A Synopsis on

“Service Quality, Customers’ Satisfaction and Customers’ Loyalty in Commercial Banks in Nepal”
Graduate Research Project, MBA (Finance), Apex College
April 20, 2015
Presented By: Ananda Adhikari

Background of the Study

Service quality is one of the critical success factors that influence banking sector. A bank can differentiate itself from
competitors by providing quality services at promised time. The services provided by bank are intangible in nature
and cannot assure the quality because it cannot be counted, measured, tested, verified and inventoried in (Mudie and
Pirrie, 2006). Customers’ satisfaction is one of the important outcomes of marketing activity. Prabhakaran (2003)
mentioned that the customer is the king and high customers’ satisfaction is important to create the base for loyal
customers. Loyal customers of banks are more likely to share information about the service provided by bank because
they trust the bank (Smith and Wright, 2005). In banking sector, the relationships between service quality, customer
satisfaction and customer loyalty were self-reinforcing i.e. quality services satisfy customers banking needs and
satisfied customer increases the loyal customers (Haskett et al. 1997). Customers’ loyalty is comprised of both quality
services provided by the service industry as well as satisfied customers.

Purpose of the Study

The main purpose of the study is to analyze the relationship between service quality, customers’ satisfaction and
customers’ loyalty in commercial banks in Nepal. Other objectives of the study are to find out the banking habit of
customers, to assess the level of customers’ satisfaction on the basis of service quality, to determine the relationship
between customers’ satisfaction and customers’ loyalty, to find out the major determinant for the customers’ loyalty
and customers’ satisfaction as well as service quality in commercial banks of Nepal etc.

Statements of the Problem

The competitive situation in banking sector, the challenge faced by banks is to produce satisfied customers in order
to produce loyal customers. With easy access and global competitiveness, customers are often influenced by
advertising as well as for better deal. Thus, it is very difficult to determine the influencing factor for service quality
for customers’ satisfaction and for customers’ loyalty. Consumers are always informed about bank product and
services in prior so meeting their expectation are increasingly becoming a challenging job. At the same time,
perception of customers and potential customers are also divided according to the services that they want to achieve.
Therefore, management of banks should confirm that banking atmosphere should focus on quick and fair services to
their customers to satisfy their banking needs. The issues on service quality and customer satisfaction have long been
ignored in developing economies when compared to research carried out in developed economies such as USA and
Europe (Firoz & Maghrabi 1994). There is a lack of publication in service quality, customers’ satisfaction and
customers’ loyalty in Nepalese commercial banks. Hence, this research investigates the factors related with service
quality which influences customers’ satisfaction as well as customers’ loyalty in commercial banks of Nepal.
Some issues raised by this study are as following:
 What are the factors influencing customers’ loyalty in commercial bank of Nepal?
 Does the service quality influence the loyalty of customers in commercial bank of Nepal?
 What are factors needs to improve in the level of customers’ satisfaction of bank?
 Is there significant relationship between service quality, customers’ satisfaction and customers’ loyalty in
commercial bank of Nepal?
 Does higher customers’ satisfaction lead to higher customers’ loyalty?

Significance of the Study

A study on service quality, customers’ satisfaction and customers’ loyalty assumes a greater significance in banking
sector. A better understanding on service quality helps in improving the quality of services provided by bank. Quality
services like timely services provided by bank, user friendly technology, easy location of bank, polite behavior of
employees, error free banking transaction etc increases the satisfaction level of customers. Similarly, satisfied
customers are source of loyal customers and loyal customers always recommends bank for their friends and family.
They always share the positive things about the bank. This study provide academicians and student of research a will
to do extensive studies to show the relationship between service quality, customers’ satisfaction and customers’
loyalty in Nepalese banking sector.

Research Hypothesis
The null hypotheses of the study are:
 There is no relationship between customers’ satisfaction and service quality.
 There is no relationship between customers’ loyalty and service quality.
 There is no relationship between customers’ loyalty and customers’ satisfaction.
 There is no relationship among service quality with customers’ satisfaction and customers’ loyalty.
 There is no relationship among customers’ satisfaction with service quality and customers’ loyalty.
 There is no relationship among customers’ loyalty with customers’ satisfaction and service quality.

Research Methodology
This study is based on descriptive research design to deal with issues associated with service quality, customers’
satisfaction and customers’ loyalty in commercial banks of Nepal and uses both qualitative and qualitative research
approaches. Casual comparative research design is used to show the relationship between service quality, customers’
satisfaction and customers’ loyalty. Stratified sampling technique is used. The commercial banks of Nepal are
categorized into three strata. A structured questionnaire survey is used to fulfill the objectives of the study and
structured questionnaire were distributed to customers of different bank branches in Kathmandu and some
questionnaires were distributed to friends and family. In order to ensure accurate response from respondents, the
questionnaires were dictated to respondents who are not clear about the survey questionnaire contains. The
questionnaire survey had been conducted to record opinions and perceptions of 265 customers but only 223 survey
questionnaires were returned back. The collected information from questionnaire are coded in MS excel and SPSS
software is used to show the relationship between variables.

Major Findings
This study reveals that willingness to help customers is the important factor in overall quality services provided by
banks in Nepalese commercial banks. The location is the major influencing factor for selection of bank and politeness
is the most influencing factor for employees’ behavior in delivering quality services.
The important dimension for service quality was reliability followed by responsiveness and for customers’
satisfaction is bank image followed by clarity in transaction. Similarly, the important dimension for customers’
loyalty is trust. Most of the customers’ of commercial banks visit the bank once in the month and only few customers
visit the bank twice in a week. Neat and clean appearances of employees in banks, security in financial transaction,
special services provided to special customers, strong relationship maintained by banks with their customers and user
friendly ATM machines are some of the qualities of services that Nepalese customers expect from the commercial
banks.
A positive correlation exist between customers’ satisfaction and service quality factors (tangibility, reliability,
assurance, empathy, technology and responsiveness) among these factors a strong relationship is exist between
customers’ satisfaction and reliability in Nepalese commercial banks. On the other hand a positive correlation exists
between customers’ loyalty with customers’ satisfaction and service quality factors.
Customers’ loyalty has strong relationship with customers’ satisfaction in commercial banks of Nepal. A positive
and significant relation exists between dependent variable customers’ satisfaction with independent variables like
assurance, technology, reliability and responsiveness. Similarly, dependent variable customers’ loyalty has positive
and significant relation with independent variables like customers’ satisfaction, assurance and empathy.

Conclusion
The finding of the study is that service quality, customers’ satisfaction customers’ loyalty in commercial banks of
Nepal are positively related. Service quality helps in satisfying customers banking needs and satisfied customer help
in retaining the customer for longer period of time and increases customers’ loyalty. Customers of Nepalese
commercial banks were satisfied with the services provided by banks and would like to recommend the bank to their
friends, family members and relatives.

Scope for Future Research

Further study can be carried out in the evolution and changing roles of expectation and desires of the customer’s
overtime and focus on customers’ loyalty concept and its impact on the commercial banks of Nepal. The study should
be conducted to show the relationship between service quality, customers’ satisfaction and customers’ loyalty
because these days retaining the customer is the very challenging job for the organization. The study is limited to
Kathmandu only it may be extended to customers of whole Nepal in near future.