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CHAPTER I
INTRODUCTION

Fund mobilization is essential to banks’ success. Recently, banks face with
strong competition in attracting and retending depositors. Many banks fail to mobilize
funds while others are able to understand better depositors and depositors’ behavior in
bank patronage and take advantadge of their knowledge to win the game. In the study,
the researcher would like to address the issue of depositors’ behavior and bank
patronage.

1.1 Background of the Study
Vietnam economy has been in the fast growth track for a decade. Vietnam
GDP growth is mainly come from government capital expenditure and private sector
investment. The fast infrastructure development and urbanization process require
huge source of funding. One of the engine to lure the growth is the expansion of
credit by banking sectors.
The banking sector in Viet Nam consists of 5 state owned banks, 37
commercial joint stock banks, 53 foreign – related banks, 30 financial companies and
finance lease companies, 1 Central People Credit Fund and 1,057 local people credit
funds (Nguyen C.T., 2011). The number is quite big giving the Vietnam’s GDP per
capital is 1,300 USD by 2011 (Dantri, 2011). The competition is high in the sector,
especially in main economic and political areas like Ha Noi and Ho Chi Minh cities.
The interest income contributes a major part of banks income. Most banks have their
income heavily dependent on lending activities with interest income to total income
ratio of some banks reaching above 90% in 2010 (Quach, 2011). This causes many
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banks concentrating on fund mobilization. One of key sources of fund would be the
depositors’ funding. The source of fund is viewed as a stable funding and counts for a


1.2 Objectives of the Study
The main objective of the study is to determine and analyse the correlation of
depositors’ behavior and bank patronage in the inner districts of Ha Noi. Besides, the
search aims to achieve the following objectives:
1. To describe the background of the general economic environment and the
banking industry in Ha Noi
2. To determine and analyse comsumer behavior model and to determine
depositors’ behavior model
3. To characterise the profile of the depositors in Ha Noi
4. To identify the factors that influence the depositors’ behavior in selecting
banks in the inner districts of Ha Noi.
5. To determine the correlation of depositors’ behavior and bank patronage in
the inner districts of Ha Noi.
6. To identify the winning strategies for banks in fund mobilization.

1.3 Statement of the Problem
Funding mobilization is very ctitical to banks in Vietnam, especially in Ha Noi
as a large number of banks with too high credit growth (Quach, 2011) with the limited
source of owners capital need to maintain their growth and liquidity by seeking
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deposits from public. In addition, banks face with stiff competition in deposit
mobilization and this makes banks more difficult in attracting and keeping depositors.
Ha Noi is a big city where all banks have presence and try to gain advantage over
competitors. Understanding depositors’ behavior in Ha Noi would help banks adapt
their funding strategies accordingly. However, there is a very limited knowledge of
depositors’ behavior available in the research or at bank strategists’ desk. Therefore, it
should be an opportunities for researchers to study the depositors’ behavior and make
it useful to all stakeholders.

The study is important as it addresses to answer several key questions and it
benefits researchers and banks in setting up their strategy in fund mobilization.
The study is to identify the factors that influence depositors’ behavior in
selecting banks for placing their deposits.
For the banking industry’s regulator, it finds out the gap between the fact and
polices for fund mobilization, implication for strenthening the policy environment.
For the banks, they understand factors to influence the depositors’ behaviors;
through which banks would be able to address key issues that influence depositors in
bank patronage and able to reshape their policies and strategies to win the
competition.
For marketers, the understanding of depositor behavior and influencing factors
would help them to develop suitable and effective marketing campaigns.
For researchers and students, they would have a valuable information about
depositor behavior in Ha Noi and apply in the work and study.
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1.6 Scope and Limitation of the Study
The study focused on the Ha noi urban city area where the competition among
banks is fierce and the main source of bank funding come from. The subject is on
depositors who used to or place their deposits at financial institutions in Ha Noi
urban areas.
The survey questionnaire is developed to address several factors influencing
depositors’ behavior. The direct interview method is used to collect primary data from
depositors. The questionnaire could be handled directly by the researcher or agents.
The interviews would be conducted from November 2012 to February 2013 within the
inner districts of Ha Noi city.
The limitations that have direct bearing on the results of the study consist of
the following: (i) Duration of the study is short and resource is limited, these would

add value, keep secure and convenient for use.
9. Depositor is a person/individual who places his/her money at banks in term of
savings, or buys banks’ term deposit certificate or bond.
10. Depositors’ attitudes are defined as depositors’ evaluation of the banks in terms of
service quality and bank brand, operating conditions.
11. Depositors’ behavior is the depositor’s selection of bank, kind of money, term,
and kind of deposit, originated from his motivation, perception and attitudes and the
behavior is influenced by subjective factors such as age, professional, work
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experiences and income, and objective factors like bank influencers, social and
economic environment.
12. Depositors’ motives are to seek for value added, to ensure safety and convenience
for their money.
13. Depositors’ perception is defined as the depositors’s understanding and
knowledge of banks and their products and services.
14. Foreign banks are are commercial banks having branches or establishing 100%-
own banks in Viet Nam.
15. Funds mobilization is banks’ activities to mobilize funds or deposits from
different sources including funds from depositors.
16. Gross Domestic Product (GDP) is the market value of all officially recognized
final goods and services produced with a country in a given period of time.
17. Human behavior refers to the range of behaviors by humans and influenced by
culture, attitudes, emotions, values, ethics, authority, rapport, hypnosis, persuasion,
coercion.
18. Interest rate is the price that banks offer to pay depositors for taking deposits with
commitment to return deposit amount in full plus interest at the end of deposit period.
19. Joint Stock Banks are the commercial banks established in Viet Nam with capital
contribution from individuals and entities.
20. Non-performing Loans (NPL) is the loans at banks that overdue more than 90
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CHAPTER II
REVIEW OF LITERATURE AND STUDIES

The chapter presents the discussion of the overview of Viet Nam economic
development and the literature review of banking industry, the consumer behavior
model, similar studies of depositors behavior and, the review of influencing factors to
depositors as well. Deposit formulates a key part in banks’ balance sheet. Banks are
only able to fund its growth of balance sheet size by attracting more deposit. Giving
the strong competition in the banking industry, banks’ survival in the long- run would
very much depend on whether they are able to attract depositors and retain them.
Therefore, the study on the depositors’ behavior in bank patronage is the key to help
the researcher and banks to address better the issue of winning depositors’ interest.

2.1. Economic Development
2.1.1. Viet Nam Economy
Viet Nam population is 86.9 million, of which 30% lives in urban areas and
70% lives in rural areas (General Statistic Office (GSO), 2010).
The country has experienced bouts of macroeconomic turbulence in recent
years—double-digit inflation, depreciating currency, capital flight, and loss of
international reserves—eroding investor confidence. Rapid growth has revealed new
structural problems. The quality and sustainability of growth remain a source of
concern, given the resource-intensive pattern of growth, high levels of environmental
degradation, lack of diversification and value addition in exports, and the declining
contribution of productivity to growth. Vietnam’s competitiveness is under threat
because power generation has not kept pace with demand, logistical costs and real
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2.2. Regulation of Banking Industry
2.2.1. Background of Vietnam Banking Industry
Vietnamese banking sector consists of 99 banks and foreign bank branches
including 6 state owned banks (including VCB and CTG), 34 jointstock commercial
bank, 55 foreign banks and foreign bank branches, and 4 joint venture banks. Only 11
out of 40 domestic banks (25.6%) have chartered capital of VND5,000 billion and
above. Small banks account for a large proportion in the banking sector currently.
Most of these were initially rural commercial banks but are now pursuing the strategy
of becoming national banks. This transition enabled them to achieve fast expansion in
terms of assets and high growth of loans within a short time, however, risk
management and corporate governance were not accordingly improved to mitigate
risks (Quach, 2011). Banks have strongly grown not only in number but also in size of
operating network. However, the development strategy of each bank determines the
way it expands the geographical coverage of branches, transaction offices and ATMs.
Table 1 bellow provides classification of banks by ownership and some key
indicators of the banks in Viet Nam. There are only 6 SOBs but they dominate the
market with nearly 40% marketshare while 34 JSCBs also have the same portion of
market share and the remaining 10% for foreign banks and joint ventrure banks. The
Appendix A.1 to A.5 provide details of name, capital, location of head office and
some key information of all participants in the banking industry. It is obvious that
most of the banks based their head offices in Ha Noi and Ho Chi Minh Cities where
having concentration of commercial and economic activities and big size of healhy
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population. Some few JSCBs locate their head offices in provinces, mainly
historically for license in the fast, but their operation also concentrate in Ha Noi and
Ho Chi Minh and some other healthy areas.

Table 1


4.23
10.15
Jointstock Commercial Banks
(JSCBs)
2,181,901
175,207
178,847
0.18
1.95
13.83
Foreign and Jointventure Banks
609,161
95,083
76,149
0.31
1.90
28.58
Total
5,011,244
406,144
366,848
0.23
2.52
13.41

Source: The State Bank of Viet Nam 2.2.2. Key Challenges Facing the Banking Industry
According to Quach, 2011, the Viet nam baking sector is summarized by the

shareholders’ meeting on 15 June 2013 (Giaoduc.net.vn, 2013). Also, Vu H., 2013
mentioned that the restructuring of banks has made significant progress as the safety
of banking system improves, the signal of banking system colapse is over, deposit
withdrawal is served on time, and the money market is stabilized.
Even during financial crisis time and consolidation of the banking system, the
figure showed an increase of public deposits in banking system. This indicated the
depositors’s confidence on the banking system in general. The increase of deposits in
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the banking system was by 11.23%, while credit increased only by 1.4% at of August
2012, in compared with the year beginning (Vneconomy.vn, 2012). Other inplication
of the situation is that depositors might not have better choices of investment, rather
than making deposits at banks.

2.3. Background of Ha Noi Banking Industry
2.3.1. Banking Industry in Ha Noi
According to SBV HN (2012), in Ha Noi, there are 2,041 branches and
transaction offices, belong to 403 credit institutions. Total assets of all credit
institutions are 1,455,497 billion VND, of which 471,296 billion VND for sate owned
banks, 566,294 billion VND for joint stock banks, 153,571 billion VND for foreign
banks, 5,726 billion VND for joint venture banks, 132,834 billion VND for financial
companies, and 115,330 billion VND for others.
Ha Noi is Viet Nam’s capital where most of banks locate their head office.
Banks are providing full range of banking products and services. According to Kim
C., 2013, total fund mobilization in Ha Noi reaches 857,473 billion VND while credit
reaches 616,600 billion VND as of the end of February 2013. This figure indicates
that a part of funds mobilized in Ha Noi should be used to fund credit growth in other
markets. As Ha Noi is considered as a pool of funds, all banks concentrate in the
market and competion become very strong.


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how a purchase decision is reached is fundamental as this forms the foundation that
can be used to analyze any given product or services.
In the following, the researcher discusses two conceptual models of
consumer behavior that form the foundation of the study, namely the Engel, Kollat
and Blackwell model and the Hawkins, Best and Coney model.
Hawkins, Best & Coney (1998) presents a conceptual model of consumer
behavior. External and internal factors contribute to the formulation of self-concept
and lifestyle, which take an impact on the consumer decision process. During this
process, experiences and acquisitions update the original external and internal
influences.

Figure 1

Conceptual Model of Consumer Behavior

Source: Hawkins, Best & Coney (1998)

In the model, the individual's self-concept and life-style will be influenced by
both external and internal factors. The external influences are mainly sociological and
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demographic, including constructs such as culture, demographics, social status,
reference groups and family. The internal influences are mainly psychological and
physical, including constructs such as perception, learning, memory, motives,
personality and attitudes. According to the conceptual model, the individual's self-

making process for the customer. If the customers have still not come to a final
decision, the consumer would go to the next stage of the model. This model has a
good description of active information seeking and evaluation processes of consumer.
The information processed in this model is the stimulus. The consumer decision
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processes act upon this stimulus in order to determine a response to it. The model
attempts to explain each stage and shows interrelated between the stages of consumer
buyer behavior from the stimulus, through the purchase to post purchase behavior.

2.5. Review of Related Studies
There are many related studies available in the public sources, both overseas
studies and domestic studies. There is not a same captioned studies of the correlation
between depositors’ behavior and bank patronage. However, the depositors’ behavior
had been studied by many scholars or researchers in conjunction with economic
environment, insurance system, during a financial crisis time, and with bank
characteristics.
According to Schmukler S., Peria M.S.M., and Levy E. (2009), depositors
respond to increases in bank risk- reflected in bank-specific characteristics by
demanding higer interest rates on their deposits or by withdrawing their funds,
penalizing managers for excessive risk-taking. Macroeconomic risks can influence
depositors action, both regardless of and through bank-specific characteristics. The
effects can take place when worsening macroeconomic conditions directly threathen
the value of market participants’ assets such as bank deposits. Macroeconomic factors
are significant drivers of depositor behavior in crisis periods, at times overshadowing
the role of bank-specific characteristics.
Babolola (2009) mentioned that although trust is the conerstone of the banking
industry, the perceptual factors influence the customers’ choice of banks. Attitudes
are important in a consumer environment and attitudes influence thoughts, feelings,
and most importantly behavior. Also, the overriding choice of the customers may

selecting kinds of deposits, terms, currencies. The behavior originates from
customers’ perception and attitudes. From observations, Le T.T.H. (2012) concludes
that customers’ behavior is to (i) select to make deposits at state owned banks more
than at joint stock banks and foreign banks, basing on the safety and convenience
customers have; (ii) customers make deposits in VND more than in foreign
currencies; (iii) customers mainly select less than 1 year term; and customer
commonly select the regular saving accounts than other products. From the aspect of
analyzing the internal psychology characters, Le T.T.H. (2012) discovers that (i)
―benefit‖, ―safety‖, and ―convenience‖ are three key motivations to drive customers’
behavior in making deposit at banks; (ii) perception and knowledge of customers are
neutral; (iii) and they are in general not happy with banks, especially the quality of
services and staff attitudes. Besides, There are 8 basic factors which have a high
correlation with customers’ behavior, including good service, attractive promotion,
high prestigious, convenience for travel, simple procedure, large branch network, and
high interest rates. The characters of social psychology and economic environment
have very low impact on customers’ behavior.

2.6. Psycological Attributes of Depositors’ Behavior in Bank Patronage
2.6.1. External Psychological Attributes
The depositors’ behavior appears externally in the forms of the depositors’
selection of banks, kinds of deposits, terms of deposits, and the currencies.
For the selection of banks, based on each individual depositor’s purposes,
depositors’ behavior expresses the following psychological charateristics: (i)
depositors want to keep their money in safe place, hence they tend to look for the best
reputation bank, the bank in big size and long existence; (ii) depositors want the
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convenience of bank branches giving the conplicated transportation and the problem
if they bring a big amount of cash in a long travel in Viet Nam; (iii) depositors also
look for more value, they tend to select the banks that give high interest rates and

For depositors’ perception, understood as their knowledge on banks and bank
products and services. The understandings about banks are om the bank type,
financial and operating conditions, size and bank posisioning in the market. The
depositors would favor the banks that they have information and interest in bank
offerings.
For depositors’ attitudes, depositors’ attitudes or evaluation that are good or
not good on banks could be very much influencing their decision of selecting banks,
products and services. The evaluation could be on the banks’ service quality, banks’
people, physical and operating conditions.

2.7. Factors Influencing Depositors’ Behavior in Bank Patronage
2.7.1. Subjective Factors
The main subjective factors include sex, maritual status, age, professional, and
income. The observations are that the older people have more savings than the
younger and are likely to save at banks while professional and high income people
are tendency to have account at banks and they normally have more options to invest
their money.

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2.7.2. Objective Factors
The objective factors are the socio-econimic environment factors and bank-
related factors. The socio-economic factors include the macro economic environment
factors, the customs and social psychology. As mentioned in the previous sectons,
these socio-economic factors are slightly influencing depositors’ behavior and even
not affecting the amount of money depositors place at banks during a finanacial crisis.
The following analysis would focus more on the bank-ralated factors that
directly influence the depositors’ behavior in bank patronage.
For interest rates, deposit interest rate is a key factor influencing depositors’
decision of selecting banks to place their deposit. According to a survey made online