i ACKNOWLEDGEMENT First, especially I want to express my sincere gratitude to my supervisor, Dr … May I thank all my classmates and friends for their very constructive comments, valued ideas and their regular support as well Last, but not the least, I thank my families for their support whose unconditial support is vital for my learning and study success ii TABLE OF CONTENTS ABBREVIATION LIST OF TABLES .2 LIST OF FIGURES .3 EXECUTIVE SUMMARY INTRODUCTION .5 Rationale Research objectives Research questions Research methodology 4.1 Research process .7 4.2 Data collection 4.3 Data analysis .7 Scope of research Thesis structure CHAPTER A COMMON CONCEPT OF WHOLESALE BANKING AND RETAIL BANKING 10 1.1 Wholesale banking of commercial bank 10 1.1.1 The concept of wholesale banking services 10 1.1.2 Characteristics of wholesale banking services 11 1.1.3 The roles of wholesale banking services .12 1.1.4 The services of wholesale banking 13 1.2 Retail banking of commercial bank 16 1.2.1 The concept of retail banking .16 1.2.2 Characteristics of retail banking 17 1.2.3 The role of retail banking .18 1.2.4 The services of retail banking 19 1.3 Potentials for developing Retail banking 21 1.3.1 Foundations for developing Retail banking 21 1.3.2 Opportunities in Retail Banking 23 1.3.3 Benefits of Retail Banking 23 1.4 Expansion from wholesale banking to retail banking 25 1.4.1 The bank’s business strategy 25 iii 1.4.2 Diversification as a mean to achieve bank’s business strategy .27 1.4.3 Process of product diversification 28 1.4.4 Evaluation of product diversification 30 CHAPTER EVALUATION OF SELECTED RETAIL BANKING SERVICES AT VIETCOMBANK 32 2.1 Overview of Vietcombank 32 2.1.1 Establishment and development 32 2.1.2 Organizational Structure 33 2.1.3 Business performance of VCB in period 2008-2010 34 2.2 VCB’s current product development in retail banking 35 2.2.1 Products and services 36 2.2.2 Process of developing product .44 2.2.3 Factors led VCB to retail banking and challenges VCB faced in developing retail banking 47 2.3 Evaluation of selected retail banking products at VCB 51 2.3.1 Selected retail banking products’ performance results 51 2.3.2 Evaluation of selected retail banking products .56 2.4 Assessment 63 2.4.1 Achievement 63 2.4.2 Constraints 65 2.4.3 Causes of constraints 70 CHAPTER 3: SOLUTIONS TO DEVELOP RETAIL BANKING SERVICES AT VIETCOMBANK 73 3.1 Strategy of Vietcombank in developing retail banking services 73 3.1.1 The retail banking development trends .73 3.1.2 Strategy of Vietcombank in developing retail banking 74 3.2 Proposed solutions to develop retail banking at Vietcombank 77 3.2.1 Build pricing product model 77 3.2.2 Build internal credit rating system .78 3.2.3 Build financial model to evaluate the effectiveness of products 79 3.2.4 Build strategy in developing new products and services 79 3.2.5 Improving banking administration and risk management 82 3.2.6 Standardize the process of product development at VCB 84 CONCLUSION 88 REFERENCES 89 iv 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 LIST OF TABLES Table 2.1: Financial status of Vietcombank 35 Table 2.2: Status of individual fund mobilization from 2008-2010 36 Table 2.3: Status of individual credit 2008-2010 38 Table 2.4: Status of individual credit by product 2008-2010 39 Table 2.5: Status of transfer money through Swift channel 2008-2010 41 Table 2.6: Status of transfer money through Money Gram channel 2008-2010 .41 Table 2.7: Status of E- banking services 2008-2010 42 Table 2.8: Total amount card issuance 43 Table 2.9: Total oustanding loans and NPL’s rate of Project housing loans 20082010 53 Table 2.10: Total oustanding loans and NPL’s rate of Car loans 2008-2010 54 Table 2.11: Total oustanding loans and NPL’s rate of Staff loans 2008-2010 55 Table 2.12: Margin interest analysis of selected retail banking products 2008-2010 60 LIST OF FIGURES Figure 2.1: Model of governance structure of VCB .34 Figure 2.2 : Portfolio of individual credit 40 EXECUTIVE SUMMARY It could be said that the period from 1995 to moment is not a long period in 48 years of Vietcombank’s history but in this period, it 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 The research objectives of this thesis are to systemize theoretical theories of retail banking and wholesale banking, potentials for developing retail banking and expansion from wholesale banking to retail banking and analyze, evaluate selected retail banking products and realize pending issues of developing retail banking services at VCB to propose solutions to develop retail banking services at VCB The methodology used in the thesis is quantitative analysis The data of thesis consists of only secondary data The secondary information and data will be obtained from newspaper, annual report, magazine, articles, books…Other secondary data regarding VCB will be acquired from VCB and other related sources of information such as SBV, VBA From obtained data, the author carried out his own calculation to provide a better information of the three selected retail banking services of Vietcombank This helps to compare the performance of retail banking with wholesale banking services of Vietcombank This research will propose solutions to develop retail banking services at Vietcombank The thesis researches all solutions based on strategic orientations of Vietcombank and the retail banking trends The solutions were executed base on studying both theoretical aspect and the assessment reality of developing in retail banking services INTRODUCTION 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 banks have an 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 significantly 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 most of the banking products and services to customers A full awareness of the market importance of retail banking services in the context of international economic integration today, Vietcombank constantly improves the retail banking products and services, and applies modern technology to develop retail banking products and services, 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 from 1995 to moment is not a long time in 48 years of Vietcombank’s history but in the period, it 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 76 + Harmony between security requirements and friendly to customer (easy to use, manipulate) + Ensure the quality of products and services, the attractiveness and the difference + Price competition + Focus on developing additional services for the existing products to enhance the efficiency (lower investment costs due to development on the basis of existing products) + Create the balance in retail packages: strengthening the development of products which used funding to overcome the imbalance between individual funding and individual credit Objective to 2015, expect individual credit makes up from 30% -40% of individual funding - Development of distribution channels: + Branches and transaction offices: are the points to supply products and services to customers and are the places to represent postion and prestige of Vietcombank Thereby, Vietcombank must improve and reinfoce the quality of transaction points nationwide Besides that VCB needs to develope more branches and transaction offices at appropriate levels + Electronic Channels: The development of extended service provision through electronic channels is necessary, in accordance with the general trend The advantage of this channel is low cost, high speed, high efficiency + Promote and disseminate widely within the Vietcombank and encourage all staffs from management to employees to access, understand and use the expertise of these services, as prerequisite for the introduction and selling products to external customers - Advertising, customer care + Replicate the experience of the branches which were successful in promoting the products and customer care 77 + 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 3.2 Proposed solutions to develop retail banking at Vietcombank 3.2.1 Build pricing product model Currently, the pricing model of retail banking products at VCB are in the process of building and development Along with investment in technology systems, and the results obtained from a number of projects funded by foreign 78 organizations, a number of parameters help to determine the price of the product may have initial calculations, especially for credit products, mobilization capital However, VCB still has not a program or software that can calculate the price of the products by extracting data from some input parameters So that, VCB can use the model “Lending interest rate = Fund mobilization interest rate + Operating expenses rate + Risk premium rate + Gaining profit rate” to calculate the price of credit products Besides, upon the market, VCB needs to adjust interest rates and fees appropriatly with each region, each group customer The 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 With specific products such as money transfer, electronic banking products, mobilization capital, the pricing model is the lack of support tools Currently, these products are primarily evaluated on the basis of market prices and product development strategies in each period Of course, every products can’t define the prices based on the calculation of the pricing model, especially with mobilization capital services have severe competition in the market But VCB need to have the support of technology to calculate the prices of producst accurately, effectly and it is an urgent requirement of the product development process 3.2.2 Build internal credit rating system At present, only credit products were calculated, standardized comprehensively VCB has built a credit scoring model for individual customers, with the risk measurement tools for each loan products This is a facility for building and developing credit products So that, VCB need to build and complete the internal credit rating system 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 Besides, the making decision in credit will be made by the internal credit rating 79 system, so it will less depend on the opinion of credit staffs because lending is always associated with risk, these decisions decide the survival of a bank However, with the remaining products such as mobilization capital, transfer money, the tools to control risk is still relatively restricted With the attention of leaders in establishing serie rooms with risk management functions, the risk management for retail banking products will have positive changes in the near future 3.2.3 Build financial model to evaluate the effectiveness of products Currently, although VCB has initially constructed and exploited the financial model to evaluate the effectiveness of product But, the information and data of VCB is not full and comprehensive Lacking of neccessary information makes the evaluation the effectiveness of product, building and developing new products and amendment product encounter difficulties So VCB needs to build the financial model that can transfer to the system automaticly to help the product manager manage the status of product deployment, support to give the quantitative analysis about the current position of the product in the life cycle to have plan for upgrading or replacing product The financial model should meet two basic criterias: - This model should facilitate the assessment of expected impacts of the product deployment to VCB’s operating result after minimum of two years from the date of deployment - The model should include the calculation of income from products, investments, the impact of balance sheet and the resources (number of employees, additional costs, the cost of marketing, fees etc.), the financial evaluation, and profitability 3.2.4 Build strategy in developing new products and services To develop new products and services, VCB needs to build strategy in developing retail banking products: (i) focus on developing consumption and business 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 80 quality of products and services through building criterias to serve customers for all the system, training sale skills and customer care for all staffs  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 - 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 81 - 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 - 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 82  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, 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 3.2.5 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 83 - 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 - 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 84 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) 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 85 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)  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 86 - 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 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 87 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 88 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 some 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