LV thạc sỹ_Improving consumer lending at Techcombank

MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY
NEU BUSINESS SCHOOL

….

IMPROVING CONSUMER LENDING AT TECHCOMBANK

MASTER OF BUSINESS ADMINISTRATION THESIS
60.34.05

SUPERVISOR: …

HANOI-.


ACKNOWLEDGEMNETS
The preparation of this thesis has depended on the generous support, assistance of
many people. It is a great pleasure to offer my special thanks to them.
Firstly, I am very grateful to my supervisor ……
Lastly, I would like to thank to the encouragement to tolerance of my friends, my
family with their valuable ideas that helped me complete this thesis.

2


TABLE OF CONTENTS
ACKNOWLEDGEMNETS....................................................................................................2
TABLE OF CONTENTS.........................................................................................................3
LIST OF FIGURE....................................................................................................................5
LIST OF TABLE......................................................................................................................7

EXECUTIVE SUMMARY.....................................................................................................8
INTRODUCTION....................................................................................................................9
1. RATIONALE.................................................................................................................9
2. RESEARCH OBJECTIVES........................................................................................10
3. RESEARCH QUESTIONS..........................................................................................10
4. RESEARCH METHODOLOGY.................................................................................10
4.1 Sources of data.......................................................................................................10
4.2 Method of collecting data.......................................................................................11
4.3 Data analysis...........................................................................................................11
5. SCOPES OF RESEARCH AND LIMITATIONS........................................................11
6. RESEARCH STRUCTURE.........................................................................................12
CHAPTER 1...........................................................................................................................13
THEORETICAL BACKRROUND OF.............................................................................13
CONSUMER LENDING SERVICE QUALITY...............................................................13
1.1 DEFINITION AND CHARACTERISTICS OF SERVICE.......................................13
1.1.1 Definition of service............................................................................................13
1.1.2 Characteristics of service:...................................................................................13
1.2 DEFINITIONS OF SERVICE QUALITY AND CONSUMER LENDING SERVICE
QUALITY........................................................................................................................15
1.2.1 Quality of the service..........................................................................................15
1.2.2 Overview of consumer lending service quality...................................................16
1.2.2.1 Definition of consumer lending....................................................................16
1.2.2.2 Characteristics of consumer lending............................................................16
1.2.2.3 The benefits of consumer lending................................................................17
1.2.2.4 Definition of consumer-lending service quality...........................................18
1.2.2.5 The impact of consumer lending service quality to bank’s performance.....18
1.3 SERVICE QUALITY INSTRUMENT......................................................................21
...................................................................................................................................................23
CHAPTER 2...........................................................................................................................24
ASSESSMENT OF CURRENT CONSUMER LENDING..............................................24

SERVICE QUALTIY AT TECHCOMBANK....................................................................24
2.1 OVERVIEW OF TECHCOMBANK.........................................................................24

3


2.1.1 Establishment and development..........................................................................24
2.1.2 Organizational structure......................................................................................25
2.1.3 Business performance of Techcombank over period of 2007-2009....................26
2.2 ASSESSMENT OF CURRENT CONSUMER LENDING SERVICE QUALITY AT
TECHCOMBANK...........................................................................................................30
2.2.1 Current situation of consumer lending at Techcombank.........................................30
2.2.1.1 Number of products......................................................................................30
Loan for house..........................................................................................................30
Loan for auto............................................................................................................31
Overdraft..................................................................................................................31
Loan for tuition.........................................................................................................32
2.2.1.2 Number of consumer lending customers......................................................32
2.2.1.3 Outstanding consumer lending growth.........................................................33
Source: Annual reports of Techcombank.........................................................................33
2.2.1.4 Profit of consumer lending...........................................................................34
2007..................................................................................................................................34
2008..................................................................................................................................34
2009..................................................................................................................................34
Total profit of the bank.....................................................................................................34
Total profit of consumer lending......................................................................................34
Weight..............................................................................................................................34
..........................................................................................................................................34
Source: Annual reports of Techcombank.........................................................................34
2.2.1.5 Turnover of credit fund.................................................................................34

Table 2.8: Turnover of credit fund...................................................................................35
2007..................................................................................................................................35
2008..................................................................................................................................35
2009..................................................................................................................................35
Average total outstanding consumer lending...................................................................35
Repayment amount...........................................................................................................35
Turnover of credit fund....................................................................................................35
Source: Annual report of Techcombank...........................................................................35
2.2.1. Measuring consumer-lending service quality at Techcombank.........................37
2.2.1.1 Result of in-depth interview.........................................................................37
2.2.2.2 Result of customers’ survey..........................................................................38
2.2.3 New findings.......................................................................................................47
CHAPTER 3: SOLUSIONS TO IMPROVE CONSUMER LENDING SERVICE
QUALITY AT TECHCOMBANK.......................................................................................51

4


3.1 SOLUSIONS TO IMPROVE CONSUMER LENDING SERVICE QUALITY AT
TECHCOMBANK...........................................................................................................51
3.1.1 Human resource development.............................................................................51
3.1.2. Diversifying products and services....................................................................52
3.1.3. Developing distribution channels.......................................................................54
3.1.4. Improving customer care policies......................................................................55
3.1.5. Setting a reasonable pricing policy.....................................................................56
3.1.6. Building "perfect" Call Center...........................................................................57
3.2 RECOMMENDATIONS............................................................................................58
3.2.1. Recommendations for Government....................................................................58
3.2.2. Recommendations for the State Bank................................................................58
CONCLUSION.......................................................................................................................59

REFERENCES.......................................................................................................................60
APPENDIX 1..........................................................................................................................61
IN-DEPTH INTERVIEW.....................................................................................................61
1.How long do you work for this position?.........................................................................61
2.How do you appraise consumer lending service quality at Techcombank.................61
3.In your opinion, what are reasons for disadvantages that you have just given?.......61
4.Do you think that Techombank needs to improve consumer lending service quality.
...................................................................................................................................................61
5.Could you tell me about your solutions to improve consumer lending service quality.
...................................................................................................................................................61
APPENDIX 2..........................................................................................................................62
APPENDIX 3..........................................................................................................................63
APPENDIX 4..........................................................................................................................64
APPENDIX 5..........................................................................................................................66
APPENDIX 6..........................................................................................................................67
APPENDIX 7..........................................................................................................................68
APPENDIX 8..........................................................................................................................69
APPENDIX 9..........................................................................................................................70
APPENDIX 10........................................................................................................................71

LIST OF FIGURE
Figure 1.1: “Five gaps” model of service quality.................................................................21
Figure 1.2: Dimension of Servqual model...........................................................................23
Figure 2.1: Organizational Structure at Techcombank.........................................................26
Figure 2.2: Deposit...............................................................................................................30
5


Figure 2.3: Number of customers.........................................................................................33
Figure 2.4: Outstanding consumer lending growth..............................................................33

Figure 2.5: Profit of consumer lending................................................................................34
Figure 2.6: Rate of overdue dept..........................................................................................36

6


LIST OF TABLE
Table 2.1: Some main figures at Techcombank...................................................................24
Table 2.2: Structure of corporate customers.........................................................................28
Table 2.3: Total outstanding loan at Techcombank..............................................................28
Table 2.4: Loan industry.......................................................................................................29
Table 2.5: International payment and trade finance.............................................................29
Table 2.6: Outstanding consumer lending growth...............................................................33
Table 2.7: Profit of consumer lending (VND million).........................................................34
Table 2.9 Rate of overdue debt.............................................................................................35
Table 2.10: Rate of non performance loans..........................................................................37
Table 2.11: The gap between customer’s perception and expectation on reliability
dimension.............................................................................................................................41
Table 2.12: Loan interest rates of banks...............................................................................42
Table 2.13: The gap between customer’s perception and expectation on responsibility
dimension.............................................................................................................................43
Table 2.14: The gap between customer’s perception and expectation on assurance
dimension.............................................................................................................................43
Table 2.15: The gap between customer’s perception and expectation on empathy dimension
..............................................................................................................................................44
Table 2.16: The gap between customer’s perception and expectation on tangibility
dimension.............................................................................................................................45
Table 2.17: Consumer lending products...............................................................................46

7

EXECUTIVE SUMMARY
Techcombank (TCB), a joint stock commercial bank of Vietnam, was established in
1993 and current chapter capital is VND 5.400 billion. After operating 16 years,
Techcombank has been one of the most active banks in term of transaction with large
companies and financial institutions. However, with current high competitive environment,
Techcombank needs to improve more its products and services, especially consumer
lending service quality.
The research objectives of the thesis are to systemize theoretical background of
service quality, realise the gap between customer’ perception and expectation as well as
reasons for consumer lending service quality problems at Techcombank, from that, propose
solutions and recommendations to improve consumer lending service quality.
The methodologies is used in the thesis are quantitative and qualitative analysis.
Secondary data were collected from the annual reports, newspapers, textbooks, internets
and primary data were gathered via in-depth interview with staffs and credits experts and
survey. Questionnaires of survey was designed based on five dimension of Servqual model,
including: Tangibility (5 attributes), Reliability (5 attributes), Responsiveness (4
attributes), Assurance (5 attributes), Empathy (4 attributes)
Data collected were analyzed via Statistical Package for Social Science (SPSS)
package and Excel. The purpose of the survey was to determine the gap between
customer’s perception and expectation. The result of this research shows that there exists
some problems about consumer lending service quality that is not high appreciated by
customers such as customer care policy is not good; interest rate and fee are not
reasonable; products are not diversified; network system limited; lack human resource.
This research would propose solutions to further improve consumer lending service
quality at Techcombank, for example, human resource development and reasonable interest
rates. These solutions were recommended based upon studying of both theoretical aspect
and reality assessment of consumer lending service quality. Implementing solutions would
enable consumer lending service quality at Techcombank to be improved best.

8


INTRODUCTION
1. RATIONALE
Today, globalization trend is ubiquitous all around the world, which affects every
country, all organizations as well as all people. Since Vietnam joined World trade
origination – WTO in 2007, the finance market in Vietnam has been remarkably progressed
and banks have also gotten benefits from this accession in term of mobilizing fund.
However, the competition amongst domestic banks themselves and with foreign banks and
financial institutions are becoming fiercer than ever. This is why banks are trying to have
more innovative and creative strategies for their sustainable development. Among those
strategies is consumer lending, which is a challenge but profitable. Moreover, with the
approximate 86 million people in the 2010 census, Vietnam is considered a very potential
market for consumer lending especially where the young adults and adolescences are
dominant.
Techcombank is one of leading commercial banks in Vietnam with its orientation to
the retail market in which consumer lending accounts for majority. The bank has been
aware of consumer credit market for years. The bank joined in this market officially since
2000 and obtained certain achievements. However, parallel to its success, the bank still has
to improve its service quality in order to keep current clients and attract more customers.
Nonetheless, the benefits are shrinking due partially to strict requirements set by the
Government and mainly to the harsh competition in consumer lending market when there
are more banks to jump into fray thanks to its attraction and profit; foreign banks are not an
exception. Therefore, Techcombank, in the one hand, gets less benefit from this market and
on the other hand, faces with tough and fierce condition.
Since the potentials in consumer lending market and the difficult conditions that
Techcombank is facing, consumer lending is chosen as the topic for this MBA thesis.
The research aims to conduct consumer credit service quality studying in

Techcombank and then conclusions and recommendations as well are drawn in order to
improve Techcombank’s consumer lending service quality.

9


2. RESEARCH OBJECTIVES
The major objectives in the research are to:
- Systemize theoretical framework of service, service quality, consumer lending,
benefits of consumer lending, consumer lending service quality, the impact of consumer
lending service quality to bank’s performance as well as instrument to measure service
quality gap.
- Analyze and evaluate current situation of consumer lending service quality at
Techcombank based on the gap between perception and expectation of customers.
- Realize findings of consumer lending service quality at Techcombank
- Propose solutions to improve consumer lending service quality at Techcombank
3. RESEARCH QUESTIONS
In order to achieve the objectives of the thesis, the following questions should be
answered:
- What is service consumer lending service and characteristics of consumer lending
service? What models and methods are used to assess quality of service and consumer
lending service quality?
- What is the gap between customer perceived service quality and customer expected
service quality?
- How is consumer lending service quality at Techcombank?
- How to improve consumer lending service quality? What are the best ways to
improve consumer lending service quality at Techcombank
4. RESEARCH METHODOLOGY
4.1 Sources of data
The data for this study are both primary data and secondary data.

Secondary data
Secondary data were collected from sources as following:
-

Bank’s financial reports and annual report;

-

Credit documents of Techcombank;

-

Legal regulations and documents about bank;

-

Magazines, textbooks, the internet;

10


- And other media which can provide necessary information for the research
Primary data
Primary data were obtained from in-depth interview and survey
4.2 Method of collecting data
In-depth interview
Depth-interview method was conducted through internal credit experts/managers and
staffs at Techcombank with questions prepared in advance. Contents of the questions focus
on their appraisals about consumer lending service quality, and how to improve consumer
lending service quality at Techcombank.

Questionnaires
The survey was conducted with customers using consumer lending service at 18 branches
at Techcombank in the whole country; as a result, 133 questionnaires were answered
Questionnaires designed for this research would be based on Servqual model. A total of 23
attributes were categorized under five dimensions as follows:
-

Tangibility (5 attributes)

-

Reliability (5 attributes)

-

Responsiveness (4 attributes)

-

Assurance (5 attributes)

- Empathy (4 attributes)
The purpose of the survey was to determine customer’s expectation and perception, from
that to find out gap between expected quality and perceived quality.
4.3 Data analysis
Statistical package for social science (SPSS) package and Excel were used to analyze the
data collected.
5. SCOPES OF RESEARCH AND LIMITATIONS
The study was conducted at Techcombank only as follows:
-

The research time was a period from 2007-2009;

-

The space scope: Researching factors that affect consumer lending service quality
at Techcombank.

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

11


data were 2007-2009. It also gave out solutions to improve consumer lending service
quality at Techcombank only, not for the whole economy and other banks or other services
at Techcombank. Limitations of the thesis also lie on its sole research on the consumer
lending business environment, instead of comparing working model on consumer lending
of Techcombank to those of other banks who have succeeded in this field
> So this research is for Techcombank, if it were applied for another, we should take
further and supplemental study.
6. RESEARCH STRUCTURE
The research is divided into 3 chapters as below:
Chapter 1: Theoretical background
This charter includes theoretical background, which presents concept of service, quality
service, characteristics of service and consumer lending, and quality of consumer lending
service. In addition, Servqual scale instrument is also mentioned.
Chapter 2: Assessment of current consumer lending service quality at
Techcombank
Overview of Techcombank together with analysis and assessment of consumer

lending service quality via appraisals of internal staffs and expert/managers and survey
conducted with customers, questionnaires were designed suitable for consumer lend
banking industry from that determining the gap between customer’s perception and
expectation then giving out existing problems.
Chapter 3: Solutions to improve consumer lending service quality at
Techcombank.
This chapter would propose solutions to further improve consumer lending service
quality at Techcombank, for example, human resource development and reasonable interest
rates. These solutions were recommended based upon studying of both theoretical aspect
and reality assessment of consumer lending service quality. Implementing solutions would
enable consumer lending service quality at Techcombank to be improved best.

12


CHAPTER 1
THEORETICAL BACKRROUND OF
CONSUMER LENDING SERVICE QUALITY
1.1 DEFINITION AND CHARACTERISTICS OF SERVICE.
1.1.1 Definition of service.
Many definitions of service are available but all of them have a common idea that is
intangibility and simultaneous consumption.
Services are deeds, processes and performances (Valarie A.Zeithaml and Mary Jo
Bitner, Service marketing, New York: Mc Graw-Hill, 1996, p.5)
A service is an activity or series of activities of more or less intangible nature that
normally but not necessarily, take place in interactions between customers and service
employees and/or physical resources or goods and/or systems of the service provider which
are provided as solutions to customer problems(Christian Gronroos, Service Management
and Marketing, Lexington Mass: Lexington Books, 1990, p.27)
Most authorities consider the services sector to include all economic activities whose

output is not a physical product or construction, is generally consumed at the time it is
produced, and provides added value in forms(such as convenience, amusement, timeliness,
comfort or health) that are essentially in tangible concerns of its first purchaser(James
Brian Quinn Jordan J Baruch and Penny Cushman paquette, Scientific Amercicould, vol
257, no 2, Decomber 1987, p.50)
1.1.2 Characteristics of service:
Intangibility
Services are intangible and insubstantial: they cannot be touched, gripped, handled,
looked at, smelled, tasted or heard. Thus, there is neither potential nor need for transport,
storage or stocking of services. Furthermore, a service cannot be (re)sold or owned by
somebody, neither can it be turned over from the service provider to the service consumer
nor returned from the service consumer to the service provider. Solely, the service delivery
can be commissioned to a service provider who must generate and render the service at the
distinct request of an authorized service consumer.

13


Perishability
Services are perishable in two regards
The service relevant resources, processes and systems are assigned for service delivery
during a definite period in time. If the designated or scheduled service consumer does not
request and consume the service during this period, the service cannot be performed for
him. From the perspective of the service provider, this is a lost business opportunity as he
cannot charge any service delivery; potentially, he can assign the resources, processes and
systems to another service consumer who requests a service. Examples: The hair dresser
serves another client when the scheduled starting time or time slot is over. An empty seat
on a plane never can be utilized and charged after departure.
When the service has been completely rendered to the requesting service consumer,
this particular service irreversibly vanishes as it has been consumed by the service

consumer. Example: the passenger has been transported to the destination and cannot be
transported again to this location at this point in time.
Inseparability
The service provider is indispensable for service delivery as he must promptly
generate and render the service to the requesting service consumer. In many cases the
service delivery is executed automatically but the service provider must preparatorily
assign resources and systems and actively keep up appropriate service delivery readiness
and capabilities. Additionally, the service consumer is inseparable from service delivery
because he is involved in it from requesting it up to consuming the rendered benefits.
Examples: The service consumer must sit in the hair dresser's shop & chair or in the plane
& seat; correspondingly, the hair dresser or the pilot must be in the same shop or plane,
respectively, for delivering the service.
Variability
Each service is unique. It is one-time generated, rendered and consumed and can
never be exactly repeated as the point in time, location, circumstances, conditions, current
configurations and/or assigned resources are different for the next delivery, even if the
same service consumer requests the same service.
Each of these characteristics is retractable per se and their inevitable coincidence
14


complicates the consistent service conception and make service delivery a challenge in
each and every case. Proper service marketing requires creative visualization to effectively
evoke a concrete image in the service consumer's mind. From the service consumer's point
of view, these characteristics make it difficult, or even impossible, to evaluate or compare
services prior to experiencing the service delivery.
Mass generation and delivery of services is very difficult. This can be seen as a
problem of inconsistent service quality. Both inputs and outputs to the processes involved
providing services are highly variable, as are the relationships between these processes,
making it difficult to maintain consistent service quality.. The human factor is often the key

success factor in service economies..
1.2 DEFINITIONS OF SERVICE QUALITY AND CONSUMER LENDING
SERVICE QUALITY
1.2.1 Quality of the service
Quality of the service is the degree of conformance of all the relevant features and
characteristics of service to all the aspects of the consumers’ needs limited by the price and
delivery she/he will accept.
Zeithaml & Bitner (2003: 85) states that: "Service quality is a focused evaluation that
reflects the customer's perception of specific dimensions of service: reliability,
responsiveness, assurance, Empathy, tangibles. Satisfaction, on other hand, is more
inclusive: it is influenced by perceptions of service quality, product quality, and price as
well as situational factors and personal factors
Service quality affects customer satisfaction by providing performance (real
benefits). For example, if consumers believe they have entered the McDonald's restaurant,
they will get food, service, high quality everywhere the same, no matter the location of the
restaurant, put forward by Millend M Lele (1995: 126).
"The creation of customer satisfaction can provide several benefits, including the
relationship between companies and consumers are harmonious, providing a good basis for
the purchase and re-creation of customer loyalty, and form a recommendation by word of
mouth that can benefit the company" (Fandi Tjiptono, 1997: 24)

15


1.2.2 Overview of consumer lending service quality
1.2.2.1 Definition of consumer lending
Many definitions of consumer lending are available but all of them have a common
idea that consumer lending is intangible and simultaneous consumption. Some of consumer
lending definitions are as follows:
- Consumer lending is a direct or indirect form of credit financing that supports for

citizens’ demand (individuals and households) for their expenditure of such as housing,
transport, car or services of education, health, tourism and so forth before they will have
adequately accumulated.
- Consumer lending is sometimes called retail lending and both of them refer to
secured or unsecured loans, including nearly all lending other than that of mortgages or
commercial loans. Consumer lending is offered for cars, boats, home equity loans or lines
of credit, signature loans, and even certificates of deposit, stocks and mutual funds.
- Consumer lending includes loans for other personal financial needs, including the
granting of overdraft lines of credit and the purchase of consumer loan accounts from
retailers or other lenders
- Consumer lending is also understood that banks can offer a completed suite of
lending products for retail customers. These include personal loans, vehicle loans,
mortgages, home-saving products, top-up loans, loans with flexible repayment schedules,
equated-installment loans.
- The division of retail banking that deals with lending money to consumers. This
includes a wide variety of loans, including credit cards, mortgage loans, and auto loans,
and can also be used to refer to loans taken out at either the prime rate or the subprime rate.
1.2.2.2 Characteristics of consumer lending
High interest rate: Scale of each loan is small and cost of loan is high, so interest rate
of consumer lending is higher than other loan types
Depending on economic cycles: When the economy prospers, living standard is
improved, demand for consumer lending increases, especially on holidays, the demand for
shopping goes up and as the results, the demand of loans may climb accordingly;
Depending on income and education: Demand for customer lending depends on
strictly on income and education level. Specifically, those who have higher incomes tend to
borrow more than their annual income. For them, borrowing as a tool to achieve the
desired standard of living rather than an option used only in emergencies, customers regard
16

it as a loan flexibility to spend money when they have accumulated capital of medium or
long term investment.
High level of risk: Although its procedure is quite simple, however, after supplying
loan for customers, if the bank doesn’t control strictly, it will causes high risk for the bank.
If the borrowers die, ill or lose job, the bank will be difficult to recover debt.
Mainly individual customers: Customers are mainly individuals
Difficult to assess customers characteristics and condition: Dignity, legal status of
customers is quite difficult to determine, based mainly on assessment, feeling and
experience of credit officer, so assessing loan is quite sensitive.
Difficult to assess customer income: Verification of income and expenditure of
customers is difficult, often based on salary, accumulation. It is not clear evidence
1.2.2.3 The benefits of consumer lending
a). Benefits for banks
Consumer lending brings to banks benefits and advantages, including:
- Consumer lending is a way to enhance profit for banks. Similar to other kinds of
lending, banks provide fund for customers and get interest or fee for using money from this
activity. However, the difference between consumer lending and others is that its interest
rate is usually much higher. At the same time, the number of individuals and households
outweigh that of enterprises. Therefore, consumer market is very large and potential
profits.
- Create habits for people to access services, products of the bank. As consumer
lending activities increase, it makes positive impacts on production expansion then push
demand for enterprise lending also goes up. Chain reaction occurs as increased production,
income and living standard of people increase, demand for consumer lending increase.
- Consumer lending as a way of diversifying the investment of the bank, thus,
helping the bank increase income and reduce risk. The bank can enhance relationship with
customers, thereby enhancing ability to mobilize fund
- Consumer lending is also a very effective marketing tool, which enhances the
competitive ability of banks and increase its business outcomes.
b). Benefits for consumers

Thanks to consumer lending, customers can use service as they desire although
before they are not financially able to perform. The growth of the economy has made
people’s living standards rise. Habits accumulated are gradually replaced by a new
consumer behavior of people familiar with the products and services of banks to create a
17


comfortable life even with capital support from banks. Especially young people, adults
with low – income, they haven’t enough money to buy houses, cars and other household
goods, it helps them have a stable life, accordingly give them great motivation to work,
save, and take care of children...
In addition, consumer lending contributes to exploit all potential customers. It
supports individuals to develop their business, stimulate production and increase speeding
need.
Definition of consumer lending service quality
c). Benefits for the whole economy
In parallel with the satisfaction of essential needs, improving quality of life,
consumer lending boosts the consumption of goods and production development then
expending, improving efficiency and increasing competitiveness in the supply of products,
makes the economy vibrant.
Through consumer lending services, commercial banks contribute to stimulate the
economy and raise competitiveness of domestic goods, thereby supporting the State to
achieve the economic goals as GDP growth, rising per capital income.
Besides economic benefits, consumer lending also help the State achieve social
goals such as poverty alleviation, job providing, reducing social evils.
1.2.2.4 Definition of consumer-lending service quality
Consumer-lending service quality is capability of consumer lending service to satisfy
customers’ expectation. In other words, it is the gap between what customers expect
toward a service and what they actually receive
1.2.2.5 The impact of consumer lending service quality to bank’s performance

Today, many banks strengthen development of consumer lending, therefore
assessment of consumer lending quality is very necessary. It reflects the bank’s adaptability
to change of environment as well as ability of banks in operation for survival and
development, thus, as evaluating the credit quality, along with using entrustments as below,
it is necessary to consider bank’s performance indicators.
a). Outstanding consumer lending growth
Outstanding consumer lending growth reflects both volume of consumer lending and
quality of consumer lending. If this outstanding consumer lending growth increases
positively over years, it proves that consumer lending activities in the bank develop well
and stably, and the quality of consumer lending is also improved. However, if this figure

18


decreases to less than zero, it shows that volume of loans reduces; it is affected by some
reasons: quality of services, staff’s experience and skill, policies of the bank.
Growth of outstanding consumer lending = (Total of outstanding consumer lending
this year – Total of outstanding consumer lending in previous year) / Total of outstanding
consumer lending in previous year.
b). Profit from consumer lending activities
The higher the profits are the better consumer lending activities develop. The quality
of consumer lending are directly proportional to this figure. If the figure is higher over
time, it proves that outstanding consumer lending increases; and customers repay principal,
interest and other costs in time as per negotiated credit contracts.
Besides, other criteria also reflect consumer lending quality as follow:
Rate of contribution = Profit from consumer loans / Total loans.
This rate reflects attractive level of consumer loan in comparison with other loans
and the higher this rate is, the more improved consumer lending quality is.
c). Turnover of credit fund
Turnover of credit fund shows both management ability of credit fund and credit

quality. If this indicator is high, then the bank’s lending funds have taken part in a great
deal of processes of productions and circulations of goods. It also shows that the bank meet
customer’s demand timely and lending fund management and credit quality are good and
vice versa.
Return of credit fund = repayment volume/ average total outstanding loans
d). Rate of overdue consumer debt
Overdue debt means that time of debt has matured but customers have not repaid and
perhaps they are default.
Rate of overdue consumer lending debt = Overdue debt of consumer debt/ Total
outstanding consumer loans.
This rate reflects the quality of consumer lending activities. If higher this rate is, the
better quality of consumer lending is and vice versa.
Rate of overdue consumer debt shows credit risk.
The determination of credit risk is based on three key parameters
- Probability of Default (PD): One credit organization calculates the PD for each
individual customer of group. This method is called direct estimation. PD expresses the
probability of the defaulting on his/her payment obligations. With respect to other
customer groups, statistical models have been developed based on conditional probabilities
19


estimating PDs that factor in business-specific circumstances such as accounting figures as
well as industry-specific conditions and the macroeconomic climate. External ratings are
used to a very limited extent. External ratings are translated into PDs. PDs are updated as
the credit organization receives new information about general economic conditions or the
customer. Updates take place at least once a year. The accuracy of the estimated PDs can
be assessed by comparing the estimates at the beginning of the year with the PDs observed
at year-end. A customer rating is an important element of the credit policy and customer
assessment. Ratings are also applied to increase the efficient of credit granting procedures
and to monitor exposures of low credit quality. Group credits may, if so recommended,

allow that a calculated rating be replaced by a rating made by a credit especialist.
- Loss given default (LGD): The LGD, which is calculated for each customer
exposure, reflects the percentage share of the exposure which is expected to be lost if a
customer defaults on a loan. The LGDs of the majority of the group’s exposures are
determined using internal approaches based on loss and default data. LGD factors in any
security such as mortgages on real property, including the type of security, its quality and
ranking in the order of priority. One credit organization calculates losses as the group’s
receivables. Furthermore, costs incidental to dept collection and proceeds from collaterals,
payments from customers...The loss on a defaulting borrower cannot be determined until
the case has been finally settled. LGDs vary with economic trends. In a favorable
economic climate, default with often not lead to any loss as the value of the security will
typically exceed the value of the loan. To obtain a meaningful operarison, it is therefore
necessary to recalculate the estimated LGDs at the beginning of the year into point-in-time
estimates. Point in time estimated LGDs, which both reflect the current economic climate.
Mortgage banking is characterized by low LGDs as the security provided by way of
mortgages on real property offers good protection against losses. The credit organization’s
use of security is described in more detail in the section about security.
- Exposure value (EV) and conversion factor (CF): EV is estimated for all exposures of a
customer and reflects the total expected exposure to the customer at the time of default,
including the utilization of any commitment granted through conversion factors (CF). CF is
only estimated for products subjects to flexible utilization, for example, revolving exposures,
equity withdrawal, credit lines, loan offers, etc. In respect of non – performing exposures
subject to flexible utilization, the credit maximum has often been reached or exceeded at the time
of default. This applies to revolving exposures and similar credit facilities, for which reason the
credit organization applies a conversion factor above probability of Default.
20


1.3 SERVICE QUALITY INSTRUMENT
Measuring the quality of a service seems to be difficult exercise. Unlike products

where there are specific specifications such as length, depth, width, weight, colour etc. a
service can have numerous intangible or qualitative specifications. In addition there is
there expectation of the customer with regards the service, which can vary considerably
based on a range of factors such as prior experience, personal needs and what other people
may have told them.
In order to assess service quality, this study used a well known Servqual instrument
that was presented by Parasuanman. Servqual was a widely-tested instrument for
measuring service quality (Carman, 1990, Chia 1997, Xiao & Chollett, 1997, Durvasula,
Lysonski & Mehta, 1999, Mah, 1994, Mangold & Babakus, 1991, Steward, Hope&
Muhlemann, 1998). There were five gaps in the Gap model, namely, the discrepancy
between the perceived service and management’s perceptions of customer expectation, the
translation of the management’s perceptions into service quality specifications, the
translation of these specifications into service quality, and the external communications of
these service quality to customers and finally, the customer’s expectation and their
perception of the actual service delivered by the organization.
Expected Service
CUSTOMER
Customer
Gap
Perceived
Service

COMPANY

Service
Delivery

Gap 4

Gap 3

Gap 1

Customer-Driven Service
Designs and Standards
Gap 2
Company Perceptions of
Consumer Expectations

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

External
Communications to
Customers


Gap 1: The difference between management perceptions of what customers expect
and what customers really do expect
Gap 2: The difference between management perceptions and service quality
specifications - the standards gap
Gap 3: The difference between service quality specifications and actual service
delivery - are standards consistently met?
Gap 4: The difference between service delivery and what is communicated externally
- are promises made consistently fulfilled?
Gap 5: The difference between what customers expect of a service and what they
actually receive
Expectations are made up of past experience, word-of-mouth and needs/wants of
customers
Measurement is on the basis of two sets of statements in groups according to the five
key service dimensions

Reasons for the gaps:
GAP 1 Not knowing what customers expect
GAP 2 The wrong service quality standards
GAP 3 The service performance gap
GAP 4 When promises do not match actual delivery
GAP 5 The difference between customer perception and expectation
The methodology based on around 5 key dimensions:
TANGIBILITY - the appearance of physical facilities, equipment, personnel and
information material
RELIABILITY - the ability to perform the service accurately and dependably
RESPONSIVENESS - the willingness to help customers and provide a prompt
service
ASSURANCE - a combination of the following competence - having the requisite
skills and knowledge, courtesy - politeness, respect, consideration and friendliness of
contact staff, credibility - trustworthiness, believability and honesty of staff and security freedom from danger, risk or doubt
EMPATHY - a combination of the following:
Access (physical and social) - approachability and ease of contact
Communication - keeping customers informed in a language they understand and
really listening to them
22


Understanding the customer - making the effort to get to know customers and their
specific needs.
Below is an illustration of the SERVQUAL Model

Figure 1.2: Dimension of Servqual model
According to this model, the service quality is a function of perception and
expectations and can be modeled as:
k

SQ = ∑ ( Pij − Eij )
j =1

SQ = overall service quality, k = number of attributes
Pij = Performance perception of stimulus i with respect to attribute j
Eij = Service quality expectation for attribute j that is the relevant norm for stimulus i
The higher SQ is, the better service quality and vice versa.

23


CHAPTER 2
ASSESSMENT OF CURRENT CONSUMER LENDING
SERVICE QUALTIY AT TECHCOMBANK
2.1 OVERVIEW OF TECHCOMBANK
2.1.1 Establishment and development
Vietnam technological and commercial joint stock bank – Techcombank was
established on July 27th , 1993 aiming to become an efficient financial intermediary
bridging between the savers and the investors for capital demand for business and
economic development in the open door era. Its head quarter is at 70-72 Ba Trieu street, Ha
noi.
After operating16 years, Techcombank has been one of the most active banks in
term of transaction with large companies and financial institutions. Its charter capital
constantly rises. The initial capital was VND 20 billions only, now Techcombank has
registered capital of VND 5.400 billion, total asset of VND 92.581 billion. The system of
branches and transaction points has been continually expanding. By the early of 2010, the
total of branches and transaction points up to 52 branches and 160 transactions points in 40
cities and provinces throughout Vietnam.
Table 2.1: Some main figures at Techcombank

Registered capital
Total asset
Loan outstanding
Earning before Tax

2007
2.521
39.542
19.958
709.740

2008
2009
3.642
5.400
59.360
92.581
26.342
42.113
1.615.855
2.252.897
Source: Annual reports at Techcombank.

The bank’s partnership
Together with the successful of Techcombank, there are important contributions of
leading domestic and international partnership

24

Hong Kong Shanghai Banking Corporation-HSBC
HSBC has become TCB’s strategic partner since 2006, with 10% its stake. Up to
2008, HSBC’share was up to 20%, the maximum ownership of foreign bank is allowed to
have for a local bank. As strategic partner of Techcombank, HSBC can support
Techombank for management capabilities and technological know-how.
TCB’s management team has been strengthened with helps from several key
executives from HSBC. The positions help by such personnel, Head of personal Finance
Service (PFS) division, Chief Risk Officer, CFP division, Chief Risk officer, CFO, Head of
Collections, and IT security consultant. This is a strategic strength for TCB as other JSCBs
with strategic alliances with international institutions have not received the same degree of
hands-on operational support from its partners. Further, TCB has been able to leverage on
HSBC’s ATM network to expand its customer reach and jointly promote a wide range of
banking products including retail lending and deposit products, trade finance, treasury
products, derivatives and remittance services.
Vietnam airlines corporations
TCB has been able to tie up with the national carrier, which is also a shareholder of
the bank to develop a co-branded credit card that offers the cardholder numerous privileges
from both Vietnam Airlines and TCB. It has been to further leverage on this relationship by
arranging aircraft leasing for six new aircraft in collaboration with HSBC and Credit
Swiss. TCB currently handles the cash management and payroll functions for several of its
subsidiaries. TCB expects to strengthen this relationship in the future through offering
more products and services to the national carrier.
2.1.2 Organizational structure
The existing banking management system will be continued to improve via
establishing the professional departments responsible for building strategic development,
risk management…such as: strategic investment council, executive committee of EXCO,
assets management committee, human resource and compensation committee, audit and
risk committee, internal audit and so on in order to enhance management quality, control
quality and executing quality
In addition to banking business activities, TECHCOMBANK system has

established a membership bank and three subsidiaries those are: Techcombank securities
company LLC, Techcombank assets management company, one-member company for
liabilities and assets management
25