MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS- HOCHIMINH CITY

TABLE OF CONTENT
LIST OF FIGURES i
LIST OF TABLES ii
LIST OF ABBREVIATION iii
ABSTRACT iv
CHAPTER 1 : INTRODUCTION 1
1.1 Rational of the study 1
1.2 Statement of the problem 2
1.3 Research Objective 3
1.4 Research question 3
1.5 Scope and limit of the research 3
1.6 Research methodology 4
1.7 The structure of the research 4
CHAPTER 2 : LITERATURE REVIEW 6
2.1 Vietnam retail banking sector 6
2.2 Customer satisfaction 9
2.2.1 Expectation of customer 9
2.2.2 Definition of customer satisfaction 9
2.2.3 The importance and benefits of customer satisfaction 10
2.3 Customer Service quality 11
2.3.1 Customer service 11
2.3.2 Service characteristics 12
2.3.3 Service quality definition 12
2.3.4 Gap model of service quality 13
2.3.5 Measuring service quality 14
2.4 Customer satisfaction and service quality in banking sector 16
2.4.1 Customer satisfaction in banking sector 16
2.4.2 Service quality dimensions in banking sector 16

4.3.4.2 Regression Analysis 40
CHAPTER 5 : CONCLUSIONS AND RECOMMENDATIONS 44
5.1 Conclusions 44
5.2 Recommendations 45
5.3 Research limitation 47
REFERENCE 48
APPENDIX 51
APPENDIX 1: Interview Customers 51
APPENDIX 1: Questionaire 52
APPENDIX 2: Vietnamese questionaire 56
APPENDIX 3: Cronbach's alpha analysis result 60
APPENDIX 4: Factor analysis result 62 i
LIST OF FIGURES

Figure 2.1 : The Benefits of customer satisfaction 11
Figure 2.2 : Model of service quality gaps (Parasuraman at el., 1985) 14
Figure 3.1 : Suggested research model 20
Figure 3.2 : Research process 23
Figure 4.1 : Adjusted research model 38
ii

LIST OF TABLES

Table 2.1 : Quantity of banks from 1991 to 2009 6
Table 2.2 : Six dimensions of service quality 19
Table 3.1 : Summary of service quality factors and measurement scale 24
Table 3.2 : Overall customer satisfaction and measurement scale 26
Table 4.1 : Sample characteristics 29
Table 4.2 : Descriptive statistics of service quality measurement 30
Table 4.3 : Descriptive statistics of customer satisfaction measurement 31
Table 4.4 : Reliability test of service quality and customer satisfaction 33
Table 4.5 : First EFA analysis result of service quality 35
Table 4.6 : Final EFA analysis result of service quality 37
Table 4.7 : Final EFA analysis result of customer satisfaction 38
Table 4.8 : Pearson correlation matrix 40
Table 4.9 : Model Summary
b
41
Table 4.10 : ANOVA
b
41
Table 4.11 : Coefficients
a
42
domestic banks and foreign banks as the globalization and world integration.
Therefore, banks should pay more attention to customer satisfaction to survive and
grow.

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1.2 Statement of the problem
Domestic banks have recognized the important to develop retail banking
services for some time now. They have invested in core banking software, applied new
technology, established more branches, provided new services to get more customers.
In modern competitive environment, however, the increasing of distribution
channels set up from all banks, the products in this market are slightly different and the
new services provided are matched very quickly by competitors make banks in
difficulty to create the differentiation. Customer satisfaction is one of the main tools
for banks to make and get competitive advantage.
In general, when customer is satisfied with provided services, the probability to
use this service again is increased and will lead to the positive advertising through
mouth advertising from this customer to others. And vice versa, the unsatisfied
customer usually switches to use another brand and give out the negative mouth
advertising.
There are many factors impact on customer satisfaction. Customer satisfaction
is influenced by main factors such as price, product quality, service quality, personal
factor, situational factor, diversification and the unique of products.
According to Lewis (1993), service quality is one of the effective means in
building a competitive position in service industry. Service quality is an imperative
element impact on customer satisfaction in banking industry. Thus, bank management
tends to differentiate their products from competitors through service quality.

from this research are limited to Vietnam commercial banks and will be based on the
information of this result. 4

1.6 Research methodology
Secondary data

Data was collected from annual Vietnam commercial banks reports, from
internet, involved books and previous related research.
Primary data

Qualitative research: This step is researching by in-depth interviews with
customers in order to discover and adjust the service quality dimensions. Thirty (30)
customers are using retail banking services at commercial banks were interviewed
directly through questions relating to which factors influence on their satisfaction
when they use retail banking services at banks and which factors made them feel
dissatisfaction. Almost their opinions concentrate on factors including: tangibles,
service quality (showing through employee’s attitude, employee’s willing to help
customers), reliability (showing through employee’s ability to serve customers,
provide exactly information and services as set time), empathy, technology, waiting
time, interest rate and transaction cost. The result of this research is used for designing
the questionnaire used for official study.
Quantitative research: This step is researching by delivering questionnaire to
individual customers of seven commercial banks in Ho Chi Minh City directly, via
email and internet. The collected data is used for analyzing the level of customer

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CHAPTER 2 : LITERATURE REVIEW

2.1 Vietnam retail banking sector
Vietnam banking system has significant growth during past two decades
together with the economic development. This system includes one Vietnam bank for
social policies, one Vietnam development bank, three commercial state-owned banks,
forty commercial joint-stock banks, five joint-venture banks, five 100% foreign banks
and 36 branches of foreign banks.
Table 2.1: Quantity of banks from 1991 to 2009
Year 1991 1993 1995 1997 1999 2001 2005 2006 2007 2008 2009*
Commercial state-owned bank
4445555554 3
Commercial joint-stock bank
44148 51 483937 34 3539 40
Joint-venture bank
1344444555 5
Foreign bank and
branches of foreign bank
0 8 18 24 26 26 29 31 41 41 41
(Source: SBV)
(
2009*: Oct 2009)
We can see from above table 2.1 that the development primarily concentrates
on commercial joint-stock and foreign banks showing the attractiveness and potential
development of Vietnam banking sector to inland investors as well as international
financial institutions, in which retail banking sector is considered as promising land
appeals all bankers.
According to Wikipedia, retail banking refers to banking in which banking

the five 100% foreign banks currently established in Vietnam.
Secondly, Vietnam has a large number of population with the income become
higher every passing day but the amount of people who have bank transaction and
bank account are not much, even some more people in rural areas don’t know about
retail banking services. For instance, Ho Chi Minh City where have a large population
and high bank density is one of the strategic and potential market of retail banking
services gets only 17% of population has bank account and non-cash transaction.
Thirdly, the country’s population around 86 million people, of which young
people aged less than 33 who often change their shopping behaviors account for over
60%. This is the basic for foreign banks as well as domestic banks focus on developing
credit services. In reality, Vietnam commercial banks have offered around 10% of total

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retail services supplied by international banks to their customers and get back from 6%
to 12% at average turnover from this sector while this rate in developed country is
around 50%. Therefore, there is still available market which attracts more competitors.
The competition among domestic banks, the effort to keep and grow market
share, especially the participant of more foreign banks put retail banking sector under
tremendous competition. With the current capital at thousand million VND, domestic
banks are judged as very small banks compare with others in the region. The State
bank has recognized the situation and required domestic banks must increase their
chartered capital to at least 3 million VND till the end of 2010. Following this, market
will form a trend as amalgamation of business in which small banks will find and
associate with large banks based on mutual benefit to meet the State bank requirement
and confront with market’s challenges. Moreover, the poor of services offered, the
weak of competitive competence make retail banking sector be hard to scope with the
challenges in the market. In the mean time, foreign banks and branches of foreign
banks in Vietnam mostly come from top 1000 large banks in the world who have big
resources, long time experiences, more services with high quality and advanced

services and may be shaped from previous experience, advertising, hearsay (what
other people say about it), awareness of competitors and brand image in the
marketplace. Customers usually have a certain standards and expectations in mind
before consumption, they then compare the product or service performance with their
prior expectations to form the satisfaction judgement. So, understanding customer
expectations is very important to a service oriented organization as it protects against
dissatisfied customers. If customer expectations are met, the customer satisfaction is
increasing.

2.2.2 Definition of customer satisfaction
Customer satisfaction is an important theoretical as well as practical issue for
most marketers and consumers researches (Dabholkar et al., 1996; Fournier and Mick,
1999; Meuter et al., 2000). A customer’s overall satisfaction means the customer
reaction to the state of fulfillment, and customer judgement of fulfilled state (Oliver,
1997). According to Hansemark and Anbinsson (2004) “satisfaction is an overall
customer attitude towards a service provider, or an emotional reaction to the different
between what customers anticipate and what they receive, regarding the fulfillment of

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some need, goal or desire”. Customer satisfaction is considered as the essence of
success in today’s highly competitive worth of business. Zeithaml and Bitner (2000)
defined satisfaction as “the customer’s evaluation of a product or service in term of
whether that product or service has met their needs and expectations”. Kotler (2000)
said that “satisfaction as a person’s feelings of pleasure or disappointment resulting
from comparing a product’s perceived performance (or outcome) in relation to his or
her expectations”. It means that customer satisfaction is a respond to a discrepancy
between prior expectation and perceived performance towards a good or service after
it has been used.



(Sure Vista Solutions – 2007)

2.3 Customer Service quality
2.3.1 Customer service
Customer service is often seen as necessary activities to meet or even exceed
what customers need or want in the way they want to be served in order to keep their
loyalty. It is the provision of service to customer before, during and after a purchase.
Customer service is a series of activities designed to enhance the level of customer
satisfaction – that is, the feeling that a product or service has met the customer
expectation (Turban et al., 2002). This is one of important parts constitutes
competitive advantage and adding benefits to maximize the total value to customers.

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2.3.2 Service characteristics
Most of the products in the market are made up from the combination of both
tangible goods and intangible services. In some business like banking industry, service
is the essential part of business activity as it is the key for retaining the existing
customers and attracting the new ones. In other business, service plays a supporting
role for tangible goods. There are some major characteristics of services that make

Gefan (2002) defined service quality as the subjective comparison that
customers make between the quality of the service that they want to receive and what
they actually get. Parasuraman et al., (1985,1988) also defined service quality is
determined by the gaps or the differences between customer’s expectations of services
provider’s performance and their evaluation of services they received.

2.3.4 Gap model of service quality
There are many researched models done to adjust the quality of services.
However, the work of Parasuraman, Zeitham and Berry (1985) is the most popular
with the using of 5 major gaps:
Gap 1: difference between customer expectations and management perceptions of
customer expectations. This is the gap between what customers want and what
managers think they want.
Gap 2: difference between management perceptions of customer expectations and
quality specifications set for service delivery.
Gap 3: difference between the quality specifications set for service delivery and the
service actually delivered
Gap 4: difference between the actual quality of service delivery and the quality of
service delivery described in the firm's external communications.
Gap 5: difference between customer expectations and perceptions. For instance, the
firm promises to deliver in its communication with customer, then if a promise is
broken by the organization (what it is actually delivered to the customer), the customer
will perceive service quality to be lower than expected. 14

Firms pay more attention to seeking the ways to minimize these five gaps in
order to meet customer expectations. Figure 2.2 illustrates the five gaps model of
service quality built by Parasuraman and his colleagues (1985).

Perceived Service
CONSUMER
Management
Perceptions of
Consumer Expectations
PROVIDER
Expected Service
Service Delivery
(Including pre- and
post-contacts)
Word of Mouth
Communications
Personal Needs Past Experience
GAP 1
GAP 5
GAP 4
GAP 3
GAP 2

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model of Parasuraman at el., (1985) is considered as the most used-approach to
measure service quality in comparing customers’ expectations and their perceptions
based on the actual service delivered. They evolved a set of ten dimensions including:
- Reliability
: Ability to perform the promised service dependably and accurately
- Responsiveness: Willingness to help and respond to customer needs
- Competence: having the required skill and knowledge to provide the service
- Access: the ease and convenience of accessing the services such as opening time,
location, alternative methods to access services, etc.

toward increasing customer satisfaction and loyalty through improving service quality.
It is essential because of the difficulty in distinguishing services offered among
bankers and the promptness in matching a new offering by competitors. Rust and
Zahorik (1993) applied a mathematical framework enables manager to determine the
greatest influencing factor to customer satisfaction in banking industry.
Athanassopoulos (2000) conducted a complete survey on customer satisfaction in
retail banking in Greece and suggested an instrument of customer satisfaction
containing service quality and other attributes. In general, the research in this area
suggests that service quality is an important indicator of customer satisfaction. Service
quality is also attractive to retail banks as a competitive differentiator (Newman,
2001).

2.4.2 Service quality dimensions in banking sector
There is no unique approach to service quality dimensions applied for banking
industry. Parasuraman et al., (1988) found five attributes including reliability,
responsiveness, assurance, empathy and tangibles as mentioned above.
Lewis (1993) gave out dimensions of service quality applied in other service
sectors along with banking sector include:
- Technical dimensions: the outcome of the service process comprising systems
and technology.

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- Functional dimensions: the way the service is delivered includes inter-personal
interactions between staffs and customers; appearance, personality and
approachability of staffs.
- The corporate image dimensions: how customers perceive the firm, technical and
functional quality of services
Sureshchander et al., (2002) suggested that service quality is based on five
dimensions which are relevant to banking sector:

It is indicated that different authors have proposed diverse dimensions of
service quality in banking industry. All authors mentioned above do not have the same
opinion with every specific element of quality dimensions but most of them were used
in banking industry previously to measure service quality. Therefore, review of these
various suggests that the dimensions of service quality can be generally classified into
six groups (see Table 2.2) in which some elements are adjusted (added in or deleted
out) in conformity with the Vietnam culture and market. 19

Table 2.2: Six dimensions of service quality
Dimensions Quality Instrument
Tangibles

Modern equipment
Visually appealing facilities
Employees who have a neat, professional appearance


3.1Research model
3.1.1 Proposal of research model
According to the review of selected dimensions in the literature, quality of retail
banking services comprises six (06) dimensions considered as dimensions in proposal
model which is appropriated for Vietnam commercial banks (see Figure 3.1).
Figure 3.1: Suggested research model

3.1.2 Initial hypotheses
 Reliability refers to the ability of the service provider to perform the promised
services dependably and accurately. If customers perceive that the provided
services are as good as they were promised, they feel satisfied as receiving the
good quality. Therefore, the first hypothesis is:
Reliability
Responsiveness
Assurance
Empathy
Tangibles