LV thạc sỹ_Improving consumer lending at Techcombank

LIST OF TABLETable 2.1: Some main figures at Techcombank...24 Table 2.2: Structure of corporate customers...28 Table 2.3: Total outstanding loan at Techcombank...28 Table 2.4: Loan indus

MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY

NEU BUSINESS SCHOOL

….

IMPROVING CONSUMER LENDING AT TECHCOMBANK

MASTER OF BUSINESS ADMINISTRATION THESIS

60.34.05

SUPERVISOR: …

HANOI-.

The preparation of this thesis has depended on the generous support, assistance ofmany people It is a great pleasure to offer my special thanks to them

Firstly, I am very grateful to my supervisor ……

Lastly, I would like to thank to the encouragement to tolerance of my friends, myfamily with their valuable ideas that helped me complete this thesis

TABLE OF CONTENTS

ACKNOWLEDGEMNETS 2

TABLE OF CONTENTS 3

LIST OF FIGURE 5

LIST OF TABLE 7

EXECUTIVE SUMMARY 8

INTRODUCTION 9

1 RATIONALE 9

2 RESEARCH OBJECTIVES 10

3 RESEARCH QUESTIONS 10

4 RESEARCH METHODOLOGY 10

4.1 Sources of data 10

4.2 Method of collecting data 11

4.3 Data analysis 11

5 SCOPES OF RESEARCH AND LIMITATIONS 11

6 RESEARCH STRUCTURE 12

CHAPTER 1 13

THEORETICAL BACKRROUND OF 13

CONSUMER LENDING SERVICE QUALITY 13

1.1 DEFINITION AND CHARACTERISTICS OF SERVICE 13

1.1.1 Definition of service 13

1.1.2 Characteristics of service: 13

1.2 DEFINITIONS OF SERVICE QUALITY AND CONSUMER LENDING SERVICE QUALITY 15

1.2.1 Quality of the service 15

1.2.2 Overview of consumer lending service quality 16

1.2.2.1 Definition of consumer lending 16

1.2.2.2 Characteristics of consumer lending 16

1.2.2.3 The benefits of consumer lending 17

1.2.2.4 Definition of consumer-lending service quality 18

1.2.2.5 The impact of consumer lending service quality to bank’s performance 18

1.3 SERVICE QUALITY INSTRUMENT 21

23

CHAPTER 2 24

ASSESSMENT OF CURRENT CONSUMER LENDING 24

SERVICE QUALTIY AT TECHCOMBANK 24

2.1 OVERVIEW OF TECHCOMBANK 24

2.1.1 Establishment and development 24

2.1.2 Organizational structure 25

2.1.3 Business performance of Techcombank over period of 2007-2009 26

2.2 ASSESSMENT OF CURRENT CONSUMER LENDING SERVICE QUALITY AT TECHCOMBANK 30

2.2.1 Current situation of consumer lending at Techcombank 30

2.2.1.1 Number of products 30

Loan for house 30

Loan for auto 31

Overdraft 31

Loan for tuition 32

2.2.1.2 Number of consumer lending customers 32

2.2.1.3 Outstanding consumer lending growth 33

Source: Annual reports of Techcombank 33

2.2.1.4 Profit of consumer lending 34

2007 34

2008 34

2009 34

Total profit of the bank 34

Total profit of consumer lending 34

Weight 34

34

Source: Annual reports of Techcombank 34

2.2.1.5 Turnover of credit fund 34

Table 2.8: Turnover of credit fund 35

2007 35

2008 35

2009 35

Average total outstanding consumer lending 35

Repayment amount 35

Turnover of credit fund 35

Source: Annual report of Techcombank 35

2.2.1 Measuring consumer-lending service quality at Techcombank 37

2.2.1.1 Result of in-depth interview 37

2.2.2.2 Result of customers’ survey 38

2.2.3 New findings 47

CHAPTER 3: SOLUSIONS TO IMPROVE CONSUMER LENDING SERVICE QUALITY AT TECHCOMBANK 51

3.1 SOLUSIONS TO IMPROVE CONSUMER LENDING SERVICE QUALITY AT

TECHCOMBANK 51

3.1.1 Human resource development 51

3.1.2 Diversifying products and services 52

3.1.3 Developing distribution channels 54

3.1.4 Improving customer care policies 55

3.1.5 Setting a reasonable pricing policy 56

3.1.6 Building "perfect" Call Center 57

3.2 RECOMMENDATIONS 58

3.2.1 Recommendations for Government 58

3.2.2 Recommendations for the State Bank 58

CONCLUSION 59

REFERENCES 60

APPENDIX 1 61

IN-DEPTH INTERVIEW 61

1.How long do you work for this position? 61

2.How do you appraise consumer lending service quality at Techcombank 61

3.In your opinion, what are reasons for disadvantages that you have just given? 61

4.Do you think that Techombank needs to improve consumer lending service quality .61

5.Could you tell me about your solutions to improve consumer lending service quality .61

APPENDIX 2 62

APPENDIX 3 63

APPENDIX 4 64

APPENDIX 5 66

APPENDIX 6 67

APPENDIX 7 68

APPENDIX 8 69

APPENDIX 9 70

APPENDIX 10 71

LIST OF FIGURE Figure 1.1: “Five gaps” model of service quality 21

Figure 1.2: Dimension of Servqual model 23

Figure 2.1: Organizational Structure at Techcombank 26

Figure 2.2: Deposit 30

Figure 2.3: Number of customers 33

Figure 2.4: Outstanding consumer lending growth 33

Figure 2.5: Profit of consumer lending 34

Figure 2.6: Rate of overdue dept 36

LIST OF TABLE

Table 2.1: Some main figures at Techcombank 24

Table 2.2: Structure of corporate customers 28

Table 2.3: Total outstanding loan at Techcombank 28

Table 2.4: Loan industry 29

Table 2.5: International payment and trade finance 29

Table 2.6: Outstanding consumer lending growth 33

Table 2.7: Profit of consumer lending (VND million) 34

Table 2.9 Rate of overdue debt 35

Table 2.10: Rate of non performance loans 37

Table 2.11: The gap between customer’s perception and expectation on reliability dimension 41

Table 2.12: Loan interest rates of banks 42

Table 2.13: The gap between customer’s perception and expectation on responsibility dimension 43

Table 2.14: The gap between customer’s perception and expectation on assurance dimension 43

Table 2.15: The gap between customer’s perception and expectation on empathy dimension .44

Table 2.16: The gap between customer’s perception and expectation on tangibility dimension 45

Table 2.17: Consumer lending products 46

EXECUTIVE SUMMARY

Techcombank (TCB), a joint stock commercial bank of Vietnam, was established in

1993 and current chapter capital is VND 5.400 billion After operating 16 years,Techcombank has been one of the most active banks in term of transaction with largecompanies and financial institutions However, with current high competitive environment,Techcombank needs to improve more its products and services, especially consumerlending service quality

The research objectives of the thesis are to systemize theoretical background ofservice quality, realise the gap between customer’ perception and expectation as well asreasons for consumer lending service quality problems at Techcombank, from that, proposesolutions and recommendations to improve consumer lending service quality

The methodologies is used in the thesis are quantitative and qualitative analysis.Secondary data were collected from the annual reports, newspapers, textbooks, internetsand primary data were gathered via in-depth interview with staffs and credits experts andsurvey Questionnaires of survey was designed based on five dimension of Servqual model,including: Tangibility (5 attributes), Reliability (5 attributes), Responsiveness (4attributes), Assurance (5 attributes), Empathy (4 attributes)

Data collected were analyzed via Statistical Package for Social Science (SPSS)package and Excel The purpose of the survey was to determine the gap betweencustomer’s perception and expectation The result of this research shows that there existssome problems about consumer lending service quality that is not high appreciated bycustomers such as customer care policy is not good; interest rate and fee are notreasonable; products are not diversified; network system limited; lack human resource

This research would propose solutions to further improve consumer lending servicequality at Techcombank, for example, human resource development and reasonable interestrates These solutions were recommended based upon studying of both theoretical aspectand reality assessment of consumer lending service quality Implementing solutions wouldenable consumer lending service quality at Techcombank to be improved best

1 RATIONALE

Today, globalization trend is ubiquitous all around the world, which affects everycountry, all organizations as well as all people Since Vietnam joined World tradeorigination – WTO in 2007, the finance market in Vietnam has been remarkably progressedand banks have also gotten benefits from this accession in term of mobilizing fund.However, the competition amongst domestic banks themselves and with foreign banks andfinancial institutions are becoming fiercer than ever This is why banks are trying to havemore innovative and creative strategies for their sustainable development Among thosestrategies is consumer lending, which is a challenge but profitable Moreover, with theapproximate 86 million people in the 2010 census, Vietnam is considered a very potentialmarket for consumer lending especially where the young adults and adolescences aredominant

Techcombank is one of leading commercial banks in Vietnam with its orientation tothe retail market in which consumer lending accounts for majority The bank has beenaware of consumer credit market for years The bank joined in this market officially since

2000 and obtained certain achievements However, parallel to its success, the bank still has

to improve its service quality in order to keep current clients and attract more customers.Nonetheless, the benefits are shrinking due partially to strict requirements set by theGovernment and mainly to the harsh competition in consumer lending market when thereare more banks to jump into fray thanks to its attraction and profit; foreign banks are not anexception Therefore, Techcombank, in the one hand, gets less benefit from this market and

on the other hand, faces with tough and fierce condition

Since the potentials in consumer lending market and the difficult conditions thatTechcombank is facing, consumer lending is chosen as the topic for this MBA thesis

The research aims to conduct consumer credit service quality studying inTechcombank and then conclusions and recommendations as well are drawn in order toimprove Techcombank’s consumer lending service quality

2 RESEARCH OBJECTIVES

The major objectives in the research are to:

- Systemize theoretical framework of service, service quality, consumer lending,benefits of consumer lending, consumer lending service quality, the impact of consumerlending service quality to bank’s performance as well as instrument to measure servicequality gap

- Analyze and evaluate current situation of consumer lending service quality atTechcombank based on the gap between perception and expectation of customers

- Realize findings of consumer lending service quality at Techcombank

- Propose solutions to improve consumer lending service quality at Techcombank

- What is the gap between customer perceived service quality and customer expectedservice quality?

- How is consumer lending service quality at Techcombank?

- How to improve consumer lending service quality? What are the best ways toimprove consumer lending service quality at Techcombank

4 RESEARCH METHODOLOGY

4.1 Sources of data

The data for this study are both primary data and secondary data

Secondary data

Secondary data were collected from sources as following:

- Bank’s financial reports and annual report;

- Credit documents of Techcombank;

- Legal regulations and documents about bank;

- Magazines, textbooks, the internet;

- And other media which can provide necessary information for the research

Primary data

Primary data were obtained from in-depth interview and survey

4.2 Method of collecting data

The survey was conducted with customers using consumer lending service at 18 branches

at Techcombank in the whole country; as a result, 133 questionnaires were answeredQuestionnaires designed for this research would be based on Servqual model A total of 23attributes were categorized under five dimensions as follows:

5 SCOPES OF RESEARCH AND LIMITATIONS

The study was conducted at Techcombank only as follows:

- The research time was a period from 2007-2009;

- The space scope: Researching factors that affect consumer lending service quality

at Techcombank

Limitations:

This research focuses only on consumer lending service at Techcombank and the

data were 2007-2009 It also gave out solutions to improve consumer lending servicequality at Techcombank only, not for the whole economy and other banks or other services

at Techcombank Limitations of the thesis also lie on its sole research on the consumerlending business environment, instead of comparing working model on consumer lending

of Techcombank to those of other banks who have succeeded in this field

> So this research is for Techcombank, if it were applied for another, we should takefurther and supplemental study

6 RESEARCH STRUCTURE

The research is divided into 3 chapters as below:

Chapter 1: Theoretical background

This charter includes theoretical background, which presents concept of service, qualityservice, characteristics of service and consumer lending, and quality of consumer lendingservice In addition, Servqual scale instrument is also mentioned

Chapter 2: Assessment of current consumer lending service quality at Techcombank

Overview of Techcombank together with analysis and assessment of consumerlending service quality via appraisals of internal staffs and expert/managers and surveyconducted with customers, questionnaires were designed suitable for consumer lendbanking industry from that determining the gap between customer’s perception andexpectation then giving out existing problems

Chapter 3: Solutions to improve consumer lending service quality at Techcombank.

This chapter would propose solutions to further improve consumer lending servicequality at Techcombank, for example, human resource development and reasonable interestrates These solutions were recommended based upon studying of both theoretical aspectand reality assessment of consumer lending service quality Implementing solutions wouldenable consumer lending service quality at Techcombank to be improved best

CHAPTER 1 THEORETICAL BACKRROUND OF CONSUMER LENDING SERVICE QUALITY

1.1 DEFINITION AND CHARACTERISTICS OF SERVICE.

Most authorities consider the services sector to include all economic activities whoseoutput is not a physical product or construction, is generally consumed at the time it isproduced, and provides added value in forms(such as convenience, amusement, timeliness,comfort or health) that are essentially in tangible concerns of its first purchaser(JamesBrian Quinn Jordan J Baruch and Penny Cushman paquette, Scientific Amercicould, vol

Services are perishable in two regards

The service relevant resources, processes and systems are assigned for service deliveryduring a definite period in time If the designated or scheduled service consumer does notrequest and consume the service during this period, the service cannot be performed forhim From the perspective of the service provider, this is a lost business opportunity as hecannot charge any service delivery; potentially, he can assign the resources, processes andsystems to another service consumer who requests a service Examples: The hair dresserserves another client when the scheduled starting time or time slot is over An empty seat

on a plane never can be utilized and charged after departure

When the service has been completely rendered to the requesting service consumer,this particular service irreversibly vanishes as it has been consumed by the serviceconsumer Example: the passenger has been transported to the destination and cannot betransported again to this location at this point in time

Inseparability

The service provider is indispensable for service delivery as he must promptlygenerate and render the service to the requesting service consumer In many cases theservice delivery is executed automatically but the service provider must preparatorilyassign resources and systems and actively keep up appropriate service delivery readinessand capabilities Additionally, the service consumer is inseparable from service deliverybecause he is involved in it from requesting it up to consuming the rendered benefits.Examples: The service consumer must sit in the hair dresser's shop & chair or in the plane

& seat; correspondingly, the hair dresser or the pilot must be in the same shop or plane,respectively, for delivering the service

Variability

Each service is unique It is one-time generated, rendered and consumed and cannever be exactly repeated as the point in time, location, circumstances, conditions, currentconfigurations and/or assigned resources are different for the next delivery, even if thesame service consumer requests the same service

Each of these characteristics is retractable per se and their inevitable coincidence

complicates the consistent service conception and make service delivery a challenge ineach and every case Proper service marketing requires creative visualization to effectivelyevoke a concrete image in the service consumer's mind From the service consumer's point

of view, these characteristics make it difficult, or even impossible, to evaluate or compareservices prior to experiencing the service delivery

Mass generation and delivery of services is very difficult This can be seen as aproblem of inconsistent service quality Both inputs and outputs to the processes involvedproviding services are highly variable, as are the relationships between these processes,making it difficult to maintain consistent service quality The human factor is often the keysuccess factor in service economies

1.2 DEFINITIONS OF SERVICE QUALITY AND CONSUMER LENDING SERVICE QUALITY

1.2.1 Quality of the service

Quality of the service is the degree of conformance of all the relevant features andcharacteristics of service to all the aspects of the consumers’ needs limited by the price anddelivery she/he will accept

Zeithaml & Bitner (2003: 85) states that: "Service quality is a focused evaluation thatreflects the customer's perception of specific dimensions of service: reliability,responsiveness, assurance, Empathy, tangibles Satisfaction, on other hand, is moreinclusive: it is influenced by perceptions of service quality, product quality, and price aswell as situational factors and personal factors

Service quality affects customer satisfaction by providing performance (realbenefits) For example, if consumers believe they have entered the McDonald's restaurant,they will get food, service, high quality everywhere the same, no matter the location of therestaurant, put forward by Millend M Lele (1995: 126)

"The creation of customer satisfaction can provide several benefits, including therelationship between companies and consumers are harmonious, providing a good basis forthe purchase and re-creation of customer loyalty, and form a recommendation by word ofmouth that can benefit the company" (Fandi Tjiptono, 1997: 24)

1.2.2 Overview of consumer lending service quality

1.2.2.1 Definition of consumer lending

Many definitions of consumer lending are available but all of them have a commonidea that consumer lending is intangible and simultaneous consumption Some of consumerlending definitions are as follows:

- Consumer lending is a direct or indirect form of credit financing that supports forcitizens’ demand (individuals and households) for their expenditure of such as housing,transport, car or services of education, health, tourism and so forth before they will haveadequately accumulated

- Consumer lending is sometimes called retail lending and both of them refer tosecured or unsecured loans, including nearly all lending other than that of mortgages orcommercial loans Consumer lending is offered for cars, boats, home equity loans or lines

of credit, signature loans, and even certificates of deposit, stocks and mutual funds

- Consumer lending includes loans for other personal financial needs, including thegranting of overdraft lines of credit and the purchase of consumer loan accounts fromretailers or other lenders

- Consumer lending is also understood that banks can offer a completed suite oflending products for retail customers These include personal loans, vehicle loans,mortgages, home-saving products, top-up loans, loans with flexible repayment schedules,equated-installment loans

- The division of retail banking that deals with lendingmoney to consumers This includes a wide variety of loans, including credit cards, mortgage loans, and auto loans, and can also be used to refer to loans taken out at either the prime rate or the subprime rate

1.2.2.2 Characteristics of consumer lending

High interest rate: Scale of each loan is small and cost of loan is high, so interest rate

of consumer lending is higher than other loan types

Depending on economic cycles: When the economy prospers, living standard is

improved, demand for consumer lending increases, especially on holidays, the demand forshopping goes up and as the results, the demand of loans may climb accordingly;

Depending on income and education: Demand for customer lending depends on

strictly on income and education level Specifically, those who have higher incomes tend toborrow more than their annual income For them, borrowing as a tool to achieve thedesired standard of living rather than an option used only in emergencies, customers regard

it as a loan flexibility to spend money when they have accumulated capital of medium orlong term investment.

High level of risk: Although its procedure is quite simple, however, after supplying

loan for customers, if the bank doesn’t control strictly, it will causes high risk for the bank

If the borrowers die, ill or lose job, the bank will be difficult to recover debt

Mainly individual customers: Customers are mainly individuals

Difficult to assess customers characteristics and condition: Dignity, legal status of

customers is quite difficult to determine, based mainly on assessment, feeling andexperience of credit officer, so assessing loan is quite sensitive

Difficult to assess customer income: Verification of income and expenditure of

customers is difficult, often based on salary, accumulation It is not clear evidence

1.2.2.3 The benefits of consumer lending

a) Benefits for banks

Consumer lending brings to banks benefits and advantages, including:

- Consumer lending is a way to enhance profit for banks Similar to other kinds oflending, banks provide fund for customers and get interest or fee for using money from thisactivity However, the difference between consumer lending and others is that its interestrate is usually much higher At the same time, the number of individuals and householdsoutweigh that of enterprises Therefore, consumer market is very large and potentialprofits

- Create habits for people to access services, products of the bank As consumerlending activities increase, it makes positive impacts on production expansion then pushdemand for enterprise lending also goes up Chain reaction occurs as increased production,income and living standard of people increase, demand for consumer lending increase

- Consumer lending as a way of diversifying the investment of the bank, thus,helping the bank increase income and reduce risk The bank can enhance relationship withcustomers, thereby enhancing ability to mobilize fund

- Consumer lending is also a very effective marketing tool, which enhances thecompetitive ability of banks and increase its business outcomes

b) Benefits for consumers

Thanks to consumer lending, customers can use service as they desire althoughbefore they are not financially able to perform The growth of the economy has madepeople’s living standards rise Habits accumulated are gradually replaced by a newconsumer behavior of people familiar with the products and services of banks to create a

comfortable life even with capital support from banks Especially young people, adultswith low – income, they haven’t enough money to buy houses, cars and other householdgoods, it helps them have a stable life, accordingly give them great motivation to work,save, and take care of children

In addition, consumer lending contributes to exploit all potential customers Itsupports individuals to develop their business, stimulate production and increase speedingneed

Definition of consumer lending service quality

c) Benefits for the whole economy

In parallel with the satisfaction of essential needs, improving quality of life,consumer lending boosts the consumption of goods and production development thenexpending, improving efficiency and increasing competitiveness in the supply of products,makes the economy vibrant

Through consumer lending services, commercial banks contribute to stimulate theeconomy and raise competitiveness of domestic goods, thereby supporting the State toachieve the economic goals as GDP growth, rising per capital income

Besides economic benefits, consumer lending also help the State achieve socialgoals such as poverty alleviation, job providing, reducing social evils

1.2.2.4 Definition of consumer-lending service quality

Consumer-lending service quality is capability of consumer lending service to satisfycustomers’ expectation In other words, it is the gap between what customers expecttoward a service and what they actually receive

1.2.2.5 The impact of consumer lending service quality to bank’s performance

Today, many banks strengthen development of consumer lending, thereforeassessment of consumer lending quality is very necessary It reflects the bank’s adaptability

to change of environment as well as ability of banks in operation for survival anddevelopment, thus, as evaluating the credit quality, along with using entrustments as below,

it is necessary to consider bank’s performance indicators

a) Outstanding consumer lending growth

Outstanding consumer lending growth reflects both volume of consumer lending andquality of consumer lending If this outstanding consumer lending growth increasespositively over years, it proves that consumer lending activities in the bank develop welland stably, and the quality of consumer lending is also improved However, if this figure

decreases to less than zero, it shows that volume of loans reduces; it is affected by somereasons: quality of services, staff’s experience and skill, policies of the bank.

Growth of outstanding consumer lending = (Total of outstanding consumer lendingthis year – Total of outstanding consumer lending in previous year) / Total of outstandingconsumer lending in previous year

b) Profit from consumer lending activities

The higher the profits are the better consumer lending activities develop The quality

of consumer lending are directly proportional to this figure If the figure is higher overtime, it proves that outstanding consumer lending increases; and customers repay principal,interest and other costs in time as per negotiated credit contracts

Besides, other criteria also reflect consumer lending quality as follow:

Rate of contribution = Profit from consumer loans / Total loans

This rate reflects attractive level of consumer loan in comparison with other loansand the higher this rate is, the more improved consumer lending quality is

c) Turnover of credit fund

Turnover of credit fund shows both management ability of credit fund and creditquality If this indicator is high, then the bank’s lending funds have taken part in a greatdeal of processes of productions and circulations of goods It also shows that the bank meetcustomer’s demand timely and lending fund management and credit quality are good andvice versa

Return of credit fund = repayment volume/ average total outstanding loans

d) Rate of overdue consumer debt

Overdue debt means that time of debt has matured but customers have not repaid andperhaps they are default

Rate of overdue consumer lending debt = Overdue debt of consumer debt/ Totaloutstanding consumer loans

This rate reflects the quality of consumer lending activities If higher this rate is, thebetter quality of consumer lending is and vice versa

Rate of overdue consumer debt shows credit risk

The determination of credit risk is based on three key parameters

- Probability of Default (PD): One credit organization calculates the PD for eachindividual customer of group This method is called direct estimation PD expresses theprobability of the defaulting on his/her payment obligations With respect to othercustomer groups, statistical models have been developed based on conditional probabilities

estimating PDs that factor in business-specific circumstances such as accounting figures aswell as industry-specific conditions and the macroeconomic climate External ratings areused to a very limited extent External ratings are translated into PDs PDs are updated asthe credit organization receives new information about general economic conditions or thecustomer Updates take place at least once a year The accuracy of the estimated PDs can

be assessed by comparing the estimates at the beginning of the year with the PDs observed

at year-end A customer rating is an important element of the credit policy and customerassessment Ratings are also applied to increase the efficient of credit granting proceduresand to monitor exposures of low credit quality Group credits may, if so recommended,allow that a calculated rating be replaced by a rating made by a credit especialist

- Loss given default (LGD): The LGD, which is calculated for each customerexposure, reflects the percentage share of the exposure which is expected to be lost if acustomer defaults on a loan The LGDs of the majority of the group’s exposures aredetermined using internal approaches based on loss and default data LGD factors in anysecurity such as mortgages on real property, including the type of security, its quality andranking in the order of priority One credit organization calculates losses as the group’sreceivables Furthermore, costs incidental to dept collection and proceeds from collaterals,payments from customers The loss on a defaulting borrower cannot be determined untilthe case has been finally settled LGDs vary with economic trends In a favorableeconomic climate, default with often not lead to any loss as the value of the security willtypically exceed the value of the loan To obtain a meaningful operarison, it is thereforenecessary to recalculate the estimated LGDs at the beginning of the year into point-in-timeestimates Point in time estimated LGDs, which both reflect the current economic climate.Mortgage banking is characterized by low LGDs as the security provided by way ofmortgages on real property offers good protection against losses The credit organization’suse of security is described in more detail in the section about security

- Exposure value (EV) and conversion factor (CF): EV is estimated for all exposures of acustomer and reflects the total expected exposure to the customer at the time of default,including the utilization of any commitment granted through conversion factors (CF) CF isonly estimated for products subjects to flexible utilization, for example, revolving exposures,equity withdrawal, credit lines, loan offers, etc In respect of non – performing exposuressubject to flexible utilization, the credit maximum has often been reached or exceeded at the time

of default This applies to revolving exposures and similar credit facilities, for which reason thecredit organization applies a conversion factor above probability of Default

1.3 SERVICE QUALITY INSTRUMENT

Measuring the quality of a service seems to be difficult exercise Unlike productswhere there are specific specifications such as length, depth, width, weight, colour etc aservice can have numerous intangible or qualitative specifications In addition there isthere expectation of the customer with regards the service, which can vary considerablybased on a range of factors such as prior experience, personal needs and what other peoplemay have told them

In order to assess service quality, this study used a well known Servqual instrumentthat was presented by Parasuanman Servqual was a widely-tested instrument formeasuring service quality (Carman, 1990, Chia 1997, Xiao & Chollett, 1997, Durvasula,Lysonski & Mehta, 1999, Mah, 1994, Mangold & Babakus, 1991, Steward, Hope&Muhlemann, 1998) There were five gaps in the Gap model, namely, the discrepancybetween the perceived service and management’s perceptions of customer expectation, thetranslation of the management’s perceptions into service quality specifications, thetranslation of these specifications into service quality, and the external communications ofthese service quality to customers and finally, the customer’s expectation and theirperception of the actual service delivered by the organization

Figure 1.1: “Five gaps” model of service quality

Perceived Service

Expected Service CUSTOMER

COMPANY

Customer Gap

Gap 1

Gap 2

Gap 3

External Communications to Customers Gap 4

Service Delivery

Customer-Driven Service Designs and Standards

Company Perceptions of Consumer Expectations

Gap 1: The difference between management perceptions of what customers expectand what customers really do expect

Gap 2: The difference between management perceptions and service qualityspecifications - the standards gap

Gap 3: The difference between service quality specifications and actual servicedelivery - are standards consistently met?

Gap 4: The difference between service delivery and what is communicated externally

- are promises made consistently fulfilled?

Gap 5: The difference between what customers expect of a service and what theyactually receive

Expectations are made up of past experience, word-of-mouth and needs/wants ofcustomers

Measurement is on the basis of two sets of statements in groups according to the fivekey service dimensions

Reasons for the gaps:

GAP 1 Not knowing what customers expect

GAP 2 The wrong service quality standards

GAP 3 The service performance gap

GAP 4 When promises do not match actual delivery

GAP 5 The difference between customer perception and expectation

The methodology based on around 5 key dimensions:

TANGIBILITY - the appearance of physical facilities, equipment, personnel andinformation material

RELIABILITY - the ability to perform the service accurately and dependably

RESPONSIVENESS - the willingness to help customers and provide a promptservice

ASSURANCE - a combination of the following competence - having the requisiteskills and knowledge, courtesy - politeness, respect, consideration and friendliness ofcontact staff, credibility - trustworthiness, believability and honesty of staff and security -freedom from danger, risk or doubt

EMPATHY - a combination of the following:

Access (physical and social) - approachability and ease of contact

Communication - keeping customers informed in a language they understand andreally listening to them

Understanding the customer - making the effort to get to know customers and theirspecific needs.

Below is an illustration of the SERVQUAL Model

Figure 1.2: Dimension of Servqual model

According to this model, the service quality is a function of perception and

expectations and can be modeled as:

1

) (

SQ = overall service quality, k = number of attributes

Pij = Performance perception of stimulus i with respect to attribute j

Eij = Service quality expectation for attribute j that is the relevant norm for stimulus iThe higher SQ is, the better service quality and vice versa

CHAPTER 2 ASSESSMENT OF CURRENT CONSUMER LENDING

SERVICE QUALTIY AT TECHCOMBANK

2.1 OVERVIEW OF TECHCOMBANK

2.1.1 Establishment and development

Vietnam technological and commercial joint stock bank – Techcombank wasestablished on July 27th , 1993 aiming to become an efficient financial intermediarybridging between the savers and the investors for capital demand for business andeconomic development in the open door era Its head quarter is at 70-72 Ba Trieu street, Hanoi

After operating16 years, Techcombank has been one of the most active banks interm of transaction with large companies and financial institutions Its charter capitalconstantly rises The initial capital was VND 20 billions only, now Techcombank hasregistered capital of VND 5.400 billion, total asset of VND 92.581 billion The system ofbranches and transaction points has been continually expanding By the early of 2010, thetotal of branches and transaction points up to 52 branches and 160 transactions points in 40cities and provinces throughout Vietnam

Table 2.1: Some main figures at Techcombank

Source: Annual reports at Techcombank.

The bank’s partnership

Together with the successful of Techcombank, there are important contributions ofleading domestic and international partnership

Hong Kong Shanghai Banking Corporation-HSBC

HSBC has become TCB’s strategic partner since 2006, with 10% its stake Up to

2008, HSBC’share was up to 20%, the maximum ownership of foreign bank is allowed tohave for a local bank As strategic partner of Techcombank, HSBC can supportTechombank for management capabilities and technological know-how

TCB’s management team has been strengthened with helps from several keyexecutives from HSBC The positions help by such personnel, Head of personal FinanceService (PFS) division, Chief Risk Officer, CFP division, Chief Risk officer, CFO, Head ofCollections, and IT security consultant This is a strategic strength for TCB as other JSCBswith strategic alliances with international institutions have not received the same degree ofhands-on operational support from its partners Further, TCB has been able to leverage onHSBC’s ATM network to expand its customer reach and jointly promote a wide range ofbanking products including retail lending and deposit products, trade finance, treasuryproducts, derivatives and remittance services

Vietnam airlines corporations

TCB has been able to tie up with the national carrier, which is also a shareholder ofthe bank to develop a co-branded credit card that offers the cardholder numerous privilegesfrom both Vietnam Airlines and TCB It has been to further leverage on this relationship byarranging aircraft leasing for six new aircraft in collaboration with HSBC and CreditSwiss TCB currently handles the cash management and payroll functions for several of itssubsidiaries TCB expects to strengthen this relationship in the future through offeringmore products and services to the national carrier

2.1.2 Organizational structure

The existing banking management system will be continued to improve viaestablishing the professional departments responsible for building strategic development,risk management…such as: strategic investment council, executive committee of EXCO,assets management committee, human resource and compensation committee, audit andrisk committee, internal audit and so on in order to enhance management quality, controlquality and executing quality

In addition to banking business activities, TECHCOMBANK system hasestablished a membership bank and three subsidiaries those are: Techcombank securitiescompany LLC, Techcombank assets management company, one-member company forliabilities and assets management

Figure 2.1: Organizational Structure at Techcombank

Source: Annual reports of Techcombank

2.1.3 Business performance of Techcombank over period of 2007-2009.

After blooming economic period with a series of big investment projects, securitiesfirms, financial investment companies, in 2008, the economy of Vietnam was hit by theworld financial crisis and economic volatilities that led to worse conditions such asinflation, trade deficit, crashed stock and real state market In order to limit the adverseimpacts from economic crisis, the Government and State bank have gradually imposedmacro policies, which focused on tightening currency policy Meanwhile, financial crisisspread globally made several giant financial co-operations collapsed

In such situation, like other commercial banks, Techcombank faced many difficulties

in business operations However, with large financial potentials, Techcombank hasgradually overcome challenges to achieve its target setup and asserted as strong and stablebank as well as it is one of important link in system bank

At the end of fiscal year 2008, total raised fund reached VND 41.365 billion,increasing by 64.54% compared to the end of 2007, accounted for 68.68% of total assets ofthe bank Thanks to strong finance, Techcombank became one of few banks maintaining itsliquidity well in difficult situation of the economy Hence, as of September 2009, totalraised fund reached VND 65,000 billion

Lending activities

At the end of 2009, total loans reached VND 42,092,767 billion, increasing by 62%comparable with late 2008 and 110% with 2007 The bank always controls overdue loansunder 2% In order to become the best retail bank in Vietnam, Techcombank acceleratesretail market In 2007, total retail market loans were VND 7,480 billion; and in 2008 due tonumerous difficulties in the market, it reduced the growth of total outstanding loans forindividual customers At the beginning of 2009, the economy recovered, the demand forconsumer increase sharply, Techcombank diversify its products including: Cards, homeloans, over drafts, overseas study loans at the end of 2009, total retail market reachedVND 14.102 billion

Techcombank also pays special attention to traditional products and services that aim

at enterprises Having understanding of the specific operations and demands of certaingroup of businesses, the bank offers specialized products and services for different marketsegments, such as large corporations, medium-sized enterprises (MMEs), small andmedium-sized enterprises (SMEs), micro, small and medium enterprises (MSMEs) andbusiness households In 2008, Techcombank continued to make radical changes in theorganizational structures at the head office, branches, and sale outlets (TSOs) in order toserve business customers in a more professional maner Techcombank conducted marketresearch for each segment so as to develop and offer competitive and flexible financialsolutions and products as appropriate Commercial banking services for SMEs continued to

be the bank’s core business In 2008, Techcombank implemented a business strategytargeting SMEs in line with the consultancy of the Interanational Financial Corporation(IFC), a member of the World Bank Group This strategy is in consistence with the bank’svision and corporate customers’ demand: to become a leading bank in terms ofdiversification, reliability, quality, and efficiency

Realising the bank’s efficient operations and reputation, many large multilateralfinancial institutions such as World Bank, the Asian Development Bank (ADB), and theSwiss state Secretarial for Economic Affairs bank (SECO) have selected Techcombank as adisbursement bank for their projects that help SMEs again access to soft loans to renewtechnology and buy environmentally friendly and energy-saving equipment.

By the end of 2009, Techcombank corporate outstanding loan had more than VND28.010 billion, increasing by 74% compared to late 2008 and up 129% against late 2007

Table 2.2: Structure of corporate customers.

For large corporate customers, the Bank prioritizes the availability of funds for separateprojects

For MSMEs and household business in 2009, Techcombank took the lead inproviding this important sector with standardized financial packages such as: “Micro-banking financing” and “supplier financing” These packages have clear term sheets, quicklending procedures, and flexible collateral, suitable to trading households and MSMEsoperating in various fields

Table 2.4: Loan industry

& processing

Logistics,transportation

&

communication

Others

Source: Annual reports at Techcombank

International payment and trade finance

Techcombank took the initiative in launching new products and services such asfinancing with preferential interest rates and export bill collection to create moreconvenience and added value services to customers and to improve the Bank’s operationefficiency

With a wide network of correspondent banks in nearly 100 countries in the world,The Bank continued to confirm our position as the best bank in terms of internationalpayments and trade finance among joint stock banks in Vietnam The total internationalpayment volume increase 45% in 2009 to USD 4.886 billion Techcombank was also thefirst bank in Vietnam for which the IFC raised its guarantee limit up to USD 50 million inthe framework for the Global trade finance program(GTAFP) for issuing banks

Table 2.5: International payment and trade finance

Techcombank’s guarantees are accepted by many foreign and domestic banks andenterprises because of the Bank’s strong financials and well establishes reputation in themarket Currently, Techcombank provides the following types of guarantees:

- Bid bond guarantees

- Counter guarantees

- Other guarantees

Deposit

Figure 2.2: Deposit

Source: Annual reports at Techcombank

Deposits by individuals grew rapidly despite fluctuations, contributing to the highliquidity of the bank As of late 2009, total personal customer deposits were VND42.803.680, increased by 44% compared to 2008 and higher 3 times than 2007 This is thehighest ratio in commercial banks in Vietnam

Meanwhile, deposits by institutions also increase rapidly, 2009 total deposits wereVND 19.543.720 billion, up 73% against late 2008 and 94% against late 2007 due to in

2008, Vietnam economy slumped so it made difficult situation for financial field andcoming to early year 2009, the economy began recovery, demand for investment as well assaving increased

2.2 ASSESSMENT OF CURRENT CONSUMER LENDING SERVICE QUALITY

AT TECHCOMBANK

2.2.1 Current situation of consumer lending at Techcombank

2.2.1.1 Number of products

Techcombank has launched some consumer lending products including:

Loan for house

A comfortable house is one of the desires of any family Understanding this desire,Techcombank is willing to help customers fulfill their dreams With the bank’s “newhome” product, customers will be financed for buying new houses, repairing or buildinghouses and transferring land- use rights

Properties

VND 100 million 240 months

- Interest rate: Depends on the existing regulations of Techcombank

- Repayment schedule:

+ Monthly installment payment

+ Early repayment: customers have to acknowledge their early repayment toTechcombank and bear an early repayment fee depends on existing regulations ofTechcombank

Loan for auto

A car brings customers convenience, luxury and value in life- Techcombank is ready

to finance the car of their dream

80% 48 months House, land-use rights

75% 48 months New car (100% new whose value > VND1 Billion).70% 48 months New car (100% new, whose value < VND1 Billion).65% 48 months Used car (imported- used car under 5000km, car used

in high conference, tenders)50% 36 months Used car (second hand cars, cars have components

imported from China)

- Interest rate: depends on the existing regulations of Techcombank

Repayment Method: Monthly installments

Overdraft

Overdraft of Techcombank is called F@stAdvance

F@stAdvance allows customers to overspend the amount in VND accounts opened atTechcombank to a certain credit line to have a standby amount for unexpected expenses.

Features

- Two types of F@stAdvance:

credit limit

Maximumloan termSecured

VND100 million 12 months

- Interest rate: Paid daily and it depends on the existing regulations of Techcombank

Loan for tuition

Features

- Currency: VND, USD, EUR,etc

Up to 70% of total overseas studying cost (including living

expenses, tuition fees, insurance premiums, visa and passport

fees, language studying fees, airfares, etc.)

- Funds will be transferred directly to university’s account

2.2.1.2 Number of consumer lending customers

In recent years, quantity consumers of consumer lending has grown rapidly, in 2007the number of customers to the bank is 1455 people, in 2008, the figure rose to 1831

people Coming to year of 2009, along with the strong brand development, many peoplehave realized more about consumer products of Techcombank, so the numbers ofcustomers was up to 2.929 people Hence, within 3 years, the number of customers hasincreased steadily, more than 2 times This also shows the prestige and quality of the bank

in market, the products of the bank satisfies almost the demands of people

Figure 2.3: Number of customers

Source: Annual reports at Techcombank

2.2.1.3 Outstanding consumer lending growth

Table 2.6: Outstanding consumer lending growth

Total outstanding of consumer lending loans 5.915 7.954 15.989

Figure 2.4: Outstanding consumer lending growth

Source: Annual reports of Techcombank

This figure shows that outstanding consumer lending growth was high but not stable,

it is affected many factors, in which mainly domestic and region economic situation In

2007, its growth was 97% and total outstanding consumer lending loan was VND 5.915billion, coming to year 2008, its growth decreased sharply to 34% and in 2009, consumerlending activities recover strongly, its growth increased to 101% and total outstanding loanwas VND 15.989 billion.

2.2.1.4 Profit of consumer lending

Table 2.7: Profit of consumer lending (VND million)

Total profit of consumer lending

78,173 115,889 265,999

Figure 2.5: Profit of consumer lending

Source: Annual reports of Techcombank

Similar to outstanding consumer lending indicators, profit of consumer lendingincreased year over year In 2007, it reached VND 78,173 million; its weight was 11% oftotal profit, coming year 2008, profit of consumer lending was VND 115,889 million andgrowths of this loan profit was 48%, its weight was 7% of total profit and 2009, profit ofconsumer lending was VND 265,999 million and growth of its was 130% It also improvesthat more and more role of consumer lending plays important in banking activities

2.2.1.5 Turnover of credit fund

Table 2.8: Turnover of credit fund

Average total outstanding

Source: Annual report of Techcombank

This rate increased year to year It proves that ability of controlling loan at the bank

is improved from that consumer lending quality also increases In 2007 total repaymentamount was NVD 11.830 billion and return of repayment loan was 2, in 2008, totalrepayment consumer lending was VND 16.703 billion, return of repayment was 2.1 andcoming to year 2009, this rate increased to 2.5 and repayment consumer lending alsoincreased relevant to VND 39.972 billion

2.2.1.6 Rate of overdue debt

Table 2.9 Rate of overdue debt