Improving service quality, customer satisfaction and loyalty: solutions to the case of HD bank Vung Tau branch

UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------

DO THI THUONG

IMPROVING SERVICE QUALITY, CUSTOMER
SATISFACTION AND LOYALTY: SOLUTIONS TO
THE CASE OF HD BANK VUNG TAU BRANCH

ID: 22130075
MASTER OF BUSINESS ADMINISTRATION
SUPERVISOR: NGUYEN THI MAI TRANG

Ho Chi Minh City – Year 2015
1


ACKNOWLEDGEMENTS

It is my proud privilege to release the feeling of my gratitude to person who helped me
directly or indirectly to conduct this research project work. I express my heart full indebted and
owe a deep sense of gratitude to my professor Mrs Nguyen Thi Mai Trang for her sincere
guidance and inspiration in completing this project. I am extremely thankful to the director, the
staff and all faculties’ members of HD bank in Vung Tau city for their coordination and
cooperation and for their kind guidance and encouragement. They have more or less
contributed to the preparation of this project report but I will be always indebted to them.
The project has indeed helped me to explore more knowledgeable, related to my job and
I am sure it will help me in my future’s career.

2

CONTENTS

1. Overview the HD bank Vung Tau branch .............................................................................. 7
1.1 The background of the problem ........................................................................................... 10
1.2 HD bank Vung Tau branch and competitors ........................................................................ 11
1.3 Business situation of HD bank Vung Tau branch and other competitors ............................ 14
2. Problem identification .......................................................................................................... 16
2.1 Possible reasons of low customers satisfaction .................................................................... 20
2.2 The HD bank network of business points problem .............................................................. 22
2.3 The HD bank’s percentage support lending base on collateral values ................................. 25
2.4 The capacity of bank staff and the famers ............................................................................ 27
3. The solution .......................................................................................................................... 29
3.1 The alternative 1 ................................................................................................................... 30
3.2 The alternative 2 ................................................................................................................... 33
4. Action plan ........................................................................................................................... 34
5. Supporting information ........................................................................................................ 36
5.1 Research methodology ......................................................................................................... 36
5.2 Guideline .............................................................................................................................. 38
5.3 Literature review................................................................................................................... 40
5.4 Transcript .............................................................................................................................. 43
PART 1: In-depth interview customers ....................................................................................... 43
PART 2: In-depth interview managers and bank staff ................................................................ 52
PART 3: Qualitative Research Report ........................................................................................ 57
3


LIST OF TABLES

Table 1. Branch network and business location of three banks in Vung Tau city ...................... 23
Table 2. The report about employees of HD bank-Vung Tau branch ......................................... 31
Table 3. Expected cost of training bank staff in three days in HCM city ................................... 32
Table 4. Expected cost of three workshops for farmers in Vung Tau city .................................. 34
Table 5. The basic information of six current customers of HD bank Vung Tau brach ............. 38
Table 6. Antecedents and outcomes of customer’s satisfaction .................................................. 42

4


LIST OF FIGURES

Figure 1. The organizational structure of HD bank Vung Tau branch ...................................... 10
Figure 2. Charter capital of HD bank, ACB and Techcom bank in 2015 .................................. 13
Figure 3. The individual loan growth rate of three banks on Jun 30th, 2015 ............................. 15
Figure 4. The cause and effect diagram ...................................................................................... 21

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EXCUTIVE SUMMARY
In today's competitive environment, a bank earns more interest and loyalty from
customers will become a leading bank. This paper indicates that banks should focus on
improving the service quality for better and greater customer satisfaction and loyalty as well as
improving their financial performance. In particular, agriculture's knowledge of employees go a
long way in demonstrating excellent customer service skills is a key factor affect farmers’
satisfaction and contribute to the agricultural loan profit of HD bank Vung Tau branch.
This study based on desire to learn, explore and determine the actual level of customer
satisfaction with bank loan services to famers in HD bank Vung Tau branch. Based on
interview managers, tellers and famers, this paper explored factors that affect the quality of

banking loan services provided by HD bank Vung Tau branch, through symptoms were
reflected in six months income at 30th, June 2015. In addition, this study also used statistical
method for synthesized in order to more accurate conclusions about research problems. The
result of this study confirms the relationship between service quality, satisfaction and loyalty of
customers using HD bank services in Vung Tau city. This also indicates that farmers satisfied
with HD bank Vung Tau loan services such as interest rate, transaction costs... However,
farmers are not satisfied with the support of bank staff and fell the loan paper quite
complicated. Author base on this result, the previous research, primary and secondary data
found consequences and antecedences related to this problem. Author also launched two
solutions to solve this problem. The first solution through researches on information exchange
among farmers, bank will coordinate with Farmer Associations and organize seminars to share
experiences of farm produce as well as introduce loans and explain its’ conditions in bank’s
forms. The second solution based on the financial condition of the HD bank Vung Tau branch,
suggest a training plan for staff and leadership related to agricultural lending. Using the
literature and the market indicators, this paper also found that the first solution is the best
choice for HD bank branch. Author hope this study will help HD bank Vung Tau branch’s
managers provide better services for their customers.
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1. Overview the HD bank Vung Tau branch
Joint Stock Commercial Bank for Housing Development Vung Tau city has
abbreviation: HD Bank - Vung Tau and its headquartered located at 07 Nguyen Thai Hoc
Street, Ward 7 Vung Tau city. HD Bank Vung Tau branch officially inaugurated and operated
on 23th Jully 2009. It is an extended arm of HD Bank system from Ho Chi Minh City to
neighboring provinces in network expansion strategy in order to offer services to its customers.
HD Bank - Vung Tau branch including Ba Ria, Chau Duc and Phuoc Tinh province
transactions. Appearing at Ba Ria - Vung Tau province during six years but with many efforts
to improve the quality of products and services. Director of HD bank-Vung Tau-Nguyen Gia
Hong stressed "HD Bank Vung Tau emphasis more on quality services. This was determined

the main factor to decide the success or failure of the bank. Therefore, the policy of the board
of directors is constantly improving the manner of services in order to create their own
advantage. It is also a key factor of the present success of HD Bank in general and HD Bank
Vung Tau in particular". In order to provide the best service for customers, HD Bank focus on
four specific action programs, which are credit effectiveness, safe operation, promoting service
quality and cost control.
HD Bank aims to provide premium, international standard financial products and
services that meet its clients' diverse needs. There are bank transactions and financial services
including all types of deposits in VND, USD, EUR and gold. Like other financial institutions,
the main objective of HD bank is gained profit based on the provision financial products to
commercial as well as international individuals or organizations. HD Bank provides services
7


including mobilizing capital, development capital, borrowing from other credit institutions,
lending... In addition, HD Bank - Vung Tau branch finances for all types of loans in every kind
of business organizations. For example, it finances for small and medium enterprises, small
business loans and personal loans. It also finances for business purposes and agricultural
production including serving life, build or repair house, cultivated plants et cetera...with
reasonable interest rates in order to serve the needs of business and customers.
From 2011 to 2014, credit for agriculture and rural expansion has developed and
become a field of safe and effective compared with other economic sectors (Le & Pham 2015).
In 2015, under competitive pressure of other banks in the province, HD Bank-Vung Tau focus
on services related to the key economic sectors in the downtown area. In addition, HD bank
board of directors has launched incentive programs for some businesses in industries such as
fisheries, scientific research and especially in agriculture... In the rural areas, the bank focuses
on mobilize deposits from people and organizations and investment in agricultural and rural
loans specifically in Chau Duc, Dat Do and Tan Thanh district. In this research, the writer
focuses on agricultural lending activities and customers who are famers to analyze and study
about the problems that HD bank Vung Tau is facing.

In order to attract customers come to the branch, HD bank not only focus on service
quality but also develop a young, dynamic and enthusiastic staff. HD Bank is building the
human development strategy aims to encourage staff who dares to propose new directions, new
ideas about products. Like most banks branch, these departments include customer service,
administrative & human resources department, management & support credit department,
8


accounting and technology and IT support department. Customer service department often
takes responsible of accessing customers and contact to them to collect their opinions about the
services. Support and manage credit department takes responsible for debt management,
support and control the credit and loans process and transaction processing management.
Administrative offices takes account for manage administrative work such as maintenance
branch's house, staff training plan, construction recruitment plan, human resource capital and
labor contracts...
These departments operate independently but have strong relationships, mutual support
through regular meetings to implement the common targets of this bank. Support and manage
credit team finds new customers, communicates with them, guides and advises customers
complete the necessary procedures. It also takes responsible for evaluating customer's ability to
pay original debt and interest. This department prepares the evaluation report, makes credit
contracts, tracks and profiles disbursement according to request of customers, checks the use of
loans, monitors the repayments and interest, cooperates with the customer services team, etc.
Support and manage credit is also the function that was focused to analyze in this research for
supporting problem solving.

9


Figure 1. The organizational structure of HD bank Vung Tau branch
General Director

Vice director

Customer
service
department

Technical
& IT
support
department

Vice director

Transaction
offices &
business
points system

Administrative
& Human
Resource
Department

Accounting
department

Management
& support
credit

department

(Source: Administrative & human resource department of HD bank-Vung Tau)
1.1 The background of the problem
In order to understand about the problems HD bank Vung Tau branch is facing, author
explores the survey data about Viet Nam banking sector. From 2007, Viet Nam banking
industry split into two stages of development by the evaluation of banking experts. The first
stage from 2007 to 2011, HD bank and its’ competitors reached many achievement in asset as
well as human resource capital.
In general, the total asset size and operational capacity of the banking system in the
country continued to grow and develop. After 5 years, total assets of credit institutions
increased by 2.65 times, loan portfolio increased by 2.3 times; network increased 2.1 times
compared to the end of 2007. The investment and the application of technology banking
increasingly promoted and developed. Banks have invested and completed the core banking
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system, to conduct online transactions online, centralized data management system, thereby
promoting improved quality of banking services provided to customer. The quality of human
resource capital, banking managers have been gradually improving. Banks were more
concerned about the recruitment and training of qualified human resource capital. Some jointstock commercial banks developed the basic steps in the field of operations management, bank
management, such as Asia; East Asia; Saigon Thuong Tin. However, in the end of 2011, Viet
Nam's banking system began face the difficulty from economic. In this second stage, the
banking system received consequences of bad debt.
According to Nguyen (2015) after over four years of the State to implement the policy
of restructuring the economy, economic growth model developed rational innovation, improved
the efficiency of the economy. As Le (2014), Viet Nam banking industry still had faced many
difficulties and challenges until 2014. Circular 02/2013 / TT-NHNN was the effort of the
government to change the picture of bad debt and banking system health. When the actual
number of bad debts was lifting the veil, the banks had launched strategies to cope with the

potential loss of capital. Therefore, in 2014, the banking industry continued to face difficulties
in the macroeconomic context, companies continued to have trouble in domestic consumption
of goods by weak demand.
1.2 HD bank and competitors
Following the general trend of Viet Nam banking industry, HD Bank-one of the
pioneering joint stock commercial banks in Vietnam also had high profit indicators in 2011 and
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2012. However, starting from the end of 2012 due to the impact of non-profit performing loan
had a sharp decline. In 2014, the good disposal policy and management bad debts, HD bank
overcame the situation, increased profitability and recovered. HD Bank also cannot avoid the
fierce competition among the other banks. After 24 years, HD continues to increase in both
capital assets and resources. In order to match the competitive environment, in June 2015, HD
Bank achieved chartered capital of 8.100 billion VND, total assets were worth 100.000 billion
VND. It also developed a network of about 200 branches and transaction offices available in
most the largest economic centers with a total staff of about 4.000 people. HD Bank has set the
strategy for 2015 such as continued effective and multi-functional operation, provided the best
service for corporations, invested in retail banking and network development.
Competitors of HD bank (HDB) include both Vietnamese and foreign banks at
Vietnamese market. Customers have increasingly choices in finding solutions to their financial
problems. According to Maiyaki (2011), factors such as size of bank, total asset and availability
of large branch network have a great influence in customers’ choice of bank. Base on the
chartered capital at the latest time, there are two banks that have the same level of capital with
HDB including Asia commercial banks (ACB) and Techcom Bank. These banks are classified
in-group small and medium capital size group, that with a chartered capital from 5,000 to
20,000 billion VND. They are as seen as banks with same size because their chartered capitals
are in the rage from 8,000 to 9,400 billion VND. These banks have the operating duration more
than twenty years at Vietnamese market. They have their own achievements and valuable
prizes. Base on branches and transaction system, in 2015, HD bank with ACB and Techcom

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bank were in the top ten banks branch network throughout Vietnam, with large transaction
system.
Figure 2. Charter capital of HD bank, ACB and Techcom bank in 2015
(Unit: Billion)
9,377

9,500

8,878

9,000
8,500

8,100

8,000
7,500
7,000
charter capital (2015)

HD Bank

ACB

Techcombank

(Source: s.cafef.vn)

Three banks not only have the similar capital but also strong on retail banking services
and focus on individual customers services. Base on target customer, Asia commercial banks
(ACB) and Techcom bank are strong in the field of lending business and personal services.
Target customers of two commercial banks are individuals with high and average income.
Customers that HD Bank primarily targeted are personal customers, retail service.
As mentioned above, two main competitors of HD bank are Techcom bank and ACB.
Depending on nature, economic and social conditions of each province, each bank has
developed different policies in services therefore having different in business results. In
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addition, for more comprehensive evaluation activities of these banks, author analyzes their
financial indicators in a specific geographical area and period. According to an internal
financial report, in six months in 2015, the financial indicators of HD bank Vung tau branch
has the lowest number. For giving accurate and rational assessments about activities of these
banks, author focus on analyzing the financial performance numbers of these banks in Ba RiaVung Tau province in six months in 2015. These business results of three banks will be
reflected through the figures in the next part.
1.3 Business situation of HD bank Vung Tau branch and other competitors
According to the forecast of Vung Tau state bank and economic experts, 2015 will be
the year that most of the banks will have a good start on profits as well as credit growth. Thuy
Vinh (June 2015) the customer’s need of capital gradually increased while the lending interest
rate decreased. The segment's traditional activities of banks have been significant changes.
Credit growth rate of the whole industry increased quite well, reaching 5%. Base on the
summary report by Tuan Truong (2015) in “Banking highlight in 2015”, at the end of quarter
1/2015, total outstanding loans of eight listed banks increased 2,77%.
Two competitors (ACB and Techcom bank) were respectively announced the positive
results compared to their plan. Meanwhile, the loan for individual customer of HD bank Vung
Tau only reached 98% the plan. Mrs Bui Thi Anh Tuyet-vice director said, “This result will
make the board directors disappointed”. However, whether the result is due to HD bank Vung
Tau set too high targets for employees or it really facing a real problem in business. Therefore,

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the author continues to compare HD bank Vung Tau loan growth figures with its business
rivals. Base on the financial statement, each bank had different fugues of individual’s loans
growth. In six months in 2015, the chart above showed the loans growth rate of HD bank
slightly decreasing 2%. Meanwhile, the figures from loans growth of ACB and Techcom bank
had still increased (4.3% and 10.18%).
Figure 3. The individual loan growth rate of three banks on Jun 30th, 2015
Unit: percent
12.00

10.18

10.00
8.00
6.00

4.30

4.00
2.00
0.00
-2.00
-4.00

personal loans growth rate
-2.00
HD Bank

ACB

Techcombank

(Source: the internal reports of three banks)
In summary, in competition with the average number of loans growth in banking
industry, HD bank had not a good number of loans growth rate. This is understandable because
of customers have more choices to deal with bank has better service and response their need on
time. When client’s expectation was not responded correctly, they will feel dissatisfaction and
underestimation the quality of service. Resulting, they would change the frequency or even
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worse, they would stop using the banks services. This is not a good sign for business status of
HD bank in the future when competitors cutthroat and lead the loans market.
2. Problem identification
As mention above, HD bank Vung Tau low loan grow rate is one of the symptoms that
is so easy to recognize and it reflects a certain implicit problem. There are many reasons that
can lead to the low loan growth rate of HD bank Vung Tau city and origin from different
aspects like marketing, sales, customer care services, finance, human resource capital and
etcetera. In this research, with the limitation of size, ability of the writer and other conditions
will focus on analyzing a specific service of HD bank Vung Tau branch. According to Mrs.Anh
Tuyet general director of HD bank Vung Tau branch, from the end of 2014, the State Bank of
VietNam has circular to build up a new policy to support the famers. Base on market research,
Le & Pham (2015) found that from 2011 to 2014, credit for agriculture and rural expansion has
developed and become a field of safe and effective loan compared with other economic sectors.
Therefore, HD bank determines lending agricultural sector will contribute to the HD bank
success in 2015. Consequence, at the beginning of 2015, HD bank has strategic plan focus on
promoting and developing loan services to customers are farmers. Therefore, in this study
author focus on the agricultural loan service of HD bank Vung Tau branch. There will be one

problem that is focused because of having many clearly evidences at HD bank Vung Tau
branch for analyzing and finding solutions.
The evidence of problem came from a survey customers in one month after HD bank
Vung Tau branch launch the agriculture loan. The branch conducted a survey about satisfaction
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among respondents toward banking loan services in Chau Doc, Phuoc Tinh and Ba Ria
province transaction offices. Based on summary report of 66 copies questionnaires completed
and returned. Ten questionnaires were found not to be correctly completed and therefore,
excluded from the analysis. Hence, a response rate of 93% percent was attained. Customer
satisfaction was measured by consists of responses to a single question: “Overall, I am very
satisfied with the bank’s services.” The result reflected 25% of customers did not agree with or
were neutral toward this statement. However, this figure was considered quite high when
compared to the average of banking industry, approximately 16.8% (Dinh & Pickler, 2012).
Hence, the low loan growth rate was reduced due to lessen quantities of customers. Customer
satisfaction begins more and more importance to every organization especially in banking
services. It is one of the core factors determined the success of a bank. Every bank, especially
HD bank Vung Tau branch must has a main objectives is satisfying their customers.
Management and marketing theorists underscore the importance of customer satisfaction
for a business’s success (McColl-Kennedy & Schneider, 2000; Reichheld & Sasser, 1990). In
recent studies, businesses recognize that keeping current customers is more profitable than
having to win new ones to replace those lost. The cost of gaining a new customer is ten times
greater than the cost of keeping a satisfied customer (Gitomer, 1998). Researches reveal that
customer could defect at a rate of 10-30 per cent per year and meanwhile “a decrease of only 5
per cent in customer defection can increase profits up to 95 percent, depending on the industry”
Keiningham et al., (2005). Satisfaction should always be a permanent goal for all businesses in

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the purchase cycle. In reality, there are many studies show that a bank could lose its
comparative advance by inefficient customers care policy.
Firstly, customers who receive poor service will typically relate their dissatisfaction to
between fifteen and twenty others (Anderson and Sullivan 1993).In addition, dissatisfaction
was found to have a negative impact on repurchase intentions. The critical factor to attaining
customer loyalty is customer satisfaction. If consistently providing low satisfaction leads to a
lower repurchase intentions, then the expected number of times a buyer will repurchase should
decrease accordingly. Moreover, if acquisition costs for new customers are high, then such
firms should be more inefficient in generating revenue.
Secondly, customer satisfaction plays very important part in understanding financial
performance in a banking service context. Al-Hawari and Ward (2006) suggest that a positive
direct relationship between customer satisfaction and financial performance. The results
reported here suggest that customer satisfaction is also a mediating mechanism, through which
automated service quality dimensions operate with respect to their impact on bank financial
performance.
Thirdly, according to Brady et al. (2001), researchers and practitioners should identify
customer satisfaction as a means of driving customer loyalty. This implies that satisfied
customers are likely to engage in positive word –of- mouth and to continue doing business with
the same bank. This link is very strong, and it shows that if the bank managers want to make
customers loyal, they should have some special strategies to satisfy the customer. A satisfied
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customer never takes the risk of moving to other competitors. Customer satisfaction is
important to marketers because it is usually assumed a significant determinant of recurring
sales, positive word-of-mouth, intention to repurchase, and customer loyalty. When the author
interviews customers and review financial data at bank, the evidence of these consequences of
lack of satisfaction customer has been reveal.
Firstly, HD bank Vung Tau branch has losing its loyalty customers. They did not use

more new services or looking for new bank services. This evidence has support by Kotler and
Keller (2006). They found that a customer who is highly satisfied will most likely exhibit the
following characteristics : stays loyal longer, uses more new services and upgrades existing
ones, talks favorably about the bank and its services, pays less attention to competing brands
and advertising, and less sensitive to price and routinized transactions. If bank truly gains the
loyalty from their customers, it will cost less to serve them than the new customers will,
because their transactions are routinized. In case of HD bank Vung Tau branch, though the
interview, most of customers denied to continue using HD bank services. Moreover, they also
recommendation for their friends and their relatives find others bank services.
Secondly, the evidence of a lager effect had shown in HD bank Vung Tau branch’s’
financial statement. In the results of operating reports, Mrs Bui Thi Anh Tuyet-vice director
said the individuals’ loan only reached 98% the plan. Lending activities did not meet the
targets, lead to a decrease in 5% total profit before tax of the branch. This would make the
board directors involved to investigate the cause of the problem. Below is the analyzing each

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possible reason of low satisfaction among customer toward HD Vung Tau branch services to
identify the reason for this problem.
2.1 Possible reasons of low customers satisfaction
According to the result of in-depth interview, several reasons due to customer’s
dissatisfaction may be loan procedures made customers feel complicated, customers suppose
that transaction costs interest rates too high, or loans amount, the payment and debt recovery
plans is not fit with their capacity and the poor supporting services for customers. In addition,
Mr. Le Nguyen Tuan Hung-individual customer service and Ms. Nguyen Thi Hoa Ly-tellers
added “famers feel disappointed about the disbursement period slower from four to six days
than the day that the bank staff promises”, so that they have difficulty in purchase the seed and
fertilizer on time. Some customers argue that loan files many procedures, complicated, require
more records than other banks such as: require detailed proof loan purpose, repayment

sources...
These explanations of the bank managers have some similar with the research of Do &
Duong, (2013). Their study found that specifically, the satisfaction of the farmers most affected
by factors perception the simplicity of the procedure, the transaction cost savings and loan
amount. These evidences also had found in Lyer & Evanschitzky; Turel and Serenko (2006),
Hutchinson et al, Lai et al (2009), Korda & Snoj (2010); Akhter and Uddin (2012) researches.
They found that there are two important factors that most influence to customer satisfaction in
the banking contexts is service quality and fair service charge. In this case, customer’s
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perspective about services quality included the simplicity of the procedures, the transaction cost
savings, feel about the amount of debt, and the support services, feel about the disbursement
and debt collection plan). In addition, fair service charge in their perspective is the interest rate.
Through these information, existed research results and the comments of the bank leaders and
staff, this research offering a cause and effect diagram.
Figure 4. The cause and effect diagram
Place difficult to access

People/ staff (poor support)
Long time process
the loan file

Remote
location

Long time hold
for process of
different
departments

Complicate process

A few numbers
of transactions

Borrowers face
difficult to
understand loan
forms.

Not kept
promise

Payment and
debt recovery
plan not
reasonable

Lack of knowledge
about the
agriculture field

High
interest
rate

Customers
complain
about the

loan services
of HD bank
branch.

The percentage
support lending on
collateral value

Inefficient policy

These main reasons were identified by these opinions of the bank employees, managers
and farmers. However, in this case, HD bank Vung Tau branch do not have authority to change
the loan process as well as the interest rate because it related to the head quarter permission.
Every branch has must follow the general loan interest rate and process of the HD bank system.

21


Hence, in this study, author will focus on investigate issues which are belong to the authority of
a branch and can apply in short-term plan.
In order to narrow down the range of the problem and better satisfy the clients, author
continued to interview target customers of HD bank Vung Tau. Through the answers of most of
customers, they had problem related to the place of the branch, the bank staff and the loan
policy. More specific, the first problem was the location of the branch quite far from their
house. The second was the low percentage support lending policy base on collateral values of
HD bank’s Vung Tau branch. The third issue was they felt that the loan paper quite hard to
understand. The last one was the bank staff did not keep their promises and understand about
agriculture field.
2.2 The HD bank network of business points problem
Through the information collected from six current HD bank’s customers, the first

problem related to the bank branch located. This requirement of customers was understandable.
The same opinion was found in Junior’s study. Junior, et al (2013) identified factors affected
customers’ choice of retail banking on Ghana. Customers wanted to choose a bank whose
location from their homes and workplace is within a walking distance or if it would involve
transportation, it will be at a lower cost and at a minimum risk. It meant on proximity and
convenience, customers preferred banks that are near their workplace or homes or banks
located at point where vehicular movement is frequent.

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To solve this problem, author analyzed the information, the data regarding to the
network of business points of HD bank branch. In Ba ria Vung Tau province, Techcom bank
had six branches and seventeen ATM spots operating in nine wards. ACB with the advantage
of the early time join the Ba Ria-Vung Tau market has extended the largest network of
transaction office with eight branches and six transaction offices. However, the information
below, most banks still focus on the development of traditional branches. Unfortunately, the
traditional bank distribution channel always cost more money for operating.
Table 1. Branch network and business location of three banks in Vung Tau city
HD bank
ACB
Techcombank
Join Ba Ria-Vung Tau province market on 23/7/2009
26/9/2012
28/6/2005
Number of offices business spots
6
8
6
Number of ATM spots

5
16
17
Main located
Vung Tau city Vung Tau city Vung Tau city
(Source: hdbank.com.vn; techcombank.com.vn; acb.com.vn)
Every bank also wants to extend their network in order to provide the best service.
However, according to the branch vice director, starting from 2012, the State Bank required
banks must plan a detail business development when established a new branch. In addition, an
important condition required the non-performing loans ratio of the bank at the end of year does
not exceed 3% of total loans. If banks had a higher percentage, would have the approval of the
Governor of the State Bank.
After recovery period, HD bank Vung Tau also faced many difficulties in network
expansion. It is difficult to decrease the non-performing loans ratio lower than 3% but still
increase the loan growth rate. Hence, in the current circumstances, with limited resources, how
23


banks to expanding networks but ensured compliance with government regulations, as well as
cost savings. The solution learned from the developed countries, more specific Australia. The
solution that Australian banks applied is to rationalize the banking system, minimize costs as
well as use many kinds of alternative distribution channels.
According to Nguyen Van Thang the evaluation report by Mckinsey, (Network CN).
From 1993 to 2001, Australian banking system has suffered big losses from real estate.
Australian banks need to resist the downward trend of revenues and profits. Australia's banking
system has used many kinds of alternative distribution channels services, such as ATM,
EFTPOS (EPTPOS terminals), Phone banking and Internet banking. Moreover, many banks
have been opening more bank branches located in the store, some of them linked to the postal
system, in cooperation with the major retailers and pharmacies. The rural trading centers were
also set up to support people in rural areas (transaction Rural Centres - RTCs). The RTCs offer

basic banking, postal services, medical services, telephone and internet. These services meet
the needs of people in remote areas have the educational level is not high. After applied this
solution, electronic distribution was a positive alternative to branch banking with lower
investment costs. Consequently, customers have more opportunities to choice the form of bank
distribution, be served 24/7 ... These were outstanding advantages of electronic distribution
channels. Australian banks encourage customers to use electronic transaction channels through
fee policy. It contributed to shift from the traditional bank branch into a more modern trade
channel.

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This model banking channel has the benefit was the reduction in the number of bank
branches to bring tremendous benefits to the banks (cut down the staff working in banks,
closure of bank branches which was inefficiencies operating, save wage costs, costs of
equipment, operating costs ...). However, it also had the cost are reduction in the number of
bank branches to bring tremendous cost to the banks. In addition, the bank must invest in
technology advances.
Therefore, to combine the advantages of the Australian banking system, in year 2016,
HD bank will modernize the banking system in Vung Tau city. Allow customers to more active
in trading on phone and computers. Thereby, reducing its branches in Vung Tau city and
expand the transactions to the surrounding areas like Xuyen Moc, Dat Do... To summary, this
problem was belonged to the strategic plan of HD bank Vung Tau branch board directors. This
problem would be in the long-term plan of HD bank Vung Tau branch. Therefore, in this study
author will focus to investigate another problem.
2.3 The HD bank’s percentage support lending base on collateral values
According to the result of interview, customer gave their personal point of view about
the loan amount. They argued that it did not fit their family’s financial demand. HD bank
policy has support loan amount by only 40% -50% of the value of collateral. This low
percentage loan support is also common problems of many banks.

The first reason was HD Bank is a commercial bank. All banking activities were for
profit purposes. The second reason is managing non-performing loan ratio policy. This policy
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