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 b ankers 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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