ASSESSING THE RELATIONSHIP OF SERVICE QUALITY AND CUSTOMER SATISFACTION OF PRIVATE BANKS IN ADDIS ABABA

Abstract

The objective of this research is to assess the relationship of service quality and the coming year profitability(ROA) of private banks through proper analysis of customer satisfaction. It infers the relationship between service quality dimensions and profitability through customer satisfaction in private banks in Addis Ababa. Also, it shows the gaps between customers’ expectations and perceptions on the quality of service in the private banks. The research is carried out through the use of cross-sectional survey design and primarily based on data collected through structured questionnaires that are developed based on SERVQUAL instrument. 50% that is eight banks are selected out of 16 private banks on the basis of stratification sampling technique. First, the private banks were categorized into four strata based on their year of establishment in descending order. Each strata have been made to hold four private banks out of which only two private banks were selected from each strata using simple random sampling. The sample size of the respondents for the study was determined using sample size formula. However, convenience sampling technique is used to select 400 respondents 50 from each of the selected eight commercial private banks. Quantitative research is employed on the dimensions of service quality to arrive at the relationship of them with Customer Satisfaction and then customer satisfaction with the coming year Profitability/ROA/ of the private banks. The internal consistency of the data is analyzed via reliability test method, Pearson's correlation and gap analysis. The reliability of the questionnaires is found acceptable and good. It is also found that all the dimensions of service quality have correlated with the customer satisfaction. However, customer satisfaction does not have positive relationship with the coming year profitability (ROA) of private banks for various possible reasons.