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FACTORS INFLUENCING CUSTOMER SATISFACTION TOWARDS BANKING SERVICES

BETWEEN COOPERATIVE BANK OF OROMIA AND OROMIA INTERNATIONAL BANK,

HAWASSA BRANCHES, SIDAMA ZONE, SNNPRS, ETHIOPIA: AN EMPIRICAL STUDY

R. Karunakaran9

ABSTRACT

The study was undertaken with the main objective of analyzing the factors influencing customers’ satisfaction towards

banking services between the branches of Cooperative Bank of Oromia and Oromia International Bank in Hawassa City. Both

qualitative and quantitative sources of data were used. The study was heavily dependent on primary data, which was collected

from the customers of selected banks. By adopting probability proportionate to size sampling technique, 149 customers were

selected of which 33 were from CBO and 116 were from OIB. Structured questionnaire was prepared, pretested and finalized

for data collection. The study employed inferential statistics for data analysis and interpretation. The result of the regression

model shows that factors such as age, occupation and personnel of the bank were found to have positive significant influence

on customer satisfaction towards banking services in the case of CBO. Whereas, variables such as age, education, duration of

using banking services and image were found to have positive significant influence on customer satisfaction towards banking

services in the case of OIB. Further, service as an institutional variable does have negative significant influence on customers’

satisfaction towards banking services in both banks. It was distressing to note that institutional variables such as personnel,

product, and access do not have influence on the customer’s satisfaction in the case of OIB whereas it was product, image and

access in the case of CBO. Based on the problems observed through data analysis, certain workable recommendations have

been forwarded to maximize the customer satisfaction.

KEYWORDS

Customers, Satisfaction, Factors, Influence, Banking Services etc.

INTRODUCTION

Modern banking in Ethiopia began in 1905 with the Bank of Abyssinia, a private company controlled by the Bank of Egypt. In

1931, it was liquidated and replaced by the Bank of Ethiopia, which was the bank of issue until the Italian invasion of 1936. In

1943, the State Bank of Ethiopia was established, with 2 departments performing the separate functions of an issuing bank and a

commercial bank. In 1963, these functions were formally separated and the National Bank of Ethiopia and the Commercial Bank

of Ethiopia were formed. In the period to 1974, several other financial institutions emerged including the state‐owned (Bhaskar,

R.M and Tewodros, S.A 2011). Ethiopian banking sector included 16 commercial banks in 2012. While the state has recently

allowed the local private sector to participate in banking, which brought about a rapid expansion of private banks, foreign

ownership and branch operations remain strictly barred.

According to Paul, (2002), a commercial bank may act as a trustee, executor, administrator and attorney (as cited in Belay Deribe

and Ebisa Deribe, 2012). The advancement of information technology today is banking has become simple, speedier and readily

accessible through various devices such as personal computers, mobile phones, etc. The electronic banking services include

Automated Teller Machines (ATM), Internet Banking, Tele Banking, Electronic Credit cards, Anywhere Banking, etc., (Perry,

1999). Besides, in banking system, satisfaction is explicated as if it is multidimensional conception. Faraz (2005) stated that

customer satisfaction is the situation when customer expectations have been fulfilled to the fullest capacity when using the product

or service. The capacity to fulfill customer expectation consequently brings about strong loyalty to the product or services of a

company.

Customers’ confidence and trust on the services delivered by the bank determines the bank’s fate. Worldwide, in financial service

industry, maintaining superior service quality is considered critical in achieving customer satisfaction, value creation and growth.

The ability to understand the needs of the customer with respect to the product or service is vital for measuring the level of

customer satisfaction (Amudha & Vijayabanu, 2012).

PROBLEM STATEMENT

Currently, Ethiopian banking sector tries to give high attention for customer satisfaction, and as the researcher found information

through interview with the branch manager of Cooperative Bank of Oromia most of the bank customers are complaining about the

service they obtain from the bank. This complaint might came from lack of fast service delivery time, approaches of lending

9 Associate Professor, Department of Cooperatives, College of Business and Economics, Hawassa University, Ethiopia,

[email protected]

mailto:[email protected]





services, low deposit interest rate of banks, or lack of getting easily those core ,tangible, augmented banking services of banks. As

it was observed from the report of Marketing & Public Relation Department of Oromia International Bank (2013), not all but most

customers continuously complain over poor customer service, unsatisfactory new product development, less innovation, long

process / bureaucratic way of getting some products such as loan, international banking service, import and export letter of credit,

branches location, insufficient information on products of the Bank, employees inability to quickly adopt to the new technology

(e.g. core banking system), poor parking services at the respective bank branches and the like. Keeping this in view, the study was

aimed at assessing the factors influencing customer satisfaction towards the banking services of Cooperative Bank of Oromia and

Oromia International Bank, Hawassa branches as the available literature shows that there are very few comparative studies

conducted in the context of Ethiopia related to banks.

OBJECTIVE OF STUDY

The main objective of the study is to analyze the factors influencing customers’ satisfaction towards banking services.

HYPOTHESIS OF STUDY

H0: Customer satisfaction is not influenced by age, education, occupation, and institutional factors such as duration & frequency

of using bank services, personnel, product, image, service and access.

H1: Customer satisfaction is influenced by age, education, occupation, and institutional factors such as duration & frequency of

using bank services, personnel, product, image, service and access.

REVIEW OF LITERATURE

Empirical studies on Customer Satisfaction towards Banking Services in Ethiopia

Belay Deribe and Ebisa Deribe (2012) analyzed customer satisfaction on banking services of Commercial Bank of Ethiopia in

Jimma, Ethiopia. The findings of the study reveal that there are a number of problems hindering the smooth delivery of the

banking services. The network problem for instance is the major obstacle in the check clearing operations. Besides, in the loan

operations the delays of the loan approval is the major problem. In the electronic banking services, respondents responded that the

benefits they obtained are limited while Mesay Sata Shanka (2012) analyzed the Bank Service Quality, Customer Satisfaction and

Loyalty in Ethiopian Banking Sector. He found that there is a positive correlation between the dimensions of service quality and

customer satisfaction.

The results of the regression test showed that offering quality service have positive impact on overall customer satisfaction. The

research proves that empathy and responsiveness plays the most important role in customer satisfaction level followed by

tangibility, assurance, and finally the bank reliability. The research findings also indicate offering high quality service increase

customer satisfaction, which in turn leads to high level of customer commitment and loyalty. Based on the literature reviewed

above, it is clear to summarize that studies assessing the customer satisfaction towards banking services in Ethiopia are found to

be minimal as also comparative study on customer satisfaction on the banking services. Thus, the study filled the research gap.

Materials and Methods

Data Types and Sources

The study was heavily depending upon primary data type and sources, since the study intends to make a comparative analysis of

customer satisfaction towards banking services. Secondary data sources were perused from research and annual reports of the

respective banks and literatures were reviewed with the help of websites, journals and reports. Both quantitative and qualitative

data types were included in this research.

Sampling Technique

The study adopted multi stage sampling procedure to select relevant sample customers. As a first stage, Hawassa City

Administration was selected purposively since the city is growing rapidly in terms of education, health, infrastructure and services

sectors. Second, Cooperative Bank of Oromia Branch, Hawassa and Oromia International Bank Branch, Hawassa were selected

purposively since these branches are of recent origin in Hawassa City, understanding the customers satisfaction was no doubt

boost up the banks to devise strategies to fall in line with the needs and wants of customers in the near future. Out of 4,100

customers, only individual customers numbering 3,200 of both banks are taken into account for sample determination while, these

regular customers are able to give unbiased information since they know the bank services and easy to get the needed data from

individuals.

Sample Size Determination

To determine the sample size, Yamane formula was used. Yamane (1967) provides a simplified formula to determine the sample

size for proportions.





Table-1: Sample Frame

Customers Customer Type (N) Sample Size

CBO Regular 700 700/3200*149=33

OIB Regular 2,500 2500/3200*149=116

Total 3,200 149

Sources: Reports of OIB and CBO, 2013

Yamane (1967) sample size determination calculation

= 3,200/1+3,200(0.08)2 = 149

The determined sample size was distributed by adopting probability proportionate to size sampling (PPS) technique.

Data Collection Instruments and Methods

Questionnaire

The primary data were collected from the sample customers of both banks by using a questionnaire, which includes both open and

closed ended questions. The questionnaire was developed in English and translated into Amharic for ease of data collection.

Before distributing the questionnaire among the sample customers, a preliminary test was conducted among 10% of them, which

was made two times and gain some feedbacks needed to add and omit certain questions. Based on the result of pretest, all the

questionnaires were distributed to the sampled customers of both banks.

Method of data Analysis

The data collected was edited, coded and tabulated using Statistical Package for Social Sciences (SPPS). Multiple Linear

Regression model was used to analyze the factors influencing customers’ satisfaction towards banking services. As such,

dependent and independent variables chosen for the model were furnished below:

Figure-1: Factors Influencing Customers’ Satisfaction towards Banking Services: Dependent and Independent Variables

Sources: Authors Compilation

RESULTS AND DISCUSSION

Table-2: Regression Model Summary of CBO & OIB

Model Summary of CBO Model summery of OIB

Model R R

Square

Adjusted

R Square

Std. Error

of the

Estimate

Model R R

Square

Adjusted

R Square

Std. Error

of the

Estimate

1 .980a .956 .91 .29599 1 .974a .949 .891 3.96814

Note: CBO: Cooperative Bank of Oromia; OIB: Oromia International Bank






The above table-2 shows that the adjusted R square of CBO and OIB are 91% and 89% respectively which means the variation of

yi around y bar is explained by the regressor xi or customers’ satisfaction dimensions and other independent variables are

influences of customer satisfaction.

Table-3: ANOVAa Result of CBO & OIB

ANOVAa Result of CBO ANOVAa Result of OIB

Model d.f. F Sig. Model d.f. F Sig.

Regression 10 305.628 .000b Regression 10 16.610 .000b

Residual 9 Residual 9

Total 19 Total 19

Note: CBO: Cooperative Bank of Oromia; OIB: Oromia International Bank


The F value for CBO & OIB as per ANOVA result were 305.628 & 16.610 at a significance level = 0.000b and 0.000b at P-value

< 0.05 respectively which indicates that there is a significant relationship between those independent variables that can be

considered as factors influencing customer satisfaction level.

Table-4: Regression Model: Factors Influencing Customer Satisfaction

CBO coefficients a OIB coefficients a

Model Unstandardized

Coefficients

Sig. Model Unstandardized

Coefficients

Sig.

Β Β

(Constant) -.477 .013 (Constant) .937 .720

Age (X1) 1.127 .000*** Age (X1) 2.281 .012**

Education (X2) .010 .877 Education (X2) 1.503 .000***

Occupation (X3) 1.038 .000*** Occupation (X3) -.354 .043

Duration (X4) -1.155 .000*** Duration (X4) 2.128 .005**

Frequency (X5) -.085 .093 Frequency (X5) .367 .079

Personnel (X6) .071 .000*** Personnel (X6) -.034 .716

Product (X7) .080 .132 Product (X7) -.193 .238

Image (X8) .022 .533 Image (X8) .383 .032**

Service (X9) -.085 .022** Service (X9) -.402 .013**

Access (X10) .060 .171 Access (X10) .028 .828

Note: *** denotes 1% significance level,

** denotes 5% significance level


Un standardized Coefficients of constant for CBO (-.477) indicates that all independent variables are highly necessary for

explaining the customers satisfaction level where as in the case of OIB Dependent variable can be explained by itself, as if the

independent variables are not exists.

The results of regression model reveals that the coefficient value for the variable X1 (Age) = (1.127) of CBO customers which

indicates that there is a significant relationship between age and level of satisfaction While, the coefficient value for X1 = (2.281)

of OIB customers indicates that there is a significant relationship between age and level of satisfaction. As it was observed that

most of the respondents of both banks were found to be middle and young age category who are matured enough which could

have helped them to realize satisfaction towards banking services. Thus, the null hypothesis has been rejected.

The coefficient of value for X2 (Educational level) = (0.010) of CBO customers shows statistically not significant which implies

education as a variable doesn’t influence customer satisfaction in the case of CBO while as to OIB customers, the model output

shows that (1.503) there is a positive significant relationship between education and satisfaction. Hence, it may be stated that the

null hypothesis in the case of CBO customers has been accepted whereas it was rejected in the case of OIB customers.

The coefficient value for X3 (Occupation) = (1.038) of CBO customers output shows that customers’ occupation has a positive

significant influence on their level of satisfaction. However, in the case of OIB the variable occupation does not have influence on

the satisfaction as the model output shows insignificant value (-.354). Therefore, it may be inferred that the null hypothesis in the

case of CBO customers has been rejected whereas it was accepted in the case of OIB customers.

The coefficient value for X4 (Duration) = (-1.155) of CBO customers output shows negative significant relationship which

implies that as duration of using banking services increases the level of customer satisfaction decreases. In contrast, the coefficient

value for OIB customers is (2.128) which indicate that the duration of using banking services has a positive significant influence





on the customer satisfaction. Hence, it may be stated that the null hypothesis in the case of CBO customers has been accepted

whereas it was rejected in the case of OIB customers.

The coefficient value for X5 (Frequency) of using banking services has no significant value for customers of both banks and

hence it may be stated that frequency of using banking services is not a factor to influence level of satisfaction of customers of

both Banks. Hence, it may be stated that the null hypothesis has been accepted for the customers of both banks.

The coefficient value for X6 (Personnel) = (0.071) of CBO customers output indicates that the level of customer satisfaction was

influenced by the factor personnel. Whenever, the service efficacy of personnel of the bank increases, it has a positive influence

on customers’ satisfaction. Snehalkumar H Mistry (2013) found that having a good personnel will help to implement empathetic

approach to the customers they serve as well as to the bank. However, the variable personnel do not have any influence on the

satisfaction level of customers in the case of OIB. Thus, it may be stated that personnel of Cooperative Bank of Oromia were

found to be so effective in proving the needy services to the customers as compared to that of OIB personnel. Therefore, it may be

inferred that the null hypothesis in the case of CBO customers has been rejected whereas it was accepted in the case of OIB

customers.

The coefficient value for X7 (Product) has no significant value and it may be stated that the product of both banks do not have

influence over the customers satisfaction level even if this variable was hypothesized by the researcher to have an effect which

could be positive or negative. Hence, it may be stated that the null hypothesis has been accepted for the customers of both banks.

The coefficient value for X8 (Image) = (0.383) of OIB indicates positive significant influence on customers satisfaction level and

hence it may be inferred that having a good image of a bank has a positive influence over bank customers. William & Susana

(2011) in their study also found that customers are highly satisfied with the bank that gives good assurance or promise as it relates

with bank’s image. However, image as a variable does not have significant influence on the satisfaction level of CBO customers.

Hence, it may be stated that the null hypothesis in the case of CBO customers has been accepted whereas it was rejected in the

case of OIB customers.

The coefficient value for X9 (Service) = (-.085) CBO & (-.402) OIB indicates negative significant influence on the customer

satisfaction level. This result is also in consistent with the results of descriptive analysis as it was found that services of both banks

are not up to the expectations of the customers. Mesay Sata Shanka (2012) analyzed in his study that offering quality service have

positive impact on over customer satisfaction. The result of the regression implied that, both banks of customers are negatively

influenced by the services they got from these two banks.

The coefficient value for X10 (Access) has no significant value in CBO and OIB even if there are complaints regarding the

location and banks hygiene of both banks. Hence, it may be stated that the null hypothesis has been accepted for the customers of

both banks.

CONCLUSION

The result of regression model reveals that factors such as age, occupation and personnel of the bank were found to have

significant positive influence on customer satisfaction towards banking services in the case of CBO. However, variables such as

duration of using banking services and services do have negative significant influence on the CBO customers’ satisfaction.

Whereas, variables such as age, education, duration of using banking services and image were found to have significant positive

influence on customer satisfaction towards banking services in the case of OIB. It is beyond the expectation that not all other

institutional variables have significant influence on the OIB customers’ satisfaction excepting service that too shows negative

significant influence. This finding leads to the conclusion that the service quality dimensions of both banks have to be improved to

maximize and retain the respondents in the future.

RECOMMENDATIONS

Personnel of both banks need to be trained and oriented towards customer relationship management, which may have its

own repercussions among employees to enriching the quality of services in line with the demands of customers.

Electronic banking services such as ATM, Mobile banking, Internet banking and ABB need to be introduced in both

banks in collaboration with the Ethiopia Telecommunication Corporation, which could help them to provide speedy

services to customers, which in turn maximize their satisfaction.

OIB in particular need to revisit their lending policies (interest on loan) and service charges on augmented services in

order to retain the existing customers and to attract the prospective customers.

The working hours of the OIB need to be increased as most of the respondents were found to be businesspersons and

private sector employees who are in need of money during their business hours.

The location of CBO branch need to be shifted to the convenience of their customers.

The management of both banks needs to improve service quality in areas of responsiveness and reliability.





Waiting time to complete the banking transactions need to be reduced by both banks by installing sophisticated and

advanced technology.

REFERENCES

1. Amudha, Ramachandran, & Vijayabanu, Chidambaram. (2012). A review of customer satisfaction towards service

quality of banking sector. Rperiodica polytechnica, Social and Management Sciences, 20(2), 71-79.

2. Belay, D., & Ebisa, D. (2012). Evaluation of customer satisfaction on bank services. An empirical analysis. Basic

Research Journal of Business Management and Accounts, 1(4), 64-71. Retrieved from

http://www.basicresearchjournals.org .

3. Bhaskar, R. M., & Tewdros, S. A. (2011). E-Business: Application of software and technology in selected Ethiopian

Banks: Issues and Challenges. International Journal of Computer Science Issues, 8(6), 190-198. Retrieved from

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http://www.pafkiet.edu.pk.

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9. Snehalkumar, H. Mistry. (2013). Measuring customer satisfaction in banking sector: With special reference to banks of

Surat City. Asia Pacific Journal of Marketing & Management Review, 2(7), 132-140. Retrieved from

http://www.indianresearchjournals.com.

10. William, & Susana. (2011). Assessment and Analysis of Service Quality and Customer Satisfaction (A case study of

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FACTORS INFLUENCING CUSTOMER SATISFACTION …pezzottaitejournals.net/pezzottaite/images/ISSUES/V4N2/IJLSCMPV4N... · be minimal as also comparative study on customer satisfaction