Impact of Service Quality on Customer Retention in the Nigerian Banking Sector
Chapter One
OBJECTIVES OF THE STUDY
Generally, this study is designed to examine the impact of service quality on customer retention in the banking sector. To achieve this, the study will specifically;
- Determine the extent to which Nigerian banks offer quality services to customers.
- Ascertain the importance of quality services in the banking industry.
- Determine if service quality has any significant relationship with customer retention.
- Identify the factors influencing Nigerian banks’ service quality.
CHAPTER TWO
REVIEW OF LITERATURE
INTRODUCTION
Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.
Precisely, the chapter will be considered in three sub-headings:
- Conceptual Framework
- Theoretical Framework
Concept of Banking
The Banking System
In his work on financial intermediation by banks and economic growth, Badun (2009) notes that there might be some confusion with the terms used in existing research on financial intermediation and growth. He noted that different terms like financial intermediation, finance, financial development, financial system, financial markets and so on, have been used by different authors. However, in almost all papers same indicators are used and all refer to financial intermediation by banks. According to Otto et al. (2012), there are four vital components of a financial system. These include; financial institutions, financial markets, the regulatory authorities and financial instruments. The study also noted that the system in Nigeria has undergone remarkable changes in terms of ownership structure, the depth and breadth of instruments employed, the number of institutions established, the economic environment and the regulatory framework within which the system operates currently. The Nigerian financial system include banks, capital markets, insurance, pension asset managers and other financial institutions with the Central Bank as the apex institution. The banking industry in Nigeria is dominated by the commercial banks. The commercial banks dominate in both size and profitability In Nigeria, the financial system is the hub of productive activity, as it performs the vital roles of financial intermediation and effecting good payments system, as well as assisting in monetary policy implementation. Ofanson et al. (2010) note that the process of financial intermediation involves the mobilization and allocation of financial resources, through the financial (money and capital) markets by financial institutions (banks and non-banks) and by the use of financial instruments (savings, securities and loans). They also suggest that the efficiency and effectiveness of financial intermediation in any economy depend critically on the level of development of the country’s financial system. In effect, the underdeveloped nature of the financial system in most developing countries accounts largely for the relative inefficiency of financial intermediation in those economies. In these countries the financial system is dominated 10 by banks, which are typically oligopolistic in structure and tend to concentrate on short-term lending as against investments with long-term gestation period. The alternative/complementary source for financing development projects is the development of debt or equity markets which at best, is at the rudimentary stage of development. It is in this regard that specialized financial institutions, including government owned development banks have been established in Nigeria to bridge the gap.
History of Banking
The history of banking began when empires needed a way to pay for foreign goods and services with something that could be exchanged easily. Coins of varying sizes and metals eventually replaced fragile, impermanent paper bills. Coins, however, needed to be kept in a safe place, and ancient homes did not have steel safes. According to World History Encyclopedia, wealthy people in ancient Rome kept their coins and jewels in the basements of temples. The presence of priests or temple workers, who were assumed devout and honest, and armed guards added a sense of security. Historical records from Greece, Rome, Egypt, and Ancient Babylon have suggested that temples loaned money out in addition to keeping it safe. The fact that most temples also functioned as the financial centers of their cities is a major reason why they were ransacked during wars.3 Coins could be hoarded more easily than other commodities, such as 300-pound pigs for example, so a class of wealthy merchants took to lending coins, with interest, to people in need. Temples typically handled large loans and loans to various sovereigns, and wealthy merchant money lenders handled the rest.
The First Bank
The Romans, who were expert builders and administrators, extricated banking from the temples and formalized it within distinct buildings. During this time, moneylenders still profited, as loan sharks do today, but most legitimate commerce and almost all government spending involved the use of an institutional bank According to World History Encyclopedia, Julius Caesar, in one of the edicts changing Roman law after his takeover, gives the first example of allowing bankers to confiscate land in lieu of loan payments. This was a monumental shift of power in the relationship of creditor and debtor, as landed noblemen were untouchable through most of history, passing debts off to descendants until either the creditor or debtor’s lineage died out. The Roman Empire eventually crumbled, but some of its banking institutions lived on in the form of the papal bankers that emerged in the Holy Roman Empire and the Knights Templar during the Crusades. Small-time moneylenders that competed with the church were often denounced for usury.
Visa Royal
Eventually, the various monarchs that reigned over Europe noted the strengths of banking institutions. As banks existed by the grace, and occasionally explicit charters and contracts, of the ruling sovereignty, the royal powers began to take loans to make up for hard times at the royal treasury, often on the king’s terms. This easy financing led kings into unnecessary extravagances, costly wars, and arms races with neighboring kingdoms that would often lead to crushing debt. In 1557, Philip II of Spain managed to burden his kingdom with so much debt (as the result of several pointless wars) that he caused the world’s first national bankruptcy—as well as the world’s second, third, and fourth, in rapid succession. This occurred because 40% of the country’s gross national product (GNP) was going toward servicing the debt.5 The trend of turning a blind eye to the creditworthiness of big customers continues to haunt banks today.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of one hundred (100) questionnaires were administered to respondents of which only eighty two (82) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 82 was validated for the analysis.
DATA PRESENTATION
Table 4.1: Demographic profile of the respondents
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS:
Introduction
This chapter summarizes the findings into the impact of service quality on customer retention in the Nigerian banking sector. Respondents for this study were staff of selected branches of First Bank Plc. in Aba-Owerri Road, Aba, Abia State. The chapter consists of summary of the study, conclusions, and recommendations.
Summary of the Study
In this study, our focus was to examine impact of service quality on customer retention in the Nigerian banking sector. The study specifically was aimed at determining the extent to which Nigerian banks offer quality services to customers, ascertaining the importance of quality services in the banking industry, determining if service quality has any significant relationship with customer retention, and identifying the factors influencing Nigerian banks’ service quality.
The study adopted the survey research design and randomly enrolled participants in the study. A total of 82 responses were validated from the enrolled participants where all respondent were all staff of selected branches of First Bank Plc. in Aba-Owerri Road, Aba, Abia State.
Conclusions
Based on the findings of the study, the researcher concluded that;
- The extent Nigerian banks offer quality services to customers is very high
- The importance of quality services in the banking industry include:
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