Summary of financial and banking phd thesis Development of commercial bank''s non-credit services in Vietnam

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THE MINISTRY OF EDUCATION & TRAINING THE STATE BANK OFVIETNAM
BANKING UNIVERSITY OF HO CHI MINH CITY

PHAM ANH THUY

DEVELOPMENT OF COMMERCIAL
BANK'S NON-CREDIT SERVICES IN VIETNAM

SUMMARY OF FINANCIAL AND BANKING PHD THESIS

HO CHI MINH CITY, 2013

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THE MINISTRY OF EDUCATION & TRAINING THE STATE BANK OFVIETNAM
BANKING UNIVERSITY OF HO CHI MINH CITY

PHAM ANH THUY

DEVELOPMENT OF COMMERCIAL
BANK'S NON-CREDIT SERVICES IN VIETNAM

SUMMARY OF FINANCIAL AND BANKING PHD THESIS

RESEARCH FIELD: BANKING AND FINANCE

CODE: 62.34.02.01

SCIENCE INSTRUCTOR:
PROF., DR. TRAN HOANG NGAN

HO CHI MINH CITY, 2013

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INTRODUCTION
1. PhD Thesis's necessity and importance
Vietnam officially became the 150th member of the World Trade Organization
(WTO). This WTO membership will bring both opportunities and challenges for
commercial banks (commercial banks) in Vietnam requiring the commercial banks to
implement their enormous reforms to maintain and develop their roles in the fiercely
competitive business environment.
In Vietnam the banking competition is rather fierce. All banks throughout the
country are currently doing business with their great excitement. For every minute, the
banks are competing with each other by launching new products and services, offering low
interest rates, process improvement, modern banking technology application ...
In 2012, when Vietnam Government removed some restriction in field of bank
finance, the foreign banks performed their business with more free access. So far, for
commercial banks, the main source of income is credit operations especially in respect of
medium and long term credit, real estate credit.... Due to the credit operation is in possible

risks and the State Bank of Vietnam (SBV) firmly decided to set the maximum growth
rate, the commercial banks were forced to increase their income from non-credit
operation. However, this is not easy way for commercial banks in the current period.
It is one of financial restructuring activities of credit institutions in the master plan
"Credit institutions restructuring for the period of 2011-2015" approved by the Prime
Minister at Decision No. 254/QD-TTg dated 01 March, 2012 that : To gradually
restructure the business model of commercial banks with less reliance on credit operations
and more income from non-credit services.
The non-credit services development is of socio-economic significance making the
safe, accurate and fast payment; restricting corruption, illegal trafficking ... In addition,
non-credit products will create more stable and safer income for commercial banks,
although these banks have been facing with hard competition in the fierce business
environment. Therefore, Vietnamese banks have to prepare the appropriate steps in the
near future to keep their existence and sustainable development meanwhile the state
protectionism for domestic banks is step-by-step removed. Moreover the development of
non-credit services provides many positive social and economic impacts as more effective
capital accumulation; safer, more accurate and easier monetary transactions; tightlycontrolled illegal income...
Based on the above approach, with a desire to participate in the development of
commercial bank's non-credit services in Vietnam, I choose this PhD thesis "Development
of commercial bank's non-credit services in Vietnam" for my financial economics and
banking subject. It is hoped that this PhD thesis will contribute to the development of
Vietnam commercial bank's services in the near future.

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2. Overview:
According to the author, up to now there is no thesis on the development of
commercial bank’s non-credit services in Vietnam.
In recent years, there are a lot of scientific studies, research articles on non-credit
services in various aspects, with diversified methodologies and at different time. As the
result, this PhD thesis is completely not same as the previous research studies.
In particular, for this thesis, the author applied the new methodology of combined
two research methods including qualitative methods (studying scale of non-credit service
development) and quantitative methods (studying quality of non-credit service
development).
As qualitative research, the author conducts a data survey and analysis in 38/40
commercial banks in Vietnam. It is the new point in his research on scale of Vietnam
commercial bank's non-credit services development that the allocation of general
operating expenses by operation type (types of credit service, non-credit service and other
services) and the cost of provision for credit losses is itemized in the cost of credit
operation. As the result, the author calculates the contribution of each type of service to
the profit before tax showing the real effectiveness of non-credit service development.
As quantitative research, the author conducts a customer survey for non-credit
services in a number of commercial banks in Vietnam and SPSS software application to
identify the impacts on the customer satisfaction.
3. Objectives
To study the non-credit services development on two aspects of scale and quality for
identification of both advantages and limitations to the development of commercial bank's
non-credit services in Vietnam. On that basis, the thesis proposes solutions for commercial
bank's non-credit services development in Vietnam.
4. Subject and Scope of study
Subject: Commercial bank‘s non-credit services in Vietnam.
Scope of study: Commercial bank‘s non-credit services in Vietnam

5. Methodology
The thesis is based on methods of statistics, analysis, synthesis, logic, comparison,
inductive, synthesis, dialectical materialism, comparison between theory and practice,
combined qualitative and quantitative researches and reference.
The fact study was performed in two steps: preliminary and official studies.
Preliminary study is performed basing on qualitative methods with expert opinions for
adjusting QoS reference point for non-credit services and its impact on customer
satisfaction. Official studies are carried out basing on quantitative methods of direct
interview and survey via Internet.
6. Thesis Content
Apart from the introduction, conclusion, list of abbreviations, a list of tables, list of
references ... The thesis consists of 03 chapters as follows:
Chapter 1: Theory of commercial bank's non-credit services

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Chapter 2: Current development of Viet nam commercial bank’s non-credit services
Chapter 3: Solutions for developing Viet nam commercial bank's non-credit services
CHAPTER 1: THEORY OF COMMERCIAL BANK’S NON-CREDIT SERVICES

1.1. OVERVIEW OF BANKING SERVICES
1.1.1. Definition
Banking services are banking operations providing customers services as required
including deposit saving, lending, payment and foreign exchange trading, guarantee,

advisory services, ...
1.1.2. Characteristics of banking products and services
1.1.3. Classification of banking services in term of income source
1.1.3.1. Credit Services
1.1.3.1. Non-credit services
+ Deposit saving, payment accounts and treasury services
+ Card Service
+ E-banking services
+ Foreign Currency Trading
+ Guarantee service (fee-based )
+ Trust Service
+ Advisory Service
+ Banking supervision
+ Money brokerage
+ Other non-credit services
1.2. OVERVIEW OF NON CREDIT SERVICES
1.2.1. Definition
Non-credit services are bank services creating income apart from interest and from
the account payment services, treasury services, fee-based collection services, advisory
services, trust services, foreign currency exchange ...
1.2.2. Development of non-credit services
1.2.2.1. Background
The author's views:
+ Development both in scale and quality : Each bank initially builds its investment
plan of non-credit services development. It is necessary to improve existing non-credit
services with the application of international standards and practices, the maximum
exploitation to strengthen customer confidence and optimizing investment. On the other
hand, it is required to access to new technologies for developing the customer and market
networks. However, the investment capital should not be wastefully and inefficiently
allocated. It is essential to harmonize the diversification with quality

+ Development in line with control capacity and market demand: The bank itself
can control the arising risks to meet the customer needs. The massive and out-of-controlled
development can lead to unsafe condition at one unit, section or affect the bank's entire
operations.
1.2.2.2. The need to develop commercial bank’s non-credit services

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+ For Banks
- Non-credit service is highly profitable for banks because of its low cost.
- Non-credit service not require banks to use more capital
- Non-credit service helps banks reducing potential risks as its safe and low-risk
level
- Non-credit service to help banks in recruiting and staff retraining
- Non-credit service to help banks in public relation, brand name promotion and
market survey
- Non-credit service development is consistent with the trend of banking sector
development
- Non-credit service to help bank cooperation for development
+ For the economy
- To meet the rising demand for banking service in the economy
- Required banking modernization to develop a modern economy
1.2.2.3. Impacts on the non-credit service development

The impacts on the development of commercial bank’s non-credit services is
classified into two types
+ Internal impacts
First, the financial capacity
Second, the information technology infrastructure
Third, governance capacity and effective human resources strategy
Fourth, the distribution channels
Fifth, customer policy
+ External impacts
First, the legal basis
Second, the level of international economic integration and intra competition
Third, economic growth and social environment
Fourth, the political situation and social order and security
Fifth, the client's needs
Sixth, the government's policy
Seventh, competitors
1.2.2.4. Criteria for the non-credit service development
The level of non-credit service development is rated basing on the following
criterion.
First, the criterion for the scale of non-credit service development
+ Sales and income increase
+ Customer and market share increase
+ Number of services
Second, the criterion for the quality of non-credit service development
+ Increased benefits and safety of bank products
+ Response to customer demand

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+ Bank brand name and reputation
The criteria evaluation and measurement of banking service quality can be
represented upon the model and customer perception of banking services quality.
According to previous studies, the banking service quality is often measured by the
SERVQUAL model (five-component model) RVPERF model and FSQ & TSQ models.
- SERVQUAL model (five components)
Reliability
Responsiveness
Tangibles
Capability
Empathy
1.2.3. Risks of developing non-credit services
1.2.3.1. Liquidity risk
1.2.3.2. Interest rate risk
1.2.3.3. Exchange rate risk
1.2.3.4. Operational risk
1.2.3.5. Technology and operational risks
1.3. EXPERIENCE ON NON- CREDIT SERVICE DEVELOPMENT OF FOREIGN
BANKS AND LESSONS FOR COMMERCIAL BANKS IN VIETNAM
1.3.1. Experiences of some international banks
1.3.1.1. Hang Seng Bank (Hong Kong)
1.3.1.2. Standard Chartered
1.3.1.3. Citibank (Japan)
1.3.2. Lessons for Vietnamese commercial banks
First, to improve the legal environment for banking services, especially e-banking

services.
Second, to create the necessary infrastructure for the banking service development,
especially the information technology-based and associated tools and means.
Third, to develop governance capacity and professionalism of bank staff,
employees.
Fourth, to diversify bank products and services, modernizing traditional services in
parallel with developing up-to-date services.
Fifth, to pay reasonable attention and develop the appropriate banking network.
Sixth, to pursue the right customer policies.
Seventh, to focus on advertisement, public relation, introduction of banking services
benefits .
Eighth, to set up reasonable prices.
Conclusion of chapter 1 :
For Chapter 1, the thesis systematically presents the basic theory of commercial
bank services, non-credit service, experiences on developing non-credit services in the
world and lessons for commercial banks in Vietnam.
For the overview of banking services, the thesis presents banking service concepts,
the characteristics of banking products and services and income-based service
classification. For the overview of non-credit services, the thesis presents the concept of

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non-credit service, development of non-credit services (in terms of scale and quality of

service) and the risks of non-credit services performance for commercial banks in
Vietnam. In particular, regarding to the development of non-credit services, the author
points out the widely applied models for rating banking service quality and customer
satisfaction to build the theory framework for quantitative study shown in Chapter 2. In
addition, the thesis refers to the experiences of non-bank credit services development in
the world to draw out 8 key valuable lessons for reference for commercial banks in
Vietnam. The above arguments help to form basical theory for the realization of taskoriented thesis.
CHAPTER 2: CURRENT DEVELOPMENT OF VIETNAM COMMERCIAL BANK’S
NON- CREDIT SERVICES
2.1. CURRENT OPERATION OF VIETNAM COMMERCIAL BANKS
As of 31 December, 2011, the Vietnam banking system consists of 01 Development
Bank, 01 Bank for Social Policy, 5 state-owned commercial banks of which 03 state-owned
equitized commercial banks, 35 joint-stock commercial banks, 50 branches of foreign
banks, 05 100% foreign invested banks, 4 joint-venture banks. Thus, currently the total
number of Vietnam commercial banks is 40.
Vietnam banking system is continuously expanded and diversified in terms of scale,
ownership and business.
However, the weakness of the Vietnam banking system are shown as following:
First, a very high level of debt with bad debt compared to the economic growth level;
Second, liquidity problem in respect of interest racing for the past time; Third, weak
management of corporate and risk, business losses and inefficiency.
2.1.1. Financial capacity
2.1.1.1. Capital and capital adequacy ratio of commercial banks
+ Capital of commercial banks
In 2011, the average chartered capital of commercial banks in Vietnam is VND
6043 billion (equivalent to USD 290 million - as the average inter-bank exchange rate
announced by the State Bank of Vietnam on 31 December, 2011). Now there are 14/40
banks with chartered capital of over VND 5,000 billion, of which 7 banks with over VND
10,000 billion in capital namely as Vietnam Bank for Agriculture and Rural Development
(VND 21,511 billion), Vietnam Joint Stock Commercial Bank for Industry and Trade

(VND 20,230 billion), Joint Stock Commercial Bank for Foreign Trade of Vietnam (VND
19,698 billion), Joint Stock Commercial Bank for Investment and Development of Vietnam
(VND 12,947 billion), the Vietnam Export Import Commercial Joint Stock Bank ( VND
12,355 billion), Saigon Commercial Joint Stock bank (VND 10,740 billion), Saigon
commercial bank (VND 10,584 billion).
Till 31 December, 2011, three small banks with capital of less than VND 3,000
billion as Petrolimex Group Commercial Joint Stock Bank (VND 1,000 billion), Bao Viet
commercial bank (VND 1,500 billion) and Saigon commercial bank for Industry and Trade
(VND 2460 billion).
+ CAR Ratio

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Table 2.4: CAR Ratio of Vietnam commercial banks
Unit : %
Year

Category

2008

2010
8,94
9,53

11,02
Source : The securities company analysis [12]

CAR Ratio

2009

2011
11,92

2.1.1.2. Equity
In recent years, the commercial bank credit operation have been blooming out of
control especially in respect of medium and long-term loan for real estate projects causing
economic threat of bad debt in Viet Nam.
Table 2.7: Bad Debt ratio of Vietnam commercial banking system
Unit : %
Year
2007
2008
2009
2010
1,6
2,1
2,6
3,0
Source: Annual Reports of State Bank of Vietnam [42]

Category
Bad Debt Ratio

2011
3,3

2.1.1.3. Business Performance Results
+ First, the income statement
Table 2.9: Business Performance of Vietnam commercial banks
Unit: VND million
Category

2007
46.291
8.377
5.674
60.342
17.016

2008
52.466
10.722
7.658
70.846
21.041

Year
2009
54.932
11.743
12.698
79.373
29.844

2010
84.969
14.202
12.364
111.535
43.945

2011
132.067
12.707
6.470
151.244
57.926

1. Income from credit operation
2. Net gain from non-credit service
3. Net gain from other operations
4. Total income (1+2+3)
5. Total operating expenses
6. Net operating profit before provision of
43.326
49.805
49.529
67.590
93.318
credit losses (5-6)
7. Cost for provision of credit losses
28.016
26.488

14.650
23.237
37.296
8. Profit before tax (6-7)
15.310
23.317
34.879
44.353
56.022
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]
The year of 2011 is a difficult year for commercial bank's operation in the monetary
market. However, as shown in the business performance of a number of commercial banks, the
commercial banks 's profit have increased over the years.

Second, the operating income structure of Vietnam commercial banks
Figure 2.1: The operating income structure of Vietnam commercial banks

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%
100%

9,4

10,8

16,0

11,1

90%
13,9
80%

4,3
8,4

12,7

15,1
14,8

70%
60%
50%
87,3
40%

76,7

74,1

69,2

76,2

30%
20%
10%
0%
Năm

2007

2008

2009

2010

2011

Lãi thuần từ các hoạt động khác
Lãi thuần từ hoạt động phi tín dụng
Thu nhập từ hoạt động tín dụng

Source: Annual Reports of 38 Commercial Banks in Vietnam and the author's analysis [8, 10, 11]

Table 2.11: Net gain from non-credit service of Vietnam commercial banks
Unit: VND million
Year
Category
2007
2008

2009
2010
2011
1. Net gain from payment service
1.236 2.331 3.739 5.687 6.208
2. Net gain from treasury service
145
238
355
765
882
3. Net gain from guarantee service
547 1.098 1.599 2.018 2.752
4. Net gain from trust service
26
53
101
397
303
5. Net gain from advisory service
15
6
150
112
24
6. Net gain from other services
1.822 2.199 2.560 3.338 2.332
I. Total net profit from services (1->6) 3.791 5.925 8.504 12.318 12.500
II. Net profit from foreign currency
4.586 4.797 3.239 1.884

207
trading operations
III. Net profit from non-credit services
8.377 10.722 11.743 14.202 12.707
(I+II)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

Table 2.12: Proportion of net profit from non-credit services of Vietnam commercial
banks

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Unit : %
Category
Net gain from payment service
Net gain from treasury service
Net gain from guarantee service
Net gain from trust service
Net profit from advisory service
Net gain from other service
Net profit from foreign currency trading operations
Total net gain/loss from non-credit services

Year

2007

2008

2009

2010

2011

14,8
1,7
6,5
0,3
0,2
21,8
54,7
100

21,7
2,2
10,2
0,5
0,1
20,5
44,7
100

31,8
3,0

13,6
0,9
1,3
21,8
27,6
100

40,0
5,4
14,2
2,8
0,8
23,5
13,3
100

48,9
6,9
21,7
2,4
0,2
18,4
1,6
100

Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

As shown in Table 2.12 in respect of proportion of net profit from non-credit
activities, payment, treasury, guarantee services are growing with stable net gain. The
trust services, advisory services and foreign currency trading business and other services

are unstably growing. In particular, net gain from foreign currency exchange operations
seriously decreased over the years of 2007-2011 and accounted for lower proportion of
total income from non-credit services.
Third, the net income of each business after allocation of operating costs
Table 2.14: Income statement of Vietnam commercial banks
Unit: VND million
Year
Category
2007
2008
2009
2010
2011
1. Income from credit operation
46.291 52.466 54.932 84.969 132.067
2. Operating expenses for credit operation 13.054 15.582 20.654 33.478 50.581
3. Cost of Provision for credit losses
28.016 26.488 14.650 23.237 37.296
I. Net gain after provision for credit losses
5.221 10.396 19.628 28.254 44.190
and operating expenses allocation
4. Net gain from non-credit service
8.377 10.722 11.743 14.202 12.707
5. Cost for non-credit activities
2.362
3.184
4.415
5.596
4.867
II. Net gain from non-credit activities after

6.015
7.538
7.328
8.606
7.840
operating expenses allocation
6. Net gain from other operations
5.674
7.658 12.698 12.364
6.470
7. Costs for other activities
1.600
2.275
4.775
4.871
2.478
III. Net gain from other operations after
4.074
5.383
7.923
7.493
3.992
allocation of operating expenses
IV. Total net gain = Profit before tax
15.310 23.317 34.879 44.353 56.022
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

Table 2.14 shows the net income of each business (including credit and non-credit
services and other services) as taking costs for provision for credit losses into net gain from

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credit services and operating costs allocation for each business. After such allocation, the
total net profit from the bank business is equal to the profit before tax.
Table 2.15: Proportion of net profit per each business to Total profit before tax
Unit: %
Year
Category
2007
2008
2009
2010
2011
1. Net gain after provision for credit
losses and allocation of operating
34,1
44,6
56,3
63,7
78,9
expenses
2. Net gain from non-credit activities
39,3

32,3
21,0
19,4
14,0
after allocation of operating expenses
3. Net gain from operations after
26,6
23,1
22,7
16,9
7,1
allocation of operating expenses
4. Total net gain = Profit before tax
100,0
100,0
100,0
100,0
100,0
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

Table 2.16: Proportion of Operating income of Viet Nam commercial banks
Unit: %
Year
Category
2007
2008
2009
2010
2011
1. Net gain from credit operation

76,7
74,1
69,2
76,2
87,3
2. Net gain from non-credit operation
13,9
15,1
14,8
12,7
8,4
3. Net gain from other operation
9,4
10,8
16,0
11,1
4,3
4. Total operating income
100,0
100,0 100,0
100,0 100,0
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

As shown in Tables 2.15 and 2.16 net gain from credit operation takes a smaller
proportion of the profit before tax than that of operating income over the years 2007 to
2011. It is proved that the credit operation is the major source of income for Vietnam
commercial banks but potentially risky.
Meanwhile, income from non-credit activities are taking greater proportion of profit
before tax than that of operating income over the years 2007 to 2011. It is proved that
income from non-credit operation is less risky and more profitable for Vietnam

commercial banks.
2.1.2. Rate of return (%)
2.2. CURRENT DEVELOPMENT OF VIETNAM COMMERCIAL BANK ’S NONCREDIT SERVICES IN TERM OF SCALE
2.2.1. Services
2.2.1.1. Deposit account services, payment and treasury services
+ First, deposit account services
- Product and features
Deposits, withdrawals, bank transfers, loan guarantees, loan guarantees to third
parties in the bank; collection at the request of customer; other products as flexible savings
account – floating interest rate : Customers can deposit more or withdraw a partial capital

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on the interest payment day. Moreover, customers can withdraw all before maturity when
needed.
Benefit and quality of service:
Deposits, withdrawals, transfers, payments; monthly salary receiving; Overdraft
account; card issuance, checque issuance; Sign up for e-banking services; online banking
services via the internet; banking services via mobile message; banking by phone 24/7;
Automatic Transfer for periodic payments; payment transactions, withdrawal, money
transaction for securities trading, for auction, online dividends receiving ... with affiliate
securities companies; confirmation of financial capacity for abroad travel, study, ... savings
account for loan payment or bank transfer to the other account.
Capital raising performance:

Table 2.19: internal capital raising of Vietnam commercial banks
Unit: VND million
Category

Capital raising from cooperation
Increase
or
decrease
rate
comparing to the previous year
(%)

2007
924.922
-

2008
1.262.51
9

Year
2009
1.618.46
9

36,5

28,2

2010

2.235.331
38,1

2011
2.467.18
3
10,4

Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

As shown in Table 2.19, the growth rate of capital raising of Vietnam commercial
banks continuously increased over the years 2007-2011. In 2011, the capital raising has
been facing with difficulties due to the impact of tightened monetary policy and strict
control of the foreign exchange market. In addition, capital mobilization has been facing
much more challenges due to the unfair competition of a number of commercial banks,
+ Second, the payment service
- Domestic Payment
- Product and features:
Domestic payment products include payment order, collection order, checque
payment and card payment.
Payment, online payment, payment for electricity, telephone bills, shopping
invoices, , airline tickets buying ...;monthly salary receiving; overdraft account; bank cards
issuance: Smartlink, Banknet, and VNBC; checque issuance; registered electronic banking
services: Internet banking, Mobile banking, Home banking; automatical money transfer for
the periodical payment; payment transactions, withdrawal, money transaction for securities
trading, for auction, online dividend receiving from securities companies affiliated with
banks;
-Benefit and quality of service

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To best serve the cardholders, Vietnam commercial banks are constantly expanding
their card acceptance points and ATM network throughout the provinces and the cities for
ready response to domestic and foreign customer' demands.
Customers can use the payment service through ATM and POS as payment for
electricity, water, postal charges, shopping in commercial centers ...
International Settlement
International settlement provided by Vietnam's commercial banks is well growing
thanks to the wide network of correspondent banks around the world.
Payment service performance
Table 2.20: Net gain from payment service of Vietnam commercial banks
Unit: VND million
Year
Category
2007 2008
2009 2010 2011
Income from payment service
1.582 3.022 4.462 6.830 7.828
Cost of payment service
346
692
723 1.143 1.620
Net gain from payment service

1.236 2.331 3.739 5.687 6.208
Ratio of Net gain / income from
77,1
83,8
83,3 79,3
78,1
payment service (%)
Increase or decrease rate of payment
(0.01)
60,4
52,1
9,2
service over the previous year (%)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analyis [8, 10, 11]

As shown in Table 2.20, the ratio of net gain from payment service always reaches
at 77% to 83.8%. Thus, the payment service is highly profitable for Vietnam commercial
banks.
Currently, banks are competing on bank fee for non-credit services. Fee schedule of
the state-owned commercial banks are more competitive than that of joint-stock
commercial banks in recent years. However, the Vietnam commercial banks apply some
not appropriate fee as account management fees, charges for account close, cash withdraw
in case the account holder deposited into his account or got interest within two days, high
charge for account statements extraction up to VND200,000 / account / month, charge for
certified audited balance, charges for all deposits with maturity within 5 days ... fees are
sometimes too rigid not to create incentives for large and loyalty customers.
+ Third, treasury services
- Product and features
The treasury services include cash collection/withdrawal service with quick and
safe deposit and withdraw; Acquisition, change of unqualified VND cash; collection of

foreign cash that are crumpled, sticky chemicals, fire, termites and expired at circulation,
not qualified for circulation; professional guidance for recognizing fake foreign currency at
authorized exchange dealers and other bank units.
- Benefit and quality of products
Easy account opening and transaction; open an account in VND or foreign currency;
Cash on business account is kept safe, secure; convenient deposit and withdrawal at all

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bank branches; instant bank account transfers; diversified payment services with
convenience and low fee through a network of bank branches and extensive authorized
dealers; modern electronic banking services; special support such as: automatic
investment, centralized capital management.
- Treasury service performance
Table 2.21: Net gain from treasury services of Vietnam commercial banks
Unit: VND million
Year
Category
2007 2008 2009 2010 2011
Incomes from treasury service
207
416
567 1.021 1.194
Cost of treasury service

62
178
212
256
311
Net gain from treasury service
145
238
355
765
882
Ratio of Net gain / income from treasury service
70 57,2 62,6
74,9
73,9
(%)
Increase or decrease rate of net gain from treasury
64,1
49,0 115,5
15,4
services over the previous year (%)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

2.2.1.2. Card services
Card services are much invested with modern technology but not bring
corresponding benefit with Vietnam commercial banks’s investment. However, the
development of card service promotes brand names of Vietnam commercial banks and
provides other support services such as billing and account services.
Table 2.22: Number of ATM, POS and bank cards through the years
Year

Category
2007
2008
2009
2010
2011
ATM (unit)
5.234 7.051 9.000 11.137 13.636
POS (unit)
23.543 29.215 36.620 37.258 37.432
Bank Card (million card))
12,1
13,4
17
24
40
Source: Statistics of Viet Nam Card Association [44
2.2.1.3. . Electronic banking services
- Product and features:
Internet Banking: banking transactions via the global Internet network
Phone Banking: banking transactions via the telephone network.
SMS Banking: banking transactions through SMS mobile messages
ATM: banking transactions through ATMs
WAP Banking: banking transactions over the web on your mobile phone
Call Center / Contact Center: answer questions, provide information and banking
transactions over the telephone.
Mail Banking, Fax Banking, Video Banking: banking by e-mail, Fax, Video
- Benefits and quality of product:

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The main benefits of E-Banking are: Providing account information, inquiry,
transfer, payment, registration, advisory and other banking operations
- E-banking service performance:
Cost savings, increased revenue: E-Banking transaction fee is assessed to be very
low compared to traditional transactions, particularly transactions through the Internet,
thereby to increase operating income for banks.
2.2.1.4. Guarantee service
- Functionality: Guarantee services provided by the Vietnam commercial banks are
providing loan guarantee, payment guarantees, bid security, agreement performance
guarantee, guarantee for tax payment for import and export, advance payment guarantee,
warranty guarantees, counter-guarantees, guarantees for specific purposes.
- Benefits and quality of guarantee services
Vietnam commercial banks with their high reputation in the domestic and
international markets, long experience in advisory and providing both domestic and
international guarantee services;
Commercial banks establish their broad relationships throughout the country and the
agency relationships with leading banks in more than 80 countries and territories around
the world;
- Guarantee service performance :
Table 2.25: Net gain from guarantee service of Vietnam commercial banks
Unit: VND
Year

Category
2007
2008
2009 2010 2011
Income from guarantee service
549 1.099 1.601 2.024 2.763
Cost of guarantee service
2
1
2
5
11
Net gain from guarantee service
547 1.098 1.599 2.018 2.752
Ratio of Net gain/ income from guarantee service
99,6
99,8
99,9
99,7
99,6
(%)
Increase or decrease rate of net gain from guarantee
100,7
45,7
26,2
36,3
service over the previous year (%)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10,
11]
As shown in Table 2.25, the ratio of net gain/income from guarantee service

reached at over 99% annually and for the period from 2007 to 2011. Thus, the guarantee
service creates a very high rate of return for Vietnam commercial banks.
2.2.1.5. Trust Service
Table 2.26: Net gain from authorized trust service of Vietnam commercial banks

Category
Income from trust service

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2007
349

Unit: VND million
Year
2008 2009 2010
2011
763
743
746
648


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Cost of trust service
Net gain from trust service

Ratio of net gain / income from trust service (%)

323
26

710
53

642
101

349
397

345
303

7,4

7,0

13,6

53,2

46,7

103,8

89,9

291,7

(23,7)

Increase or decrease rate of net gain from trust service
(%)

Source: Annual Reports of 38 Vietnam Commercial Bank in and the author's analysis [8, 10, 11]

As shown in Table 2.26, in 2010 and 2011 trust service brought relatively high net
gain. However, trust service now accounts for a very small proportion of net gain from
non-credit service of Vietnam commercial banks. Vietnam banks should pay attention to
the service development in the near future.
2.2.1.6. Advisory Services
Table 2.27: Net gain from advisory service of Vietnam commercial banks
Unit: VND million
Year
Category
2007
2008
2009
2010
2011
Income from advisory service
480
501
820
520
475

Cost of advisory service
465
495
669
408
452
Net gain from advisory service
15
6
150
112
24
Ratio of net gain/ income from advisory
3,1
1,2
18,3
21,6
5,0
service income (%)
Increase or decrease rate of net gain from
(60)
2.363,2 (25,3)
(79,0)
advisory service
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

As shown in Table 2.27, the advisory service produces net gain for Vietnam
commercial banks. However, in recent years, this service has not fully been developed by
Vietnam commercial banks.
2.2.1.7. Other non-credit services

Including derivatives of interest rate, portfolio management, securities services,
fund management services, rental services, gold trading etc.

Table 2.28: Net gain from other services of Vietnam commercial banks
Unit : VND million
Category

2007
2.445
623
1.822
74,5

2008
3.114
915
2.199
70,6

Year
2009
4.133
1.573
2.560
61,9

2010
5.335
1.997
3.338

62,6

2011
5.939
3.607
2.332
39,3

Income from other services
Cost of other services
Net gain from other services
Ratio of net gain/income from other services (%)
Increase or decrease rate of net gain from other
20,7
16,4
30,4
-30,1
services (%)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

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2.2.2. Foreign currency trading services

2.2.2.1. Foreign Exchange
Table 2.29: Net gain from spot foreign currency trading service
Unit: VND million
Category

Year
2007 2008
2009
2010
2011
9.199 10.615 11.202 12.931 12.872
4.811 6.035 7.715 10.540 12.732
4.388 4.579 3.487 2.391
140

Income from spot foreign currency trading service
Cost of spot foreign currency trading service
Net gain from spot foreign currency trading service
Ratio of net gain/income from spot foreign currency
47,7
43,1
31,1
18,5
1,1
trading service (%)
Increase or decrease rate of net gain from spot foreign
4,4 (23,9) (31,4) (94,1)
currency trading service (%)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

2.2.2.2 Foreign exchange derivatives
Table 2.30: Net gain from foreign exchange derivatives trading service
Unit: VND million
Year
Category
2007 2008 2009
2010
2011
Income from foreign exchange derivatives
621 674
1.068 1.244
2.200
trading service
Cost of foreign exchange derivatives trading
423 456
1.316 1.750
2.133
service
Net gain from foreign exchange derivatives
198 218
(248) (506)
66
trading service
Ratio of net gain/income from foreign
31,9 32,3 (23,2) (40,7)
3,0
exchange derivatives trading service (%)
Increase or decrease rate of net gain from
foreign exchange derivatives trading service
10,1 (214,0) 104,0 (113,1)

(%)
Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

Table 2.31: Net gain from Vietnam commercial bank's foreign currency trading
service
Unit: VND million
Year
Category
2007
2008
2009
2010
2011
Income from foreign currency trading
9.820 11.289 12.271 14.174 15.072
service
Cost of foreign currency trading service
5.234
6.492
9.032 12.291 14.865
Net gain from foreign exchange trading
4.797
3.239
1.884
207
4.586
service
Ratio of net gain/income from foreign
46,7
42,5

26,4
13,3
1,4
currency trading service (%)

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Increase or decrease rate of net gain from
foreign currency trading service (%)

4,6

(32,5)

(41,9)

(89,0)

Source: Annual Reports of 38 Vietnam Commercial Banks and the author's analysis [8, 10, 11]

2.3. CURRENT DEVELOPMENT OF NON-CREDIT SERVICES OF VIETNAM
COMMERCIAL BANKS IN TERM OF QUALITY
2.3.1. Research model
SERVQUAL model is a popular model and extensively used in marketing research

and helpful in systematizing criteria for measuring banking services quality.
2.3.2. Research Process
2.3.2.1. Information collecting method
Study data were collected in the form of a questionnaire by convenient random
sampling method.
2.3.2.2. Data analysis
First of all, the measuring criteria is coded as shown in Annex 3
2.3.3. Research results of Vietnam commercial bank's non-credit service quality
The number of feedback votes was 298 of which the appropriate votes for statistical
analysis was 281 (17 remaining incomplete votes ).
2.3.3.1. Survey-based evaluation of Vietnam commercial bank's non-credit service quality
2.3.3.2. Cronbach Alpha reliability coefficients-based evaluation of service quality criteria
using
As the analysis, the Cronbach's alpha reliability coefficient is greater than 0.7 and
the coefficient of correlation > 0.3. So the criteria is reliable and all observed variables are
used in subsequent factor analysis.

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2.3.3.3 Analysis of EFA factor
Table 2.39: Final analysis results of EFA factor of Vietnam commercial banks
Component
Variances

1
2
3
4
5
6
TC03
,743
TC05
,711
TC01
,703
TC02
,649
TC04
,648
NLPV10
,778
NLPV11
,714
NLPV09
,683
NLPV12
,655
HH21
,800
HH20
,653
HH19
,646

HH22
,632
DU07
,856
DU06
,806
DU08
,665
DC15
,744
DC16
,706
DC14
,646
DC18
,736
HH23
,586
DC17
,567
Source: The author' summary and analysis
2.3.4. Research results of Vietnam commercial bank's non-credit service quality’s
impacts on customer satisfaction.
2.3.4.1. Customer satisfaction rating with Cronbach Alpha reliability coefficient
2.3.4.2. EFA factor analysis
2.3.4.3. Study models of the relationship between the quality of non-credit services and
customer satisfaction - 1st adjustment
2.3.5. Model testing by multiple regression analysis
2.3.5.1. Correlation matrix of variables

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2.3.5.2. Multiple regression analysis
Table 2.49: Statistical parameters of variable in the regression equation
Standardized
Unstandardized Coefficients
Coefficients
Model
T
Sig.
VIF
B
Std. Error
Beta
Constant
-,176
,103
-1,715
,087
STC
,160
,022
,214
7,325

,000 1,242
NLPV
,105
,022
,136
4,720
,000 1,203
HH
,179
,023
,223
7,616
,000 1,244
DU
,335
,020
,477
16,710
,000 1,183
DC
,171
,021
,242
8,218
,000 1,263
TT
,124
,023
,170
5,422

,000 1,422
Source: The author' summary and analysis
As shown in Table 2.49, the regression function takes the following form:
SHL = 0.214 +0.136 STC NLPV +0.223 HH +0.477 DU DC +0.242 +0.170 TT
The model shows that the Response factor (largest standardized regression
coefficients) has the strongest positive effect to the satisfaction of customers using noncredit services. It is followed by the Empathy, Tangible, Reliability, Convenience and
Capacity. The positive regression coefficients show that the variables are directly
proportional to customer satisfaction. In other words, the more these variables value
increases the more customer satisfaction increase.
2.4. ASSESSMENT OF CURRENT DEVELOPMENT OF COMMERCIAL BANK’S
NON-CREDIT SERVICES
2.4.1. Achievements and reasons
2.4.1.1. . Achievements
+ Vietnam commercial banks constantly promote the financial strength, distribution
channels supporting non-credit services development
+ Non-credit service quality is gradually improved based on modern technology to
meet the increasing demand of customers
+ Gains from non-credit services create less risky income for commercial banks
+ Vietnam commercial banks constantly strengthen the human resources and product
services development and customer care
+ Wide and extensive network, deep understanding of local market, large number of
customers
2.4.1.2. Main reasons for achieved results
+ Vietnam commercial banks constantly increase the financial resources pursuant to
the State Bank's schedule or requirements
+ Increasingly developed banking technology
+ Increasingly improved quality of human resources
+ Increasing competitiveness in the banking industry
+ State Bank's special attention and support

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2.4.2. Limits and Reasons
2.4.2.1. Limits
+Limited financial capacity compared to that of other banks in the Southeast Asian
region
+ The non-credit services are mainly traditional, simple, not diversified and at low
quality.
+ Non-credit services market growth is below potential level, competitiveness is not
high.
+ Credit service is still the main type of service of Vietnam commercial banks
+ Price policy for non-credit services is not appropriate
+ Bank technology is not extensively and fully developed
+ Foreign currency trading services are underdeveloped
+ Unequal competition ie monopoly, the state-owned commercial banks are
accounting for the dominant market share and getting great financial resources under the
State support.
+ Commercial banks do not really come into cooperation for development
+ Criteria for evaluation is not momentums for development
+ Vietnam commercial banks have not developed the reasonable list of business
services.
2.4.2.2. Main reasons
+ The legal environment is still limited for banking operations

+ Inter-bank electronic payment system is limited
+ Economic environment not really facilitates the strong development of banking
services.
+ Limited human resources
+Too many state-owned commercial banks backed by the State Bank
Conclusion of Chapter 2
For chapter 2, on the basis of the theoretical framework built in Chapter 1, the thesis
outlines the operation of Vietnam commercial banks in terms of financial capacity and the
rate of return. ratio.
Next, the thesis focuses on analysis and assessment of Vietnam commercial bank's
non-credit services development. In particular, the thesis takes a look at deposit, payment
accounts and treasury services; guarantee service; advisory service; trust service; other noncredit and foreign currency trading services .
Then, the thesis present the survey and quantitative research on non-credit service
quality of Vietnam commercial banks. The contents are shown including modeling studies,
research process, research results on quality model of non-credit services, research results on
non-credit service quality’s impacts on customer satisfaction using Cronbach's Alpha
coefficient, EFA analysis; model test by multiple regression analysis.
The last, the thesis makes an overview of achievements, limitations and reasons of
Vietnam commercial bank's non-credit services development.

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The presentation in Chapter 2 is the scientific basis for practical solutions and
recommendations for non-credit services development of Vietnam commercial banks.

CHAPTER 3: SOLUTIONS FOR DEVELOPING VIETNAM COMMERCIAL
BANK’S NON- CREDIT SERVICES
3.1. STRATEGY OF VIETNAM COMMERCIAL BANK’S NON-CREDIT SERVICES
DEVELOPMENT TO THE YEAR 2015 WITH A VISION TO 2020
3.1.1. Dynamic, creative implementation of non-credit services in line with the bank
capability
3.1.2. Technological development for the main goal of modern, integrated and
competitive bank
3.1.3. Focused development of non-credit financial services
3.1.4. Focused human resource development
3.2. SOLUTIONS FOR VIETNAM COMMERCIAL BANK’S NON CREDIT SERVICES
DEVELOPMENT
3.2.1. Solutions for development of non-credit service's scale
3.2.1.1. Existing products and services diversification and improvement
The banks always pay their attention to the improvement of existing products and
services such as capital raising service, card service, payment service, remittance service
and foreign exchange service, treasury service etc.
Door-to-door banking service development: To help banks to creating a friendly,
close customer relation, improving customer care, and also making banks dynamic... With
door-to-door banking service, the banks will save costs for serving more customers.
Online banking service development: In line with the continuous development of
information technology and telecommunication, in response to increasing customer needs,
online banking services as home banking, phone banking, mobile banking, internet
banking etc.. tend to be strongly developed creating significant profit for banks.
3.2.1.2. New banking services
Vietnam commercial banks are interested in service packages as fees collection
service, student card issuance, automatically account management services for
universities; collection service and account management services for electricity sector...
Commercial banks can develop new services such as tax and personal income tax

payment. For customer with only one income source, he can authorize the employer to pay
his income tax. However, for customer with various income sources, it is complicated and
time-consuming to make the income tax calculation, declaration and payment. The banks
are required to develop this new service in the future.
Besides, trust service should be improved in the future.
3.2.1.3. To enter the market and attract customers
To develop banking network in respect of opening branches and transaction offices
and POS systems. To conduct customer survey, investigation and classification and market
research, to identify potential customers, targeted customers, strategical customer and
customer care period.
The leading commercial banks should quickly draw up the strategy of foreign
market development. For extending their services into foreign markets, banks are required
to study the business conditions, law, business environment of targeted foreign country.

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3.2.1.4. To raise the proportion of profit from non-credit services of total planned profit
Understanding the necessity of promoting non-credit services, Vietnam commercial
banks should set up a reasonable profit proportion of total profits and regularly control this
proportion.
3.2.1.5. Market expansion and customer care
To develop bank network, POSs, ATMs in universities, commercial centers,
condominiums, apartments, etc. in order to enhance the bank reputation and brand name

and image. It is ensured that banks operate for 24/7. ATMs should be improved with more
features, ensuring customers can use banking services at all times, including weekends,
holidays, New Year ...
3.2.2. Solutions for quality development of non-credit services to improve customer
satisfaction
Based on the regression equation on customer satisfaction of non-credit services
quality:
SHL = 0,214 STC + 0,136 NLPV + 0,223 HH + 0,477 DU + 0,242 DC +0,170 TT
Thus, in order to improve customer satisfaction of non-credit service quality,
Vietnam commercial banks should give priority to measures in the following order:
3.5.2.1. Solution for increased “Responsiveness”
Vietnam commercial banks should quickly solve any arising problem and
effectively handle complaints, and be willing to help customers and meet the customer
requirements. In other words, “Responsiveness” is the response from the service provider
to customer requirement such as: ready to help customers; quick and immediate service;
positive response to the customer requirement and effort to solve problems of customers.
3.2.2.2. Solution for increased "Empathy"
Vietnam commercial banks should care customer, provide the best treatment and
warm welcome to customers at all times. Customer service staffs play the core role for
bank success. The more customer care, the more "Empathy".
3.2.2.3. Solution for increased "Tangibles"
“Tangible” which consists of the bank facilities, equipment, machinery, staff
attitude, documents, , guidance leaflet and communication systems plays very important
role at customer's first look.
3.2.2.4. Solution for increased "Reliability"
Vietnam commercial banks should create “Reliability” in customer transactions
such as precise non-credit services operation without errors right from the first time and
keep the bank commitment.
3.2.2.5. Solutions for increased "Capacity”
Customer trust and confidence are gained by the professional service, good

technical knowledge, manners, courtesy and good communication skills. Customer can feel
safe in using bank services:
3.2.2.6. Solution for increased “Convenience"
The sixth factor affecting non-credit service quality is “Convenience”. The bank
transaction office should be convenient. The bank instruction board and and shelves are
conveniently arranged.

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3.2.3. General measures for non-credit service development
3.2.3.1. Improvement of financial capacity and competitiveness
3.2.3.2.Improvement of governance capacity and quality of human resources
Human resources are the most important factor to bring success to bank business.
Because non-credit services are easy to copy, so for banks with the same level of
technology, the quality of human resources will make a difference in the quality of noncredit products and services.
3.2.3.3. Modernization of banking technology
Nowadays, when domestic commercial banks are actually involved in "international
market playfield" where the foreign banks equipped with technological strength take
dominance of non-credit services variety, quality and benefits. Thus, with the awareness of
the role of technology for bank development in general and banking services development
in particular, the domestic commercial banks have launched the appropriate investment for
the development and application of modern banking technology.
3.2.3.4. Good customer policies
It is always necessary for Vietnam commercial banks to enhance customer’s

awareness and to satisfy customer needs and create customer loyalty.
3.2.3.5. Proposed marketing strategy
The banks should push up marketing activities to create their images by the
following activities:
To improve the staff’s marketing skills and knowledge especially for customer
staffs.
To carry out advertising activities, product promotion; to participate in social
activities and sponsoring useful programs on television ...
Website design with high benefits and attractive interface, unique website-based
advertisement for new and modern products & services...
3.2.3.6. Diversified forms of transaction and distribution channels for non-credit services
With the motto "Close to customers" to make it easy for customers, to set up
multiple channels to increase customer number and thereby contributing to the creation of
brand and image of Vietnam commercial banks in the business.
3.2.3.7. Standardized business processes
Vietnam commercial banks should pay attention to the standardization of business
processes to ensure both precise and convenient customers transaction with simplified
procedures, business processes, shortened service time as keeping the soundness,
accuracy, timeliness for better serve.
3.2.3.8. Controlled proportion of profits from non-credit services
For Vietnam commercial banks’ awareness, it is required to give up the traditional
business of credit service, competitive interest rates and exchange rates, increased market
share mainly by network expansion because of its high cost of input, potential risk, low
efficiency ...
3.2.3.9. Promoted scientific research
Vietnam commercial banks should promote scientific research activities to make
studies well applied and effectively contributing to their business performance.

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