UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE DETERMINANTS OF CUSTOMER SATISFACTION ON BANKING SERVICES: THE CASE OF COMMERCIAL BANKS IN HO CHI MINH CITY By NGUYEN THANH NIEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, MAY 2011 - 1- UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE DETERMINANTS OF CUSTOMER SATISFACTION ON BANKING SERVICES: THE CASE OF COMMERCIAL BANKS IN HO CHI MINH CITY A thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN THANH NIEN Academic Supervisor: Dr CAO HAO THI HO CHI MINH CITY, MAY 2011 - 11- CERTIFICATION "I certify that the substance of this thesis has not already been submitted for any degree and has not been currently submitted for any other degree And to the best of my knowledge and belief it does not contain any material previously published or written by another person except where due reference is made in this thesis" Ho Chi Minh City, May 2011 NGUYEN THANH NIEN - ·~- - 111 - ACKNOWLEDGEMENT I would like to express my gratitude to all people who gave me the support to complete this thesis First, I would like to show my sincere and deep gratitude to my supervisor, Dr Cao • Hao Thi who gave me valuable guidance, comments, advice for the success of my thesis Second, I would like to thank to all lecturers and staffs of the Vietnam- Netherlands Programme Third, I also send my gratefulness to my colleagues in the Department of Individual Customer Relationship, Bank for Investment and Development of Vietnam Transaction Center Branch for their supports during my study Especially, many thanks are respectfully sent to my parents for motivating me to I complete the thesis Finally, I give my special thanks to my wife who is always supporting me to finish this re~earch -IV- ABSTRACT Nowadays as globalization and liberalization of financial institutions accelerate, competition among banks becomes more intense Therefore, in order to face with , that fierce competition, commercial banks in Vietnam in general and Ho Chi Minh City in particular always strive to improve access through expansion of Automatic Teller Machines (ATMs) and branch network; introduce new features for both deposit and loan products at attractive rate; and develop new electronic banking facilities like telephone banking, home banking, SMS banking and Internet banking However, in reality, there are so many complaints of customers related to the products and services of banks Those show the dissatisfaction of customers, lead to losing customers and cause negative effect on the market share and the profitability of commercial banks The purposes of this research are to determine the main factors affecting customer satisfaction on banking services including basic facilities, convenience, employee competence, the environment of bank, transaction cost; and the relationship between these factors and customer satisfaction The research is carried out by using questionnaires, designed according to five-point Likert scale It is based on a survey of245 customers in Ho Chi Minh City Data obtained from the customers were used for conducting reliability, factor and regression analysis through SPSS software Research findings show that the most important factors influencing customer satisfaction on banking services are the environment of bank and employee competence, convenience and transaction cost However, this research still has some limitations First of all, data collection is restricted within a few commercial banks in Ho Chi Minh City only Secondly, according to the result of survey, majority of respondents are only from 30 to 50 years old, may be fail to represent for total the actual situation Finally, this research determined the basic factors affecting customer satisfaction on banking services, but there are still lacked of other factors not be identified -v- TABLE OF CONTENTS CHAPTER 1: INTRODUCTION ! , I 1.1 1.2 1.3 1.4 1.5 Problem statement I Research objectives Research questions Research scope Research structure CHAPTER 2: LITERATURE REVIEW 2.1 Conceps 2.2 Literature review of customer satisfaction 2.3 Overview of commercial banks in Ho Chi Minh City and the present main banking services 11 2.4 Summary 14 CHAPTER 3: ANALYTICAL FRAMEWORK AND METHODOLOGY 15 3.1 Analytical framework 15 3.2 Research methodology 18 2.1 Research approach 18 3.2.2 Research process l9 3.2.2.1 Step I: Generation of items 19 3.2.2.2 Step 2: Pilot survey 19 3.2.2.3 Step 3: Survey 20 3.2.3 Measurement scales of the questionnaire 20 3.2.4 The components of questionnaire 22 3.2.4.1 Open letter 23 3.2.4.2 Specific questions 23 3.2.4.3 Demographic questions 23 3.3 Sampling 24 3.4 Data collection 24 Statistical methods 24 3.6 The scale testing 25 3.7 Assessment of scale's uni-dimensionality, discriminant validity and convergent validity 25 3.8 Multiple regression analysis 26 3.9 One-way ANOVA 26 3.10 Summary 27 CHAPTER 4: DATA ANALYSIS AND RESEARCH RESULTS 28 4.1 General information of respondents 28 4.1.1 Type of contact with the bank 28 1.2 Age group of customers 29 4.1.3 Gender of customer 30 1.4 Type of ownership of the bank 31 -VI- ~I 4.1.5 The number of bank's operation year from the foundation day 32 4.2 The results of pilot survey ~ 33 4.2.1 Descriptive statistics 33 4.2.2 Results ofthe scale testing 35 4.2.3 Factor analysis 36 4.2.3.1 Criteria of factor analysis 36 4.2.3.2 Results of factor analysis (pilot survey) 37 4.3 The results of main survey 39 4.3.1 Reliability analysis 39 4.3.2 Factor analysis 40 4.4 Hypothesis testing 45 4.4.1 Adjusted measurement scales 45 4.4.2 Regression model 45 4.4.3 Hypotheses testing 47 4.5 Hierarchical regression analysis 49 4.6 Summary 52 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 53 5.1 Conclusions 53 5.1.1 Main findings 53 5.1.2 Managerial implications , 53 5.2 Recommendations 54 5.3 Limitations 55 REFERENCES 57 APPENDICES 6·0 LIST OF FIGURES Figure 2.1 Capital mobilization status of commercial banks from 2005 to 2009 12 Figure 2.2 Credit operation status of commercial banks from 2004 to 2009 13 Figure 3.1 Research model 18 Figure 3.2 Research process 19 Figure 4.1 Relative frequency of respondents' type of contact 29 Figure 4.2 Relative frequency of respondents' age group 30 Figure 4.3 Relative frequency of respondents' gender 31 Figure 4.4 Relative frequency of banks' type of ownership 32 Figure 4.5 Relative frequency of number of bank's operation year from the foundation day 33 - Vll- LIST OF TABLES , Table 2.1 Literature review summary on customer satisfaction 10 Table 3.1 Measurement scales 21 Table 4.1 Frequency of respondents' type of contact with the bank 29 Table 4.2 Frequency of respondents' age group 29 Table 4.3 Frequency of respondents' gender , 30 Table 4.4 Frequency ofbanks' type ofownership 31 Table 4.5 Frequency of number of bank's operation year from the foundation day 32 Table 4.6 Descriptive statistics 34 Table 4.7 Summary of the Cronbach's alpha result (pilot survey) 36 Table 4.8 Factor analysis of independent variables Table 4.9 Factor analysis of customer satisfaction on banking services 39 Table 4.10 Result of reliability analysis 40 Table 4.11 Factor analysis of independent variables (EB5 excluded) .41 Table 4.12 Factor analysis of independent variables (EB5 and TC2 excluded) .42 Table 4.13 Factor analysis of the customer satisfaction criteria .44 Tabie 4.14 KMO and Bartlett's Test of independent variables 44 Table 4.15 KMO and Bartlett's Test of customer satisfaction on banking services .45 Table 4.16 Adjusted measurement scales .45 Table 4.17 Model summary 46 Table 4.18 ANOVA 46 Table 4.19 Result of coefficients 47 Table 4.20 Summary of hypotheses testing 49 Table 4.21 Determinants of customer satisfaction on banking services 49 Table 4.22 Hierarchical regression analysis of customer satisfaction 50 Table 4.23 Coefficients of independent variables and moderate variables 51 " - Vlll - ABBREVIATIONS Agribank : Vietnam Bank for Agriculture and Rural Development BIDV : Bank for Investment and Development of Vietnam MHB : Housing Bank of Mekong Delta VietinBank :Vietnam Joint Stock Commercial Bank for Industry and Trade Vietcombank :Joint Stock Commercial Bank for Foreign Trade of Vietnam Eximbank :Vietnam Export- Import Commercial Joint Stock Bank ACB :Asia Commercial Joint Stock Bank Sacombank : Sai Gon Thuong Tin Commercial Joint Stock Bank MB :Military Commercial Joint Stock Bank Techcombank :Vietnam Technological and Commercial Joint Stock Bank SeABank :Southeast Asia Commercial Joint Stock Bank LienVietBank : LienViet Commercial Joint Stock Bank Oceanbank :Ocean Commercial Joint Stock Bank HSBC : HSBC Bank Vietnam Limited ANZ : Australia and Newzealand Bank Shinhan : Shinhan Vietnam Bank Limited Hong Leong : Hong Leong Bank Vietnam Limited IVB : Indovina Bank Limited VIDPB : VID Public Bank I~ SVB : ShinhanVina Bank I~ VSB : Vinasiam Bank VRB :Vietnam-Russia Joint Venture Bank I _ I • •• i - lX- ATM : Automatic Teller Machine SMS : Short Message Service POS : Point of Sale VND :Vietnam Dong L/C : Letter of Credit CAD : Cash Against Documents KMO : Kaiser-Meyer-Olkin CFA :Confirmatory Factor Analysis SPSS : Statistical Package for Social Science i ~ rr 'J- :J ~~ I._ -X- II - The determinants ofcustomer satisfaction on banking services: The case ofcommercial banks in Ho Chi Minh City Eboli, L and Mazzulla, G (2007), "Service Quality Attributes Affecting Customer Satisfaction for Bus Transit", Journal of Public Transportation, Vol 10 No.3, pp 21-34 Ekinci, Y (2003), "An Investigation of the Determinants of Customer Satisfaction", Tourism Analysis, Vol No.2, pp 193-196 Hair, Jr.J.F., Anderson, R.E., Tatham, R.L and Black, W.C (1998), "Multivariate Data Analysis", 5th edition, Upper Saddle River, NJ: Prentice-Hall Jamal, A and Naser, K (2003), "Factors Influencing Customer Satisfaction in the Retail Banking Sector in Pakistan", International Journal of Commerce and Management, Vol 13 No.2, pp 29-53 Jham, V and Khan, K.M (2008), "Detem1inants of Performance in Retail Banking: Perspectives of Customer Satisfaction and Relationship Marketing", Singapore Management Review, Vol 30 No.2, pp 35-45 Kaiser, H.F (1958), "The Varimax Criterion For Analytical Rotation in Factor Analysis", Psychometrika, Vol 23, No.3, p.187-200 Levesque, T and McDougall, G.H.G (1996), "Determinants of Customer Satisfaction in Retail Banking", International Journal of Bank Marketing, Vol 14, No 7, pp 12-20 Likert, R (1932), "A Technique for the Measurement of Attitudes", Archives of Psychology 140: 1-55 Neuman, W (1999), "Social research methods: Qualitative and quantitative approaches", Allyn and Bacon Nunnally, J.C (1978), Psychometrics Theory, McGraw- Hill, New York, NY Parasuraman, A., Zeithaml, V.A and Berry, L.L (1985), "A Conceptual Model of Service Quality and Its Implications for Future Research", Journal of Marketing, Vol 49, No.4, pp 41-50 Parasuraman, A., Zeithaml, V.A and Berry, L.L (1988), "SERVQUAL: A multiple-item Scale for Measuring Customer Perceptions of Service Quality", Journal of Retailing, Vol 64, No.1, pp 12-40 -58- The determinants of customer satisfaction on banking sen,ices: The case ofcommercial banks in Ho Chi Minh City Ribiere, V., Lasalle, A.J., Khorramshahgol, R and Gousty, Y (1999), "Hospital Information Systems Quality: A Customer Satisfaction Assessment Tool", Thirty-Second Annual Hawaii International Conference on System Sciences 4:4011 Sonne, A.M ( 1999), "Determinants of Customer Satisfaction with Professional Services: A Study of Consultant Services", 0konomisk Fiskeriforskning, Vol 9, No.2, pp 97-107 Williamson, Oliver E (1981), "The Economics of Organization: The Transaction Cost Approach", the American Journal of Sociology, Vol 87, No 3, pp 548577 Yin, Robert K (1994 ), Case Study Research - Design and Methods Thousand Oaks: Sage • -59- 2nd ed The determinants ofcustomer satisfaction on banking sen,ices: The case of commercial banks in Ho Chi Minh City APPENDICES APPENDIX 1: BANKING SERVICES Personal banking services include main services as follows: Current and savings accounts consist of: + Current account in VND + Current account in foreign currencies + Savings account in VND + Savings account in foreign currencies - Time deposits consist of: + Time deposit in VND + Time deposit in foreign currencies « + Time deposit in gold • + Floating rate deposit - Card products consist of: + Credit card + Debit card + Prepaid card - Loans consist of secured loans and unsecured loans Secured loans + Installment loans for house, house-foundation purchase + Installment loans for house construction and renovation + Consumption installment loan -60- The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City + · Installment loans for business, production and services + Overseas study loan + Automobile loan + Loans secured by certificate of deposit, valued papers + Issuance of domestic letter of guarantee Unsecured loans + Consumption loans for company's staff + Overdraft facility - Treasury services consist of: + Currency options + Gold options • + Foreign exchange + Gold custody + Gold trading - Remittance services consist of: + Outward remittance to domestic banks + Outward remittance to overseas + Inward remittance from domestic banks + Inward remittance from overseas + Send and receive money with Western Union + Outward remittance through Western Union - Other services consist of: - 61 - The determinants of customer satisfaction on banking sen>ices: The case of commercial banks in Ho Chi Minh City + Payment service for real estate trading + Electricity bill payment + Mobile phone bill payment + Personal finance consultant Business banking services include main services as follows: - Account services consist of deposits and cash management Deposits + Flexible deposit + Current account + Current account with bonus rates + Upstair savings + Time deposit + Time deposit with flexible rates + Margin deposit Cash management + Cash collection + Bill collection + Cash payment + Bill payment •' • + Payroll/Commission services + Centralized account management + Domestic remittance -62- The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City + Overseas remittance + Check service Credit products consist of working capital finance, export finance, import finance, term loan for fixed assets/projects, guarantees, etc Working capital finance + Domestic trade finance + Installment loan for enterprises Export finance + Loans for procurement, reserve + Secured loans by receivables from export documentary by D/A, DIP, L/C Import finance + Import finance + Import finance with import collateral Term loan for fixed assets/projects + Term loan for fixed assets/projects + Automobile loan Guarantees + Domestic guarantees + CJverseas guarantees - Trade services consist of: + Outward telegraphic transfer (TIT) • + Inward remittance + Import collection - 63- The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City + Export collection + Import L/C + Export L/C + Import CAD + Export CAD - Treasury services consist of: + Currency options + Gold options - Oth~r services consist of: + Derivative products + Domestic letter of credit + Insurance • -64- The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City + Export collection + Import L/C + Export L/C + Import CAD + ExportCAD - Treasury services consist of: + Currency options + Gold options - Oth~r services consist of: + Derivative products + Domestic letter of credit + Insurance • -64- The dete-rminants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City APPENDIX 2: THE QUESTIONNAIRE OF IN-DEPTH INTERVIEW Dear Sir/Madam, I am Nguyen Thanh Nien, a student of Vietnam- Netherlands Program forMA in Development Economics I am doing a research on the determinants of customer satisfaction on banking services: the case of commercial banks in Ho Chi Minh City The result of this study is only used for scientific purpose Please feel free to provide your opinions This will significantly contribute in improving customer satisfaction on banking services Your answers and your information will be kept in secret, and presented in general report form Please answer the following questions Thank you very much for your participation To answer this questionnaire, please think of one bank (called bank A) you did transactions Based on the characteristics of this bank A, please answer the following questions: - The name of bank A (no need to mention if you feel unfavorable) - For ownership, bank A belongs to: D Joint-stock D State-owned D Wholly foreign-owned D Joint venture - The number of bank A's operation year from the foundation day: D Under years D From 5- 10 years D From 10- 15 years D From 15 - 20 years D Over 20 years - 65- The determinants of customer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City APPENDIX 3: THE QUESTIONNAIRE Part 1: According to your level of agreeableness, please tick in the appropriate box for each of the statements below from "1" to "5" (1 = strongly disagree; = disagree; = neutral; = agree; = strongly agree) Please check (X) in only one chosen box -= .~ ~ ~ ~ ~ ell~ Information No ell ooQ ~ ell 1:11 ~ 1:11 s ~ -; ~ ~ ~ ~ -= ~ ell~ ~ = z < !:::< 00 ~ ell ell The factors affect customer satisfaction on banking_ services as follows Basic facilities Demand draft facility of bank A is very good 0 0 Fixed deposits schemes of bank A are very good 0 0 Money transfer of bank A is very good 0 0 Locker facility of bank A is very good 0 0 A TM of bank A is very good 0 0 ~l -0 -~ I I I Convenience 0 0 Credit card of bank A is very good 0 0 Tele-banking of bank A is very good 0 0 Debit card of bank A is very good I "! J I Employee competence Attitude of bank A's staff is very good 0 0 10 P:-ofessionality of bank A's staff is very high 0 0 The environment of bank 11 Service scape of bank A is very good 0 0 12 Parking space of Bank A is very good 0 0 13 Dissemination of information of bank A good 0 0 14 Query handling of bank A is very prompt 0 0 15 Networking of branches of bank A is very wide 0 0 IS very I ~ I I ! I I -· J -66- The determinants of customer satisfaction on banking services: The case ofcommercial banks in Ho Chi Minh City Transaction cost ,_ 16 Loan rate of bank A is very low D D D D 17 Deposit rate of bank A is very high 0 0 18 Cost of service of bank A is very low 0 0 19 Waiting time is the least 0 0 20 Time for procedure is fastest 0 0 Please give your level of satisfaction to bank A 21 I totally satisfy with general services of bank A 0 0 22 I totally satisfy with transaction of services, loans facility provided by bank A 0 0 23 I totally satisfy with quality of services of bank A 0 0 Part 2: Please give us the following information: Personal information (to be convenient for sending the result ofthis research to you) Full name: - Address: - Telephone number: - Email: Do you come to bank A for individually or business contact? Individual Business Please tell your age group Under 30 From 30 to 50 Over 50 Please tell your gender Male Female Would you please tell us what can be done to improve customer satisfaction of bank A? Thank you very much for your cooperation! Nguyen Thanh Nien Email: nguyen.thanh.nien@vnp.edu.vn or nienbidv@gmail.com -67- The determinants ofcustomer satisfaction on banking services The case of commercial banks in Ho Chi Minh City APPENDIX 4: RESULTS OF PILOT SURVEY 3.1 Reliability analysis of measurement scales Reliability analysis of basic facilities scale Reliability Statistics Cronbach's N of Items Alpha 758 Item-Total Statistics Scale Variance if Cor.rected Item- Scale Mean if Item Deleted Total Correlation Item Deleted Cronbach's Alpha if Item Deleted I BF1 14.52 4.744 652 670 BF2 14.24 5.125 485 729 BF3 13.88 5.047 489 728 BF4 13.70 4.867 523 716 jBF5 14.62 5.261 487 728, Reliability analysis of convenience scale Reliability Statistics I Cronbach's N of Items Alpha 768 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Corrected ItemItem Deleted Total Correlation Cronbach's Alpha if Item Deleted CON1 6.32 1.161 621 678 CON2 6.00 980 576 727 CON3 6.56 1.027 623 665 - - 68- The determinants ofcustomer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City Reliability analysis of employee competence scale Reliability Statistics Cronbach's Alpha N of Items 858 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Corrected ItemItem Deleted Total Correlation Cronbach's Alpha if Item Deleted EC1 3.26 523 763 a EC2 3.58 371 763 a a The value is negative due to a negative average covariance among items This violates reliability model assumptions You may want to check item codings Reliability analysis of the environment of bank scale Reliability Statistics Cronbach's N of Items Alpha 845 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Corrected ItemItem Deleted Total Correlation Cronbach's Alpha if Item Deleted EB1 12.56 5.109 728 799 EB2 13.16 5.239 647 817 EB3 12.62 4.322 802 768 EB4 12.78 4.257 782 774 EB5 12.24 5.411 381 889 -69- The determinants of customer satisfaction on banking senices: The case ofcommercial banks in Ho Chi Minh City Reliability analysis of transaction cost scale Reliability Statistics Cronbach's Alpha N of Items 837 Item-Total Statistics Scale Variance if Corrected Item- Scale Mean if Item Deleted Total Correlation Item Deleted Cronbach's Alpha if Item Deleted TC1 10.74 3.951 662 799 TC2 10.62 5.016 353 878 TC3 10.84 4.096 755 771 TC4 10.62 4.322 738 780 TC5 10.70 4.214 740 777 Reliability analysis of customer satisfaction scale Reliability Statistics Cronbach's N of Items Alpha • 813 Item-Total Statistics Scale Mean if Scale Variance if Corrected Item- Cronbach's Alpha Item Deleted Item Deleted Total Correlation if Item Deleted CS1 5.76 1.656 611 807 CS2 5.72 1.144 746 656 CS3 5.64 1.256 670 741 3.2 Factor analysis of independent items KMO and Bartlett's Test Kaiser-Meyer-Oikin Measure of Sampling Adequacy Bartlett's Test of Sphericity Approx Chi-Square 692 550.618 df 190 Sig .000 - 70- The determinants ofcustomer satisfaction on banking services: The case ofcommercial banks in Ho Chi Minh City Rotated Component Matrix• Component EB3 871 EB4 851 EB1 799 EC2 746 EC1 743 EB2 651 TC3 855 TC1 795 TC5 789 TC4 770 CON3 810 CON2 809 CON1 799 BF4 836 BF3 736 BF1 706 EB5 820 TC2 860 BF5 484 BF2 441 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations - 71 - ... The determinants ofcustomer satisfaction on banking services: The case ofcommercial banks in Ho Chi Minh City 2.3 Overview of commercial banks in Ho Chi Minh City and the present main banking services. .. significant impact on the satisfaction of patients, namely the competence of the -6- The determinants of customer satisfaction on banking services: The case ofcommercial banks in Ho Chi Minh City staff,... to determine the -5- The determinants ofcustomer satisfaction on banking services: The case of commercial banks in Ho Chi Minh City antecedents and consequences of customer satisfaction These firms