Impact Of Service Quality And Customer Satisfaction On Banks Performance In Ethiopia

Customer's trust and satisfaction on the services delivered determines the profitability and reputation of a bank.Most existing research findings indicated that both satisfaction and service quality significantly impact performance of banks.Although there are a massive research in this area,existing literature have some gaps worthy of consideration.First,most of the research works to date have mainly focused on the developed economies and reputable corporations under the westerner banking business environment,only limited consideration is given to the banking industry under developing and least developed economies.Second,the transferability and applicability of the existing findings from the developed economies to the least developed banking business environment are still questionable.Initiated by the need of creating a comprehensive understanding of the impact of services quality and satisfaction of customer on the bank performance in Ethiopia,this research will examine the relationship between services quality and customer satisfaction using structural equation modeling(SEM)method,detect the factors that lowered the performance of banks in the country,and compare the impact degree of factors' on the performance of governmental and private banks.In this study,a standard questionnaire was employed and 400 survey data was collected from Commercial Bank of Ethiopia(CBE)and Awash International Bank(AIB)in Ethiopia to test 11 hypotheses using structural equation modeling(SEM)by the software of Amos.The results indicated that the five service quality dimensions considered in this study(tangibility,reliability,empathy,assurance and responsiveness)and customer satisfaction significantly impact performance of the surveyed banks.In addition,we observed that these five service quality dimensions also significantly affects customer satisfaction.The research also examines the difference between selected governmental and private banks.It is indicated that all five service quality dimensions have a statistically significant positive relationship with customer satisfaction for both banks,but all the five service quality dimensions have a significant impact on the performance of the bank only for CBE.In the case of AIB,only tangibility and empathy among the five service quality dimensions have a significant impact on the performance of the bank.In summary,there are three main findings in this research that have management implication for the banks and policy makers.Firstly,the empirical study based on the case of Ethiopia banks give a strong evidence that the service quality and customer satisfaction has an important influence on the performance of the banks.Secondly,there is an important clue about the difference of service quality and its impacts within the selected governmental and private banks.Finally,there are gaps on some service quality dimensions such as reliability,assurance,and responsiveness as for AIB,and this is a guidance for further study.