Quan hệ tương quan giữa hành vi khách hàng gửi tiền và việc lựa chọn giao dịch ngân hàng trong khu vực các quận nội thành hà nội

As the knowledge of depositors’ behavior and bank patronage is not well understandable and given the critical importance of understanding of depositors’ behavior, this study intended to

SOUTHERN LUZON STATE UNIVERSITY, LUCBAN, QUEZON, PHILIPPINES

IN COLLABORATION WITH THAI NGUYEN UNIVERSITY, SOCIALIST REPUBLIC OF VIETNAM

August, 2013

ACKNOWLEDGEMENT

I would like to express my heartfelt gratitude to leaders of Thai Nguyen University in VietNam and Southern Luzon State University in the Philippines who created best conditions for me to complete the course generally and fulfill the thesis particularly

My gratitude goes towards Professors directly gave me useful and memorable lectures and guides in DBA namely Dr Professor Cecilia N Gascon, Dr Professor Walberto A Macaraan, Dr.Professor Melchor Melo O Placino, Dr.Professor Alice T Valerio, Dr Professor Do Anh Tai, and Dr.Professor Tran Dai Nghia They provided

me a rich and fertile environment to study and explore new ideas They made my DBA life is ever fluid, and, in the course of it all, a warm and inviting place to work

My special thank to Dr Professor Cecilia N Gascon who provided me valuable guides to complete the dissertation

I am grateful to lecturers who managed the International Cooperation Program between Vietnam and the Philippines namely Professor Tran Tuan Anh and Professor Nguyen Thanh Hai Without their cooperation, I could not have chance to join and fulfill the course

I would not have contemplated this road if not for my parents, my wife, my children, and all of my dear friends who instilled within me a love of creative pursuits, science and language, all of which finds a place in this the dissertation Trinh Thanh Binh

July, 2013

TABLE OF CONTENTS

CHAPTER

2.1 Economic Development 10

2.2.1 Background of Vietnam Banking Industry 12

2.2.2 Key Challenges Facing the Banking Industry 13

2.3.2 Practice in Deposit Mobilization in Ha Noi 15

2.6 Psychological Attributes of Depositors’ Behavior in Bank Patronage

2.7.2 Objective Factors 25

4.3 Attributes of Depositors’ Behavior in Bank Patronage in the

Inner Districts of Ha Noi

37

4.3.1 External Attributes Implication of Depositors’ Behavior 37

4.3.1.1 Depositors’ Selection by Specific Banks and Type of Banks – Foreign Banks, State Owned Banks and Joint Stock Banks

37

4.3.1.3 Depositors’ Selection of the Deposit Kinds and Terms 42 4.3.2 Depositors’ Motivation in Bank Patronage 47

4.3.2.2 Depositors’ Motivation for Selecting Banks They Deposit with

54

4.3.2.5 Depositors’ Willingness to Make a Reference with Their Friends

72

4.3.3 Depositors’ Perception and Bank Patronage 74

4.3.3.2 Depositors’ Attitudes in Acceptance of Bank Service Quality 75

4.4 Factors Influencing Depositors’ Behavior in Bank Patronage in the Inner District of Ha Noi

85

4.4.1 Depositors’ Selection of Factors and Factors’ Correlation 85

4.4.2.1 Prestigious Banks 89

ABSTRACT

This study was conducted to determine and analyze the correlation of depositors’ behavior and bank patronage in the inner districts of Ha Noi As the knowledge of depositors’ behavior and bank patronage is not well understandable and given the critical importance of understanding of depositors’ behavior, this study intended to identify the factors influencing depositors’ behavior and define the winning strategies for the banks in fund mobilization

The methodology of the thesis was to review the various relevant literatures Method of system analysis, method of fieldwork, method of comparison, quantitative research methods and forecasting method were also used in the study

This research was conducted within the inner districts of Hanoi with 257 respondents, which were selected based on random probability Findings showed that depositors’ behavior was influenced by both internal demographic factors and external factors The result further revealed a high correlation between depositors’ behavior and factors such as “prestigious banks”, “security and safe”, “competitive rates”, “quick and convenient procedure” However, lower correlation was obtained in depositors’ perception and attitudes

The recommendations are developed from the insights and conclusions First

is to address the brand issue of banks that built through depositors’ perception of

“bank safety”, “prestigious” and other key influencers Second, banks should take into account all factors in their winning marketing strategies Third is to recommend the contingency plan that banks should have to keep safe And the last is to recommend the SBV need to liberalize interest rates on deposits

LIST OF TABLES

Table 1 Bank classification by ownership and key indicators as of 30

June 2013

13

Table 3 Distribution of depositors by gender and marital status 36

Table 6 The period of time that depositors maintain relationship with

Banks

40

Table 7 Relation between marital Status and time span with banks 41 Table 8 Relation between age range and time span with banks 41 Table 9 Relation between professional, employment and time span

with banks

42

Table 12 Relation between marital status and type of deposits 44 Table 13 Relation between age range and terms of deposits 45 Table 14 Relation between education background and terms of deposits 45 Table 15 Relation between professional, employment and types of

Table 17 Reasons for depositors to change banks (having at least two

banks at the same time) by gender and marital status

49

Table 18 Reasons for depositors to change banks (having at least two

banks at the same time) by age

49

Table 19 Reasons for depositors to change banks (having at least two

banks at the same time) by education background

50

Table 20 Reasons for depositors to change banks (having at least two

banks at the same time) by employment

50

Table 21 Reasons for depositors to change banks (having at least two

banks at the same time) by income

51

Table 22 Relation between education background and the factor “to seek

for stronger reputation”

51

Table 23 Relation between professional and employment with the factor

“to seek for the best/better service”

52

Table 24 Relation between professional and employment with the factor

“I was not happy with the service so I switch to another bank”

53

Table 25 Descriptive Statistics of the factors depositors select to answer

the question why

Table 30 Relation between education background and the factor of

“security and safe”

58

Table 31 Relation between education background and the factors of

“prestigious banks, clear explanation and procedure, banks with branches locate at my convenient place, paper and electronic statements”

59

Table 32 Relation between education background and the factor of

“competitive interest”

59

Table 33 Relation between education background and the factor of

“paper and electronic statements

60

Table 34 Relation between education background and the factor of “can

make deposit/withdrawal flexibly”

Table 37 Relation between professional and employment and the factor

of “security and safe”

Table 40 Relation between income and the factor of “banks with

branches locate at my convenient place”

64

Table 41 Descriptive statistics of factors for depositors’ selection of

the First Bank they deposited with

64

Table 42 Correlation of the factors for depositors’ selection of the 65

first bank they deposited with Table 43 Type of promotion that depositors want to have? 66 Table 44 Type of promotion that depositors want to have first? 67 Table 45 Relation between income and lottery participation 67 Table 46 Descriptive statistics of the promotion kinds depositors want

to have

68

Table 47 Correlations of the promotion kinds depositors want to have 68 Table 48 Depositors’ future plan to invest their money 69 Table 49 Relation between marital status with depositors’ plan to

deposit foreign currency at banks

70

Table 50 Relation between age range with depositors’ plan to deposit

foreign currency at banks

70

Table 51 Relation between income with depositors’ plan to deposit

foreign currency at banks

71

Table 52 Relation between income with depositors’ plan to buy gold

and save at home

71

Table 53 Descriptive statistics of future investment factors 72

Table 55 Depositors’ willingness to introduce their banks with friends 73 Table 56 Relation between education background with depositors’

willingness to refer banks with their friends

73

Table 57 Relation between education background with depositors’

willingness to refer banks with their friends

74

Table 58 Depositors’ acceptance of interest rates banks offer 75 Table 59 Depositors’ evaluation of service quality of banks 76

Table 60 Relation between marital status and the rating of service

Satisfaction

76

Table 64 Depositors’ selection of promotion ranking the first 79 Table 65 Relation between income and the response to the question:

“did you receive any promotion?”

80

Table 66 Relation between age range with the kinds of promotion

Received

80

Table 67 Relation between age range and the depositors’ ranking of

promotion kinds they like most

81

Table 68 Relation between professional, employment and the

depositors’ ranking of promotion kinds they like most

82

Table 69 Relation between income and the depositors’ ranking of

promotion kinds they like most

82

Table 70 descriptive statistics of promotion kinds depositors received

for making deposits at banks

83

Table 71 Correlation of promotion kinds depositors received for

making deposits at banks

83

Table 72 Depositors’ response to the question as keeping money at

banks always safe

84

Table 73 Relation between employment with depositors’ perception of

the bank safety

85

Table 74 factors that depositors would consider when selecting a bank 87

for deposits Table 75 The influencing factor that depositors rank as the first 88 Table 76 Descriptive statistics of the factors depositors would consider

to select banks for deposits in the next time

88

Table 77 Correlation of the factors depositors would consider to select

banks for deposits in the next time

LIST OF FIGURES

Figure 2 Conscious Problem Solving and Learning Model of Consumer

Behavior

10

LIST OF APPENDICES

Appendix A.1 List of State Owned Banks (SOBs) as of 30 June 2013 114 Appendix A.2 List of Jointstock Commercial Banks (JSCBs) as of 30 June

2013

115

Appendix A.3 List of foreign banks branches as of 30 June 2013 117 Appendix A.4 List of Joint Venture Banks as of 30 June 2013 120 Appendix A.5 List of 100% owned Foreign Banks as of 30 June 2013 120

Appendix B.2 Distribution of depositors by education background 121 Appendix B.3 Distribution of depositors by Professional and employment 122

Appendix B.5 Distribution of depositors’ first bank selection by gender,

marital status and age

123

Appendix B.6 Distribution of depositors’ second bank selection by gender,

marital status and age

123

Appendix B.7 Distribution of depositors’ third bank selection by gender,

marital status and age

123

Appendix B.8 Distribution of depositors’ fourth bank selection by gender,

marital status and age

124

Appendix B.9 Reasons for depositors to select the second banks 124 Appendix B.10 Reasons for depositors to select the third banks 125 Appendix B.11 Reasons for depositors to select the fourth banks 125 Appendix B.12 Descriptive statistics of factors for depositors’ selection of 126

the Second Bank they deposited with Appendix B.13 Correlation of the factors for depositors’ selection of the

Second bank they deposited with

127

Appendix B.14 Descriptive statistics of factors for depositors’ selection of

the Third Bank they deposited with

128

Appendix B.15 Correlation of the factors for depositors’ selection of the

Third bank they deposited with

129

Appendix B.16 Descriptive statistics of factors for depositors’ selection of

the Fourth Bank they deposited with

130

Appendix B.17 Correlation of the factors for depositors’ selection of the

Fourth bank they deposited with

131

Appendix B.18 Type of promotion that depositors want to have second? 132 Appendix B.19 Type of promotion that depositors want to have third? 132 Appendix B.20 Type of promotion that depositors want to have fourth? 132 Appendix B.21 Type of promotion that depositors want to have fifth? 133 Appendix B.22 Depositors’ selection of promotion ranking the second 133 Appendix B.23 Depositors’ selection of promotion ranking the third 133 Appendix B.24 Depositors’ selection of promotion ranking the fourth 134 Appendix B.25 Depositors’ selection of promotion ranking the fifth 134 Appendix B.26 The influencing factor that depositors rank as the second 134 Appendix B.27 The influencing factor that depositors rank as the third 135 Appendix B.28 The influencing factor that depositors rank as the fourth 135 Appendix B.29 The influencing factor that depositors rank as the fifth 136 Appendix B.30 The influencing factor that depositors rank as the sixth 136 Appendix B.31 The influencing factor that depositors rank as the seventh 137

Appendix B.32 The influencing factor that depositors rank as the eighth 137 Appendix B.33 The influencing factor that depositors rank as the ninth 138 Appendix B.34 The influencing factor that depositors rank as the tenth 138 Appendix B.35 The influencing factor that depositors rank as the eleventh 139 Appendix B.36 Relation between age range with the factor suitable fees and

Appendix B.41 Relation between marital status with the factor of clear

explanation and procedure

recommendations from friends/relatives Appendix B.47 Relation between income with recommendations from

friends/relatives

150

CHAPTER I INTRODUCTION

Fund mobilization is essential to banks’ success Recently, banks face with strong competition in attracting and retending depositors Many banks fail to mobilize funds while others are able to understand better depositors and depositors’ behavior in bank patronage and take advantadge of their knowledge to win the game In the study, the researcher would like to address the issue of depositors’ behavior and bank patronage

1.1 Background of the Study

Vietnam economy has been in the fast growth track for a decade Vietnam GDP growth is mainly come from government capital expenditure and private sector investment The fast infrastructure development and urbanization process require huge source of funding One of the engine to lure the growth is the expansion of credit by banking sectors

The banking sector in Viet Nam consists of 5 state owned banks, 37 commercial joint stock banks, 53 foreign – related banks, 30 financial companies and finance lease companies, 1 Central People Credit Fund and 1,057 local people credit funds (Nguyen C.T., 2011) The number is quite big giving the Vietnam’s GDP per capital is 1,300 USD by 2011 (Dantri, 2011) The competition is high in the sector, especially in main economic and political areas like Ha Noi and Ho Chi Minh cities The interest income contributes a major part of banks income Most banks have their income heavily dependent on lending activities with interest income to total income ratio of some banks reaching above 90% in 2010 (Quach, 2011) This causes many

banks concentrating on fund mobilization One of key sources of fund would be the depositors’ funding The source of fund is viewed as a stable funding and counts for a big part in banks’ balance sheet Many strategies that banks persuad to lure their deposit growth including branch network expansion, high interest rate offer, attractive promotion campaigns

Due to the fact that the banking sector plays a key part in the economic activities and economic development, and social stability as well, the banking activities in Vietnam have been highly regulated There are still many different experts’ opinions on if the banking sector needs to be moving more deregulation or regulation However, taking the reason to prevent banks’ failure, the State Bank of Viet Nam put in place a very high level on banks supervision Some regulations that directly affect banks’ expansion of credit and fund mobilization include control of capital adequacy, bank liquidity ratio, and the banks’ branch network expansion Even though, the State Bank of Viet Nam tries to communicate and act to prevent the banks’ failure in the future However, depositors are always facing with risk of losing their fund in case of banks’ run or bankruptcy For deposit insurance, the depositors can receive is 30 million VND at maximum as per law

To study the depositors’ behavior is always necessary for banks to serve better their clients In fact, a few information of depositors’ behavior have been made available in public sources in Viet Nam Information is normally in the form of observation and experts’ opinion In late 2013, there is a doctorate study on individual customers’ depositing behavior at banks made by Le Thi Thu Hang, which is available at the Viet Nam Instiute of Social Science Le T.T.H (2012) scoped her study at nationan-wide scale and focused on individuals who had or did not have a deposit at banks However, there has not been a similar study of the correlation

between depositors’ behavior and bank patronage in Ha Noi that the researcher could identify in the public sources In addition, depositors’ behavior would always reflect through certain factors Therefore, the study of the correlation of depositors’ behavior and bank patronage should be a key success factor for banks to win in the deposit competition race in Ha Noi and for those who want to get knowledge of the study

1.2 Objectives of the Study

The main objective of the study is to determine and analyse the correlation of depositors’ behavior and bank patronage in the inner districts of Ha Noi Besides, the search aims to achieve the following objectives:

1 To describe the background of the general economic environment and the banking industry in Ha Noi

2 To determine and analyse comsumer behavior model and to determine depositors’ behavior model

3 To characterise the profile of the depositors in Ha Noi

4 To identify the factors that influence the depositors’ behavior in selecting banks in the inner districts of Ha Noi

5 To determine the correlation of depositors’ behavior and bank patronage in the inner districts of Ha Noi

6 To identify the winning strategies for banks in fund mobilization

1.3 Statement of the Problem

Funding mobilization is very ctitical to banks in Vietnam, especially in Ha Noi

as a large number of banks with too high credit growth (Quach, 2011) with the limited source of owners capital need to maintain their growth and liquidity by seeking

deposits from public In addition, banks face with stiff competition in deposit mobilization and this makes banks more difficult in attracting and keeping depositors

Ha Noi is a big city where all banks have presence and try to gain advantage over competitors Understanding depositors’ behavior in Ha Noi would help banks adapt their funding strategies accordingly However, there is a very limited knowledge of depositors’ behavior available in the research or at bank strategists’ desk Therefore, it should be an opportunities for researchers to study the depositors’ behavior and make

it useful to all stakeholders

To understand the depositors’ behavior in bank patronage The following questions will be addressed:

1 What is the background of banking industry in Ha Noi?

2 What are the profile of depositors in Ha Noi?

3 What are the implications of depositors’ behavior?

4 How are the depositors’ behavior and bank patronage correlated?

5 What are the factors that influence the depositors’ behavior in selecting banks?

6 How do depositors prioritize the factors?

7 What are the winning strategies for the banks in fund mobilization?

1.4 Hypotheses of the Study

The following hypotheses will be tested:

Hypothesis 1: Depositors’ behavior in bank patronage is positively correlated to the

level of interest rates that banks offer for taking deposits

Hypothesis 2: Depositors’ behavior in bank patronage is positively correlated to the

availability of the bank

Hypothesis 3: Depositors’ behavior in bank patronage is positively influenced by

referral from friends or relatives

Hypothesis 4: Depositors’ behavior in bank patronage is positively correlated with the

promotion campaigns that banks offer to depositors

Hypothesis 5: Depositors’ behavior in bank patronage is positively correlated with the

bank reputation in the market

Hypothesis 6: Depositors’ behavior in bank patronage is positively correlated with the

service quality that depositors experience with banks

Hypothesis 7: Depositors patronize the banks when their deposit is secured

1.5 Significance of the Study

The study is important as it addresses to answer several key questions and it benefits researchers and banks in setting up their strategy in fund mobilization

The study is to identify the factors that influence depositors’ behavior in selecting banks for placing their deposits

For the banking industry’s regulator, it finds out the gap between the fact and polices for fund mobilization, implication for strenthening the policy environment

For the banks, they understand factors to influence the depositors’ behaviors; through which banks would be able to address key issues that influence depositors in bank patronage and able to reshape their policies and strategies to win the competition

For marketers, the understanding of depositor behavior and influencing factors would help them to develop suitable and effective marketing campaigns

For researchers and students, they would have a valuable information about depositor behavior in Ha Noi and apply in the work and study

1.6 Scope and Limitation of the Study

The study focused on the Ha noi urban city area where the competition among banks is fierce and the main source of bank funding come from The subject is on depositors who used to or place their deposits at financial institutions in Ha Noi urban areas

The survey questionnaire is developed to address several factors influencing depositors’ behavior The direct interview method is used to collect primary data from depositors The questionnaire could be handled directly by the researcher or agents The interviews would be conducted from November 2012 to February 2013 within the inner districts of Ha Noi city

The limitations that have direct bearing on the results of the study consist of the following: (i) Duration of the study is short and resource is limited, these would not allow a large scale interview to be made Therefore a reasonable sample size is expected to fit with the scope of the study; (ii) Ha Noi is a big city and it has just merged with Ha Tay province where over 80% population living in rural areas with limited access to banks, the study is only to conduct in the inner districts of Ha Noi urban city areas where population is highly condensed and well informed of banks and their services; (iii) Depositors are selected randomly and due to a low ratio of deposit access, it is not easy for interviewers to approach successfully interviewees at any time, hence it would take time and resources; (iv) there is limited information on the research available and there has not been any official research made, the identification of factors could be come from the review of literature and researcher’s experienced observations

3 Bank patronage is a business give to a bank by its customers

4 Behavior is simply a response of an individual or a group to an action, environment, person or stimulus

5 Commercial bank is a bank which is allowed to provide all kinds of banking activities for profit

6 Credit Institution is an entity to involve in one, some or all banking activities Credit institutions include banks, non-bank credit institutions, micro finance institution and People’s credit funds (Law on Credit Institution, 2010)

7 Customer behavior is response that customer reveals during the process of acquiring goods or services and usage and influenced by subjective and objective factors

8 Deposit is an amount of money that a depositor places in bank with expectation to add value, keep secure and convenient for use

9 Depositor is a person/individual who places his/her money at banks in term of savings, or buys banks’ term deposit certificate or bond

10 Depositors’ attitudes are defined as depositors’ evaluation of the banks in terms of service quality and bank brand, operating conditions

11 Depositors’ behavior is the depositor’s selection of bank, kind of money, term, and kind of deposit, originated from his motivation, perception and attitudes and the behavior is influenced by subjective factors such as age, professional, work

experiences and income, and objective factors like bank influencers, social and economic environment

12 Depositors’ motives are to seek for value added, to ensure safety and convenience for their money

13 Depositors’ perception is defined as the depositors’s understanding and knowledge of banks and their products and services

14 Foreign banks are are commercial banks having branches or establishing own banks in Viet Nam

100%-15 Funds mobilization is banks’ activities to mobilize funds or deposits from different sources including funds from depositors

16 Gross Domestic Product (GDP) is the market value of all officially recognized final goods and services produced with a country in a given period of time

17 Human behavior refers to the range of behaviors by humans and influenced by culture, attitudes, emotions, values, ethics, authority, rapport, hypnosis, persuasion, coercion

18 Interest rate is the price that banks offer to pay depositors for taking deposits with commitment to return deposit amount in full plus interest at the end of deposit period

19 Joint Stock Banks are the commercial banks established in Viet Nam with capital contribution from individuals and entities

20 Non-performing Loans (NPL) is the loans at banks that overdue more than 90 days

21 Promotion is the marketing campaigns adding more value to depositors that banks offer to them

22 Referral is recommendation or advice from depositors’ friends or relatives to use a bank or products

23 Reputation is the bank image and brand name

24 Service quality is the quality of products or services that banks offer and could

be measured through depositors’ satisfaction

25 State Owned banks are the commercial banks established in Viet Nam with the state controls more than 50% owner capital

26 The State Bank of Viet Nam (SBV) is the central bank of Viet Nam who is responsible to manage and supervise the banking system of Viet Nam

27 Viet nam dong (VND) is the official currency of Viet Nam

28 Viet Nam General Statistical Office (GSO) is the government entity providing the statistical data

29 United States Dollars (USD) is the official currency of the United States of America

CHAPTER II REVIEW OF LITERATURE AND STUDIES

The chapter presents the discussion of the overview of Viet Nam economic development and the literature review of banking industry, the consumer behavior model, similar studies of depositors behavior and, the review of influencing factors to depositors as well Deposit formulates a key part in banks’ balance sheet Banks are only able to fund its growth of balance sheet size by attracting more deposit Giving the strong competition in the banking industry, banks’ survival in the long- run would very much depend on whether they are able to attract depositors and retain them Therefore, the study on the depositors’ behavior in bank patronage is the key to help

the researcher and banks to address better the issue of winning depositors’ interest

2.1 Economic Development

2.1.1 Viet Nam Economy

Viet Nam population is 86.9 million, of which 30% lives in urban areas and 70% lives in rural areas (General Statistic Office (GSO), 2010)

The country has experienced bouts of macroeconomic turbulence in recent years—double-digit inflation, depreciating currency, capital flight, and loss of international reserves—eroding investor confidence Rapid growth has revealed new structural problems The quality and sustainability of growth remain a source of concern, given the resource-intensive pattern of growth, high levels of environmental degradation, lack of diversification and value addition in exports, and the declining contribution of productivity to growth Vietnam’s competitiveness is under threat because power generation has not kept pace with demand, logistical costs and real

estate prices have climbed, and skill shortages are becoming more widespread (world Bank (WB), 2012)

The Socio-Economic Development Strategy 2011-2020 gives attention to structural reforms, environmental sustainability, social equity, and emerging issues of macroeconomic stability It defines three "breakthrough areas": (i) promoting human resources/skills development (particularly skills for modern industry and innovation), (ii) improving market institutions, and (iii) infrastructure development The overall goal is for Vietnam to lay the foundations for a modern, industrialized society by

2020 (WB, 2012)

2.1.2 Ha Noi Economic Development

Ha Noi is the capital of Viet Nam In 2008, Ha Noi expanded in geographical area by merging with Ha Tay province, extending to 3,3 million km2 with population

of 9 million (GSO, 2012) The average GDP growth rate per annum: 10% 2015), 9% (2016-2020), and about 8% (2021–2030) and GDP per capita: about US

(2011-$3,300 (by 2015), US $5,300 (2020) and US $11,000 (2030 as projected (Xuan Hong, 2009)

According to the strategy on socio-economic development to 2030, Ha Noi continues to function as the country’s administrative and political center and an ecological city of thousand-year civilization Hà Nội will focus on building a knowledge economy, nurturing talents and skilled human resource, so as to become a high-grade training center in the region The city will further prioritize hi-tech industries and modern services, especially finance, banking, insurance, securities, post and ICT, health, education and scientific services Meanwhile, agriculture will be

modernized through applying technical advances Under the strategy, Hà Nội will be

an urban complex with modern technical infrastructure (Xuan Hong, 2009)

2.2 Regulation of Banking Industry

2.2.1 Background of Vietnam Banking Industry

Vietnamese banking sector consists of 99 banks and foreign bank branches including 6 state owned banks (including VCB and CTG), 34 jointstock commercial bank, 55 foreign banks and foreign bank branches, and 4 joint venture banks Only 11 out of 40 domestic banks (25.6%) have chartered capital of VND5,000 billion and above Small banks account for a large proportion in the banking sector currently Most of these were initially rural commercial banks but are now pursuing the strategy

of becoming national banks This transition enabled them to achieve fast expansion in terms of assets and high growth of loans within a short time, however, risk management and corporate governance were not accordingly improved to mitigate risks (Quach, 2011) Banks have strongly grown not only in number but also in size of operating network However, the development strategy of each bank determines the way it expands the geographical coverage of branches, transaction offices and ATMs

Table 1 bellow provides classification of banks by ownership and some key indicators of the banks in Viet Nam There are only 6 SOBs but they dominate the market with nearly 40% marketshare while 34 JSCBs also have the same portion of market share and the remaining 10% for foreign banks and joint ventrure banks The Appendix A.1 to A.5 provide details of name, capital, location of head office and some key information of all participants in the banking industry It is obvious that most of the banks based their head offices in Ha Noi and Ho Chi Minh Cities where having concentration of commercial and economic activities and big size of healhy

population Some few JSCBs locate their head offices in provinces, mainly

historically for license in the fast, but their operation also concentrate in Ha Noi and

Ho Chi Minh and some other healthy areas

Own Capital

(billion VND)

Statutory Capital

(billion VND)

Jointstock Commercial Banks

Source: The State Bank of Viet Nam

2.2.2 Key Challenges Facing the Banking Industry

According to Quach, 2011, the Viet nam baking sector is summarized by the

following characteristics : (i) Banking sector experienced dramatic growth in both

quantity and total assets during 2005 – 2010, (ii) High NPL ratio, small size, credit

growth much higher than deposits and GDP growth, and income heavily depending

on lending are key characteristics of the banking sector NPL ratio of the whole sector

was 3.1% in June 2011 and is expected to reach 5% in 2011 year end Average credit

growth during 2000-2010 was 32%, higher than 29% of deposit growth and 7.15% of

GDP growth, which might cause negative impacts on the health of the economy (iii)

Since the beginning of 2011, the banking sector has gone through hard times, due to

instability of the interest rate and multiple changes in the credit policy The SBV has

continually adjusted policy rates and imposed a rate cap on VND and USD deposits in

an effort to control inflation and stabilize the macro economy Credit growth was slow during the first 7 months of 2011 due to inefficient capital flow among banks and markets Interest rate racing among banks and a large gap maintained between USD and VND credit growth were highlights in this period

After the too fast expansion and growth of the banking industry, it is projected that the banking industry would face with a consolidation period The clear signals were starting from mid of 2012 as (i) the banking industry faced with serious liquidity problems and many of them had to ask for the help of last resort from State Bank, (ii) the Sate Bank of Viet Nam stopped giving licenses for banks to open new branches, (iii) the governor of the State Bank of Viet Nam warmed that strong actions should be taken with weak banks through restructuring process or mergered with other banks and there would be 5 to 8 banks should be mergered in 2012, following of the merger

of 3 banks in 2011 including SCB, Ficobank and VNtinnghia bank

According to Vu H., 2013, 9 weak banks have been placed under restructruring program innitiated by SBV, including (i) the merger of three banks (SCB, Ficombank, and Vntinnghia bank, (ii) the merger of Habubank into SHB bank, (iii) restructure of Trust bank, and (iv) the merger of Western bank and PVFC – a financial company Besides, DaiA Bank and HDBank annouced their merger at shareholders’ meeting on 15 June 2013 (Giaoduc.net.vn, 2013) Also, Vu H., 2013 mentioned that the restructuring of banks has made significant progress as the safety

of banking system improves, the signal of banking system colapse is over, deposit withdrawal is served on time, and the money market is stabilized

Even during financial crisis time and consolidation of the banking system, the figure showed an increase of public deposits in banking system This indicated the depositors’s confidence on the banking system in general The increase of deposits in

the banking system was by 11.23%, while credit increased only by 1.4% at of August

2012, in compared with the year beginning (Vneconomy.vn, 2012) Other inplication

of the situation is that depositors might not have better choices of investment, rather than making deposits at banks

2.3 Background of Ha Noi Banking Industry

2.3.1 Banking Industry in Ha Noi

According to SBV HN (2012), in Ha Noi, there are 2,041 branches and transaction offices, belong to 403 credit institutions Total assets of all credit institutions are 1,455,497 billion VND, of which 471,296 billion VND for sate owned banks, 566,294 billion VND for joint stock banks, 153,571 billion VND for foreign banks, 5,726 billion VND for joint venture banks, 132,834 billion VND for financial companies, and 115,330 billion VND for others

Ha Noi is Viet Nam’s capital where most of banks locate their head office Banks are providing full range of banking products and services According to Kim C., 2013, total fund mobilization in Ha Noi reaches 857,473 billion VND while credit reaches 616,600 billion VND as of the end of February 2013 This figure indicates that a part of funds mobilized in Ha Noi should be used to fund credit growth in other markets As Ha Noi is considered as a pool of funds, all banks concentrate in the market and competion become very strong

2.3.2 Practice in Deposit Mobilization in Ha Noi

For a long period of time from 2005 – 2011, the average credit growth rate of the banking system is 30% per year This causes the fierce competition among credit

institution to mobilize fund for their asset growth In consequence, the competition in saving mobilization is very strong and always causes the increase of interest rates

To prevent the over-increase of the cost of funds that would negatively impact the economy and economic activities, the State Bank of Viet Nam set the cap on deposit rates At the same time, SBV also regulated to limit the withdrawal of deposit before due by applying the demand rates which are low to every before-due withdrawal In fact, deposits at credit institutions are mainly short term deposits less than 3 months (SBV HN, 2012) Due to the regulated cap on deposit rates, small banks are loosing advantage in compared with bigger banks To attract deposits and keep depositors, small banks use many ways to compensate depositors, which eventually increase the cost of fund much higher than the cap

Given the difficulties in the banking system and the economy, the fund mobilization in Ha Noi for the first half of 2013 increases by 5.74% compared with 31 December 2012 while credit increases ony by 1.8% (Nguyen T., 2013) This means that depositors still increase their deposits at banks and consider banks as an attractive channel for investment or keep their money safe

2.4 Consumer Behavior

Consumer behavior is a complex process involving the activities people engage in when seeking for, choosing, buying, using, evaluating and disposing of products and services with the goal of satisfying needs, wants and desires Arnould, Price & Zinkhan (2002) defines consumer behavior as individuals or groups acquiring, using, and disposing of products, services, ideas, or experiences A range of factors; both internal and external take to influence consumer behavior These factors range from short‐term to long‐term emotional concerns Understanding the process of

how a purchase decision is reached is fundamental as this forms the foundation that

can be used to analyze any given product or services

In the following, the researcher discusses two conceptual models of

consumer behavior that form the foundation of the study, namely the Engel, Kollat

and Blackwell model and the Hawkins, Best and Coney model

Hawkins, Best & Coney (1998) presents a conceptual model of consumer

behavior External and internal factors contribute to the formulation of self-concept

and lifestyle, which take an impact on the consumer decision process During this

process, experiences and acquisitions update the original external and internal

influences

Figure 1

Conceptual Model of Consumer Behavior

Source: Hawkins, Best & Coney (1998)

In the model, the individual's self-concept and life-style will be influenced by

both external and internal factors The external influences are mainly sociological and

demographic, including constructs such as culture, demographics, social status, reference groups and family The internal influences are mainly psychological and physical, including constructs such as perception, learning, memory, motives, personality and attitudes According to the conceptual model, the individual's self-concept and life style generate needs and desires, some of which are satisfied by consumption decisions The individual is confronted with situations that trigger the consumer decision process The stimuli may include products, retail outlets, sales personnel, advertisements, etc The consumer responds to the stimuli after following

a problem-solving process which includes problem recognition, information search, alternative evaluation and selection, outlet selection and purchase, and post purchase processes The stimuli is said to activate and create a state of dissatisfaction or problem that the consumer will engage in solving In this conceptual model the general structure of the stimulus-organism-response models, wherein the internal processes leading to the individual's response are stated in terms of information-processing and problem-solving or decision-making

Hawkins, Best, & Coney (1998) in bellow also describes a conscious problem solving and learning model of consumer behavior This model shows the development

in customer behavior In the model there are five stages, this involves problem recognition, alternate evaluation, search for alternatives and purchase and outcomes

It is not essential for the customers to go through all those stages

Figure 2

Conscious Problem Solving and Learning Model of Consumer Behavior

Source: Hawkins, Best, & Coney (1998)

The customers would get data from marketing and non marketing research;

this would influence the problem recognition This is the first stage of the decision

making process for the customer If the customers have still not come to a final

decision, the consumer would go to the next stage of the model This model has a

good description of active information seeking and evaluation processes of consumer

The information processed in this model is the stimulus The consumer decision

processes act upon this stimulus in order to determine a response to it The model attempts to explain each stage and shows interrelated between the stages of consumer buyer behavior from the stimulus, through the purchase to post purchase behavior

2.5 Review of Related Studies

There are many related studies available in the public sources, both overseas studies and domestic studies There is not a same captioned studies of the correlation between depositors’ behavior and bank patronage However, the depositors’ behavior had been studied by many scholars or researchers in conjunction with economic environment, insurance system, during a financial crisis time, and with bank characteristics

According to Schmukler S., Peria M.S.M., and Levy E (2009), depositors respond to increases in bank risk- reflected in bank-specific characteristics by demanding higer interest rates on their deposits or by withdrawing their funds, penalizing managers for excessive risk-taking Macroeconomic risks can influence depositors action, both regardless of and through bank-specific characteristics The effects can take place when worsening macroeconomic conditions directly threathen the value of market participants’ assets such as bank deposits Macroeconomic factors are significant drivers of depositor behavior in crisis periods, at times overshadowing the role of bank-specific characteristics

Babolola (2009) mentioned that although trust is the conerstone of the banking industry, the perceptual factors influence the customers’ choice of banks Attitudes are important in a consumer environment and attitudes influence thoughts, feelings, and most importantly behavior Also, the overriding choice of the customers may depend on a number of external factors