i TABLE OF CONTENTS TABLE OF CONTENTS .i ABBREVIATION ACKNOWLEDGEMENTS LIST OF TABLE LIST OF FIGURE .4 ABBREVIATION VCB SBV WTO WB ATM POS BOD HO IT ICT GDP FDI LC P/E PIN Bank for Foreign Trade of Vietnam State Bank of Vietnam World Trade Organization World Bank Automated Teller Machine Point of sale Board of Director Head Office Information Technology Information Technology and Communication Gross Domestic Product Foreign Direct Investment Letter of Credit Profit on earning Personal Identification Number ACKNOWLEDGEMENT First and foremost, I would like to express my sincere gratitude to my supervisor, Dr …l I wish to also acknowledge the contributions from officials of some of the commercial banks that I contacted for taking time out of their busy schedule to answer some questions concerning my work I am also greatly indebted to the bank’s departments which provided me data and information Last, but not the least, I thank my families for their support and encouragment and my dear class mates who always keep contact each other and exchange ideas and documents to pursue my interests LIST OF TABLES LIST OF FIGURES INTRODUCTION Research topic AN EVALUATION OF SELECTED RETAIL BANKING SERVICES AT VIETCOMBANK Rationale - In fact, along with the development of economic growth, the big coporations and enterprises always seek the support and the guarantee in financial capacity through establishing their own banks These bank have a absolute advantage in providing financial services to big corporations which are their traditional customers and making profits for all the bank system These banks begin to turn to a potential retail banking market In addition, the development of wholesale banking and retail banking is difficult to separate and becoming mutual factors in the development of the banks because when the banks supply wholesale banking products for businesses, they also provide a package of retail banking products to businesses’ employees - With 89 million people of population today, Vietnam is clearly a huge market for retail banking serives According to a recent report by a consulting firm, Bain & company, Vietnam banking industry is still in an ealier stage of development at which by 2007 only 2% of Vietnam’s 84 million people have ever taken out a bank loan and only million have a personal bank account Since then it is natural to expect that these figures have increased but they shall not be signigicantly improved In the past several years, Vietnamese people have witnessed and enjoyed a greater choice of retail banking services ranging from housing loans, auto loans, saving loans to bancasurrance, guarantee To catching the huge and new demand, general banking and retail banking services in particular in our country is being developed very rapidly The bank is constantly launching products, services and technologies to bring many benefits for customers, boosting turnover in social capital and promote economic development - Based on the growing trend of retail banking services of commercial banking system of Vietnam, Bank for Foreign Trade of Vietnam (Vietcombank) has been implementing supply most of the banking products and services sold retail customers A full awareness of the market importance of retail banking services in the context of international economic integration today, Vietcombank constantly improve the products and services retail banking, and applications use modern technology to develop products and services retail banking, to meet social needs One of the activities that mark the full development, demonstrates the correctness of the above strategy is the achievement in the areas of retail banking services Besides wholesale services which have an international reputation for economic organization (coporate banking), Vietcombank is known as a trusted address for individual customers with a variety of services and modern retail banking services as a flexible loan product, payment cards, ATM system, diversified capital mobilization, the online banking service, remittance services - It could be said that the period form 1995 to moment is not a long period in Vietcombank’s history but 45 years is the period witnessed many changes to the methods and operations in retail banking in a bank that has advantages in wholesale banking From a few thousand retail customers in the early 90s, now the number of individual customers has reached million (over 30% market share in Vietnam) and continual development of both quantity and quality - Having recognised the potentials in retail banking and experienced the difficult conditions by Vietcombank, the evaluation and developing for retail banking services is chosen as the topic for this MBA thesis To study mentioned problems, VCB must push strategies to expand retail banking through using product diversification as a tool It is also research purpose of this thesis The study will research and offer some lessons and strategies for VCB based on analyzing current situation and its competence Research objectives -Systemize theoretical theories of retail banking and wholesale banking, potentials for developing retail banking and expansion from wholesale banking to retail banking -Analyze and evaluate selected retail banking products and realize pending issues of developing retail banking services at VCB -Propose solutions to develop retail banking services at VCB Research questions -What is retail banking and how important is it in commercial banks’ operation ? -Why need to expand from wholesale banking to retail banking ? -What is the current state of the development in retail banking services at VCB? -What are solutions to develop retail banking services at VCB? Literatutre reiview -Development of retail banking services was identified as an important part in the development strategy of commercial banks in Vietnam, starting from the grasp opportunities from new markets, from the application of systems and technology used to create many new products and services, efficient distribution methods, enhancing the relationship between clients and banks -The banks can use product diversification as a tool to develop retail banking services Product diversification may also achieve competitive advantage for banks through economics of scale and other synergies from using the banks resources and capabilities across different product lines Ahmed Ebrahim and Iftekar Hasan (2002) had the study to assess the value relevance of product diversification in US commercial banks, results show that annual abnormal returns have more significant positive relation with changes in the noninterest component of bank earnings compared with changes in the interest component of earnings Alank Reichert and Larry D.Wall (2000) had swept away most of the barriers limiting the affiliation of banks with nonbank financial services providers The focus now shifts to financial services executives who must decide which combinations provide the best opportunities to increase shareholder wealth Existing empirical evidence suggests that an important consideration in this decision is the potential gain from portfolio diversification into new activities The available empirical evidence also suggests that the potential for such gain clearly exists However, the results provided by this article emphasize that the efficient combination may change over time, perhaps for reasons such as the macroeconomic environment or technology Allen N Berger , Iftekhar Hasanb, Mingming Zhouc (2010), diversification is captured in four dimensions: loans, deposits, assets, and geography Kevin J Stiroh (2002), the U.S banking industry is steadily increasing its reliance on nontraditional business activities that generate fee income, trading revenue, and other types of noninterest income This paper assesses potential diversification benefits from this shift This shift toward noninterest income has contributed to higher levels of bank revenue in recent years, but there is also a sense that it can lower the volatility of bank profit and revenue, and reduce risk Theoretical background In this study, a simple model will be applied: Leding interest rate = Fund mobilization interest rate + Operating expenses rate + Risk premium rate + Gaining profit rate Where: + Lending interest rates is the lending interest rate which applied for each retail product; + Fund mobilization interest rate is the fixed deposit interest rate with term 12 months; + Operating expenses rate is calculated by dividing the operating expenses (include: the salary, rent house, depreciation, materials…) to everage individual outstanding loans + Risk premium rate is based on budget risk expense divide everage individual outstanding loans ; + Gaining profit rate is calculated by formula: Gaining profit rate = Interest margin – Operating expenses rate - Risk premium rate - In Vietcombank, Lending interest rate = Fund mobilization interest rate + Interest margin So that Interest margin must cover all the components: Operating expenses rate, Risk premium rate, Gaining profit rate and also ensure the competitive lending interest rates in the market Based on the data conducted by VCB’s report from 2008-2010, I will employ the model above to analyze the effect of product diversification on cost and profit efficiency Research methodology -The methodology used in the thesis is quantitative analysis The data of thesis consists of two sources, including primary data and mostly secondary data The secondary information and data will be obtained from newspaper, annual report, magazine, internet, books…Other secondary data regarding VCB will be acquired from VCB and other related sources of information such as SBV, VBA While the primary information and data will be collected through deep interview with officials of VCB Research scope -The study was conducted at Vietcombank only as follows: Time: The time research is a period from 2008- 2010 and 1st quarter of 2011 Products: The research focuses on some current retail products at Vietcombank like: auto loans, housing project loans, unsecured loans Geographic scope: The primary data would be collected in the whole system at Vietcombank -Limitations: This research focuses mainly on financial aspects of evaluation of selected retail banking services at Vietcombank and the data were 2008-2010 It also gave out solutions to develop retail banking services at Vietcombank only, not for the whole economy and other banks Limitations of the thesis also lie on its sole research on the developing retail banking services, instead of comparing working model on developing retail banking services at Vietcombank to those of other banks who have succeeded in this field So this search is for Vietcombank, if it were applied for another, we should take further and supplemental study Research structure -This paper has been specifically written to provide its readers a comprehensive picture of wholesale banking and retail banking, the development of retail banking services at Vietcombank at present, and propose solutions to develop retail banking services at VCB in the coming time Following this introduction are three chapters Chapter will discuss on theories about retail banking and wholesale banking, potentials for developing retail banking and the 75 + Design diversified promotion programs, customer gifts that are suitable with kind of customers -Human resources: + Human resources play an important role in retail operations Although, the human resources of Vietcombank have a good knowledge, ability but lack of experience and retail skills, conservative psychology, afraid to selling retail products So the restructuring, re-training to change perceptions in VCB’s staffs, create enthusiasm for officials and staffs to ensure that each staff, each level staff must correctly following the position and the discipline of the bank is essential + The leaders of the branches must recognize seriously and pay attention properly to the training, fostering, promoting and expanding the typical tellers at the branches because they are the face of Vietcombank, who build, maintain credibility for the leadership, for the bank -Technology: + Technology must play a role in supporting for the business but it is a prerequisite for the development and maintenance of products So the retail banking department and technology department should work closely together to provide better products -The support measures: + To increase the number of employees to meet the development requirements of retail banking + To study and formulate policies to encourage the development of retail banking like conversion policy targets wholesale / retail which deliveried to each branch, compensation corresponding targets sales policy 76 3.2 Proposed solutions to develop retail banking at Vietcombank 3.2.1 Building strategy of product development oriented following customer Product development strategy of VCB must be planned clearly, based on specific market segments, positioning customers and products According that, each group of customers needs to design specific products and services and the support systems to develop products First, VCB need to standardize and build new products and basic services for each group customers with focusing specially on individual customers and SMEs To that, VCB must complete 4P's factor of products and services as follows: -Product: (i) focus on developing consumer credit services, non-credit services, package services, electronic banking services to serve customers 24 / 24, services including high technology, (ii) increase added value and utilities for products and services, (iii) improving the quality of products and services through building criterias to serve customers for all the system, training sale skills and customer care for all staffs -Price: + Interest rates: depending upon the market, VCB needs to adjust interest rates and fees appropriatly with each region, each group customer + Fee: must be calculated with reasonable revenue to encourage customers using services Fee of each services should associate with the level risk of each services Especially, with new products and services, VCB needs to reduce fee to encourage customers become familiar with the products and services -Place (Distribution Network): (i) depending on specific conditions of each region to build suitable distribution systems to penetrate deeply into each market segment, (ii) continue plan to expand the network of transaction offices for branches, (iii) upgrading and investment in new ATM system, increase cooperation with product providers to enhance POS network (iv) developing electronic distribution channels 77 -Promotion: (i) invest in promotion, marketing products, (ii) establish of a professional marketing department, after sale service deparments in order to reduce the limitations of products, (iii) train marketing skills for all staffs 3.2.2 Identifying retail banking target market and marketing strategy - VCB’s retail banking main target is the mass of high- class consumers With these groups, its focust is likely to be those in their twenties and thirties, to whom VCB offets a particular set of products such as ATM cards, credit card, consumer loans To those in their forties and fifties who are married, VCB wish to expand fund transfer, housing loans, car loans, wedding financing For aged customers, VCB’s deposit products and health care loans should be customized VCB will compete for high net worth individuals through fund management service - In order to obtain marketing goals, VCB should pursue both direct marketing and relationship marketing policies 3.2.3 Developing new products and services  Captial mobilization products Vietcombank needs to determine funding products are key product groups which serve all customer segments to research, plan, offering solutions that fit the current situation -Currently, in Vietnam the capital mobilization situation is quite difficult, the banks raise interest rates as well as launching many promotion programs to attract customers, so this is the stage for competing on price Vietcombank needs to research, survey market to make suitable fee and interest rates to attract customers who have the big amount of idle money in the population -Vietcombank needs to study and survey the customers’ demand in all subjects and all ages to offer more new products in this type of service to diversify their portfolio frequently, such as open more extensive mobilization period, savings prize 78 -Keep adding features to existing products, increasing the attractiveness to the customers -Focus on designing products for priority customer segments (VIP clients, middle-class, high deposit balances, high income; intellectual customers, officials, employees of state owned companies, joint stock companies, corporations, businesses and organizations with foreign elements; closed clients, using banking products and services frequently ) -Building the friendly of mobilization products to customers such as the simple procedures, lightweight processes, increasing the utility  Lending products Personal lending activities contributed significantly to the growth of the bank’s credit High growth rate of individual loans will contribute to increase income for the bank -The using of credit rating systems for individual customers by product and lending standards to apply in making loan decisions by lending activity always requires carefully, effectively and safely in operation Because lending is always associated with risk, these decisions decide the survival of a bank -Vietcombank needs to work with partners and the third party to develop the linking credit products such as loans combined transport services, warehousing loans, insurance services combined loans, combined telecommunication services because when combined with the partners, the bank will share the risk in credit operations, diversify the lending products -Focus on the product groups: real estate loans, auto loans, consumer card, mortgage loans, student loans, secured households In addition to research some other products such as travel loans and treatment loans, wedding loans VCB should have a group or a department which specify in researching about defining prices of products and eveluating the effect of selling product and services on finance aspect 79 -Build the friendliness for individual credit products to ensure synchronization among the branches, on the basis of automation to be able to keep track of customer records easily that can collect debts from automatic which reduces maximum manipulation of operational credit officers  Remittance products Vietcombank determine payment services, money transfer service has always been strong, core retail banking operations of the bank, so to implement the following measures to fulfill the above objectives: -Improving the quality of the traditional payment services -To promote remittance services by the time, the amount of remittances to Vietnam grew rapidly and became a source of income, contribute to improve the incomes of people in the country Vietcombank needs to research and develop the remittance services at home through money transfer companies in the country, besides that there should have mechanisms to encourage customers using these services Remittance services should focus on Vietnamese labors who are working abroad and transfer money back to Vietnam -Building the friendliness of money transfer services to customers through specific content such as improving the safety and security for these services to give customers confidence and peace of mind when come to Vietcombank  E- banking services E-banking service is one of many applications of Vietcombank’s modern banking technology With the ability to handle online information, E- banking services offers electronic payment services and online queries to customers for credit institutions and economic organizations which related payments and account with the bank In the general trend of integration, the modern electronic banking is deployed widely to serve all customers -Focus on the development of modern banking services: ATM (money in deposit accounts, savings); Internet (billing, credit card payments, other transfer systems, savings) ; Phone (transfers, deposits, billing) SMS (billing, bank transfer, 80 credit card payment); Mobile (queries, transfers, deposits, payments); Merchant (payment and withdrawal) -Concentrate the investment in research and develop new value addition to the existing services to meet the increasing needs of customers -Select the link partners to develop payment services such as: Partners have extensive physical network (eg VNPost) partners which have a large network clients -Construct the friendliness of the modern electronic banking: Ensure safety and security , instant transaction processing; simple manipulation, easy to understand, serve and support 24x7 3.2.4 Expanding network and channels The commercial banks are directing the development of banking services in general, retail banking in particular on high technology platform, aims to serve the target customers with multi-channels, is an inevitable trend, suitable with the general trend of commercial banks in the region and the world Expand the network of traditional communication channels follows the directions: -Review the network of branches, transaction offices to invest more in effective branches, transaction offices and close ineffective branches and transaction offices to reduce costs -Building a long-term plan to develop priority areas in each period -Developing branches, transaction offices ensures: Align with the overall planning and in accordance with actual conditions in each area, to avoid overlapping -Deploying branches serving VIP guests in Hanoi, Ho Chi Minh by this group has always been Vietcombank priority attention based on the evaluation of the optimal value that this group brings Hence the formation of branches serving customers in two largest cities, is also essential requirements in the system and requires as soon as possible 81 -Research subsidiaries model/ satellite company specialized support services for the retail operations Develop the system of modern distribution channels follows the directions: -Step by step expand the method of providing products, retail services (including communications products) through electronic channels to customers so they can trade anytime, anywhere -Development VCC channel customer service into a sales channel through the forms: Voice chat, Email, YM, Skype 3.2.5 Improving banking administration and risk management  Standard the block model of retail banking -At Head Quarter: Beside the Retail Banking Department, Vietcombank has set up the Marketing and Sales Management Department So there is a seperation between two departments, the assignments of the Retail Banking Department are: have idea, design retail products and services and the Marketing and Sales Management Department will promote advertising programs for these products and manage the selling products situation at branches -At the branches: First of all, VCB needs to establish The Retail Banking Management Departments at all branches These departments will responsible for managing and developing individual client portfolio, implementing and acting as the general manager of retail operations at branches, is the bridge connected between Head Quarter and Branches In principle, the model of retail operations should integrated about the range of selling products and services and the jurisdiction to minimize the competition in the internal Vietcombank But depending on each branch, Vietcombank builds the model of retail operations with the different sizes (large, medium and small scale) reasonably and effectively -Need to build a system, method of evaluation, measuring performance of retail banking effects for each product or service, as well as for each branch, each transaction office to find out the advantages and limitations in retail operations to improve the quality of customer services 82 -Technology application is a effective tool to support the development of banking services in general and retail banking in particular such as: support measures the effectiveness of each product and service, each channel And it is the reporting system timely, completely, accurate technology, applications also open to reasonable adjustment should be continuously upgraded to meet the requirements of Vietcombank’s business  Human Resource Solutions: -Standard requirements and criteria for retail banking staffs in the working position on business requirements and require sales skills and customer care -Make forums to exchange experience -Build a forum to exchange work experiences -Perform salary mechanism following the volume of selling products and services with a clear incentive mechanisms -Develop a reasonable salary bonuses to retain long experience staffs as well as younger staffs which have good skill in the retail banking, when there are a lot of banks, the foreign banks opening branches in Vietnam  Solutions for marketing, communications, advertising -Building the annual marketing and advertising budget for retail operations -Building regulations on media activities, advertising retail services to ensure consistency throughout the system -Image, media messages and advertisements towards a Vietcombank friendly and closely to the customers 3.2.6 Standardize the process of product development at VCB Based on basic stages, the process of product development was built in 10 detail steps including: (i) Stage 1: Create ideas about product, that include market research and evaluation of the existing products (including step and step 2), (ii) Stage 2: Design product (from step to step 5), ( iii) Stage 3: Prepare for deployment (from step to step 8), (iv) Stage 4: Deployment (step 9) Stage 5: Customer care after selling product (step 10) 83 Step 1: Propose ideas and draw outline of product development -Responsibility: belongs to specialized department in developing product -This is an important initial step to make the idea about new products / improve current product lines The work flow that need to be carried out is: • Analyse to assess the status of VCB related to new product • Analyse and assess the market’s conditions and competitor related to new product • Based on the above analyses and evaluations, propose ideas to build a new product line or adjust / modify the existing product line • Collect neccessary information to draw detail outline of developing product -The content of this outline must highlight the important contents: • Reasons of deploying or improving product • The works need to be done to evaluate real demand of market • The works need to be done to upgrade the system, train staffs to satisfy the demands of deployment • Depending on the level of project to determine the building outlines that must full information about (i) implementation steps, (ii) estimate the time of implementation, (iii) mobilization resources; (iv) quality and requirements of each step -This primary outline will be built by a project manager / project management group (depending on the size of project to set up) and submited to Manager / Team Leader of project for approval Step 2: Submit the director of retail banking block for approval -The content of approval must focus on some key issues such as: • Approve the policy of deploying product • Approve to develop functions in the system function to support for the deployment and evaluation product • Approve the budget for survey and market research (if necessary) 84 • Request additional information of analysis and assessment to support for making decision process Step 3: Draw up a detailed outline of the product development -Responsibility: belongs to specialized department in developing product -After approving, staff and manager of Developing Product Department / Division must complete the detail outline of product development -Detail outline of product development must reflect the basic contents: • Summary contents need to be approved • Design features of product following the 8P model: public, product, process, price, presentation, place, person, promotion, pilot (if necessary) • Market Analysis • The goals • The financial model • Preparation stage and deployment Step 4: Refer to comments of related deparments and branches -Depending on the features of product to determine the related departments and branches to have comments and opinions for that product The comments and opinions about new product can be implemented through documents or organizing meetings The contribution process must be stipulated about time to ensure the progress of project Step 5: Adjust the outline of project and submit for approval -Responsibility: belongs to specialized department in developing product -Base on the comments of related departments, Retail Banking Department will adjust the outline of project if necessary -Submit the official product development project to the Director of Retail Banking Block for approval Step 6: Prepare for deployment and monitor the progress -Responsibility: All departments are responsible to implement the plan of developing product when it is approved -When the Director of Retail Banking Block approved for the project, it needs to distribute work for all departments to carry out their missions Research 85 Officer in charge of product development, also is known as project manager Research officices must complete documents related to product to issue product officially Step 7: Review the features and price of the product before deployment -Responsibility: belongs to specialized department in developing product -The project needs to review it features and the price to ensure its compatibility and competition in the market Step 8: Pilot deployment -Responsibility: Retail Banking Department is clue and all branches -Departments join in the pilot deployment process must ensure: maketing and advertising before pilot deployment, building technology solutions in the system and ensuring the availability of human resouces Step 9: Summary the pilot deployment result and deploy officially -Responsibility: Retail Banking Department -Depending on the pilot deployment results, the project will be deploied, adjusted or canceled After that, Retail Banking Department will submit to the leadership to appove deployment officially The annoucement must have basic informations: time effect, the tasks of branches in deploying product, clues to solve problems in selling products Step 10: Evaluate results of the deployment, edit and update the product’s features -Responsibility: Retail Banking Department -After the product comes into operation in the system, it need to monitored and evaluated regularly to adjust product’s features and update the fluctuation in prices Research manager must build criterias for evaluating product, collect information about comments of customers, difficulties in selling to evaluate periodically ( quarter or six months) From that, the manager of this project will give the reasons and solutions for that problems At the end of this step, the manager of this project would (i) have proposals to improve old products and develop a new product; or (ii) terminate the current product line 86 87 CONCLUSION Retail banking plays an important role in the activities of commercial banks in the world, the global retail banks are expected to play a key role in the list of top 20 global banks ranked by The Banker magazine in 2015 Stephen Timewell magazine written: "Today the trend shows that the bank seized the opportunity to expand in supplying retail banking services for a huge population who are “hunger” in financial services in emerging economies, will become global giants in the future " The Vietnamese commercial banks have been developing retail banking services which is an inevitable trend, consistent with the general trend of the banks in the region and in the world They are banking services for individual customers, small and medium enterprises, ensure the effectiveness for risk management, provide the best services to customers, orient business, target to help the banks achieve optimal business efficiency In the development trend of the world’s economy in general, and of the Vietnamese economy in particular, Vietcombank has still invested in developing products, technologies and human resources, as well as giving the suitable business strategy with the economic situatuin, to develop retail banking efficiently, increase turnover of sales directly and contribute to the development of the Vietnamese economy With the strength in wholesale banking services for many years, but the VCB’s leaderships have recognized the potential of retail banking and it can’t ignore and lose the opportunity to expand market share in retail banking market The importance of retail banking has been proved and it had brought a lot of revenues for Vietcombank in recent years So Vietcombank need to take advantages of its strengths to expand and develop retail banking services Base on the theories and retail banking activities in the real at VCB, the content of this thesis has proposed solutions with the hope of contributing to improve and further develop retail banking services at Vietcombank, improve the competitiveness of Vietcombank in the period of international economic integration today This is a relatively new topic that requirie a lot of time to research and collect data so it is inevitable to have 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Literatutre reiview -Development of retail banking services was... comprehensive picture of wholesale banking and retail banking, the development of retail banking services at Vietcombank at present, and propose solutions to develop retail banking services at VCB in the... primary data would be collected in the whole system at Vietcombank -Limitations: This research focuses mainly on financial aspects of evaluation of selected retail banking services at Vietcombank