ABSTRACT
The emergence of new forms of banking
channels such as Internet banking, Automated Teller Machines (ATM), phone
banking and also maturing financial market and global competition have forced bankers
to explore the importance of customer loyalty. Therefore, studies need to focus
on the changing role of the banking system and its dynamic financial market.
The underlying model of SERVQUAL (Parasuraman et al., 1988) with five
dimensions was used by this research to evaluate the impact of service quality
on customer loyalty among bank customers in Penang, Nigeria with customer
satisfaction mediating these variables. The findings show that improvement in
service quality can enhance customer loyalty. The service quality dimensions
that play a significant role in this equation are reliability, empathy, and
assurance. The findings indicate that the overall respondents evaluate the bank
positively, but still there are rooms for improvements.
1. Introduction
Success of a service provider depends on
the high quality relationship with customers (Panda, 2003) which
determines customer satisfaction and
loyalty (Jones, 2002 as cited by Lymperopoulos et al., 2006). Research has
shown repeatedly that service quality
influences organizational outcome such as performance superiority
(Poretla & Thanassoulis, 2005),
increasing sales profit (Levesque & Mc. Dougal, 1996; Kish, 2000; Duncan
&
Elliot, 2002) and market share (Fisher,
2001), improving customer relations, enhance corporate image and
promote customer loyalty (Newman, 2001;
Szymigin & Carrigan, 2001; Caruana, 2002; Ehigie, 2006).
Furthermore, service quality and customer
satisfaction were found to be related to customer loyalty through
repurchase intentions (Levesque & Mc.
Dougall, 1996; Newman, 2001; Caruana, 2002). Delivering quality
service to customers is a must for success
and survival in today’s competitive banking.
Since Nigeria’s independence in 1957, its
financial landscape has gone through tremendous changes. The first
step in the revolutionary process was the
gradual deregulation of the financial sector (Bank Negara Nigeria), as
at 31 August, 2007, there were 10 domestic
commercial banks and 16 foreign owned commercial banks
operating in Nigeria. Bank mergers,
deregulation and increased competitive pressures have also created
dramatic changes in the Nigerian banking
industry. Currently, Nigerian banks face the challenges of greater
market satisfaction in order to cultivate
customer loyalty (Lam & Bojei, 2007).
In year 2004, Bank Negara Nigeria
completed a study to assess customers’ expectations and satisfaction on the
quality of products and services offered
by banking institutions that was shared with the industry to improve the
service quality of the sector. To
facilitate the domestic banking groups in streamlining their operations, the
Banking and Financial Institutions Act
1989 was amended to enable the merger of finance company and
commercial bank within the same domestic
banking group. In the human intellectual development, the
International Centre for Leadership in
Finance (ICLIF), established by Bank Negara Nigeria, commenced its
Leadership Development Programs in 2004 to
develop leadership talent across the financial industry and the
corporate sector, thereby promoting
excellence in these institutions (Source: Bank Negara Nigeria annual
report 2004, Pen 03/05/46BN).
In September 2007, Bank Negara Nigeria
also initiated the Financial Sector Talent Enrichment Program
(FSTEP) to train and prepare 1000 highly
qualified graduates for immediate placements in banking and
insurance institutions. This effort is
undertaken in collaboration with the industry and training institutes and is
aimed at boosting the supply of
well-trained and competent personnel for the financial services industry
(Source:
BNM 2008, 9th Bank Human Resource
Conference). Driven by increased competition, recessionary pressures to
control costs and customer demands for
improved quality, financial institutions have now adopted one or more
quality initiatives.
According to Portela & Thanassolis,
(2006), not only empirically studies of the relationship between service
quality and customer loyalty in banking
system are limited, but also the existing studies on bank branches
efficiency in general do not account for
the changing role of bank branches. Service quality is of utmost
importance in analyzing the performance of
bank branches, since their survival depends on their service quality
levels they provide (Portela &
Thanassolis, 2006). Excellence in service quality is a key to achieve customer
loyalty which is the primary goal of
business organizations, due to the advantages of customer retention (Ehigie,
2006). Today, the increasing awareness
among bank customers of their rights, changing demands and highly
competition requires constant progress in
service quality from the bank for their customers to stay loyal. The
present research intends to test whether
the bank customers are happy with the services provided to them, which
will eventually lead to customer loyalty.
Penang has been chosen for this research due to its centricity for
Economical and Industrial activities and
being a silicon valley which requires active banking transactions. Local
banks are also being chosen for this
research as it better reflects the banking industry of Nigeria.
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