\ :UI(.~:·~"~l\ _ _ _ _ _ _ _ _ _ _ _......_ _ _ _.......

ADDIS ABABA UNIVERSITY

SCHOOL OF GRADUATE STUDIES

DEPARTMENT OF ACCOUNTING AND FINANCE

BANK SELECTION DECISION: FACTORS

INFLUENCING THE CHOICE OF BANKING SERVICES

By: Goiteom W/mariam

June 2011
Addis Ababa
 BANK SELECTION DECISION: FACTORS

INFLUENCING THE CHOICE OF BANKING SERVICES

A Thesis Submitted to the School of Graduate Studies of Addis

Ababa University in Partial Fulfillment of the Requirements for the

Degree of Master of Science in Accounting and Finance

By: Goiteom W/mariam

Advisor: Dr. U1aganathan S.

June2011
Addis Ababa
 ADDIS ABABA UNIVERSITY

SCHOOL OF GRADUATE STUDIES

DEPARTMENT OF ACCOUNTING AND FINANCE

BANK SELECTION DECISION: FACTORS

INFLUENCING THE CHOICE OF BANKING SERVICES

By: Goiteom W/mariam

DEPARTMENT OF ACCOUNTING AND FINANCE

Approved by the Board of Examiners

Chairman, Departm ent of Accounting and Finance Signature Date

JJ§,8tuo~ c9.L~
Advisor Signature
- -- --
Date

Externa I Exam iner Signature Date

 ACKNOWLEDGMENTS

First and fo remost, I wou ld like to express my gratitude to my adv isor Dr. Ulaganathan

Subramani an for hi s in val uable and constructive co ntributio ns thro ughout this study. My

deepest ap prec iatio n goes to the School of Bus iness and Public Ad min istrat ion of AAU for

providi ng financia l support to cond ucting th is thesis and Aks um Univers ity fo r giving me the

chance to lea rn Masters Degree.

I am also indebted to all my best fri ends who had taken the endeavors to vo lunta ril y

admin ister the questionnaire on my be half; special thank s to all of the m for thei r materia l and

moral suppo rt throughout the data co ll ection period. My heartfe lt thanks also go to my friends

G/yessus G/hiwot (Defo) and Bahre Gebru fo r the ir technical, materia l, and moral supports.

For they have devoted unreserved efforts to comme nt and ed it my work befo re it has sent to

adv iso r, the research ti me was a lovely moment for me. G/medhin G/s ilassie (GG) and Berhe

W/mariam also deserve tha nkful ness fo r part icipating in th e survey study.

Last but not least, I would like to extend my gratitud e to all my friends, colleagues and my

beloved family who have su pported and motivated me to co me this far. My sincere thanks

and appreciation goes to you a ll .

 ACKNOWLEDGMENTS

First and foremost, I would like to express my gratitude to my advisor Dr. Ulaganathan

Subramanian for his invaluable and constructive contributions throughoLit this study. My

deepest appreciation goes to the Schoo l of Business and Public Administration of AAU for

providing financ ial support to conducting this thes is and Aksul11 Un iversity for giving me the

chance to learn Masters Degree.

I am also indebted to all my best fr iends who had taken the endeavors to voluntarily

administer th e questionnaire on my behalf; special thanks to all of them for their material and

moral support throughout the data collection period. My heartfelt thanks also go to my friends

G/yessus G/hiwot (Defo) and Bahre Gebru fo r their technical, material , and moral supports.

For they have devoted unreserved efforts to comment and edit my work before it has sent to

advisor, th e research time was a lovely moment for me. G/medhin G/silassie (GG) and Berhe

W/mariam also deserve thankfulness for pal1icipating in the sur vey study.

Last but not least, I would li ke to extend my gratitude to all my friends, colleagues and my

beloved family who have supported and moti vated me to come thi s far. My sincere thanks

and apprec iat ion goes to you all.

 STATEMENT OF CERTlFICA TlON

Thi s is to certi fy that the thes is entitled " Bank Se lect io n Dec is ion: Factors Innuenci ng

the Choice of Banking Services" submitted by Mr. Go iteom Wo ldemariam to Add is

Ababa Univers ity towa rds part ial fulfi llm ent of the requirements for the award of the

degree of Master of Science in Accounti ng and Finance (Schoo l of G raduate Studies)

is a genuine record o f the work carried out by him under my super vision and

guidance.

Dr. S. U l agan.at.ha~ ~ /7.

Date: 3 ~----

ii
 DEDICATION

Dedicated to MAM!!!

iii
 TABLE OF CONTENTS

CONTENT
A c kn owl ed gm en ts----------------------------------------------------------------------------------------- i
Statemen t 0 f Cel1i fi cati 011- - ------------------------------------------------- - ---------------------------- ii
Dedication-------------------------------------- ------------------------------------------- ---------------- iii
Tab leo f Contents-----------------------------------------------------------------------------------------iv
List 0 f Tab Ies ----------------------------------------------------------------------------------------------v i
Li 5t of Figu res-------------------------------------------------------------------------------------------- vi i
Li st of Acronyms----------------------------------- ----------------------------------------------------. vi ii
A bs tract----------------------------------------------------------------------------------------------------ix

CHAPTER ONE: INTRO D UCTION ----------------------------------------------------------------- I

1. 1 Background of the study----------------------------------------------------------------------------- I
I .2 Statement 0 f the Prob Iem---------------------------------------------------------------------------- 3
I .3 0 bjecti yes of the Stud y------------------------------------------------------------------------------ 4
1.4 Speci fi e Research Questions------------------------------------------------------------------------ 4
I .5 Sign i fi cance 0 f the Study---------------------------------------------------------------------------- 5
1.6 Scope and Li mitations of the Study---------------------------------------------------------------- 5
I .7 Organ izati on 0 I' the Paper--------------------------------------------------------------------------- 6

CHAPTER TWO: REV IEW OF LITERA TURES--------------------------------------------------- 7

2. I Defi n iti on 0 I' Tcnns---------------------------------------------------------------------------------- 7
2.2 Customers Behaviour-------------------------------------------------------------------------------- 9
2.2.1 Steps in the Customer Decision Process---------------------------------------------- 9
2.2.2 Innuences o n Customers Deci sion--------------------------------------------------- 10
2.3 Customers Satis fact ion----------------------------------------------------------------------------- I 2
2.4 Ban k Sel ection Cri tcria---------------------------------------------------------------------------- I 5
2.5 Gender Based Difference in Bank Choice------------------------------------------------------- 28

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY ------------------------- 3 1

3.1 Source of Data and Sampling--------------------------------------------------------------------- 3 1
3.2 Research Des ign------------------------------------------------------------------------------------ 32
3.3 Data Co II ecti on Method---------------------------------------------------------------------------- 33
3.4 Data Ana Iys is and In terpretation------------------------------------------------------------------ 36

iv
CHAPTER FOUR: DATA ANALYS IS AND DISCUSS IONS--------------------------------- 37
4. I Deseri ptive A na Iys is-------------------------------------------------------------------------------- 37
4. I . I Customers Pro fi le----------------------------------------------------------------------- 37
4. 1.2 Banking Behaviour of Customers---------------------------------------------------- 41
4. 1.3 Customers Usage of Banking Services---------------------------------------------- 43
4.104 Customers Service Needs-------------------------------------------------------------- 44
4. 1.5 Customers Satisfaction wi th Banking Serviees------------------------------------- 45
4.1.6 Intention of Customers to Continue Dealing with their Customer Banks------- 47
4.2 Factor Analys is-------------------------------------------------------------------------------------- 47
4.3 Factor Formulation--------------------------------------------------------------------------------- 49
404 Explanati on of Bank Selcction Factors---------------------------------------------------------- 50
4.5 Reiiabi Iity T est -------------------------------------------------------------------------------------- 54
4.6 Ranking of Importance of Bank Selection Criteria--------------------------------------------- 54
4.7 Gender Based Description of Factors------------------------------------------------------------ 56
4.8 Gender Based Ranking 0 f Importance----------------------------------------------------------- 58
4.9 Ranking of Impo rtance Based on Occupation and their Explanation------------------------ 60

CHAPTER FIVE : CONCLUS ION AN D IMPLICATIONS-------------------------------------- 64

5. I Co nc Ius i0 n------------------------------------------------------------------------------------------- 64
5.2 Recomm end at j 0 n5---------------------------------------------------------.------------------------ 66

REFERENCES
APP EN DI CES
Appendix A: Survey Questionnaire (Amharic Version)
Appendi x B: Survey Questionnai re (English Version)
Appendix C: Statistical Res ults of Factor Analysis

v
 LIST OF TAB LES

Tab le I: Results of profil e data of the respondents---------------------------------------- 39

Tabl e 2: Distrib uti on of respondents' Age by occupation-------------------------------- 40

Table 3: Rank of banks used by the respondents------------------------------------------ 42

Ta bl e 4: Res pondents Usage of Banking Services---------------------------------------- 43

Tab le 5: Respondents need of add iti onal bank service----------------------------------- 44

Tabl e 6: Respondents degree of satisfacti on with the bank services-------------------- 45

Table 7: Future intention of customers with their customer banks---------------------- 47

Table 8: Results offactor analysis----------------------------------------------------------- 53

Tabl e 9: Ran king im portance of bank selectio n criteri a factors------------------------- 56

Table 10: Ranking importance of bank selection facto rs by gender-------------------- 59

Tab le II : Ranking importance of bank se lection factors by occupat ion--------------- 6 1

vi
 LIST OF FIGURES

Figure I : The customer decision-making process--------------------------------------------------- 9

Figure 2: Influences on cus tomer decision mak ing------------------------------------------------ 10

Figure 3: Study samp le design------------------------------------------------------------------------- 33

Fig ure 4: Respondents bank affi liat ion period----------------------------------------------------- 41

vii
 LIST OF ACRONYMS

AH P Analytical Hierarchy Process

AlB Awas h International Bank

ATM Automated Tell er Machine

BOA Bank of Abyss inia

CBE Commercial Bank of Ethiopia

CBO Cooperative Bank of Oromi a

CP Customer Preference

CPA Principal Components Ana lysis

DB Dashe n Bank

ERCA Eth iopian Revenues a nd Custo ms Authority

KMO Kei ser-M eyer-O lk in

LIB Lion International Bank

11.3. no author

n.d. no date

SPSS Statistical Package for Social Science

UB United bank

WB Wegagen Bank

vi ii
 ABSTRACT

To plan a suitable marketing SirGlegy fa keep existing clIstomers and for allracling new

customers, commercial banks need fa ident(fjl lhe criteria on which ClIslomers determine their

hank selee/ion decision. Hence , the purpose of th is study is 10 examine the sigmjicance of

bank seleelion crileria and how customers rank the factors based on Iheir importance leve/ fo

patronize banks and banking services. It also intended to present an analysis of gender

differences in th e relative imporlance oj choice crileria in respect of selecting a bank one/to

elicit the opinion of bank cuslol11ers 011 any exIra services needed 10 be offered by banks. /3o(h

quantitative and qualitative methodology, lIsing responses given by 20 1 clistomers h1 Addis

Ababa city frolll different occupation (studenls, elllployees and businessmen), is employed in

the analysis. A non-probability convenience sampling was used and data was jactor analyzed

10 reduce Ih e number of total variables infO manageable way.

Finding from /his sll/dy reveal/hal the most /wo imporW11f bank ,\'election criferia for

ellS/DIners are "convenience" and "service provision" jar the enlire customers while il is

"bank 's image" as the second most important fac/orfor male cusiomers. On the a/her hand,

{he leasl IwO impor/anl factors of bank selection for customers are "financial benefitsl

tech nology ", "replllation" and "promotion strategy" whereas "allraCliveness" for female

clistolllers. Given /his .findings, il is recommended that hierarchical information intebYJ'ation

may be a potentially useful method jol' bank managers 10 sludy complex decision making

problems sllch as bank choice.

Keyw()/'{/s: Bank Selection Criteria, Customers, Banks, Banking Service

ix
Bank Selectioll Decisioll. Factors Influencing the Choice of Banking Services Jill/e . 2011

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The banking industry has been characterized by increas ing competition since the early

1980s (8lal1kso n et aI. , 2007). This has been the result of a l1umber of interrelated factors

such as co mpetition and deregulation that have revo lutionized the di stribution of many

fi nanci al services. In other words, an increased competition resulting from a decade of

deregul ation of the financial services industry has meant that banks find themsel ves faced

with the task of differentiating their organizations and their offerings as a means of

attracting customers (8 lankson et aI. , 2007).

The concern of how customers choose banks has been given considerable attention by

researchers (for example: Blankson et aI. , 2007; Mokhli s, 2009; Mylonaki s, 2007;

Awang, 1997; Boyd et a I. , 1994 and Almossawi, 200 I). Exploring such information will

assist banks to recogni ze the appropriate marketing strategies needed to attract new

customers and retain ex isting ones (Kaynak and Kucukemiroglu, 1992). With growing

competitiveness in the banking industry (Grady and Spencer, 1990), and similarity of

services offered by banks (Ho lstius and Kaynak, 1995), it has become increasingly

important that banks identify the factors that determine the basis upon which customers

choose between providers of financia l services. The relevant literature indi cates that a

great deal of research effort has been expended to investigate bank se lection criteria for

broad categories of customers (Yue and Tom , 1995).

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Bank Selection Decision: facIal's Influencing fh e Choice of Banking Services Jllne, 20 11

Modern banking in Ethiopia introduced in 1905. At the time, an agreement was reached

in between Emperor Minelik 11 and a representative of the Briti sh owned Nationa l Bank

of Egypt to open a bank which leads to Bank of Abyss inia launched in Feb. 16, 1906 by

the Emperor (Abraha et al. 2005). This event marked the introduction of banking in the

country. The Bank of Abyssinia was given a 50 years pl easure and was engaged in

issuing notes, co llecting deposits and granting loans, but its clients were mostl y foreign

businessmen and wealthy Ethi opians (Mauri , 2003).

Ethiopi an banking is flouri shing. Financial res ults for the 20 I 0 fi scal year prove an

industry enjoying high growth, hi gh profits, and hi gh dividends. Even in the middle of a

challenging situation, all key areas of banking operations: co llecting deposits, providing

loans, and forei gn exchange dealing, showed growth of more than 20 percent. Even

though sharing strong expansion, there are of course prominent variations along with

banks in terms of their aggregate size, revenue sources, customer focus, loan

co ncentration, and operational efficiency ]. Presentl y, there are 15 banks in Ethiopia of

wh ich 12 are private banks2 and the rest are government owned banks. Moreover,

looking ahead, banks wi ll surely be confronted by the entry of six new banks (namely:

Abay, Enat, Hawassa, Debub Global, Noah, Zam-Zam) and other financial institutions.

With growing competitiveness in the banking industry (Grad y and Spencer, 1990), and

similarity of services offered by banks (Ho lstius and Kaynak, 1995), it has become

increasingly impOitant that banks identify the factors that determine the basis upon which

1 See th e survey in access capital (December 20 10), where th ey present th eir review on Ethiop ian
investment specifi call y on th e bankin g sector
2 Abyss inia, Awash, Berhan, Bunna, eBo, Dashen, Lion, N IB , O IB , Un ited, W egagen, and Zcmen (A pril.
20 11 )
Page 12
Bank Selection Decision: Factors Inflllencing the Choice of Banking Services JUlie. 201 I

customers choose between providers of finan cia l services. In this regard, the basic aim of

the study is to examine the basic moti vational factors in customers' bank se lection in

Addis Ababa city. In order to achieve the research aim , the stud y has adopted both

quantitative and qualitative research approach specificall y survey method tlu·ough

personally admini stered questiOIlllaires (both quantitati ve and qualitati ve) .

1.2 Statement of the Problem

A number of studies have been undertaken to analyze facto rs that affect customers '

preference in banking services. Among these studies includ e Mokh li s et al. (2008) who

examined the determinants of bank selecti on criterion in Malaysia considering

undergraduate students; while Mokhlis (2009) attempted to analyze gender-based choice

decisions. Correspondingly, in Bahrain (Almossawi, 200 1), a case of co llege students and

in Greek (My lonakis, 2007), a research task of customer preferences in the home loans

market were done. Other studies are al so undertaken in Europe (Bosn ia & Herzegovina

by Cicic et aI. , 2003 ; Greek by Mylonakis, 2007) and Africa (Ghana by Blankson et aI. ,

2007; N igeri a by Mai yaki et aI. , 20 10; Maiyaki, 20 11 ) countries on the issue of bank

selection criteri a in line with customers' preference: why and how they select a parti cular

bank to be served there. Although such stud ies have contributed substanti all y to the

literature on bank selection, their findin gs may not be appli cable to other countries like

Ethiopia, due to differences in cultural , economi c and legal environments.

Page 13
Bank Selectioll Decision: Faclors Influencing rhe Choice of Banking Services Jllne. 201 /

To the best of the resea rcher's knowledge, there ex ists no prevIou s research work in

Ethiopia concern ing the banking se lection criteri a of customers. Therefore, th is study is

particu larl y intended to examine the determinants of customers' bank se lecti on in Addis

Ababa City. Such a study is hopefull y expected to fil l the gap in literature by scrutinizi ng

the determinants of customers' bank selection in Add is Ababa Ci ty.

1.3 Objectives of the Study

The overall objective of the study is to investigate the ma111 determinants that affect

customers' selection of banking services.

Specific Objectives

.:. To determ ine the criteri a that customers consider important when selecting a bank

and how those cri teria are prioritized according to their importance .

•:. To identify e ither any significant gender di screpancy amo ng customers 111

selection of a bank or not.

.:. To assess whether customers requIre add it ional servIces apart to the servIces

currentl y offered by the bank of their choice or not.

1.4 Specific Research Questions

To achieve its objectives, the study has raised the following research questions.

I . What factors do customers consider impoltant in selecting their cho ice of a bank and

what are the most important Factors?

2. Which bank(s) are most preferred banks 111 Ethiopia based on the sample under

consideration?

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Bank Selection Decision. Factors Influellcing the Choice oj Ballking Services June, 2011

3. Which banking faci lities are the most frequently used by customers?

4. Do customers have an intention to continue with thei r respecti ve bank?

1.5 Significance of the Study

The research has examined the determinants of customers' bank se lection criteri a as well

as evaluated the relationship between personal status of the customers and so und decision

of se lection. The importance of thi s study can be viewed from two di mensions:

theoretical contributions and practical implications. Theoretically, the study fi ll s an

important gap in the literature that is, exploring bank selecti on criteria for potential

custom ers in the Addi s Ababa region. Therefore, the findings of this study can add to the

ex isting body of the literature and can serve as a starting point on which futu re stud ies

can be bui It.

On the practica l side, thi s study can help bank deci sion makers (both gove rnmental and

pri vate banks) to identifY the major facto rs that may determine bank selection decisions

among customers. Such information should help the management of practicable banks in

fo rmulating appropriate marketing strategies for reaching and attracting customers.

1.6 Scope and Limitations of the Study

Thi s research focuses on a specific sector of customers and thus the results do not

represent the general public. As the survey conducted was only restricted to Addis Ababa

region and participated merely some occupations results may vary if research is

co nducted in other parts of Ethiopia in add iti on to other occupations. And further if the

study is conducted taking all customers of the selected organi zations and business area
Page 15
Bank Selection Decision: Factors Influen cing the Choice of Banking Services June. 201 I

the results may vary. It is limited only to customers of several banks in Addis Ababa

City from different occupations such as students from Addis Ababa University,

businesspersons (merchants) from Merkato and employees from the Eth iopian revenues

and customs authority. Some distributed questionnaire are left unreturned thus , thi s has a

bit reduced the sample size.

1.7 Organization of the Paper

The thesis is structured in fi ve chapters as fo llows. Following introduction in the first

chapter, chapter 2 contains a review of the literature including customers' behavior and

satisfaction on banking services and bank selection criteria by different groups of people

and gender- based selection criteria. The research design and methodology are presented

in chapter 3. Specificall y, this chapter shows the research sampling method followed by

methods used in collccting data and in the study are a ll outlined. Furthermore, statistica l

methods used to analyze the data are also discussed. In chapter four, the results and

findings of the study are also discussed. Finally, the last chapter enclosed the summary of

findings , conclusions drawn and recommendations and areas where further research may

be producti ve.

Page 16
Balik Selection Decision Factors Influencing 'he Choice of Banking Services Jlllle.2011

the results may vary. It is limited only to customers of several banks in Addis Ababa

City from different occupations such as students from Addis Ababa Univers ity,

businesspersons (merchants) from Merkato and employees from the Ethiopian revenues

and customs authority. Some di stributed questionnaire are left unreturned thus, thi s has a

bit reduced the sample s ize.

1.7 Organization of the Paper

The thesis is structured in fi ve chapters as follows. Foll owing introduction in the first

chapter, chapter 2 co ntains a review of the literature incl uding customers' behavior and

sati sfaction on banking services and bank selection criteri a by different groups of people

and gender- based se lection criteria. The research design and methodology are presented

in chapter 3. Specifi call y, this chapter shows the research sampling method followed by

methods uscd in collecting data and in the study are all outlined. Furthermore, stati stical

method s used to anal yze the data are al so di scussed. In chapter four, the results and

findings of the stud y are also di scussed. Finall y, the last chapter enclosed the summary of

findin gs, conclusions drawn and recommendations and areas where further research may

be productive.

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 Bank Selection Decision: Faclors Inflllencing the Choice 0/ Banking Services Jllne. 201 J

CHAPTER TWO

REVIEW OF LITERATURES

Th is chapter revIews the studies that have been carried out to date. Previous studies

conducted in thi s area are organ ized based on their chronologica l context.

2.1 Definition of Terms

Banks are the major type of deposit taking institution ; they make thei r living

predominantly by takin g deposits wh ich represent their liabilities and loaning these fund s

to borrowers which represent their assets. They loan out fund s at a hi gher in terest rate

than the fund s, and the difference represents their gross profit margin before expenses

and tax. Tn addition, banks can earn commissions and fees by se lling various products

such as forei gn exchange services, safe custody services, advice, account management

charges, cred it card fac ilities, insurance and so forth (P ilbeam , 1998).

Bank is an institution whi ch deal s in money and cred it. It accepts deposits from the publ ic

and grants loans and advances to those who are in need of funds fo r various purposes.

Banking is an activity which invo lves acceptance of deposits for the purpose of lending or

investing. Tn addition to accepting deposits and lending fu nd s, banki ng also involves

providing various other services along with its main banking activity. These are mainl y

agency services, but include several general services as well. A banker is one who

undertakes banking activities, accepting deposits and lending money for different

purposes 3

3 See bus iness studies in India, n.a. , nature and scope of banking number 32
Page 17
Bank Selection Decision ' Faclol's Inflllencing the Choice of Banking Services JUlie, 2011

Hart (J 931 , p. ll ) defined a banker or bank as a person or a company carrying on the

business of receivi ng money, co llecting drafts, for customers subject to the obligation of

honoring cheques drawn upon them from time to time by the custom ers to the ex tent of

the amounts availabl e on their current accounts.

There is no statutory definition of a banker's customer, and so one has to re fer to the

decisions of the courts in order to discover the principl es whi ch determine whether or not

a perso n is a customer. In the United States, Sect. 4-104 ( 1) (e) ( 1957 of the Uniform

Commercial Code defines as "any person having an account with a bank or fo r whom a

bank has agreed to co llect items and includes a bank carrying an account with another

bank" . As stated by Lord Davey in Great Western Railway Co. V. Londo n and County

Banking Co. Ltd., in 190 1, "there must be some sort of account, either a deposi t or

current account or some similar relation, to make a man a customer of a banker" .

Role of Banks: The functions of banks are divided into two catego ries : as primary

functions and secondary functi ons including agency services. The primary fun cti ons of

banks include: accepting deposits and lending money. The most important activity of

banks is to activate deposits from the public. People who have surplus income and

sav ings find it convenient to deposit the amounts with banks. The second important

function of banks is to grant loans and ad vances. Such loans and advances are given to

members of the public and to the business community at a hi gher rate of interest than

allowed by banks on various deposit acco unts.

Page 18
 Services June. 2011
Bank Selection Decision: Faclors Influencing Ihe Choice a/Bankil1g

2.2 Customers Behavior

h to se lect, purcha se,
Custom er behavi or is the process individual s or groups go throug
needs and des ires
use and dispose of goods, services, ideas or experi ences to sati sfy their
factors, but also by
(Sell s, n.d.). Consu mer behavior is not onl y influen ced by ex ternal
consta ntl y changing
their attitudes and ex pectations. These attitudes and expectations are
nal experiences (Peer,
in response to a continuous flow of events, information and perso

2009).

2.2.1 Steps in the Customer Decision Process

approaches rangin g
Researchers realised that deci sion maker s actuall y possess a set of
ance of what they are
from painstaking anal ysis to pure whim, depending on the import
n.
utili zing and how much effort the person is wi lling to put into the decisio

Fig. J: The custom er decision-making process

Problem recognition
-
Information search

Evaluation of options

r
Service choice

Post-use evaluation
J
Source : Adopled./i-ol/7 Sells (n. d. ), Consu mers behavior, pp. J5 7)

Page 19
Bank Selection Decision: Factors Influencing the Choice oj Banking Services June , 201 J

2.2.2 Influences on Customers' Decisions

Apart from understanding the procedure of the customer decision-maki ng process,

industries also try to determine what influences in customers ' li ves affect th is process.

There are three main categori es: internal , si tuational and social influences.

A. Internal influences on customers' decisions: Service giving organizations know that

one customer' s ideal treatment can be quite different from that of another customer. You

may think the ideal treatment is a vigorous internet banking, whil e your best friend

dreams of a typical fast customer service and your father is set on having a frie ndliness of

the staff in the organization. Some of these differences are due to the way in which

customers internalise information about the outside world such as perception, exposure,

attention and interpretation. Perception is the process by which people select, organise

and interpret information from the outside world (Sells, n.d.).

Fig 2. Influences on customer decision making

Situational Influences
./ Physical Social Influences
environment .... Culture
Internal Influences ./ Time .... Subculture
>- Perception Social class
>- Motivation >I- Group
>- Learning membershi
>- Attitudes ~
>- Personality
>- Age groups i1izing
>- Lifestyle
Source: Adoptedji-ol11 Sells S. (n.d.), Consumers behavior, pp. 157)

Page 110
lJank Selection Decisioll: Faclors Inflllencing lite Choice 0/ Banking Services Jlllle, 2011

A number of different factors in customers' lives influence the consumer decision-

making process. Organizations need to und erstand these influences and which ones are

important in the exploit process to make effective marketing dec isions.

B. Situational influences on customers' decisions: these factors can affect what, where

and how customers utili ze their choices from different organi zations. It is no secret that

people 's mood s and behaviors are strongly influenced by the ir physical surroundings

such as adve11izin g. There is one motto by the adverti s ing archives: "As customers are

exposed to more and more acivertising, advertisers must work harder than ever to get

their allention".

In addition to the physical environment, time is another situati onal factor. Organi zation s

know that the tim e of day and how much time one has to make a utili ze affect decision

making. Time is one of consumers' most limited resources. We talk about ' making time '

or 's pending time', and are frequently reminded that ' time is money' . They shou ld

provide fast service for their customers.

C. Social influences on customers' decisions: Although we are all indi viduals, we are

also members of many groups that influence our utilizing deci sions. Famil ies, friend s and

classmates often influence our deci sions, as do larger groups with whi ch we identify,

such as etlmic groups and political part ies.

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Bank Selection Decision : Factors Inflll encing the Choice oj lJonking Services June. 2011

2.3 Customers Satisfaction

Attempting to offer all things to all peo pl e is difficult, if not impracti cab le in a

competiti ve marketpl ace. Many financial institutions are selecti ng a few key target

markets and concentrating on trying to serve them better than their competitors.

Generally speaking, customers and business banks have t1u·ee mall1 targeting choices

(Zineldin, 1996). They can attempt to become fin ancial supermarkets, low-cost

producers, or market nichers: Financial services supermarket strategy is onl y appropriate

for a few, very large, di versified banks and financial institutions such as Citico rp,

American Express. Low cost producers offer limited services at di scount prices and

compete on price. The most obvious exampl es are disco unt brokerage firms and money

market funds that offer limited services effi cientl y.

Specialty or niche banks primarily focus on the needs and desires of a particular market

segment with a parti cular product mix such as mortgage loans, venture financi ng, special

trade markets and industry sectors. Many regional and national banks have adopted

ni ching strategies, targeting market segments where they have key strengths and

experience. Not surprisingly, many small and med ium-size institutions are targeting

commercial customers and prospects and avoi ding intense competition fo r consumer

business.

The customers-needs approach requ ires that banks target their business towards one or all

customers, and towards sati sfying some or all of their needs and wants. A bank has to

analyze and consider its strengths and weaknesses, its market oppo rtunity, and its

competitors.
Page 112
 June, 2011
Balik Selection Decision: Factors Influencing the Choice oj Banking Services

ble growth. Thi s

Custom er satisfacti on is a strategic support to obtain a long term profita
loyalty of customer
may have its own advantages and main resul ts . For instance, more
organization , great
can creates a cross sell ing & up selli ng of services/ prod ucts of one
the institu tion, better
custom er retention can results a long customer life time val ue fo r
a hi gher stock returns,
short and long term business perfo rmanc es may also co nseq uences
ti tive posi ti on ing can
stock val ue and cash fl ow less vo latile and long period strong compe
, 2008). Unicred it
conseq uence a market leadershi p in one instituti on (Unicredi t Group
in Italy. Regarding
group has a strong com mi tment to be the custom er satisfacti on leader
at Turin Lisbon ,
the custom er sat isfaction in the leadership meeting in January 2007

Alessa ndro Profumo quotes:

themselves,
What is really important is to build a Group where people recognize
cllstomers
where our employees are happy of being part of the team, where Ollr
o( service -
are satisfi ed of being our cllstom ers because we are the best in terms
be the besl
or at least because they perceive that we are making a lot of efforls to

at a service level.
er, substitute measu res
Although custo mer withho ld ing is the goal of the service provid
dinal studies . These
are typi call y used owing to the constr aints invo lved in longitu
provid er (Levesq ue et
measu res relate to attitudes or future intentions toward s the servic e
rvice quality , meetin g
aI. , 1996). T here are three regul arl y used measures of genera ll y se

expectations and custom er sati sfacti on (Hausknecht, 1990; Heske tt

et aI., 1994; .J ones and

Sasser, J 995 cited in Leves que et aI. , J 996).

Page 113
 Services Jlllle, 20//
Bank Selection Decision: Faclors Influencing the Choice a/Banki ng

ions from both the

The custom ers' contentment begins with obvious, operational definit
expectations and
customer and the organization . Understanding the inspirations,
to the customer.
require ments of both provid e a fou ndation in how to provide best service

It may even provide information on makin g improv ement s

in the nature of business

sati sfaction. Service

(Haque et aI., 2009). This is the heart of research into custom er
overall excellence or
quality is one of the custom ers ' judgments about an entity' s
of expectations to
superiority. It is a form of attitude and results from a compari son
is a measure of
perceptions of performance recei ved. As Mols defined service quality
(Mols et al. 1997).
how we ll the service leve l delivered matches custom er expectations

ction arbitrates the

A study carried out by Haque et al. (2009) found that custom er satisfa
Custom er satisfaction
effects of automated bank service quality on financial performance .
mance . Howe ver, thi s
can thus be considered as the key construct to bank financ ial perfor
nshi p with custom er
research found that internet service quality had no signifi cant relatio
could enhance overall
sati sfaction; impro vemen t in the quality aspects of this dimension

sati sfactio n and thus financ ial performance.

et al. (20 10). They

A study was conducted on the Paki stan customers by Khattak
s the Islami c bankin g
analyzed the customer's sati sfaction and awareness level toward
vari ables and the
system and investigated the relationship between different demographic
customers. They go to
sati sfaction and awareness of customers by taking a sampl e of 156
bank 's personal
the point that the major factors were manag ement profic iency,
es of parkin g. In
knowledge, cost of services, efficie ncy of transactions, and faciliti

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Balik Seleclion Decision: Factors Influencing the Choice of BOllkillg Services Jllne, 2{)! I

contrast, adverti sing campai gn , working hours and financia l counseling were selected by

the customers as least important factors in choosi ng banks.

Recentl y in Ma laysia, Munusamy et al. (20 10) conducted a study on service quality

delivery and its impact on customer sati sfaction in the banking sector. They found that

assurances, tangibles, understandi ng and responsiveness are the most important facto rs

that generate customers ' satisfaction and these factors have a positi ve relationship with

customer satisfaction. Their find ing also indicates that measuring the level of

performance and sati sfaction when it comes to the intangible expectations are the most

diffi cult things for the customers.

2.4 Bank Selection Criteria

Fi nanc ial industries, especially banks, are becoming hi ghl y competiti ve day by day due to

service differentiation, easiness of service avai lability, culture based products offering

and technology used in service deli very. Customers are selecting banks considering

vari ous features of the service proposition. Thus, to attract customers, banks are facing

cha ll enges more than ever. But to attract customers it is crucial to know what selection

criteria customers are adopting in se lecting banks. Such selection criteri a of the

customers open an area of research on bank se lecti on criteri a of customers.

Various emp irical research uSll1g different methodo logies and approaches have been

conducted in various parts of the wo rld to investigate the bank selection criteria of the

customers. Frequently these studies examined the question of why people prefer a

specific bank. Among the researchers who did a scientific study on thi s topic were in

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Bank Selection Decision: Factors Influencing the Choice of Banking Services JI/I/e, 2() I I

Malays ia (Mokhli s et a1. 2008, 2009 & 20 I 0; Haque et aI. , 2009), N igeria (Maiyaki , 2008

& 20 I I ; Omar et aI. , 2006), Singapore (Ta et aI. , 2000), Canada (Levesque et aI. , 1996)

and India (Rao et aI. , 20 I 0). Eventually the importance of the studi es started more in

direction of other features of bank choice, like the compari son of customers choice

criteria for single and multipl e bank users (Mokh li s et a I. , 2009) and an analysis of

gender-based choice decision in banking (Omar et aI. , 2006; Mokhl is, 2009). And

recentl y the variation in bank cho ice criteria between distinct cultural groups in Malaysia

was investigated by Mokhlis et a1. (2010).

Anderson et a1. (1976) studied on customers' bank selection decision in USA. I-Ie fou nd

that: friends ' recommendations, reputation of the bank, avail ability of credi t, friendliness

of staff and service charges on accounts are the most imp0!1ant criteria in selecti ng banks.

The authors' study was, however, criticized by Laroche (1 986) who claimed that the

authors' work was contradictory with previous research that identified locati on (i.e.

conveni ence) as an important factor in bank selection. Laroche (1986) fi ndings were later

maintained by Gerrard and Cunningham (200 1) and Lee and Marlowe (2003) who

confirm ed convenience as important in the choice o f banks. Anderson et a1. (1976)

findin gs have however been supported by Kaynak (199 1), Ta and Har (2000),

Almossawi (200 I) and recently by Rao (20 I 0), who conclude that recommendati on by

parents and friends, i.e. peers, was the most important criteri on.

In his articl e about Ameri can co llege students, Schram (199 1) fo und that con venience

remains the primary reason why most co llege students choose their banks. Fami ly

traditi on also seemed an important facto r for college students. He noted that sometimes it
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Bank Selectioll Decision: FaClors Influ encing Ihe Choice oflJal1king Services JUlie. 2() 1J

takes very litt le effort to keep the account of a student whose famil y has been with the

bank for some time. Thus, fam il y loyal ty to banks appears to be exhibited among

students.

In their article about Ameri can uni versity students, Khazeh and Decker (1992-93)

investigated the consum ers' deci sion-making cri teria in the United States of America

(USA), consid ering also the degree of di ssimilarity among banks with respect to these

criteria and fou nd that service-charge po licy, reputation, competitiveness of loan rates,

time req uired for loan approval and fri endliness of tell ers, are the most important fac tors

in explai ning how customers choose banks. In contrast, avail ability of financial advice

was among the lowest raking determinant attributes.

In the paper of Boyd et al. ( 1994), the results o f the study reveal that reputation, interest

charged on savings accounts, interest charged on loans, quick service, location on ci ty

and hours of operation are viewed as having more importance than other criteria such as

friendliness of employees, modern fac ili ties, and dri ve-i n-serv ice. However, a research by

Awang (1999) examined that customers preferred to deal with banks that can provide

quality services such as fast and efficient service, staff wo rk accuracy, fri endliness of

bank personnel and wa rm reception.

A study by Haron e/ at. ( 1994) in the Ma laysia, was conducted a survey on 30 1 Muslim

and non-Mus lim commercial ba nk customers to determine the bank selection criteria.

They found that "fas t and efficient service", "speedy of tran sacti ons", "fri endliness of

bank persolUlel" and "confi den tiality of bank" was the four most important facto rs by

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Bank Selection Decision: I~cto,.s Influencing the Choice of Banking Services Jlllle. 2011

Muslim customers. On the contrary, non-Muslim customers four most important factors

were "friendliness of bank personnel", "fast and efficient service", "reputation and image

of bank" and "speed of transactions" .

According to Thwaites and Vere (1995), the student group in British is an important

target audi ence that is being overlooked by marketing practitioners in the banking sector.

The authors go on to emphasize that the limited information available on students'

selection criteria of reta il banks makes it difficult to be preci se about the key drivers

determining the choice of a particular financial service suppli er. Their finding revealed

that ATM service is the most important factor in selecting which bank to patronize.

Furthermore, Thwaites and Vere (1995) affirm that college students are less loyal than

the public, expensive to attract, and difficult and challenging for positioning and

differentiation strategies. In view of the fact that students can be perceived to be li ving on

future income, it is important that retail banks develop marketing strategies attractive to

them as potential customers.

In Finland, Holstius et al. ( 1995) investigated the determi nant factors used in bank

selection decisions by customers. They found that the most influential facto rs reported

by customers were location near home or work, fast and efficient service,

recommendations of friends and rel atives, externa l appearance, interior comfort of the

bank counter partitions and mass media advertising of the services. Since the least

important factors li sted by the respondents were financial counseling services provided,

confidence in the bank manager and a wide range of services offered.

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Bank Selection Decision: Fac fors Influencing the Choice a/ Banking Services June, 20 11

One earl ier study reported by (Z ineldin, 1996) guides to a well -integrated applicati on of

tecJU1ology and staff tlu-ough operations that respond to customer needs encourage

customers to use a whole range of banking products/ services rather than just a few. It

also helps to build loyalty by creating deeper and fu ller customer rel ationships.

Add itionall y, he fo und that convenience of location, price and advertising had a mi nor

impact on bank selection for the customers in Sweden. In Poland, Kenn ington et al.

(1996) studi ed on co stumers selecti on criteria fo r banks. The fin dings of their survey

di sclosed that, as in other countries, the most important vari ables in fl uenci ng customer

choice are reputation, price/ cost, conveni ence and service but with certain vari ations

related to the Polish contex t.

With the intention of identifying the determinant factors used by customers in making

bank selection dec isions, it was suggested to take into consideration two dimensions,

(Anderson et aI. , 1976; Khazeh & Decker, 1992; Laroche & Mann ing, 1984 ; Edris &

Almahm eed, 1997) . First, bank attributes to which customers react in term s of their

importance in choosing a bank. Second, the perceived degree of sim il arity/dissimil arity

among banks with respect to each of these attributes. This means that the true underlying

determinants of bank selection deci sions are functi ons of both their relative importance

and the perce ived degree of di ssim ilari ty among banks (Khazeh and Decker, 1992).

The relati ve importance of banki ng services to business customers' needs and the true

determi nants of bank selection. Ultimately, Edris and Almahm eed ( 1997) found that the

hi ghest-ranking determinant facto rs of selecting a bank in Kuwa it are: size of bank assets,

effi ciency of personnel help in fi nancial emergencies, bankin g experience, friendliness of

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Bank Selection Decision: Factors Influe ncing the Choice oj Banking Services JUlie. 2011

staff, reputation , communications with staff, know ledge of firm 's bu siness, prompt

provision of services, and availability of branches abroad.

[n Ghana, Owusu-Frimpong (1999) has conducted a survey on patronage behavior of

bank customers using an info rmal telephone interview with six senior bank managers.

Findings from 225 respondents di scovered th at co nveni ent location and friendl y

emp loyees are the most important attributes determining the image o f the banks fo r the ir

selection deci sion pursued by size of the bank and profit minded services.

A study conducted by Awang (1999) di scovers the factors affectin g customers'

preference in services rendered by various banks in Ma laysia. I-li s study showed that

customers prefer quality services than the other factors menti oned. They rank fast and

effici ent services and bank image/reputation as their first and second preferences,

respectively. Convenience location and the avai lability of parking space nearby were

found to be significant in bank se lection decision. Thus, opening of more service centers

at strategic location wou ld be to customers ' convenience. Confidence in bank manager,

external appearances of bank, mass media adverti sing and recommendation from friend s

and relatives were found to be less signifi cant factors in bank se lection deci sion.

[n Singapore, Ta and Har (2000) undertook a study on bank selection dec ision in

Singapore using the analytical hierarchy process (AHP) to access the principal decision

factors used and their re lati ve determinant in bank selection decisions. T hey concluded

that results of the analys is for the total sample indicated that the bank section decision

process is based primarily on nine determinant selection criteria: hi gh interest rate,

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Bank Selection Decision : Faclors Influencing the Choice oj Banking Services June. 201 I

convenient location, and quality of service, self-bank ing facilities , low charges, low-loan

rates, long operating hours, undergraduate privileges and recommendation s.

A study in Bahrain by Almossawi (200 I) focused on examll1l11g the bank se lection

criteria being employed by co llege students. He used 1,000 samp le students from

Universi ty of Bahrain. Hi s findin gs reveal that the chief factors determining college

students' bank selection are : bank's reputation, availabi lity of parking space near the

bank, fi·iendliness of barllc personnel , and availability and location of automated tell er

machines (ATMs), such as their availability in several convenient locations and 24-hours

availability of ATM service. The paper suggests that it may be necessalY to deal with

male and female students as distinctive segments with different priorities in their bank

selecti on process.

Lee and Marlowe (2003) investigated how customers choose a financial institution for

their checkin g accounts on 32 participants using both qualitative and quantitative

approach with focu s group discussion technique. They were found that, although most

customers' value convenience as one of the most important decision-making criteria,

their definitions of convenience varies across customers. The resu lts indicated that

convenience, retail fees and minimum balance requirements, range of the service,

personal re lationship and sa fet y are the most important criteria to the US customers.

Another impol1ant find ing of the study is that the participants facing new fi nancial needs

start their search process from the institution where they have their checking accounts.

Page I 21
Bank Selection Decision: Facfors Influencing Ihe Choice oj Banking Services June, 20 11

Cicic et a l. (2004) investigated the attitude of 300 students aged 19-24 years of the

Uni versity of Sarajevo in Bosnia and Herzegov ina to exam ine the customers' bank

selection criteri a. Their findin gs disclose that the main factors determining students'

bank selecti on are: reception at the bank, friendliness of bank personnel, low services

charges, ease of opening a current account, and co nfidence in bank management. In their

conclusion also they suggest that there are some differences compared with bank

selection process emp loyed by students in developed countries.

Other research literatures Lym peropoulos et al. (2006) exam ined the importance of

service qual ity in bank selection and found four di stinct facto rs as the main choice criteri a

that influence consumers' bank choice. Bank service qual ity is the most impOltant

element that customers consider in order to select their mortgage providers and establi sh

a long-term re lationship with them. The other three refer to product attributes, access, and

communication.

Mylonakis (2007) studi ed on customer preferences in the home loans market experience

of the bank customers in Greece. I-Ie was used 200 customers in which data was co llected

using structured questi onnaire. His findin gs showed that in add ition the mortgage product

mix and some cost elements (interest rate, prepayment penalty) other important

influential factors appear, such as the various offers of banks, the bank's reputation ,

ex isti ng cooperation, as well as bank staff. Bank branches proved to continue constituting

the primary di stribution channel fo r mortgage products and services. Promotion through

television plays an important ro le and seems to affect the customer bank selection.

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Balik Selection Decision: Factors Injlllencing the Choice oj Blinking Services Jun e, 101 J

In Malaysia, Dusuki (2007) studied using self-administered questi ormai res invo lving a

sample of 750 respondents from four different regions. I-Ie used banking criteria ranking

as perceived by the respo ndents are analyzed using Fri ed man Test. The most signi ficant

determinants perceived to be important for selecting banks were comprise: conven ient

location, friendl y empl oyees, large, profit minded, slow service and effi cient service.

Blankson et a!. (2007) conducted a study in three varied cultural settings of

industriali zati on. Their research was based on the coll ege student group and thus the

results do not represent the public. The study reveals three key dimensions, facto rs,

strategies that are consistent across all tlu'ee economies. The paper concludes that open

and liberalized business climate appear to exp lai n consumers' dec isions. This poses

generali ze-abi lity questions without further replications and validations. Th is study did

not examine whether there were consumers' switching behaviors invo lving banks.

Survey resu lts of 350 respondents show that bank selection criteria 111 overall

significantly differ between Turkish and Greek Cypri ots. Besides, priorities of bank

selection factors are al so generall y different between two communities. Senyiicel (n. d.)

found from hi s study on bank selection criteria on these different geographical area reveal

that the most important bank selection criteria for Turki sh Cypri ots are ava ilability of

internet banking, where it is paying hi gher interest on saving accoll nts for Greek

Cypriots. On the other hand , the least important factor of bank selection for Turki sh

Cypriots is recommendation of friend s, where it is famil y tradition fo r Greek Cypriots.

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Bank Selection Decisio,,: Faclors Injluencing the Choice a/Banking Services June. 2011

Rehman and Ahmed (2008) in thei r study conducted in the city of Lahore (Pakistan)

found that the four most important variables influencing customers ' choi ce in se lecting a

bank were custo mer services, convenience, online banking fac iliti es and overall bank

environment. Ava ilabili ty of internet banking was also found to be an important bank

selection factor in another survey conducted by Senytice! (n.d .).

Mokhlis et al. (2008) sampled 350 undergraduate students in Malaysia to identify factors

which influence their bank se lection decisions and to exam ine whether undergraduates

constitute a homogeneous group in relation to the way they se lect a bank. Using "factor

analysis" they found that undergraduates secure fee lings was the most impo11ant factor in

influencing the students in selecting a bank. A TM service was the second prioritized

factor followed by financial benefits. The next three criteria, ranked fourth, fifth and

sixth, respectivel y, were service provision, proximity and branch location that can be

grouped as moderate factors. By contrast, the students considered non-people influential,

attractiveness and people influences wh ich were ranked seventh, eighth and ni nth,

respectivel y, did not play significant roles in influencing thei r decision in selecting the

bank. It is interesting to note that thei r finding also shows the responses did not constitute

a homogenous group since gender, stream of study, ethnicity and number of saving

accounts held produced different prioritized factors in bank se lection.

According the study of Khan et al. (2008), an in vestigation on 100 customers of Islami c

bank customers in Bangladesh, religious principles is the key bank se lection criterion of

the Islami c bank customers, whil e customers' demography plays some ro le in

determining whi ch se lection criteria matter more than others do. Add iti onal ly, findings
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Bank Selection Decision: Factors Inflilencing the Choice 0/ Banking Services Jllne, 2011

for the relationship between bank se lection criteria and leve l. of income shows that the

choices of ' famil y and fri ends' and conveni ent location depend significantly (at 5% level)

on level of income.

In a study conducted by Sanyang (2009) in Gambia on "bank strategi c positioning and

factors for bank selecti on" it was di scovered that customers hi ghl y regard with low

service charge and ava ilability of ATM services to be the most important criteria in

patronizing banks. The findings of this study are different from all other studies surveyed

so far, in which, low service charge is the most important factor for bank selection

decision. Hi s fi nd ings also revealed that safety of funds, speed of transaction and

convenient location are a lso treated as the most important factors in patroni zing banking

services in Gambia.

A study conducted by Kumar ct al. (2 009) identified eight determinates- branding,

conven ience, recommended by peers, required by the company , variety of products and

services, rate charges, fl ex ibility in accOlUlts handling and customer-friend ly environment

are the most important factors affecting the decision of the customers on making the

choice of the bank in Malaysia. This paper recoillillended to banks to be innovati ve in

creating more types of channels by ri ding on technological ad vancement; red ucing

customers' waiting time and effort shoul d be their main priority and objective.

Similar to the earlier studies of Gerrard and Cunningham (200 1) and Lee and Marlowe

(2003), Blank son et al. (2009) was found co nveni ence as the most im po11ant factor in

selecting baking serv ices by students in Ghana and United States. They used comparative

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Bank Selection Decision: Factors Influencing Ihe Choice 0/ Banking Services June, 201 I

cross-national study aimed at revea ling the factors determinin g retai l bank selecti on

among students in different environmental settings. Other findin gs of the study were

competence, recommendation by parents and free banking and/ or no bank charges.

In India, Rao (2010) conducted research in the area of student banking focu sing on

factors that influence their selection of banks. A sample of 3 12 respondents took part in

thi s study. The responses were shows reli ability is a significant choice criterion, which

includes employee ' s courtesy, parking fac ility, loyalty programs, brand name, security

system and low charges with the bank. Other factors, wh ich have al so increased in

importance are the responsiveness, value added services and conveni ence. Assurance

factors, such as speed y services, good rate of interest and zero balance account fac ility

are also sign ificant in importance in motivating choice of a bank.

A study was cond ucted by Abduh ct a1. (2010) on the Indonesian customer's attitude.

They targeted the customers of Islamic banks. Finding of his study were that most

customers prefer banks based on announcements of the country's counci l on interest rates

is thei r first consideration in patroni zing a particular bank and puts reason of safety of

fund during the financial cri sis, has greater possibility to patroni ze Islamic banks in

Indonesia. In add ition, bank 's marketing and adverti sement al so hi ghl y influences

indi viduals to patronize Islami c banks.

In Afghani stan, Farooq et a!. (20 I 0) studied the section criteri a of Islamic customers in

patroni zing a particular bank. They fo und that the most important factors lead ing to the

customers' choi ce for selection of Islamic banking products/services are : reli gious

Page I 26
Bank Selectioll Decisioll: Factors Influ encing the Choice of Banking Services June, 201'

inclination, recommendation of famil y and friend s, easy access to branch and profitability

of the baruc As the degree of importance of selection criteria of banks is concerned the

results shows quite sign ificance in the educational level and the degree of reli gious

regulation s in the se lection of banks. The examination of the results revealed that those

respondents having graduate degrees in diverse avenues are more influenced from the

Islamic teachings and principles in selecting bank in compari son with other respondents

hav ing other academic qualification. The results also show that the less educated

respondents are comparatively more influenced form friend s and family.

In their recent study, Shaher et a!. (20 11 ) eva luated the major factors that affect the

commercial banks' performance in the Midd le East region. They based factor ana lysis

technique in their methodology in order to extract the most essential factors that hinder

the customers in their choice of banks and banking services. Their findin g revealed that

bank 's characteri stics (such as, bank size, loan facility and service charges) are

considered as the most important factors in bank selection decision. Quite the opposite,

the sixth factor (other factors li ke, religion believes and awareness of banks performance)

are considered as the least important factors in the Middle East region customers.

A recent study conducted by Katircioglu et a!. (20 11 ) investigates the bank selection

criteria of undergraduate students who are future potential customers of banks from

different regions of the world in a small island economy. They found that availability and

conven ient location of ATM services and speed and quality of services are the most

important facto rs for considering banks and their services for both Turki sh and non-

Turkish undergraduate students. Afterward, th ey conclude that there are not massive
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 Bank Select ion Decision: Factors Influencing the Choice 0/ Banking Services June, 201 I

differences in the bank selection factors between Turkish and non-Turkish international

students in the case of a state University in North Cyprus.

Most recently, Maiyaki (20 11) in hi s survey in Nigeria obtained in format ion about the

factors determining the selection and preference of banks by retail customers. He used

417 sample bank customers using multi-stage sampling procedure and found that size of

bank total asset, has the greatest influence on customer choice of banks, followed by

availability of large branch network across the country, then reputation of the bank,

personal security of customer, and then convenient access to bank location. On the other

hand, recommendations of friends/relatives, attractiveness of bank 's physical structure,

opportunity of te lephone banking, availability of assorted retail bank services and

reasonable terms of credit/loans repayment were the factors that have the least influence

on customer choice of banks. Finally he recommended bru1ks management should pay

attention to factors that have significant effect on the choice of banks.

2.5 Gender-Based Difference in Bank Choice

Previous stud ies listed gender differences as one of few demographic characteri stics that

determine the selection criteria employed by customers when selecting a bank. In the fi rst

major study of note, Laroche et al. (1986) found that there are some signi ficant

differences in choice criteria for retail banks in Canada with respect to basic demographic

factors. Among the more interesting findings of thi s study were that males attached

greater emphas is on overdraft privilege whereas female s are more concerned with

friend liness of staff and safety of flUlds.

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Bank Selection IJec;::,';on: Factol's Influencing the Choice of Banking Services JUI/e, 2011

A study by Boyd et a l. (1994) in the USA reported that males are more interested in quick

service and convenience of location, as opposed to female s, who placed a greater

emphasis on availabi lity of current accounts and interest on saving acco unts. However,

the importance of the differences found was unclear because the authors did not test fo r

significance.

In Bahrain , Almossawi (200 I) conducted a survey on bank choice criteria and reported

that male and female co llege students ex hibited significant differences in 22 out of 30

bank selection factors. According to his find ings, male students prefer banks based on:

avail ability of parking space nearby, availability of ATM in several locati ons and

conven ient A TM locati ons conversely banks ' reputation and 24 hours availabi lity of

ATM service are the most important factors in selecting banks by female respondents .

In the study of Ge rrard and Cunningham (2001) using a sampl e of Si ngapore's

undergraduates, it was found that males placed greater imp0I1ance on ' appearances ' than

their fema le counterparts.

Cicic et a!. (2004) conducted a study under the title of bank selection criteri a employed

by students in a southeastern European country specificall y in Bosnia and Herzegovi na

and they found that 52% of the respo ndents already have bank accounts. The male

proportion of the popul ation has more bank accollnts opened (66.4%), in comparison with

the female proportion of the population (33.6%).

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Bank Selection Decision: Factors Influencing the Choice oj Banking Services June, 20/ /

Another study done by Omar (2008) anal yzes the factors that affect the choice of retail

bank s by men and women customers in Nigeria. He found that the most important factor

considered by male customers was safety of funds , followed by efficient service and

speed of transaction . Female customers on the other hand, considered speed of

transaction as the most important factor, followed by safety of fl.lI1ds and

recommendation by relati ves and/or friends.

In a more recent study conducted in Malaysia, Mokhlis (2009) fo und that six factors

influence bank preference to both male and fema le are: attractiveness, marketing

promotion , Automated teller machine (A TM) service, proxim ity, people influences and

financial benefits. To sum up, the results generate an interesting point in the researchers

that gender differences do not discriminate the attitudes toward banking services and

selection of bank.

In general, it can be concluded that even though there have been studies on bank se lection

criteria's in some developed and developing nations, as per the knowledge of the

researcher, there appear to be no studies that examine the factors affecting custo mer

preferences in banking services in Ethiopia. It is, therefore, not known whether the

customers of the Ethiopian banks choose a bank based on proximity, effective service,

bank ' s reputation, friendliness of bank personnel , or any other cri teri a. In thi s context, the

purpose of this study is to in vesti gate the determ inants affecti ng customers' section in

banking services in Addis Ababa City.

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 Bank Selection Decision: Factors Influ encing Ihe Choice oj Banking Services Jllne, 2011

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

Thi s chapter gives an outline of the research methodology used in the study. Therefore,

the source of data fo r the study, data and sampling technique, design of the research, a

description of the method of data collection techn iques is given. In the last part of this

chapter the statistical method used to anal yze the data, was di scussed.

3.1 Source of Data and Sampling

The target population for the study was included students, bus inessmen and employees

dwelling in Addis Ababa City. Forty two percent of the respondents are students of Addis

Ababa Un iversity because of their convenience, 36 percent are employees from different

regions of the Ethiopi an revenues and customs authority, namel y Mex ico , Kali ti and

Megenagna branches)4. These employees were selected based on the assumption that

they have the capaci ty to save and deposit money in banks because their salary is

relati vely attractive. Whi le the remaining are businessmen from Merkat0 5 These groups

are ex pected to represent all types of population categories in the city, whil e conducting

assessment of the determinants that affect customers' preference in banking services. The

sample targets are presumed to often use bank services to save, receive and transfer

money to and from different corners of the country. Given the nature of the study (due to

the unavai labi lity of sampling frame of banks' customers or in fin ite population), a non-

<I A name ofpJaces fo und in different regions of Addis Ababa where Ethiopian revenues and customs
authority is situated (Megenagna- I-lead office & Eastern region, Mexico- Western region).
5 The largest market place in Addis Ababa, Ethi opia as well as in Africa (See
hltp://wikimapia.org/36 161231 Merkato-olle of-the largcst-open-market-in-A fr ica.
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 Bank Selection Decision. Factors Infillencing the Choice of Banking Services June, 2011

probability (convenience) sampling was chosen. Therefore, a sample size of 201

customers was selected from the defined target population. The Convenience sample

se lection of the respondents has been accompli shed by distributing the questiOimaires to

the available customers of the sampled occupations. However, an attempt was made to

achieve gender balance in the selection of the respondents.

3.2 Research Design

The research design depicted below was used to study the determinants that affect

customers ' preferences in banking services among several banks, and the quantitative and

qualitative data has been used to assess those factors. Survey questions of the

questiOimaire form were gathered fro m various studies (Maiyaki , 20 II ; Katircioglu et aI. ,

20 II ; Rao, 20 I 0; Mokhlis, 2009; Blankson et aI. , 2007; Cicic et a I. , 2004; Almossawi ,

200 1) in the relevant literalun; and revised and adopted to the Ethiopian banking system.

For the sample design to be employed AA 6 customers, see fi gure below.

6 Addis Ababa, Ihe capital city of Ethiopia

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 Bank Selection Decision: Fac/ors Influencing the Choice oj Banking Services June, 201 I

Fig. 3: Study sample design

Out of9 RegIons & 2

Convenience 1-1 ............................•
City Administrations

~ ...•.........-...................-.... Convenience
Sampling

;",' -
~-<--

.....
-'~.
f~.~~, •
,
.• _ _.0...
.~-

.
-1'

,~~
~~--f'
*. . . . . . 1 Occupation
~~z::::::!

Source: Developed by the researcher

3.3 Data Collection

It is the purpose of this study to understand determinants that affect customers' selection

of banks using the above design. In order to achieve the research aim, the study was

adopted both quantitative and qualitative research approach specifically survey 1Il'lhod

through personally administered questionnaires including close-ended and open.8l1ded

questions. This study was used the cross-sectional survey method because the data was

co ll ected at a point in time. The quantitative and qualitative measurement approach was

Page I 33
Bal1k Selec/ion Decisiol1' Facial's Influencing the Choice of Ballkillg Services Ju ne. 2011

employed in this stud y in view of the popu larity of the prevIOUS stud ies (see among

others Lee and Marlowe, 2003; Blankson et aI. , 2007; Khan, 2008 and Mokhlis, 2009).

The adoption of the survey design , in this study, is to gather infor mation that was not

avai lable from document records and make conclu sions about the determi nants that affect

to customers in selecting a particular bank, and their signifi cance in banks based on

responses of a sample of respondents. In thi s regard, Fowler ( 1984) noted that the

strengths of survey methods that result in their wider use included the va lue of statistical

sampling, consistent measurement, and the abi lity to obtain information not

systematicall y availabl e elsewhere or in the form needed for analysis.

The questions were organized into three sections as follows: The first section of the

questionnai re asked respondents to obtain their personal background , questions regarding

their gender, age, occupation, leve l of income and so fO lih . The second section of the

questionnaire sought to obta in information on the banking behavior of respondents. The

respondents were asked for the name of banks at whi ch banking services were used;

whi ch bank was the respondent 's main bank) and whi ch was the respondent' s subsidiary

bank(s). The length of time that customers have been with their banks was also measured.

The fin al section of the questiolmai re was designed to rate the relative importance of 24

bank attributes when choosing wh ich banks to patronize. They were measured on a fo ur

point Likert-lype scale of importance ranging from (4=most important) to ( 1=not

important at all). The li st of criteri a was based on previous similar studies (Omar et aI. ,

7 In the present study, the term "main bank" was defined as the bank with which the respondents conducted
1110St of their tran saction s
Page I 34
Bank Selection Decision: Factors Influencing the Choice oj Banking Services June. 2011

2006; Mokl1lis et a I. , 2008; Mokhli s et aI. , 20 I 0; Maiyaki , 20 II ), and perso nal experience

of the researcher.

To determine the probable usefulness of the questionnaire and whether fl.llther rev ision is

needed prior to co nducting the survey, the questionnaire was pilot tested. The researcher

distributed the questionnaire to 10 postgraduate students and 5 employees as a sample

group. The subj ects were asked if they had any problems understanding the questionnaire

or have specifi c comments regardin g the questionnaire. The format for responding was

through both open-ended and close-ended questi ons. The subjects were encouraged to be

very free with thei r responses, make suggestions for improvement and out line any

difficulties they fou nd.

After each questiolmaire was accomplished, every question was asked what he/she meant

in checking various answers. Comments wcre solicited on the intell igibility of the

questions and what the changes should be done in order to make the questions simpler.

These respondents also gave their comments on understanding the instructions about the

scaling and the time taken to answer the questions. The test found no grave probl ems and

minor modifications were made to the survey questions based on the verbal opinion

received from the interview.

In addition, the pilot study was conducted to ensure the validity, sequence and relevance

of the questi onnaire to th is study. The questionnaire was originally written in Engli sh and

then translated into Amharic to ensure clarity and interpretation of meaning. The

translated version was included in the Appendi x.

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Bank Selection Decision: Facfors Infillenc ing fhe Choice 0/ Banking Services Jlllle, 20 II

3.4 Data Analysis and Interpretation

To determine the underlying dimensions in the set of bank selecti on criteri a, the

importance ratings for the eva luati ve criteria was factor analyzed. Factor analysis is a

technique which is used to "reduce a large number of variabl es to some smaller number

by telling the researcher which belongs together and which seems to say the same thing"

(Field, 2005). This technique was believed to be appropriate for thi s particu lar analys is

becau se banking selection determinants have many impli cations.

As noted by Vaus (2002), such factors are not single measurable entities but are

constructs of a number of other directly observable variables. By factor analysis, these

observable variabl es can be extracted into factors, each reflecting an underl ying property,

which is commonly shared by a certain group of variables (Vaus, 2002). It al so helps to

validate that respondents are able to distinguish betwccn the various variables despite the

similarity of the items to be questioned.

The study was finally organized, summarized and analyzed using Stati stical Package fo r

the Soc ial Sciences (SPSS version 15 fo r windows). SPSS was used for the simpl e

descriptive data to compute the mean score of factors and to the advanced statistical

procedures of factor analysis. Thi s was done with the help of anal ytical tool s like the

tabular system. Having done such anal ysis, it was presented using figures, tab les and

percentages. Eventually, interpretation of data and di scuss ions of the findings follows

suited.

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Bank Selection Decision: Factors Influencing the Choice oj Banking Services June, 2011

CHAPTER FOUR

DATA ANALYSIS AND DISCUSSIONS

Thi s chapter basically provides the data analysis and di scussion part of the study. The

descripti ve and factor analys is are provided in the subsequent sections.

4.1 DesCl"iptive Ana lysis

Thi s section presents the descripti ve analysis of customers' responses to each item in

section one (general information of respondents) and section two (their banking behavior)

on the survey questionnaire.

From a total of 22 0 questionnaires di stributed , 208 are returned. The returned

questionnaires are carefull y checked, and those with excessIve ml ss1l1g data were

discarded, res ulting in 20 1 usable as most items are suffi cientl y responded. The response

rate is 91.4 percent. Such a response rate is considered sufficient fo r statistical reliability

and generali zability (Mokhli s, 2009) and most satisfactory especiall y when compared

with earlier research works on bank selection decisions (Khazeh & Decker, 1992-93 and

Gerrard & CU llningham , 200 1). Thi s relatively high response rate was attributed to the

self-administered approach undertaken in di stributing questionnaires.

4.1.1 Customers Profile

A summary of findings on customers profile along tiu'ee vari ab les: age , level of income

(average monthly income of the respondent), and level of education has been presented in

table I . The reason for using monthl y income is that in Ethiopia sa lari ed empl oyees are

contracted on the basis of monthl y payment and merchants are asked to put their average
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Balik Selection Decision: Factors Influencing the Choice 0/ Banking Services June , 2011

income per month. So, people have a propensity to memorize their sa lary on a monthl y

basis that's why conven ient to respond during surveys. In terms of customers' marital

status, the resul ts of thi s study showed that, the majority of respondents (about 64

percent) are single, 34 percent are marri ed and the rest are both divorced and widowed.

As revealed in table I, 155 are males and 46 are females whi ch compri se 77 percent and

23 percent o f the customers respecti vely. Thi s is somewhat may be the fact that in

Ethiopia similar to numerous African nati ons, finan cial decision maki ng is the task of the

male parent because they are seen as the chief income earners in the family.

The results for respondents ' age as depicted on table I specifies that the majority of the

vigorous customers (about 53 percent) range below 27 years of age, while 28 .4 percent

fall between the age bracket 27 to 35 and 18.9 percent are placed above 36 years. Thi s

mi ght be related to the reality that tht:: age brackets structure the young and dynamic

populati on o f Ethi op ia who are in vital services and can therefore hol d bank acco unt. It

also shows that the youth populations are superior users of the various banking services

than the aged popu lation.

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 Balik Selection Decision: Factors Influencillg fhe Choice of Banking Services June , 2011

Table I: Results of profile data of the respondents

Variable Categories Frequency Percent Valid % C umulative %

Sex Male 155 77 77 77

Female 46 23 23 100
Age Below 27 years 106 52.7 52.7 52.7
27-35 years 57 28.4 28.4 81.1
36-45 years 32 15.9 15.9 97
Above 45 years 6 3 3 100
Level of Below preparatory 9 4.5 4.5 4.5
education * Preparatory completed 20 10 10 14.5
Diploma 17 8.5 8.5 23
Bachelor degree 118 58.7 58.7 81.7
Master and above 37 18.3 18.3 100
Level of Lower than Br. 2, 000 42 20.9 20.9 20.9
income** Br. 2, 00 I to 4, 000 119 59.2 59.2 80.1
Br. 4, 001 to 7, 000 33 16.4 16.4 96.5
More than 7, 000 7 3.5 3.5 100

Source: Computalionji-omjield survey data, 2011

Note: *In Ethi opia, comp letion of preparatory school mea ns accompli shment of 12 years of
schoo li ng starting with class/grade I.

** I US Dollar = 16.7952 ETB (as of May 9, 20 II as in all banks of Ethiopia, 20 II )

Moreover, the resu lts for the income level of customers show that maj ority of the

respondents (about 59 percent) have an average monthl y income rangi ng between ETB 2,

00 I to ETB8 4, 000. There are 21 percent respondents who fa ll below thi s range and 20

percent respondents who fa ll above thi s monthly income range.

8 ETB is Ethiopi a's currency name, birr.

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 Hank Selection Decision: Faclol's Inflllencing the Choice oj Banking Services Ju ne. 20/ I

The respondents possess a high level of education. Whi le about 59 percent of the

respondents have a bachelor degree, about 18 percent have attained either a Master or a

PhD degree. Abo ut 15 percent of the respondents have education at or below preparatory

schoo l level. A similar study in Bangladesh (Khan et aI. , 2008) found about 17 percent of

the sample falling below hi gh schoo l category.

The next table shows the proportion of customers ' occupation based on their age

di stributi on within each profession.

Table 2: Distribution of respondents ' Age by occupati on

Occupation Number Percentage

Students: Male 74 87%

Female 11 13%

Employees: Male 48 66.7%

Female 24 33.3%

Businessmen 9 : Male 33 75%

Female II 25%

Total 201 100%

Source: CompUlal ionji'om field survey data, 20 J J

As shown above, males acco unt for about 67 percent, 75 percent and 87 percent of the

employee, businessmen and student respondents respectively.

9 * In th is study, businessmcn and merchants are used interchangea bly.

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 Hank Selection Decision: Factors Influencing the Choice 0/ Banking Services June, 201 I

4.1.2 Banking Behavior of Customers

Either in the public or private banks, all respondents are users of banking services. Some

customers, as represented by the survey population, also rely on a mix of financial

services provided by both bank and non-bank institutions. For example, about 3 percent

of the san1pled customers that is banked sti ll use non bank services, ranging from

micro finance institution and other traditional saving ways (Edir & Equib).

Fig. 4: Respondents bank affiliation period

Source: Compulalionjromjield survey data, 2011

The customers' practice pf banking relationship can be interpreted in the following ways.

As demonstrated in figure 4, about 47 percent of the respondents have more than five

years of banking relationship with their main bank. Such a long permanent status of

relationship indicates the capability of customer retention by the banks. This is followed

by 45 percent of the customers with an experience of two to four years. Eight percent of
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Bank Selection Decision: Factors Il1flllencing the Choice 0/ Banking Services June, 2011

the customers have a short period relationship (less than two years) with thei r respecti ve

banks.

The respondents are asked the number of bank(s) at wh ich their banking services are

used. In thi s regard, about 55 percent and 45 percent are reported as single banking and

multiple banking users respectively. Dealing behav ior with various public and private

Ethiopian banks is apparentl y different. Table 3 revealed that Commercial Bank of

Ethiopia (CBE) , Dashen Bank (DB) and Wegagen Bank (WB) are the most three

preferred banks by the respondents in Addis Ababa respectively. About 72 percent and 30

percent of the respondents are performing their banking activiti es with CBE and DB

respectively. CBE is most preferred probably due to its several branches. Also, about 13

percent and 12 percent of the interviewee respectively use WB and AlB.

Table 3; Rank of banks used by the respondents

List of Banks Frequency Percentage Rank

Commercial Bank of Ethiopia(CBE) 146 72.6 1

Oashen Bank (DB) 60 29.9 2
0
Wegagen Bank (WB) 26 12.9 -'

Awash International Bank (AlB) 25 12.4 4

Nib International Bank (NIB) 15 7.5 5
United Bank (UB) 14 7 6
Bank of Abyssinia (BOA) 14 7 6
0
Lion I nternationai Bank (LIB) -' 1.5 8
Cooperative Bank of Oromia (CBO) 2 9
Construction and Business Bank (CBB) 0.5 10
Source: Computationji'omjield survey data, 2011

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 Bank Selection Decision: Factors Influencing the Choice oj Banking Services Jllne, 2011

The respondents are asked whether they were in need of other services than the services

already currentl y rendered by the banks. The res ults show that about 50 percent of the

respondents need other services than the serv ices offered now.

4.1.3 Customers' Usage of Banking Services

Table 4 shows the proportion of respondents th at are usin g different bank products or

services as accessible in Add is Ababa. Hi gh level of customer awareness and trad ition of

savin g account and local money transfer services has been observed as the basic types of

customers' habit of banking services.

About 7 1 percent and 42 percent of the sample respondents are beneficiaries of the savin g

deposit and money transfer services. Besides, they are aware of and are using the other

services of banks like current account and A TM services.

Table 4: Respondents Usage of Banking Services 10

Type of Service Number of Users Percentage
Current account 58 28.9
Saving account 142 70.7
Loan facilities 0.5
Money transfer services 87 42.3
ATM services 25 12 .4

Source: Compulalion/i'omjield survey data, 201 J

As fo r various credit fac ilities currently offered with fl exible borrowi ng options in banks,

customers do not have a high habit for any particular one. These are the poss ibl e reasons.

First, customers ' needs for borrowing are different and hence, different services are

10 One respondent may used more than one service offered by the banks
Page [ 4 3
Bank Selection Decision: Factors Infillencing the Choice of Banking Services Jlln e. 2011

offered to meet such needs. So, no individual borrowing product has sole hi gh usage.

Second, customers may need to have a loan of money from banks in low interest rate, but

banks may not perform thi s. Th ird, the majority of the borrowing products are

particul arl y applicab le for corporate customers. The study focu ses on indi vidua l

customers instead of corporate treasuries. So individua ls may not need to borrow money

for their spending purpose.

Services offered by banks such as accepting of diverse types of deposits, granting va ri ety

of credit fac ilities, international banking services and rendering of loca l and international

money transfer services are very simil ar in most banks (excluding ATM services, mobile

banking, internet banking facilities, service charges and impli cations of interest).

4.1.4 Customers Service Needs

The basic bank services needed by the customers are saving account, cu rrent account, and

domestic and international money transfers.

Table 5: Respondents need of additional bank service

Question Response Number (N= 2001) Percent

Do you need any other facility to add Yes 99 49. 3
other than the services currentl y No 102 50.7
offered from your custo mer bank?

Source: Field survey data, 2011

As portrayed in table 5, cllstomers who need additional service are more or less identical

to those who did not need other services. About 49 percent of the respond ents need extra

service from banks. Add itional bank services are needed fo r the customer; including e-
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Bank Selection Decision: Fac/or!, Influencing the Choice of Banking Services Jun e, 2011

banking facilities (such as, internet banking fac ilities, telephone banking facil ities, ATM

services in all branches, and other cred it card banki ng servi ces), inter-bank networking

and widening their branches in different areas. In addi tion, provisions of services in

weekends, inter-branch network and special attention for blind customers are also among

the li sted needed services.

4.1.5 C ustomers Satisfaction with Banking Services

Customer sati sfaction invol ves an orientation that says, "take care with all parts of the

process that develops a product or service for the ultimate customer". In most settings

that customer wi ll be the one who pays to use the service ll .

Table 6: Respondents degree of satisfaction with the bank services

Question Respo nse Numbcr (N= 201) Percent

Arc you sa tisfied with the banking Yes 123 6l.2

services offered by your main No 78 38.8

customer bank?

Source. Computation ji-om field survey data, 20 j j

Tab le 6 presents expressive stati stics on the satisfaction of bank customers with bank

services. It has been observed that more than 60 percent of the respondents feel either

very satisfied or just sati sfied with the services offered in their main banks. Nevertheless,

38.8 percent of the respondents are not sati sfied by the services provided in banks.

Unsatisfi ed customers were inquired to give their feeling that banks should to take as a

11 See the survey of organizational exce llence at the schoo l of soc ial wo rk in Uni ve rsity of Texas, 1925 ,
San Jacinto Blvd.
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Bank Selection Decision: Factors Influencing the Choice of Bonkillg Services June. 20/ /

solution for their di ssati sfaction in services offered by banks. They forwarded the

following ideas to be taken by the banks to satisfy the ir cu stomers. Banks may satisfy

their customers if they: provide quick services to their customers, recruit dedicated

employees in their organization and encompass adequate windows and employees to

offer fast and efficient service .

Other respondents feel that, if banks introduce and appl y modern teclulological working

facilities (e-banking facilities), handle their exi sting customers properly instead of trying

to attract new ones, and extending the ir operation hours in the working days till the ni ght

2: 00 pm and others need in weekend entire day service. Awardi ng of high interest rate on

savings, granting of loans on a lowest interest rate and lower serv ice charge are al so

suggested as a solution fo r their satisfaction by the respondents. Fina ll y, most

respondents agreed that, customers may be sati sfi ed successfull y if banks shortened their

bureaucracy.

The results on customer satisfaction with bank services have some resemblance with the

results of Khan et al. (2008). They found a very low customer satisfaction with vari ous

financing faciliti es and an above average mean on sati sfaction with 'current account ' and

'savings account '. However, they repOlted an above average mean on ATM services.

As money transfer better satisfies customers, thi s study notes that the A TM services

scored below the average mean of sati sfaction .

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Balik Selectiol1 Decision: Fac /ors Injlllellcll1g fhe Choice a/Banking Services Jlllle. 201 I

4.1.6 I ntention of Customers to Continue Dealing with their C ustomer Banl{s

Customer retenti on, simply defi ned, is the abi lity for a company to keep it s existing

customers. It is the measure of a company ' s abil ity to provide eno ugh va lue with its

products or services for customers to keep them coming back for more l 2

Table 7: Future intention of customers with their customer banks

Question Respon se Number (N= 201) Percentage

Do have an intenti on to continue with Yes 138 68.7

yo ur customer bank in the future? No 63 31.3

Source: Field survey data, 2011

Tab le 7 dictates that the maj ority (68.7 percent) of the customers do not have a plan to

change their customer banks, thus, determined to continue dealing with thei r main banks

in the future. Nonetheless, there are some customers who have no intention to persist with

their main customer banks for many reasons. Among the reasons ; including delay in

service deli very (speciall y in CBE), hi gh service charge, unavailability of A TM service,

dissatisfacti on with some services (such as loan, blocking etc), unp leasant customer

concern and handling, avail abi lity of other better banks, and fear of hesitati on in the

pri vate banks.

4.2 Factor Analysis

Factor anal ys is is a stati stical approach that can be used to analyze interre lationships

among a large number of vari ab les and to exp lain these variabl es in term s of their

common underl ying dimensions (factors). This analys is is a data reduction stati st ical

12 See the survey orVindic ia 2009, best practices for customer retention in US
Page 147

--
Bank Selection Decision: Factors Infillencing the Choice 0/ Banking Services June, 2011

technique and des igned to simplify the correlation matrix that revea ls a small number of

factors whi ch can ex plain the correlation. Correlation coe fficients vary fro m sampl e to

sample, much more so in small samples than in large. Hence, the reliability of factor

analysis is as we ll dependent on sample size (Hair et aI. , 2005).

The sampl e size necessary for factor anal ysis depends on many thin gs. As a general rule,

factor analysis requires a minimum of around 150 parti cipants (Jeromy, 2007) and

communalities after extraction should be above 0.5 (F ield, 2005) in order to get a

reliable so lution. Such analysis is usefli1 in gaining understanding on the ma1l1

dimensions that inspire the observed sets of items (Hair et aI., 2005). Varimax-rotated

facto r analysis is, therefore, performed on the constituent items representing the different

constructs to validate empiricall y the theoretical structure of the sca le. Factoring ceased

when all eigenva lues of greater than one were obtained and when a set of facto rs

explai ned a large percentage of the total variance was achieved (Hai r et aI. , 2005).

Expl oratory factor analysis is used in order to identify constructs and investigate

relationships among key interval scaled questions regarding reasons for choosing a bank

serv ices from 20 I respondents. Thi s factor ana lysis summ ari zes data by grouping

correlated variables and investigates sets of measured variab les related to theoretical

constructs.

After the standards indicate that data is suitable for factor analysis, principal components

analys is (PCA) is employed for extracti ng the data, which all ows determining the factor

underl ying the relationship between a numbers of vari ables. The total vari able ex plained

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Hank Selection Decision: Factors Influencing the Choice 0/ IJanking Services JllIIe. 20 II

box is suggesting that it extracts one factor accounts for 59.69% of the variance of the

relationship between variabl es. (See table C2 in the appendix)

Loading on factors can be positive or negative. A negative loading indicates that the

variable has an inverse relationship with other facto rs. The higher the loading, the more

important is the factor. An accepted method of interpretation of factor loadings is to

regard as significant any vari able with a loading of 0.4 or greater as associated with the

appropriate factor (I-lair et al. 2005). Jerom y (2007) suggested that any value with loading

of 0.5 and increased loading becoming more vital whil e va lue with less than this is very

low in determining the factor. (See table C3 in the appendix)

Rotation is necessary when extraction technique suggest there are two or more factors.

The rotation of factors is designed to give an idea of how the factors initially extracted

differ from each other and to provide a clear picture of whi ch item load on which factor.

4.3 Factor Formulation

All analysis is conducted using SPSS statistical software version 15 for Windows. As an

introduction step, eva luative criteria items were factor analyzed to reduce the variables to

a manageable number of components. An accepted method of interpretation of factor

loadings is to regard as significant any variable with a loading of 0.4 or greater as

associated with the appropriate factor (Hair et aI. , 1998).

Factor analysis deemed appropriate for the items because the Keiser-Meyer-Olkin

(KMO) measure of sampling adequacy test index equaled .802 in which Keiser' s measure

of sample adequacy above .5 is good enough to perform a factor analysis. Moreover, the

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Balik Selectioll Decision: Factors Infillenc ing fh e Choice of Bankillg Services June. 2011

Bartlett' s test gIves a significance level of less than 0.0001 confirming the

appropriateness of the factor model. (See table C l in the appendix)

4.4 Explanation of Bank Selection Factors

Using the Eigenvalue greater than one rul e, seven factors are identifi ed. All

characteri sti cs w ith factor loadings of 0.40 and above are retained. In addition, means

were computed for all attributes retained wi thin each factor to identi fy the relati ve

importance of such attributes to the customers in their bank selecti on process. In terms of

overall factor means, the sixth factor is the most important in terms of bank se lection and

the fi rst fa ctor is (slightl y) the least important.

ThefirSI factor in Table 8 delineates a sel ection factor based on low interest rate on loans,

high interest rate on savings, attractive interest withi n short peri od of time and the e-

banking faci li ties. Thi s factor accounts for 15.70 percent of the total variance. Thi s factor

may be labe led a financia l benefits/ technology factor. Here, it can be not iced that low

service charge (mean = 2. 0945) and attractive interest within short period of time (mean
= 2.0896) have the two hi ghest means in thi s factor, indicating the vast importance of

service charges and interest rate in determining bank selection for customers.

The second factor identifi es a dimension based good customer services, speedy services,

reception at the bank and variety services offered. Thi s factor accounts for 10.067

percent of the total vari ance. Thi s factor may be categorized servi ce provision factor.

Within this facto r, the most important attributes are speedy services (mean = 3.2687) and

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 Bank Selection De
cision: Fa clo rs In
fluencing Ihe Ch
oice of Ba nki1/g Se
rv ice s
Jlllle, lOJ J

reception at the ba
nk (m ean = 3.2189
), while the leas t
important item is
offe re d (mea n = 2. va ri ety of se rvi ce
7463).

The third factor

, co ntaining ite m
s re lated to my
employer uses th
se rvi ces offe red e same bank and
by bank s includ
ing extended op
erat ion hour s an
se rVices, has be d availability ATM
en na med em pl oy
er s' influen ce. A
ttributes falling
accounts 8.197 pe with in thi s facto
rcent of the total r
va riance. Within
thi s factor , extend
is the most impo ed operation ho ur
rtant determinant s
ite m (mean = 2.91
54) in customers
process. On the ot ' bank selection
her hand , th e leas
t important item
in this re sp ec t is
the sa me bank (m m y em ployer uses
ean = 2.3184).

The Jo urth factor

has been labeled
as "Reputation fa
ctor ". Item s load
factor are estab li po siti ve ly on thi s
shment period of
th e bank (bei ng
establi shed be fo
reputation and r others), bank ' s
bein g a governm
ent owned bank
. A m ong th e ite
reputation is th e m s in thi s facto
highest ranked (m r,
ea n = 2.4279). A
n implication of
co ns ider re pu ta tio thi s is that custom
n to be an import ers
ant mea surem ent
in th eir bank se le
ction process.
The fi ji h factor co
mprises items re
lated to prom otio
n includin g adve
mass- m ed ia , av ai rtising se rvices vi
la bi lity of seve ral a
branches and park
ing faciliti es . Hen
cons idered as pr om ce , these item s ar
ot io n strate gy . A e
vailability of seve
ral branches is th
attribute w ith in e mos t significan
thi s factor w here t
as access ibility of
pa rking space ne
important. arby is the le as t

Page I 51
 Bank Sel ec tion DeclSlo
ll. I·act ors Infl uencin
g the Choice of Ban kin
g Ser vic es
June. 2()1I

Th e sixth factor en co
mp as se s proximity to
ho me an d! or wo rk pla
ce and sec ur ity
arr an ge me nt in w hi ch
pr ox i mi ty is the most
im po rta nt ite m with a
mean score of 3.6567.
Thi s facto r may be co
ns ide red as co nvenien
ce.

Fina lly, the seventh fac

tor inc lud es ite ms as so
ciated to ba nk im ag e
like ple as an t ba nk
atm os phere and ex ter
na l ap pe ar ance of the
ba nk. Ple as an t ba nk atm
os ph ere is the most
im po rta nt ite m (3 .1 59 2)
. He re, in the se ve nth
co mp on ent m os t of the
varia bl es sc ored the
low es t loa d ing (i. e be
low .4) ex ce pt tha t of
the ple as an t bank envi
ro nm en t (see tab le C3
in the ap pe nd ix).

Ho we ve r, it is wo rth
me nti onin g tha t am on
g the se ve n fac to rs rep
Olt ed ab ov e, the sixth
and the se co nd two fac
to rs are chara cte rized
by much higher me an
importa nce rat ings
tha n the oth er ch ara cte
ris tics, em phasizi ng the
im po rta nc e of co nv en
ien ce and se rvice
pr ov isi on fo r ba nk se lec
tio n de c isio ns by thi s
ma rket se gm ent.

Re co mm en da tio n fro
m fam ily and/ or fri
ends is no t inc lud ed
in an yo ne of the
co mp on en ts (fa cto rs)
be ca us e of low es t sc
or e in its loa d ing fac
tor. Th is imp lies tha t
custo me rs did not ch oo
se ba nk s an d ba nk ing
se rv ice s de pe nd in g on
su gges ti on of other
pe op les rathe r th ey se
lec t ba se d on oth er cri
teria. On the co ntr ar y,
thi s fac tor wa s the fir st
most impo rta nt facto r
fo r co mm erc ial bank
se lec tion in the study
co nd uc ted by Ande rso
et al. ( 19 76 ) an d Kayn n
ak (1 99 1) , fo r the cu sto
me rs in Am er ica and
Tu rk ey , and ranked as
se co nd mo st im po rta nt
fac to r in the study of
Fa ro oq et al. (20 I 0) by
Islam ic cu sto me rs in
Af gh an ist an . Fina ll y,
the cri ter ia lis ted in
tab le 9 inc lud e o nly
tho se wh ich had fac tor
loa din gs of 0.5 an d
ab ov e. Results are sll
l1Ulla riz ed in tab le 8
based on thei r fac tor
load ing sc ored.

Pa g e 152
 Bank Selection Decision: Factors Influencing the Choice o/Bankillg Services June, 20 / /

Tab le 8: Results of factor analysi s

Factors and Items Factor Eigen % of
loadings values 13 Va riance l 4
Factor 1: Financial bellefits/ techllology
Low interest rate on loans .787 5.667 15.700
Hi gh interest rate on savings .784
Attractive interest within short period of time .635
Phone banking facility .6 13
Internet banking facility .593
Low service charge .561
Factor 2: Service provision
Good customer services .83 1 2.163 10.067
Bank has speedy services .745
Reception at the bank .633
Variety of services are offered .417
Facto r 3: Employer's illfluence
My empl oyer used the same bank .651 1.624 8.197
Extended operation hours .643
Avai lab ili ty of ATM services .59 1
Factor 4: Reputation
Establi shment time of the bank (oldest) .695 1.470 7.994
Bank 's reputation .633
Being a govenunent owned bank .585
Factor 5: Promotioll strategy
Adverti si ng via mass media .698 1.221 6.697
Avai labi li ty of several branches .546
Avail abi lity of parking space nearby .5 11
Factor 6: COllveniellce! security
Proximity to home and/ or workplace .792 1.167 5.79 1
Security arrangement of the bank .41 I
Factor 7: Bank image
Pleasant bank environment .778 1.01 4 5.245
Ex terna l appearance of the bank .528
Source: Computations ji'om the field survey data, 2011

13 The average variance exp lained in the items by a component multip lied by the number of components.
An eige nva lue of I is equiva lent to the variance of I item.
14 These represent the percentage of total va riance in the items ex plained by a component. Th is is
eq uiva lent to the eige nva lue divided by the number of items.
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Bank Selection Decision: Faclol's Inflllencing the Choice of Banking Services Jlllle. 201 I

The analysis from the above table yielded a seven principal components so lution, which

together expl ained more than half of the variance observed in the variables (59.69

percent), that sati sfies the percentage of variance criterion for social science research.

(See table C2, total variance explained, in the appendix)

4.5 Reliability Test

Reliability refers to the property of a measurement instrument that causes it to give

simil ar results for similar inputs. Mathematicall y, reliability is defined as the proportion

of the variability in the responses to the survey that is the resu lt of differences in the

respondents. Thus, to evaluate the internal consistency of each factor group obtained, the

factors were subjected to reliability test. The assumption behind thi s approach is that the

items of a measure work collectivel y as a set and should be competent of independentl y

measuring the same construct. The items should be reliable in what they indicate about

the concept being measured. The Cronbach alpha was used to measure internal reliability

by unit weighting items with salient loadings in a factor where Cronbach 's alpha

coefficient at 0.5 or higher was considered acceptable (Mokhli s et ai. , 2008, 2009). These

factors produced alpha coefficients of .833 indicating high internal consistencies and

reliability. (See table C4 in the appendix)

4.6 Ranking Importance of Bank Selection Factors

In order to analyze differences in the importance of bank selection criteria employed, a

ranking table was produced showing the mean sco re of each factor. Table 9 presents

findings with respect to relative importance of bank selection criteria facto rs. The top two

factors that fow1d in the listing were "convenience/ security" (mean= 3.25 13) and
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Balik Selection Decisiofl" Factors Influencing the Choice o/Banking Services June. 20/ I

"service provision" (mean= 3.1008). The significance of the conven ience factor has been

seen in prev iou s studi es which have used students and other customers as their sample

(Schram, 199 1; Holstius et aI., 1995 ; Owusu- Frimpong, 1999; Lee and Marlowe, 2003 ;

Dusuki , 2007 and Katircioglu et aI. , 20 11 ). On the contrary, in the study conducted by

Mokhlis et al. (2008), this factor was ranked as fifth factor for the selection of banking

services by the cllstomers. Whereas, Almossawi (2001) ranked convenience as second

most important factor for bank selection decision in Balu·ain customers.

Similar to thi s study, in Gerrard and Cunningham's (200 1) study, the service provision

facto r was ranked third most influential out of seven factors. Whereas, in the study of

Mokhlis et al. (2008) this factor was ranked as the fourth most im portant cri terion out of

nine factors. The "Employers' influence" (mean= 2.5937) factor was rated as the third

most important decisive factor infl uenci ng customers when deciding which bank to

patronize. Thi s factor was ranked least (seventh and ninth) important factor in the studies

conducted by Gerrard and Curll1ingham's (200 1) and Mokhli s (2009) respectively.

The "promotion strategy" factor (mean= 2.2604) which involve in adverti sing the various

services offered in banks and avail ability of several branches, came nex t in terms of

relative importance. Thi s is consistent with the previous findin gs in the literature (Gerrard

and CUlmingham, 2001 ; Mokhlis et aI. , 2008); Mokhli s, 2009; Katircioglu. 20 11 ). Thi s

factor was ranked as the second most important criteri on for bank se lection deci sion by

the N igeri an and Malays ian customers respecti ve ly (Maiyak i, 20 11; Abduh, 20 10). The

"reputation" facto r (mean= 2. 1841 ) is ranked as least important by the customers.

Likewise, in the previous studi es Mokhlis (2009) and Gerrard and CUlillingham (200 1),
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Bank Selection Decision: Fac/ors Influencing the Choice of Banking Services June, 2011

thi s findin g was ranked eighth out of the nll1e factors and sixth of seven facto rs

correspondingly.

Tabl e 9: Ranking importance of bank selection criteria factors

Factors Mean Rank

Convenience/ security 3.25 13

Service I}rovision 3. 1008 2
Employers' influence 2.5937 3
Bank image 2.5538 4
Promotion strategy 2.2604 5
Reputation 2. 1841 6
Financial benefits/ technology 1.9544 7

Based on a fo ur-point Likert scale 4 = very important; I = not important

As opposed to the study by A lmossawi (200 1) in whi ch techno logy related faci li ties and

financial benefits ranked as the top most impo rtant selecting criteria for bank s, in thi s

study, these facto rs (mean= 1.9544) was found to be the last and least important criteri a

in selecti on of banks by the customers. The insignificance of the facto rs has been seen in

prev ious studies (Anderson et aI. , 1976; Boyd, 1994; Devlin , 2004). However, in the

study by M okhli s (2009) financial befits was ranked third important factor.

4.7 Gender Based Description of Factors

Whi le the survey data is analyzed based on gender separatel y to male and fem ale

customers, it provides different components than the result fo und in the above analysis

for the total sample. T he analysis fo r male customers prod uced seven factor groups

whereas fe male customers ' analys is produced e ight fac to r gro ups. (See table C5 and C6

in the a ppe ndix)

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Balik Seleclion Decision: FaclOrs Influencing the Choice 0/ Banking Services Jllne, 2011

Factor j: The firsl component for both mal e and female customers was items related to

financial benefits/ techno logy in which well -organized and ranked based on their factor

load ing. Items with high loading for instance; hi gh interest rate on sav ings (.855 for

females and .649 for males), low interest rate on loans (.793 for females and .65 8 for

males), attractive interest rate within short period of time (.828 for females and .429 for

males), internet banking facilities (.68 1 for males and .630 for fema le respondents) and

phone banking facilities (.737 fo r male respondents and .649 for female s) are grouped

under this common denominator.

Faclor 2: The second component was related to service provision fo r male customers

(good customers ' services, speedy services, and variety services offered) and item s

related to bank im age (pleasant bank atmosphere and avail ability parking facilities) were

the second factor for fe male customers.

FacioI' 3: The third component fo r male custo mers was items related to the reputation and

others' influence whi le service provision was the third component for fema le customers.

Employer' s influence/additional services were forlh component for both gender

customers. Co nvenience/security was the fifth component for male customers and sixth

component for female customers. Attractiveness is the sixth co mponent for males and

sevenlh factor for females whi le branches location was the fifth for the fema le customers.

Fi nally, low service charge was the eighlh factor for female customers. (See table C7 and

C8 in the appendi x)

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Bank Selection Dec ision: "~actors Influencing the Choice of ilanking Services Jlllle, 2011

4.8 Gender Based Ranking of Importance

Table 10 shows the choice cri teria for both male and female customers ranked in order of

mean importance of each factor. Optical exam ination of the table reveals that

'convenience ' is most important in the selection deci sion of both male and female

respondents, being in the top criteria in each case. Male respondents ranked 'bank image '

as a second most important facto r but ranked third by female respondents. On the other

hand , ' service provision' is ranked second by fema le respondents while male respondents

ranked thi s factor as third. Female respondents ranked 'secure fee ling' as their fourth

most significant factor in selecting banks and banking services. Both male and fema le

respondents ranked ' reputation' the same as third least important factor. The two least

im portant factors in selecting a bank for both male and fema le respondents are

attractiveness (ranked sixth by males; seventh by females) and financial benefits (ranked

seventh by males; eighth by fema les). The subseq uent tab le explains the analys is results

of the importance level of bank selection criteria, beside with the mean scores for th e

sampl e di stribution by gender.

There are some simil arities between the findi ngs of this study and the findings of earlier

studies. The selection of 'convenience ' as most important factors in se lection deci sion by

male and fe male respondents is acknowledged in the literature (Holstius and Kaynak,

1995; Owusu-Frimpong, 1999; Lee and Marlowe, 2003). On the contrary, Ta and Har

(2000), Almossawi (200 I) and Rao (20 I 0) ranked thi s fac tor along with the least

important factors for bank selection decision. The importance of serv ice provision as

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Balik Selecrioll Decision: Faclors Inflllencing Ihe Choice o/BallkiJlg Services Jlllle. 2011

second criterion by female respondents has been evidenced in the study cond ucted by

Gerrard and Curll1ingham (200 I) in Singapore.

Table 10: Ranking importance of bank selection factors by gender

Selection Factors Male Female

Mean Rank Mean Rank

Convenience 3. 1871 3.7391

Bank image 3. 1742 2 2.6304 3
Service provision 3.0823 3 3.1630 2
Employers' influence 2.6301 4 2.4783 5
Reputation! promotion strategy 2.0215 5 2.1232 6
Attractiveness 1.8860 6 1.4891 8
Financial benefits! technology 1.877 1 7 1.8406 7
Secure feelings 2.6191 4
Based on four-point Likert scale 4 = very important; I = not important at all

Likewise, the fourth finding by female customers in this study was ranked as first most

important in previous studi es (Gerrard & Cunningham , 2001; Mokhlis et aI. , 2008 ;

Mokhlis, 2009). In particular, ' secure feeling ' reflects customers ' desire of banking wi th

a stable bank and assurance of secrecy when making a transaction. Both male and fema le

respondents also tend to put more emphasis on employer's influence which enforced by

the organ ization to patronize on banks where their salary is transferred. The 'secure

feelings' factor, which ranked fourth by female respondents, is not considered so high ly

by their male counterparts.

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Bank Selection Decision: Factors Influencing the Choice of Bal/king Services Jllne, 2011

4. 9 Ranking ofimportance by Occupation and their Explanation

Using the Eigenvalue greater than one ru le, seven factors by the employees and students

and eight factors by the busi nessmen are identified. All characteristics with factor

loadings of 0.40 and above were retained. [n addition, means are computed for all

attributes retained within each factor to identify the relative importance of such attributes

to the customers in their bank selection process.

Items falling withinfactor one mainl y include questions like; hi gh interest rate on saving,

low internet rate on loans, attractive interest within short period of time and low service

charge for both employee and student respondents. Thi s factor may be reduced to the

common denominator " financia l benefits" while "technology" related questions such as

internet and phone banking facilities were grouped under factor one for businessman

respondents.

Three items falling within the second faclor for employees and businessmen respondents,

relate to, reputation of the bank (reputation, being a government owned and the

establishment period of the bank). This factor may be identifi ed as "Reputati on".

Whereas for students it incorporates items correlated to provision of service (speedy

serVIces, reception at the bank, good customer service and variety services offered).

Therefore, this factor may be categorized as "service provision".

Items in the Ihird(clclor were di fferent for all occupation respondents. Availabi lity of

ATM services, internet and phone banking facilit ies are grouped as " techno logy" factor

for emp loyees whereas items related to "convenience" factor for those student

Page 160
Bank Selectioll Decision: Factors Influencing the Choice of Banking Services JUlie. 201 1

respondents and for the businessman respondents; hi gh interest rate on savll1g, low

interest on loans and attractive interest within short period of time are labe lled under the

"financial benefit" factor.

FacioI' jour incl udes convel1lence, technology and bank image factors for employee,

student and businessman respondents respectively. Service provI sIon and promotion

strategy was integrated under jaclor jive and six for both employees and businessmen

respectively whi le promotion strategy and bank image was for student respondents. Items

related to bank image , reputation and secure fee lings are labelled as the seventh!actor for

employee, student and businessman respondents respectively. The eighth jaclor for

businessman respondents was convenience.

The following table clarifies the investi gation results of the signifi cance rank of bank

selection criteria, with the mean scores for thc sample di stribution by occupation.

Table 11: Ranking importance of bank selection factors among different occupation
Selection Factors Employees Students Businessmen
Mean Rank Mean Rank Mean Rank
,
Convenience 3.3472 2.4902 .J 3.6705
Service provision 3.1759 2 3.0376 2 2.2557 4
Bank's image 3.0833 3 3.1059 3.3409 2
Technology 2.3889 4 2.0628 5 1.3561 8
Reputation 2.3380 5 2. 0118 7 1.9470 5
Promotion strategy 2. 1759 6 2.2392 4 1.8636 6
Financial benefits 2.0972 7 2.0235 6 1.4925 7
,
Secure feelings 2.9546 .J

Based on four-po int Likert scale 4 = very important; I = not important at all

Page 161
 Balik Selection Decision: l ;'o c(01'5 Influencing the Choice oj &/Ilking Services June, 20 II

The most three important factor considered by emp loyees and student customers when

selecting a bank are "convenience", "service provision" and "bank image". However,

conven ience fac tor is the considered as a first choice by employees' hence third mo st

important factor by students and bank image was the most essential factor by students as

ranked third by employees. The first two findings of thi s study are consistent with

previous studi es (Haron et aI. , 1994).

On the other hand , businessmen customers considered "bank image" as the second most

important factor, wh ile ranking ' secure feeling' as the third most important facto r.

" Bank' s atmosphere" is ranked third by employee customers whil e student customers

ranked conveni ence as their third choice for selecti ng baking services. This di ffe rence

mi ght have resulted from the general lack of trust for banks in Ethiopia. Businessman

customers tend to rel y on secme feelings because they mi ght fee l banks are the best

alternati ves to save their money in a secmed manner.

The findings of technology as a least important factor in thi s study is con sistent wi th

findin gs of previous study Cicic et a1. (2004) in which the technology related facilities

considered as the least important factors when hi s study compared to the studies in

developed countries. Financial benefit, reputation and promotion strategy related items

are also considered as the least important criteria by the customers to patronize bank

servIces.

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Bank Selection Decision: Factors Infillencing the Choice of Banking Services June, 2011

Chapter Five

Concussion and Recommendations

5.1 Conclusion

Today, the ex isting stiff competition among banks necessitates a detai led understand ing

of the influentia l factors behind the bank selection decision in Addi s Ababa city.

Therefore, the objecti ve of thi s research is to investigate the determinants of bank

selection deci sion based on their importance and identify the additional services needed

by customers other than the currently offered services. To trace such obj ectives, we used

a convenience sampling procedure comprising 20 I observations. The sampl e size

comprises 85 students, 72 employees and 44 merchants in the city.

Descriptive anal ysis revealed that most respondents fall in the age gro up of below 27

years. Concerning their education, about 77 percent of the sample respondents have

attained at least a first degree. In talking about bank selection by customers, the level of

income of the respondents matters more. In this regard , the results show that about 2 1 and

59 percent of the respondents received a monthly income of less than ETB 2,000 and 2,

000 to 4,000. This is followed by a very few number of individuals - 33 and 7

respectively - that has an average income ofETB 4,000 to 7,000 and above 7,000.

An important issue in dealing with bank selection is to see the affili ation of respondents

with the respecti ve bank(s). Results show that about 8 percent of the customers have a

less than two year experience of getting service with a particular bank. The majority of

them - about 45 percent- have indicated a relati onship that lasts for 2 to 4 years.

Page 164
Balik Selec/ion Decision: Fac/ors Influencing the Choice a/Banking Services June, 201 I

Furthermore, 32 percent and 15 percent of the beneficiaries reports as having a 5 to 7 and

more than 7 years affiliation range respecti vely.

We observe that the Commercial Bank of Ethiopia, Dashen Bank, Wegagen Bank and

Awash International Bank are the top most preferred banks by customers. Users

frequently choose the two former banks perhaps because of their wider operation and

quality of service provi sion respectively.

Looking at the specific banking services, customers are widely noticed using a savi ng

account, money transfer services and current account. The respective numbers of

beneficiaries are about 71 percent, 42 percent and 29 percent respectively. Striking,

however, is the finding that customers are not using the loan services available across

banks. Apart from the current services, clients highlighted some nlrther improvements in

the banking industry. Among others, introduction of internet banking, phonc banking,

and access to ATM over all branches and inter-branch networking were identified as a

key future requirements that banks should fulfill.

The factor analysis resu lts revealed that convenience, service provision and employers'

influence as nmdamental determinants of bank se lection, among others. Finally,

differences in bank choice are examined fro m the gender perspective. The finding

demonstrates that while there exists no variation across males and females due to

convenience, we see that males prefer bank image to service provision. The reverse holds

true for female customers in Addis Ababa city.

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Bank Selection Decision: Factors Influencing the Choice of Banking Services June, 2011

5.2 Recommendations

Based on the findings of the study, we forward the following recommendations.

>- Customers place more emphasis on factors like convenience, service provision,
employers' influence and bank image. Therefore, such factors should be
considered seriously by the commercial banks in designing their marketing
strategies by widening their branches and providing good customers services to
customers.

>- Customers suggest some additional improvements in the banking industry other

than the services currently offered. Consequently, focu sing on well-integrated

application of technology and staff through operations that respond to customer

needs encourage customers to use a whole range of banking services rather than

just a few. It also helps to build loyalty by creating deeper and fuller customer

relationships.

>- Since the age category below 27 has the most usage and more representation in

the sample, banks shou ld target its marketing mix toward thi s category. Such a

technique will ensure attraction of job-market entering people towards bank

service and also retention of the people who are likely to remain long-term loyal

customers. In addition, banks should try to find out some ways to better

famil iarize their customers with the borrowing products for customers.

>- Though about 50 percent of the customers report as sati sfied, banks should keep

their customers more satisfied with the services provided. Based on the results of

this study, customer sati sfaction and loyalty would be increased by focusing on

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/lank Selection Decisioll: Factors Influencing the Choice 0/ Banking Services June, 201 I

different, but related, factors: bank service processes, including we ll experienced

bank personnel , inter-bank networking and service fac ilities requ ired conditions

fo r receiving the needed services, internet banking facil iti es and speed faci lities.

);> Finall y, ballk management should be aware that some of the bank selection

determi nants differ from one segment to another in the business firm market.

These results would enab le bank managers to identifY the important bank

attributes that affect ballk selection decisions made by each segment in the

business market in Ethiopia.

);> Since the resul ts of thi s study are based on customers' perceptions on ly,

investi gati ng the correspondence between consumers' and service providers'

perceptions cou ld be an important research area among interested nlture

researchers. Thi s will help the industry to better understand whether both

customers and banks have the same perceptions regarding issues relevant to bank

se lection criteria. In add iti on, future researches should explore the bank image

dimensions which customers perceived as appli cable to their selection decision,

giving emphasis to the choice between private and public ballks in patronage

situation .

Page 167
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 APPENDIXES
A pp en di x A: Su rv ey Q
ue st io nn ai re (A m ha ri c
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 ~9' 0 nr.:o·!JU 0

Appendix B: Survey Questionnaire (English Version)

Appendix
Survey Questionnaire
Dear Respondents,

Thi s questionnaire is designed to gather inform ation about the maj or factors that
determine custo mers ' bank se lection in Addis Ababa City. All responses will be used
to condu ct a stud y fo r the partial tl.ltilment of Masters Thesis in Accounting and
Finance from Addis Ababa University and, the n, as an input for banks to improve
the ir servi ce delivery. Your anonym ity! secrecy will be str ictl y mainta ined as we do
not ask for yo ur name here and wi ll I/of be used for an y other purpose . Besides, this
survey should only take about 5 minutes of yo ur time. We are grate ful for yo ur
cooperati on in advance!

N.B Please put a 'v' mark to all yo ur responses in the circl e provided beside to each
questi on (i f necessa ry).

Part I: Personal Information

1. Gcndcr of respondent: Male o Female o
2. Age of respondent: Below 27 years 0 27-35 Years 0 36-45Years 0
>45 yea rs 0
3. Marital Status: S ingle 0 Married 0 Divorced 0 Widowed 0
4. Occupation: Student 0 Bu sinessman 0 Employee 0
5. Level of education: Prim ary completed 0 Secondary completed 0
Dipl oma 0 Bache lor Degree 0 Master Degree or a bove 0
other, specifies _ _ __ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

6. Cou ld yo u indicate in whi ch category yo ur monthly in co me be longs?

Less tha n Br. 2, 000 0 Br. 4, 001-7, 000 0
Br. 2, 00 1-4, 000 0 over Br. 7, 000 0
Part II: Banking Behavior of Respondents
7. Do yo u use bank services? Yes 0 No 0
8. If yo ur response to Q7 is no, why? I don' t have enough money 0
Lack of awareness 0
I use other a lternatives (li ke Micro Finance Instituti ons, Idir, and Equb) 0
I don' t need it 0 please spec ity yo ur reason _ _ _ _ _ _ _ _ _ _ __

9. If yo ur response (0 Q7 is yes, which bankls do yo u uti lize fo r yo ur banking

services? (List the m if yo u concurrently use many banks) .

10. What is the length of yo ur relati onship with you r mai n ban kls in terms of years?
(Please indi cate for a ll banks). _ _ _ _ _ _ _ _ _ __ _ _

11. What type of service/s do yo u use in that bank? (Multip le answers possible).
C urrent account 0 Savi ng account 0 Loan/c reditO Tran sfer 0
A TM serv ice 0 other, please spec ify _ _ _ _ _ __

12. Do yo u need any other fac ility to add other than the services c urrently rendered
fro m yo ur customer ban k? Yes 0 No 0
13. If yo ur response fo r Q 12 is yes, what type of se rvice do yo u need to be added ?

14. A re yo u satisfied w ith banking serv ices yo u are rendered? Yes 0 No 0

15. If yo ur response for Q14 is No, what could be done to solve those problems?
Pa rt III: Bank Selection Criteria

16. Indi cate in the fo llowing tabl e the rate of importance of the criteri a you d id
cons ider by choos ing a specific bank. Please circle one number for each statement
by us in g the foll owing sca le ran ging fro m " 4= most important" to " I= not
important at all" based on their degree of importance.

4= most important 3=important 2=less important l = not important at all

Factors Level of importance
,,
1 rhe closeness/ nearness to my home/work 1

2 rhe con,cnicnt location "Ithc bank 4 -' 1

,,
3 It have several branches 1
,
4 T he reception at the bank .' 1

5 It o ffered variety of services to customers 4 -' 1

,, )
6 Its extended operation hours (i.e Saturday, evening etc) 1
,,
7 The security arrangement at the bank 1
,
8 T he fac ili ties of ATM services 4 .' 1

9 It prov ide internet/online ba nking fac ility <I 1

,
10 It g ive parking facilities .' 2 1

II It advertises it 's services in mass medias 4 -' 1

12 It offer phone banking facility 4 -' 1

,
13 Recommendation from my family and/or my friends .' 1

14 Its service charge is low in contrast to others 1 1

,
15 Its interest rate on loans is low in contrast to others .' 1

16 Its interest rate on savings is high in contrast to others 1

17 It provi de good service to customers 1

18 By its reputation /brand name 4 3 2 1

19 Its service provi s ion is fast & efficient .. ,,

2 1
,, .)
20 It was established early ( it is the oldest bank) 4 1

21 It provides interest earning in a relatively sho rt period of time. 4 3 )

]

22 My employer uses the same bank. .. \

, ]

23 Being a governmental bank . ,,

1 1

24 T he exterior and/or interior appearance o f bank 4 3 2 1

17. Do yo u have an intenti on to change yo ur c ustomer bank? Yes 0 No 0

18. I f yo ur answer to Q I 7 is yes, please e labo rate why?

19. If yo u ever changed yo ur customer bank, has the cu rrent bank so lved yo ur
afo rementi oned problems? Yes 0 No 0
20. Comments (if yo u have comments regarding thi s survey, please fill in)
Appendix C: Statistical Resu lts of Factor Analysis

Table C1: KMO and Bartlett' s Test

Kaiser-Mcyer-Olkin Measure of Sampling Adequac). .802
Bartlett's Test of Sphericity Appro~. Chi-Square 1372.442
Df 276
Sig. .000
Table C2: Total Variance Ex plained

C Initial Eigenvalues Extraction Sums of Squared Rotation Sums of Squared

""0-
0 Loadings Loadings
E T otal %of Cumula Total % of Cumula Total %of CU ll1ula
0
U Variance live % Variance live % Variance ti ve%
5.667 23.612 23.612 5.667 23.6 12 23.6 12 3.768 15.700 15.700
2 2.163 9.011 32.624 2. 163 9.0 11 3~624 2.416 10.067 25.767
3 1.624 6.766 39.390 1.624 6.766 39.390 1.967 8.197 33.964
4 1.470 6.124 45.514 1.470 6. 124 45.514 1.919 7.994 4 1.958
5 1.22 1 5.088 50.602 1.221 5.088 50.602 1.607 6.697 48.654
6 1.1 67 4.864 55.466 1.1 67 4.864 55.466 1.390 5.791 54.445
7 1.01 4 4.224 59.690 1.014 4.224 59.690 1.259 5.245 59.690
8 .926 3.859 63.549
9 .911 3.795 67.344
10 .846 3.524 70.868
II .784 3.266 74. 134
12 .734 3.059 77.194
J3 .673 2.806 80.000
14 .654 2.726 82.726
15 .579 2.4 11 85.136
16 .556 2.317 87.453
17 .509 2. 11 9 89.573
18 .486 2.024 91.597
19 .439 1.831 93.428
20 .385 1.603 95.031
21 .372 1.551 96.582
22 .315 1.311 97.893
23 .278 1.157 99.05 1
24 .228 .949 100.000
Extraction Method: Principa l Component Analysis.
 Table C3' Rotated Component Matrix" for the whole respondents
,
Component
I 2 3 4 I 5 ~ 7 I
Low interest rate on loans ,787 .111 .099 . 15 1 .027 ,01 2 .056
Hi gh in terest rate on saving ,784 ,184 , 139 .1 61 ,029 ,072 -.146
Attractive interest rate within short ti me ,635 ,356 ,064 , 190 ,000 ,110 -.076
Phone banki ng faci Iities ,613 ,063 .202 -.039 ,2 11 -,295 .055
Internet banki ng fac ilities ,593 ,073 ,294 -.040 ,068 -.390 ,000
Low service charge ,56 1 ,034 .206 ,069 .2 13 ,1 64 ,110
Security arrangement .412 .013 .12 1 ,029 .340 .411 f--- 2 14
Good custom er services .093 .831 .027 ,084 .060 .024 -,018
Speedy! qui ck services ,185 ,745 ,006 ,001 -,03 1 ,041 ,073
Reception at th e bank ,221 .633 ,129 -.081 .1 04 -.2 14 ,372
My employer influence -.010 -.265 ,6 5 1 .345 -,1 38 -,029 -.089
Extended operation hours .30 1 .089 .643 ,000 .116 ,228 -.033
Availab ili ty ATM services .241 .147 .591 -,083 . 173 , -,042 ,080
Variety of services offered .295 .417 ,538 -,072 , 156 -. 11 7 . 153
Establ ish ment time (open before others) ,095 -,030 -,1 49 .695 . 137 -.290 I ,086
Bank ' s reputation -.006 ,318 ,063 .633 .320 .109 -, 14 1
Being a governm ent owned bank ,112 -.204 .332 ,585 -. 132 .18 1 -.033
External appearance of the bank .4 13 ,072 -.064 ,528 -,072 ,118 .269
Recommendation of fa mil y and! or ,207 ,092 .262 .360 .323 ,068 -.349
friends
I Adveltisement via mass-media ,123 ,018 ,I II
I
,698 ,003 -.066
.278
Several branches -.182 -.2 18 ,202 .135 ,546 -,029 .325
Availabi lity of parking place nearby .493 ,183 .056 -, I 09 .511 -.002 -,190
Proximity to home and/ or workplace .00 1 -,0 17 .052 -,001 4,329 ,792 ,107
E-5
Pleasant bank env ironment ,021 .243 .035 .053 .006 ,2 11 .778--1
..
Extract ion Method: Prmclpal Component AnalysIs .
Rotation Method: Varimax with Kaiser Normali zation .
n Rotation converged in 12 iterations .
Table C4' Reliability Test
Reliability Statistics
Cronbach's Alpha Cronbach's A lpha Based on N of Items
Standa rdi zed items

.833 .833 24
 9 .901 3.753 76.5 07
10 .849 3.536 80.042
II .746 3. 106 83.149
12 .680 2. 833 85.982
13 .590 2.45 8 88.440
14 .526 2.190 90 .630
15 .466 1.944 92.574
16 .406 1.69 1 94 .265
17 .347 1.44 7 95 .7 12
18 .277 1. 155 96.867
19 .239 .996 97.864
20 . 176 .732 98.595
21 . 11 1 .464 99 060
22 .096 .3 98 99 .45 8
23 .07 1 .297 99.755
24 .059 .245 100.000
Extractio n Method : Princ ipal Com ponent Ana lys Is.
Ta ble C7: Rotated Component Matrix(a) for male responden ts

Component
I 2 3 4 5 6 7
Phone banking facilities .737 . 138 -.027 .11 4 -.094 .007 . 131
Low interest rate on loans .685 . 168 -.02 1 .096 .092 .322 -. 180
In te rn et banking faci lities .681 . 14 1 -.0 19 .234 -. 170 -.1 45 .000
A vailabil ity of parki ng Facilit y .67 4 .089 .205 -.228 .0 12 .02 1 -.056
H igh interest rate on savings .649 .1 54 . 195 .144 .1 16 . 136 -.372
Low service charge .545 .1 6 1 . 116 .099 .278 .13 1 .080
Adverti sement via mass media .5 19 .092 .415 -. 180 .002 .158 .2 18
ATM serv ices .448 .244 -.00 8 .334 . 18 7 - .202 -.1 7 1
God customer se rvices .096 .835 .2 18 -.050 -.0 16 .015 -.035
Speed y services . 167 .771 .08 3 -.039 .055 .034 .005
Receptio n at the bank .259 .766 -.062 -.047 -.066 -.010 -.120
Vari ety or serv ices alTered .38 1 .56 1 .068 .383 .005 -.155 .0 16
Pleasant ban k en vironm en t -.047 .499 -.294 -. 165 .456 .306 .243
Bank's rep utation -.026 .2 48 .740 .054 .083 .223 -. 030
Recommendation of parents/ friends .332 -.068 .653 .283 .060 -.024 .007
M y employer used the same bank .022 -. 160 .083 .749 -.088 .216 . 122
Ex tended operation hours .30 8 .1 90 .2 16 .573 .3 19 -. 104 -.073
Proxim ity -.109 -.083 .022 .053 .784 .0 10 .063
Sec urity arran geme nt .404 .064 .186 .051 .547 .08 3 .044
Ex ternal appea rancc .250 .1 37 .073 .008 .208 .628 -.1 9 1
Being government owned -. 020 -. 189 .057 .496 .1 29 .609 .02 1
Estab li shed before others .0 17 -.027 .372 .003 - .343 .587 . 132
Several branches .04 9 .000 .080 .09 1 .1 62 -. 0 15 .794
Attracti ve in terest with in short timc .429 .266 .294 .032 .1 8 1 . 147 -.448
Extract10n Method: Prll1clpal Component AnalysIs.
Rotation Meth od: Varimax with Kaiser Normalization.
a Rotation converged in 18 iterations.
Table C8: Rotated Component Matrix(a) for female respondents
Componen t
I I 2 3 1 4 I 5 I 6 7 I 8
High interest rate on savings .855 .067 -.092 .080 .146 .092 .145 .208
Atlractive interest within shOrl time .828 -.008 .266 -.032 .1 04 .036 .1 14 .059
Low int erest rate on loans .793 .033 .086 .107 .096 .026 -.024 .368
Phone bak ing .649 .222 . 103 -.024 -.162 -.287 .142 -.105
Internet parking .630 -.033 .065 .078 . 180 -.584 .168 .075
Parkin g facili ty .602 .33 1 .063 .064 .173 -.073 -.553 -. 105
Good customer service .457 -.167 -.296 - .3 39 . 139 .422 .065 -.412
Several branches -.054 .800 -. 115 .065 . 117 .057 .09 1 .071
Advertisement .245 .676 .208 -.049 -. 145 -.006 -. 193 .020
Pleasant bank envi ron men t -.05 3 -. 057 .800 . 186 .002 .236 . 156 .045
Reception . 167 .072 .792 -.100 .184 -.238 -.003 -.009
Variety of services offered .408 . 128 .486 .252 . 132 -.134 -.258 .166
My employer used same bank .046 -.079 .046 .811 .05 1 - 091 .055 .130
ATM services .1 27 .4 16 . 148 .537 .2 15 -.184 .058 -.373
Extended operation hours .355 .356 . 136 .474 -.376 .096 -.207 .083
Speedy services .406 -.385 -.036 -.454 .1 66 .167 -.250 -.062
Recomm endation or parents .119 -.1 20 .192 -.002 .758 -.054 -.130 .023
Bank 's reputation .090 .444 .050 .11 1 .645 .1 04 .308 -010
Bein g governm ent owned bank .459 -.034 -.293 .44 1 .472 .028 .024 -.059
Establ ishment period .27 1 . 15 1 .053 -. 11 9 .42 1 -.264 .403 .376
Prox imity .005 .059 .034 -. 105 .002 .828 . 119 .0 17
External appearance .343 .049 . 129 .142 .073 .12 1 .807 -.085
Low se rvice charge Jl54 .0 14 .048 .208 .086 -.05 2 -.094 .733
Security arrangement . 187 .304 .3 89 -. 133 -. 13 3 .272 . 192 .424
-
tXlractlon Method : Prlllclpal Component Anal YSIS.
Rotation Met hod: Varimax with Kaiser Normalization .
a Rotation converged in 14 iterations .
 DECLARAnON

I hereby dec lare that this submission is my own work and that, to the best of my

knowledge and be li ef, it contains no materia l previous ly publi shed or written by

another person nor materia l whi ch has been accepted for the award of any other

degree or diploma of the university or other in stitute of hi gher learning, except

where due acknow ledgment has been made in the text.

Candi date's Name Signature Date

Advisor's Approval

This Thesis has been subm itted for examination with my approval as a University
advisor.