there are still some weaknesses My customers are quite happy with the bank service But they only complaint the late collections call reminders However, these customers were overdue so that they accepted the calls with little dissatisfaction My branch got a rating 5

as maximum satisfaction score from the customers

Branch manager E

The major limitation in VPBank’s service quality is the unclear consultant services from sales team when they introduced loans to the customers I have been going to this branch for few months It seemed previous guys did not fulfill the jobs since some customers complained unclear charge fees I believed that VPBank should provide clear documents and guidance related to sales advisors We could not accept the case of incorrect information provided by our staffs It takes the customer dissatisfaction and they might not want

to keep relationship with the bank

Source: Prepared by the research (2019) From the interviews with 5 branch managers related to service quality of VPBank, it is identified that VPBank has some issues They refer to the unclear or incorrect information provided

by sales officers before the customers take a credit from the bank, the inconvenient time of debt reminders, and high lead time for customer complaint resolution They issues will be captured and reflected in final cause-effect map

The last interview session was made with 5 branch managers in order to detect whether there are issues related to VPBank’s reputation The interview content is summarized below:

Table 8: Summary of interview for VPBank’s reputation

Interviewee Summary of interview content

Branch manager A

I believe that VPBank has good image in the public It is the result

of strong market campaign to raise the awareness of the customers towards VPBank’s brand

Branch manager D

VPBank did not utilize well the poster to inform the customers about the bank’s services in big street It might be the concern for brand reputation However, I believe that the Internet may help to widen our reputation to the customers

Branch manager E

It is somehow to improve brand reputation through the advertisement VPBank should focus on brand reputation through diversified and innovative products and services to increase customers’ brand awareness Some banks are now introducing live banking services or they advertise that the processing time is within

24 hours I think their advertisement is more attractive than VPBank

Source: Prepared by the research (2019) The interview result for VPBank’s reputation is captured and it identifies that VPBank has good brand reputation Most of the customers agreed with high reputation of VPBank in the market Only branch manager E concerns about the attractiveness of VPBank’s advertising content which is less attractive compared to other banks

Based on the result of interview with 5 branches managers on VPBank’s technologies, branch location, service quality, and reputation, final cause-effect map is prepared

Figure 4: Final cause-effect map

Source: Prepared by the research (

PART II – PROBLEM JUSTIFICATION

2.1 Problem identification

As mentioned in earlier chapter, the combination of initial causes and updated causes turned out 11 problems existing in VPBank and they can explain for the drop in lending growth rate recently The problems are SBV’s credit growth cap, peer-to-peer lending, overlapped products, lower lending interest rate from bigger bank, higher document processing time, impolite collections, slow SMS and mobile internet banking, lack of live banking, high lead time for customer complaints, incorrect information by sales teams, and less attractive advertisement content In this section, each problem is defined along with the discussion of problem measurements

Credit growth is defined as organic growth or an expansion of credit portfolio (Skala, 2012) There are numerous reasons for credit growth, such as macroeconomic incentives like economic growth, new lending opportunities, the expansion of business market (Foos et al., 2010) Moreover, credit growth is also part of the bank’s business strategies which are determined by the top managers of the banks (Skala, 2012) Credit growth is measured by the annual change in total outstanding credit portfolio of a bank (Igan & Pinheiro, 2011)

Peer-to-peer lending refers to a direct financing channel whether there is no involvement

of credit intermediaries such as commercial banks (Eugenia, 2018) It allows an individual or small business to get unsecured loan funded by other people (Massachusetts Securities Division, 2018)

INITIAL CAUSES

Lending growth rate decreased

Slow SMS & mobile internet banking Lack of live banking

Incorrect information

by sales teams Less attractive advertisement content

SBV’s credit growth

cap Peer-to-peer lending

Overlapped products

Lower lending interest

rate from bigger banks

To measure the performance of peer-to-peer lending, the researchers should rely on this lending transaction volume (Song et al., 2018) For example, Iqbal (2017) from Applied Market Research Organization reported that peer-to-peer lending is among the fastest growing financial segment with a compound annual growth rate of more than 50% during the period of 2014-2022 and market value was US$26 billion in 2015 and will be US$460 billion by 2022 The researcher proposed using two indicators to measure the performance of peer-to-peer lending in Vietnam, including transaction volume and compound annual growth rate

Overlapped product is happened when the companies introduce many products with similar functions (Thompson et al., 2005) The overlapped product level can be measured through the comparative analysis in which different products are compared in term of function and or usability (Thompson et al., 2005; Frolova, 2014)

Lending interest rate is defined as the amount of charge on a lending amount and it is usually calculated upon on the percentage of the principal outstanding (Central Bank of Nigeria, 2016) It is refer to the cost of credit of the economy or the yearly price charged by the lenders on the borrowers before the borrowers obtain a credit or a loan (Mutinda, 2012) Lending interest rate

is often measured by the percentage of amount charged per year per principal amount of a loan (Bean, 2017)

Document processing time refers to the time required for loan applicants and related documents for underwriting and loan approval process (Federal Deposit Insurance Corporation, 2019) It is measured by total time required for a loan get approval and disbursed (Ostromogolsky, 2017)

Collections is defined as set of legal and extralegal actions to collect a debt; in which legal actions refer to the application of lawsuit to seize a debtor’s property or repay their debt obligation while extralegal actions consist of informal actions conducted by the collectors as behalf of creditors to pursue a debtor to repay some or all of debt amount (Zywicki, 2015) Impolite debt collection is happened when debt collection activities are conducted with harassing or abusive practices or false and misleading representations (Federal Reserve Board, 2018) To measure collection activities are impolite or not, the researcher can rely on the number of customer complaints related to debt collection activities (Unterreiner et al., 2014; Bureau of Consumer Financial Protection, 2019)

SMS banking is defined as the delivery of information related to banking transactions via telecommunication devices (Thulani et al., 2011) while mobile Internet banking is defined as the banking-related values delivered to the customers through a wireless communication channels (Rahmani et al., 2012; Goyal et al., 2012) Slow SMS and mobile Internet banking is happened when the customers perceive that transaction speed is slow (Liebana-Cabanillas et al., 2017; Haanpera, 2012) To identify SMS/mobile banking speed, download speed of the services is utilized in comparison with other SMS/mobile banking speed of other competitors (Nguyen, 2017).in

Live banking services is defined as the online transaction protocol in which the customers are able to conduct almost banking services with the banks without limitation in time (TPBank, 2019) This problem is captured as the fact that a bank has this type of service or not

Lead time is defined as the amount of time between the time of placing an order and the time of receiving products or services (Darko et al., 2018) Customer complaint refers to the situation of which the customers complain about service quality after they encounter an unfavorable services experiences (Tronvoll, 2008) In customer service, lead time is measured by the total time required from the time when a customer complaint is opened to the time when this complaint is closed in the system (de Triville et al., 2014)

Incorrect information from sales teams is the problem which is highlighted from the interviews with 5 branch managers Incorrect information is defined as inaccurate and misleading information provision (Fox et al., 1994) The measurement of incorrect information is highly qualitative-based approach and it is suggested to detect incorrect information from the interview with the receivers (Fallis, 2009)

Less attractive advertisement content is the last problem Advertisement is defined as a communication form in which the companies are relied on mass or new media to persuade their customers to purchase their products and services (Terkan, 2014; Dominick, 2013) An advertisement content is less attractive when its contents and designs are not attractive to the consumers (Terkan, 2014)

2.2 Problem existence

2.2.1 SBV’s credit growth cap

In Vietnam, SBV is the governmental body to control overall performance of credit banking system and it takes the responsibility of providing regulatory and policies to direct the

operation of the banks During 2018, SBV issued the decision in which credit growth rate was capped at 14% in order to stabilize macro-economic performance (Vietnam Business Review, 2018) The main reason of setting a credit growth cap is that SBV worried the high credit growth rate is because of high loans values were disbursed for real estate trading purposes which was the sources of global financial crisis in 2008 (SBV, 2019)

In 2019, SBV continued to cap credit growth rate at 14%; this, however, is not fixed number since SBV still allows flexible adjustment depending on the situation of macro-economy (Agribank, 2019) Moreover, credit growth rate is capped at 15% for the best banks which qualify the risk management framework in order to ensure that their business are safe and sound (Vietnam Insider, 2019) In case of VPBank, credit size was annually increased from US$8.04 billion in

2017 to US$9.47 billion in 2018 and credit growth rate was about 18% which was lower than in

2017 when credit growth rate had been 24% The cap from SBV affected partially to credit growth rate of VPBank in 2018 although it was observed that credit growth rate of VPBank surpassed the SBV’s cap Currently, SBV has not applied any sanction to commercial banks in case of they violate credit growth rate cap Therefore, the researcher identifies that SBV’s credit growth rate cap is not an issue to VPBank Moreover, VPBank recently has qualified for Basel 2 standards in risk management and it was approved by SBV, leading to the strengthening risk management and

it guarantees for higher credit growth rate will not increase the bank’s risk level

2.2.2 Peer-to-peer lending

Currently, there are more than 40 peer-to-peer lending companies in Vietnam and this business model is very new without any regulations from SBV (CafeF, 2019) Although peer-to-peer lending brings good opportunities to unbanked customers and it helps to increase financial inclusion in Vietnam, this lending type contains the risks such as unwillingness to pay from the customers, the lending process has not been verified yet, and not transparent process lead to the investors’ cheating behavior (Vietnam Investment Review, 2018)

Table 9: A snapshot of banking system in Vietnam

5 % Credit card ownership (% age 15+) 4%

6 Financial institution account (% age 15+) 30%

7 Financial institution account, in labor force (% age 15+) 34%

8 Financial institution account, rural (% age 15+) 16%

10 Withdrawal in the past year (% with a financial institution account,

age 15+)

77%

11 No account because financial institutions are too far away (% age 15+) 9%

12 No account because financial services are too expensive (% age 15+) 8%

13 No account because of lack of necessary documentation (% age 15+) 10%

14 No account because of lack of trust in financial institutions (% age 15+) 5%

15 No account because of insufficient funds (% age 15+) 32%

Source: CEIC (2018), The World Bank (2018) The development of peer-to-peer lending is based on the financial inclusion of the country Currently, financial inclusion in Vietnam is very high since only 30% of population with ages more than 15 years old have financial institution account On the other hand about 70% of Vietnamese population do not have financial institution account IN addition, the percentage of debit card ownership is only 27% and the percentage of credit card ownership is only 4% It is indicated that it is more business opportunities for both local commercial banks, financial companies, and online lending companies to exploit the market Moreover, since the market is still large source of development, it will reduce the competition between players Although it is captured that only 31% of population with ages more than 15 years old cannot access financial services due to insufficient funds and these groups are suitable for online and consumer lending

Table 10: A snapshot of fintech in ASEAN’s countries

Indicator Vietnam Cambodia Malaysia Thailand Indonesia Philippines Singapore

Philippines, and Singapore are 196, 128, 262, 115, and 490 companies and they have investment value much higher than in Vietnam

Table 11: A snapshot of financial inclusions in Vietnam and Cambodia in 2017

1 Used the internet to pay bills in the past year (% age 15+) 7% 1%

2 Used the internet to pay bills in the past year , rural (% age

15+)

3 Used the internet to pay bills or to buy something online in the

past year (% age 15+)

4 Used the internet to pay bills or to buy something online in the

5 Paid utility bills: using a financial institution account (% age

15+)

6 Paid utility bills: using a mobile phone (% age 15+) 2% 1%

7 Paid utility bills: using cash only (% age 15+) 69% 46%

8 Sent or received domestic remittances in the past year (% age

15+)

9 Received domestic remittances in the past year (% age 15+) 17% 30%

10 Received domestic remittances: through a mobile phone (%

13 Sent domestic remittances in the past year (% age 15+) 19% 21%

14 Sent domestic remittances: through a mobile phone (% age

20 Made digital payments in the past year (% age 15+) 16% 12%

21 Received digital payments in the past year (% age 15+) 15% 7%

Source: The World Bank (2018)

However, it is not denied that peer-to-peer lending is technological-based trend in financial services and it goes to bloom in near future, thus, affecting credit activities and credit growth in Vietnamese banks Therefore, the researcher believes that peer-to-peer lending will affect credit activities of VPBank is the long-run perspectives Other while, the threat of peer-to-peer lending

is minimal at the moment

2.2.3 Overlapped products

VPBank has been offering many lending products to the consumers In retail segment, the bank has three business divisions in which retail division offers traditional retail loans to the consumers such as mortgage loan, auto loan, home renovation loan, business loan, unsecured loan and credit card, household business division offers unsecured loans to household business segment while FECredit provides unsecured lending to mass customer segment It is observed that VPBank has some similar products in different business division For example, small businesses are able to get the loan from SME division or household business division The customers can borrow money from FECredit but also take the loan from retail division

Table 12: Current credit products and services of VPBank

Segment Descriptions

Retail - Loan services: Household business loans for the customers who need

capital to retain their business operations; Personal overdraft loan is designed for the individual who is in short of cash; Installment loans financing working capital for the business who needs financial supports to finance their short term need of capital; personal home loans for those who want to purchase home or apartment; personal car loans for those who want to purchase car for personal or business purposes; loans for the customers who are able to use their valuable papers issued by VPBank; and loans for oversea studying purposes

- Card services: VPLady CreditCard which is designed for female customers with special offers when purchasing beauty products, MC2 Credit Mastercard is developed for young, dynamic and fashionable customers; Platinum CreditCard is designed with chip technology to protect the customers from card fraudulent activities; AutoLink Card

is a debit card and it is linked with current account of the customers in VPBank; International MC2 Debit MasterCard is developed with focus on the card design through a dedicated curve and crystalline materials; Vietnam Airlines – VPBank Platinum MasterCard is developed with association with Vietnam Airlines, an aviation corporation in Vietnam; International Platinum Debit MasterCard is developed with compliance with Europay, MasterCard, and Visa and

it is designed for high income customers

Household - Normal Unsecured monthly loan is designed for small households in

Vietnam who have business proofs

- Express unsecured loan is offered to the households a loan with limit

up to VND150 million and the processing time is very fast

- Empowering Kiosk Owner Loan and Kiosk-backed Loan are developed for households who are the owners of kiosk business type

FE Credit - Personal loan is designed for the customers who want to take

unsecured credit and the customers must provide pay slips, electricity bills, current account statement, driving license, and insurance contract with loan amount up to VND70 million

- Consumer durable loan is designed for those who want to take a credit

to purchase durable products and the customers must provide pay slips, electricity bills, current account statement, driving license, and insurance contract with loan amount up to VND70 million

- Two-wheeler loan is developed for those who want to purchase motorcycle with loan amount up to VND70 million

- Credit card product

Source: VPBank (2019) However, the researcher observes that each business division has different requirements for the consumers FECredit is more focusing on low segment or low income customers while unsecured loan in retail division focuses on salary customers or retail division aims to higher income segment Therefore, the researcher perceives that overlapped products do not create major issue to the business of the bank in general and to credit growth rate of the bank in particular

2.2.4 Lower lending interest rate from bigger banks

VPBank has been doing business in Vietnam banking industry This industry has been explored by many players According to the report from State Bank of Vietnam, the industry is being covered by 35 joint stock commercial banks and 5 state-owned banks In addition, there are many foreign commercial banks to place their representative offices and branches in Vietnam The report from Vietcombank Securities (2017) revealed that state-owned banks are now dominating both deposit and lending market and they have competitive advantage in cheaper source of fund

In the contrast, joint-stock commercial banks have to allocate funds accumulated from saving activities and use this source of fund for lending activities In this context, interest rate of state-owned banks is often cheaper than joint-stock commercial banks in Vietnam

To identify this problem is existed or not, the researcher collects lending interest rate from some commercial banks Obtained result is presented in the table below:

Table 13: Lending interest rate of some commercial banks in 2018

Source: Consolidated by the researcher (2019) from the websites of selected banks

Table above shows that lending interest rate of VPBank was stood at 7.9% per annum in

2018 It was higher than Hongleong Bank (6.75%) and Vietinbank (7.7%) but lower than most of other commercial banks In this context, the researcher does not believe that VPBank is facing up with lending interest rate competition from other commercial banks in Vietnam

Moreover, VPBank is now conducting a diversified product and service strategy rather than cost leadership strategy Product diversification strategy is also an inevitable trend of banks, helping to reach the maximum of target customers In addition to the two core activities of deposits and credit, card products, money transfers, e-banking, bill payment, insurance are also researched and offered many programs, policies and promotion to attract users Typically, BIDV currently implements over 100 banking products and services for individual customers Serving the high-end customer segment is also a new direction for banks when 10% of the high-class population holds up to 80% of total personal assets Priority customer services of banks include Techcombank Priority, VPBank Diamond, MB Private or priority customer package with many advantages and superior services of BIDV Premier BIDV customers not only enjoy the privileges when dealing with banks, but also have facilities such as airport shuttle and luxury lounges, health care facilities, golf, dining or spa