Service quality and customer service performance the case of vietnam joint stock commercial bank for private enterprises

Conscious of this fact, in recent year VPBank has placed great importance onimproving service quality, thus all dimensions of service quality were concerned but the contribution level of

vietnam national university, HANOI

school of business

Nguyen Quynh Trang

Service quality and customer service

performance – The case of vietnam joint stock commercial bank for private enterprises

Major: Business Administration

Code : 60 34 05

Master of business administration thesis

Supervisors:

1 Dr.PHAM THI NHUAN

2 DANG NGOC SU, MBA

Hanoi – 2007

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

ABSTRACT ii

TÓM TẮT iv

TABLE OF CONTENTS vi

LIST OF ABBREVIATIONS viii

LIST OF FIGURES ix

LIST OF TABLES x

INTRODUCTION 1

1 Rationale 1

2 Objectives & aims 1

3 Hypotheses 2

4 Scope of work 2

5 Data resource & processing 3

6 Methods & approaches 3

7 Significance 3

8 Limitations 4

9 Expected results 4

10 Follow –up (potential) 4

11 Thesis structure 4

PART 1: LITERATURE REVIEW AND RESEARCH METHODOLOGY 6

CHAPTER 1: LITERATURE REVIEW 6

1.1 The nature of services and Characteristics of services 6

1.1.1 Why study services? 6

1.1.2 What is service? 6

1.1.3 Characteristics of services 6

1.2 Managing service quality 8

1.2.1 Service quality 8

1.2.2 Dimensions of service quality 8

1.2.2.1 Reliability 8

1.2.2.2 Empathy 9

1.2.2.3 Assurance 9

1.2.2.4 Responsiveness 9

1.2.2.5 Tangibles 10

1.2.3 Results of previous researches 10

1.2.4 The effect of employee behaviors on service quality dimensions 11

1.3 Measure of customer service performance 11

CHAPTER 2: RESEARCH METHODOLOGY 14

2.1 Study Design 14

2.2 Measures 14

2.3 Sampling 16

2.4 Data collection 17

2.4.1 Method of data collection 17

2.4.2 Questionnaire design 18

2.4.3 Questionnaire pretest 18

2.4.4 Respond rate 18

2.4.5 Procedure of Purification, Validity and Reliability 18

2.4.5.1 Procedure of purification and validation 18

2.4.5.2 Procedure of reliability 19

2.5 Summary 20

PART 2 STATUS OF VPBANK AND DATA ANALYSIS 21

CHAPTER 3: STATUS OF VPBANK 21

3.1 General overview of VPBank 21

3.1.1 Vision and Mission 22

3.1.2 Core value and Business areas 22

3.2 Foundation and development process 23

3.3 Organization structure 25

3.4 Employees and Training Programs 26

3.5 Products & Services 26

3.6 Business operation results in 2006 26

3.7 Achievements 28

3.8 Orientation of business activities for 2007 29

CHAPTER 4: DATA ANALYSIS 31

4.1 Descriptive statistics 31

4.1.1 Demographics of the sample 31

4.1.2 Descriptive statistics of study scales 32

4.1.2.1 Descriptive statistics for five dimensions 33

4.1.2.2 Descriptive statistics of customer satisfaction 36

4.2 Reliability Test 37

4.3 Factor analysis 37

4.3.1 Factor analysis for reliability 38

4.3.2 Factor analysis for empathy 40

4.3.3 Factor analysis for tangible 42

4.3.4 Factor analysis for responsiveness 44

4.3.5 Factor analysis for assurance 46

4.4 Analysis of Relationships 48

4.4.1 Scatter grams 48

4.4.2 Collinearity problem 49

4.4.3 Multiple regressions analysis 49

4.4.4 Hypotheses Test 53

4.5 Summary 55

PART 3: CONCLUSION AND RECOMMENDATIONS 56

CONCLUSION 56

RECOMMENDATIONS 58

REFERENCES 64 APPENDICES

LIST OF ABBREVIATIONS

VPBank: Vietnam Joint Stock Commercial Bank for Private EnterprisesCJS Bank: Commercial Joint- Stock Bank

CA's: Cronbach's Alpha

VIF: Variance inflation factor

CS: Customer satisfaction

LIST OF FIGURES

Figure 1.1 Customer Perceptions of Quality and Customer Satisfaction

………… 12

Figure 3.1 VPBank's Organization Chart 25

Figure 3.2 Safety assurance ratios 27

Figure 3.3 mobilized Capital source 27

Figure 3.4 Structure of outstanding loans 28

Figure 4.1 Scree Plot of Reliability 40

Figure 4.2 Scree Plot of Empathy 42

Figure 4.3 Scree Plot of Tangible 44

Figure 4.4 Scree Plot of Responsiveness 46

Figure 4.5 Scree Plot of Assurance 48

LIST OF TABLES

Table: 2.1 Measurement of five dimensions of service quality 15

Table 2.2 Measurement of Bank's Performance 16

Table 4.1 Demographic Descriptive Statistics 32

Table 4.2 Descriptive Statistics for Reliability 33

Table 4.3 Descriptive Statistics for Empathy 34

Table 4.4 Descriptive Statistics for Tangible 34

Table 4.5 Descriptive Statistics for Responsiveness 35

Table 4.6 Descriptive Statistics for Assurance 36

Table 4.7 Description Statistics of Customers' Satisfaction 36

Table 4.8 Reliability Statistics 37

Table 4.9 Total Variance Explained - Reliability 39

Table 4.10 Factor solution for Reliability 39

Table 4.11The Total Variance Explained - Empathy 40

Table 4.12 Factor solution for Empathy 41

Table 4.13 Total Variance Explained - Tangible 42

Table 4.14 Factor solution for Tangible 43

Table 4.15 Total Variance Explained - Responsiveness 44

Table 4.16 Factor solution for Responsiveness 45

Table 4.17 Total Variance Explained - Assurance 46

Table 4.18 Factor solution for Assurance 47

Table 4.19 Collinearity Statistics 49

Table 4.20 Results of Multiple Regressions 50

Table 4.21 Ranking the importance of dimensions

52

Appendix A: QUESTIONNAIRE 58

1 Rationale

Joining the WTO, the Vietnam banking system has been heavily influenced

by the international financial market in terms of exchange rates, interest rates andforeign currency reserves, while they must simultaneously carry out internationalobligations and commitments Competition will probably become much strongerwhen foreign banks expand their scale and scope of operations in the Vietnamesemarket Vietnamese commercial banks will need to cope with many difficulties in

expanding their banking activities in the world and competing with foreign banks

whose strength of capital, technology, services and global operational scale providethem with potential advantages

Before these challenges, Vietnamese commercial banks, especially JointStock Commercial Banks have been giving out many strategies such as wideningbranches, interest competitiveness, or promotion campaigns, and so on However,

all of them recognized that service quality was critical element to attract customers

and necessary for effective competition

Conscious of this fact, in recent year VPBank has placed great importance onimproving service quality, thus all dimensions of service quality were concerned but

the contribution level of each dimension of service quality has not identified yet.

Therefore, its needs to identify the relative importance of each quality

2 Objectives & aims

Objectives of study

The objective of this research is to investigate the relationship between fivedimensions of service quality and Customer Service Performance of VPBank

Aims of study

VPBank's managers can use this instrument as a baseline for a longitudinal

branch or from year to year

3 Hypotheses

In this study, five dimensions of service quality including reliability, empathy,tangible, responsiveness and assurance were employed to evaluate the impacts ofthose dimensions on customer service performance of VPBank A below researchmodel shows five relationships converted into five hypotheses

Reliability

Performance ofVPBank -Hanoi

target customers are retail customers of VPBank Because of the time and resourceslimitation to survey, this research surveys at VPBank Hanoi branch.

5 Data resource & processing Data resource

In view of the research's nature and in order to ensure the reliability of the

findings, it becomes necessary to collect data from primary source A survey was

therefore undertaken through hand- distributed questionnaire technique.Questionnaires were personally delivered to and collected from customers cameVPBank to implement transactions during the period of survey

Data Processing

After collecting the raw data, these data must be transformed intoinformation that will answer the manager's question The conversion of raw datainto information requires that the data was edited and coded so the data may be

transferred to a computer and SPSS software version 13.0 for Windows was used to

analyze data Each possible response to each question in the questionnaire wascoded in the ways that conform to the requirements of this program After the datawas coded, the data were then ready to be analyzed

6 Methods & approaches

This study used quantitative method to collect information about theperceived personality through a questionnaire All responses in questionnaireexpressed in numbers analyzed quantitative

7 Significance

For theoretical significance: The research enhances understanding of how five

dimensions of service quality with customer satisfaction were In addition, it adds tothe knowledge of services marketing and research marketing

For empirical significance: This is the first empirical study to date in VPBank to

examine the relationships between five dimensions of service quality and customerservice performance of VPBank at Hanoi branch VPBank's managers can use thisinstrument as a baseline for a longitudinal benchmarking program Having abaseline will give VPBank's management a means of comparing its performancefrom branch to branch or from year to year Moreover, VPBank managers can use

the data to determine if they are performing well or poorly in the specific aspects ofthe service experience It is much easier to improve services if management knowswhat needs to be improved Having this information will help managers allocatefunds or resources towards areas that most need improvement.

8 Limitations

Like other researches, this study has also several limitations Because thescope of this research focuses only on individual customer group of VPBank, andsurvey test only VPBank Hanoi branch Moreover, this study is also limited bothtime and resources

9 Expected results

The result of this study showed positive effects for reliability, empathy,tangible, responsiveness and assurance on customer service performance.Regression analysis has been applied to identify the relative importance of thequality dimensions Standardized beta coefficients are the parameters used todetermine the contribution of each dimension The higher the score is , the moreimportant the dimension is

10 Follow –up (potential)

The finding reported in this study offer several suggestions for futureresearch In future, researcher can cover more service categories and with largedatabase to identify more dimensions to add to the service quality construct such astechnology

an explanation of the measurement, sampling method, data collection, andprocedure of purification, validity, and reliability.

The second part of this study, named, "Status of VPBank and Data analysis"contains chapters three and four The purpose of this part is to introduce generalinformation about VPBank in chapter 3 and chapter 4: Data analysis presenteddiscussion of the study's finding

Finally, part three, titled "Recommendations and Conclusion" will review thefindings and give recommendations for the findings

PART 1: LITERATURE REVIEW AND RESEARCH

METHODOLOGY

CHAPTER 1: LITERATURE REVIEW

1.1 The nature of services and Characteristics of services

1.1.1 Why study services?

Modern economies are driven by service businesses, both large and small Services are responsible for the creation of a substantial majority of new jobs, bothskilled and unskilled, around the world The service sector includes a tremendous variety of different industries, including many activities provided by public and nonprofit organizations It accounts for over half the economy in most developing countries and for over 70 percent in many highly developed economies (C

Lovelock & L.Wright)

1.1.2 What is service?

A service is an act or performance offered by one party to another Althoughthe process may be tied to a physical product, the performance is essentiallyintangible and does not normally result in ownership of any of the factors ofproduction

Services are economic activities that create value and provide benefits forcustomers at specific times and places, as a result of bringing about a desired change

in - or on behalf of - the recipient of the service

1.1.3 Characteristics of services

Services have six characteristics: intangibility, heterogeneity, simultaneity, perishability, transferability and cultural specificity (Anonymous, 1998)

Intangibility: Intangibility is a key determinant of whether an offering is or is

not service Intangibility makes services more difficult for customers to imagine and

desire than goods Because of intangible characteristic, services can not be inventoried, patented, readily displayed or communicated, and service price is difficult.

Heterogeneity : Services are frequently delivered by human beings to human

beings However, humans tend to be inconsistent in their behavior, their deliveryand consumption of services Thus, the heterogeneity connected with services islargely the result of human interaction between and among employees andcustomers Because of heterogeneous characteristics, service delivery and customersatisfaction depend on employee actions Service quality depends on manyuncontrollable factors, and there is no sure knowledge that the service deliveredmatches what was planned and prompted

Simultaneity : Most services are produced and consumed at the same time.

Customers participate in and affect the transaction, customers affect each other,employees affect the service outcome, decentralization may be essential, and massproduction is difficult

Perishability : Perishability refers to the fact that services cannot be saved,

stored resold, or returned Therefore, it is difficult to synchronize supply and

demand with services, and inability to inventory

Transferalbility : The transferalbility means that different services operations may share common components/ characteristics In the fact, the types

and sources of expectations are the same for end consumers and business customers,

for pure service and product-related service, and for experienced customers andinexperienced customers The transferalbility implies that it is important to monitornew developments not only in our industry, but also in other service industriesbecause many lessons can be learned from other service industries

Cultural Specificity : The cultural context in which a service is consumed can

be viewed as an attribute of the service itself Cultural specificity affects the wayscustomers evaluate and use services It also influences the way companies and theirservice employees interact with customers

1.2 Managing service quality

1.2.1 Service quality

Quality Service is the customers’ subjective assessment that the service theyare receiving is the service that they expect (Parasuraman, et al 1985, Watson, et al.1998) Service quality is commonly identified as being one of the most effective - ifdifficult - means of building a competitive position in a service industry andimproving organizational performance (Lewis, 1993)

Service quality impacts on satisfaction directly (Kandampully et al., 2001).According to Oliver (1997), higher levels of quality will result in greater customersatisfaction and loyalty, and thus improved profits

1.2.2 Dimensions of service quality

The dimensions of service quality have been identified through thepioneering research of Parsu Parasuraman, Valarie Zeithaml, and Leonard Berry.Their researches identified five specific dimensions of service quality that applyacross a variety of service contexts.(Zeithaml, et al 1996) These dimensionsrepresent how consumers organize information about service quality in their minds.These dimensions include : (1) Reliability, the belief that the service provider isproviding service in a reliable and dependable manner; (2) Empathy, meaningindividualized attention; (3) Tangibles, an appealing physical environment; (4)Responsiveness, the perceived willingness of the service provider to help itscustomers; and (5) Assurance, instilled confidence through courtesy and ability

1.2.2.1 Reliability

Reliability is defined as the ability to perform the promised servicedependably and accurately In its broadest sense, reliability means that delivers onits promises - promises about delivery, service provision, problem resolution andpricing Customers want to do business with companies that keep their promises,particularly their promises about the service outcome and service attributes Allfirms need to be aware of customer expectations of reliability Firms that do not

provide the core service that customer think they are buying fail their customers inthe most direct way.

1.2.2.4 Responsiveness

Responsiveness is willing to help customers and to provide prompt service.This dimension emphasizes attentiveness and promptness in dealing with customerrequests, questions, complaints and problems Responsiveness is communicated tocustomer by the length of time they have to wait for assistance, answers toquestions, or attention to problems Responsiveness also captures the notion offlexibility and ability to customize the service to customer needs

1.2.3 Results of previous researches

According to the authors of Principle of Service Marketing and Management,C.Lovelock & L.Wright, of these five dimensions, reliability has consistentlyproven to be the most important factor in customers' judgments of service quality.Reliability improvements lie at the heart of service quality enhancement effortsbecause unreliable service implies broken promises on the attributes that customerscare about If the core service is not performed reliably, customers may assume thatthe company is incompetent and may switch to another service provider(C.Lovelock & L.Wright, p267)

Reliability is an outcome measure because customers judge it after the

service experience: Either the service was delivered as promised or it wasn'(C.Lovelock & L.Wright, p268)

The other four dimensions of quality—tangibles (physical evidence),

responsiveness, assurance, and empathy—are process dimensions because they can

be evaluated by customers during service delivery These dimensions providecompanies with the opportunity to delight customers by exceeding theirexpectations during interactions with employees and the service environment(C.Lovelock & L.Wright, p268)

According to C.Lovelock & L.Wright also, a recent study, based on datacollected from focus group interviews, explored the criteria customers use to assesselectronic service quality (e-SQ) The results indicate that some of the qualitydimensions of service quality (reliability, responsiveness) are important in bothonline and offline settings Survey results indicate that poor service quality is the

reason that most people leave Web sites Source: Mary B Young, "What Customers Want Online," Insights from MSI (Cambridge, MA: Marketing Science Institute, Fall 2000), 5-6; Valarie A ZeithamI, A Parasuraman, and ArvindMalhotra, "A Conceptual Framework for Understanding e-Service Quality: Implications for Future Research and Managerial Practice" (Cambridge MA: Marketing Science Institute, 2001).

1.2.4 The effect of employee behaviors on service quality dimensions

According to Zeithaml, Bitner & Gramler, all of five dimensions of servicequality can be influenced directly by service employees Delivering the service as

promised - reliability- is often totally within the control of frontline employees Frontline employees directly influence customer perceptions of responsiveness

through their personal willingness to help and their promptness in serving

customers The assurance dimension of service quality is highly depending on

employees' ability to communicate their credibility and to inspire trust and

confidence Empathy implies that employees will pay attention, listen, adapt, and be

flexible in delivering what individual customer need Employee appearance and

dress are important aspects of the tangible dimension of quality.

1.3 Measure of customer service performance

According to Zeithaml & Bitner, 2000, there are number of dimensions offirm performance divided into two categories: financial accounting indicators (suchas: return on assets, return on sale, return on equity and non-financial indicators(such as: market share, quality, innovation, human resources, and customersatisfaction) This research chose the customer satisfaction represented formeasurement of customer service performance

What is Customer Satisfaction?

The consumer satisfaction is a central concept in marketing, in the practices of the

companies, as well as in the field of the theory of the consumer behavior (Evrard,

1993) Satisfaction is customer's evaluation of a product or service in terms of

whether that product or service has met the customer's needs and expectations

(Zeithaml, Bitner & Gramler, 2006)

What Determines Customer Satisfaction?

According to Zeithaml, Bitner & Gramler, customer satisfaction is influenced by

specific product or service feature, perception of product and service quality, and

price In addition, personal factors such as the customer's mood or emotional state

and situational factors such as family member opinions will influence satisfaction

This study chose perception of service quality to measure customer satisfaction

Perception is the process you use to select, organize, and interpret information in a

way that provides you a meaningful picture of the world The way a customer

perceives a situation will have an important influence on how they go about

satisfying their needs The figure 1.1 showed the factors influenced on customer

satisfaction

Reliability Responsiveness

Situation Factors Service

Factors

Figure 1.1 Customer Perceptions of Quality and Customer Satisfaction

Customer satisfaction is the means to achieve key business goals

According to C Lovelock & L.Wright, p.78, customer satisfaction is not an end initself Instead, it is the means to achieving key business goals

First, satisfaction is inextricably linked to customer loyalty and relationshipcommitment

Second, highly satisfied (delighted) customers spread positive word-ofmouth They become walking, talking advertisements for an organization whoseservice has pleased them, and thus lowering the cost of attracting new customers

Third, highly satisfied customers may be more forgiving Someone who hasenjoyed good service delivery many times in the past is more likely to believe that aservice failure is a deviation from the norm It may take more than one unsatisfactoryincident for strongly loyal customers to change their perceptions and consider switching to

an alternative supplier In this respect, high levels of customer satisfaction act like aninsurance policy against the impact of a single failure

Finally, delighted customers are less susceptible to competitive offerings thancustomers who are simply satisfied or are unhappy with their current service provider

CHAPTER 2: RESEARCH METHODOLOGY

This study used a quantitative research design Questionnaire survey was conducted

to collect data from a number of individual customers of VPBank to test fivehypotheses

2.2 Measures

This section explains measures of independent variables (reliability,empathy, tangible, responsiveness, assurance) and dependent variable (customersatisfaction) The survey was composed of two primary scales to measure thecustomers’ perceptions about service quality on five dimensions, and customer'ssatisfaction The service quality scale asked the respondents to evaluate theperformance of operation on the set of 21 attributes The one-item satisfaction scalemeasured the customers’ overall satisfaction with the services that they receive fromthe bank Both scales used a 5-point Likert scale ranging from 1, very poor, through

5, very good for and from 1, very dissatisfied, through 5, very dissatisfied forcustomers' satisfaction

Table: 2.1 Measurement of five dimensions of service quality

Dimensions Very Poor Average Good Very

Tangible

Employees appear neat and tidy 1 2 3 4 5 Facilities and equipments are modern and pleasing 1 2 3 4 5 Information material visually appealing 1 2 3 4 5

Employee’s behavior instills trust 1 2 3 4 5 You feel safe in your transactions with employees 1 2 3 4 5 Employees are courteous 1 2 3 4 5 Employees are knowledgeable 1 2 3 4 5

Table 2.2 Measurement of Customer Service Performance

Very Dissatisfied Neither Satisfied Very dissatisfied satisfied Satisfied

nor dissatisfied Based on your

experience with Bank,

you been with

delivery services?

2.3 Sampling

Sampling is the process of selecting units (e.g., people, organizations) from apopulation of interest so that by studying the sample we may fairly generalize ourresults back to the population from which they were chosen (William M.K.Trochim, 1980) In selecting a sample, always try to (1) achieve maximum precision

in your estimates within a given sample size and (2) avoid bias in the selection ofyour sample (Kumar, 1999) Biases in the selection of a sample occur if: (1)sampling is done by a non-random method; (2) the sampling frame does cover thetarget population accurately and completely; and (3) a section of a target population

is impossible to find or refuses to cooperate (Kumar, 1999)

Determination of a sample involves several decisions including specification

of target population, selection of a sampling frame, and sample size (Zikmund,1997)

This research focuses on investigating the relationship between fivedimensions of service quality and customer service performance of VPBank atHanoi branch Target customers of VPBank Hanoi branch’s retail customers groupare now university students, office workers and businessmen Therefore, the targetpopulation was the retail customers of credit department of VPBank Hanoi branch.Target respondents were loan customers who are university students, office workers

and businessmen Sample frame is identified by collecting retail customer lists ofcredit department In addition, to reduce the sample frame errors, researcherestimated a number of new customers, using the service during the survey time, arenot in the list of the department After that, those two lists were matched to produce

a new list that used for drawing the sample, which is a subset of the population thatrepresent entire group By applying the confidence interval formula to determinesample size, the researcher was easy to calculate sample size To calculate theproper sample size for a survey, only three factors need to be considered: (1) theamount of variability believed to be in the population, (2) the desired accuracy, and

(Alvin C.Burns- Ronal F.Bush, 2005)

Standard sample size formula for a percentage:

n= Z2 (pq)/e2

where:

n: the sample size

z: standard error associated with the chosen level of confidence

p: estimated percent in the population

q= 1-p

e: acceptable sample error ( desired accuracy)

Applying this formula to calculate sample size of the study, assuming thatthere is great expected variability (50%) and want 6.5 % accuracy at the 95 percent

2.4 Data collection

2.4.1 Method of data collection

According to theory of Kumar 1999, the choice of particular method dependsupon the purpose of the study, the resources available to the researcher, the skills ofthe researcher and the socio-economic- demographic characteristics of the studypopulation, therefore in this study, the researcher used hand- distributed

questionnaire method to collect primary data The questionnaires were handed outrandomly to the target customers when they went to bank to implement transactions

on Monday, Wednesday, and Friday every week during one month survey Thismethod had high response rate, less possibility of respondent misunderstanding andincreased the speed of data collection

2.4.2 Questionnaire design

For this research, questionnaire was organized into two sections (seequestionnaire format in Appendix A) Section 1 consisted of four questionsconcerning the sample demographic background, including gender, age, education,occupation of respondents Section 2 composed of the set of 21 attributes dividedinto two primary scales to measure the customers’ perceptions on five dimensions,and satisfaction

2.4.3 Questionnaire pretest

Before the official survey is started, a trial survey is undertaken to pretestproblems in the questionnaire design A random list of 30 customers chosen fromthe target population, were directly delivered to trial During the pre - testing, theresearcher observed the respondents when they were filling in the questionnairefrom that the researcher could know which question make customer misunderstand,ambiguity After they finish, the researcher discussed with respondents and askedthem for comment about the questions in questionnaire After receiving commentsfrom the respondents the researcher could determine what question need to adjust tohave the best questionnaire

2.4.4 Respond rate

A total of 224 questionnaires were hand distributed to the customers duringthe period of survey The result was 74 questionnaires accounted for 33% werediscarded because of non - response or incomplete - all - parts questionnaires 150-targeted useable questionnaires accounted for 67% were chosen for this research

2.4.5 Procedure of Purification ,Validity and Reliability

2.4.5.1 Procedure of purification and validation

The process of purification and validation of measurement scales consisted ofexploratory factor analysis The principal components method makes it possible tobring out a factorial structure for each theoretical variable as well as a structure ofitems for each factor The calculation of an indicator of reliability for each factoralso takes a part in the purification of the items.

To purify the data, the researcher followed the usual recommendations foreach scale formed by the items of the same dimension: (1) elimination of the itemswhich have a weak community (2) by retaining only the items which most stronglysaturate on only one factor and by eliminating the items which do not discriminatethe principal factors; (3) by eliminating the items which do not contribute toimprove the reliability of measurement By applying a principle of precaution in theprocess of purification counts due to the exploratory nature of this research, aconfirmatory analysis will make it possible to select the most relevant items

Test-retest (repeatability test) involves administering of the same scale ormeasurement to the same respondents at two separate points in time in order to testfor reliability There are two problems with this method First, the pre-measure maysensitize the respondents to their participation in a research project and subsequentlyinfluence the result of the second measure Second, it is possible for a reliablemeasure to indicate a low or moderate correlation between the first and the secondadministration is due to an attitude change over time rather than to a lack of(Zikmund, 1997)

Split -half method is a method that measures the degree of internalconsistency by checking one-half of the results of a set of scaled items against the

other half (Zikmund, 1997) The problem with this estimate of reliability is that theestimate of the coefficient of reliability is wholly dependent on the manner in whichitems are split (Davis, 1996).

An internal consistency method that overcomes the shortcoming of the half method is the Cronbach’s alpha (Davis, 1996) This method requires only asingle test administration The Cronbach’s alpha method was used in this study

split-2.5 Summary

This chapter has provided empirical data from the case of VPBank Hanoibranch The research methodology used to collect and analyzed field data to test thefive hypotheses discussed Questionnaire survey comprising structured 21 items.Scale items were measured on the standard 5-point Likert scale Targetedrespondents were individual customers of VPBank Data from 150 usablequestionnaires were put into SPSS 13 for Windows to test the five hypotheses Theresults were presented in the chapter 4: data analysis

PART 2 STATUS OF VPBANK AND DATA ANALYSIS

CHAPTER 3: STATUS OF VPBANK

3.1 General overview of VPBank

Vietnam Joint Stock Commercial Bank for Private Enterprises - VPBank (VPBANK)

Headquarter is located at No.8 Le Thai To, Hang Trong Ward, Hoan Kiem District, Hanoi Charter capital: 1,500 billion VND (July, 2007) Establishmentlicense No 0042/NH-GP from the Governor of the State Bank of Vietnam, issued on August 12, 1993, with an operating term of 99 years Business registration certificate: No 055689 issued by the Hanoi Department of

Planning and Investment for initial registration on September 9, 1993;

registration amended for the 12th time on November 1, 2006 Tax code:

0100233583

Telephone: (84-4)9288869

Fax: (84-4) 9288867

Website:www.vpbank.com.vn

3.1.1 Vision and Mission

Vision:

VPBank is striving to become, by the year 2010, a leading bank in theNorthern region, as well as one of the top five banks in the country, and a leadingbank of the Southeast Asian region in the term of quality, effectiveness, andreliability

Mission:

To become a multi- purpose urban commercial bank, operating under thephilosophy of: Placing the customer's interests; attaching special importance to theshareholder interests; contributing effectively to community development

o For customers: VPBank pledges to satisfy the interests of its customers to the

fullest by supplying customers with rich, varied and integrated products and services,with many utilities and competitive fees

o For employees: VPBank cares about the material as well as spiritual lives of

all its employees, and guarantees employees a steady income that is highly competitive inthe labor market of the finance and banking industry

o For shareholders: VPBank is concerned with share value and will strive to

increase it, while maintaining a high level of dividends each year

o For community: VPBank promises to fulfill its financial obligations to the

State budget, and is concerned with devoting itself to social work and charity to share inthe community's difficulties

3.1.2 Core value and Business areas

Core value:

o A balanced combination of the interests of customers, employees,shareholders and community is the central thread running through allactivities

o Building a banking culture on the principle of creating a cooperative,supportive and civilized enterprise, continually learning to improve, and

always exchanging information to move forward together

improve and maintain strength

responsibility, and always displays professionalism and creativity, is the basis for thesuccess of the bank

Business areas:

term and non-term deposits; receiving funds from investment and development trustsdomestics organizations, and borrowing capital from other credit organizations;

o Providing short-term, medium-term and long-term loans, discountingcommercial papers, bonds and valuable papers; contributing capital andforming joint ventures in accordance with legal regulations;

mobilizing various capital sources from foreign countries and carrying out other bankingservices related to foreign countries when permitted by the

3.2 Foundation and Development Process

VPBank's initial charter capital when first established was 20 billions VND

At present, the charter capital of VPBank has grown to 1,500 billion VND (July2007) In the entire process of formation and growth, VPBank has always focused

on broadening its scale and strengthening its operating network in large cities In itsfirst two years of operation VPBank network has only three branches and sixtransaction offices At present, the size of VPBank's network has increased to 90

branches and transaction offices operating at 34 provinces and large cities throughout the country.

3.3 Organization Structure

Figure 3.1 VPBank's Organization Chart

[Source: VPBank, Annual report, 2006]

3.4 Employees and Training Programs

Employees: Currently, the number of employees in the VPBank System is more

than 2,600; the majority is graduated, this number account for 87 percentage Thequality of our personnel is one of the primary factors contributing to the strength ofthe Bank, and help VPBank ready to face the challenges of competition, particularly

as Vietnam integrates into the world economy in the near future Conscious of thisfact, in recent year VPBank has placed great importance on increasing the quality ofits personnel management

Training programs: In 2006, the VPBank Training Center completed its study of

the training demands of the whole body of employees in the VPBank System,building a basis for the formation of plan and the conducting of courses directed atsatisfying the increasing demands for professional baking skills In October 2006,VPBank appointed a work group to visit and investigate OCBC Bank's training togain experience and take advantage of the support or OCBC for VPBank's training

3.5 Products & Services

VPBank's products and service focus on consumer banking and business banking.Consumer Banking includes accounts, savings, consumer loans, other consumerbanking services Business Banking includes Business loans, Domestic payments,and international payments

3.6 Business operation results in 2006

Results of fiscal year 2006, VPBank achieved results in pretax profit and riskreserves of 168.17 billion VND, an increase of 84.5 billion VND compared to 2005.After setting aside risk reserves of 11.36 billion VND, pre-tax profit after riskreserves was 156.8 billion VND, surpassing the plan by 36%

Safety assurance ratios: VPBank maintained Safety ratios in accordance with

regulations of the State Bank Specifically the items as of December 31, 2006, were

as follows:

Figure 3.2 Safety assurance ratios [Source: VPBank, Annual report]

Capital mobilization activities:

VPBank places great importance on the mobilization of capital, with the aim

of guaranteeing loan capital and liquidity safety, as well as rapidly increasing assetsand elevating the Bank's position in the banking system Thus, in recent yearsVPBank has taken full advantage of activities to mobilize capital from the consumersector as well the interbank sector

Figure 3.3 Mobilized Capital source

[Source: VPBank, Annual report, 2006]

Credit activities:

With an open-door economy that continues to grow strongly, in recent yearsVietnam has been seen as one of the fastest-growing economies in the world

Demands for investment capital are strongly growing and therefore credit activities

of banks have been rather robust

In the 2004 - 2006 periods, credit activities of VPBank were held steady by a

"conservative" policy, with no loosening of credit conditions to compete.Nevertheless, thanks to some business units' customer marketing efforts, the rate ofcredit growth still reached considerable levels, more than twice as high as thegenerate credit growth rate of the total banking industry

Loan revenue in the VPBank System in 2006 reached 6,594 billion VND, anincrease of 2,681 billion VND (equivalent to 68%) compared to 2005 Outstandingloans in the VPBank System as of December 31, 2006, reached 5,031 billion VND,surpassing the plan by 17%, an increase of 2,017 billion VND (equivalent to 68%)over 2005

With the strategic orientation to become the top retail bank in Vietnam,VPBank places special importance on customers in the small and medium-sizedprivate enterprise, individuals and family households

Figure 3.4 Structure of outstanding loans

[Source: Annual Report 2006]

3.7 Achievements

Increasing financial strength

In September 2005, VPBank also received official approval from the State Bank to sell 10 % of its charter capital to OCBC's strategic shareholder With

this result, through Nov 2006, the charter capital of VPBank was officiallyincreased to 750 billion VND At the beginning of 2007, VPBank held itsShareholders' Meeting decided to double the charter capital to 1,500 billionVND In March 2007, VPBank received approval from the State Bank for itscapital-raising plan It is expected that at the end of 2007 the charter capital

of VPBank will rise to 2,000 billion VND

Accelerating network growth

In 2006, VPBank officially opened and brought into operation 1 Level IBranch (the Bac Giang Branch opened on Jan 5, 2006) and 18 transactionoffices throughout the country

February of 2007, the Thanh Hoa, Nghe An, and Dong Nai were opened Also

in 2006, VPBank established and brought into operation: an Asset

Management Company (VPBank - AMC) and a Securities Company

(VPBank Securities)

3.8 Orientation of business activities for 2007

In 2007, VPBank will concentrate on executing a number of key tasks aimed

at strengthening its financial and management ability, increasing its competitivenessand broadening its market share, specifically as follows:

Elevating financial ability, improving technology and management:

Increase chatter capital according to a required schedule to meet theminimum charter capital levels set is Government regulations in 2008 and

2010 The expected minimum level of charter capital at the end of 2007 is 2trillion VND

Issue convertible bonds to prepare for the increase in charter capital at theend of the year

Successfully deploy T24 software through the VPBank System beginning inQ3 2007

Step up operations of Subsidiary Companies

Like the Securities Company and the Asset Management Company Activelydevelop Card issuance and Card payment operations, develop an ATM system withthe Bank's own budgeted investment.

Develop operating network

Actively expand the network of Branches and Transaction Officesthroughout the country Place priority on opening transaction points in large cities,economic centers, new urban zones, densely populated areas and areas with high-income inhabitants The number of branches and transaction offices throughout thecountry is expected to reach a minimum of 100 facilities (with efforts to build 120branches and transaction offices)

In addition to the system of branches and transaction offices, VPBank willrapidly bring a system of ATMs into widespread operation By year end, VPBankwill deploy 200 to 300 ATMs throughout the country

In the near future VPBank will establish a Fund Management Company; willcontribute capital to an insurance company, etc

While developing the operation network, VPBank will also focus on matters

of recruitment, training, enrichment, and elevating the standards of employees tofulfill the growing service requirements

Accelerate the development of new products and services

With the successful development of T24 software system and the ATMsystem, VPBank will actively exploit its technology advantages in the development

of new and more varied products to meet increasing client demands